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, 2023 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, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 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, 2023 and 2022, 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, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Taxation - Provisions for unrecognized tax benefits
As described in Notes 2, 10, 11, and 17 to the consolidated financial statements, as of December 31, 2023, the Company has recorded an income tax provision of $501 million, income tax receivables of $268 million, income tax payables of $143 million, and net deferred tax liabilities of $2,690 million related to which they have reported $288 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 continues to be increased attention to the tax practices of multinational companies, in particular in the U.S. and Europe where the Company operates.
The principal considerations for our determination that performing procedures relating to the provision for unrecognized tax benefits is a critical audit matter are (i) 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; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s timely identification of tax uncertainties; and (iii) 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 (i) testing management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (ii) testing the completeness of management’s assessment of both the identification and possible outcomes of uncertain tax positions; and (iii) evaluating the status and results of tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in evaluating the completeness of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more likely than not of being sustained and the amount of potential benefit to be realized, as well as the determination and the application of relevant tax laws.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 22, 2024
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 | 2023 | 2022 | 2021 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| Trade | $ | 40,493 | $ | 49,439 | $ | 45,135 | |||||||||||
| Related parties | 614 | 1,012 | 1,038 | ||||||||||||||
| 41,107 | 50,451 | 46,173 | |||||||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Cost of sales | 35,849 | 43,847 | 37,397 | ||||||||||||||
| Impairments | 518 | 69 | 624 | ||||||||||||||
| Selling, general and administrative expenses | 1,557 | 1,310 | 1,255 | ||||||||||||||
| Research and development expenses | 130 | 124 | 124 | ||||||||||||||
| 38,054 | 45,350 | 39,400 | |||||||||||||||
| Operating income | 3,053 | 5,101 | 6,773 | ||||||||||||||
| Interest expense | (477) | (287) | (519) | ||||||||||||||
| Interest income | 129 | 29 | 9 | ||||||||||||||
| Other (expense) income, net | (58) | (72) | 62 | ||||||||||||||
| Income from continuing operations before equity investments and income taxes | 2,647 | 4,771 | 6,325 | ||||||||||||||
| (Loss) income from equity investments | (20) | 5 | 461 | ||||||||||||||
| Income from continuing operations before income taxes | 2,627 | 4,776 | 6,786 | ||||||||||||||
| Provision for income taxes | 501 | 882 | 1,163 | ||||||||||||||
| Income from continuing operations | 2,126 | 3,894 | 5,623 | ||||||||||||||
| Loss from discontinued operations, net of tax | (5) | (5) | (6) | ||||||||||||||
| Net income | 2,121 | 3,889 | 5,617 | ||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | (7) | (7) | ||||||||||||||
| Net income attributable to the Company shareholders | $ | 2,114 | $ | 3,882 | $ | 5,610 | |||||||||||
| Earnings per share: | |||||||||||||||||
| Net income (loss) attributable to the Company shareholders — | |||||||||||||||||
| Basic: | |||||||||||||||||
| Continuing operations | $ | 6.50 | $ | 11.86 | $ | 16.79 | |||||||||||
| Discontinued operations | (0.02) | (0.02) | (0.02) | ||||||||||||||
| $ | 6.48 | $ | 11.84 | $ | 16.77 | ||||||||||||
| Diluted: | |||||||||||||||||
| Continuing operations | $ | 6.48 | $ | 11.83 | $ | 16.77 | |||||||||||
| Discontinued operations | (0.02) | (0.02) | (0.02) | ||||||||||||||
| $ | 6.46 | $ | 11.81 | $ | 16.75 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Net income | $ | 2,121 | $ | 3,889 | $ | 5,617 | |||||||||||
| Other comprehensive income (loss), net of tax— | |||||||||||||||||
| Financial derivatives | (80) | 208 | 72 | ||||||||||||||
| Unrealized loss on available-for-sale debt securities | — | — | (1) | ||||||||||||||
| Defined benefit pension and other postretirement benefit plans | (97) | 346 | 224 | ||||||||||||||
| Foreign currency translations | 73 | (123) | (155) | ||||||||||||||
| Total other comprehensive (loss) income, net of tax | (104) | 431 | 140 | ||||||||||||||
| Comprehensive income | 2,017 | 4,320 | 5,757 | ||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | (7) | (7) | ||||||||||||||
| Comprehensive income attributable to the Company shareholders | $ | 2,010 | $ | 4,313 | $ | 5,750 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,390 | $ | 2,151 | |||||||
| Restricted cash | 15 | 5 | |||||||||
| Accounts receivable: | |||||||||||
| Trade, net | 3,356 | 3,392 | |||||||||
| Related parties | 151 | 201 | |||||||||
| Inventories | 4,765 | 4,804 | |||||||||
| Prepaid expenses and other current assets | 1,475 | 1,292 | |||||||||
| Total current assets | 13,152 | 11,845 | |||||||||
| Operating lease assets | 1,529 | 1,725 | |||||||||
| Property, plant and equipment, net | 15,547 | 15,387 | |||||||||
| Equity investments | 3,907 | 4,295 | |||||||||
| Goodwill | 1,647 | 1,827 | |||||||||
| Intangible assets, net | 641 | 662 | |||||||||
| Other assets | 577 | 624 | |||||||||
| Total assets | $ | 37,000 | $ | 36,365 |
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 | 2023 | 2022 | |||||||||
| LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt | $ | 782 | $ | 432 | |||||||
| Short-term debt | 117 | 349 | |||||||||
| Accounts payable: | |||||||||||
| Trade | 3,354 | 3,106 | |||||||||
| Related parties | 461 | 477 | |||||||||
| Accrued and other current liabilities | 2,436 | 2,396 | |||||||||
| Total current liabilities | 7,150 | 6,760 | |||||||||
| Long-term debt | 10,333 | 10,540 | |||||||||
| Operating lease liabilities | 1,409 | 1,510 | |||||||||
| Other liabilities | 2,164 | 1,954 | |||||||||
| Deferred income taxes | 2,886 | 2,858 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable non-controlling interests | 114 | 114 | |||||||||
| Shareholders’ equity: | |||||||||||
| Ordinary shares, €0.04 par value, 1,275 million shares authorized, 324,483,402 and 325,723,567 shares outstanding, respectively | 19 | 19 | |||||||||
| Additional paid-in capital | 6,145 | 6,119 | |||||||||
| Retained earnings | 9,692 | 9,195 | |||||||||
| Accumulated other comprehensive loss | (1,476) | (1,372) | |||||||||
| Treasury stock, at cost, 15,939,096 and 14,698,931 ordinary shares, respectively | (1,450) | (1,346) | |||||||||
| Total Company share of shareholders’ equity | 12,930 | 12,615 | |||||||||
| Non-controlling interests | 14 | 14 | |||||||||
| Total equity | 12,944 | 12,629 | |||||||||
| Total liabilities, redeemable non-controlling interests and equity | $ | 37,000 | $ | 36,365 |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 2,121 | $ | 3,889 | $ | 5,617 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 1,534 | 1,267 | 1,393 | ||||||||||||||
| Impairments | 518 | 69 | 624 | ||||||||||||||
| Amortization of debt-related costs | 9 | 14 | 35 | ||||||||||||||
| Share-based compensation | 91 | 70 | 66 | ||||||||||||||
| Equity investments— | |||||||||||||||||
| Equity loss (income) | 20 | (5) | (461) | ||||||||||||||
| Distributions of earnings, net of tax | 169 | 349 | 315 | ||||||||||||||
| Deferred income tax provision (benefit) | 43 | 369 | (198) | ||||||||||||||
| Changes in assets and liabilities that provided (used) cash: | |||||||||||||||||
| Accounts receivable | 110 | 1,005 | (1,519) | ||||||||||||||
| Inventories | 18 | (91) | (742) | ||||||||||||||
| Accounts payable | 141 | (464) | 1,301 | ||||||||||||||
| Other, net | 168 | (353) | 1,264 | ||||||||||||||
| Net cash provided by operating activities | 4,942 | 6,119 | 7,695 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Expenditures for property, plant and equipment | (1,531) | (1,890) | (1,959) | ||||||||||||||
| Proceeds from sales and maturities of available-for-sale debt securities | — | — | 346 | ||||||||||||||
| Proceeds from equity securities | — | 8 | 335 | ||||||||||||||
| Proceeds from settlement of net investment hedges | 903 | 614 | 358 | ||||||||||||||
| Payments for settlement of net investment hedges | (820) | (501) | (355) | ||||||||||||||
| Other, net | (329) | (208) | (227) | ||||||||||||||
| Net cash used in investing activities | $ | (1,777) | $ | (1,977) | $ | (1,502) |
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Repurchases of Company ordinary shares | $ | (211) | $ | (420) | $ | (463) | |||||||||||
| Dividends paid - common stock | (1,610) | (3,246) | (1,486) | ||||||||||||||
| Issuance of long-term debt | 500 | — | — | ||||||||||||||
| Payments of debt issuance costs | (5) | — | (3) | ||||||||||||||
| Repayments of long-term debt | (425) | — | (3,925) | ||||||||||||||
| Debt extinguishment costs | — | — | (150) | ||||||||||||||
| Net repayments of commercial paper | (200) | (4) | (296) | ||||||||||||||
| Net collateral received from interest rate derivatives | — | 238 | — | ||||||||||||||
| Proceeds from settlement of cash flow hedges | — | — | 855 | ||||||||||||||
| Payments for settlement of cash flow hedges | — | — | (904) | ||||||||||||||
| Other, net | 1 | 25 | (13) | ||||||||||||||
| Net cash used in financing activities | (1,950) | (3,407) | (6,385) | ||||||||||||||
| Effect of exchange rate changes on cash | 34 | (56) | (96) | ||||||||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | 1,249 | 679 | (288) | ||||||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 2,156 | 1,477 | 1,765 | ||||||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 3,405 | $ | 2,156 | $ | 1,477 | |||||||||||
| Supplemental Cash Flow Information: | |||||||||||||||||
| Interest paid, net of capitalized interest | $ | 487 | $ | 297 | $ | 414 | |||||||||||
| Net income taxes paid | 465 | 746 | 310 |
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, 2020 | $ | 19 | $ | (531) | $ | 5,986 | $ | 4,440 | $ | (1,943) | $ | 7,971 | $ | 17 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 5,617 | — | 5,617 | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 140 | 140 | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 43 | 58 | (1) | — | 100 | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - common stock ($4.44 per share) | — | — | — | (1,486) | — | (1,486) | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - redeemable non-controlling interests ($60.00 per share) | — | — | — | (7) | — | (7) | — | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of Company ordinary shares | — | (477) | — | — | — | (477) | — | ||||||||||||||||||||||||||||||||||||||||
| Sales of non-controlling interests | — | — | — | — | — | — | (3) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 19 | $ | (965) | $ | 6,044 | $ | 8,563 | $ | (1,803) | $ | 11,858 | $ | 14 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 3,889 | — | 3,889 | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 431 | 431 | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 25 | 75 | (4) | — | 96 | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - common stock ($4.70 per share) | — | — | — | (1,542) | — | (1,542) | — | ||||||||||||||||||||||||||||||||||||||||
| Special dividends - common stock ($5.20 per share) | — | — | — | (1,704) | — | (1,704) | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - redeemable non-controlling interests ($60.00 per share) | — | — | — | (7) | — | (7) | — | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of Company ordinary shares | — | (406) | — | — | — | (406) | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | 19 | $ | (1,346) | $ | 6,119 | $ | 9,195 | $ | (1,372) | $ | 12,615 | $ | 14 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,121 | — | 2,121 | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (104) | (104) | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 107 | 26 | (7) | — | 126 | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - common stock ($4.94 per share) | — | — | — | (1,610) | — | (1,610) | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends - redeemable non-controlling interests ($60.00 per share) | — | — | — | (7) | — | (7) | — | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of Company ordinary shares | — | (211) | — | — | — | (211) | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | 19 | $ | (1,450) | $ | 6,145 | $ | 9,692 | $ | (1,476) | $ | 12,930 | $ | 14 |
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.
Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our Advanced Polymer Solutions segment and reintegrated into our Olefins and Polyolefins-Americas and Olefins and Polyolefins-Europe, Asia, International segments. Segment information provided within has been revised for all periods presented to reflect these changes.
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 also include other instruments with maturities of three months or less when acquired and exclude restricted cash.
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 (loss). Credit-related impairments, measured using expected cash flows and limited to the amount by which the amortized cost basis of a security exceeds its fair value, are 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.
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)
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 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 legally obligated 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 carrying value exceeded its estimated fair value, the asset is written down to its estimated fair value.
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 do not control 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”) joint venture located in Texas (the “U.S. PO Joint Venture”) and a PO/styrene monomer (“SM” or “styrene”) joint venture located in The Netherlands (the “European PO Joint Venture”), collectively the (“PO Joint Ventures”). We operate the PO Joint Ventures manufacturing facilities and arrange the logistics of product delivery. Each partner funds their share of capital expenditures, reimburses manufacturing operating expenses excluding depreciation and amortization expenses, and receives a share of production in-kind.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The U.S. PO Joint Venture owns a PO/SM and a PO/tertiary butyl alcohol (“TBA”) plant. Covestro’s interest in the U.S. PO Joint Venture represents ownership of an in-kind portion of the PO production of 680 thousand tons per year. We take, in-kind, the remaining PO production and all co-product production.
The European PO Joint Venture owns a PO/SM plant in which each partner is entitled to 50% of the annual in-kind cost-based PO and SM production.
We entered into a 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 plant, and associated infrastructure. Under the terms of the joint venture agreement, each partner provides pro-rata share of ethane feedstocks and off-takes pro-rata shares of cracker and polyethylene products in-kind. We operate the Louisiana Joint Venture assets and market the polyethylene off-take for all partners through our global sales team.
We account for the PO Joint Ventures and the Louisiana Joint Venture using the equity method. The joint ventures were formed solely for the benefit of the partners and do not manufacture for any other parties. 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.
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 2.2 million, 2.4 million and 2.6 million tons in 2023, 2022 and 2021, respectively. Our product off-take of ethylene and polyethylene produced from the Louisiana Joint Venture was 1.2 million, 1.0 million, and 1.1 million tons in 2023, 2022, and 2021, respectively.
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 and 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. 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 less than 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 fair value, a quantitative test is required. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized up to a maximum amount of goodwill allocated to that reporting unit.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our Advanced Polymer Solutions segment and reintegrated into our Olefins and Polyolefins-Americas and Olefins and Polyolefins-Europe, Asia, International segments. Related to this change we evaluated goodwill for impairment immediately before and after the transfer of these businesses. Our evaluation resulted in the recognition of a non-cash goodwill impairment of $252 million in our Advanced Polymer Solutions segment in the first quarter of 2023. See Notes 8 and 21 to the Consolidated Financial Statements.
In the fourth quarter of 2023, we performed a quantitative impairment assessment for our reporting units within our Advanced Polymer Solutions segment and a qualitative impairment assessment of our other 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 in the fourth quarter was not necessary.
Intangible Assets
Intangible assets consist of emission allowances, various contracts, software costs, patents and trademarks, know-how, and in-process research and development 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 (expense) income, 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 (loss) or directly in equity. In these cases, the applicable tax amount is recognized in other comprehensive income (loss) or directly in equity, respectively.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recognized 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Asset Retirement Obligations—At some sites, we are legally obligated to decommission our plants upon site exit. Asset retirement obligations are recorded at the fair value using 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 recognized over the estimated timeline to settle the obligation. Such depreciation and accretion expenses are included in Cost of sales.
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 (loss) (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 the balance sheet date 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 occurs within a short time frame. We apply the practical expedient which permits us to disregard the effects of a significant financing component when, at contract inception, we expect the period between the payment and fulfillment of the performance obligation will be one year or less.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 and other current liabilities, and Other liabilities, consist primarily of customer payments for products or services received before the transfer of control to the customer occurs.
Share-Based Compensation
We grant restricted stock units (“RSUs”), stock option awards (“Stock options”), performance share units (“PSUs”), and other cash and stock awards to employees as a form of compensation. Our share-based compensation awards are accounted for as equity-classified awards with compensation expense based on the grant date fair value and 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 ratable-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. The holders of unvested RSUs are entitled to nonforfeitable dividend equivalents settled in the form of cash payments, which are recognized as dividends in Retained earnings. 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 and other current liabilities and Other liabilities on the Consolidated Balance Sheets. Dividend equivalents for PSUs are also recorded in Retained earnings. See Notes 16 and 19 to the Consolidated Financial Statements for additional information.
Leases
Leases with a term longer than 12 months are recorded on the balance sheet as a lease asset and lease liability. If at inception of a contract, a lease is identified, we recognize a lease 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. Other 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. Certain derivatives used for this purpose are 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
Changes in Fair Value Levels—Management reviews the disclosures regarding fair value measurements at least quarterly. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are reclassified as Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is reclassified as Level 3.
We use the following inputs and valuation techniques to estimate the fair value of our financial instruments disclosed in Note 14 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.
*Equity Securities—*The fair value of our investment in equity securities is based on the net asset value provided by the fund administrator.
Short-Term Debt—The fair value of short-term borrowings related to precious metal financing arrangements accounted for as embedded derivatives is determined based on the future 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 was determined based on a discounted cash flow model using observable inputs such as benchmark interest rates and public information regarding our credit risk.
Fair Value Measurements - Pension Assets
We use the following inputs and valuation techniques to estimate the fair value of our pension assets disclosed in Note 15 to the Consolidated Financial Statements.
*Common and Preferred Stock—*Valued at the closing price reported on the market on which the individual securities are traded.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*Fixed Income Securities—*Certain securities that are not traded on an exchange are valued at the closing price reported by pricing services. Other securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
*Commingled Funds—*Valued based upon the net asset value of units of such commingled 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 based upon the net asset value of units of the real estate fund or partnership held by the master trust at year end.
*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, including Separate Trading of Registered Interest and Principal of Securities (“STRIPS”), are valued at the closing price reported on the active market on which the individual securities are traded.
*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 (loss) in the period in which they arise.
*Other Post-Employment Obligations—*Certain employees are entitled to post-retirement medical benefits upon retirement. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment applying the same accounting methodology used for defined benefit plans.
*Termination Benefits—*Contractual termination benefits are payable when employment is terminated due to an event specified in the provisions of a social/labor plan or statutory law. A liability is recognized for one-time termination benefits when we are committed to (i) make payments and the number of affected employees and the benefits to be received are known to both parties, and (ii) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal and can reasonably estimate such amount. Benefits falling due more than 12 months after the balance sheet date are discounted to present value.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Supply Chain Finance Arrangements
In an effort to maintain a strong and efficient supply chain, we facilitate a voluntary supply chain finance program that provides suppliers, at their sole discretion, the opportunity to sell their receivables due from us to a participating financial intermediary in order to be paid earlier than our contracted payment terms. We are not a party to any agreement between our suppliers and the financial intermediary. When a supplier utilizes the program and receives an early payment from the financial intermediary, the supplier takes a discount on the invoice. We pay the financial intermediary the full amount of the invoice on the contractually agreed upon due date. The majority of the suppliers using the program are on 90-day payment terms. There is no economic impact to the Company from a supplier’s decision to take an early payment. No guarantees are provided by us or any of our subsidiaries under the program.
As of December 31, 2023 and 2022, Accounts payable-Trade included $65 million and $53 million, respectively, payable to suppliers who have elected to participate in the supply chain financing program.
Recently Adopted Guidance
Supplier Finance Program—In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The guidance requires an entity that uses supplier finance programs in connection with the purchase of goods and services to disclose certain qualitative and quantitative information about its programs including the key terms and conditions, activity during the period, and potential magnitude. The guidance is effective retrospectively for the year ending December 31, 2023, including interim periods, with disclosures required for each period for which a balance sheet is presented, except for the disclosure of roll forward information, which is effective for fiscal years beginning after December 15, 2023. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
Accounting Guidance Issued But Not Adopted as of December 31, 2023
Fair Value Measurement—In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security because it is a characteristic of the entity holding the equity security rather than a characteristic of the security and is not considered in measuring its fair value. The guidance is effective prospectively for the year ending December 31, 2024, including the interim periods, with the impact of adoption reflected in earnings. Early adoption is permitted. The adoption of this guidance will not have a material impact on our Consolidated Financial Statements.
Segment Disclosures—In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance improves the disclosures about a public entity’s reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment’s expenses. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the impact of adopting the new guidance on our Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Tax Disclosures—In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 74): Improvements to Income Tax Disclosures. The guidance requires companies to disclose certain specific categories in the rate reconciliation and provide additional information for reconciling items that meet the quantitative threshold of 5% of the expected tax using the applicable statutory income tax rate. There is also a required disclosure to provide the net income taxes paid or received disaggregated by federal, state, and foreign taxes with jurisdictions to be separately disclosed if the jurisdiction is 5% or more of the total net income taxes paid or received. The guidance is effective for annual periods beginning after December 15, 2024. Earlier adoption is permitted. We are currently assessing the impact of adopting the new guidance on our Consolidated Financial Statements.
3. Assets Held for Sale
During the fourth quarter of 2023, we entered into an agreement to sell our U.S. Gulf Coast-based ethylene oxide and derivatives (“EO&D”) business along with the production facility located in Bayport, TX for cash consideration of $700 million, subject to working capital and other adjustments. The EO&D business had been identified as a non-core business within our Intermediates and Derivatives segment. The transaction is expected to close in the second quarter of 2024 following completion of the planned maintenance at the facility and is subject to regulatory and other customary closing conditions.
The following table summarizes the assets and liabilities held for sale:
| Millions of dollars | December 31, 2023 | ||||
| ASSETS | |||||
| Accounts receivable - Trade, net | $ | 42 | |||
| Inventories | 100 | ||||
| Prepaid expenses and other current assets | 43 | ||||
| Operating lease assets | 20 | ||||
| Property, plant and equipment, net | 225 | ||||
| Goodwill | 14 | ||||
| Total assets held for sale | $ | 444 | |||
| LIABILITIES | |||||
| Short-term debt | $ | 43 | |||
| Accounts payable - Trade | 51 | ||||
| Accrued and other current liabilities | 7 | ||||
| Operating lease liabilities | 19 | ||||
| Total liabilities held for sale | $ | 120 |
4. Revenues
*Contract Balances—*Contract liabilities were $175 million and $167 million at December 31, 2023 and 2022, 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 and distillates.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenues disaggregated by key products are summarized below:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| Olefins & co-products | $ | 3,508 | $ | 4,782 | $ | 5,008 | |||||||||||
| Polyethylene | 7,587 | 9,694 | 10,219 | ||||||||||||||
| Polypropylene | 5,642 | 7,458 | 8,892 | ||||||||||||||
| Propylene oxide and derivatives | 2,287 | 3,097 | 2,885 | ||||||||||||||
| Oxyfuels and related products | 5,640 | 5,482 | 3,587 | ||||||||||||||
| Intermediate chemicals | 2,864 | 4,012 | 3,415 | ||||||||||||||
| Compounding and solutions | 3,686 | 4,197 | 4,150 | ||||||||||||||
| Refined products | 9,179 | 10,975 | 7,178 | ||||||||||||||
| Other | 714 | 754 | 839 | ||||||||||||||
| Total | $ | 41,107 | $ | 50,451 | $ | 46,173 |
The following table presents our revenues disaggregated by geography, based upon the location of the customer:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||
| United States | $ | 20,003 | $ | 24,789 | $ | 22,526 | |||||||||||
| Germany | 2,547 | 3,555 | 3,395 | ||||||||||||||
| China | 2,164 | 2,533 | 2,322 | ||||||||||||||
| Japan | 1,749 | 1,954 | 1,417 | ||||||||||||||
| Mexico | 1,642 | 2,042 | 1,572 | ||||||||||||||
| Italy | 1,365 | 1,737 | 1,828 | ||||||||||||||
| France | 1,091 | 1,366 | 1,431 | ||||||||||||||
| Poland | 905 | 1,271 | 1,169 | ||||||||||||||
| The Netherlands | 805 | 1,178 | 1,390 | ||||||||||||||
| Other | 8,836 | 10,026 | 9,123 | ||||||||||||||
| Total | $ | 41,107 | $ | 50,451 | $ | 46,173 |
Transaction Price Allocated to the Remaining Performance Obligations— 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 control, including volatility in commodity markets, industry production capacities and operating rates, planned and unplanned industry operating interruptions, foreign exchange rates and worldwide geopolitical trends. We have elected the practical expedient to not disclose unsatisfied performance obligations with an original contract duration of one year or less.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Related Party Transactions
We have related party transactions with our joint venture partners, which are classified as equity investees (see Note 9 to the Consolidated Financial Statements). These related party transactions include the sales and purchases of goods and services in the normal course of business as well as certain financing arrangements.
These transactions are summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| The Company billed related parties for: | |||||||||||||||||
| Sales of products— | |||||||||||||||||
| Joint venture partners | $ | 614 | $ | 1,012 | $ | 1,038 | |||||||||||
| Shared service agreements— | |||||||||||||||||
| Joint venture partners | 4 | 2 | 13 | ||||||||||||||
| Related parties billed the Company for: | |||||||||||||||||
| Sales of products— | |||||||||||||||||
| Joint venture partners | $ | 3,673 | $ | 4,837 | $ | 4,348 | |||||||||||
| Shared service agreements— | |||||||||||||||||
| Joint venture partners | 79 | 94 | 85 |
*Related Party Notes Receivable—*In July 2022, we executed a loan agreement with our joint venture partner to lend CNY300 million (approximately $42 million as of December 31, 2023) to our joint venture Bora LyondellBasell Petrochemical Co. Ltd. (“BLYB”). The loan matured six months from issuance with the option to extend up to nine times, in six months increments, with consent of the joint venture partners. As of December 31, 2023, the loan has been extended twice and matures in February 2024. It is expected the loan will be extended a third time in the first quarter of 2024. Interest accrues at the one-year prime rate from People’s Bank of China and is payable quarterly.
*Other—*We have guaranteed $18 million of the indebtedness of two of our joint ventures as of December 31, 2023.
6. Accounts Receivable
We sell our products primarily to other industrial concerns in the petrochemical and refining industries. We perform ongoing credit evaluations of our customers’ financial condition 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 $6 million in each of the years ended December 31, 2023 and 2022. We recorded allowance for credit losses for receivables, which are reflected in the Consolidated Statements of Income, however, such amounts were immaterial for each of the years ended December 31, 2023, 2022 and 2021.
7. Inventories
Inventories consisted of the following components at December 31:
| Millions of dollars | 2023 | 2022 | |||||||||
| Finished goods | $ | 3,134 | $ | 3,027 | |||||||
| Work-in-process | 182 | 227 | |||||||||
| Raw materials and supplies | 1,449 | 1,550 | |||||||||
| Total inventories | $ | 4,765 | $ | 4,804 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At December 31, 2023 and 2022, approximately 78% and 77%, 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. The excess of our inventories at estimated net realizable value over LIFO cost was approximately $1,478 million and $1,586 million at December 31, 2023 and 2022, respectively.
8. Property, Plant and Equipment, Goodwill and Intangible Assets
Property, Plant and Equipment—The components of property, plant and equipment, at cost, and the related accumulated depreciation are as follows at December 31:
| Millions of dollars | Estimated Useful Life (years) | 2023 | 2022 | ||||||||||||||||||||
| Land | $ | 327 | $ | 321 | |||||||||||||||||||
| Major manufacturing equipment | 25 | 14,875 | 13,257 | ||||||||||||||||||||
| Buildings | 30 | 2,513 | 2,280 | ||||||||||||||||||||
| Light equipment and instrumentation | 5 | - | 20 | 3,793 | 3,528 | ||||||||||||||||||
| Office furniture | 15 | 21 | 22 | ||||||||||||||||||||
| Major turnarounds | 4 | - | 7 | 1,888 | 1,732 | ||||||||||||||||||
| Information system equipment | 3 | - | 5 | 67 | 63 | ||||||||||||||||||
| Construction in progress | 1,422 | 2,521 | |||||||||||||||||||||
| Total property, plant and equipment | 24,906 | 23,724 | |||||||||||||||||||||
| Less accumulated depreciation | (9,359) | (8,337) | |||||||||||||||||||||
| Property, plant and equipment, net | $ | 15,547 | $ | 15,387 |
*Capitalized Interest—*We capitalize interest costs incurred on funds used to construct property, plant and equipment. In 2023, 2022 and 2021, we capitalized interest of $7 million, $114 million and $97 million, respectively.
Intangible Assets—The components of identifiable intangible assets, at cost, and the related accumulated amortization are as follows at December 31:
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Millions of dollars | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Emission allowances | $ | 760 | $ | (514) | $ | 246 | $ | 771 | $ | (513) | $ | 258 | ||||||||||||||||||||||||||
| Various contracts | 434 | (389) | 45 | 436 | (364) | 72 | ||||||||||||||||||||||||||||||||
| Customer relationships | 317 | (108) | 209 | 297 | (88) | 209 | ||||||||||||||||||||||||||||||||
| Software costs | 161 | (63) | 98 | 124 | (46) | 78 | ||||||||||||||||||||||||||||||||
| Other | 302 | (259) | 43 | 283 | (238) | 45 | ||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 1,974 | $ | (1,333) | $ | 641 | $ | 1,911 | $ | (1,249) | $ | 662 |
Amortization of these identifiable intangible assets for the next five years is expected to be $85 million in 2024, $82 million in 2025, $59 million in 2026, $37 million in 2027 and $36 million in 2028.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Houston Refinery Impairment—During the fourth quarter of 2021, following a review of strategic options for the Houston refinery, we determined there was an increased likelihood of the asset’s disposal prior to the end of its expected useful life. As a result, we assessed the Houston refinery for impairment and recognized a $624 million non-cash impairment charge that included a $549 million impairment of property, plant and equipment, a $43 million impairment of materials and supplies and a $32 million impairment of intangible assets, which reduced the assets’ carrying values to their fair values. The impairment was a result of our assessment that the fair value of the Houston refinery’s property, plant and equipment, materials and supplies and intangible assets were all zero as of December 31, 2021. The fair values of the impaired assets were determined using market information provided by unrelated third parties. The fair value measurement for the asset group is classified as Level 3. The charge is reflected as Impairments in the Consolidated Statements of Income.
Depreciation and Amortization Expense—Depreciation and amortization expense is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Property, plant and equipment | $ | 1,303 | $ | 1,033 | $ | 1,146 | |||||||||||
| PO Joint Ventures and Louisiana Joint Venture | 148 | 155 | 156 | ||||||||||||||
| Emission allowances | 8 | 8 | 12 | ||||||||||||||
| Various contracts | 18 | 18 | 20 | ||||||||||||||
| Customer relationships | 20 | 19 | 20 | ||||||||||||||
| Software costs | 17 | 14 | 12 | ||||||||||||||
| Other | 20 | 20 | 27 | ||||||||||||||
| Total depreciation and amortization | $ | 1,534 | $ | 1,267 | $ | 1,393 |
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 changes in our asset retirement obligations are as follows:
| Year Ended December 31, | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| Beginning balance | $ | 305 | $ | 62 | |||||||
| Liabilities incurred | — | 249 | |||||||||
| Liabilities settled | (5) | (3) | |||||||||
| Changes in estimates | — | 3 | |||||||||
| Accretion expense | 10 | 3 | |||||||||
| Divestiture | — | (6) | |||||||||
| Effects of exchange rate changes | 1 | (3) | |||||||||
| Ending balance | $ | 311 | $ | 305 |
In connection with the planned exit from the refinery business, we recorded liabilities for asset retirement obligations of $259 million as of December 31, 2023. See Note 21 to the Consolidated Financial Statements for additional information regarding the planned exit. The remaining asset retirement obligations are primarily related to facilities in Europe.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 dismantlement 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, 2023 and 2022 were as follows:
| Millions of dollars | O&P - Americas | O&P - EAI | I&D | APS | Technology | Total | |||||||||||||||||||||||||||||
| December 31, 2021 | $ | 162 | $ | 109 | $ | 225 | $ | 1,371 | $ | 8 | $ | 1,875 | |||||||||||||||||||||||
| Acquisitions | — | — | — | 6 | — | 6 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | (23) | (24) | (7) | — | (54) | |||||||||||||||||||||||||||||
| December 31, 2022 | 162 | 86 | 201 | 1,370 | 8 | 1,827 | |||||||||||||||||||||||||||||
| Reallocation of goodwill | 315 | 269 | — | (584) | — | — | |||||||||||||||||||||||||||||
| Acquisitions | — | — | — | 31 | — | 31 | |||||||||||||||||||||||||||||
| Assets held for sale | — | — | (14) | — | — | (14) | |||||||||||||||||||||||||||||
| Impairment charge | — | — | — | (252) | — | (252) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | 25 | 28 | 2 | — | 55 | |||||||||||||||||||||||||||||
| December 31, 2023 | $ | 477 | $ | 380 | $ | 215 | $ | 567 | $ | 8 | $ | 1,647 |
The carrying amount of goodwill at December 31, 2023 is reflected net of accumulated impairment charges of $252 million related to our Advanced Polymer Solutions segment. There were no accumulated impairment charges reflected in the carrying amount of goodwill at December 31, 2022.
As of December 31, 2022, goodwill included in our Advanced Polymer Solutions reporting unit was $1,370 million, the majority of which related to the 2018 acquisition of A. Schulman. As of December 31, 2022, a large portion of the Advanced Polymer Solutions reporting unit’s fair value was derived from our Catalloy and polybutene-1 businesses, which had disproportionately low carrying values in comparison to the remaining assets of the reporting unit, which had relatively higher carrying values due to the 2018 purchase price allocation associated with the acquisition of A. Schulman. Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our Advanced Polymer Solutions segment and reintegrated into our Olefins and Polyolefins-Americas and Olefins and Polyolefins-Europe, Asia, International segments. Accordingly, on January 1, 2023, we allocated goodwill of $584 million from our Advanced Polymer Solutions segment to our Olefins and Polyolefins-Americas and Olefins and Polyolefins-Europe, Asia, International segments. The amounts allocated were $315 million and $269 million for Olefins and Polyolefins-Americas and Olefins and Polyolefins-Europe, Asia, International segments, respectively. The allocation was based on the fair values of the businesses that were reintegrated relative to the fair value of the Advanced Polymer Solutions segment.
As a result of the reallocation of goodwill and the change in both fair value and carrying value among reporting units, we recognized a non-cash goodwill impairment charge of $252 million in the first quarter of 2023 in our Advanced Polymer Solutions segment. Fair values were determined utilizing a discounted cash flow method under the income approach and assumptions including management’s view on long-term growth rates in our industry, discount rates and other assumptions based on a market participant perspective, which are inherently subjective. The fair value of the reporting unit is Level 3 within the fair value hierarchy. The charge is reflected as Impairments in the Consolidated Statements of Income.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9. Equity Investments
Our principal direct and indirect equity investments are as follows at December 31:
| Percent of Ownership | 2023 | 2022 | |||||||||
| European PO Joint Venture | 50.00 | % | 50.00 | % | |||||||
| U.S. PO Joint Venture | 60.62 | % | 60.62 | % | |||||||
| Louisiana Joint Venture | 50.00 | % | 50.00 | % | |||||||
| Bora LyondellBasell Petrochemical Co. Ltd. | 50.00 | % | 50.00 | % | |||||||
| Basell Orlen Polyolefins Sp. Z.o.o. | 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 LyondellBasell New Material Co. Ltd. | 50.00 | % | 50.00 | % | |||||||
The following table summarizes changes in our equity investments:
| Year Ended December 31, | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| Beginning balance | $ | 4,295 | $ | 4,786 | |||||||
| Capital contributions | 54 | 108 | |||||||||
| (Loss) income from equity investments | (20) | 5 | |||||||||
| Acquisition of equity investments | 102 | 4 | |||||||||
| Distribution of earnings, net of tax | (169) | (349) | |||||||||
| Depreciation of PO Joint Ventures and Louisiana Joint Venture | (148) | (155) | |||||||||
| Impairment of European PO Joint Venture | (192) | — | |||||||||
| Currency exchange effects | 9 | (100) | |||||||||
| Other | (24) | (4) | |||||||||
| Ending balance | $ | 3,907 | $ | 4,295 |
Capital contributions in 2023 and 2022 include $32 million and $69 million, respectively, related to our PO Joint Ventures.
*European PO Joint Venture Impairment—*In the fourth quarter of 2023, due to a trend of negative financial performance and the unfavorable long-term economic outlook for the joint venture, we recorded a non-cash impairment charge of $192 million, representing a full write down of our investment in the European PO joint venture. The fair value of our investment was determined using an income approach and the significant inputs used in our fair value determination, including projected cash flows and the discount rate, are considered Level 3. The charge is reflected as Impairments in the Consolidated Statements of Income.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized balance sheet information of our investments accounted for under the equity method (presented on a 100% basis) at December 31 are as follows:
| Millions of dollars | 2023 | 2022 | |||||||||
| Current assets | $ | 3,622 | $ | 4,043 | |||||||
| Noncurrent assets | 10,810 | 11,185 | |||||||||
| Total assets | 14,432 | 15,228 | |||||||||
| Current liabilities | 2,903 | 2,995 | |||||||||
| Noncurrent liabilities | 2,300 | 2,615 | |||||||||
| Net assets | $ | 9,229 | $ | 9,618 |
Summarized income statement information of our investments accounted for under the equity method (presented on a 100% basis) are as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Revenues | $ | 12,540 | $ | 15,435 | $ | 15,456 | |||||||||||
| Cost of sales | (12,044) | (14,900) | (13,269) | ||||||||||||||
| Gross profit | 496 | 535 | 2,187 | ||||||||||||||
| Net operating expenses | (514) | (519) | (497) | ||||||||||||||
| Operating (loss) income | (18) | 16 | 1,690 | ||||||||||||||
| Interest income | 23 | 7 | — | ||||||||||||||
| Interest expense | (131) | (24) | (48) | ||||||||||||||
| Foreign currency translation | (1) | (1) | (5) | ||||||||||||||
| Other expense, net | (23) | (26) | (21) | ||||||||||||||
| (Loss) income before income taxes | (150) | (28) | 1,616 | ||||||||||||||
| Benefit from (provision) for income taxes | 22 | (1) | (337) | ||||||||||||||
| Net (loss) income | $ | (128) | $ | (29) | $ | 1,279 |
*Subsequent event—*In January 2024, we entered into an agreement to acquire a 35% interest in Saudi Arabia-based National Petrochemical Industrial Company (“NATPET”) from Alujain Corporation for approximately $500 million. Enabled by its Spheripol polypropylene (PP) technology, the joint venture positions us to grow and upgrade our core PP business through access to advantaged feedstocks, plus additional product marketing capacity, in a strategic region. Closing of the transaction is subject to regulatory and other customary closing conditions. The joint venture will be included prospectively within our Olefins and Polyolefins-Europe, Asia, International segment.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10. 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 | 2023 | 2022 | |||||||||
| Assets held for sale | $ | 444 | $ | — | |||||||
| Income tax receivable | 268 | 285 | |||||||||
| VAT receivables | 214 | 203 | |||||||||
| Financial derivatives | 184 | 152 | |||||||||
| Renewable identification numbers | 113 | 465 | |||||||||
| Advances to suppliers | 90 | 63 | |||||||||
| Prepaid insurance | 36 | 30 | |||||||||
| Other | 126 | 94 | |||||||||
| Total prepaid expenses and other current assets | $ | 1,475 | $ | 1,292 |
The components of Other assets were as follows at December 31:
| Millions of dollars | 2023 | 2022 | |||||||||
| Deferred tax assets | $ | 196 | $ | 157 | |||||||
| Company-owned life insurance | 48 | 48 | |||||||||
| Financial derivatives | 45 | 158 | |||||||||
| Pension assets | 39 | 62 | |||||||||
| Other | 249 | 199 | |||||||||
| Total other assets | $ | 577 | $ | 624 |
11. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following components at December 31:
| Millions of dollars | 2023 | 2022 | |||||||||
| Payroll and benefits | $ | 497 | $ | 424 | |||||||
| Operating lease liabilities | 360 | 344 | |||||||||
| Renewable identification numbers | 220 | 486 | |||||||||
| Financial derivatives | 242 | 69 | |||||||||
| Taxes other than income taxes | 183 | 208 | |||||||||
| Contract liabilities | 175 | 167 | |||||||||
| Income taxes | 143 | 242 | |||||||||
| Product sales rebates | 140 | 163 | |||||||||
| Interest | 123 | 130 | |||||||||
| Liabilities held for sale | 120 | — | |||||||||
| Other | 233 | 163 | |||||||||
| Total accrued and other current liabilities | $ | 2,436 | $ | 2,396 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. Debt
Long-term loans, notes and other debt, net of unamortized discount, debt issuance cost and cumulative fair value hedging adjustments, consisted of the following at December 31:
| Millions of dollars | 2023 | 2022 | |||||||||
| Senior Notes due 2024, $1,000 million, 5.75% | $ | 775 | $ | 774 | |||||||
| Senior Notes due 2055, $1,000 million, 4.625% ($15 million of discount; $10 million of debt issuance cost) | 975 | 974 | |||||||||
| Guaranteed Notes due 2027, $300 million, 8.1% | 300 | 300 | |||||||||
| Issued by LYB International Finance B.V.: | |||||||||||
| Guaranteed Notes due 2023, $750 million, 4.0% | — | 424 | |||||||||
| Guaranteed Notes due 2043, $750 million, 5.25% ($18 million of discount; $6 million of debt issuance cost) | 726 | 725 | |||||||||
| Guaranteed Notes due 2044, $1,000 million, 4.875% ($10 million of discount; $8 million of debt issuance cost) | 982 | 982 | |||||||||
| Issued by LYB International Finance II B.V.: | |||||||||||
| Guaranteed Notes due 2026, €500 million, 0.875% ($1 million of discount; $1 million of debt issuance cost) | 542 | 518 | |||||||||
| Guaranteed Notes due 2027, $1,000 million, 3.5% ($2 million of discount; $2 million of debt issuance cost) | 585 | 587 | |||||||||
| Guaranteed Notes due 2031, €500 million, 1.625% ($4 million of discount; $3 million of debt issuance cost) | 542 | 516 | |||||||||
| Issued by LYB International Finance III, LLC: | |||||||||||
| Guaranteed Notes due 2025, $500 million, 1.25% ($1 million of discount; $1 million of debt issuance cost) | 481 | 475 | |||||||||
| Guaranteed Notes due 2030, $500 million, 3.375% ($1 million of debt issuance cost) | 124 | 120 | |||||||||
| Guaranteed Notes due 2030, $500 million, 2.25% ($3 million of discount; $3 million of debt issuance cost) | 474 | 469 | |||||||||
| Guaranteed Notes due 2033, $500 million, 5.625% ($5 million of debt issuance cost) | 495 | — | |||||||||
| Guaranteed Notes due 2040, $750 million, 3.375% ($1 million of discount; $7 million of debt issuance cost) | 742 | 741 | |||||||||
| Guaranteed Notes due 2049, $1,000 million, 4.2% ($14 million of discount; $10 million of debt issuance cost) | 976 | 976 | |||||||||
| Guaranteed Notes due 2050, $1,000 million, 4.2% ($6 million of discount; $10 million of debt issuance cost) | 975 | 971 | |||||||||
| Guaranteed Notes due 2051, $1,000 million, 3.625% ($2 million of discount; $10 million of debt issuance cost) | 916 | 897 | |||||||||
| Guaranteed Notes due 2060, $500 million, 3.8% ($4 million of discount; $6 million of debt issuance cost) | 483 | 481 | |||||||||
| Other | 22 | 42 | |||||||||
| Total | 11,115 | 10,972 | |||||||||
| Less current maturities | (782 | ) | (432 | ) | |||||||
| Long-term debt | $ | 10,333 | $ | 10,540 |
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 | Gains (Losses) | Cumulative Fair Value Hedging Adjustments Included in Carrying Amount of Debt | ||||||||||||||||||||||||
| Year Ended December 31, | December 31, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Guaranteed Notes due 2025, 1.25% | $ | (5) | $ | 12 | $ | 9 | $ | 14 | ||||||||||||||||||
| Guaranteed Notes due 2026, 0.875% | (5) | 12 | 8 | 13 | ||||||||||||||||||||||
| Guaranteed Notes due 2027, 3.5% | 2 | 46 | 2 | — | ||||||||||||||||||||||
| Guaranteed Notes due 2030, 3.375% | (4) | 23 | 17 | 21 | ||||||||||||||||||||||
| Guaranteed Notes due 2030, 2.25% | (4) | 22 | 20 | 24 | ||||||||||||||||||||||
| Guaranteed Notes due 2031, 1.625% | (8) | 11 | 3 | 11 | ||||||||||||||||||||||
| Guaranteed Notes due 2050, 4.2% | (4) | 10 | 9 | 13 | ||||||||||||||||||||||
| Guaranteed Notes due 2051, 3.625% | (18) | 90 | 72 | 90 | ||||||||||||||||||||||
| Guaranteed Notes due 2060, 3.8% | (2) | 9 | 7 | 9 | ||||||||||||||||||||||
| Total | $ | (48) | $ | 235 | $ | 147 | $ | 195 |
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 | 2023 | 2022 | |||||||||
| U.S. Receivables Facility | $ | — | $ | — | |||||||
| Commercial paper | — | 200 | |||||||||
| Precious metal financings | 117 | 131 | |||||||||
| Other | — | 18 | |||||||||
| Total Short-term debt | $ | 117 | $ | 349 |
Aggregate maturities of debt during the next five years are $899 million in 2024, which includes $775 million that remains outstanding under our 5.75% Senior Notes due 2024, $498 million in 2025, $554 million in 2026, $892 million in 2027, $1 million in 2028 and $8,699 million thereafter.
Long-Term Debt
*Senior Revolving Credit Facility—*Our $3,250 million senior unsecured revolving credit facility (the “Senior Revolving Credit Facility”), which expires in November 2026, may be used for dollar and euro denominated borrowings. The facility has a $200 million sub-limit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. In May 2023, we amended our Senior Revolving Credit Facility to update the interest rate benchmark to reference the secured overnight financing rate (“SOFR”) rather than the London Interbank Offered Rate (“LIBOR”). Borrowings under the facility bear interest at either a base rate, SOFR or EURIBOR rate, plus an applicable margin. Additional fees are incurred for the average daily unused commitments. At December 31, 2023, we had no borrowings or letters of credit outstanding and $3,250 million of unused availability under this facility.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. Additionally, we are required to maintain a 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 the Amended and Restated Credit Agreement) financial covenant 3.50 to 1.00. In the event an acquisition meeting certain thresholds is consummated we can elect to increase the maximum leverage ratio for each of the first six fiscal quarters ending after such acquisition as indicated in the Amended and Restated Credit Agreement.
*Covenants and Provisions—*Our $300 million 8.1% guaranteed notes due 2027, 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.
The indentures governing all other notes contain 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.
We may redeem some of our notes at any time in whole, or from time to time in part, prior to their respective maturity dates, 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 or comparable government bond rate plus their respective basis points) on the notes to be redeemed. Some of our notes may also be redeemed prior to their respective maturity dates, at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest. Certain notes are also redeemable upon certain tax events.
Further, our 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.
As of December 31, 2023, we are in compliance with our debt covenants.
*Guaranteed Notes due 2033—*In May 2023, LYB International Finance III, LLC (“LYB Finance III”), a wholly owned finance subsidiary of LyondellBasell Industries N.V., issued $500 million of 5.625% guaranteed notes due 2033 (the “2033 Notes”) at a discounted price of 99.895%. Net proceeds from the sale of the notes totaled $495 million, after deducting underwriting discounts and offering expenses.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The 2033 Notes are the first green financing instruments we have issued related to our green financing framework. Net proceeds from the sale of the 2033 Notes are being used to finance or refinance, in whole or in part, new or existing eligible green projects in the areas of circular economy, renewable energy, pollution prevention and control, and energy efficiency. As of December 31, 2023, we have allocated approximately $195 million of proceeds towards qualifying projects. This includes approximately $155 million related to new eligible green projects in 2023 with the remaining allocated to existing eligible green projects in 2022 and 2021. Pending the full allocation of the net proceeds, any portion that has not been allocated to eligible green projects will be managed in accordance with our normal liquidity management practices.
Guaranteed Notes due 2023—In July 2023, we repaid the $425 million remaining of outstanding principal on our 4.0% guaranteed notes due 2023.
Debt Extinguishment Costs—In 2021, in conjunction with the redemptions of certain of our outstanding notes, we recognized $130 million of debt extinguishment costs which are reflected in Interest expense in the Consolidated Statements of Income. The debt extinguishment costs include $150 million paid for make-whole premiums and non-cash charges of $16 million for the write-off of unamortized debt discount and issuance costs, partially offset by a gain of $36 million resulting from the write-off of the cumulative fair value hedge accounting adjustments.
Short-Term Debt
*U.S. Receivables Facility—*Our U.S. Receivables Facility, which expires in June 2024, 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 May 2023, we amended our U.S. Receivables Facility to update the interest rate benchmark to reference SOFR rather than LIBOR. 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. Under the terms of the U.S. Receivable Facility we are required to maintain a maximum leverage ratio consistent with the terms of the Senior Revolving Credit Facility as discussed above. At December 31, 2023, there were no borrowings or letters of credit outstanding and $900 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 $3,250 million Senior Revolving Credit Facility. Proceeds from the issuance of commercial paper may be used for general corporate purposes, including dividends and share repurchases. At December 31, 2023, we had no outstanding borrowings of commercial paper.
Precious Metal Financings—We enter into lease agreements for precious metals which are used in our production processes. Precious metal borrowings are classified as Short-term debt or Long-term debt, other, based on the maturities of the lease agreements.
Weighted Average Interest Rate—At December 31, 2023 and 2022, our weighted average interest rate on outstanding Short-term debt was 1.9% and 3.7%, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Additional Information
*Debt Discount and Issuance Costs—*Amortization of debt discount and debt issuance costs resulted in amortization expense of $9 million, $14 million and $35 million for the years ended December 31, 2023, 2022 and 2021, 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 (“LYB Finance subsidiaries”) are wholly owned finance subsidiaries of LyondellBasell Industries N.V. Any debt securities issued by LYB Finance subsidiaries will be fully and unconditionally guaranteed by LyondellBasell Industries N.V., and no other subsidiaries of LyondellBasell Industries N.V. guarantees these securities. 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.
13. 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, 2023 and 2022, our Operating lease assets were $1,529 million and $1,725 million, respectively. As of December 31, 2023 and 2022, Operating lease liabilities totaled $1,769 million and $1,854 million of which $360 million and $344 million, respectively, are current and recorded in Accrued and other current liabilities. These values were derived using a weighted average discount rate of 3.8% and 3.4% as of December 31, 2023 and 2022, respectively.
Substantially all of our operating leases have remaining lease terms of 20 years or less and have a weighted-average remaining lease term of 9 years. Certain lease agreements include options to renew the lease, at our discretion, for approximately 1 year 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, 2023, are as follows:
| Millions of dollars | ||||||||
| 2024 | $ | 415 | ||||||
| 2025 | 339 | |||||||
| 2026 | 280 | |||||||
| 2027 | 230 | |||||||
| 2028 | 150 | |||||||
| Thereafter | 662 | |||||||
| Total lease payments | 2,076 | |||||||
| Less: Imputed interest | (307) | |||||||
| Present value of lease liabilities | $ | 1,769 |
Operating lease costs were $570 million, $536 million and $418 million for the years ended December 31, 2023, 2022 and 2021, respectively, which are reflected in the Consolidated Statements of Income.
In connection with the planned exit from the refinery business, announced in April 2022, we recognized accelerated lease amortization costs of $110 million and $91 million for the years ended December 31, 2023 and 2022, respectively, which is included in operating lease cost. See Note 21 to the Consolidated Financial Statements for additional information.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash paid for amounts included in the measurement of Operating lease liabilities totaled $447 million, $423 million and $406 million for the years ended December 31, 2023, 2022 and 2021, respectively. Leased assets obtained in exchange for new operating lease liabilities totaled $312 million, $248 million and $822 million for the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2023, we have entered into operating leases, with an undiscounted value of $148 million, primarily for buildings that have not yet commenced. These leases which will commence in 2024 and 2025, have lease terms ranging from 2 to 12 years.
14. Financial Instruments and Fair Value Measurements
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.
Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding for the periods presented that are measured at fair value on a recurring basis:
| Fair Value | |||||||||||||||||||||||||||||
| Millions of dollars | December 31, 2023 | December 31, 2022 | Balance Sheet Classification | ||||||||||||||||||||||||||
| Assets— | |||||||||||||||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | $ | 1 | $ | — | Prepaid expenses and other current assets | ||||||||||||||||||||||||
| Foreign currency | 44 | 109 | Prepaid expenses and other current assets | ||||||||||||||||||||||||||
| Foreign currency | 45 | 133 | Other assets | ||||||||||||||||||||||||||
| Interest rates | 38 | 16 | Prepaid expenses and other current assets | ||||||||||||||||||||||||||
| Interest rates | — | 25 | Other assets | ||||||||||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | 98 | 27 | Prepaid expenses and other current assets | ||||||||||||||||||||||||||
| Foreign currency | 3 | — | Prepaid expenses and other current assets | ||||||||||||||||||||||||||
| Total | $ | 229 | $ | 310 | |||||||||||||||||||||||||
| Liabilities— | |||||||||||||||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | $ | 109 | $ | 14 | Accrued and other current liabilities | ||||||||||||||||||||||||
| Commodities | 33 | — | Other liabilities | ||||||||||||||||||||||||||
| Foreign currency | 40 | 15 | Accrued and other current liabilities | ||||||||||||||||||||||||||
| Foreign currency | 32 | 8 | Other liabilities | ||||||||||||||||||||||||||
| Interest rates | 31 | 23 | Accrued and other current liabilities | ||||||||||||||||||||||||||
| Interest rates | 172 | 229 | Other liabilities | ||||||||||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||||||||
| Commodities | 52 | 11 | Accrued and other current liabilities | ||||||||||||||||||||||||||
| Commodities | — | 3 | Other liabilities | ||||||||||||||||||||||||||
| Foreign currency | 10 | 6 | Accrued and other current liabilities | ||||||||||||||||||||||||||
| Total | $ | 479 | $ | 309 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative instruments on the Consolidated Balance Sheets.
Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our Short-term precious metal financings and Long-term debt:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Millions of dollars | |||||||||||||||||||||||
| Precious metal financings | $ | 117 | $ | 114 | $ | 131 | $ | 113 | |||||||||||||||
| Long-term debt | 10,316 | 9,225 | 10,517 | 8,882 | |||||||||||||||||||
| Total | $ | 10,433 | $ | 9,339 | $ | 10,648 | $ | 8,995 |
The financial instruments in the table above are classified as Level 2. Our other financial instruments classified within Current assets and Current liabilities have a short maturity and their carrying value generally approximates fair value.
Derivative Instruments:
Commodity Prices—We are exposed to commodity price volatility related to purchases of various feedstocks and sales of our products. We use over-the-counter commodity swaps, options and exchange traded futures contracts to manage these risks, including through cash flow hedging relationships.
The following table presents the notional amounts of our outstanding commodity derivative instruments:
| Notional Amount | |||||||||||||||||||||||
| Millions of units | December 31, 2023 | December 31, 2022 | Unit of Measure | Maturity Date | |||||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||||||||
| Natural gas | 72 | 5 | MMBtu | 2024 to 2026 | |||||||||||||||||||
| Ethane | 18 | — | Bbl | 2024 to 2025 | |||||||||||||||||||
| Power | 1 | — | MWhs | 2024 to 2026 | |||||||||||||||||||
| Refined products | 1 | — | Bbl | 2024 | |||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||
| Crude oil | 12 | 2 | Bbl | 2024 | |||||||||||||||||||
| Refined products | 16 | 2 | Bbl | 2024 | |||||||||||||||||||
| Precious metals | 1 | 1 | Troy Ounces | 2024 | |||||||||||||||||||
| Renewable Identification Numbers | 59 | — | RINs | 2024 |
Interest Rates—We are exposed to interest rate risk with respect to our fixed-rate and variable-rate debt. Fluctuations in interest rates impact the fair value of fixed-rate debt and expose us to the risk that we may need to refinance debt at higher rates. Fluctuations in interest rates also impact interest expense from our variable-rate debt. We use forward-starting interest rate swaps that are designated as cash flow hedges to mitigate the risk that benchmark rates will increase in connection with future financing activities. We also use interest rate swaps that are designated as fair value hedges to mitigate the changes in the fair value of our fixed-rate debt by effectively converting it to variable-rate debt. See Note 12 to the Consolidated Financial Statements for additional information.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the notional amounts of our outstanding interest rate derivative instruments:
| Notional Amount | |||||||||||||||||||||||
| Millions of dollars | December 31, 2023 | December 31, 2022 | Maturity Date | ||||||||||||||||||||
| Cash flow hedges | $ | 200 | $ | 400 | 2024 | ||||||||||||||||||
| Fair value hedges | 2,171 | 2,164 | 2025 | to | 2031 |
Foreign Currency Rates—We have significant worldwide operations. The functional currencies of our operating subsidiaries are primarily the U.S. dollar and the euro. We enter into transactions denominated in currencies other than our designated functional currencies that create foreign currency exposure. We enter foreign currency contracts to economically hedge foreign currency risk related to recognized foreign currency monetary assets and liabilities. Changes in the fair value of such forward and swap contracts are reported in the Consolidated Statements of Income and offset, in part, currency remeasurement results. In the past, we have entered euro-denominated debt that was designated as a net investment hedge. Other (expense) income, net, in the Consolidated Statements of Income reflected foreign currency losses of $34 million, $14 million and $2 million in 2023, 2022 and 2021, respectively.
We enter foreign currency contracts that are designated as net investment hedges to manage the impacts of foreign currency translation of our net investments in foreign operations. We also enter foreign currency contracts that are designated as cash flow hedges to manage the variability in cash flows associated with intercompany debt balances.
The following table presents the notional amounts of our outstanding foreign currency derivative instruments:
| Notional Amount | ||||||||||||||||||||||||||
| Millions of dollars | December 31, 2023 | December 31, 2022 | Maturity Date | |||||||||||||||||||||||
| Net investment hedges | $ | 3,289 | $ | 3,128 | 2024 | to | 2030 | |||||||||||||||||||
| Cash flow hedges | 1,150 | 1,150 | 2024 | to | 2027 | |||||||||||||||||||||
| Not designated | 555 | 396 | 2024 | to | 2025 | |||||||||||||||||||||
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
*Impact on Earnings and Other Comprehensive Income (loss)—*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 Derivative Instruments | |||||||||||||||||||||||
| Year Ended December 31, 2023 | |||||||||||||||||||||||
| Balance Sheet | Income Statement | ||||||||||||||||||||||
| 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 | $ | (2) | $ | — | $ | — | Sales and other operating revenues | ||||||||||||||||
| Commodities | (157) | 33 | — | Cost of sales | |||||||||||||||||||
| Foreign currency | (142) | 31 | 70 | Interest expense | |||||||||||||||||||
| Interest rates | 17 | 5 | (20) | Interest expense | |||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||
| Commodities | — | — | 188 | Sales and other operating revenues | |||||||||||||||||||
| Commodities | — | — | (130) | Cost of sales | |||||||||||||||||||
| Foreign currency | — | — | (29) | Other (expense) income, net | |||||||||||||||||||
| Total | $ | (284) | $ | 69 | $ | 79 |
| Year Ended December 31, 2022 | |||||||||||||||||||||||
| Balance Sheet | Income Statement | ||||||||||||||||||||||
| 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 | $ | 21 | $ | (59) | $ | — | Cost of sales | ||||||||||||||||
| Foreign currency | 308 | (75) | 69 | Interest expense | |||||||||||||||||||
| Interest rates | 296 | 6 | (227) | Interest expense | |||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||
| Commodities | — | — | 72 | Sales and other operating revenues | |||||||||||||||||||
| Commodities | — | — | (22) | Cost of sales | |||||||||||||||||||
| Foreign currency | — | — | (60) | Other (expense) income, net | |||||||||||||||||||
| Total | $ | 625 | $ | (128) | $ | (168) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year Ended December 31, 2021 | |||||||||||||||||||||||
| Balance Sheet | Income Statement | ||||||||||||||||||||||
| 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 | $ | 54 | $ | (34) | $ | — | Cost of sales | ||||||||||||||||
| Foreign currency | 406 | (216) | 37 | Interest expense | |||||||||||||||||||
| Interest rates | 75 | 6 | (7) | Interest expense | |||||||||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||||||||
| Commodities | — | — | 20 | Sales and other operating revenues | |||||||||||||||||||
| Commodities | — | — | 69 | Cost of sales | |||||||||||||||||||
| Foreign currency | — | — | (35) | Other (expense) income, net | |||||||||||||||||||
| Total | $ | 535 | $ | (244) | $ | 84 |
Amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in other comprehensive income (loss) or Interest expense for the years ended December 31, 2023, 2022 and 2021 were immaterial.
As of December 31, 2023, 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.
Other Financial Instruments:
Cash and Cash Equivalents—At December 31, 2023 and 2022, we had marketable securities classified as Cash and cash equivalents of $2,432 million and $1,191 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Pension and Other Post-retirement Benefits
We have defined benefit pension plans which cover employees in the U.S. and various other countries. We also sponsor post-retirement benefit plans other than pensions that provide medical benefits to certain of our U.S., Canadian and French employees. In addition, we provide other post-employment benefits such as early retirement and deferred compensation severance benefits to employees of certain non-U.S. countries. We use a measurement date of December 31 for all of our benefit plans.
Pension Benefits—The following tables provide a reconciliation of projected benefit obligations, plan assets and the funded status of our U.S. and non-U.S. defined benefit pension plans:
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation, beginning of period | $ | 1,140 | $ | 1,276 | $ | 1,916 | $ | 1,924 | |||||||||||||||
| Service cost | 51 | 22 | 48 | 35 | |||||||||||||||||||
| Interest cost | 57 | 51 | 48 | 26 | |||||||||||||||||||
| Actuarial (gain) loss | (13) | 19 | (356) | (523) | |||||||||||||||||||
| Plan amendments | — | — | — | 4 | |||||||||||||||||||
| Benefits paid | (80) | (53) | (56) | (51) | |||||||||||||||||||
| Participant contributions | — | 2 | — | 1 | |||||||||||||||||||
| Settlement | — | (1) | (460) | (6) | |||||||||||||||||||
| Foreign exchange effects | — | 47 | — | (134) | |||||||||||||||||||
| Benefit obligation, end of period | 1,155 | 1,363 | 1,140 | 1,276 | |||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets, beginning of period | 1,021 | 733 | 1,743 | 1,082 | |||||||||||||||||||
| Actual return on plan assets | 10 | (53) | (206) | (275) | |||||||||||||||||||
| Company contributions | 9 | 51 | — | 58 | |||||||||||||||||||
| Benefits paid | (80) | (53) | (56) | (51) | |||||||||||||||||||
| Participant contributions | — | 2 | — | 1 | |||||||||||||||||||
| Settlement | — | (1) | (460) | (6) | |||||||||||||||||||
| Foreign exchange effects | — | 26 | — | (76) | |||||||||||||||||||
| Fair value of plan assets, end of period | 960 | 705 | 1,021 | 733 | |||||||||||||||||||
| Funded status of continuing operations, end of period | $ | (195) | $ | (658) | $ | (119) | $ | (543) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts recognized in the Consolidated Balance Sheets consists of the following:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Prepaid benefit cost, long-term | $ | — | $ | 39 | $ | 12 | $ | 50 | |||||||||||||||
| Accrued benefit liability, current | — | (30) | — | (26) | |||||||||||||||||||
| Accrued benefit liability, long-term | (195) | (667) | (131) | (567) | |||||||||||||||||||
| Funded status of continuing operations, end of period | $ | (195) | $ | (658) | $ | (119) | $ | (543) |
Amounts recognized in Accumulated other comprehensive loss include the following:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Actuarial and investment loss | $ | 303 | $ | 140 | $ | 274 | $ | 39 | |||||||||||||||
| Prior service cost | — | 27 | — | 29 | |||||||||||||||||||
| Balance, end of period | $ | 303 | $ | 167 | $ | 274 | $ | 68 |
The following additional information is presented for our U.S. and non-U.S. pension plans:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accumulated benefit obligation for defined benefit plans | $ | 1,129 | $ | 1,252 | $ | 1,114 | $ | 1,185 |
Pension plans with projected benefit obligations in excess of the fair value of assets are summarized as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Projected benefit obligations | $ | 1,155 | $ | 839 | $ | 667 | $ | 720 | |||||||||||||||
| Fair value of assets | 960 | 142 | 536 | 127 |
Pension plans with accumulated benefit obligations in excess of the fair value of assets are summarized as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accumulated benefit obligations | $ | 1,129 | $ | 718 | $ | 655 | $ | 582 | |||||||||||||||
| Fair value of assets | 960 | 109 | 536 | 52 |
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 | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 51 | $ | 48 | $ | 60 | |||||||||||
| Interest cost | 57 | 48 | 36 | ||||||||||||||
| Expected return on plan assets | (69) | (97) | (114) | ||||||||||||||
| Settlement loss | — | 103 | 27 | ||||||||||||||
| Actuarial loss amortization | 18 | 20 | 35 | ||||||||||||||
| Net periodic benefit cost | $ | 57 | $ | 122 | $ | 44 | |||||||||||
| Non-U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 22 | $ | 35 | $ | 42 | |||||||||||
| Interest cost | 51 | 26 | 20 | ||||||||||||||
| Expected return on plan assets | (28) | (18) | (17) | ||||||||||||||
| Settlement loss | — | — | 1 | ||||||||||||||
| Prior service cost amortization | 3 | 3 | 3 | ||||||||||||||
| Actuarial (gain) loss amortization | (1) | 7 | 15 | ||||||||||||||
| Net periodic benefit cost | $ | 47 | $ | 53 | $ | 64 |
In May 2022, a LyondellBasell sponsored pension plan purchased a group annuity contract from an insurance company to transfer $361 million of our outstanding pension benefit obligations related to certain U.S. retirees and beneficiaries. The purchase of the group annuity contract was funded with pension plan assets. The insurance company is now required to pay and administer the retirement benefits owed to approximately 9,000 U.S. retirees and beneficiaries with no change to their monthly retirement benefit payment amounts. In connection with this transaction, in the second quarter of 2022, we recognized a non-cash pension settlement loss of $80 million, reflected in Other (expense) income, net, primarily related to the accelerated recognition of actuarial losses included in Accumulated other comprehensive loss.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The actual and target asset allocations for our plans are as follows:
| 2023 | 2022 | ||||||||||||||||||||||
| Actual | Target | Actual | Target | ||||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Fixed income | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| United Kingdom—Lyondell Chemical Plans | |||||||||||||||||||||||
| Equity securities | 39 | % | 38 | % | 34 | % | 38 | % | |||||||||||||||
| Fixed income | 61 | % | 62 | % | 66 | % | 62 | % | |||||||||||||||
| United Kingdom—Basell Plans | |||||||||||||||||||||||
| Equity securities | 26 | % | 25 | % | 22 | % | 25 | % | |||||||||||||||
| Fixed income | 74 | % | 75 | % | 78 | % | 75 | % | |||||||||||||||
| United Kingdom—A. Schulman Plans | |||||||||||||||||||||||
| Equity securities and growth assets | 27 | % | 25 | % | 22 | % | 25 | % | |||||||||||||||
| Fixed income and matching assets | 73 | % | 75 | % | 78 | % | 75 | % | |||||||||||||||
| United States | |||||||||||||||||||||||
| Equity securities | 40 | % | 40 | % | 35 | % | 35 | % | |||||||||||||||
| Fixed income | 41 | % | 45 | % | 38 | % | 39 | % | |||||||||||||||
| Alternatives | 19 | % | 15 | % | 27 | % | 26 | % |
We estimate contributions to our defined benefit plans in 2024 will be $43 million and $54 million for the U.S. and non-U.S. plans, respectively.
As of December 31, 2023, 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. | |||||||||
| 2024 | $ | 125 | $ | 64 | |||||||
| 2025 | 117 | 62 | |||||||||
| 2026 | 96 | 64 | |||||||||
| 2027 | 97 | 66 | |||||||||
| 2028 | 99 | 68 | |||||||||
| 2029 through 2033 | 499 | 376 |
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:
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Discount rate | 5.80 | % | 4.00 | % | 5.50 | % | 3.99 | % | |||||||||||||||
| Rate of compensation increase | 4.68 | % | 3.58 | % | 4.65 | % | 2.66 | % | |||||||||||||||
| Cash balance interest credit rate | 4.54 | % | — | % | 3.80 | % | — | % |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average assumptions used in determining net benefit costs for our pension plans were as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||
| Discount rate | 5.50 | % | 3.99 | % | 2.80 | % | 1.45 | % | 2.54 | % | 0.99 | % | |||||||||||||||||||||||
| Expected return on plan assets | 7.25 | % | 3.57 | % | 7.25 | % | 1.85 | % | 7.25 | % | 1.44 | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.65 | % | 2.66 | % | 4.74 | % | 2.64 | % | 4.63 | % | 2.55 | % |
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. 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 3.57% 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, 2023 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| U.S. | |||||||||||||||||||||||
| Common and preferred stock | $ | 155 | $ | 155 | $ | — | $ | — | |||||||||||||||
| Commingled funds measured at net asset value | 342 | ||||||||||||||||||||||
| Fixed income securities | 53 | — | 53 | — | |||||||||||||||||||
| Real estate measured at net asset value | 80 | ||||||||||||||||||||||
| Hedge funds measured at net asset value | 42 | ||||||||||||||||||||||
| Private equity measured at net asset value | 65 | ||||||||||||||||||||||
| U.S. government securities | 206 | 206 | — | — | |||||||||||||||||||
| Cash and cash equivalents | 40 | 40 | — | — | |||||||||||||||||||
| Total U.S. Pension Assets | $ | 983 | $ | 401 | $ | 53 | $ | — |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| December 31, 2023 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Non-U.S. | |||||||||||||||||||||||
| Insurance arrangements | $ | 474 | $ | — | $ | — | $ | 474 | |||||||||||||||
| Commingled funds measured at net asset value | 228 | ||||||||||||||||||||||
| Cash and cash equivalents | 1 | 1 | — | — | |||||||||||||||||||
| Total Non-U.S. Pension Assets | $ | 703 | $ | 1 | $ | — | $ | 474 | |||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| U.S. | |||||||||||||||||||||||
| Common and preferred stock | $ | 142 | $ | 142 | $ | — | $ | — | |||||||||||||||
| Commingled funds measured at net asset value | 357 | ||||||||||||||||||||||
| Real estate measured at net asset value | 100 | ||||||||||||||||||||||
| Hedge funds measured at net asset value | 119 | ||||||||||||||||||||||
| Private equity measured at net asset value | 60 | ||||||||||||||||||||||
| U.S. government securities | 223 | 223 | — | — | |||||||||||||||||||
| Cash and cash equivalents | 27 | 27 | — | — | |||||||||||||||||||
| Total U.S. Pension Assets | $ | 1,028 | $ | 392 | $ | — | $ | — |
| December 31, 2022 | |||||||||||||||||||||||
| Millions of dollars | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Non-U.S. | |||||||||||||||||||||||
| Insurance arrangements | $ | 492 | $ | — | $ | — | $ | 492 | |||||||||||||||
| Commingled funds measured at net asset value | 239 | ||||||||||||||||||||||
| Cash and cash equivalents | 1 | 1 | — | — | |||||||||||||||||||
| Total Non-U.S. Pension Assets | $ | 732 | $ | 1 | $ | — | $ | 492 |
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, 2022 were valued at $492 million and has decreased to $474 million at December 31, 2023. The change is due primarily to the reduction of the assets in relation with the increase of the discount rate from 2022 to 2023.
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, 2023 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 | $ | 168 | $ | — | N/A | daily | 1 to 3 days | 3 to 4 days | |||||||||||||||||||||||||||
| Commingled fund investing in International Equity | 68 | — | N/A | daily | 1 to 3 days | 3 days | |||||||||||||||||||||||||||||
| Commingled fund investing in Fixed Income | 106 | — | N/A | daily | 1 to 3 days | 3 to 7 days | |||||||||||||||||||||||||||||
| Real Estate | 80 | 11 | 10 years | quarterly | 15 to 25 days | 45 to 90 days | |||||||||||||||||||||||||||||
| Hedge Funds | 42 | — | N/A | quarterly | 10 to 30 days | 20 to 90 days | |||||||||||||||||||||||||||||
| Private Equity | 65 | 14 | 10 years | Not eligible | N/A | N/A | |||||||||||||||||||||||||||||
| Total U.S. | $ | 529 | $ | 25 |
| 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 | $ | 23 | $ | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||
| Commingled fund investing in International Equity | 24 | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||||
| Commingled fund investing in Fixed Income | 181 | — | N/A | daily | 1 to 3 days | 3 days | |||||||||||||||||||||||||||||
| Total Non-U.S. | $ | 228 | $ | — |
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, 2022 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 | $ | 148 | $ | — | 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 | 144 | — | N/A | daily | 1 to 3 days | 3 to 7 days | |||||||||||||||||||||||||||||
| Real Estate | 100 | 13 | 10 years | quarterly | 15 to 25 days | 45 to 90 days | |||||||||||||||||||||||||||||
| Hedge Funds | 119 | — | N/A | quarterly | 10 to 30 days | 20 to 90 days | |||||||||||||||||||||||||||||
| Private Equity | 60 | 18 | 10 years | Not eligible | N/A | N/A | |||||||||||||||||||||||||||||
| Total U.S. | $ | 636 | $ | 31 |
| 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 | $ | 20 | $ | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||
| Commingled fund investing in International Equity | 21 | — | N/A | 1 to 7 days | 1 to 3 days | 1 to 3 days | |||||||||||||||||||||||||||||
| Commingled fund investing in Fixed Income | 198 | — | N/A | daily | 1 to 3 days | 3 days | |||||||||||||||||||||||||||||
| Total Non-U.S. | $ | 239 | $ | — |
Other Post-retirement 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables provide a reconciliation of benefit obligations of our unfunded other post-retirement benefit plans:
| Year Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation, beginning of period | $ | 153 | $ | 41 | $ | 203 | $ | 68 | |||||||||||||||
| Service cost | 1 | 1 | 1 | 2 | |||||||||||||||||||
| Interest cost | 7 | 2 | 5 | 1 | |||||||||||||||||||
| Actuarial gain | — | (4) | (40) | (23) | |||||||||||||||||||
| Benefits paid | (25) | (1) | (23) | (1) | |||||||||||||||||||
| Participant contributions | 6 | — | 7 | — | |||||||||||||||||||
| Foreign exchange effects | — | — | — | (6) | |||||||||||||||||||
| Benefit obligation, end of period | 142 | 39 | 153 | 41 | |||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets, beginning of period | — | — | — | — | |||||||||||||||||||
| Employer contributions | 19 | 1 | 16 | 1 | |||||||||||||||||||
| Participant contributions | 6 | — | 7 | — | |||||||||||||||||||
| Benefits paid | (25) | (1) | (23) | (1) | |||||||||||||||||||
| Fair value of plan assets, end of period | — | — | — | — | |||||||||||||||||||
| Funded status, end of period | $ | (142) | $ | (39) | $ | (153) | $ | (41) |
Amounts recognized in the Consolidated Balance Sheets are as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Accrued benefit liability, current | $ | (14) | $ | (1) | $ | (14) | $ | (1) | |||||||||||||||
| Accrued benefit liability, long-term | (128) | (38) | (139) | (40) | |||||||||||||||||||
| Funded status, end of period | $ | (142) | $ | (39) | $ | (153) | $ | (41) |
Amounts recognized in Accumulated other comprehensive loss are as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
| Actuarial and investment income | $ | 79 | $ | 21 | $ | 89 | $ | 18 | |||||||||||||||
| Prior service cost | — | (1) | — | (1) | |||||||||||||||||||
| Balance, end of period | $ | 79 | $ | 20 | $ | 89 | $ | 17 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The components of net periodic other post-retirement costs are as follows:
| U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 1 | |||||||||||
| Interest cost | 7 | 5 | 4 | ||||||||||||||
| Actuarial gain amortization | (10) | (5) | (6) | ||||||||||||||
| Net periodic benefit cost | $ | (2) | $ | 1 | $ | (1) | |||||||||||
| Non-U.S. Plans | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 1 | $ | 2 | $ | 3 | |||||||||||
| Interest cost | 2 | 1 | 1 | ||||||||||||||
| Actuarial (gain) loss amortization | (1) | — | 2 | ||||||||||||||
| Net periodic benefit cost | $ | 2 | $ | 3 | $ | 6 |
The following tables set forth the assumed health care cost trend rates for our U.S. and Non-U.S. Plans:
| U.S. Plans | |||||||||||||||||||||||
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Immediate trend rate | 6.3 | % | 6.5 | % | |||||||||||||||||||
| 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 | 2031 | 2031 | |||||||||||||||||||||
| Non-U.S. Plans | |||||||||||||||||||||||
| Canada | France | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Immediate trend rate | 4.5 | % | 4.5 | % | 4.8 | % | 4.5 | % | |||||||||||||||
| Ultimate trend rate (the rate to which the cost trend rate is assumed to decline) | 4.5 | % | 4.5 | % | 4.8 | % | 4.5 | % | |||||||||||||||
| Year that the rate reaches the ultimate trend rate | — | — | — | — |
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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average assumptions used in determining the net benefit liabilities for our other post-retirement benefit plans were as follows:
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Discount rate | 5.74 | % | 4.36 | % | 5.44 | % | 3.95 | % | |||||||||||||||
| Rate of compensation increase | 4.13 | % | — | 4.16 | % | — |
The weighted average assumptions used in determining the net benefit costs for our other post-retirement benefit plans were as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||
| Discount rate | 5.44 | % | 3.95 | % | 2.75 | % | 1.47 | % | 2.48 | % | 1.10 | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.16 | % | — | 4.18 | % | — | 4.19 | % | — |
As of December 31, 2023, future expected benefit payments by our other post-retirement benefit plans, which reflect expected future service, as appropriate, were as follows:
| Millions of dollars | U.S. | Non-U.S. | |||||||||
| 2024 | $ | 14 | $ | 1 | |||||||
| 2025 | 14 | 1 | |||||||||
| 2026 | 14 | 1 | |||||||||
| 2027 | 14 | 1 | |||||||||
| 2028 | 13 | 1 | |||||||||
| 2029 through 2033 | 60 | 8 |
Accumulated Other Comprehensive Loss—In 2023, pension benefits actuarial loss and other post-retirement benefits actuarial gain of $146 million and $4 million, respectively, are primarily due to changes in discount rate assumption and updated actuarial assumptions. In 2022, pension benefits actuarial gain and other post-retirement benefits actuarial gain of $281 million and $65 million, respectively, are primarily due to changes in discount rate assumption and updated actuarial assumptions.
Deferred income taxes related to amounts in Accumulated other comprehensive loss include provisions of $90 million and $53 million as of December 31, 2023 and 2022, 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.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides the Company contributions to the Employee Savings Plans:
| Company Contributions | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Millions of dollars | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||
| Employee Savings Plans | $ | 57 | $ | 9 | $ | 53 | $ | 8 | $ | 51 | $ | 8 |
16. Incentive and Share-Based Compensation
We are authorized to grant RSUs, Stock options, PSUs, and other cash and stock awards under our Long-Term Incentive Plan (“LTIP”). The Compensation and Talent Development 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 30,000,000 shares. Assuming a maximum payout for our PSU awards, there were 7,778,231 shares available for issuance as of December 31, 2023.
Total share-based compensation expense and the associated tax benefits are as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Compensation Expense: | |||||||||||||||||
| Restricted stock units | $ | 44 | $ | 33 | $ | 30 | |||||||||||
| Stock options | 10 | 8 | 9 | ||||||||||||||
| Performance share units | 37 | 29 | 27 | ||||||||||||||
| Total | $ | 91 | $ | 70 | $ | 66 | |||||||||||
| Tax Benefit: | |||||||||||||||||
| Restricted stock units | $ | 10 | $ | 8 | $ | 7 | |||||||||||
| Stock options | 2 | 2 | 2 | ||||||||||||||
| Performance share units | 9 | 7 | 6 | ||||||||||||||
| Total | $ | 21 | $ | 17 | $ | 15 |
Restricted Stock Unit Awards—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 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, 2023, 2022 and 2021 was $93.93, $96.14 and $104.43, respectively. The total fair value of RSUs vested and issued was $30 million, $20 million and $27 million during 2023, 2022 and 2021, respectively.
The following table summarizes RSU activity:
| Number of Units (in thousands) | Weighted Average Grant Date Fair Value (per share) | ||||||||||
| Outstanding at January 1, 2023 | 848 | $ | 95.28 | ||||||||
| Granted | 525 | 93.93 | |||||||||
| Vested | (347) | 89.09 | |||||||||
| Forfeited | (32) | 97.03 | |||||||||
| Outstanding at December 31, 2023 | 994 | $ | 96.67 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2023, the unrecognized compensation cost related to RSUs was $42 million, which is expected to be recognized over a weighted average period of 1.6 years.
Stock Option Awards—Stock options allow employees the opportunity to purchase ordinary shares of stock in the future 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.
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 Stock options granted is estimated based on the weighted average of historical exercise patterns and the midpoint of the remaining expected life.
In 2022, our board of directors declared a special dividend of $5.20 per share to all shareholders as of June 6, 2022. Pursuant to the anti-dilutive provisions under the award agreement, the Compensation Committee authorized the reduction of the exercise price for all outstanding stock options in an amount equal to the special dividends per share. The reduction in exercise price of $5.20 per share for all outstanding stock options was intended to provide an equitable and proportionate adjustment to holders of stock options as a result of the Company’s payment of the special dividend. These adjustments did not result in incremental expense.
The weighted average fair value of Stock options granted and the assumptions used in estimating those fair values are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Weighted average fair value | $ | 24.85 | $ | 24.27 | $ | 20.49 | |||||||||||
| Fair value assumptions: | |||||||||||||||||
| Dividend yield | 5.0 | % | 4.3 | % | 5.9 | % | |||||||||||
| Expected volatility | 39.9-40.2% | 39.1-40.7% | 39.1-39.4% | ||||||||||||||
| Risk-free interest rate | 3.5-4.7% | 1.9-4.2% | 0.9-1.0% | ||||||||||||||
| Weighted average expected term, in years | 5.7 | 5.4 | 5.6 |
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, 2023 | 2,591 | $ | 87.46 | ||||||||||||||||||||
| Granted | 455 | 94.62 | |||||||||||||||||||||
| Exercised | (364) | 77.03 | |||||||||||||||||||||
| Forfeited | (20) | 92.72 | |||||||||||||||||||||
| Expired | (18) | 98.93 | |||||||||||||||||||||
| Outstanding at December 31, 2023 | 2,644 | $ | 90.01 | 5.6 years | $ | 19 | |||||||||||||||||
| Exercisable at December 31, 2023 | 1,851 | $ | 88.05 | 4.3 years | $ | 17 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The aggregate intrinsic value of Stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $8 million, $6 million and $7 million, respectively.
As of December 31, 2023, the unrecognized compensation cost related to Stock options was $6 million, which is expected to be recognized over a weighted average period of 1.4 years. During 2023, cash received from the exercise of Stock options was $25 million and the tax benefit associated with these exercises was $2 million.
Performance Share Units Awards —A target number of PSUs is granted to participants at the beginning of a three-year performance period. Final payout of awards, which can range from 0% to 200% of target shares granted, is determined and paid after the performance period. These awards are settled in shares of common stock, and each unit is equivalent to one share of our common stock.
The payout for PSUs granted will be equally based on Total Shareholder Return (“TSR”) relative to our peers and a performance metric. The fair value of the portion of the award that vests based on TSR is estimated using a Monte-Carlo simulation. For the other portion of the award, the fair value is determined at the end of each reporting period based on our stock price and the number of shares expected to vest.
The weighted average fair value and the assumptions used in estimating those fair value using a Monte-Carlo simulation are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Weighted average fair value | $ | 128.95 | $ | 122.15 | $ | 169.57 | |||||||||||
| Fair value assumptions: | |||||||||||||||||
| Expected volatility of LyondellBasell N.V. common stock | 38.04 | % | 48.71% | 48.05% | |||||||||||||
| Expected volatility of peer companies | 22.82-52.73% | 23.12-61.28% | 24.30-59.44% | ||||||||||||||
| Average correlation coefficient of peer companies | 0.52 | 0.59 | 0.59 | ||||||||||||||
| Risk-free interest rate | 4.39 | % | 1.69% | 0.31 | % |
The following table summarizes PSU activity assuming payout at 100% of target shares:
| Number of Units (in thousands) | Weighted Average Grant Date Fair Value (per share) | ||||||||||
| Outstanding at January 1, 2023 | 771 | $ | 102.07 | ||||||||
| Granted | 421 | 108.05 | |||||||||
| Vested | (315) | 82.42 | |||||||||
| Forfeited | (24) | 116.46 | |||||||||
| Outstanding at December 31, 2023 | 853 | $ | 116.39 |
The total fair value of PSUs vested during 2023 was $24 million paid out at 100% of target shares. As of December 31, 2023, the unrecognized compensation cost related to PSUs was $36 million, which is expected to be recognized over a weighted average period of 1.8 years.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 was $4 million in 2023 and $3 million in both 2022 and 2021.
17. Income Taxes
LyondellBasell Industries N.V. is tax resident in the United Kingdom pursuant to a mutual agreement procedure determination ruling between the Dutch and United Kingdom competent authorities and therefore subject solely to the United Kingdom corporate income tax system. LyondellBasell Industries N.V. has little or no taxable income of its own because, as a holding company, it does not conduct any operations. Through our subsidiaries, we have substantial operations world-wide. Taxes are paid on the earnings generated in various jurisdictions where our subsidiaries operate.
The Company operates in multiple jurisdictions with complex legal and tax regulatory environments and is subject to taxes in the U.S. and non-U.S. jurisdictions. We monitor tax law changes and the potential impact to our results of operations. There continues to be increased attention on the tax practices of multinational companies, in particular in the U.S. and Europe where we operate. In 2020, the Organization for Economic Cooperation and Development released Pillar One and Two proposals focused on taxing rights and minimum taxes where we operate, including the United Kingdom. On July 11, 2023, as part of the Finance (No. 2) Act 2023, legislation was enacted in the United Kingdom which introduced an Income Inclusion Rule, known locally as the multinational top-up tax, and domestic minimum top-up tax. This legislation is applicable to periods after December 31, 2023. We continue to assess and monitor legislative changes, however, we do not expect the Pillar Two impact to be material based on the legislation enacted at this stage.
The significant components of the provision for income taxes are as follows:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 261 | $ | 250 | $ | 669 | |||||||||||
| Non-U.S. | 160 | 205 | 617 | ||||||||||||||
| State | 37 | 58 | 75 | ||||||||||||||
| Total current | 458 | 513 | 1,361 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | 77 | 369 | (103) | ||||||||||||||
| Non-U.S. | (36) | (12) | (114) | ||||||||||||||
| State | 2 | 12 | 19 | ||||||||||||||
| Total deferred | 43 | 369 | (198) | ||||||||||||||
| Provision for income taxes before tax effects of other comprehensive income | 501 | 882 | 1,163 | ||||||||||||||
| Tax effects of elements of other comprehensive income: | |||||||||||||||||
| Pension and post-retirement liabilities | (36) | 125 | 67 | ||||||||||||||
| Financial derivatives | (29) | 57 | 20 | ||||||||||||||
| Foreign currency translation | (28) | 59 | 45 | ||||||||||||||
| Total income tax expense in comprehensive income | $ | 408 | $ | 1,123 | $ | 1,295 |
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 tax rate of 25%. Our effective tax rate for the year ended December 31, 2023 is 19.1%.
Our effective income tax rate fluctuates based on, among other factors, changes in pre-tax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains/losses, the amount of exempt income, changes in unrecognized tax benefits associated with uncertain tax positions and changes in tax laws.
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 | 2023 | 2022 | 2021 | ||||||||||||||
| Income before income taxes: | |||||||||||||||||
| U.S. | $ | 1,958 | $ | 3,289 | $ | 3,458 | |||||||||||
| Non-U.S. | 669 | 1,487 | 3,328 | ||||||||||||||
| Total | $ | 2,627 | $ | 4,776 | $ | 6,786 | |||||||||||
| Income tax at U.S. statutory rate | $ | 552 | $ | 1,003 | $ | 1,425 | |||||||||||
| Increase (reduction) resulting from: | |||||||||||||||||
| Non-U.S. income taxed at different statutory rates | 4 | 27 | 73 | ||||||||||||||
| Return to accrual adjustments | (22) | 16 | (179) | ||||||||||||||
| State income taxes, net of federal benefit | 33 | 60 | 82 | ||||||||||||||
| Exempt income | (203) | (213) | (303) | ||||||||||||||
| Uncertain tax positions | 21 | (74) | 19 | ||||||||||||||
| Patent box ruling | (31) | — | — | ||||||||||||||
| Non-deductible impairment | 62 | 14 | — | ||||||||||||||
| Audit settlement | 46 | — | 20 | ||||||||||||||
| Other, net | 39 | 49 | 26 | ||||||||||||||
| Income tax provision | $ | 501 | $ | 882 | $ | 1,163 |
Our return to accrual adjustments in 2021 primarily include the tax benefits associated with an election made in 2021 to retroactively step-up certain Italian assets to fair market value and the impact of certain retroactive elections made with respect to the CARES Act in the U.S.
Our exempt income primarily includes interest income, export incentives, and equity earnings of joint ventures. Interest income earned by certain of our 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.
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 | 2023 | 2022 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Accelerated tax depreciation | $ | 2,562 | $ | 2,383 | |||||||
| Investment in joint venture partnerships | 486 | 504 | |||||||||
| Inventory | 227 | 194 | |||||||||
| Operating lease assets | 334 | 373 | |||||||||
| Other liabilities | 134 | 123 | |||||||||
| Total deferred tax liabilities | $ | 3,743 | $ | 3,577 | |||||||
| Deferred tax assets: | |||||||||||
| Tax attributes | $ | 307 | $ | 210 | |||||||
| Employee benefit plans | 259 | 200 | |||||||||
| Operating lease liabilities | 383 | 399 | |||||||||
| Other assets | 182 | 133 | |||||||||
| Total deferred tax assets | 1,131 | 942 | |||||||||
| Deferred tax asset valuation allowances | (78) | (66) | |||||||||
| Net deferred tax assets | 1,053 | 876 | |||||||||
| Net deferred tax liabilities | $ | 2,690 | $ | 2,701 |
Balance sheet classification is presented in the following table:
| December 31, | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| Deferred tax assets—long-term | $ | 196 | $ | 157 | |||||||
| Deferred tax liabilities—long-term | 2,886 | 2,858 | |||||||||
| Net deferred tax liabilities | $ | 2,690 | $ | 2,701 |
Deferred taxes on the unremitted earnings of certain equity joint ventures and subsidiaries of $77 million and $86 million at December 31, 2023 and 2022, respectively, have been provided. The Company intends to permanently reinvest approximately $550 million of our non-U.S. earnings. Repatriation of these earnings to the U.S. in the future could result in a tax impact of approximately $60 million.
At December 31, 2023 and 2022, we had total tax attributes available in the amount of $1,438 million and $1,103 million, respectively, for which a deferred tax asset was recognized at December 31, 2023 and 2022 of $307 million and $210 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, 2023 are as follows:
| Millions of dollars | Tax Attributes | Deferred Tax on Tax Attributes | |||||||||
| 2024 | $ | 40 | $ | 1 | |||||||
| 2025 | 21 | 1 | |||||||||
| 2026 | 13 | 1 | |||||||||
| 2027 | 21 | 4 | |||||||||
| 2028 | 18 | 8 | |||||||||
| Thereafter | 410 | 27 | |||||||||
| Indefinite | 915 | 265 | |||||||||
| Total | $ | 1,438 | $ | 307 |
The tax attributes are primarily related to operations in the United States, United Kingdom, France and The Netherlands. The related deferred tax assets by primary jurisdictions are shown below:
| December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| United States | $ | 151 | $ | 84 | $ | 25 | |||||||||||
| United Kingdom | 91 | 45 | 31 | ||||||||||||||
| France | 23 | 46 | 26 | ||||||||||||||
| The Netherlands | 18 | 13 | 81 | ||||||||||||||
| Spain | 5 | 6 | — | ||||||||||||||
| Other | 19 | 16 | 19 | ||||||||||||||
| Total | $ | 307 | $ | 210 | $ | 182 |
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 $229 million of these deferred tax assets at December 31, 2023 will be realized.
As of each reporting date, we consider the weight of all evidence, both positive and negative, to determine if a valuation allowance is necessary for each jurisdiction’s net deferred tax assets. We place greater weight on historical evidence over future predictions of our ability to utilize net deferred tax assets. We consider future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback year(s) if carryback is permitted under applicable law, as well as available prudent and feasible tax planning strategies that would, if necessary, be implemented to ensure realization of the net deferred tax asset.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the valuation allowances by primary jurisdiction is shown below, reflecting the valuation allowances for all the net deferred tax assets, including deferred tax assets for tax attributes and other temporary differences.
| December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| United Kingdom | $ | 30 | $ | 29 | $ | 31 | |||||||||||
| France | 23 | 22 | 26 | ||||||||||||||
| United States | 15 | 11 | 12 | ||||||||||||||
| The Netherlands | 3 | 3 | 55 | ||||||||||||||
| Other | 7 | 1 | 2 | ||||||||||||||
| Total | $ | 78 | $ | 66 | $ | 126 |
During 2023, valuation allowance accruals did not have a material impact to our effective tax rate. During 2022, we had some reductions in our tax attributes with offsetting valuation allowances which did not impact the effective tax rate.
Tax benefits totaling $288 million, $271 million and $327 million relating to uncertain tax positions were unrecognized as of December 31, 2023, 2022 and 2021, respectively. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
| Year Ended December 31, | |||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2021 | ||||||||||||||
| Balance, beginning of period | $ | 271 | $ | 327 | $ | 339 | |||||||||||
| Additions for tax positions of current year | 37 | 22 | — | ||||||||||||||
| Additions for tax positions of prior years | 2 | 13 | 20 | ||||||||||||||
| Reductions for tax positions of prior years | (22) | (91) | (21) | ||||||||||||||
| Settlements (payments/refunds) | — | — | (11) | ||||||||||||||
| Balance, end of period | $ | 288 | $ | 271 | $ | 327 |
The majority of the uncertain tax positions, if recognized, will affect the effective tax rate. During 2023 and 2021, our effective tax rate included tax expense of $21 million and $19 million, respectively, related to fluctuations in uncertain tax positions. During 2022, our effective tax rate included a net tax benefit of $74 million related to fluctuations in uncertain tax positions. The 2022 movement included a $91 million non-cash tax benefit to our effective tax rate as a reduction for tax positions of prior years.
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 $70 million.
We recognize interest associated with unrecognized tax benefits in income tax expense. Income tax expense includes expenses of interest and penalties of $11 million, $1 million and $25 million in 2023, 2022 and 2021, respectively. Accrued interest and penalties as of December 31, 2023, 2022 and 2021 were $52 million, $41 million, and $40 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
A summary of the years open to examination for our primary jurisdictions is summarized below.
| Jurisdiction | Open Tax Years | |||||||
| France | 2019 and later | |||||||
| Germany | 2009 and later | |||||||
| Italy | 2014 and later | |||||||
| The Netherlands | 2019 and later | |||||||
| United Kingdom | 2022 and later | |||||||
| United States | 2014 and later |
18. 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 ensure sources of supply and are not expected to be in excess of normal requirements. Additionally, we have capital expenditure commitments, which we incur in our normal course of business.
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 difficulties in obtaining the required financial assurance instruments for our current operations.
Environmental Remediation—Our accrued liabilities for future environmental remediation costs at current and former plant sites and other remediation sites totaled $124 million and $127 million as of December 31, 2023 and 2022, respectively. At December 31, 2023, the accrued liabilities for individual sites range from less than $1 million to $25 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.
The following table summarizes the activity in our accrued environmental liability included in “Accrued and other current liabilities” and “Other liabilities:”
| Year Ended December 31, | ||||||||||||||
| Millions of dollars | 2023 | 2022 | ||||||||||||
| Beginning balance | $ | 127 | $ | 138 | ||||||||||
| Changes in estimates | 5 | 5 | ||||||||||||
| Amounts paid | (9) | (12) | ||||||||||||
| Foreign exchange effects | 1 | (4) | ||||||||||||
| Ending balance | $ | 124 | $ | 127 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2023, 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)
19. 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, including the special dividend that our board of directors declared in May 2022:
| Millions of dollars, except per share amounts | Dividend Per Ordinary Share | Aggregate Dividends Paid | Date of Record | ||||||||||||||
| For the year 2023: | |||||||||||||||||
| March - Quarterly dividend | $ | 1.19 | $ | 389 | March 6, 2023 | ||||||||||||
| June - Quarterly dividend | 1.25 | 408 | May 30, 2023 | ||||||||||||||
| September - Quarterly dividend | 1.25 | 407 | August 28, 2023 | ||||||||||||||
| December - Quarterly dividend | 1.25 | 406 | November 27, 2023 | ||||||||||||||
| $ | 4.94 | $ | 1,610 | ||||||||||||||
| For the year 2022: | |||||||||||||||||
| March - Quarterly dividend | $ | 1.13 | $ | 371 | March 7, 2022 | ||||||||||||
| June - Quarterly dividend | 1.19 | 389 | June 6, 2022 | ||||||||||||||
| June - Special dividend | 5.20 | 1,704 | June 6, 2022 | ||||||||||||||
| September - Quarterly dividend | 1.19 | 388 | August 29, 2022 | ||||||||||||||
| December - Quarterly dividend | 1.19 | 386 | November 28, 2022 | ||||||||||||||
| $ | 9.90 | $ | 3,238 |
Share Repurchase Authorization—In May 2023, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 19, 2024 (“2023 Share Repurchase Authorization”), which superseded any prior repurchase authorizations. The timing and amount of these repurchases, which are determined based on our evaluation of market conditions and other factors, may be executed from time to time through open market or privately negotiated transactions. The repurchased shares, which are recorded at cost, are classified as Treasury stock and may be retired or used for general corporate purposes, including for various employee benefit and compensation plans.
In May 2022, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 27, 2023 (“2022 Share Repurchase Authorization”), which superseded any prior repurchase authorizations.
In May 2021, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares through November 28, 2022 (“2021 Share Repurchase Authorization”), which superseded our 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 2023: | |||||||||||||||||
| 2022 Share Repurchase Authorization | 1,365,898 | $ | 88.98 | $ | 122 | ||||||||||||
| 2023 Share Repurchase Authorization | 983,309 | 90.99 | 89 | ||||||||||||||
| 2,349,207 | $ | 89.82 | $ | 211 | |||||||||||||
| For the year 2022: | |||||||||||||||||
| 2021 Share Repurchase Authorization | 2,111,538 | $ | 97.72 | $ | 206 | ||||||||||||
| 2022 Share Repurchase Authorization | 2,286,216 | 87.50 | 200 | ||||||||||||||
| 4,397,754 | $ | 92.41 | $ | 406 | |||||||||||||
| For the year 2021: | |||||||||||||||||
| 2021 Share Repurchase Authorization | 5,163,334 | $ | 92.37 | $ | 477 | ||||||||||||
| 5,163,334 | $ | 92.37 | $ | 477 |
Total cash paid for share repurchases for the years ended December 31, 2023, 2022 and 2021 was $211 million, $420 million and $463 million, respectively. Cash payments made during the reporting period may differ from the total purchase price, including commissions and fees, due to the timing of payments.
Ordinary Shares—The changes in the outstanding amounts of ordinary shares are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Ordinary shares outstanding: | |||||||||||||||||
| Beginning balance | 325,723,567 | 329,536,389 | 334,015,220 | ||||||||||||||
| Share-based compensation | 793,984 | 291,104 | 468,131 | ||||||||||||||
| Employee stock purchase plan | 315,058 | 293,828 | 216,372 | ||||||||||||||
| Purchase of ordinary shares | (2,349,207) | (4,397,754) | (5,163,334) | ||||||||||||||
| Ending balance | 324,483,402 | 325,723,567 | 329,536,389 |
Treasury Shares—The changes in the amounts of treasury shares held by the Company are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Ordinary shares held as treasury shares: | |||||||||||||||||
| Beginning balance | 14,698,931 | 10,675,605 | 6,030,408 | ||||||||||||||
| Share-based compensation | (793,984) | (291,104) | (468,131) | ||||||||||||||
| Employee stock purchase plan | (315,058) | (83,324) | (50,006) | ||||||||||||||
| Purchase of ordinary shares | 2,349,207 | 4,397,754 | 5,163,334 | ||||||||||||||
| Ending balance | 15,939,096 | 14,698,931 | 10,675,605 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2023, 2022 and 2021 are presented in the following table:
| Millions of dollars | Financial Derivatives | Unrealized Gains (Losses) on Available-for-Sale Debt Securities | Defined Benefit Pension and Other Post-retirement Benefit Plans | Foreign Currency Translation Adjustments | Total | ||||||||||||||||||||||||||||||
| Balance—December 31, 2020 | $ | (426) | $ | 1 | $ | (752) | $ | (766) | $ | (1,943) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 336 | (1) | 214 | (110) | 439 | ||||||||||||||||||||||||||||||
| Tax expense before reclassifications | (64) | — | (50) | (45) | (159) | ||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (244) | — | 77 | — | (167) | ||||||||||||||||||||||||||||||
| Tax (expense) benefit | 44 | — | (17) | — | 27 | ||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | 72 | (1) | 224 | (155) | 140 | ||||||||||||||||||||||||||||||
| Balance—December 31, 2021 | $ | (354) | $ | — | $ | (528) | $ | (921) | $ | (1,803) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | $ | 393 | $ | — | $ | 342 | $ | (64) | $ | 671 | |||||||||||||||||||||||||
| Tax expense before reclassifications | (86) | — | (95) | (59) | (240) | ||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | (128) | — | 128 | — | — | ||||||||||||||||||||||||||||||
| Tax (expense) benefit | 29 | — | (29) | — | — | ||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | 208 | — | 346 | (123) | 431 | ||||||||||||||||||||||||||||||
| Balance—December 31, 2022 | $ | (146) | $ | — | $ | (182) | $ | (1,044) | $ | (1,372) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | $ | (178) | $ | — | $ | (142) | $ | 45 | $ | (275) | |||||||||||||||||||||||||
| Tax benefit before reclassifications | 47 | — | 38 | 28 | 113 | ||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 69 | — | 9 | — | 78 | ||||||||||||||||||||||||||||||
| Tax (expense) benefit | (18) | — | (2) | — | (20) | ||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | (80) | — | (97) | 73 | (104) | ||||||||||||||||||||||||||||||
| Balance—December 31, 2023 | $ | (226) | $ | — | $ | (279) | $ | (971) | $ | (1,476) |
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 | |||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Reclassification adjustments for: | |||||||||||||||||||||||
| Financial derivatives: | |||||||||||||||||||||||
| Commodities | $ | 33 | $ | (59) | $ | (34) | Cost of sales | ||||||||||||||||
| Foreign currency | 31 | (75) | (216) | Interest expense | |||||||||||||||||||
| Interest rates | 5 | 6 | 6 | Interest expense | |||||||||||||||||||
| Income tax (expense) benefit | (18) | 29 | 44 | Provision for income taxes | |||||||||||||||||||
| Financial derivatives, net of tax | 51 | (99) | (200) | ||||||||||||||||||||
| Amortization of defined pension items: | |||||||||||||||||||||||
| Settlement loss | — | 103 | 28 | Other (expense) income, net | |||||||||||||||||||
| Actuarial loss | 6 | 22 | 46 | Other (expense) income, net | |||||||||||||||||||
| Prior service cost | 3 | 3 | 3 | Other (expense) income, net | |||||||||||||||||||
| Income tax expense | (2) | (29) | (17) | Provision for income taxes | |||||||||||||||||||
| Defined pension items, net of tax | 7 | 99 | 60 | ||||||||||||||||||||
| Total reclassifications, before tax | 78 | — | (167) | ||||||||||||||||||||
| Income tax (expense) benefit | (20) | — | 27 | Provision for income taxes | |||||||||||||||||||
| Total reclassifications, after tax | $ | 58 | $ | — | $ | (140) | Amount included in net income |
Amortization of defined pension items are included in the computation of net periodic pension and other post-retirement benefit costs, see Note 15 to the Consolidated Financial Statements.
Redeemable Non-controlling Interests
As of December 31, 2023 and 2022, we had 113,075 and 113,471 shares of redeemable non-controlling interest stock outstanding, respectively. During the years ended December 31, 2023 and 2022, 396 and 1,903 shares were redeemed for less than a $1 million and approximately $2 million, respectively. There were no share redemptions during 2021.
In February, May, August and November 2023, we paid cash dividends of $15.00 per share to our redeemable non-controlling interest stock shareholders of record as of January 15, 2023, April 15, 2023, July 15, 2023, and October 15, 2023, respectively. In 2023, 2022 and 2021, these dividends were $7 million for each year.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. Per Share Data
Basic earnings per share is based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share includes the effect of certain stock option and other equity-based compensation awards. Our unvested restricted stock units contain non-forfeitable rights to dividend equivalents and are considered participating securities. We calculate basic and diluted earnings per share under the two-class method.
Earnings per share data is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Continuing | Discontinued | Continuing | Discontinued | Continuing | Discontinued | ||||||||||||||||||||||||||||||
| Millions of dollars | Operations | Operations | Operations | Operations | Operations | Operations | |||||||||||||||||||||||||||||
| Net income (loss) | $ | 2,126 | $ | (5) | $ | 3,894 | $ | (5) | $ | 5,623 | $ | (6) | |||||||||||||||||||||||
| Dividends on redeemable non-controlling interests | (7) | — | (7) | — | (7) | — | |||||||||||||||||||||||||||||
| Net income attributable to participating securities | (7) | — | (10) | — | (14) | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to ordinary shareholders—basic and diluted | $ | 2,112 | $ | (5) | $ | 3,877 | $ | (5) | $ | 5,602 | $ | (6) | |||||||||||||||||||||||
| Millions of shares, except per share amounts | |||||||||||||||||||||||||||||||||||
| Basic weighted average common stock outstanding | 325 | 325 | 327 | 327 | 334 | 334 | |||||||||||||||||||||||||||||
| Effect of dilutive securities | 1 | 1 | 1 | 1 | — | — | |||||||||||||||||||||||||||||
| Potential dilutive shares | 326 | 326 | 328 | 328 | 334 | 334 | |||||||||||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 6.50 | $ | (0.02) | $ | 11.86 | $ | (0.02) | $ | 16.79 | $ | (0.02) | |||||||||||||||||||||||
| Diluted | $ | 6.48 | $ | (0.02) | $ | 11.83 | $ | (0.02) | $ | 16.77 | $ | (0.02) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21. 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.
-
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 from continuing operations 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 post-retirement 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, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| O&P - Americas | O&P - EAI | I&D | APS | Refining | Technology | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Customers | $ | 6,967 | $ | 9,822 | $ | 10,875 | $ | 3,686 | $ | 9,179 | $ | 578 | $ | — | $ | 41,107 | |||||||||||||||||||||||||||||||
| Intersegment | 4,313 | 657 | 211 | 12 | 535 | 85 | (5,813) | — | |||||||||||||||||||||||||||||||||||||||
| 11,280 | 10,479 | 11,086 | 3,698 | 9,714 | 663 | (5,813) | 41,107 | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 587 | 207 | 443 | 98 | 158 | 41 | — | 1,534 | |||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | 2 | (1) | (13) | 2 | — | — | (48) | (58) | |||||||||||||||||||||||||||||||||||||||
| Income (loss) from equity investments | 49 | (55) | (13) | (1) | — | — | — | (20) | |||||||||||||||||||||||||||||||||||||||
| EBITDA | 2,303 | (9) | 1,679 | (162) | 379 | 375 | (56) | 4,509 | |||||||||||||||||||||||||||||||||||||||
| Impairments | 25 | 38 | 192 | 252 | 11 | — | — | 518 | |||||||||||||||||||||||||||||||||||||||
| Capital expenditures | 480 | 273 | 590 | 75 | 32 | 69 | 12 | 1,531 |
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | O&P - Americas | O&P - EAI | I&D | APS | Refining | Technology | Other | Total | |||||||||||||||||||||||||||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Customers | $ | 9,420 | $ | 12,568 | $ | 12,703 | $ | 4,197 | $ | 10,975 | $ | 588 | $ | — | $ | 50,451 | |||||||||||||||||||||||||||||||
| Intersegment | 5,060 | 887 | 247 | 5 | 918 | 105 | (7,222) | — | |||||||||||||||||||||||||||||||||||||||
| 14,480 | 13,455 | 12,950 | 4,202 | 11,893 | 693 | (7,222) | 50,451 | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 591 | 171 | 332 | 95 | 39 | 39 | — | 1,267 | |||||||||||||||||||||||||||||||||||||||
| Other (expense) income, net | (30) | — | (39) | 4 | (7) | (4) | 4 | (72) | |||||||||||||||||||||||||||||||||||||||
| Income (loss) from equity investments | 98 | (68) | (25) | — | — | — | — | 5 | |||||||||||||||||||||||||||||||||||||||
| EBITDA | 2,865 | 178 | 1,872 | 115 | 921 | 366 | (16) | 6,301 | |||||||||||||||||||||||||||||||||||||||
| Impairments | — | 69 | — | — | — | — | — | 69 | |||||||||||||||||||||||||||||||||||||||
| Capital expenditures | 383 | 349 | 940 | 60 | 53 | 98 | 7 | 1,890 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | O&P - Americas | O&P - EAI | I&D | APS | Refining | Technology | Other | Total | |||||||||||||||||||||||||||||||||||||||
| Sales and other operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Customers | $ | 10,978 | $ | 13,192 | $ | 9,968 | $ | 4,150 | $ | 7,178 | $ | 707 | $ | — | $ | 46,173 | |||||||||||||||||||||||||||||||
| Intersegment | 4,582 | 869 | 212 | 11 | 824 | 136 | (6,634) | — | |||||||||||||||||||||||||||||||||||||||
| 15,560 | 14,061 | 10,180 | 4,161 | 8,002 | 843 | (6,634) | 46,173 | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 581 | 204 | 379 | 107 | 79 | 43 | — | 1,393 | |||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | 27 | 10 | (2) | 9 | (7) | — | 25 | 62 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) from equity investments | 115 | 313 | 34 | (1) | — | — | — | 461 | |||||||||||||||||||||||||||||||||||||||
| EBITDA | 5,370 | 1,830 | 1,378 | 231 | (624) | 514 | (10) | 8,689 | |||||||||||||||||||||||||||||||||||||||
| Impairments | — | — | — | — | 624 | — | — | 624 | |||||||||||||||||||||||||||||||||||||||
| Capital expenditures | 326 | 256 | 1,112 | 71 | 74 | 91 | 29 | 1,959 |
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 | 2023 | 2022 | 2021 | ||||||||||||||
| EBITDA: | |||||||||||||||||
| Total segment EBITDA | $ | 4,565 | $ | 6,317 | $ | 8,699 | |||||||||||
| Other EBITDA | (56) | (16) | (10) | ||||||||||||||
| Less: | |||||||||||||||||
| Depreciation and amortization expense | (1,534) | (1,267) | (1,393) | ||||||||||||||
| Interest expense | (477) | (287) | (519) | ||||||||||||||
| Add: | |||||||||||||||||
| Interest income | 129 | 29 | 9 | ||||||||||||||
| Income from continuing operations before income taxes | $ | 2,627 | $ | 4,776 | $ | 6,786 |
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, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | $ | 6,441 | $ | 2,139 | $ | 5,654 | $ | 678 | $ | 122 | $ | 513 | $ | 15,547 | |||||||||||||||||||||||||||||||||
| Equity investments | 2,049 | 1,513 | 343 | 2 | — | — | 3,907 | ||||||||||||||||||||||||||||||||||||||||
| Goodwill | 477 | 380 | 215 | 567 | — | 8 | 1,647 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | $ | 6,378 | $ | 1,880 | $ | 5,728 | $ | 636 | $ | 255 | $ | 510 | $ | 15,387 | |||||||||||||||||||||||||||||||||
| Equity investments | 2,053 | 1,655 | 585 | 2 | — | — | 4,295 | ||||||||||||||||||||||||||||||||||||||||
| Goodwill | 162 | 86 | 201 | 1,370 | — | 8 | 1,827 |
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 8 and 9 to the Consolidated Financial Statements. The following long-lived assets data is based upon the location of the assets:
| December 31, | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| Long-lived assets: | |||||||||||
| United States | $ | 14,334 | $ | 14,651 | |||||||
| Germany | 1,593 | 1,443 | |||||||||
| The Netherlands | 879 | 903 | |||||||||
| France | 731 | 740 | |||||||||
| Italy | 389 | 304 | |||||||||
| China | 375 | 503 | |||||||||
| Mexico | 281 | 284 | |||||||||
| Other | 1,513 | 1,516 | |||||||||
| Total | $ | 20,095 | $ | 20,344 |
*Segment Structure Changes and Related Goodwill Impairment—*Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our APS segment and reintegrated into our O&P-Americas and O&P-EAI segments. As a result of the reallocation of goodwill and the change in both fair value and carrying value among reporting units, we recognized a non-cash goodwill impairment charge of $252 million in the first quarter of 2023 in our APS segment. See Note 8 to the Consolidated Financial Statements for additional information regarding the structure changes and related impairment charge.
*European PO Joint Venture Impairment—*In the fourth quarter of 2023, we recorded a non-cash impairment charge of $192 million related to our European PO Joint Venture, which is included in the operating results for our I&D segment. See Note 9 to the Consolidated Financial Statements for additional information regarding the impairment charge.
*Houston Refinery Operations—*After thoroughly analyzing our options, we determined that exiting the refining business no later than the end of the first quarter of 2025 is the best strategic and financial path forward for the Company. Our exit from the refining business progresses our greenhouse gas emission reduction goals, and the site’s prime location gives us more options for advancing our future strategic objectives, including circularity.
Costs incurred since our decision to exit the refining business through December 31, 2023 were $521 million. Our estimate of total exit costs, inclusive of costs incurred to date, range from $550 million to $1,050 million. We intend to proceed with an orderly shut-down and do not expect to recognize these charges all at once, but rather over time. We do not anticipate any material cash payments related to the exit of the refinery business to be made in 2024.
Costs incurred for the planned exit from the refinery business are as follows:
| Year Ended December 31, | Inception to Date December 31, | ||||||||||||||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||
| Accelerated lease amortization costs | $ | 110 | $ | 91 | $ | 201 | |||||||||||||||||||||||
| Personnel costs | 76 | 64 | 140 | ||||||||||||||||||||||||||
| Asset retirement obligation accretion | 9 | 2 | 11 | ||||||||||||||||||||||||||
| Asset retirement cost depreciation | 139 | 30 | 169 | ||||||||||||||||||||||||||
| Refinery exit costs | $ | 334 | $ | 187 | $ | 521 |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In subsequent periods, we expect to incur additional costs primarily consisting of accelerated amortization of operating lease assets of $10 million to $60 million, personnel costs of $20 million to $95 million and other charges of $40 million to $90 million.
In connection with the planned exit from the refinery business, we recorded liabilities for asset retirement obligations of $259 million as of December 31, 2023. The asset retirement obligations we recorded require significant judgment and are subject to changes in the underlying assumptions. We estimate that the Houston refinery’s asset retirement obligations are in the range of $150 million to $450 million.
Operating results for our Refining segment include a non-cash impairment charge of $624 million recognized in 2021. See Note 8 to the Consolidated Financial Statements for additional information regarding impairment charge.
*Disposition of Australian Facility—*In the second quarter of 2022 we sold our ownership interest in our PP manufacturing facility located in Geelong, Australia, LyondellBasell Australia (Holdings) Pty Ltd, for consideration of $38 million. In connection with this sale, we assessed the assets of the disposal group for impairment and determined that the carrying value exceeded the fair value less costs to sell. As a result, we recognized a non-cash impairment charge in the second quarter of 2022 of $69 million in the operating results of our O&P-EAI segment. The fair value measurement for the disposal group is based on expected consideration and classified as Level 3 within the fair value hierarchy. The charge is reflected as Impairments in the Consolidated Statements of Income.
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