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EX-32 - EXHIBIT 32 - LyondellBasell Industries N.V.a2018q3exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - LyondellBasell Industries N.V.a2018q3exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - LyondellBasell Industries N.V.a2018q3exhibit311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                
Commission file number: 001-34726
LYONDELLBASELL INDUSTRIES N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
 
 
 
98-0646235
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
1221 McKinney St.,
Suite 300
Houston, Texas
USA 77010
 
4th Floor, One Vine Street
London
W1J0AH
The United Kingdom
 
Delftseplein 27E
3013 AA Rotterdam
The Netherlands
(Addresses of registrant’s principal executive offices)
(713) 309-7200
 
+44 (0) 207 220 2600
 
+31 (0)10 275 5500
(Registrant’s telephone numbers, including area codes)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Emerging growth company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨
The registrant had 383,657,690 ordinary shares, €0.04 par value, outstanding at October 26, 2018 (excluding 16,552,590 treasury shares).




LYONDELLBASELL INDUSTRIES N.V.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Millions of dollars, except earnings per share
2018
 
2017
 
2018
 
2017
Sales and other operating revenues:
 
 
 
 
 
 
 
Trade
$
9,926

 
$
8,312

 
$
29,441

 
$
24,775

Related parties
229

 
204

 
687

 
574

 
10,155

 
8,516

 
30,128

 
25,349

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
8,499

 
6,939

 
24,801

 
20,531

Selling, general and administrative expenses
309

 
218

 
803

 
622

Research and development expenses
30

 
27

 
87

 
77

 
8,838

 
7,184

 
25,691

 
21,230

Operating income
1,317

 
1,332

 
4,437

 
4,119

Interest expense
(90
)
 
(94
)
 
(272
)
 
(396
)
Interest income
14

 
5

 
40

 
15

Other income, net
17

 
114

 
57

 
173

Income from continuing operations before equity investments and income taxes
1,258

 
1,357

 
4,262

 
3,911

Income from equity investments
89

 
81

 
253

 
240

Income from continuing operations before income taxes
1,347

 
1,438

 
4,515

 
4,151

Provision for income taxes
232

 
380

 
514

 
1,154

Income from continuing operations
1,115

 
1,058

 
4,001

 
2,997

Loss from discontinued operations, net of tax
(2
)
 
(2
)
 
(3
)
 
(14
)
Net income
1,113

 
1,056

 
3,998

 
2,983

Net loss attributable to non-controlling interests

 
1

 

 
2

Net income attributable to the Company shareholders
$
1,113

 
$
1,057

 
$
3,998

 
$
2,985

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Net income (loss) attributable to the Company shareholders —
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
2.86

 
$
2.67

 
$
10.21

 
$
7.49

Discontinued operations

 

 
(0.01
)
 
(0.03
)
 
$
2.86

 
$
2.67

 
$
10.20

 
$
7.46

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
2.85

 
$
2.67

 
$
10.19

 
$
7.49

Discontinued operations

 

 
(0.01
)
 
(0.03
)
 
$
2.85

 
$
2.67

 
$
10.18

 
$
7.46

See Notes to the Consolidated Financial Statements.


1


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Millions of dollars
2018
 
2017
 
2018
 
2017
Net income
$
1,113

 
$
1,056

 
$
3,998

 
$
2,983

Other comprehensive income (loss), net of tax –
 
 
 
 
 
 
 
Financial derivatives
51

 
(21
)
 
89

 
(20
)
Unrealized gains (losses) on available-for-sale debt securities

 
1

 

 
(1
)
Unrealized gains on equity securities and equity securities held by equity investees

 
6

 

 
10

Defined pension and other postretirement benefit plans
6

 
7

 
20

 
20

Foreign currency translations
(8
)
 
23

 
(63
)
 
143

Total other comprehensive income, net of tax
49

 
16

 
46

 
152

Comprehensive income
1,162

 
1,072

 
4,044

 
3,135

Comprehensive loss attributable to non-controlling interests

 
1

 

 
2

Comprehensive income attributable to the Company shareholders
$
1,162

 
$
1,073

 
$
4,044

 
$
3,137

See Notes to the Consolidated Financial Statements.

2


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
 
Millions of dollars
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
521

 
$
1,523

Restricted cash
11

 
5

Short-term investments
944

 
1,307

Accounts receivable:
 
 
 
Trade, net
3,883

 
3,359

Related parties
204

 
180

Inventories
4,596

 
4,217

Prepaid expenses and other current assets
1,224

 
1,147

Total current assets
11,383

 
11,738

Property, plant and equipment at cost
18,116

 
16,570

Less: Accumulated depreciation
(6,094
)
 
(5,573
)
Property, plant and equipment, net
12,022

 
10,997

Investments and long-term receivables:
 
 
 
Investment in PO joint ventures
440

 
420

Equity investments
1,688

 
1,635

Other investments and long-term receivables
20

 
17

Goodwill
1,819

 
570

Intangible assets, net
982

 
568

Other assets
342

 
261

Total assets
$
28,696

 
$
26,206

See Notes to the Consolidated Financial Statements.





3


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
 
Millions of dollars, except shares and par value data
September 30,
2018
 
December 31,
2017
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
984

 
$
2

Short-term debt
214

 
68

Accounts payable:
 
 
 
Trade
2,928

 
2,258

Related parties
627

 
637

Accrued liabilities
1,489

 
1,812

Total current liabilities
6,242

 
4,777

Long-term debt
7,471

 
8,549

Other liabilities
2,017

 
2,275

Deferred income taxes
1,774

 
1,655

Commitments and contingencies

 

Redeemable noncontrolling interests
123

 

Stockholders’ equity:
 
 
 
Ordinary shares, €0.04 par value, 1,275 million shares authorized, 387,177,776 and 394,512,054 shares outstanding, respectively
22

 
31

Additional paid-in capital
7,033

 
10,206

Retained earnings
6,453

 
15,746

Accumulated other comprehensive loss
(1,309
)
 
(1,285
)
Treasury stock, at cost, 13,032,504 and 183,928,109 ordinary shares, respectively
(1,155
)
 
(15,749
)
Total Company share of stockholders’ equity
11,044

 
8,949

Noncontrolling interests
25

 
1

Total equity
11,069

 
8,950

Total liabilities, redeemable noncontrolling interests and equity
$
28,696

 
$
26,206

See Notes to the Consolidated Financial Statements.

4


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended
September 30,
Millions of dollars
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
3,998

 
$
2,983

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
908

 
876

Amortization of debt-related costs
11

 
12

Charges related to repayment of debt

 
49

Share-based compensation
33

 
39

Equity investments –
 
 
 
Equity income
(253
)
 
(240
)
Distributions of earnings, net of tax
200

 
190

Deferred income taxes
111

 
217

Gain on sale of business and equity method investments

 
(108
)
Changes in assets and liabilities that provided (used) cash:
 
 
 
Accounts receivable
(128
)
 
(278
)
Inventories
(202
)
 
(219
)
Accounts payable
257

 
121

Other, net
(761
)
 
82

Net cash provided by operating activities
4,174

 
3,724

Cash flows from investing activities:
 
 
 
Expenditures for property, plant and equipment
(1,407
)
 
(1,146
)
Acquisition of A. Schulman, net of cash acquired
(1,776
)
 

Payments for repurchase agreements

 
(512
)
Proceeds from repurchase agreements

 
381

Purchases of available-for-sale debt securities
(50
)
 
(653
)
Proceeds from sales and maturities of available-for-sale debt securities
410

 
499

Proceeds from maturities of held-to-maturity securities

 
75

Purchases of equity securities
(64
)
 

Proceeds from sales of equity securities
64

 

Net proceeds from sales of business and equity method investments

 
155

Proceeds from settlement of net investment hedges
872

 
609

Payments for settlement of net investment hedges
(850
)
 
(658
)
Other, net
(100
)
 
(4
)
Net cash used in investing activities
(2,901
)
 
(1,254
)
See Notes to the Consolidated Financial Statements.

5


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended
September 30,
Millions of dollars
2018
 
2017
Cash flows from financing activities:
 
 
 
Repurchases of Company ordinary shares
(801
)
 
(866
)
Dividends paid
(1,176
)
 
(1,060
)
Issuance of long-term debt

 
990

Repayments of long-term debt
(394
)
 
(1,000
)
Debt extinguishment costs

 
(65
)
Payments of debt issuance costs

 
(8
)
Net of proceeds from (repayments of) commercial paper
140

 
(178
)
Other, net
(11
)
 
(4
)
Net cash used in financing activities
(2,242
)
 
(2,191
)
Effect of exchange rate changes on cash
(27
)
 
54

Increase (decrease) in cash and cash equivalents and restricted cash
(996
)
 
333

Cash and cash equivalents and restricted cash at beginning of period
1,528

 
878

Cash and cash equivalents and restricted cash at end of period
$
532

 
$
1,211

See Notes to the Consolidated Financial Statements.

6


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 
Three Months Ended September 30, 2018
 
Ordinary Shares
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Company
Share of
Stockholders’
Equity
 
Non-
Controlling
Interests
Millions of dollars
Issued
 
Treasury
 
Balance, June 30, 2018
$
31

 
$
(16,200
)
 
$
10,190

 
$
17,939

 
$
(1,358
)
 
$
10,602

 
$
1

Net income

 

 

 
1,113

 

 
1,113

 

Other comprehensive income

 

 

 

 
49

 
49

 

Share-based compensation

 
4

 
8

 

 

 
12

 

Dividends ($1.00 per share)

 

 

 
(389
)
 

 
(389
)
 

Repurchase of Company ordinary shares

 
(343
)
 

 

 

 
(343
)
 

     Cancellation of treasury
     shares
(9
)
 
15,384

 
(3,165
)
 
(12,210
)
 

 

 

     Acquisition of A.
     Schulman Inc.

 

 

 

 

 

 
24

Balance, September 30, 2018
$
22

 
$
(1,155
)
 
$
7,033

 
$
6,453

 
$
(1,309
)
 
$
11,044

 
$
25

 
Three Months Ended September 30, 2017
 
Ordinary Shares
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Company
Share of
Stockholders’
Equity
 
Non-
Controlling
Interests
Millions of dollars
Issued
 
Treasury
 
Balance, June 30, 2017
$
31

 
$
(15,494
)
 
$
10,198

 
$
13,506

 
$
(1,375
)
 
$
6,866

 
$
2

Net income (loss)

 

 

 
1,057

 

 
1,057

 
(1
)
Other comprehensive income

 

 

 

 
16

 
16

 

Share-based compensation

 
6

 
3

 

 

 
9

 

Dividends ($0.90 per share)

 

 

 
(356
)
 

 
(356
)
 

Repurchase of Company ordinary shares

 
(266
)
 

 

 

 
(266
)
 

Balance, September 30, 2017
$
31

 
$
(15,754
)
 
$
10,201

 
$
14,207

 
$
(1,359
)
 
$
7,326

 
$
1

See Notes to the Consolidated Financial Statements.









7


LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
Nine Months Ended September 30, 2018
 
Ordinary Shares
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Company
Share of
Stockholders’
Equity
 
Non-
Controlling
Interests
Millions of dollars
Issued
 
Treasury
 
Balance, December 31, 2017
$
31

 
$
(15,749
)
 
$
10,206

 
$
15,746

 
$
(1,285
)
 
$
8,949

 
$
1

Adoption of accounting standards

 

 

 
95

 
(70
)
 
25

 

Net income

 

 

 
3,998

 

 
3,998

 

Other comprehensive income

 

 

 

 
46

 
46

 

Share-based compensation

 
31

 
20

 

 

 
51

 

Dividends ($3.00 per share)

 

 

 
(1,176
)
 

 
(1,176
)
 

Repurchase of Company ordinary shares

 
(821
)
 

 

 

 
(821
)
 

Purchase of non-controlling interest

 

 
(28
)
 

 

 
(28
)
 

     Cancellation of treasury
     shares
(9
)
 
15,384

 
(3,165
)
 
(12,210
)
 

 

 

     Acquisition of A.
     Schulman Inc.

 

 

 

 

 

 
24

Balance, September 30, 2018
$
22

 
$
(1,155
)
 
$
7,033

 
$
6,453

 
$
(1,309
)
 
$
11,044

 
$
25

 
Nine Months Ended September 30, 2017
 
Ordinary Shares
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Company
Share of
Stockholders’
Equity
 
Non-
Controlling
Interests
Millions of dollars
Issued
 
Treasury
 
Balance, December 31, 2016
$
31

 
$
(14,945
)
 
$
10,191

 
$
12,282

 
$
(1,511
)
 
$
6,048

 
$
25

Net income (loss)

 

 

 
2,985

 

 
2,985

 
(2
)
Other comprehensive income

 

 

 

 
152

 
152

 

Share-based compensation

 
36

 
9

 

 

 
45

 

Dividends ($2.65 per share)

 

 

 
(1,060
)
 

 
(1,060
)
 

Repurchase of Company ordinary shares

 
(845
)
 

 

 

 
(845
)
 

Purchase of non-controlling interest

 

 
1

 

 

 
1

 
(22
)
Balance, September 30, 2017
$
31

 
$
(15,754
)
 
$
10,201

 
$
14,207

 
$
(1,359
)
 
$
7,326

 
$
1

See Notes to the Consolidated Financial Statements.



8


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


TABLE OF CONTENTS
 
 

9


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


1.    Basis of Presentation
LyondellBasell Industries N.V., together with its consolidated subsidiaries (collectively “LyondellBasell N.V.”), is a worldwide manufacturer of chemicals and polymers, a refiner of crude oil, a significant producer of gasoline blending components and a developer and licensor of technologies for production of polymers. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell N.V.
The accompanying Consolidated Financial Statements are unaudited and have been prepared from the books and records of LyondellBasell N.V. in accordance with the instructions to Form 10-Q and Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In our opinion, all adjustments, including normal recurring adjustments, considered necessary for a fair statement have been included. The results for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
On August 21, 2018, we acquired A. Schulman Inc. (“A. Schulman”), a global supplier of high-performance plastic compounds, composites and resins, pursuant to an Agreement and Plan of Merger dated February 15, 2018. As a result of the acquisition, A. Schulman became a wholly owned subsidiary and its results of operations are consolidated prospectively from August 21, 2018 (see Note 3).
2.    Accounting and Reporting Changes
Standard
Description
Period of Adoption
Effect on the Consolidated Financial Statements
Recently Adopted Guidance
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (including subsequent amendments: ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20)
This guidance requires entities to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods and services. This guidance also enhanced related disclosures and was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
See Note 4 for disclosures related to the adoption of this guidance.
ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
This guidance includes a requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This guidance was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
We adopted this guidance prospectively and recorded a cumulative effect adjustment of $15 million to beginning retained earnings.
ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10)

This ASU was issued as part of the Financial Accounting Standards Board’s ongoing agenda to make improvements clarifying the Accounting Standards Codification and provides technical corrections and improvements related to ASU 2016-01. This ASU was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
The adoption of this guidance did not have a material impact.
 
 
 
 

10


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


 
 
 
 
Standard
Description
Period of Adoption
Effect on the Consolidated Financial Statements
ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory
This ASU is aimed at reducing complexity in accounting standards. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This new guidance eliminates the exception for all intra-entity sales of assets other than inventory. A reporting entity would be required to recognize tax expense from the sale of assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. This guidance was effective for annual periods beginning after December 15, 2017. Early adoption is permitted.
First quarter of 2018
(early adopted)

We adopted this guidance using the modified-retrospective method and recorded a cumulative-effect adjustment of $9 million to beginning retained earnings.
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This guidance permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the U.S.-enacted “H.R.1,” also known as the “Tax Cuts and Jobs Act” (the “Tax Act”) to retained earnings. This amendment will be effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted.
First quarter of 2018 (early adopted)
We adopted this guidance using the specific identification method and recorded a cumulative-effect adjustment of $52 million to beginning retained earnings.
ASU 2017-01, Clarifying the Definition of a Business

This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition or disposal of an asset or a business. This amendment was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
The prospective adoption of this guidance did not have a material impact.

ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

This guidance provides clarification about the term in substance nonfinancial asset, other aspects of the scope of Subtopic 610-20 Other Income, and how an entity should account for partial sales of nonfinancial assets once the amendments in ASU 2014-09 become effective. This amendment was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
The retrospective adoption of this guidance did not have a material impact.

ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

This guidance requires changes in the presentation of current service cost and other components of net benefit cost. This amendment was effective for annual and interim periods beginning after December 15, 2017.
First quarter of 2018
The retrospective adoption of this guidance did not have a material impact.

 
 
 
 
 
 
 
 
 
 
 
 

11


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


 
 
 
 
 
 
 
 
Standard
Description
Period of Adoption
Effect on the Consolidated Financial Statements
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
This guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting, amends the presentation and disclosure requirements and changes how companies assess effectiveness. This amendment will be effective for annual and interim periods beginning after December 15, 2018. Early application is permitted.
First quarter of 2018 (early adopted)
The adoption of this guidance did not have a material impact.
Accounting Guidance Issued But Not Adopted as of September 30, 2018
ASU 2016-02, Leases (Topic 842) (including subsequent amendments: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, and ASU 2018-11, Leases, Targeted Improvements)
This guidance, as amended, requires lessee leases with a term longer than 12 months to be recognized as a lease liability and a right-of-use asset representing the right to use the underlying asset for the lease term. Topic 842 retains a classification distinction between finance leases and operating leases, with the classification affecting the pattern of expense recognition in the income statement. Enhanced disclosures are also required. This amendment will be effective for annual periods beginning after December 15, 2018. Early adoption is permitted.
January 1, 2019
We have made significant progress assessing the impact of this guidance through review of existing lease contracts and other purchase obligations that contain embedded lease features.  We are finalizing the implementation of a lease accounting software solution. We are also approaching the end of our efforts to update our systems and processes, including our internal control framework.
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This guidance, as amended, modifies the current incurred loss model of recognizing credit losses and requires a current expected credit loss model which requires utilizing historical, current and forecasted information to develop a current estimate of credit losses for financial assets recorded either at amortized costs or fair value through Other Comprehensive Income. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted.
January 1, 2020
We are currently assessing the impact of the amendment of this guidance on our Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


 
 
 
 
Standard
Description
Period of Adoption
Effect on the Consolidated Financial Statements
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Change to the Disclosure Requirements for Fair Value Measurement
This guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. It removes transfer disclosures between Level 1 and Level 2 of the fair value hierarchy, and adds disclosures for the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted.
January 1, 2020

We are currently assessing the impact of this guidance on our Consolidated Financial Statements.
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This guidance changes disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. It eliminates the requirement of certain disclosures that are no longer considered cost beneficial; however, it adds more pertinent disclosures. The guidance will be effective for public entities for annual periods ending after December 15, 2020. Early adoption is permitted.

January 1, 2021

We are currently assessing the impact of this guidance on our Consolidated Financial Statements.

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issue Task Force)

This guidance requires a customer in a hosted, cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized costs are amortized over the term of the hosting arrangement when the recognized asset is ready for use. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted.

January 1, 2020

We are currently assessing the impact of this guidance on our Consolidated Financial Statements.


3.    Business Combination
On August 21, 2018, through an indirect wholly owned subsidiary, we acquired all of the outstanding common stock of A. Schulman Inc., a Delaware corporation for an aggregate purchase price of approximately $1,940 million, including a $1,240 million cash payment to the former common stock holders, $594 million for the repayment of A. Schulman debt and $106 million for the settlement of stock-based compensation plans and other purchase consideration.
The acquisition of A. Schulman, a global supplier of high-performance plastic compounds, composites and powders, builds upon our already existing platform in this space, allowing us to create our Advanced Polymer Solutions business with broad geographic reach, leading technologies and a diverse product portfolio.

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LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Preliminary Purchase Price Allocation—The following table summarizes the allocation of the purchase price based on the fair value of the assets acquired and liabilities, redeemable noncontrolling interests and noncontrolling interests assumed on the acquisition date.
Millions of dollars
 
Cash and cash equivalents
$
71

Restricted cash
10

Accounts receivable
407

Prepaid expenses and other current assets
77

Inventories
300

Property, plant and equipment
431

Equity investments
16

Goodwill
1,259

Intangible assets
488

Other assets
170

Total assets
$
3,229

 
 
Current maturities of long-term debt
$
397

Accounts payable
327

Accrued liabilities
103

Other liabilities
164

Deferred income taxes
149

Total liabilities
1,140

Redeemable noncontrolling interests
125

Noncontrolling interests
24

Total liabilities, redeemable noncontrolling interests and noncontrolling interests
$
1,289

 
 
Total net assets acquired
$
1,940

In determining the fair value, we utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued, primarily using Level 3 inputs. The estimation of fair value required significant judgment related to future net cash flows (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparisons and other factors. Inputs were generally determined by taking into account historical data, supplemented by current and anticipated market conditions, and growth rates.
The purchase price allocation presented above, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations is obtained. The primary areas of the preliminary purchase price allocation that have not been finalized relate to the fair value of inventories, accounts receivables, property, plant and equipment, investments, intangible assets, contingencies and the related impacts on deferred income taxes and cumulative translation adjustments.
During the measurement period, we will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as

14


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings.
Inventories—The acquired inventory of $300 million comprises $180 million of finished goods, $8 million of work-in-process and $112 million of raw materials and supplies. Fair value of finished goods was based on the estimated selling price of finished goods on hand less costs to sell, including disposal and holding period costs, and a reasonable profit margin on the selling and disposal effort for each specific category of finished goods being evaluated. Fair value of work in process was based on the estimated selling price once completed less total costs to complete the manufacturing process, costs to sell including disposal and holding period costs, a reasonable profit margin on the remaining manufacturing, selling, and disposal effort. Raw materials were valued based on current replacement cost.
Other Current Assets and Current Liabilities—Due to the short maturity of these assets and liabilities, their fair values closely approximate their carrying values; therefore, their fair values are deemed to be their respective carrying values.
The gross contractual amount of the receivables presented in the table above is $415 million.
Property, Plant and Equipment—The fair value of the components of property, plant and equipment acquired are represented in the table below:
Millions of dollars
 
Land
$
54

Major manufacturing equipment
197

Buildings
141

Light equipment and instrumentation
12

Office furniture
9

Information system equipment
2

Construction in progress
16

Total
$
431

Fair value for the acquired property, plant and equipment was determined using two valuation methods: the market approach and the replacement cost approach. The market approach represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for the age and condition of the asset.
Goodwill—Goodwill represents the excess of consideration over the net fair value of the acquired assets and liabilities, redeemable noncontrolling interest and noncontrolling interest assumed. The acquisition resulted in $1,259 million of goodwill, which will not be deductible for tax purposes. The goodwill recognized in this transaction largely consists of the acquired workforce and expected synergies resulting from the acquisition. Cost synergies will be achieved through a combination of workforce consolidations, savings from procurement synergies, optimizing warehouse and logistic footprints, implementing systems and processes best practices and leveraging existing research and development knowledge management systems. All of the goodwill was assigned to our APS segment. As a result of the reorganization of our operating segments, an additional $40 million of goodwill attributed to the polypropylene compounding, Catalloy and polybutene-1 businesses previously reported in our O&P–EAI segment was assigned to our APS segment at the acquisition date.

15


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Intangible Assets—The fair value, weighted average useful life and useful life of each class of intangible asset acquired are presented in the following table:
Millions of dollars
 
Fair Value
 
Weighted Average Life (Years)
 
Useful Life (Years)
Customer relationships
 
$
265

 
15
 
15
Trade name and trademarks
 
106

 
5
 
5
Know-how
 
89

 
8
 
5 - 8
Various contracts
 
28

 
2
 
1 - 2
Total
 
$
488

 
 
 
 
Know-how in the table above represents formulations, know-how and trade secrets associated with manufacturing processes.

The fair values of know-how and trade name and trademarks were determined using the relief from royalty method. The excess earnings method was used to determine the fair value of customer relationships. These methods are all variations of the income approach.

The total weighted-average life of the acquired intangible assets that are subject to amortization is 11 years.
Other Assets and Other Liabilities—Other assets include deferred tax assets and pension assets while other liabilities are primarily related to pension and other postretirement benefit plans.
Long-Term Debt—In August 2018, we notified bondholders that we would call the assumed $375 million 6.875% Senior Notes due June 2023 at a price of 105.156% of par. In conjunction with the repayment of the debt in September 2018, we paid a make-whole premium of $19 million. These notes were recognized at redemption value which approximates fair value at the acquisition date.
Redeemable Noncontrolling Interests—Our redeemable noncontrolling interests relate to 124,347 shares of cumulative perpetual special stock issued by our consolidated subsidiary, A. Schulman, Inc. (“A. Schulman Special Stock”). Holders of A. Schulman Special Stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. These shares may be redeemed at any time at the discretion of the holders. In August and September of 2018, 2,820 shares of A. Schulman Special Stock were redeemed for approximately $3 million. As of September 30, 2018, 121,527 shares of A. Schulman Special Stock were outstanding.
At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique, which models the decision to redeem or hold by considering the maximum of the redemption value and the hold value throughout the term of the instrument and chooses the action that maximizes the return to the holder. This model requires assumptions on credit spread, yield volatility and risk-free rates.
Acquisition Costs—We incurred approximately $30 million of acquisition-related transaction costs in connection with the acquisition of A. Schulman during the nine months ended September 30, 2018. These costs comprising banker, legal and consulting fees were classified in our Consolidated Statements of Income for the three-and-nine months ended September 30, 2018 as selling, general and administrative expenses.
Pro forma Information—Our Consolidated Financial Statements include the operating results of A. Schulman from August 21, 2018 to September 30, 2018, including revenues of $269 million and loss from continuing operations before income taxes of $2 million. Pro forma results of operations for this acquisition have not been presented because the effects of the acquisition were not material to our pre-acquisition financial results.

16


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


4.    Revenues
Adoption of New Revenue Accounting Guidance—On January 1, 2018, we adopted the accounting standard ASC 606, Revenue from Contracts with Customers and all related amendments using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized an $18 million adjustment to the beginning retained earnings balance for the cumulative effect of initially applying the new standard. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of this new guidance was immaterial for the nine months ended September 30, 2018, and we expect the impact to be immaterial to our Consolidated Financial Statements on an ongoing basis.
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. Payments are typically required within a short period following the transfer of control of the product to the customer. We occasionally require customers to prepay purchases to ensure collectability. Such prepayments do not represent financing arrangements, since payment and fulfillment of the performance obligation occurs within a short time frame. We elected to apply the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component when, at contract inception, we expect that payment will occur in one year or less. 
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. Incidental costs incurred to obtain a contract are immaterial in the context of the contract and are recognized as expense. We have elected 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.
Contract Balances—Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. Our contract liabilities, which are reflected in our Consolidated Financial Statements as Accrued liabilities and Other liabilities, consist primarily of customer payments for products or services received before the transfer of control to the customer occurs. These contract liabilities were $89 million as of September 30, 2018. Revenue recognized in the 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 chemical 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, while our plastic products are typically used in large volume applications. Our refining business consists of our Houston refinery, which processes crude oil into refined products such as gasoline, diesel and jet fuel.
Petrochemical products generally follow global price trends of crude oil, natural gas liquids and/or natural gas. Price volatility significantly affects our revenues, as our sales contracts are tied to global commodity indexes. Other factors such as global industry capacities and operating rates, foreign exchange rates and worldwide geopolitical trends also affect our revenues.

17


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


The following table presents our revenues disaggregated by key products for the three and nine months ended September 30, 2018
Millions of dollars
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
Sales and other operating revenues:
 
 
 
Olefins & co-products
$
1,021

 
$
2,987

Polyethylene
1,830

 
5,765

Polypropylene
1,414

 
4,405

PO & derivatives
642

 
1,949

Oxyfuels and related products
934

 
2,670

Intermediate chemicals
866

 
2,635

Compounding and solutions
797

 
1,990

Advanced polymers
240

 
718

Refined products
2,236

 
6,536

Other
175

 
473

Total
$
10,155

 
$
30,128

The following table presents our revenues disaggregated by geography, based upon the location of the customer, for the three and nine months ended September 30, 2018:
Millions of dollars
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
Sales and other operating revenues:
 
 
 
United States
$
5,011

 
$
14,528

Germany
741

 
2,326

Italy
376

 
1,203

France
371

 
1,118

Mexico
627

 
1,705

The Netherlands
259

 
835

Other
2,770

 
8,413

Total
$
10,155

 
$
30,128

Transaction Price Allocated to the Remaining Performance Obligations—We have elected to exclude contracts which have an initial term of one year or less from this disclosure. Our contracts with customers are commodity supply arrangements that settle based on market prices at future delivery dates; therefore, transaction prices are entirely variable. Transaction prices are known at the time revenue is recognized since they are generally determined by the commodity price index at a specific date, at month-end or at the month average once products are shipped to our customers. Future estimates of transaction prices for disclosure purposes are substantially constrained as they are highly susceptible to factors outside our influence, including volatility in commodity markets, industry production capacities and operating rates, planned and unplanned industry operating interruptions, foreign exchange rates and worldwide geopolitical trends.
5.    Accounts Receivable
Our allowance for doubtful accounts receivable, which is reflected in the Consolidated Balance Sheets as a reduction of accounts receivable, totaled $16 million and $17 million at September 30, 2018 and December 31, 2017, respectively. 

18


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


6.    Inventories
Inventories consisted of the following components: 
Millions of dollars
September 30,
2018
 
December 31,
2017
Finished goods
$
3,056

 
$
2,932

Work-in-process
184

 
142

Raw materials and supplies
1,356

 
1,143

Total inventories
$
4,596

 
$
4,217

7.    Debt
Long-term loans, notes and other long-term debt, net of unamortized discount and debt issuance cost, consisted of the following: 
Millions of dollars
September 30,
2018
 
December 31,
2017
Senior Notes due 2019, $1,000 million, 5.0% ($1 million of debt issuance cost)
$
979

 
$
961

Senior Notes due 2021, $1,000 million, 6.0% ($6 million of debt issuance cost)
960

 
981

Senior Notes due 2024, $1,000 million, 5.75% ($7 million of debt issuance cost)
993

 
992

Senior Notes due 2055, $1,000 million, 4.625% ($16 million of discount; $11 million of debt issuance cost)
973

 
973

Guaranteed Notes due 2022, €750 million, 1.875% ($2 million of discount; $3 million of debt issuance cost)
864

 
894

Guaranteed Notes due 2023, $750 million, 4.0% ($5 million of discount; $3 million of debt issuance cost)
742

 
740

Guaranteed Notes due 2027, $1,000 million, 3.5% ($9 million of discount; $7 million of debt issuance cost)
931

 
984

Guaranteed Notes due 2027, $300 million, 8.1%
300

 
300

Guaranteed Notes due 2043, $750 million, 5.25% ($21 million of discount; $7 million of debt issuance cost)
722

 
722

Guaranteed Notes due 2044, $1,000 million, 4.875% ($11 million of discount; $9 million of debt issuance cost)
980

 
979

Other
11

 
25

Total
8,455

 
8,551

Less current maturities
(984
)
 
(2
)
Long-term debt
$
7,471

 
$
8,549


19


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: 
 
 
 
Gains (Losses)
 
Cumulative Fair Value
Hedging Adjustments Included
in Carrying Amount of Debt
 
Inception
Year
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
September 30,
 
December 31,
Millions of dollars
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Senior Notes due 2019, 5.0%
2014
 
$
(7
)
 
$
(4
)
 
$
(16
)
 
$
(46
)
 
$
20

 
$
36

Senior Notes due 2021, 6.0%
2016
 
2

 
2

 
22

 
(1
)
 
34

 
12

Guaranteed Notes due 2027, 3.5%
2017
 
12

 

 
54

 
(10
)
 
53

 
(1
)
Guaranteed Notes due 2022, 1.875%
2018
 
1

 

 

 

 

 

Total

 
$
8

 
$
(2
)
 
$
60

 
$
(57
)
 
$
107

 
$
47

The cumulative fair value hedging adjustments remaining at September 30, 2018 and December 31, 2017 associated with our Senior Notes due 2019 included $13 million and $31 million, respectively, for hedges that have been discontinued. The $46 million loss in the nine months ended September 30, 2017 included a $44 million charge for the write-off of the cumulative fair value hedging adjustment related to our 5% Senior Notes due 2019 described below. These fair value adjustments are recognized in Interest expense in the Consolidated Statements of Income.
Short-term loans, notes, and other short-term debt consisted of the following: 
Millions of dollars
September 30,
2018
 
December 31,
2017
$2,500 million Senior Revolving Credit Facility
$

 
$

$900 million U.S. Receivables Facility

 

Commercial paper
140

 

Precious metal financings
70

 
64

Other
4

 
4

Total short-term debt
$
214

 
$
68

Long-Term Debt
Guaranteed Notes due 2027—In March 2017, LYB International Finance II B.V. (“LYB Finance II”), a direct, 100% owned finance subsidiary of LyondellBasell Industries N.V., as defined in Rule 3-10(b) of Regulation S-X, issued $1,000 million of 3.5% guaranteed notes due 2027 at a discounted price of 98.968%.
Senior Notes due 2019—In March 2017, we redeemed $1,000 million aggregate principal amount of our outstanding 5% senior notes due 2019, and paid $65 million in make-whole premiums. In conjunction with the redemption of these notes, we recognized non-cash charges of $4 million for the write-off of unamortized debt issuance costs and $44 million for the write-off of the cumulative fair value hedge accounting adjustment related to the redeemed notes. The remaining balance of these notes is due in April 2019 and is reflected in our Consolidated Balance Sheets in Current maturities of long-term debt.
Short-Term Debt
Senior Revolving Credit Facility—Our $2,500 million revolving credit facility, which expires in June 2022, may be used for dollar and euro denominated borrowings, has a $500 million sublimit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. The aggregate balance of outstanding borrowings, including amounts outstanding under our commercial paper program, and letters of credit under this facility may

20


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


not exceed $2,500 million at any given time. Borrowings under the facility bear interest at a Base Rate or LIBOR, plus an applicable margin. Additional fees are incurred for the average daily unused commitments.
The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00 or less for the period covering the most recent four quarters. We are in compliance with these covenants as of September 30, 2018.
Commercial Paper Program—We have a commercial paper program under which we may issue up to $2,500 million of privately placed, unsecured, short-term promissory notes (“commercial paper”). This program is backed by our $2,500 million senior revolving credit facility. Proceeds from the issuance of commercial paper may be used for general corporate purposes, including dividends and share repurchases. Interest rates on the commercial paper outstanding at September 30, 2018 are based on the terms of the notes and range from 230 to 240 basis points.
U.S. Receivables Facility—In July 2018, we amended our U.S. accounts receivable facility to, among other things, extend the term of the facility to July 2021. The facility has a purchase limit of $900 million in addition to a $300 million uncommitted accordion feature. This facility provides liquidity through the sale or contribution of trade receivables by certain of our U.S. subsidiaries to a wholly owned, bankruptcy-remote subsidiary on an ongoing basis and without recourse. The bankruptcy-remote subsidiary may then, at its option and subject to a borrowing base of eligible receivables, sell undivided interests in the pool of trade receivables to financial institutions participating in the facility. In the event of liquidation, the bankruptcy-remote subsidiary’s assets will be used to satisfy the claims of its creditors prior to any assets or value in the bankruptcy-remote subsidiary becoming available to us. We are responsible for servicing the receivables. This facility also provides for the issuance of letters of credit up to $200 million. The term of the facility may be extended in accordance with the terms of the agreement. The facility is also subject to customary warranties and covenants, including limits and reserves and the maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00 or less for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by the parent company. Additional fees are incurred for the average daily unused commitments.
At September 30, 2018, there were no borrowings or letters of credit under the facility.
Weighted Average Interest Rate—At September 30, 2018 and December 31, 2017, our weighted average interest rate on outstanding short-term debt was 3.0% and 1.8%, respectively.
Debt Discount and Issuance Costs—For the nine months ended September 30, 2018 and 2017, amortization of debt discounts and debt issuance costs resulted in amortization expense of $11 million and $16 million, respectively, which is included in Interest expense in the Consolidated Statements of Income.
Other Information—On December 28, 2016, LYB International Finance III, LLC was formed as a private company with limited liability in Delaware. LYB International Finance III, LLC is a direct, 100% owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X. Any debt securities issued by LYB International Finance III, LLC will be fully and unconditionally guaranteed by LyondellBasell N.V.
8.     Financial Instruments and Fair Value Measurements
We are exposed to market risks, such as changes in commodity pricing, currency exchange rates and interest rates. To manage the volatility related to these exposures, we selectively enter into derivative transactions pursuant to our risk management policies.
A summary of our financial instruments, risk management policies, derivative instruments, hedging activities and fair value measurement can be found in Notes 2 and 14 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. If applicable, updates have been included in the respective sections below.
At September 30, 2018 and December 31, 2017, we had marketable securities classified as cash and cash equivalents of $189 million and $1,035 million, respectively.

21


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency gains of $6 million and $14 million for the three and nine months ended September 30, 2018, respectively, and foreign currency losses of less than $1 million and $6 million for the three and nine months ended September 30, 2017, respectively.  
Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding as of September 30, 2018 and December 31, 2017 that are measured at fair value on a recurring basis:
 
 
September 30, 2018
 
December 31, 2017
 
 
Millions of dollars
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
 
Balance Sheet Classification
Assets–
 
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodities
$
49

 
$
21

 
$

 
$

 
Prepaid expenses and other current assets
Commodities
1

 

 

 

 
Other assets
Foreign currency
236

 
55

 

 
26

 
Prepaid expenses and other current assets
Foreign currency
2,000

 
58

 
2,000

 
25

 
Other assets
Interest rates
1,000

 
82

 

 
20

 
Prepaid expenses and other current assets
Interest rates
647

 
15

 
650

 
1

 
Other assets
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodities
151

 
12

 
77

 
20

 
Prepaid expenses and other current assets
Foreign currency
1,164

 
10

 
19

 

 
Prepaid expenses and other current assets
Non-derivatives:
 
 
 
 
 
 
 
 
 
Available-for-sale debt securities
586

 
586

 
960

 
960

 
Short-term investments
Equity securities
350

 
358

 
350

 
347

 
Short-term investments
Total
$
6,184

 
$
1,197

 
$
4,056

 
$
1,399

 
 
Liabilities–
 
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodities
$

 
$

 
$
97

 
$
8

 
Accrued liabilities
Commodities

 

 
5

 

 
Other liabilities
Foreign currency

 
34

 
139

 
29

 
Accrued liabilities
Foreign currency
950

 
101

 
950

 
140

 
Other liabilities
Interest rates
1,000

 
10

 

 
5

 
Accrued liabilities
Interest rates
2,000

 
86

 
3,350

 
58

 
Other liabilities
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodities
8

 
3

 
108

 
29

 
Accrued liabilities
Foreign currency
213

 
1

 
995

 
11

 
Accrued liabilities
Non-derivatives:
 
 
 
 
 
 
 
 
 
Performance share awards
32

 
32

 
23

 
23

 
Accrued liabilities
Performance share awards
2

 
2

 
27

 
27

 
Other liabilities
Total
$
4,205

 
$
269

 
$
5,694

 
$
330

 
 

22


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


All derivatives and available-for-sale debt securities in the tables above are classified as Level 2. Our limited partnership investments included in our equity securities discussed below, are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.
At September 30, 2018, our outstanding foreign currency and commodity contracts not designated as hedges mature from October 2018 to August 2019 and from October 2018 to December 2018, respectively.
Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017. Short-term loans receivable, which represent our repurchase agreements, and short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying and fair values of short-term and long-term debt exclude capital leases and commercial paper. 
 
September 30, 2018
 
December 31, 2017
Millions of dollars
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Non-derivatives:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Short-term loans receivable
$
550

 
$
550

 
$
570

 
$
570

Liabilities:
 
 
 
 
 
 
 
Short-term debt
$
70

 
$
67

 
$
64

 
$
75

Long-term debt
8,444

 
8,772

 
8,526

 
9,442

Total
$
8,514

 
$
8,839

 
$
8,590

 
$
9,517

All financial instruments in the table above are classified as Level 2. There were no transfers between Level 1 and Level 2 for any of our financial instruments during the nine months ended September 30, 2018 and the year ended December 31, 2017.
Net Investment Hedges—In 2018, we entered into €800 million of foreign currency contracts that were designated as net investment hedges.
On June 15, 2018, €400 million of these foreign currency contracts expired, resulting in €400 million ($473 million at the expiry spot rate) settlement payment to and $498 million receipt from our counterparties, respectively.
On September 10, 2018, €325 million of our foreign currency contracts expired, resulting in €325 million ($377 million at the expiry spot rate) settlement payment to and $374 million receipt from our counterparties, respectively.
In 2017, we entered into €617 million of foreign currency contracts that were designated as net investment hedges.
In 2016, we issued euro denominated notes payable due 2022 with notional amounts totaling €750 million that were designated as a net investment hedge. In May 2018, we dedesignated and redesignated a €125 million tranche of our euro denominated notes payable due 2022 as a net investment hedge.
At September 30, 2018 and December 31, 2017, we had outstanding foreign currency contracts with an aggregate notional value of €817 million ($886 million) and €742 million ($789 million), respectively, designated as net investment hedges. In addition, at September 30, 2018 and December 31, 2017 we had outstanding foreign-currency denominated debt, with notional amount totaling €750 million ($869 million) and €750 million ($899 million), respectively, designated as a net investment hedge.
There was no ineffectiveness recorded during the three and nine months ended September 30, 2017 related to these hedging relationships. 

23


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding at September 30, 2018 and December 31, 2017
 
September 30, 2018
 
December 31, 2017
 
 
Millions of dollars
Notional Value
 
Notional Value
 
Expiration Date
Foreign currency
$
2,300

 
$
2,300

 
2021 to 2027
Interest rates
1,500

 
1,000

 
2019 to 2021
Commodities
50

 
102

 
2018 to 2019
There was less than $1 million of ineffectiveness recorded during the three months ended September 30, 2017 and $1 million of ineffectiveness recorded during the nine months ended September 30, 2017 related to these hedging relationships.
In June 2018 and July 2018, we entered into forward-starting interest rate swaps with a total notional amount of $300 million and $200 million, respectively, to mitigate the risk of variability in interest rates for an expected debt issuance by November 2021. These swaps were designated as cash flow hedges and will be terminated upon debt issuance.
As of September 30, 2018, $1 million is scheduled to be reclassified as a decrease to interest expense and $21 million is scheduled to be reclassified as a decrease to cost of sales over the next twelve months.
Fair Value Hedges—In May 2018, we entered into a euro fixed-for-floating interest rate swap to mitigate the change in the fair value of €125 million ($147 million) of our €750 million notes payable due 2022 associated with the risk of variability in the 6-month EURIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled annually and semi-annually, respectively.
In February 2017, we entered into U.S. dollar fixed-for-floating interest rate swaps to mitigate changes in the fair value of our $1,000 million 3.5% guaranteed notes due 2027 associated with the risk of variability in the 3 Month USD LIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled semi-annually and quarterly, respectively.
In March 2017, concurrent with the redemption of $1,000 million of our outstanding 5% senior notes due 2019, we dedesignated the related $2,000 million fair value hedge and terminated swaps in the notional amount of $1,000 million. At the same time, we redesignated the remaining $1,000 million notional amount of swaps as a fair value hedge of the remaining $1,000 million of 5% senior notes outstanding.
We had outstanding interest rate contracts with aggregate notional amounts of $3,147 million and $3,000 million at September 30, 2018 and December 31, 2017, respectively, designated as fair value hedges. Our interest rate contracts outstanding at September 30, 2018 mature from 2019 to 2027.
There was $4 million and $11 million of ineffectiveness recorded for the three and nine months ended September 30, 2017, respectively, related to these hedging relationships. 

24


LYONDELLBASELL INDUSTRIES N.V.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Impact on Earnings and Other Comprehensive Income—The following table summarizes the pre-tax effect of derivative instruments and non-derivative instruments on Other comprehensive income and earnings for the three and nine months ended September 30, 2018 and 2017
 
Effect of Financial Instruments
 
Three Months Ended September 30,
 
Gain (Loss) Recognized in AOCI
 
Gain (Loss) Reclassified from AOCI to Income
 
Gain (Loss) Recognized in Income
 
Income Statement
Millions of dollars
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
Classification
Derivatives designated as net investment hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
$
4

 
$
(57
)
 
$

 
$

 
$
8

 
$

 
Interest expense
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodities
30

 
3

 
(11
)
 

 

 

 
Cost of sales
Foreign currency
11

 
(98
)
 
(13
)
 
74

 
11

 
9

 
Other income, net; Interest expense
Interest rates
48

 
(5
)
 

 

 

 

 
Interest expense
Derivatives designated as fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rates

 

 

 

 
(12
)
 
3

 
Interest expense
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodities

 

 

 

 
2

 
(6
)