filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
Index to the 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, 2020 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, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 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, 2020, 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 matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Taxation - Provisions for unrecognized tax benefits
As described in Notes 2, 9, 10, and 16 to the consolidated financial statements, as of December 31, 2020, the Company has recorded an income tax provision benefit of $43 million, income tax receivables of $890 million, income tax payables of $67 million, and net deferred tax liabilities of $2,293 million related to which they have reported $339 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 the significant judgment by management when determining provisions for unrecognized tax benefits, 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 tax uncertainties. Also, the audit effort involved the use of professionals with specialized skill and knowledge.
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.
Impairment of Long-Lived Assets – Houston refinery
As described in Notes 2 and 7 to the consolidated financial statements, the Company’s property, plant and equipment, net balance was $14,386 million as of December 31, 2020, and the impairment charge relating to the Houston refinery’s asset group was $582 million. As disclosed by management, management identifies the need to test for impairment based on several indicators, including a significant reduction in prices of or demand for products produced, a weakened outlook for profitability, a significant reduction in margins, other changes to contracts or changes in the regulatory environment. If the sum of the undiscounted estimated pre-tax cash flows for an asset group is less than the asset group’s carrying value, fair value is calculated for the asset group, and the carrying value is written down to the calculated fair value. As disclosed in Note 7, in 2020 management concluded that due to prolonged reduction of travel and associated transportation fuels consumption resulting from the COVID-19 pandemic, a triggering event existed related to the Company’s Houston refinery’s asset group. As a result, management assessed the Houston refinery for impairment and recognized a non-cash impairment charge of $582 million. As disclosed by management, fair value is estimated using a discounted cash flow model. Management applied significant judgment in estimating the expected future cash flows for the Houston refinery’s asset group including the use of significant assumptions with respect to the margins on refined products and operating rates.
The principal considerations for our determination that performing procedures relating to the impairment of the long-lived assets in the Houston refinery’s asset group is a critical audit matter are the significant judgment by management when developing the fair value measurement of the asset group, which led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the margins on refined products and operating rates. Also, the audit effort involved the use of professionals with specialized skill and knowledge.
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 management’s long-lived asset impairment assessment, including controls over the valuation of the Houston refinery’s asset group. These procedures also included, among others; (i) testing management’s process for developing the fair value estimate of the Houston refinery’s asset group, (ii) evaluating the appropriateness of the undiscounted and discounted cash flow models; (iii) testing the completeness and accuracy of underlying data used in the models; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the margins on refined products and operating rates. Evaluating management’s assumptions related to the margins on refined products and operating rates involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the Houston refinery, the outlook of analysts with respect to projected spreads on refined products, and whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s undiscounted and discounted cash flow models and the terminal growth rate and discount rate assumptions.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 25, 2021
We have served as the Company’s auditor since 2008.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars, except earnings per share | 2020 | 2019 | 2018 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| Trade | $ | 26,995 | $ | 33,908 | $ | 38,126 | |||||||||||
| Related parties | 758 | 819 | 878 | ||||||||||||||
| 27,753 | 34,727 | 39,004 | |||||||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Cost of sales | 24,359 | 29,301 | 32,529 | ||||||||||||||
| Impairment of long-lived assets | 582 | — | — | ||||||||||||||
| Selling, general and administrative expenses | 1,140 | 1,199 | 1,129 | ||||||||||||||
| Research and development expenses | 113 | 111 | 115 | ||||||||||||||
| 26,194 | 30,611 | 33,773 | |||||||||||||||
| Operating income | 1,559 | 4,116 | 5,231 | ||||||||||||||
| Interest expense | (526) | (347) | (360) | ||||||||||||||
| Interest income | 12 | 19 | 45 | ||||||||||||||
| Other income, net | 85 | 39 | 106 | ||||||||||||||
| Income from continuing operations before equity investments and income taxes | 1,130 | 3,827 | 5,022 | ||||||||||||||
| Income from equity investments | 256 | 225 | 289 | ||||||||||||||
| Income from continuing operations before income taxes | 1,386 | 4,052 | 5,311 | ||||||||||||||
| (Benefit from) provision for income taxes | (43) | 648 | 613 | ||||||||||||||
| Income from continuing operations | 1,429 | 3,404 | 4,698 | ||||||||||||||
| Loss from discontinued operations, net of tax | (2) | (7) | (8) | ||||||||||||||
| Net income | 1,427 | 3,397 | 4,690 | ||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | (7) | (2) | ||||||||||||||
| Net income attributable to the Company shareholders | $ | 1,420 | $ | 3,390 | $ | 4,688 | |||||||||||
| Earnings per share: | |||||||||||||||||
| Net income (loss) attributable to the Company shareholders — | |||||||||||||||||
| Basic: | |||||||||||||||||
| Continuing operations | $ | 4.25 | $ | 9.61 | $ | 12.06 | |||||||||||
| Discontinued operations | (0.01) | (0.02) | (0.02) | ||||||||||||||
| $ | 4.24 | $ | 9.59 | $ | 12.04 | ||||||||||||
| Diluted: | |||||||||||||||||
| Continuing operations | $ | 4.25 | $ | 9.60 | $ | 12.03 | |||||||||||
| Discontinued operations | (0.01) | (0.02) | (0.02) | ||||||||||||||
| $ | 4.24 | $ | 9.58 | $ | 12.01 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Net income | $ | 1,427 | $ | 3,397 | $ | 4,690 | |||||||||||
| Other comprehensive income (loss), net of tax— | |||||||||||||||||
| Financial derivatives | (226) | (132) | 54 | ||||||||||||||
| Unrealized gains on available-for-sale debt securities | 1 | — | — | ||||||||||||||
| Defined benefit pension and other postretirement benefit plans | (41) | (269) | 30 | ||||||||||||||
| Foreign currency translations | 107 | (20) | (92) | ||||||||||||||
| Total other comprehensive loss, net of tax | (159) | (421) | (8) | ||||||||||||||
| Comprehensive income | 1,268 | 2,976 | 4,682 | ||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | (7) | (2) | ||||||||||||||
| Comprehensive income attributable to the Company shareholders | $ | 1,261 | $ | 2,969 | $ | 4,680 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||||
| Millions of dollars | 2020 | 2019 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,763 | $ | 858 | |||||||
| Restricted cash | 2 | 30 | |||||||||
| Short-term investments | 702 | 196 | |||||||||
| Accounts receivable: | |||||||||||
| Trade, net | 3,291 | 2,981 | |||||||||
| Related parties | 150 | 121 | |||||||||
| Inventories | 4,344 | 4,588 | |||||||||
| Prepaid expenses and other current assets | 1,382 | 736 | |||||||||
| Total current assets | 11,634 | 9,510 | |||||||||
| Operating lease assets | 1,492 | 1,468 | |||||||||
| Property, plant and equipment, net | 14,386 | 14,130 | |||||||||
| Equity investments | 4,729 | 2,106 | |||||||||
| Goodwill | 1,953 | 1,891 | |||||||||
| Intangible assets, net | 751 | 869 | |||||||||
| Other assets | 458 | 461 | |||||||||
| Total assets | $ | 35,403 | $ | 30,435 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||||
| Millions of dollars, except shares and par value data | 2020 | 2019 | |||||||||
| LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt | $ | 8 | $ | 3 | |||||||
| Short-term debt | 663 | 445 | |||||||||
| Accounts payable: | |||||||||||
| Trade | 2,398 | 2,516 | |||||||||
| Related parties | 550 | 412 | |||||||||
| Accrued liabilities | 1,883 | 1,822 | |||||||||
| Total current liabilities | 5,502 | 5,198 | |||||||||
| Long-term debt | 15,286 | 11,614 | |||||||||
| Operating lease liabilities | 1,222 | 1,216 | |||||||||
| Other liabilities | 2,957 | 2,213 | |||||||||
| Deferred income taxes | 2,332 | 2,015 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable non-controlling interests | 116 | 116 | |||||||||
| Shareholders’ equity: | |||||||||||
| Ordinary shares, €0.04 par value, 1,275 million shares authorized, 334,015,220 and 333,476,883 shares outstanding, respectively | 19 | 19 | |||||||||
| Additional paid-in capital | 5,986 | 5,954 | |||||||||
| Retained earnings | 4,440 | 4,435 | |||||||||
| Accumulated other comprehensive loss | (1,943) | (1,784) | |||||||||
| Treasury stock, at cost, 6,030,408 and 6,568,745 ordinary shares, respectively | (531) | (580) | |||||||||
| Total Company share of shareholders’ equity | 7,971 | 8,044 | |||||||||
| Non-controlling interests | 17 | 19 | |||||||||
| Total equity | 7,988 | 8,063 | |||||||||
| Total liabilities, redeemable non-controlling interests and equity | $ | 35,403 | $ | 30,435 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 1,427 | $ | 3,397 | $ | 4,690 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 1,385 | 1,312 | 1,241 | ||||||||||||||
| Impairment of long-lived assets | 582 | — | — | ||||||||||||||
| Amortization of debt-related costs | 21 | 11 | 14 | ||||||||||||||
| Share-based compensation | 55 | 48 | 39 | ||||||||||||||
| Inventory valuation charges | 16 | 33 | — | ||||||||||||||
| Equity investments— | |||||||||||||||||
| Equity income | (256) | (225) | (289) | ||||||||||||||
| Distributions of earnings, net of tax | 159 | 247 | 307 | ||||||||||||||
| Deferred income taxes | 331 | 209 | 260 | ||||||||||||||
| Loss (gain) on sales of business and equity investments | 3 | (5) | (36) | ||||||||||||||
| Changes in assets and liabilities that provided (used) cash: | |||||||||||||||||
| Accounts receivable | (246) | 367 | 433 | ||||||||||||||
| Inventories | 340 | (129) | (141) | ||||||||||||||
| Accounts payable | 217 | (251) | (199) | ||||||||||||||
| Other, net | (630) | (53) | (848) | ||||||||||||||
| Net cash provided by operating activities | 3,404 | 4,961 | 5,471 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Expenditures for property, plant and equipment | (1,947) | (2,694) | (2,105) | ||||||||||||||
| Acquisition of A. Schulman, net of cash acquired | — | — | (1,776) | ||||||||||||||
| Proceeds from repurchase agreements | — | 527 | — | ||||||||||||||
| Purchases of available-for-sale debt securities | (270) | (108) | (50) | ||||||||||||||
| Proceeds from sales and maturities of available-for-sale debt securities | 114 | 511 | 423 | ||||||||||||||
| Purchases of equity securities | (608) | (33) | (64) | ||||||||||||||
| Proceeds from sales of equity securities | 313 | 332 | 97 | ||||||||||||||
| Net proceeds from sales of business and equity investments | 15 | 5 | 37 | ||||||||||||||
| Acquisition of equity method investment | (2,440) | — | (17) | ||||||||||||||
| Proceeds from settlement of net investment hedges | — | — | 1,108 | ||||||||||||||
| Payments for settlement of net investment hedges | — | — | (1,078) | ||||||||||||||
| Other, net | (83) | (175) | (134) | ||||||||||||||
| Net cash used in investing activities | (4,906) | (1,635) | (3,559) |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Repurchases of Company ordinary shares | (4) | (3,752) | (1,854) | ||||||||||||||
| Dividends paid - common stock | (1,405) | (1,462) | (1,554) | ||||||||||||||
| Purchase of non-controlling interest | (30) | (63) | — | ||||||||||||||
| Issuance of long-term debt | 6,378 | 5,031 | — | ||||||||||||||
| Repayments of long-term debt | (2,880) | (2,974) | (394) | ||||||||||||||
| Debt extinguishment costs | (77) | — | — | ||||||||||||||
| Payments of debt issuance costs | (63) | (22) | — | ||||||||||||||
| Issuance of short-term debt | 521 | 2,500 | — | ||||||||||||||
| Repayments of short-term debt | (506) | (1,526) | — | ||||||||||||||
| Net proceeds from (repayments of) commercial paper | 239 | (549) | 810 | ||||||||||||||
| Payments on forward starting interest rate swaps that include financing elements | (238) | — | — | ||||||||||||||
| Proceeds from settlement of cash flow hedges | 346 | — | — | ||||||||||||||
| Proceeds from settlement of foreign currency contract | 887 | — | — | ||||||||||||||
| Payments for settlement of foreign currency contract | (882) | — | — | ||||||||||||||
| Other, net | (15) | (18) | (16) | ||||||||||||||
| Net cash provided by (used in) financing activities | 2,271 | (2,835) | (3,008) | ||||||||||||||
| Effect of exchange rate changes on cash | 108 | (4) | (31) | ||||||||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | 877 | 487 | (1,127) | ||||||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 888 | 401 | 1,528 | ||||||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 1,765 | $ | 888 | $ | 401 | |||||||||||
| Supplemental Cash Flow Information: | |||||||||||||||||
| Interest paid, net of capitalized interest | $ | 498 | $ | 318 | $ | 333 | |||||||||||
| Net income taxes paid | $ | 176 | $ | 403 | $ | 1,209 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Ordinary Shares | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Company Share of Shareholders’ Equity | Non- Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | Issued | Treasury | |||||||||||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,427 | — | 1,427 | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (159) | (159) | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 53 | 25 | (10) | — | 68 | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - common stock ($4.20 per share) | — | — | — | (1,405) | — | (1,405) | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - redeemable non-controlling interests ($60.00 per share) | — | — | — | (7) | — | (7) | — | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of Company ordinary shares | — | (4) | — | — | — | (4) | — | ||||||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interests | — | — | 7 | — | — | 7 | — | ||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | (2) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 19 | (531) | 5,986 | 4,440 | (1,943) | 7,971 | 17 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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 assets 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 the carrying amount of our investment including advances made by us, 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.
Investments in PO Joint Ventures and the Louisiana Joint Venture—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 in Series A partnership units 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 2020 and 2019. Our ownership interest in Series A and Series B partnership units conveys us an undivided interest in certain U.S. PO Joint Venture assets with correlative PO and co-product capacity, respectively, resulting in the ownership of annual in-kind cost-based PO and co-product production.
In addition, each partner has 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 resulting in ownership of annual in-kind cost-based PO and SM production.
We 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 off-take.
During the fourth quarter of 2020, we executed joint venture agreement with Sasol Chemicals (USA) LLC (“Sasol”) to form the Louisiana Integrated PolyEthylene JV LLC joint venture (the “Louisiana Joint Venture”). Under this arrangement, we acquired a 50% ownership interest in an ethane cracker, a low-density and linear-low density polyethylene plants, and associated infrastructure. Under the terms of the joint venture agreement, each partner provides their pro-rata share of ethane feedstocks and off-takes their pro-rata shares of cracker and polyethylene products. We operate the Louisiana Joint Venture assets and market all the polyethylene off-take through our global sales team.
We account for the PO Joint Ventures and the Louisiana Joint Venture using the equity method. We report the cost of our product off-take as inventory and the 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our equity investment in the PO Joint Ventures and the Louisiana Joint Venture represents our share of the manufacturing plants and is decreased by recognition of our share of equity loss, which is equal to the depreciation of the assets of these joint ventures. Other changes in the investment balance are principally due to our additional capital contributions to these 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 off-take of PO and its co-products from the PO Joint Ventures was 2,569 thousand tons in 2020, 2,431 thousand tons in 2019 and 2,623 thousand tons in 2018. Our product off-take of ethylene and polyethylene produced from the Louisiana Joint Venture in December 2020, the period subsequent to the formation of the joint venture, was representative of our proportionate share of production and not material for the year ended December 31, 2020.
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 on 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, to reflect new information obtained about facts and circumstances that existed at the acquisition date. Thereafter, 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.
For 2020 and 2019, 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. Based on this assessment, our historical assessment for impairment and forecasted demand for our products, a quantitative goodwill impairment test was not required and no goodwill impairment was recognized.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 certain post-remediation monitoring costs, the timing of which can be determined with reasonable certainty, are discounted to present value.
*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”) as follows:
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Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
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Income and expenses for each income statement are translated at monthly average exchange rates; and
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All resulting exchange differences are recognized as a separate component within Other comprehensive income (foreign currency translation adjustments).
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 earnings.
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.
We have marketing arrangements to off-take and sell the production of some of our joint ventures in return for a percentage of the price realized on the sales to the end customer. In such arrangements, when we obtain control of the product, revenue and cost of sales are presented on a gross basis. Otherwise, we recognize revenue, net of amounts due to the joint venture, which represents commissions earned.
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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 15 to the Consolidated Financial Statements for additional information.
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. 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 derived from usage or market-based indices, such as the consumer price index. Variable lease payments may fluctuate for a variety of reasons including usage, output, insurance or taxes. These variable amounts are expensed as incurred and not included in the lease assets or lease liabilities. 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. 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. Cash flows related to economic hedges are classified consistent with the cash flows of the economic hedged items.
*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 contracts and forward exchange contracts.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 cross-currency 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, options 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.
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, options 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 and options 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 inputs are quoted prices for identical instruments in active markets. Level 2 inputs are 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 inputs are 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 13 to the Consolidated Financial Statements:
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 such as known notional value amounts, yield curves, basis curves, as applicable, and with the foreign currency leg revalued using published spot and forward 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We use the following inputs and valuation techniques to estimate the fair value of our pension assets disclosed in Note 14 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.
*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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*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.
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.
Events surrounding the COVID-19 pandemic continue to evolve and negatively impact global markets and demand for our products. We continue to assess the potential financial statement impacts of COVID-19 and commodity price volatility throughout the duration of the pandemic. The extent of the impact of the pandemic on our operational and financial performance will depend on future developments which are uncertain and cannot be predicted. An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and financial condition.
Recently Adopted Guidance
*Reference Rate Reform—*In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Relief of Reference Rate Reform on Financial Reporting. In addition, in January 2021, FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) which clarifies the scope of Topic 848. This guidance provides optional expedients and exceptions in accounting for contract modifications, hedging relationships and other transactions that reference London Inter-Bank Offered Rate (“LIBOR”), or another reference rate, expected to be discontinued as a result of reference rate reform, if certain criteria are met. The expedients and exceptions provided by this guidance are available from January 1, 2020, prospectively, and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that the entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.
The adoption of this guidance prospectively from January 1, 2020 did not have a material impact on our Consolidated Financial Statements and will enable us to update our assessments of effectiveness, probability, and hedged risk in order to continue hedge accounting for the designated hedges that reference a rate expected to be discontinued as a result of the reference rate reform without requiring de-designation of current hedging relationships. The Company will continue to evaluate the guidance to determine the timing and extent to which we will apply other accounting relief provided by the guidance.
*Codification Improvements—*In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This guidance makes various narrow-scope changes that are intended to improve the guidance on fair value option measurement and disclosures, applicability of portfolio exception to non-financial items, evolving-debt arrangements and allowance for credit losses related to leases. Effective dates vary with certain amendments being effective upon issuance of the guidance or from January 1, 2020 on a modified-retrospective basis by means of a cumulative-effect adjustment to opening retained earnings.
The adoption of this guidance did 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 ASU No. 2019-12, Income Taxes (Topic 740). 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 intra-period 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. Depending on the amendment, the guidance may be adopted on a retrospective, modified retrospective or prospective basis. Early adoption is permitted.
The early adoption of this guidance from January 1, 2020 did not have a material impact on our Consolidated Financial Statements.
*Intangibles—*In August 2018, the FASB issued ASU 2018-15, 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 prospectively from January 1, 2020 did not have a material impact on our Consolidated Financial Statements.
*Compensation—*In August 2018, the FASB issued ASU 2018-14, 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 and adds more pertinent disclosures.
The adoption of guidance as of December 31, 2020 on a retrospective basis did not have a material impact on our Consolidated Financial Statements.
*Fair Value Measurement—*In August 2018, the FASB issued ASU 2018-13, 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 disclosure of transfers 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. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively.
The adoption of this guidance from January 1, 2020 did not have a material impact on our Consolidated Financial Statements.
Accounting Guidance Issued But Not Adopted as of December 31, 2020
*Codification Improvements—*In October 2020, the FASB issued ASU 2020-08, Codification Improvements to (Subtopic 310-20): Receivables—Nonrefundable Fees and Other Costs. This guidance requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium should be amortized to the next call date.
The guidance is effective for annual and interim periods starting after December 15, 2020 and early adoption is not permitted. The adoption of the new guidance will not have a material impact on our Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*Debt—*In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This guidance simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity’s own equity. The standard also amends the accounting for convertible instruments in the diluted earnings per share calculation and requires enhanced disclosures of convertible instruments and contracts in an entity’s own equity. The guidance is effective for fiscal years beginning after December 15, 2021 and may be applied on a modified or fully retrospective basis.
The new guidance is not expected to have a material impact on our Consolidated Financial Statements.
In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762 which amends and supersedes SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10762 related to financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities. The guidance is effective for annual and interim periods ending after January 4, 2021.
We are currently assessing the impact of this guidance on our Consolidated Financial Statements.
3. Revenues
*Contract Balances—*Contract liabilities were $194 million and $124 million at December 31, 2020 and 2019, 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.
Revenues disaggregated by key products are summarized below:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| Olefins & co-products | $ | 2,432 | $ | 2,957 | $ | 3,679 | |||||||||||
| Polyethylene | 5,842 | 6,070 | 7,439 | ||||||||||||||
| Polypropylene | 4,525 | 5,010 | 5,703 | ||||||||||||||
| Propylene oxide and derivatives | 1,714 | 1,924 | 2,378 | ||||||||||||||
| Oxyfuels and related products | 2,278 | 3,116 | 3,399 | ||||||||||||||
| Intermediate chemicals | 2,080 | 2,516 | 3,568 | ||||||||||||||
| Compounding and solutions | 3,223 | 4,096 | 3,091 | ||||||||||||||
| Advanced polymers | 680 | 750 | 930 | ||||||||||||||
| Refined products | 4,346 | 7,599 | 8,221 | ||||||||||||||
| Other | 633 | 689 | 596 | ||||||||||||||
| Total | $ | 27,753 | $ | 34,727 | $ | 39,004 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents our revenues disaggregated by geography, based upon the location of the customer:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| United States | $ | 12,113 | $ | 16,349 | $ | 18,671 | |||||||||||
| Germany | 2,113 | 2,708 | 2,949 | ||||||||||||||
| China | 1,474 | 1,225 | 1,137 | ||||||||||||||
| Mexico | 1,197 | 1,634 | 2,308 | ||||||||||||||
| Italy | 1,175 | 1,435 | 1,582 | ||||||||||||||
| Poland | 926 | 960 | 984 | ||||||||||||||
| Japan | 876 | 1,039 | 1,257 | ||||||||||||||
| France | 875 | 1,345 | 1,460 | ||||||||||||||
| The Netherlands | 785 | 929 | 1,050 | ||||||||||||||
| Other | 6,219 | 7,103 | 7,606 | ||||||||||||||
| Total | $ | 27,753 | $ | 34,727 | $ | 39,004 |
Transaction Price Allocated to the Remaining Performance Obligations—We have elected to exclude contracts which have an initial term of one year or less from this disclosure. Our contracts with customers are commodity supply arrangements that settle based on market prices at future delivery dates; therefore, transaction prices are entirely variable. Transaction prices are known at the time revenue is recognized since they are generally determined by the commodity price index at a specific date, at month-end or at the month average once products are shipped to our customers. Future estimates of transaction prices for disclosure purposes are substantially constrained as they are highly susceptible to factors outside our influence, including volatility in commodity markets, industry production capacities and operating rates, planned and unplanned industry operating interruptions, foreign exchange rates and worldwide geopolitical trends.
4. Related Party Transactions
We have related party transactions with our joint venture partners, which are classified as equity investees (see Note 8 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, 2020.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Related party transactions are summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| The Company billed related parties for: | |||||||||||||||||
| Sales of products— | |||||||||||||||||
| Joint venture partners | $ | 758 | $ | 819 | $ | 878 | |||||||||||
| Shared service agreements— | |||||||||||||||||
| Joint venture partners | 6 | 8 | 9 | ||||||||||||||
| Related parties billed the Company for: | |||||||||||||||||
| Sales of products— | |||||||||||||||||
| Joint venture partners | $ | 2,682 | $ | 2,830 | $ | 2,999 | |||||||||||
| Shared service agreements— | |||||||||||||||||
| Joint venture partners | 75 | 71 | 70 |
5. 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 $15 million and $16 million as of December 31, 2020 and 2019, respectively. We recorded provisions for credit losses for receivables, which are reflected in the Consolidated Statements of Income, of $2 million in 2020 and less than $1 million in 2019 and 2018.
6. Inventories
Inventories consisted of the following components at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Finished goods | $ | 2,816 | $ | 3,083 | |||||||
| Work-in-process | 144 | 130 | |||||||||
| Raw materials and supplies | 1,384 | 1,375 | |||||||||
| Total inventories | $ | 4,344 | $ | 4,588 |
At December 31, 2020 and 2019, approximately 81% and 85%, respectively, 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, 2020 and 2019, 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 $601 million and $670 million at December 31, 2020 and 2019, respectively. We recognized LIFO inventory charges of $103 million and $115 million in 2020 and 2018, respectively, and a LIFO inventory benefit of $63 million in 2019. The amounts for 2020 and 2019 include an increase in Cost of sales of $95 million and a decrease in Cost of sales of $3 million, respectively, related to the liquidation of LIFO inventory layers.
During 2020, we recognized an LCM inventory valuation charge of $16 million related to the decline in pricing for our raw material and finished goods inventories. We recognized an LCM inventory valuation charge of $33 million during 2019 primarily related to a decline in domestic polyethylene prices.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7. 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) | 2020 | 2019 | ||||||||||||||||||||
| Land | $ | 376 | $ | 359 | |||||||||||||||||||
| Major manufacturing equipment | 25 | 11,698 | 11,572 | ||||||||||||||||||||
| Buildings | 30 | 1,241 | 1,090 | ||||||||||||||||||||
| Light equipment and instrumentation | 5 | - | 20 | 3,279 | 2,968 | ||||||||||||||||||
| Office furniture | 15 | 24 | 26 | ||||||||||||||||||||
| Major turnarounds | 4 | - | 7 | 1,697 | 1,866 | ||||||||||||||||||
| Information system equipment | 3 | - | 5 | 66 | 69 | ||||||||||||||||||
| Construction in progress | 3,103 | 3,310 | |||||||||||||||||||||
| Total property, plant and equipment | 21,484 | 21,260 | |||||||||||||||||||||
| Less accumulated depreciation | (7,098) | (7,130) | |||||||||||||||||||||
| Property, plant and equipment, net | $ | 14,386 | $ | 14,130 |
*Capitalized Interest—*We capitalize interest costs incurred on funds used to construct property, plant and equipment. In 2020, 2019 and 2018, we capitalized interest of $40 million, $87 million and $45 million, respectively.
Intangible Assets—The components of identifiable intangible assets, at cost, and the related accumulated amortization are as follows at December 31:
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||
| Millions of dollars | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Emission allowances | $ | 846 | $ | (611) | $ | 235 | $ | 874 | $ | (593) | $ | 281 | ||||||||||||||||||||||||||
| Various contracts | 456 | (351) | 105 | 506 | (359) | 147 | ||||||||||||||||||||||||||||||||
| Customer relationships | 308 | (51) | 257 | 299 | (32) | 267 | ||||||||||||||||||||||||||||||||
| In-process research and development costs | 117 | (96) | 21 | 109 | (82) | 27 | ||||||||||||||||||||||||||||||||
| Trade name and trademarks | 108 | (88) | 20 | 102 | (37) | 65 | ||||||||||||||||||||||||||||||||
| Know-how | 86 | (27) | 59 | 84 | (15) | 69 | ||||||||||||||||||||||||||||||||
| Software costs | 122 | (68) | 54 | 74 | (61) | 13 | ||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 2,043 | $ | (1,292) | $ | 751 | $ | 2,048 | $ | (1,179) | $ | 869 |
Amortization of these identifiable intangible assets for the next five years is expected to be $90 million in 2021, $85 million in 2022, $79 million in 2023, $69 million in 2024 and $68 million in 2025.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impairment of Long-Lived Assets—During the third quarter of 2020, we identified impairment triggers relating to our Houston refinery’s asset group as a result of significant negative impacts to the Refining segment forecasted cash flows. Expected prolonged reduction of travel and associated transportation fuels consumption resulting from the COVID-19 pandemic which created an oversupply in global fuel markets that will pressure refining profitability for an extended period of time. In addition, the refinery is expected to continue to be adversely affected by lower discounts for the heavy crude oil feedstocks that we utilize. Due to these trends, we assessed the Houston refinery for impairment and determined that the asset group carrying value exceeded its undiscounted estimated pre-tax cash flows. As of September 30, 2020, we estimated the fair value of the Houston refinery’s property, plant and equipment to be $550 million, and fair value of intangible assets to be $10 million, which was less than the carrying value. As a result, we recognized a non-cash impairment charge in the third quarter of 2020 of $582 million, which includes a $570 million impairment of property, plant and equipment and a $12 million impairment of intangible assets. The fair value measurement for the asset group is a Level 3.
Depreciation and Amortization Expense—Depreciation and amortization expense is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Property, plant and equipment | $ | 1,143 | $ | 1,092 | $ | 1,075 | |||||||||||
| Investments in PO Joint Ventures and Louisiana Joint Venture | 72 | 49 | 41 | ||||||||||||||
| Emission allowances | 58 | 63 | 63 | ||||||||||||||
| Various contracts | 20 | 32 | 31 | ||||||||||||||
| Customer relationships | 20 | 24 | 8 | ||||||||||||||
| In-process research and development costs | 8 | 8 | 7 | ||||||||||||||
| Trade name and trademarks | 45 | 30 | 7 | ||||||||||||||
| Know-how | 11 | 12 | 4 | ||||||||||||||
| Software costs | 8 | 2 | 5 | ||||||||||||||
| Total depreciation and amortization | $ | 1,385 | $ | 1,312 | $ | 1,241 |
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 | 2020 | 2019 | |||||||||
| Beginning balance | $ | 65 | $ | 58 | |||||||
| Payments | (6) | — | |||||||||
| Changes in estimates | (2) | 7 | |||||||||
| Accretion expense | 2 | 1 | |||||||||
| Effects of exchange rate changes | 5 | (1) | |||||||||
| Ending balance | $ | 64 | $ | 65 |
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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Discontinued Operations—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.
Goodwill—The changes in the carrying amount of goodwill in each of the Company’s reportable segments for the years ended December 31, 2020 and 2019 were as follows:
| Millions of dollars | O&P – Americas | O&P – EAI | I&D | APS | Technology | Total | |||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | 30 | 31 | (1) | 2 | 62 | |||||||||||||||||||||||||||||
| December 31, 2020 | $ | 162 | $ | 142 | $ | 259 | $ | 1,379 | $ | 11 | $ | 1,953 |
The measurement period adjustments were related to the August 2018 acquisition of A. Schulman Inc (“A. Schulman”).
8. Equity Investments
Our principal direct and indirect equity investments are as follows at December 31:
| Percent of Ownership | 2020 | 2019 | |||||||||
| PO Joint Ventures— | |||||||||||
| European PO Joint Venture | 50.00 | % | 50.00 | % | |||||||
| U.S. PO Joint Venture - Series A | 23.71 | % | 23.71 | % | |||||||
| U.S. PO Joint Venture - Series B | 100.00 | % | 100.00 | % | |||||||
| Louisiana Joint Venture | 50.00 | % | — | % | |||||||
| Bora LyondellBasell Petrochemical Co. Ltd. | 50.00 | % | — | % | |||||||
| 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 | % | |||||||
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The changes in our equity investments are as follows at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Beginning balance | $ | 2,106 | $ | 2,080 | |||||||
| Capital contributions | 96 | 86 | |||||||||
| Income from equity investments | 256 | 225 | |||||||||
| Acquisition of equity investments | 2,438 | — | |||||||||
| Distribution of earnings, net of tax | (159) | (247) | |||||||||
| Depreciation of PO Joint Ventures and Louisiana Joint Venture | (72) | (49) | |||||||||
| Currency exchange effects | 62 | 11 | |||||||||
| Other | 2 | — | |||||||||
| Ending balance | $ | 4,729 | $ | 2,106 |
Capital contributions in 2020 and 2019 include $83 million and $86 million, respectively, related to our PO Joint Ventures.
During the third quarter of 2020, we executed a joint venture agreement with the Liaoning Bora Enterprise Group (“Bora”) to form the Bora LyondellBasell Petrochemical Co. Ltd (“BLYB”) joint venture. We contributed $472 million for a 50% equity interest in the joint venture. This joint venture is included in our Olefins and Polyolefins–Europe, Asia, International segment. Production began at the BLYB complex during the third quarter of 2020.
BLYB’s manufacturing facility located in Panjin, China includes a 1.1 million tons per annum flexible naphtha / liquefied petroleum gas cracker and associated polyethylene production capacity of 0.8 million tons per annum and 0.6 million tons per annum of polypropylene. The materials produced at the facility serve various industries in China, including packaging, transportation, building and construction, healthcare and hygiene. The complex utilizes LyondellBasell’s Spheripol and Spherizone polypropylene technologies along with the company’s Hostalen ACP polyethylene technology. We market all the polypropylene and high-density polyethylene produced.
In December 2020 we executed a joint venture agreement with Sasol to form the Louisiana Joint Venture, acquiring a 50% equity interest of the 1.5 million ton ethane cracker, 0.9 million ton low and linear-low density polyethylene plants and associated infrastructure located in Lake Charles, Louisiana, for total consideration of $2 billion. This joint venture is included within our Olefins and Polyolefins–Americas segment. Under the terms of the arrangement, each joint venture partner will provide pro-rata shares of ethane feedstocks and will off-take pro-rata shares of cracker and polyethylene products. We operate the Louisiana Joint Venture assets and market all the polyethylene off-take through our global sales team.
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 | 2020 | 2019 | |||||||||
| Current assets | $ | 4,396 | $ | 2,716 | |||||||
| Noncurrent assets | 11,613 | 5,167 | |||||||||
| Total assets | 16,009 | 7,883 | |||||||||
| Current liabilities | 3,081 | 1,764 | |||||||||
| Noncurrent liabilities | 2,562 | 1,067 | |||||||||
| Net assets | $ | 10,366 | $ | 5,052 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 | 2020 | 2019 | 2018 | ||||||||||||||
| Revenues | $ | 9,172 | $ | 9,222 | $ | 10,977 | |||||||||||
| Cost of sales | (7,799) | (7,921) | (9,394) | ||||||||||||||
| Gross profit | 1,373 | 1,301 | 1,583 | ||||||||||||||
| Net operating expenses | (404) | (367) | (420) | ||||||||||||||
| Operating income | 969 | 934 | 1,163 | ||||||||||||||
| Interest income | 1 | 5 | 6 | ||||||||||||||
| Interest expense | (70) | (64) | (70) | ||||||||||||||
| Foreign currency translation | 5 | 4 | 1 | ||||||||||||||
| Other income (expense), net | 2 | (24) | 24 | ||||||||||||||
| Income before income taxes | 907 | 855 | 1,124 | ||||||||||||||
| Provision for income taxes | (183) | (194) | (260) | ||||||||||||||
| Net income | $ | 724 | $ | 661 | $ | 864 |
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 included in Income from equity investments in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018, was $5 million, $4 million and $5 million, respectively.
On January 25, 2021 we signed an agreement with China Petroleum & Chemical Corporation to form Ningbo ZRCC LyondellBasell New Material Company Limited, a 50/50 joint venture. The joint venture will construct a new PO and SM unit in Zhenhai Ningbo, China. The unit will use LyondellBasell's leading PO/SM technology and will have the capacity to produce 275 thousand tons of PO and 600 thousand tons of SM per year. Products produced by the joint venture will be marketed equally by both partners, expanding our respective participation in the Chinese market. The formation of the joint venture is subject to approvals by relevant government authorities, including anti-trust review by the State Administration for Market Regulation. We expect to make an equity contribution of approximately $100 million to the joint venture during the first half of 2021 and startup is expected at the end of 2021. The joint venture will be included within our Intermediates & Derivatives segment.
9. 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 | 2020 | 2019 | |||||||||
| Income tax receivable | 890 | 175 | |||||||||
| VAT receivables | 158 | 178 | |||||||||
| Renewable identification numbers | 63 | 39 | |||||||||
| Advances to suppliers | 61 | 54 | |||||||||
| Financial derivatives | 41 | 54 | |||||||||
| Prepaid insurance | 28 | 26 | |||||||||
| Other | 141 | 210 | |||||||||
| Total prepaid expenses and other current assets | $ | 1,382 | $ | 736 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For additional information regarding Income tax receivables, see Note 16 to our Consolidated Financial Statements.
The components of Other assets were as follows at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Derivative contracts | $ | 244 | $ | 255 | |||||||
| Company-owned life insurance | 61 | 61 | |||||||||
| Deferred tax assets | 39 | 38 | |||||||||
| Pension assets | 23 | 22 | |||||||||
| Debt issuance costs | 10 | 11 | |||||||||
| Other | 81 | 74 | |||||||||
| Total other assets | $ | 458 | $ | 461 |
10. Accrued Liabilities
Accrued liabilities consisted of the following components at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Payroll and benefits | $ | 370 | $ | 385 | |||||||
| Operating lease liabilities | 310 | 273 | |||||||||
| Taxes other than income taxes | 232 | 202 | |||||||||
| Interest | 169 | 161 | |||||||||
| Financial derivatives | 139 | 183 | |||||||||
| Product sales rebates | 149 | 142 | |||||||||
| Contract liabilities | 157 | 103 | |||||||||
| Renewable identification numbers | 95 | 46 | |||||||||
| Income taxes | 67 | 66 | |||||||||
| Other | 195 | 261 | |||||||||
| Total accrued liabilities | $ | 1,883 | $ | 1,822 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. Debt
Long-term loans, notes and other debt net of unamortized discount and debt issuance cost consisted of the following at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Senior Notes due 2021, $1,000 million, 6.0% | $ | — | $ | 998 | |||||||
| Senior Notes due 2024, $1,000 million, 5.75% ($4 million of debt issuance cost) | 996 | 995 | |||||||||
| Senior Notes due 2055, $1,000 million, 4.625% ($15 million of discount; $11 million of debt issuance cost) | 974 | 973 | |||||||||
| Term Loan due 2022, $4,000 million ($2 million of debt issuance costs) | 1,448 | 1,950 | |||||||||
| Guaranteed Notes due 2022, €750 million, 1.875% | — | 841 | |||||||||
| Guaranteed Notes due 2023, $750 million, 4.0% ($3 million of discount; $2 million of debt issuance cost) | 745 | 744 | |||||||||
| Guaranteed Floating Rate Notes due 2023, $650 million ($4 million of debt issuance cost) | 646 | — | |||||||||
| Guaranteed Notes due 2025, $500 million, 2.875% ($4 million of debt issuance cost) | 496 | — | |||||||||
| Guaranteed Notes due 2025, $500 million, 1.25% ($1 million of discount; $4 million of debt issuance cost) | 495 | — | |||||||||
| Guaranteed Notes due 2026, €500 million, 0.875% ($2 million of discount; $3 million of debt issuance cost) | 608 | 555 | |||||||||
| Guaranteed Notes due 2027, $1,000 million 3.5% ($7 million of discount; $5 million of debt issuance cost) | 1,090 | 1,023 | |||||||||
| Guaranteed Notes due 2027, $300 million, 8.1% | 300 | 300 | |||||||||
| Guaranteed Notes due 2030, $500 million, 3.375% ($1 million of discount; $4 million of debt issuance cost) | 495 | — | |||||||||
| Guaranteed Notes due 2030, $500 million, 2.25% ($4 million of discount; $4 million of debt issuance cost) | 492 | — | |||||||||
| Guaranteed Notes due 2031, €500 million, 1.625% ($5 million of discount; $4 million of debt issuance cost) | 602 | 552 | |||||||||
| Guaranteed Notes due 2040, $750 million, 3.375% ($2 million of discount; $8 million of debt issuance cost) | 740 | — | |||||||||
| Guaranteed Notes due 2043, $750 million, 5.25% ($20 million of discount; $7 million of debt issuance cost) | 723 | 723 | |||||||||
| Guaranteed Notes due 2044, $1,000 million, 4.875% ($10 million of discount; $9 million of debt issuance cost) | 981 | 980 | |||||||||
| Guaranteed Notes due 2049, $1,000 million, 4.2% ($15 million of discount; $10 million of debt issuance cost) | 975 | 975 | |||||||||
| Guaranteed Notes due 2050, $1,000 million, 4.2% ($6 million of discount; $10 million of debt issuance cost) | 984 | — | |||||||||
| Guaranteed Notes due 2051, $1,000 million, 3.625% ($3 million of discount; $11 million of debt issuance cost) | 986 | — | |||||||||
| Guaranteed Notes due 2060, $500 million, 3.8% ($4 million of discount; $6 million of debt issuance cost) | 490 | — | |||||||||
| Other | 28 | 8 | |||||||||
| Total | 15,294 | 11,617 | |||||||||
| Less current maturities | (8 | ) | (3 | ) | |||||||
| Long-term debt | $ | 15,286 | $ | 11,614 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, | ||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||
| Senior Notes due 2019, 5.0% | 2014 | $ | — | $ | (11) | $ | — | $ | — | ||||||||||||||||||||
| Senior Notes due 2021, 6.0% | 2016 | 1 | (21) | — | (1) | ||||||||||||||||||||||||
| Guaranteed Notes due 2027, 3.5% | 2017 | (65) | (58) | (102) | (37) | ||||||||||||||||||||||||
| Guaranteed Notes due 2022, 1.875% | 2018 | 2 | (1) | — | (2) | ||||||||||||||||||||||||
| Guaranteed Notes due 2026, 0.875% | 2020 | (2) | — | (2) | — | ||||||||||||||||||||||||
| Total | $ | (64) | $ | (91) | $ | (104) | $ | (40) |
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 at December 31:
| Millions of dollars | 2020 | 2019 | |||||||||
| Commercial paper | $ | 500 | $ | 262 | |||||||
| Precious metal financings | 140 | 181 | |||||||||
| Other | 23 | 2 | |||||||||
| Total Short-term debt | $ | 663 | $ | 445 |
Aggregate maturities of debt during the next five years are $671 million in 2021, $1,456 million in 2022, $1,405 million in 2023, $1,005 million in 2024, $1,004 million in 2025 and $10,522 million thereafter.
Long-Term Debt
*Senior Revolving Credit Facility—*Our $2,500 million Senior Revolving Credit Facility which may be used for dollar and euro denominated borrowings, has a $500 million sub-limit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. 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. The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. See Credit Agreements section below for additional details regarding our leverage ratio covenant. At December 31, 2020, we had no borrowings or letters of credit outstanding and $2,020 million of unused availability under this facility.
In October 2020, we amended our Senior Revolving Credit Facility to extend the term of $2,440 million of the $2,500 million for one year until June 2023, the remainder expires in June 2022. The amendment also included LIBOR replacement language. All other material terms of the Credit Agreement remain unchanged.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*Term Loan due 2022—*In March 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell Industries N.V., entered into a $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022. In 2019, we borrowed $2,950 million under this facility to partially fund the share repurchase price paid pursuant to a modified Dutch Auction tender offer, to repay amounts outstanding under our commercial paper program and $500 million outstanding under our U.S. Receivables Facility which we borrowed during the year. Additionally, repayments of $1,000 million were made in 2019, using the net proceeds from the guaranteed notes due 2026 and 2031 discussed below. Borrowings under the credit agreement were available through December 31, 2019, subsequent to which no further borrowings may be made under the agreement. In October 2020 we repaid $500 million of the indebtedness outstanding under this Term Loan, using the proceeds from guaranteed notes issued in October 2020 as discussed below.
Outstanding borrowings 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. See Credit Agreements section below for additional details regarding our leverage ratio covenant.
In January 2021, we repaid an additional $500 million outstanding under our Term Loan due 2022.
In October 2020, LYB International Finance III, LLC (“LYB Finance III”), a wholly owned finance subsidiary of LyondellBasell Industries N.V., as defined in Rule 3-10(b) of Regulation S-X, issued the following:
Guaranteed Floating Rate Notes due 2023—LYB Finance III issued $650 million of guaranteed floating rate notes due 2023 (the “Floating Rate Notes”). The floating rate notes will bear interest equal to the three-month LIBOR rate, plus 1.000% per annum. These notes may be redeemed on or after the date that is two years 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.
1.25% Guaranteed Notes due 2025—LYB Finance III issued $500 million of 1.25% guaranteed notes due 2025 (the “1.25% 2025 Notes”) at a discounted price of 99.683%. These notes may be redeemed before the date that is one month prior to the scheduled maturity date at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 15 basis points) on the notes to be redeemed. These notes may also be redeemed on or after the date that is one month 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.
2.25% Guaranteed Notes due 2030—LYB Finance III issued $500 million of 2.25% guaranteed notes due 2030 (the “2.25% 2030 Notes”) at a discounted price of 99.203%. These 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 (i) 100% of the principal amount of the notes redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 25 basis points) on the notes to be redeemed. These notes may also be redeemed on or after the date that is three months prior to the final maturity date of the notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest.
Guaranteed Notes due 2040—LYB Finance III issued $750 million of 3.375% guaranteed notes due 2040 (the “2040 Notes”) at a discounted price of 99.77%. These 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 (i) 100% of the principal amount of the notes redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 30 basis points) on the notes to be redeemed. These 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Guaranteed Notes due 2051—LYB Finance III issued $1,000 million of 3.625% guaranteed notes due 2051 (the “2051 Notes”) at a discounted price of 99.707%. These 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 (i) 100% of the principal amount of the notes redeemed and (ii) 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. These 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 2060—LYB Finance III issued $500 million of 3.8% guaranteed notes due 2060 (the “2060 Notes”) at a discounted price of 99.166%. These 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 (i) 100% of the principal amount of the notes redeemed and (ii) 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. These 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 net proceeds of the Floating Rate Notes, 1.25% 2025 Notes, 2.25% 2030 Notes, 2040 Notes, 2051 Notes and 2060 Notes (collectively, the “October Notes”) were $3,848 million. In October 2020, we used $500 million of the net proceeds to repay a portion of the indebtedness outstanding under our Term Loan due 2022. In November 2020, we used $2 billion to redeem $1 billion aggregate principal amount of our 6.0% senior notes due 2021, and €750 million aggregate principal amount of our 1.875% guaranteed notes due 2022. In conjunction with the redemption of these notes, we recognized $69 million of debt extinguishment costs which are reflected in Interest expense in the Consolidated Statements of Income. The debt extinguishment costs include $77 million paid for make-whole premiums, fees and expenses related to the redemption of the notes and non-cash charges of $4 million for the write-off of unamortized debt discount and issuance costs, partially offset by $12 million in gains resulting from the write-off of the cumulative fair value hedge accounting adjustments. The remaining proceeds were used to fund a portion of the purchase price for the Louisiana Joint Venture.
Guaranteed Notes due 2025, 2030 and 2050—In April 2020, LYB Finance III issued $500 million of 2.875% guaranteed notes due 2025 (the “2025 Notes”) at a discounted price of 99.911%, $500 million of 3.375% guaranteed notes due 2030 (the “2030 Notes”) at a discounted price of 99.813% and $1,000 million of 4.2% guaranteed notes due 2050 (the “2050 Notes”) at a discounted price of 99.373%. Net proceeds from the sale of the notes totaled $1,974 million. We used the net proceeds from the sale of the notes for general corporate purposes, including to increase our liquidity and manage short-term debt maturities.
The 2025 Notes, 2030 Notes and 2050 Notes may be redeemed before the date that is one month, three months, or six months, respectively, prior to the scheduled maturity date at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest (discounted at the applicable treasury yield plus 40 basis points in the case of the 2025 Notes or 45 basis points in the case of the 2030 Notes and 2050 Notes) on the notes to be redeemed. The 2025 Notes, 2030 Notes and 2050 Notes may also be redeemed on or after the date that is one month, three months, or six months, respectively, 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.
*Guaranteed Notes due 2049—*In October 2019, LYB Finance III issued $1,000 million of 4.2% guaranteed notes due 2049 at a discounted price of 98.488%. We used net proceeds of $974 million from the notes, along with commercial paper and operating cash, to repay $2,000 million outstanding under our Term Loan due 2020.
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 (i) 100% of the principal amount of the notes redeemed and (ii) 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
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 Industries 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%. We used the net proceeds from the notes to repay $1,000 million outstanding under our Term Loan due 2022, and a portion of borrowings from our commercial paper program.
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 (i) 100% of the principal amount of the notes redeemed and (ii) 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.
*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%.
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 (i) 100% of the principal amount of the notes redeemed and (ii) 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.
*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%. In November 2020, proceeds from the October Notes were used to redeem €750 million aggregate principal amount of our 1.875% guaranteed notes due 2022. In conjunction with the redemption of these notes, we paid $22 million in make-whole premiums, fees and expenses related to the redemption. Additionally, non-cash charges of $2 million for the write-off of unamortized debt discount and issuance costs and $1 million in gains resulting from the write-off of the cumulative fair value hedge accounting adjustment were recognized.
Senior Notes due 2055—In March 2015, LyondellBasell Industries N.V. issued $1,000 million of 4.625% Notes due 2055 at a discounted price of 98.353%.
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 (i) 100% of the principal amount of the notes redeemed and (ii) 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 Industries 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%.
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 (i) 100% of the principal amount of the notes redeemed and (ii) 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
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 (i) 100% of the principal amount of the notes redeemed, and (ii) 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.
*Senior Notes due 2021 and 2024—*In November 2011 and April 2012, LyondellBasell Industries N.V. issued $1,000 million of 6% senior notes due 2021 and $1,000 million aggregate principal amount of 5.75% senior notes due 2024, respectively. In November 2020, proceeds from the October Notes were used to redeem $1,000 million aggregate principal amount of our 6% senior notes due 2021. In conjunction with the redemption of these notes, we paid $55 million for make-whole premiums, fees and expenses related to the redemption. Additionally, non-cash charges of $2 million for the write-off of unamortized debt discount and issuance costs and $11 million in gains resulting from the write-off of the cumulative fair value hedge accounting adjustment were recognized.
The Senior Notes due 2024 may be redeemed and repaid, in whole at any time or in part 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.
The indentures governing all of the above 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.
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 wholly owned subsidiary of LyondellBasell Industries 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. These 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 Industries N.V. subsidiaries.
Short-Term Debt
*Term Loan due 2020—*In February 2019, LYB Americas Finance entered into our Term Loan due 2020, 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 Industries 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*U.S. Receivables Facility—*Our U.S. Receivables Facility, which expires in July 2021, 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. Additional fees are incurred for the average daily unused commitments. 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. Performance obligations under the facility are guaranteed by LyondellBasell Industries N.V. 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. See Credit Agreements section below for additional details regarding our leverage ratio covenant. At December 31, 2020, there were no borrowings or letters of credit outstanding and $757 million unused availability under the facility.
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, 2020 are based on the terms of the notes and range from 0.21% to 0.30%. At December 31, 2020, we had $500 million of outstanding commercial paper.
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, 2020 and 2019, our weighted average interest rates on outstanding Short-term debt were 0.9% and 3.3%, respectively.
Additional Information
*Debt Discount and Issuance Costs—*Amortization of debt discount and debt issuance costs resulted in amortization expense of $21 million, $11 million and $14 million for the years ended December 31, 2020, 2019 and 2018, 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, and LYB Americas Finance Company LLC are 100% owned finance subsidiaries of LyondellBasell Industries 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 Industries N.V. Our unsecured notes rank equally in right of payment to each respective finance subsidiary’s existing and future unsecured indebtedness and to all of LyondellBasell Industries N.V.’s existing and future unsubordinated indebtedness. There are no significant restrictions that would impede LyondellBasell Industries N.V., as guarantor, from obtaining funds by dividend or loan from its subsidiaries.
Credit Agreements—In April 2020, we entered into amendments and related documents (collectively, the “Amendments”) to our Senior Revolving Credit Facility, Term Loan due 2022, and U.S. Receivables Facility (collectively, as amended, the “Credit Agreements”). The Amendments amended each Credit Agreement’s leverage ratio covenant to permit netting of unrestricted cash and cash equivalents in excess of $300 million (with certain restrictions on non-U.S. cash) and, in respect of the Senior Revolving Credit Facility and Term Loan due 2022, restrict certain dividends and other specified restricted payments.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In October 2020, we entered into amendments and related documents (collectively, the “October Amendments”) to our Credit Agreements. Among other things, the October Amendments amended each Credit Agreement’s maximum leverage ratio (calculated as the ratio of total net funded debt to consolidated earnings before interest, taxes and depreciation and amortization, both as defined in our Credit Agreements) financial covenant to (i) 5.00 to 1.00 for the fiscal quarters ending December 31, 2020 and March 31, 2021; (ii) 4.75 to 1.00 for the fiscal quarter ending June 30, 2021; (iii) 4.50 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021; (iv) 4.00 to 1.00 for the fiscal quarter ending March 2022; and (v) 3.50 to 1.00 for the fiscal quarter ending June 30, 2022 and thereafter. In addition, with respect to the Senior Revolving Credit Facility and the Term Loan due 2022, the October Amendments further restrict certain dividends and other specified restricted payments.
As of December 31, 2020, we are in compliance with our debt covenants.
12. 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, 2020 and 2019, our Operating lease assets were $1,492 million and $1,468 million, respectively. As of December 31, 2020 and 2019, Operating lease liabilities totaled $1,532 million and $1,489 million of which $310 million and $273 million, respectively, are current and recorded in Accrued liabilities. These values were derived using a weighted average discount rate of 3.9% and 4.2% as of December 31, 2020 and 2019, respectively.
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. Certain lease agreements include options to renew the lease, at our discretion, for up to 20 years and do not materially impact our operating lease assets or operating lease liabilities.
Maturities of operating lease liabilities as of December 31, 2020, are as follows:
| Millions of dollars | ||||||||
| 2021 | $ | 360 | ||||||
| 2022 | 295 | |||||||
| 2023 | 237 | |||||||
| 2024 | 198 | |||||||
| 2025 | 169 | |||||||
| Thereafter | 511 | |||||||
| Total lease payments | 1,770 | |||||||
| Less: Imputed interest | (238) | |||||||
| Present value of lease liabilities | $ | 1,532 |
The following table presents the components of operating lease cost:
| Year Ended December 31, | ||||||||||||||
| Millions of dollars | 2020 | 2019 | ||||||||||||
| Operating lease cost | $ | 393 | $ | 366 | ||||||||||
| Short-term lease cost | 154 | 152 | ||||||||||||
| Variable lease cost | 50 | 61 | ||||||||||||
| Net operating lease cost | $ | 597 | $ | 579 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash paid for amounts included in the measurement of operating lease liabilities totaled $383 million and $363 million for the years ended December 31, 2020 and 2019, respectively. Leased assets obtained in exchange for new operating lease liabilities totaled $351 million for the year ended December 31, 2020. 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, 2020, we have entered into additional operating leases, with an undiscounted value of $583 million, primarily for storage tanks related to our new PO/TBA plant in Houston, TX. These leases, which will commence between the first quarter of 2021 and 2022, have lease terms ranging from 1 to 20 years.
13. 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 contracts 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.
In October 2020, we entered into €750 million of foreign currency contracts to economically hedge the redemption of €750 million aggregate principal amount of our 1.875% guaranteed notes originally due in 2022 which were redeemed in November 2020. These foreign currency contracts were not designated as hedges. In November 2020, upon settlement of these foreign currency contracts, we paid $882 million to our counterparties and received €750 million ($887 million at the expiry spot rate) from our counterparties.
Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency losses of $7 million, gains of $9 million and $24 million in 2020, 2019 and 2018, respectively.
Cash and Cash Equivalents—At December 31, 2020 and 2019, we had marketable securities classified as Cash and cash equivalents of $682 million and $389 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, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | Balance Sheet Classification | |||||||||||||||||||||||||
| Millions of dollars | |||||||||||||||||||||||||||||
| Assets— | |||||||||||||||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | $ | 19 | $ | 3 | $ | — | $ | — | Prepaid expenses and other current assets | ||||||||||||||||||||
| Commodities | 41 | 4 | — | — | Other assets | ||||||||||||||||||||||||
| Foreign currency | — | 26 | — | 27 | Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Foreign currency | — | — | 2,000 | 214 | Other assets | ||||||||||||||||||||||||
| Interest rates | — | — | — | 22 | Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Interest rates | 122 | 2 | 1,940 | 41 | Other assets | ||||||||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | 71 | 2 | 3 | — | Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Foreign currency | 149 | — | 580 | 5 | Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Non-derivatives: | |||||||||||||||||||||||||||||
| Available-for-sale debt securities | 348 | 349 | 162 | 162 | Short-term investments | ||||||||||||||||||||||||
| Equity securities | 353 | 353 | 34 | 34 | Short-term investments | ||||||||||||||||||||||||
| Total | $ | 1,103 | $ | 739 | $ | 4,719 | $ | 505 | |||||||||||||||||||||
| Liabilities— | |||||||||||||||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | $ | — | $ | 2 | $ | — | $ | — | Accrued liabilities | ||||||||||||||||||||
| Foreign currency | 1,213 | 146 | — | 16 | Accrued liabilities | ||||||||||||||||||||||||
| Foreign currency | 2,682 | 302 | 950 | 53 | Other liabilities | ||||||||||||||||||||||||
| Interest rates | — | — | 1,000 | 154 | Accrued liabilities | ||||||||||||||||||||||||
| Interest rates | 1,000 | 343 | 700 | 77 | Other liabilities | ||||||||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | 113 | 14 | 224 | 34 | Accrued liabilities | ||||||||||||||||||||||||
| Foreign currency | 76 | 1 | 200 | 1 | Accrued liabilities | ||||||||||||||||||||||||
| Total | $ | 5,084 | $ | 808 | $ | 3,074 | $ | 335 |
All financial instruments in the tables above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments on the Consolidated Balance Sheets.
At December 31, 2020, our outstanding foreign currency contracts not designated as hedges mature from January 2021 to June 2021. Our commodity contracts, not designated as hedges, mature on January 2021.
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 for the periods presented. Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities for which the carrying value approximates fair value are excluded from the table below. 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 of long-term debt exclude commercial paper and other miscellaneous debt.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Millions of dollars | |||||||||||||||||||||||
| Non-derivatives: | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Short-term debt | $ | 140 | $ | 154 | $ | 181 | $ | 215 | |||||||||||||||
| Long-term debt | 15,266 | 17,290 | 11,609 | 12,561 | |||||||||||||||||||
| Total | $ | 15,406 | $ | 17,444 | $ | 11,790 | $ | 12,776 |
All financial instruments in the table above are classified as Level 2.
*Net Investment Hedges—*The following table summarizes our net investment hedges outstanding for the periods presented:
| December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||
| Millions of euro/dollars | Notional Value | Notional Value | Expiration Date | |||||||||||||||||||||||||||||
| Equivalent US$ | Equivalent US$ | |||||||||||||||||||||||||||||||
| Foreign currency | € | 1,667 | $ | 1,890 | € | 617 | $ | 650 | 2021 to 2030 | |||||||||||||||||||||||
| Foreign-currency denominated debt | € | — | $ | — | € | 750 | $ | 842 | 2022 |
In September 2020, we entered into €300 million of foreign currency contracts that were designated as net investment hedges.
In October 2020, euro denominated debt due 2022 with notional amounts totaling €750 million previously designated as net investment hedge, were dedesignated. Concurrent with the dedesignation of the 2022 euro denominated debt, we entered into €750 million of cross currency interest rate swaps that were designated as net investment hedges.
*Cash Flow Hedges—*The following table summarizes our outstanding cash flow hedges:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | Notional Value | Notional Value | Expiration Date | ||||||||||||||||||||
| Foreign currency | $ | 2,005 | $ | 2,300 | 2021 | to | 2027 | ||||||||||||||||
| Interest rates | 1,000 | 1,500 | 2023 | to | 2024 | ||||||||||||||||||
| Commodities | 60 | — | 2021 | to | 2022 |
In January 2020, we amended existing forward-starting interest rate swaps entered into in February 2019, with a total notional amount of $1,000 million (the “Swaps”) to extend their maturities to July 2023 and April 2024. As of December 31, 2020 and 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. Other assets as of December 31, 2020 includes $238 million of collateral held with our counterparties related to our forward-starting interest rate swaps; this amount represents the maximum amount of collateral required in accordance with the Swap agreements. Related cash flows are included in financing activities in the Consolidated Statements of Cash Flows.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In May 2020, we terminated and cash settled $2,000 million in notional value of our cross-currency interest rate swaps, designated as cash flows hedges, maturing in 2021 and 2024. Upon termination of the swaps, we received $346 million from our counterparties. Concurrent with the settlement of the swaps, we entered into $1,705 million cross-currency interest rate swaps with euro notional amounts and maturity dates matching the original swaps. The swaps are designated as cash flow hedges to reduce the variability in the functional currency equivalent cash flows of certain foreign currency denominated intercompany loans.
In October 2020, we terminated and cash settled $500 million in notional value of our forward-starting interest rate swaps which were designated as cash flow hedges originally set to expire in 2021. Upon termination of the forward-starting interest rate swaps, we paid $229 million to our counterparties.
In 2020, we entered into over-the-counter commodity swaps with a total notional amount of $60 million. During 2020, we also entered into costless collars, which are a combination of a purchased call option with an aggregate notional volume of 27 million MMBtu and a sold put option with an aggregate notional volume of 27 million MMBtu. These transactions were designated as cash flow hedges to manage the volatility of commodity prices related to anticipated purchases of feedstock for the years 2021 and 2022.
As of December 31, 2020, on a pre-tax basis, $5 million is scheduled to be reclassified from Accumulated other comprehensive loss as an increase to interest expense over the next twelve months.
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.
In 2019, we entered into commodity futures contracts to mitigate the risk of variability in feedstock and product sales prices. During 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 contracts outstanding and designated as cash flow hedges.
Fair Value Hedges—The following table summarizes our fair value hedges outstanding for the periods presented:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | Notional Value | Notional Value | Expiration Date | ||||||||||||||||||||
| Interest rates | $ | 122 | $ | 2,140 | 2026 |
In January 2020, we entered into a euro fixed-for-floating interest rate swap to mitigate the change in the fair value of €100 million of our €500 million guaranteed notes due 2026 associated with the risk of variability in the 6-month EURIBOR rate, the benchmark interest rate. The fixed-rate and variable-rate components are settled annually and semi-annually, respectively.
In April 2020, we terminated $2,000 million in notional value of our fixed-for-floating interest rate swaps which were designated as fair value hedges originally set to expire in 2021 and 2027. Upon termination of the fixed-for-floating interest rate swaps, we received $147 million from our counterparties.
In November 2020, concurrent with the redemption of €750 million of our outstanding 1.875% guaranteed notes due 2022, we terminated €125 million in notional value of our fixed-for-floating interest rate swap previously designated as fair value hedge originally set to expire in 2022. Upon termination of the fixed-for-floating interest rate swap, we received $3 million from our counterparty.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
*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, 2020 | |||||||||||||||||||||||
| 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 | $ | 5 | $ | — | $ | — | Cost of sales | ||||||||||||||||
| Foreign currency | (253) | 170 | 46 | Interest expense | |||||||||||||||||||
| Interest rates | (347) | 5 | 95 | Interest expense | |||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||
| Commodities | — | — | 4 | Sales and other operating revenues | |||||||||||||||||||
| Commodities | — | — | 115 | Cost of sales | |||||||||||||||||||
| Foreign currency | — | — | (14) | Other income, net | |||||||||||||||||||
| Non-derivatives designated as hedges: | |||||||||||||||||||||||
| Long-term debt | (42) | — | — | Other income, net | |||||||||||||||||||
| Total | $ | (637) | $ | 175 | $ | 246 |
| 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 | 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 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 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 | 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 |
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, 2020, 2019 and 2018 were losses of $1 million, 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, 2020, 2019 and 2018 were gains of $10 million, $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 $4 million decrease in interest expense for the year ended December 31, 2020, $6 million and $5 million increase in interest expense for the years ended December 31, 2019 and 2018, respectively.
*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 | |||||||||||||||||||
| Debt securities at December 31, 2020 | $ | 348 | $ | 1 | $ | — | $ | 349 | |||||||||||||||
| Debt securities at December 31, 2019 | 162 | — | — | 162 | |||||||||||||||||||
The fair value of our available-for-sale debt securities is reflected in Short-term investments on our Consolidated Balance Sheets.
No allowance for credit losses related to our available-for-sale debt securities was recorded for the years ended December 31, 2020 and 2019. No losses related to other-than-temporary impairments of our available-for-sale debt securities were recorded during the year ended December 31, 2018.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2020, bonds classified as available-for-sale debt securities had maturities between 1 month and 6 months.
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 | 2020 | 2019 | 2018 | ||||||||||||||
| Proceeds from maturities of available-for-sale debt securities | $ | 24 | $ | 331 | $ | 423 | |||||||||||
| Proceeds from sales of available-for-sale debt securities | 90 | 180 | — |
The gross realized gains and losses associated with the sale of available-for-sale debt securities during the years ended December 31, 2020 and 2019, were less than $1 million, respectively. No gain or loss was realized in connection with the sales of our available-for-sale debt securities during the year ended December 31, 2018.
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, 2020 and 2019.
Investments in Equity Securities—Our equity securities primarily consist of limited partnership investments, reflected in Short-term investments on our Consolidated Balance Sheets. At December 31, 2020, we had investments in equity securities with a notional amount and a fair value of $353 million. These investments may be redeemed within 7 days following written notice from the Company. At December 31, 2019, we had investments in equity securities with a notional amount and a fair value of $34 million.
We received proceeds of $313 million, $332 million and $97 million related to the sale of our investments in equity securities during the years ended December 31, 2020, 2019 and 2018, respectively.
The following table summarizes the portion of unrealized gains and losses for the equity securities that were outstanding for the periods presented:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||
| Net gains (losses) recognized during the period | $ | — | $ | 9 | $ | 11 | ||||||||||||||||||||||||||
| Less: Net gains (losses) recognized during the period on securities sold | — | 9 | 5 | |||||||||||||||||||||||||||||
| Unrealized gains (losses) recognized during the period | $ | — | $ | — | $ | 6 |
14. 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation, beginning of period | $ | 1,965 | $ | 2,017 | $ | 1,752 | $ | 1,659 | |||||||||||||||
| Service cost | 63 | 46 | 53 | 36 | |||||||||||||||||||
| Interest cost | 53 | 21 | 70 | 33 | |||||||||||||||||||
| Actuarial loss (gain) | 133 | (21) | 241 | 331 | |||||||||||||||||||
| Plan amendments | — | — | — | 24 | |||||||||||||||||||
| Benefits paid | (140) | (47) | (151) | (43) | |||||||||||||||||||
| Participant contributions | — | 2 | — | 2 | |||||||||||||||||||
| Settlement | (35) | (11) | — | (10) | |||||||||||||||||||
| Curtailment | — | (4) | — | (2) | |||||||||||||||||||
| Foreign exchange effects | — | 156 | — | (13) | |||||||||||||||||||
| Benefit obligation, end of period | 2,039 | 2,159 | 1,965 | 2,017 | |||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets, beginning of period | 1,637 | 1,058 | 1,548 | 871 | |||||||||||||||||||
| Actual return on plan assets | 76 | 26 | 194 | 186 | |||||||||||||||||||
| Company contributions | 10 | 64 | 46 | 51 | |||||||||||||||||||
| Benefits paid | (140) | (47) | (151) | (43) | |||||||||||||||||||
| Participant contributions | — | 2 | — | 2 | |||||||||||||||||||
| Settlement | (35) | (11) | — | (10) | |||||||||||||||||||
| Foreign exchange effects | — | 76 | — | 1 | |||||||||||||||||||
| Fair value of plan assets, end of period | 1,548 | 1,168 | 1,637 | 1,058 | |||||||||||||||||||
| Funded status of continuing operations, end of period | $ | (491) | $ | (991) | $ | (328) | $ | (959) |
Amounts recognized in the Consolidated Balance Sheets consists of the following:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Prepaid benefit cost, long-term | $ | — | $ | 23 | $ | 4 | $ | 18 | |||||||||||||||
| Accrued benefit liability, current | — | (33) | — | (28) | |||||||||||||||||||
| Accrued benefit liability, long-term | (491) | (981) | (332) | (949) | |||||||||||||||||||
| Funded status of continuing operations, end of period | $ | (491) | $ | (991) | $ | (328) | $ | (959) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts recognized in Accumulated other comprehensive loss include the following:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Actuarial and investment loss | $ | 655 | $ | 353 | $ | 516 | $ | 405 | |||||||||||||||
| Prior service cost | 1 | 29 | 1 | 32 | |||||||||||||||||||
| Balance, end of period | $ | 656 | $ | 382 | $ | 517 | $ | 437 |
The following additional information is presented for our U.S. and non-U.S. pension plans:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accumulated benefit obligation for defined benefit plans | $ | 1,961 | $ | 2,003 | $ | 1,899 | $ | 1,859 |
Pension plans with projected benefit obligations in excess of the fair value of assets are summarized as follows:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Projected benefit obligations | $ | 1,899 | $ | 1,276 | $ | 1,915 | $ | 1,778 | |||||||||||||||
| Fair value of assets | 1,408 | 261 | 1,583 | 801 |
Pension plans with accumulated benefit obligations in excess of the fair value of assets are summarized as follows:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accumulated benefit obligations | $ | 1,826 | $ | 1,123 | $ | 1,765 | $ | 1,079 | |||||||||||||||
| Fair value of assets | 1,408 | 231 | 1,493 | 243 |
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 | 2020 | 2019 | 2018 | ||||||||||||||
| Service cost | $ | 63 | $ | 53 | $ | 51 | |||||||||||
| Interest cost | 53 | 70 | 60 | ||||||||||||||
| Expected return on plan assets | (115) | (112) | (122) | ||||||||||||||
| Settlement loss | 4 | — | 2 | ||||||||||||||
| Actuarial loss amortization | 29 | 18 | 21 | ||||||||||||||
| Net periodic benefit cost | $ | 34 | $ | 29 | $ | 12 | |||||||||||
| Non-U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Service cost | $ | 46 | $ | 36 | $ | 35 | |||||||||||
| Interest cost | 21 | 33 | 32 | ||||||||||||||
| Expected return on plan assets | (19) | (24) | (24) | ||||||||||||||
| Settlement loss | 2 | 1 | 1 | ||||||||||||||
| Curtailment gain | (4) | — | — | ||||||||||||||
| Prior service cost amortization | 3 | 2 | 1 | ||||||||||||||
| Actuarial loss amortization | 23 | 12 | 10 | ||||||||||||||
| Net periodic benefit cost | $ | 72 | $ | 60 | $ | 55 |
The actual and target asset allocations for our plans are as follows:
| 2020 | 2019 | ||||||||||||||||||||||
| Actual | Target | Actual | Target | ||||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Equity securities | — | % | — | % | 50 | % | 50 | % | |||||||||||||||
| Fixed income | 100 | % | 100 | % | 50 | % | 50 | % | |||||||||||||||
| United Kingdom—Lyondell Chemical Plans | |||||||||||||||||||||||
| Equity securities | 37 | % | 37 | % | 36 | % | 37 | % | |||||||||||||||
| Fixed income | 63 | % | 63 | % | 64 | % | 63 | % | |||||||||||||||
| United Kingdom—Basell Plans | |||||||||||||||||||||||
| Equity securities | 40 | % | 40 | % | 40 | % | 40 | % | |||||||||||||||
| Fixed income | 60 | % | 60 | % | 60 | % | 60 | % | |||||||||||||||
| United Kingdom—A. Schulman Plans | |||||||||||||||||||||||
| Growth assets | 76 | % | 76 | % | 91 | % | 89 | % | |||||||||||||||
| Matching assets | 24 | % | 24 | % | 9 | % | 11 | % | |||||||||||||||
| United States | |||||||||||||||||||||||
| Equity securities | 37 | % | 35 | % | 34 | % | 32 | % | |||||||||||||||
| Fixed income | 41 | % | 39 | % | 38 | % | 38 | % | |||||||||||||||
| Alternatives | 22 | % | 26 | % | 28 | % | 30 | % |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We estimate the following contributions to our pension plans in 2021:
| Millions of dollars | U.S. | Non-U.S. | ||||||||||||
| Defined benefit plans | $ | 58 | $ | 77 | ||||||||||
| Multi-employer plans | — | 7 | ||||||||||||
| Total | $ | 58 | $ | 84 |
As of December 31, 2020, 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. | |||||||||
| 2021 | $ | 153 | $ | 67 | |||||||
| 2022 | 154 | 66 | |||||||||
| 2023 | 153 | 67 | |||||||||
| 2024 | 148 | 68 | |||||||||
| 2025 | 143 | 70 | |||||||||
| 2026 through 2030 | 657 | 364 |
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:
| 2020 | 2019 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Discount rate | 2.54 | % | 0.99 | % | 3.16 | % | 1.03 | % | |||||||||||||||
| Rate of compensation increase | 4.63 | % | 2.55 | % | 4.83 | % | 2.59 | % | |||||||||||||||
| Cash balance interest credit rate | 1.58 | % | — | % | 2.21 | % | — | % |
The weighted average assumptions used in determining net benefit costs for our pension plans were as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||
| Discount rate | 3.16 | % | 1.03 | % | 4.51 | % | 2.07 | % | 3.73 | % | 2.13 | % | |||||||||||||||||||||||
| Expected return on plan assets | 7.25 | % | 1.79 | % | 7.50 | % | 2.79 | % | 7.50 | % | 2.92 | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.83 | % | 2.59 | % | 4.83 | % | 2.54 | % | 4.00 | % | 2.94 | % |
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. 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 7.25% 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 1.79% 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, 2020 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| U.S. | |||||||||||||||||||||||
| Common and preferred stock | $ | 281 | $ | 281 | $ | — | $ | — | |||||||||||||||
| Commingled funds measured at net asset value | 555 | ||||||||||||||||||||||
| Real estate measured at net asset value | 100 | ||||||||||||||||||||||
| Hedge funds measured at net asset value | 114 | ||||||||||||||||||||||
| Private equity measured at net asset value | 137 | ||||||||||||||||||||||
| U.S. government securities | 339 | 339 | — | — | |||||||||||||||||||
| Cash and cash equivalents | 43 | 43 | — | — | |||||||||||||||||||
| Total U.S. Pension Assets | $ | 1,569 | $ | 663 | $ | — | $ | — |
| December 31, 2020 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Non-U.S. | |||||||||||||||||||||||
| Insurance arrangements | $ | 825 | $ | — | $ | — | $ | 825 | |||||||||||||||
| Commingled funds measured at net asset value | 339 | ||||||||||||||||||||||
| Cash and cash equivalents | 2 | 2 | — | — | |||||||||||||||||||
| Total Non-U.S. Pension Assets | $ | 1,166 | $ | 2 | $ | — | $ | 825 | |||||||||||||||
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 | |||||||||||||||||||
| 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 | $ | — |
| 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 |
Certain non-U.S. plans have 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). These defined benefits pension plan assets at December 31, 2019 were valued at $722 million and has increased to $825 million at December 31, 2020. The change is due primarily to the appreciation of assets as well as a decrease of the discount rate from 2019 to 2020.
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, 2020 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 | $ | 179 | $ | — | N/A | daily | 1 to 3 days | 3 to 4 days | |||||||||||||||||||||||||||
| Commingled fund investing in International Equity | 118 | — | N/A | daily | 1 to 3 days | 3 days | |||||||||||||||||||||||||||||
| Commingled fund investing in Fixed Income | 258 | — | N/A | daily | 1 to 3 days | 3 to 7 days | |||||||||||||||||||||||||||||
| Real Estate | 100 | 19 | 10 years | quarterly | 15 to 25 days | 45 to 90 days | |||||||||||||||||||||||||||||
| Hedge Funds | 114 | — | N/A | quarterly | 10 to 30 days | 20 to 90 days | |||||||||||||||||||||||||||||
| Private Equity | 137 | 79 | 10 years | Not eligible | N/A | N/A | |||||||||||||||||||||||||||||
| Total U.S. | $ | 906 | $ | 98 |
| 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 | $ | 24 | $ | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||
| Commingled fund investing in International Equity | 68 | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||||
| Commingled fund investing in Fixed Income | 247 | — | N/A | daily | 1 to 3 days | 3 days | |||||||||||||||||||||||||||||
| Total Non-U.S. | $ | 339 | $ | — |
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 | $ | — |
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 | 2020 | 2019 | 2018 | ||||||||||||||
| Pensionskasse | $ | 7 | $ | 8 | $ | 8 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2019 and 2018 indicated total assets of $10,712 million and $9,456 million, respectively; total actuarial present value of accumulated plan benefits of $10,259 million and $9,061 million, respectively; and total contributions for all participating employers of $260 million and $258 million, respectively. Our plan contributions did not exceed 5 percent of the total contributions in 2020, 2019 or 2018.
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, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation, beginning of period | $ | 251 | $ | 79 | $ | 234 | $ | 59 | |||||||||||||||
| Service cost | 1 | 3 | 1 | 2 | |||||||||||||||||||
| Interest cost | 7 | 1 | 9 | 1 | |||||||||||||||||||
| Actuarial (gain) loss | (30) | (2) | 20 | 18 | |||||||||||||||||||
| Benefits paid | (25) | (1) | (19) | — | |||||||||||||||||||
| Participant contributions | 7 | — | 6 | — | |||||||||||||||||||
| Foreign exchange effects | — | 6 | — | (1) | |||||||||||||||||||
| Benefit obligation, end of period | 211 | 86 | 251 | 79 | |||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets, beginning of period | — | — | — | — | |||||||||||||||||||
| Employer contributions | 18 | 1 | 13 | — | |||||||||||||||||||
| Participant contributions | 7 | — | 6 | — | |||||||||||||||||||
| Benefits paid | (25) | (1) | (19) | — | |||||||||||||||||||
| Fair value of plan assets, end of period | — | — | — | — | |||||||||||||||||||
| Funded status, end of period | $ | (211) | $ | (86) | $ | (251) | $ | (79) |
Amounts recognized in the Consolidated Balance Sheets are as follows:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accrued benefit liability, current | $ | (14) | $ | (1) | $ | (17) | $ | (1) | |||||||||||||||
| Accrued benefit liability, long-term | (197) | (85) | (234) | (78) | |||||||||||||||||||
| Funded status, end of period | $ | (211) | $ | (86) | $ | (251) | $ | (79) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts recognized in Accumulated other comprehensive loss are as follows:
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Actuarial and investment income (loss) | $ | 68 | $ | (27) | $ | 40 | $ | (32) | |||||||||||||||
| Balance, end of period | $ | 68 | $ | (27) | $ | 40 | $ | (32) |
The components of net periodic other postretirement costs are as follows:
| U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 2 | |||||||||||
| Interest cost | 7 | 9 | 9 | ||||||||||||||
| Actuarial gain amortization | (2) | (5) | — | ||||||||||||||
| Net periodic benefit cost | $ | 6 | $ | 5 | $ | 11 | |||||||||||
| Non-U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Service cost | $ | 3 | $ | 2 | $ | 2 | |||||||||||
| Interest cost | 1 | 1 | 1 | ||||||||||||||
| Actuarial loss amortization | 3 | 1 | 1 | ||||||||||||||
| Net periodic benefit cost | $ | 7 | $ | 4 | $ | 4 |
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, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Immediate trend rate | 6.5 | % | 6.1 | % | |||||||||||||||||||
| 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 | 2029 | 2038 | |||||||||||||||||||||
| Non-U.S. Plans | |||||||||||||||||||||||
| Canada | France | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Immediate trend rate | 4.5 | % | 5.0 | % | 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 | — | — |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
The weighted average assumptions used in determining the net benefit liabilities for our other postretirement benefit plans were as follows:
| December 31, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Discount rate | 2.48 | % | 1.10 | % | 3.12 | % | 1.20 | % | |||||||||||||||
| Rate of compensation increase | 4.19 | % | — | 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, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||
| Discount rate | 3.12 | % | 1.20 | % | 4.47 | % | 2.30 | % | 3.66 | % | 2.48 | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.50 | % | — | 4.50 | % | — | 4.00 | % | — |
As of December 31, 2020, 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. | |||||||||
| 2021 | $ | 14 | $ | 1 | |||||||
| 2022 | 14 | 1 | |||||||||
| 2023 | 14 | 1 | |||||||||
| 2024 | 14 | 1 | |||||||||
| 2025 | 14 | 2 | |||||||||
| 2026 through 2030 | 65 | 9 |
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, 2020 and 2019:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| Millions of dollars | Actuarial (Gain) Loss | Prior Service Cost (Credit) | Actuarial (Gain) Loss | Prior Service Cost (Credit) | |||||||||||||||||||
| 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) | — | |||||||||||||||||||
| Arising during the period | 141 | — | (32) | — | |||||||||||||||||||
| Actuarial loss amortization | (52) | (3) | (1) | — | |||||||||||||||||||
| Settlement loss | (6) | — | — | — | |||||||||||||||||||
| Curtailment gain | 4 | — | — | — | |||||||||||||||||||
| December 31, 2020 | $ | 1,008 | $ | 30 | $ | (41) | $ | — |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In 2020, pension benefits actuarial loss and other postretirement benefits actuarial gain of $141 million and $32 million, respectively, are primarily due to changes in discount rate assumption and updated actuarial assumptions. 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.
Deferred income taxes related to amounts in Accumulated other comprehensive loss include provisions of $246 million and $236 million as of December 31, 2020 and December 31, 2019, respectively.
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 | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||
| Employee Savings Plans | $ | 48 | $ | 8 | $ | 46 | $ | 7 | $ | 40 | $ | 5 |
15. 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, 2020, there were 2,817,543 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 | 2020 | 2019 | 2018 | ||||||||||||||
| Compensation Expense: | |||||||||||||||||
| Restricted stock units | $ | 26 | $ | 21 | $ | 15 | |||||||||||
| Stock options | 8 | 7 | 7 | ||||||||||||||
| Performance share units | 21 | 20 | 17 | ||||||||||||||
| Total | $ | 55 | $ | 48 | $ | 39 | |||||||||||
| Tax Benefit: | |||||||||||||||||
| Restricted stock units | $ | 6 | $ | 5 | $ | 4 | |||||||||||
| Stock options | 2 | 2 | 2 | ||||||||||||||
| Performance share units | 5 | 4 | 4 | ||||||||||||||
| Total | $ | 13 | $ | 11 | $ | 10 |
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, which is 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, 2020, 2019 and 2018 was $79.58, $87.36 and $108.52, respectively. The total fair value of RSUs vested was $18 million during 2020 and $13 million during each of 2019 and 2018.
The following table summarizes RSU activity:
| Number of Units (in thousands) | Weighted Average Grant Date Fair Value (per share) | ||||||||||
| Outstanding at January 1, 2020 | 613 | $ | 93.37 | ||||||||
| Granted | 335 | 79.58 | |||||||||
| Vested | (230) | 88.67 | |||||||||
| Forfeited | (25) | 88.25 | |||||||||
| Outstanding at December 31, 2020 | 693 | $ | 88.45 |
As of December 31, 2020, the unrecognized compensation cost related to RSUs was $25 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 which is consistent with the historical exercise pattern.
The weighted average fair value of Stock Options granted and the assumptions used in estimating those fair value are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Weighted average fair value | $ | 12.18 | $ | 15.76 | $ | 21.58 | |||||||||||
| Fair value assumptions: | |||||||||||||||||
| Dividend yield | 5.0 | % | 4.2 | % | 4.0 | % | |||||||||||
| Expected volatility | 28.3-38.4% | 27.2-28.1% | 27.8-29.0% | ||||||||||||||
| Risk-free interest rate | 0.3-1.4% | 1.5-2.6% | 2.6-2.9% | ||||||||||||||
| 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, 2020 | 1,782 | $ | 90.08 | ||||||||||||||||||||
| Granted | 701 | 82.92 | |||||||||||||||||||||
| Exercised | (16) | 44.76 | |||||||||||||||||||||
| Forfeited | (53) | 85.10 | |||||||||||||||||||||
| Expired | (10) | 98.32 | |||||||||||||||||||||
| Outstanding at December 31, 2020 | 2,404 | $ | 88.36 | 7.1 years | $ | 14 | |||||||||||||||||
| Exercisable at December 31, 2020 | 1,357 | $ | 89.37 | 5.9 years | $ | 8 |
The aggregate intrinsic value of Stock Options exercised during the years ended December 31, 2020, 2019 and 2018 was $1 million, less than $1 million and $3 million, respectively.
As of December 31, 2020, the unrecognized compensation cost related to Stock Options was $5 million, which is expected to be recognized over one year. During 2020, 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 is 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)
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 our 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.
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 are 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:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Weighted average fair value | $ | 82.70 | $ | 76.35 | $ | 89.32 | |||||||||||
| Fair value assumptions: | |||||||||||||||||
| Expected volatility of LyondellBasell N.V. common stock | 25.96-41.50% | 24.11 | % | 27.15 | % | ||||||||||||
| Expected volatility of peer companies | 16.13-50.42% | 14.57-40.55% | 17.45-42.99% | ||||||||||||||
| Average correlation coefficient of peer companies | 0.45-0.58 | 0.50 | 0.50 | ||||||||||||||
| Risk-free interest rate | 0.23-1.35% | 2.48 | % | 2.40 | % |
The following table summarizes PSU activity, which assumes payout at target amounts:
| Number of Units (in thousands) | Weighted Average Grant Date Fair Value (per share) | ||||||||||
| Outstanding at January 1, 2020 | 683 | $ | 85.32 | ||||||||
| Granted | 310 | 82.70 | |||||||||
| Vested | (212) | 93.28 | |||||||||
| Forfeited | (32) | 82.97 | |||||||||
| Outstanding at December 31, 2020 | 749 | $ | 82.07 |
The total fair value of PSUs vested during 2020, 2019 and 2018 was $9 million, $22 million, and $25 million, respectively. As of December 31, 2020, the unrecognized compensation cost related to PSUs was $24 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 allows participants to purchase our stock at a 10% 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. Total expense related to our ESPP for 2020, 2019 and 2018 was $4 million, $2 million and $2 million, respectively.
16. 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
The Company operates in multiple jurisdictions with complex legal and tax regulatory environments and our tax returns are periodically audited or subjected to review by tax authorities. We monitor tax law changes and the potential impact to our results of operations including potential proposals in the U.S. as a result of a new administration.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act, also known as the “CARES Act,” which contains numerous income tax provisions and other stimulus measures. Several of the tax measures favorably impact our income tax provision including the ability to carry back U.S. tax net operating losses (“NOL”) generated in 2018, 2019, or 2020 to tax years with a higher statutory tax rate and options for temporary elections that relax the limitation on deductible interest expense. Based on our analysis as of December 31, 2020, we recorded an overall tax benefit of approximately $300 million. The 2020 U.S. tax losses include the impact of lower earnings and immediate tax depreciation deductions of fixed assets including the Louisiana Joint Venture which was a deemed asset acquisition for U.S. tax purposes, as well as certain capital projects. We anticipate a cash refund of approximately $900 million as a result of the NOL carryback which, under normal U.S. IRS procedures would be expected to be received in 2021. However, because of U.S. IRS resource constraints, exacerbated by the impact of COVID-19, the refund may be delayed.
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. 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.
The significant components of the provision for income taxes are as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | (774) | $ | 122 | $ | (89) | |||||||||||
| Non-U.S. | 399 | 296 | 404 | ||||||||||||||
| State | 1 | 21 | 38 | ||||||||||||||
| Total current | (374) | 439 | 353 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | 415 | 124 | 197 | ||||||||||||||
| Non-U.S. | (76) | 75 | 48 | ||||||||||||||
| State | (8) | 10 | 15 | ||||||||||||||
| Total deferred | 331 | 209 | 260 | ||||||||||||||
| Provision for income taxes before tax effects of other comprehensive income | (43) | 648 | 613 | ||||||||||||||
| Tax effects of elements of other comprehensive income: | |||||||||||||||||
| Pension and postretirement liabilities | (10) | (92) | 63 | ||||||||||||||
| Financial derivatives | (70) | (38) | 16 | ||||||||||||||
| Foreign currency translation | (30) | 8 | 18 | ||||||||||||||
| Total income tax expense in comprehensive income | $ | (153) | $ | 526 | $ | 710 |
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, 2020 is -3.1%.
The following table reconciles the expected tax expense (benefit) at the U.S. statutory federal income tax rate to the total income tax provision as calculated:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Income before income taxes: | |||||||||||||||||
| U.S. | $ | (456) | $ | 1,581 | $ | 2,795 | |||||||||||
| Non-U.S. | 1,842 | 2,471 | 2,516 | ||||||||||||||
| Total | $ | 1,386 | $ | 4,052 | $ | 5,311 | |||||||||||
| Income tax at U.S. statutory rate | $ | 291 | $ | 851 | $ | 1,115 | |||||||||||
| Increase (reduction) resulting from: | |||||||||||||||||
| Non-U.S. income taxed at different statutory rates | 14 | 64 | 89 | ||||||||||||||
| Changes in tax laws | (298) | 1 | (14) | ||||||||||||||
| Return to accrual adjustments | (50) | 9 | (47) | ||||||||||||||
| State income taxes, net of federal benefit | (2) | 29 | 53 | ||||||||||||||
| Exempt income | (144) | (182) | (296) | ||||||||||||||
| Liquidation loss | — | (51) | — | ||||||||||||||
| Patent box ruling | — | (65) | — | ||||||||||||||
| Uncertain tax positions | 97 | (42) | (320) | ||||||||||||||
| Other, net | 49 | 34 | 33 | ||||||||||||||
| Income tax provision | $ | (43) | $ | 648 | $ | 613 |
Our exempt income primarily includes interest income, export incentives, and equity earnings of joint ventures. Interest income earned by certain of our European subsidiaries through intercompany financings is 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.
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 | 2020 | 2019 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Accelerated tax depreciation | $ | 1,992 | $ | 1,973 | |||||||
| Investment in joint venture partnerships | 532 | 141 | |||||||||
| Intangible assets | 75 | 116 | |||||||||
| Inventory | 323 | 319 | |||||||||
| Operating lease assets | 335 | 322 | |||||||||
| Other liabilities | 89 | 45 | |||||||||
| Total deferred tax liabilities | 3,346 | 2,916 | |||||||||
| Deferred tax assets: | |||||||||||
| Tax attributes | $ | 242 | $ | 168 | |||||||
| Employee benefit plans | 426 | 397 | |||||||||
| Operating lease liabilities | 341 | 326 | |||||||||
| Other assets | 176 | 133 | |||||||||
| Total deferred tax assets | 1,185 | 1,024 | |||||||||
| Deferred tax asset valuation allowances | (132) | (85) | |||||||||
| Net deferred tax assets | 1,053 | 939 | |||||||||
| Net deferred tax liabilities | $ | 2,293 | $ | 1,977 |
| December 31, | |||||||||||
| Millions of dollars | 2020 | 2019 | |||||||||
| Balance sheet classifications: | |||||||||||
| Deferred tax assets—long-term | $ | 39 | $ | 38 | |||||||
| Deferred tax liabilities—long-term | 2,332 | 2,015 | |||||||||
| Net deferred tax liabilities | $ | 2,293 | $ | 1,977 |
Deferred taxes on the unremitted earnings of certain equity joint ventures and subsidiaries of $89 million and $95 million at December 31, 2020 and 2019, respectively, have been provided. The Company intends to permanently reinvest approximately $590 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.
At December 31, 2020 and 2019, we had total tax attributes available in the amount of $1,221 million and $877 million, respectively, for which a deferred tax asset was recognized at December 31, 2020 and 2019 of $242 million and $168 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, 2020 are as follows:
| Millions of dollars | Tax Attributes | Deferred Tax on Tax Attributes | |||||||||
| 2021 | $ | 18 | $ | 1 | |||||||
| 2022 | 41 | 2 | |||||||||
| 2023 | 37 | 1 | |||||||||
| 2024 | 21 | 1 | |||||||||
| 2025 | 43 | 2 | |||||||||
| Thereafter | 468 | 79 | |||||||||
| Indefinite | 593 | 156 | |||||||||
| Total | $ | 1,221 | $ | 242 |
The tax attributes are primarily related to operations in The Netherlands, France, United Kingdom and United States. The related deferred tax assets by primary jurisdictions are shown below:
| December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| The Netherlands | $ | 103 | $ | 4 | $ | 12 | |||||||||||
| France | 58 | 30 | 64 | ||||||||||||||
| United Kingdom | 30 | 36 | 36 | ||||||||||||||
| United States | 25 | 68 | 14 | ||||||||||||||
| Spain | 6 | 8 | 11 | ||||||||||||||
| Canada | — | — | 28 | ||||||||||||||
| Other | 20 | 22 | 15 | ||||||||||||||
| Total | $ | 242 | $ | 168 | $ | 180 |
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 are expected to reverse, management believes it is more likely than not that $110 million of these deferred tax assets at December 31, 2020 will be realized.
As of each reporting date, 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 assets.
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 | 2020 | 2019 | 2018 | ||||||||||||||
| The Netherlands | $ | 57 | $ | 3 | $ | 12 | |||||||||||
| United Kingdom | 30 | 36 | 33 | ||||||||||||||
| France | 26 | 23 | 23 | ||||||||||||||
| United States | 14 | 13 | 13 | ||||||||||||||
| Canada | — | — | 28 | ||||||||||||||
| Other | 5 | 10 | 11 | ||||||||||||||
| $ | 132 | $ | 85 | $ | 120 |
During 2020, the valuation allowance in The Netherlands increased with respect to tax attributes for which we do not expect we can realize the benefit in the foreseeable future or before expiration.
During 2019, we liquidated the Canadian entity which had maintained a full valuation allowance against the net deferred tax asset 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.
Tax benefits totaling $339 million, $238 million and $269 million relating to uncertain tax positions were unrecognized as of December 31, 2020, 2019 and 2018, respectively. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2020 | 2019 | 2018 | ||||||||||||||
| Balance, beginning of period | $ | 238 | $ | 269 | $ | 544 | |||||||||||
| Additions for tax positions of current year | 1 | 49 | 16 | ||||||||||||||
| Additions for tax positions of prior years | 113 | 20 | 23 | ||||||||||||||
| Reductions for tax positions of prior years | (12) | (100) | (299) | ||||||||||||||
| Settlements (payments/refunds) | (1) | — | (15) | ||||||||||||||
| Balance, end of period | $ | 339 | $ | 238 | $ | 269 |
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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2020, we accrued a $113 million non-cash tax expense to our effective tax rate as an addition for tax positions of prior years. 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 $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 2018 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 an expense of interest and penalties of $1 million in 2020 and a benefit of interest and penalties totaling $1 million and $47 million in 2019 and 2018, respectively.
We had accrued approximately $16 million, $15 million and $16 million for interest and penalties as of December 31, 2020, 2019 and 2018, respectively.
17. 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, 2020, we had capital expenditure commitments, which we incurred in our normal course of business, including commitments of approximately $305 million related to building our new PO/TBA plant in Houston, Texas.
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 $133 million and $132 million as of December 31, 2020 and 2019, respectively. At December 31, 2020, 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 | 2020 | 2019 | ||||||||||||
| Beginning balance | $ | 132 | $ | 90 | ||||||||||
| Additional provisions | — | 44 | ||||||||||||
| Changes in estimates | 3 | 15 | ||||||||||||
| Amounts paid | (8) | (16) | ||||||||||||
| Foreign exchange effects | 6 | (1) | ||||||||||||
| Ending balance | $ | 133 | $ | 132 |
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, 2020, 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 assess 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 Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. 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 2020: | |||||||||||||||||
| March | $ | 1.05 | $ | 351 | March 2, 2020 | ||||||||||||
| June | 1.05 | 350 | June 8, 2020 | ||||||||||||||
| September | 1.05 | 352 | August 31, 2020 | ||||||||||||||
| December | 1.05 | 352 | November 30, 2020 | ||||||||||||||
| $ | 4.20 | $ | 1,405 | ||||||||||||||
| 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 |
Share Repurchase Authorization—In May 2020, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares through November 29, 2021 (“May 2020 Share Repurchase Authorization”), which superseded our prior repurchase authorization. The timing and amount of these repurchases, which are determined based on our evaluation of market 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 employer benefit and compensation plans. As of December 31, 2020, there were no repurchases under the May 2020 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 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.
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 2020: | |||||||||||||||||
| September 2019 Share Repurchase Authorization | 50,685 | $ | 78.93 | $ | 4 | ||||||||||||
| May 2020 Share Repurchase Authorization | — | — | — | ||||||||||||||
| 50,685 | $ | 78.93 | $ | 4 | |||||||||||||
| 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 |
Due to the timing of settlements, total cash paid for share repurchases for the years ended December 31, 2020, 2019 and 2018 was $4 million, $3,752 million and $1,854 million, respectively.
Ordinary Shares—The changes in the outstanding amounts of ordinary shares are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Ordinary shares outstanding: | |||||||||||||||||
| Beginning balance | 333,476,883 | 375,696,661 | 394,512,054 | ||||||||||||||
| Share-based compensation | 263,786 | 295,984 | 307,335 | ||||||||||||||
| Employee stock purchase plan | 325,236 | 165,743 | 121,398 | ||||||||||||||
| Purchase of ordinary shares | (50,685) | (42,681,505) | (19,244,126) | ||||||||||||||
| Ending balance | 334,015,220 | 333,476,883 | 375,696,661 |
Treasury Shares—The changes in the amounts of treasury shares held by the Company are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Ordinary shares held as treasury shares: | |||||||||||||||||
| Beginning balance | 6,568,745 | 24,513,619 | 183,928,109 | ||||||||||||||
| Share-based compensation | (263,786) | (295,984) | (307,335) | ||||||||||||||
| Employee stock purchase plan | (325,236) | (165,743) | (121,398) | ||||||||||||||
| Purchase of ordinary shares | 50,685 | 42,681,505 | 19,244,126 | ||||||||||||||
| Treasury shares canceled | — | (60,164,652) | (178,229,883) | ||||||||||||||
| Ending balance | 6,030,408 | 6,568,745 | 24,513,619 |
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 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, 2020, 2019 and 2018 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—December 31, 2017 | $ | (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) | |||||||||||||||||||||||
| 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) | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (471) | 1 | — | (109) | 77 | (502) | |||||||||||||||||||||||||||||
| Tax (expense) benefit before reclassifications | 110 | — | — | 25 | 30 | 165 | |||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 175 | — | — | 58 | — | 233 | |||||||||||||||||||||||||||||
| Tax (expense) benefit | (40) | — | — | (15) | — | (55) | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | (226) | 1 | — | (41) | 107 | (159) | |||||||||||||||||||||||||||||
| Balance—December 31, 2020 | $ | (426) | $ | 1 | $ | — | $ | (752) | $ | (766) | $ | (1,943) |
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 | |||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||
| Reclassification adjustments for: | |||||||||||||||||||||||
| Financial derivatives | $ | 175 | $ | (50) | $ | (110) | Other income, net | ||||||||||||||||
| Income tax expense (benefit) | 40 | (13) | (27) | Provision for income taxes | |||||||||||||||||||
| Financial derivatives, net of tax | 135 | (37) | (83) | ||||||||||||||||||||
| Amortization of defined pension items: | |||||||||||||||||||||||
| Prior service cost | 3 | 2 | 1 | Other income, net | |||||||||||||||||||
| Actuarial loss | 53 | 26 | 32 | Other income, net | |||||||||||||||||||
| Settlement loss | 6 | 1 | 3 | Other income, net | |||||||||||||||||||
| Curtailment gain | (4) | — | — | Other income, net | |||||||||||||||||||
| Income tax expense (benefit) | 15 | 6 | 13 | Provision for income taxes | |||||||||||||||||||
| Defined pension items, net of tax | 43 | 23 | 23 | ||||||||||||||||||||
| Total reclassifications, before tax | 233 | (21) | (74) | ||||||||||||||||||||
| Income tax expense (benefit) | 55 | (7) | (14) | Provision for income taxes | |||||||||||||||||||
| Total reclassifications, after tax | $ | 178 | $ | (14) | $ | (60) | 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 14 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.
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, 2020 and 2019, we had 115,374 shares of redeemable non-controlling interest stock outstanding.
In February, May, August and November 2020, we paid cash dividends of $15.00 per share to our redeemable non-controlling interest shareholders of record as of January 15, 2020, April 15, 2020, July 15, 2020, and October 15, 2020, respectively. In 2020, 2019 and 2018, these dividends totaled $7 million, $7 million and $2 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
19. 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. Our unvested restricted stock units contain non-forfeitable rights to dividend equivalents, and are considered participating securities. As such, we calculate basic and diluted earnings per share under the two-class method.
Earnings per share data are as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| Continuing | Discontinued | Continuing | Discontinued | Continuing | Discontinued | ||||||||||||||||||||||||||||||
| Millions of dollars | Operations | Operations | Operations | Operations | Operations | Operations | |||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,429 | $ | (2) | $ | 3,404 | $ | (7) | $ | 4,698 | $ | (8) | |||||||||||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | — | (7) | — | (2) | — | |||||||||||||||||||||||||||||
| Net income attributable to participating securities | (3) | — | (6) | — | (6) | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to ordinary shareholders—basic | $ | 1,419 | $ | (2) | $ | 3,391 | $ | (7) | $ | 4,690 | $ | (8) | |||||||||||||||||||||||
| Potential diluted effect of performance share units | — | — | — | — | (5) | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to ordinary shareholders— diluted | $ | 1,419 | $ | (2) | $ | 3,391 | $ | (7) | $ | 4,685 | $ | (8) | |||||||||||||||||||||||
| Millions of shares, except per share amounts | |||||||||||||||||||||||||||||||||||
| Basic weighted average common stock outstanding | 334 | 334 | 353 | 353 | 389 | 389 | |||||||||||||||||||||||||||||
| Effect of dilutive securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Potential dilutive shares | 334 | 334 | 353 | 353 | 389 | 389 | |||||||||||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 4.25 | $ | (0.01) | $ | 9.61 | $ | (0.02) | $ | 12.06 | $ | (0.02) | |||||||||||||||||||||||
| Diluted | $ | 4.25 | $ | (0.01) | $ | 9.60 | $ | (0.02) | $ | 12.03 | $ | (0.02) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. 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, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| O&P – Americas | O&P – EAI | I&D | APS | Refining | Technology | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Customers | $ | 5,032 | $ | 7,809 | $ | 6,144 | $ | 3,903 | $ | 4,346 | $ | 519 | $ | — | $ | 27,753 | |||||||||||||||||||||||||||||||
| Intersegment | 2,243 | 558 | 125 | 10 | 381 | 140 | (3,457) | — | |||||||||||||||||||||||||||||||||||||||
| 7,275 | 8,367 | 6,269 | 3,913 | 4,727 | 659 | (3,457) | 27,753 | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 525 | 214 | 305 | 152 | 152 | 37 | — | 1,385 | |||||||||||||||||||||||||||||||||||||||
| Other income, net | 70 | 14 | 1 | 1 | 1 | — | (2) | 85 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) from equity investments | 45 | 186 | 26 | (1) | — | — | — | 256 | |||||||||||||||||||||||||||||||||||||||
| Capital expenditures | 543 | 166 | 880 | 63 | 63 | 111 | 121 | 1,947 | |||||||||||||||||||||||||||||||||||||||
| EBITDA | 1,810 | 826 | 833 | 378 | (871) | 324 | (15) | 3,285 |
| Year Ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | O&P – Americas | O&P – EAI | I&D | APS | Refining | Technology | Other | Total | |||||||||||||||||||||||||||||||||||||||
| 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 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operating results for our O&P–EAI segment include a $36 million gain from the sale of our carbon black subsidiary in France in 2018.
Operating results for our APS segment include integration costs of $37 million and $116 million in 2020 and 2019, respectively, and acquisition-related transaction and integration costs of $69 million in 2018 associated with our acquisition of A. Schulman in August 2018. Integration activities related to our acquisition of A. Schulman were substantially completed by the third quarter of 2020.
Operating results for our Refining segment include a non-cash impairment charge of $582 million which was recognized during the third quarter of 2020.
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 | 2020 | 2019 | 2018 | ||||||||||||||
| EBITDA: | |||||||||||||||||
| Total segment EBITDA | $ | 3,300 | $ | 5,691 | $ | 6,831 | |||||||||||
| Other EBITDA | (15) | 1 | 36 | ||||||||||||||
| Less: | |||||||||||||||||
| Depreciation and amortization expense | (1,385) | (1,312) | (1,241) | ||||||||||||||
| Interest expense | (526) | (347) | (360) | ||||||||||||||
| Add: | |||||||||||||||||
| Interest income | 12 | 19 | 45 | ||||||||||||||
| Income from continuing operations before income taxes | $ | 1,386 | $ | 4,052 | $ | 5,311 |
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, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | $ | 6,537 | $ | 1,820 | $ | 4,245 | $ | 818 | $ | 555 | $ | 411 | $ | 14,386 | |||||||||||||||||||||||||||||||||
| Equity investments | 2,167 | 1,929 | 631 | 2 | — | — | 4,729 | ||||||||||||||||||||||||||||||||||||||||
| Goodwill | 162 | 142 | 259 | 1,379 | — | 11 | 1,953 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | $ | 6,454 | $ | 1,706 | $ | 3,640 | $ | 806 | $ | 1,190 | $ | 334 | $ | 14,130 | |||||||||||||||||||||||||||||||||
| Equity investments | 193 | 1,335 | 575 | 3 | — | — | 2,106 | ||||||||||||||||||||||||||||||||||||||||
| Goodwill | 162 | 112 | 228 | 1,380 | — | 9 | 1,891 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-lived assets include Property, plant and equipment, net, Intangible assets, net and Equity investments, see Notes 7 and 8 to the Consolidated Financial Statements. The following long-lived assets data is based upon the location of the assets:
| December 31, | |||||||||||
| Millions of dollars | 2020 | 2019 | |||||||||
| Long-lived assets: | |||||||||||
| United States | $ | 13,940 | $ | 11,999 | |||||||
| Germany | 1,517 | 1,476 | |||||||||
| The Netherlands | 921 | 814 | |||||||||
| China | 697 | 141 | |||||||||
| France | 594 | 540 | |||||||||
| Italy | 338 | 326 | |||||||||
| Mexico | 257 | 249 | |||||||||
| Other | 1,602 | 1,560 | |||||||||
| Total | $ | 19,866 | $ | 17,105 |
21. Unaudited Quarterly Results
The following table presents selected quarterly financial data:
| For the 2020 Quarter Ended | |||||||||||||||||||||||
| Millions of dollars, except per share amounts | March 31 | June 30 | September 30 | December 31 | |||||||||||||||||||
| Sales and other operating revenues | $ | 7,494 | $ | 5,546 | $ | 6,776 | $ | 7,937 | |||||||||||||||
| Gross profit(a) | 626 | 652 | 891 | 1,225 | |||||||||||||||||||
| Operating income(b) | 304 | 339 | 23 | 893 | |||||||||||||||||||
| Income from equity investments | — | 61 | 62 | 133 | |||||||||||||||||||
| Income from continuing operations(b)(c) | 143 | 315 | 114 | 857 | |||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | 1 | (1) | — | (2) | |||||||||||||||||||
| Net income(b)(c) | 144 | 314 | 114 | 855 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | 0.42 | 0.94 | 0.33 | 2.55 | |||||||||||||||||||
| Diluted | 0.42 | 0.94 | 0.33 | 2.55 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 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 |
(a)Represents Sales and other operating revenues less Cost of sales.
(b)The three months ended March, June and September 2020 include charges for integration costs associated with our acquisition of A. Schulman of $14 million, $16 million and $7 million ($13 million, $11 million and $3 million, after tax), respectively. Integration activities related to our acquisition of A. Schulman were substantially completed during the third quarter of 2020.
Includes an LCM inventory valuation charge of $419 million ($351 million, after tax) in the three months ended March 31, 2020 and LCM valuation benefits in the three months ended June, September and December 2020 of $96 million, $160 million and $147 million ($88 million, $133 million and $119 million, after tax), respectively.
The three months ended September and December 2020 includes LIFO inventory charges of $80 million and $23 million ($62 million and $16 million, after tax), respectively.
Additionally, the three months ended September 30, 2020 include Impairment of long-lived assets of $582 million ($446 million, after tax) related to our Houston refinery.
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. The three months ended December 31, 2019 includes a pre-tax LCM inventory valuation charge of $33 million ($25 million, after tax) and a LIFO inventory benefit $63 million ($46 million, after tax**)**.
(c)The three months ended December 31, 2020 includes total charges to interest expense of $69 million ($53 million, after tax) related to the redemption of $1,000 million aggregate principal amount of our then outstanding 6% senior notes due 2021 and €750 million aggregate principal amount of our then outstanding 1.875% guaranteed notes due 2022.
The three months ended September 30, 2019 includes a non-cash benefit of $85 million 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.
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