e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30,
2010 |
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or |
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number: 001-34726
LYONDELLBASELL INDUSTRIES N.V.
(Exact name of registrant as specified in its charter)
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The Netherlands
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98-0646235 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
Weena 737
3013 AM Rotterdam
The Netherlands
(Address of principal executive offices)
31 10 275 5500
(Registrants telephone number, including area code)
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, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ x ] Smaller reporting company [ ]
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 565,673,773 ordinary shares, 0.04 par value, outstanding at November 9, 2010.
LYONDELLBASELL INDUSTRIES N.V.
TABLE OF CONTENTS
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Page |
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Part I Financial Information |
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3 |
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Item 1. Financial Statements |
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3 |
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Consolidated Income Statement |
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3 |
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Consolidated Balance Sheet |
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4 |
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Consolidated Statement of Cash Flows |
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6 |
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Consolidated Statements of Stockholders Equity (Deficit) |
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8 |
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Notes to Consolidated Financial Statements |
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9 |
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Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |
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59 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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86 |
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Item 4. Controls and Procedures |
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86 |
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Part II Other Information |
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87 |
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Item 1. Legal Proceedings |
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87 |
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Item 1A. Risk Factors |
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88 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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88 |
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Item 6. Exhibits |
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89 |
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Signature |
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90 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF INCOME
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Successor |
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Predecessor |
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Three |
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Three |
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months |
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May 1 |
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January 1 |
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months |
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Nine months |
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ended |
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through |
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through |
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ended |
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ended |
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September 30, |
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September 30, |
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April 30, |
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September 30, |
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September 30, |
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Millions of dollars, except earnings per share |
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2010 |
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2010 |
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2010 |
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2009 |
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2009 |
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Sales and other operating revenues: |
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Trade |
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$ |
10,116 |
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$ |
16,771 |
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$ |
13,260 |
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$ |
8,488 |
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$ |
21,691 |
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Related parties |
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186 |
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303 |
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207 |
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124 |
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320 |
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10,302 |
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17,074 |
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13,467 |
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8,612 |
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22,011 |
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Operating costs and expenses: |
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Cost of sales |
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9,075 |
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15,273 |
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12,414 |
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7,956 |
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20,906 |
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Selling,
general and administrative
expenses |
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204 |
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333 |
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308 |
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199 |
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633 |
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Research and development expenses |
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35 |
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58 |
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55 |
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38 |
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105 |
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9,314 |
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15,664 |
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12,777 |
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8,193 |
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21,644 |
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Operating income |
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988 |
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1,410 |
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690 |
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419 |
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367 |
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Interest expense |
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(182 |
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(314 |
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(713 |
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(445 |
) |
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(1,379 |
) |
Interest income |
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(4 |
) |
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8 |
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5 |
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4 |
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15 |
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Other income (expense), net |
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(97 |
) |
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(43 |
) |
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(265 |
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135 |
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291 |
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Income (loss) before equity investments,
reorganization items and income taxes |
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705 |
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1,061 |
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(283 |
) |
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113 |
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(706 |
) |
Income (loss) from equity investments |
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29 |
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56 |
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84 |
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(168 |
) |
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(166 |
) |
Reorganization items |
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(13 |
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(21 |
) |
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8,010 |
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(928 |
) |
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(2,000 |
) |
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Income (loss) before income taxes |
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721 |
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1,096 |
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7,811 |
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(983 |
) |
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(2,872 |
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Provision for (benefit from) income taxes |
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254 |
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282 |
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(693 |
) |
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(332 |
) |
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(851 |
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Net income (loss) |
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467 |
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814 |
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8,504 |
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(651 |
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(2,021 |
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Less: net
loss attributable to
non-controlling interests |
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7 |
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2 |
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60 |
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1 |
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4 |
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Net income (loss) attributable to the Company |
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$ |
474 |
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$ |
816 |
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$ |
8,564 |
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$ |
(650 |
) |
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$ |
(2,017 |
) |
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Earnings per share: |
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Net income (loss): |
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Basic |
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$ |
0.84 |
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$ |
1.45 |
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Diluted |
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$ |
0.84 |
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$ |
1.45 |
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Pro forma earnings per share: |
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Net income (loss): |
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Basic |
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$ |
15.19 |
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$ |
(1.15 |
) |
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$ |
(3.58 |
) |
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Diluted |
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$ |
15.14 |
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$ |
(1.15 |
) |
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$ |
(3.58 |
) |
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See Notes to the Consolidated Financial Statements.
3
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
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Successor |
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Predecessor |
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September 30, |
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December 31, |
Millions, except shares and par value data |
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2010 |
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2009 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
4,832 |
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$ |
558 |
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Short-term investments |
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- - |
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11 |
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Accounts receivable: |
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Trade, net |
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3,568 |
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3,092 |
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Related parties |
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232 |
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195 |
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Inventories |
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4,412 |
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3,277 |
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Prepaid expenses and other current assets |
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899 |
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1,133 |
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Total current assets |
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13,943 |
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8,266 |
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Property, plant and equipment, net |
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7,216 |
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15,152 |
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Investments and long-term receivables: |
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Investment in PO joint ventures |
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447 |
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922 |
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Equity investments |
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1,582 |
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1,085 |
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Other investments and long-term receivables |
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54 |
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112 |
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Goodwill |
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1,105 |
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- - |
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Intangible assets, net |
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1,411 |
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1,861 |
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Other assets |
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|
272 |
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363 |
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Total assets |
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$ |
26,030 |
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$ |
27,761 |
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See Notes to the Consolidated Financial Statements.
4
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS(Continued)
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Successor |
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Predecessor |
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September 30, |
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December 31, |
Millions, except shares and par value data |
|
2010 |
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2009 |
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LIABILITIES AND EQUITY (DEFICIT) |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
8 |
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$ |
497 |
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Short-term debt |
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|
518 |
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|
6,182 |
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Accounts payable: |
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Trade |
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1,832 |
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|
1,627 |
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Related parties |
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|
730 |
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|
501 |
|
Accrued liabilities |
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|
1,513 |
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|
1,390 |
|
Deferred income taxes |
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|
446 |
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|
170 |
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Total current liabilities |
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5,047 |
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|
10,367 |
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Long-term debt |
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|
6,799 |
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|
305 |
|
Other liabilities |
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|
2,086 |
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|
|
|
1,361 |
|
Deferred income taxes |
|
|
1,155 |
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|
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|
2,081 |
|
Commitments and contingencies |
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Liabilities subject to compromise |
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- - |
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22,494 |
|
Stockholders equity (deficit): |
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Class A
ordinary shares, 0.04 par value, 1,000 million shares
authorized and
332,326,676 shares issued at September 30, 2010 |
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18 |
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- - |
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Class B
ordinary shares, 0.04 par value, 275 million shares
authorized and
233,347,097 shares issued at September 30, 2010 |
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12 |
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- - |
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Predecessor
common stock, 124 par value, 403,226 shares authorized and
issued at December 31, 2009 |
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- - |
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|
60 |
|
Additional paid-in capital |
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|
9,829 |
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|
563 |
|
Retained earnings (deficit) |
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|
816 |
|
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|
(9,313 |
) |
Accumulated other comprehensive income (loss) |
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|
207 |
|
|
|
|
(286 |
) |
Treasury
stock, at cost, 1,125,000 class A ordinary shares at
September 30, 2010 |
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- - |
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|
- - |
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|
|
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|
|
Total Company share of stockholders equity (deficit) |
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10,882 |
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(8,976 |
) |
Non-controlling interests |
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|
61 |
|
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|
129 |
|
|
|
|
|
|
|
Total equity (deficit) |
|
|
10,943 |
|
|
|
|
(8,847 |
) |
|
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|
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|
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Total liabilities and equity (deficit) |
|
$ |
26,030 |
|
|
|
$ |
27,761 |
|
|
|
|
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|
See Notes to the Consolidated Financial Statements.
5
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Successor |
|
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Predecessor |
|
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January 1 |
|
Nine months |
|
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May 1 through |
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|
through |
|
ended |
|
|
September 30, |
|
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2010 |
|
2009 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
814 |
|
|
|
$ |
8,504 |
|
|
$ |
(2,021 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
351 |
|
|
|
|
565 |
|
|
|
1,338 |
|
Amortization of debt-related costs |
|
|
15 |
|
|
|
|
307 |
|
|
|
378 |
|
Inventory valuation adjustment |
|
|
365 |
|
|
|
|
- - |
|
|
|
109 |
|
Equity
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income |
|
|
(56 |
) |
|
|
|
(84 |
) |
|
|
166 |
|
Distributions of earnings |
|
|
28 |
|
|
|
|
18 |
|
|
|
21 |
|
Deferred income taxes |
|
|
185 |
|
|
|
|
(610 |
) |
|
|
(894 |
) |
Reorganization and fresh-start accounting adjustments, net |
|
|
21 |
|
|
|
|
(8,010 |
) |
|
|
2,000 |
|
Reorganization-related payments, net |
|
|
(137 |
) |
|
|
|
(147 |
) |
|
|
(183 |
) |
Payment of claims under Plan of Reorganization |
|
|
(197 |
) |
|
|
|
(260 |
) |
|
|
- - |
|
Unrealized foreign currency exchange loss (gains) |
|
|
21 |
|
|
|
|
264 |
|
|
|
(254 |
) |
Changes in assets and liabilities that provided (used) cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
34 |
|
|
|
|
(650 |
) |
|
|
(217 |
) |
Inventories |
|
|
131 |
|
|
|
|
(368 |
) |
|
|
239 |
|
Accounts payable |
|
|
167 |
|
|
|
|
249 |
|
|
|
(122 |
) |
Repayment of accounts receivable securitization facility |
|
|
- - |
|
|
|
|
- - |
|
|
|
(503 |
) |
Prepaid expenses and other current assets |
|
|
150 |
|
|
|
|
47 |
|
|
|
(242 |
) |
Other, net |
|
|
337 |
|
|
|
|
(761 |
) |
|
|
(514 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
|
2,229 |
|
|
|
|
(936 |
) |
|
|
(699 |
) |
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
6
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED
STATEMENTS OF CASH FLOWS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
|
January 1 |
|
Nine months |
|
|
May 1 through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
|
Millions
of dollars |
|
2010 |
|
|
2010 |
|
2009 |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
|
(266 |
) |
|
|
|
(226 |
) |
|
|
(498 |
) |
Proceeds from insurance claims |
|
|
- - |
|
|
|
|
- - |
|
|
|
72 |
|
Advances and contributions to affiliates |
|
|
- - |
|
|
|
|
- - |
|
|
|
(2 |
) |
Proceeds from disposal of assets |
|
|
- - |
|
|
|
|
1 |
|
|
|
15 |
|
Short-term investments |
|
|
- - |
|
|
|
|
12 |
|
|
|
13 |
|
Other |
|
|
- - |
|
|
|
|
- - |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(266 |
) |
|
|
|
(213 |
) |
|
|
(406 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of class B ordinary shares |
|
|
- - |
|
|
|
|
2,800 |
|
|
|
- - |
|
Proceeds from note payable |
|
|
- - |
|
|
|
|
- - |
|
|
|
100 |
|
Repayment of note payable |
|
|
- - |
|
|
|
|
- - |
|
|
|
(100 |
) |
Net proceeds from (repayments of) debtor-in-possession
term loan facility |
|
|
- - |
|
|
|
|
(2,170 |
) |
|
|
2,013 |
|
Net borrowings (repayments) under debtor-in-possession
revolving credit facility |
|
|
- - |
|
|
|
|
(325 |
) |
|
|
160 |
|
Net repayments under pre-petition revolving credit facilities |
|
|
- - |
|
|
|
|
- - |
|
|
|
(766 |
) |
Net borrowings (repayments) on revolving credit facilities |
|
|
52 |
|
|
|
|
38 |
|
|
|
(378 |
) |
Proceeds from short-term debt |
|
|
7 |
|
|
|
|
8 |
|
|
|
18 |
|
Repayments of short-term debt |
|
|
(8 |
) |
|
|
|
(14 |
) |
|
|
- - |
|
Issuance of long-term debt |
|
|
- - |
|
|
|
|
3,242 |
|
|
|
- - |
|
Repayments of long-term debt |
|
|
- - |
|
|
|
|
(9 |
) |
|
|
(63 |
) |
Payments of equity and debt issuance costs |
|
|
(2 |
) |
|
|
|
(253 |
) |
|
|
(93 |
) |
Other, net |
|
|
(4 |
) |
|
|
|
(2 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
45 |
|
|
|
|
3,315 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
113 |
|
|
|
|
(13 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
2,121 |
|
|
|
|
2,153 |
|
|
|
(239 |
) |
Cash and cash equivalents at beginning of period |
|
|
2,711 |
|
|
|
|
558 |
|
|
|
858 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,832 |
|
|
|
$ |
2,711 |
|
|
$ |
619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
129 |
|
|
|
$ |
360 |
|
|
$ |
859 |
|
|
|
|
|
|
|
|
|
Net income taxes paid |
|
$ |
50 |
|
|
|
$ |
12 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
7
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Retained |
|
Other |
|
Stockholders |
|
Non- |
|
|
|
|
Common Stock |
|
Paid-In |
|
Earnings |
|
Comprehensive |
|
Equity |
|
Controlling |
|
Comprehensive |
Millions, except shares |
|
Issued |
|
Treasury |
|
Capital |
|
(Deficit) |
|
Income (Loss) |
|
(Deficit) |
|
Interests |
|
Income (Loss) |
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
60 |
|
|
$ |
- - |
|
|
$ |
563 |
|
|
$ |
(9,313 |
) |
|
$ |
(286 |
) |
|
$ |
(8,976 |
) |
|
$ |
129 |
|
|
|
|
|
Net income (loss) |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
8,564 |
|
|
|
- - |
|
|
|
8,564 |
|
|
|
(60 |
) |
|
$ |
8,504 |
|
Net distributions to
non-controlling interests |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(15 |
) |
|
|
- - |
|
Financial derivatives,
net of tax of $51 million |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
90 |
|
|
|
90 |
|
|
|
- - |
|
|
|
90 |
|
Unrealized gain on held-for-sale
securities held by equity
investees |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
- - |
|
|
|
(13 |
) |
Changes in unrecognized employee
benefits gains and losses, net
of tax of $3 million |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(48 |
) |
|
|
(48 |
) |
|
|
- - |
|
|
|
(48 |
) |
Foreign currency translation |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(25 |
) |
|
|
(25 |
) |
|
|
- - |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2010,
Predecessor |
|
|
60 |
|
|
|
- - |
|
|
|
563 |
|
|
|
(749 |
) |
|
|
(282 |
) |
|
|
(408 |
) |
|
|
54 |
|
|
|
|
|
Fresh-start reporting adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of predecessor
common stock, capital surplus
and accumulated earnings,
403,226 shares |
|
|
(60 |
) |
|
|
- - |
|
|
|
(563 |
) |
|
|
749 |
|
|
|
- - |
|
|
|
126 |
|
|
|
- - |
|
|
|
|
|
Elimination of predecessor
accumulated other comprehensive
loss |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
282 |
|
|
|
282 |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2010,
Successor |
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 1, 2010 |
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
54 |
|
|
|
|
|
Issuance of class A and class B
ordinary shares, 563,901,979
shares |
|
|
30 |
|
|
|
- - |
|
|
|
9,815 |
|
|
|
- - |
|
|
|
- - |
|
|
|
9,845 |
|
|
|
- - |
|
|
|
|
|
Purchase of 1,125,000
treasury shares |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
|
Share-based compensation,
1,771,794 shares |
|
|
- - |
|
|
|
- - |
|
|
|
14 |
|
|
|
- - |
|
|
|
- - |
|
|
|
14 |
|
|
|
- - |
|
|
|
|
|
Net income |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
816 |
|
|
|
- - |
|
|
|
816 |
|
|
|
(2 |
) |
|
$ |
814 |
|
Contributions from
non-controlling interests |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
9 |
|
|
|
- - |
|
Foreign currency translation |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
207 |
|
|
|
207 |
|
|
|
- - |
|
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
$ |
30 |
|
|
$ |
- - |
|
|
$ |
9,829 |
|
|
$ |
816 |
|
|
$ |
207 |
|
|
$ |
10,882 |
|
|
$ |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
8
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
|
Basis of Presentation |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
2. |
|
|
Accounting Policies |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
3. |
|
|
Emergence from Chapter 11 Proceedings |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
4. |
|
|
Fresh-Start Accounting |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
5. |
|
|
Accounts Receivable |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
6. |
|
|
Inventories |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
7. |
|
|
Property, Plant and Equipment, Goodwill, Intangibles and Other Assets |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
8. |
|
|
Investment in PO Joint Ventures |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
9. |
|
|
Equity Investments |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
10. |
|
|
Accounts Payable |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
11. |
|
|
Debt |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
12. |
|
|
Financial Instruments and Derivatives |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
13. |
|
|
Pension and Other Postretirement Benefits |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
14. |
|
|
Incentive and Share-Based Compensation |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
15. |
|
|
Income Taxes |
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
16. |
|
|
Commitments and Contingencies |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
17. |
|
|
Stockholders Equity and Non-Controlling Interests |
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
18. |
|
|
Per Share Data |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
19. |
|
|
Segment and Related Information |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
20. |
|
|
Subsequent Events |
|
|
58 |
|
9
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
1. Basis of Presentation
LyondellBasell Industries N.V. is a limited liability company (Naamloze Vennootschap) incorporated
under Dutch law by deed of incorporation dated October 15, 2009. LyondellBasell Industries N.V.,
together with its consolidated subsidiaries (collectively LyondellBasell N.V., the Successor
Company or the Successor), 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. When we use the terms LyondellBasell N.V., the
Successor Company, the Successor, we, us, our or similar words, unless the context
otherwise requires, we are referring to LyondellBasell N.V. after April 30, 2010.
On April 30, 2010 (the Emergence Date), LyondellBasell Industries N.V. became the successor
parent holding company for certain subsidiaries of LyondellBasell Industries AF S.C.A. (together
with its subsidiaries, LyondellBasell AF, the Predecessor Company or the Predecessor) after
completion of proceedings under chapter 11 (chapter 11) of title 11 of the United States
Bankruptcy Code (the U.S. Bankruptcy Code). LyondellBasell AF and 93 of its subsidiaries were
debtors (the Debtors) in jointly administered bankruptcy cases (the Bankruptcy Cases) in the
United States Bankruptcy Court in the Southern District of New York (the U.S. Bankruptcy Court).
As of the Emergence Date, LyondellBasell AFs equity interests in its indirect subsidiaries
terminated and LyondellBasell N.V. now owns and operates, directly and indirectly, substantially
the same business as LyondellBasell AF owned and operated prior to emergence from the Bankruptcy
Cases. LyondellBasell AF is no longer part of the LyondellBasell group. References herein to the
Company for periods through April 30, 2010 are to the Predecessor Company, LyondellBasell AF, and
for periods after the Emergence Date, to the Successor Company, LyondellBasell N.V.
The accompanying consolidated financial statements are unaudited and have been prepared from the
books and records of LyondellBasell N.V. after April 30, 2010 and LyondellBasell AF for periods up
to and including that date 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 generally accepted accounting principles for complete financial
statements. In our opinion, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. The results for interim periods
are not necessarily indicative of results for the entire year. These consolidated financial
statements should be read in conjunction with the LyondellBasell AF consolidated financial
statements and notes thereto for the year ended December 31, 2009, included in Amendment 4 to
LyondellBasell N.V.s Form 10 filed with the SEC on September 28, 2010.
Fresh Start AccountingIn accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 852, Reorganizations, (ASC 852), we applied fresh-start
accounting as of May 1, 2010. Fresh-start accounting requires us to initially record the assets
and liabilities at their fair value based on the Companys reorganization value. Reorganization
value is the fair value of the emerged entity before considering liabilities. The Debtors
reorganization proceedings associated with their emergence from bankruptcy resulted in a new
reporting entity. Financial information presented for the Successor is on a basis different from,
and is therefore not comparable to, financial information for the Predecessor. The Predecessor
information in the financial statements are to periods through April 30, 2010, including the impact
of plan of reorganization provisions and the adoption of fresh-start accounting. For additional
information on fresh-start accounting, see Note 4.
10
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Accounting Policies
The accounting policies of LyondellBasell N.V. are the same policies as the Predecessor except for
those accounting policies and topics addressed herein.
License Revenue RecognitionRevenue from licensing contracts is recognized on a
contract-by-contract basis when we determine that we have substantially sold our product or
rendered service. For proven technologies for which we are contractually entitled to receive the
vast majority of the contract value in cash at or before the date of customer acceptance, we will
generally recognize revenue for the fixed-fee at the date of delivery of the process design package
and the related license, provided that the undelivered items are considered inconsequential or
perfunctory and the customers billings become due. Future fixed fees for these contracts are
recognized on the date of cash receipt and when the uncertainties are resolved. For contracts
involving unproven process technology or post-delivery technical assistance that is not considered
inconsequential or perfunctory, we recognize revenue at the date of customer acceptance up to the
amount of fixed fees due at customer acceptance date. Future fixed fees for these contracts are
recognized when the uncertainties are resolved.
InventoriesInventories are carried at the lower of current market value or cost. Cost is
determined using the last-in, first-out (LIFO) method for raw materials, work in progress (WIP)
and finished goods, and the moving average cost method for materials and supplies.
Identifiable Intangible AssetsCosts to purchase and to develop software for internal use are
deferred and amortized over periods of 3 to 10 years. Other intangible assets are carried at cost
or amortized cost and primarily consist of emission allowances, various contracts, and in-process
research and development. These assets are amortized using the straight-line method over their
estimated useful lives or over the term of the related agreement, if shorter.
Stock-Based CompensationThe Company grants stock-based compensation awards that vest over a
specified period or upon employees meeting certain service criteria. The fair value of equity
instruments issued to employees is measured on the grant date and is recognized over the vesting
period.
ClassificationOur consolidated financial statements classify precious metals and catalysts as
components of Property, plant and equipment. Catalysts and precious metals were previously
reported by the Predecessor as Intangible assets and Other assets, respectively. Debt issuance
costs, which were previously reported as Intangible assets, net by the Predecessor, are classified
as Other assets by the Successor.
New Accounting Standards
Pension and Other Post Retirement BenefitsIn September 2010, the FASB issued guidance related to
ASC Topic 962, Plan Accounting Defined Contribution Pension Plans, to clarify how loans to
participants should be classified and measured by defined contribution pension benefit plans. The
guidance requires that participant loans be classified as notes receivable from participants, which
are segregated from plan investments and measured at their unpaid principal balance, plus any
accrued but unpaid interest. This guidance is effective for fiscal years ending after December 15,
2010, and should be applied retrospectively to all prior periods presented. Early adoption is
permitted. Adoption of this amendment is not expected to have a material effect on our consolidated
financial statements.
11
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Accounting Policies (Continued)
Revenue RecognitionIn April 2010, the FASB issued additional guidance on the criteria that should
be met for determining whether the milestone method of revenue recognition is appropriate. Under
this guidance, a vendor can recognize consideration that is contingent upon achievement of a
milestone in its entirety as revenue in the period in which the milestone is achieved only if the
milestone meets all criteria to be considered substantive. Our adoption of this amendment
effective July 1, 2010 did not have a material effect on our consolidated financial statements.
Income TaxesIn April 2010, the FASB issued additional guidance on accounting for certain tax
effects of the 2010 Health Care Reforms Act. The guidance requires entities to recognize the
impact of changes in tax law in continuing operations in the Consolidated Statement of Income for
the period that includes the enactment date. The adoption of these changes in March 2010 did not
have a material effect on the Companys consolidated financial statements.
Fair Value MeasurementIn January 2010, the FASB issued additional guidance on improving
disclosures regarding fair value measurements. The guidance requires the disclosure of the amounts
of, and the rationale for, significant transfers between Level 1 and Level 2 of the fair value
hierarchy, as well as the rationale for transfers in or out of Level 3. We have adopted all of the
amendments regarding fair value measurements except for a requirement to disclose information about
purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3
measurements on a gross basis. The requirement to separately disclose purchases, sales, issuances,
and settlements of recurring Level 3 measurements will be effective for LyondellBasell N.V.
beginning in 2011. We do not expect this additional requirement to have a material impact on our
consolidated financial statements.
Multiple-element ArrangementsIn October 2009, the FASB ratified the consensus reached by its
emerging issues task force to require companies to allocate revenue in multiple-element
arrangements based on the estimated selling price of an element if vendor-specific or other
third-party evidence of value is not available. This amendment will be effective for LyondellBasell
N.V. beginning January 1, 2011. Earlier application of this amendment is permitted. We are
currently evaluating both the timing and the impact of the adoption of this amendment on our
consolidated financial statements.
3. Emergence from Chapter 11 Proceedings
On April 23, 2010, the U.S. Bankruptcy Court confirmed LyondellBasell AFs Third Amended and
Restated Plan of Reorganization and the Debtors emerged from chapter 11 protection on April 30,
2010.
As a result of the emergence from chapter 11 proceedings, certain prepetition liabilities against
the Debtors were discharged to the extent set forth in the Plan of Reorganization and otherwise
applicable law and the Debtors were permitted to make distributions to their creditors in
accordance with the terms of the Plan of Reorganization.
General unsecured non-priority claims against the Debtors were addressed through the bankruptcy
process and were reported as liabilities subject to compromise and adjusted to the allowed claim
amount as determined through the bankruptcy process, or to the estimated claim amount if determined
to be probable and estimable. Certain of these claims were resolved and satisfied on or before the
Debtors emergence on April 30, 2010, while others have been or will be resolved subsequent to
emergence. Except for certain specific non-priority claims, the unsecured non-priority claims were
resolved as part of the Plan of Reorganization.
12
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
3. Emergence from Chapter 11 Proceedings (Continued)
Under the Plan of Reorganization, the organizational structure of the Company in North America was
simplified by the removal of 90 legal entities. The ultimate ownership of 49 of these entities
(identified as Schedule III Debtors in the Plan) was transferred to a new owner, the Millennium
Custodial Trust, a trust established for the benefit of certain creditors, and these entities are
no longer part of LyondellBasell N.V. In addition, certain real properties owned by the Debtors,
including the Schedule III Debtors (as defined in the Plan), were transferred to the Environmental
Custodial Trust, which now owns and is responsible for these properties. Any associated
liabilities of the entities transferred to and owned by the Millennium Custodial Trust are the
responsibility of those entities and claims regarding those entities will be resolved solely using
their assets and the assets of the trust. In total, $250 million of cash was used to fund the two
trusts, including approximately $80 million to the Millennium Custodial Trust and approximately
$170 million to fund the Environmental Custodial Trust and to make certain direct payments to the
U.S. EPA and certain state environmental agencies.
As part of the Debtors emergence from chapter 11 proceedings, approximately 563.9 million shares
of common stock of LyondellBasell N.V. were issued under the Plan, including 300 million shares of
class A ordinary shares issued in exchange for allowed claims under the Plan of Reorganization.
Approximately 263.9 million shares of LyondellBasell N.V. class B ordinary shares were issued in
connection with a rights offering for gross proceeds of $2.8 billion.
Pursuant to the Plan of Reorganization, administrative and priority claims, as well as the new
money debtor-in-possession (DIP) financing, were repaid in full. The lenders of the DIP loans,
which represented a dollar-for-dollar roll-up or conversion of previously outstanding senior
secured loans (DIP Roll-up Notes), received new senior secured third lien notes in the same
principal amount as the DIP Roll-up Notes. In accordance with the Plan of Reorganization, holders
of senior secured claims received a combination of LyondellBasell N.V. class A ordinary shares;
rights to purchase class B ordinary shares of LyondellBasell N.V.; LyondellBasell N.V. stock
warrants; and cash. Allowed general unsecured claims received a combination of cash and class A
ordinary shares of LyondellBasell N.V. pursuant to the Amended Lender Litigation Settlement
approved by the U.S. Bankruptcy Court on March 11, 2010.
In conjunction with the Debtors emergence from chapter 11, LyondellBasell N.V., through its wholly
owned subsidiary, LBI Escrow Corporation, (LBI Escrow) issued $3.25 billion of first priority
debt, including $2.25 billion and 375 million offerings of senior secured notes in a private
placement and borrowings of $500 million under a senior term loan facility. Upon emergence, LBI
Escrow merged with and into Lyondell Chemical Company (Lyondell Chemical), which replaced LBI
Escrow as the issuer of the senior secured notes and as borrower under the term loan. On April 30,
2010, Lyondell Chemical issued $3,240 million of Senior Secured 11% Notes due 2018 (the Senior
Secured 11% Notes) in exchange for DIP Roll-up Notes incurred as part of the debtor-in-possession
financing. The net proceeds from the sale of the senior secured notes, together with
borrowings under the term loan, a new European securitization facility, and proceeds from the $2.8
billion rights offering, were used to repay and replace certain existing debt, including the
debtor-in-possession credit facilities and an existing European securitization facility, and to
make certain related payments. In addition, we entered into a new $1,750 million U.S. asset-based
revolving credit facility, which can be used for advances or to issue up to $700 million of letters
of credit. For additional information on the Companys debt, see Note 11.
13
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
3. Emergence from Chapter 11 Proceedings (Continued)
Liabilities Subject to CompromiseCertain prepetition liabilities subject to compromise were
reported at the expected allowed amount, even if they could potentially be settled for lesser
amounts in accordance with the terms of the Plan of Reorganization. The total amount to be paid by
the Debtors to settle claims is fixed under the Plan of Reorganization. As a result, all of the
Debtors liabilities subject to compromise at April 30, 2010 have been effectively resolved at the
Emergence Date. As of September 30, 2010, approximately $108 million of priority and
administrative claims have yet to be paid.
Liabilities subject to compromise included in the Predecessors balance sheet consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
April 30, |
|
December 31, |
Millions of dollars |
|
2010 |
|
2009 |
Accounts payable |
|
$ |
473 |
|
|
$ |
602 |
|
Employee benefits |
|
|
994 |
|
|
|
997 |
|
Accrued interest |
|
|
295 |
|
|
|
277 |
|
Conversion fee Interim Loan |
|
|
161 |
|
|
|
161 |
|
Estimated claims |
|
|
1,392 |
|
|
|
1,726 |
|
Interest rate swap obligations |
|
|
218 |
|
|
|
201 |
|
Related party payable |
|
|
- - |
|
|
|
82 |
|
Other accrued liabilities |
|
|
102 |
|
|
|
78 |
|
Long-term debt |
|
|
18,310 |
|
|
|
18,370 |
|
|
|
|
|
|
Total liabilities subject to compromise |
|
$ |
21,945 |
|
|
$ |
22,494 |
|
|
|
|
|
|
The April 30, 2010 liabilities subject to compromise in the above table represent such liabilities
immediately prior to their discharge in accordance with the Plan of Reorganization.
The Plan of Reorganization required that, upon emergence, certain liabilities previously reported
as liabilities subject to compromise be retained by LyondellBasell N.V. Accordingly, on the
Emergence Date, approximately $854 million of pension and other post-retirement benefit
liabilities, included in employee benefits in the above table, were reclassified from liabilities
subject to compromise to current or long-term liabilities, as appropriate.
Long-term debt classified as liabilities subject to compromise immediately prior to the Debtors
emergence from bankruptcy included amounts outstanding under the Interim Loan; the Senior Secured
Credit Facility, including the Term Loan A U.S. Dollar tranche, the U.S. dollar and German tranches
of Term Loan B and the Revolving Credit Facility; 10.25% Debentures due 2010; 9.8% Debentures due
2020; 7.55% Debentures due 2026; the Senior Notes due 2015; 7.625% Senior Debentures due 2026; and
loans from the State of Maryland and KIC Ltd.
All of the long-term debt classified in liabilities subject to compromise at April 30, 2010, except
for the loan from KIC Ltd., was discharged pursuant to the Plan of Reorganization through
distributions of a combination of LyondellBasell N.V. class A ordinary shares, the rights to
purchase class B ordinary shares of LyondellBasell N.V. in a rights offering, warrants to purchase
class A ordinary shares of LyondellBasell N.V. and cash. The claim from KIC Ltd. was transferred
to the Millennium Custodial Trust under the Plan of Reorganization.
14
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
3. |
|
Emergence from Chapter 11 Proceedings (Continued) |
Reorganization ItemsReorganization items, including professional advisory fees and other costs
directly associated with our reorganization, recognized by the Debtors since the January 6, 2009
bankruptcy are classified as Reorganization items on the Consolidated Statements of Income.
Post-emergence reorganization items are primarily related to professional fees associated with
claim settlements, plan implementation and other transition costs attributable to the
reorganization. Reorganization items of LyondellBasell AF include provisions and adjustments to
record the carrying value of certain pre-petition liabilities at their estimated allowable claim
amounts, as well as the costs incurred by non-Debtor companies as a result of the Debtors chapter
11 proceedings.
The Companys charges (credits) for reorganization items, including charges recognized by the
Debtors, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Three |
|
Nine |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
months |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
|
September 30, |
Millions
of dollars |
|
2010 |
|
2010 |
|
|
2010 |
|
2009 |
|
2009 |
Change in
net assets resulting from
the application of fresh-start
accounting |
|
$ |
- - |
|
|
$ |
- - |
|
|
|
$ |
5,656 |
|
|
$ |
- - |
|
|
$ |
- - |
|
Gain on discharge of liabilities
subject to compromise |
|
|
- - |
|
|
|
- - |
|
|
|
|
(13,617 |
) |
|
|
- - |
|
|
|
- - |
|
Asset
write-offs and rejected
contracts |
|
|
- - |
|
|
|
- - |
|
|
|
|
25 |
|
|
|
7 |
|
|
|
687 |
|
Estimated claims |
|
|
- - |
|
|
|
- - |
|
|
|
|
(262 |
) |
|
|
611 |
|
|
|
676 |
|
Accelerated amortization of debt
issuance costs |
|
|
- - |
|
|
|
- - |
|
|
|
|
- - |
|
|
|
192 |
|
|
|
227 |
|
Professional fees |
|
|
12 |
|
|
|
16 |
|
|
|
|
172 |
|
|
|
73 |
|
|
|
167 |
|
Employee severance costs |
|
|
- - |
|
|
|
- - |
|
|
|
|
- - |
|
|
|
20 |
|
|
|
182 |
|
Plant closures costs |
|
|
- - |
|
|
|
- - |
|
|
|
|
12 |
|
|
|
14 |
|
|
|
50 |
|
Other |
|
|
1 |
|
|
|
5 |
|
|
|
|
4 |
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13 |
|
|
$ |
21 |
|
|
|
$ |
(8,010 |
) |
|
$ |
928 |
|
|
$ |
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated claims in the above table include adjustments made to reflect the Debtors estimated
claims to be allowed. Such claims were classified as Liabilities subject to compromise.
4. |
|
Fresh-Start Accounting |
Effective May 1, 2010, we adopted fresh-start accounting pursuant to ASC 852. Accordingly, the
basis of the assets and liabilities in LyondellBasell AFs financial statements for periods prior
to May 1, 2010 will not be comparable to the basis of the assets and liabilities in the financial
statements prepared for LyondellBasell N.V. after emergence from bankruptcy.
15
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting
(Continued) |
In order to qualify for fresh-start accounting, ASC 852 requires that total post-petition
liabilities and allowed claims be in excess of the reorganization value and that prepetition
stockholders receive less than 50% of LyondellBasell N.V.s common stock. Based on the estimated
reorganization value and the terms of the Plan of Reorganization, the criteria of ASC 852 were met
and, as a result, we applied fresh-start accounting on May 1, 2010.
In determining the range of reorganization values, we used a combination of customary valuation
techniques, including, among other things:
|
|
|
The peer group trading analysis methodology, which calculates the total reorganization
value of LyondellBasell N.V. by applying valuation metrics derived from an analysis of
publicly traded peer companies to LyondellBasell N.V.s estimated earnings before interest,
tax, depreciation and amortization (EBITDA): |
|
|
|
Valuation metrics consist of implied market trading multiples and are
calculated by dividing the publicly traded peer companys market capitalization by its
respective EBITDA; |
|
|
|
|
The peer group trading analysis was performed on both a consolidated and
reported segment basis; and |
|
|
|
|
Public peer companies were selected based on their comparability to
LyondellBasell N.V.s reportable operating segments, with those comparable companies
primarily operating in the diversified commodity chemicals, refining and technology
businesses. |
|
|
|
Discounted cash flow valuation methodology, which calculates the reorganization value of
LyondellBasell N.V. as the sum of the present value of its projected unlevered, after-tax
free cash flows. The resulting reorganization valuation is representative of LyondellBasell
N.V. on a cash-free, debt-free basis: |
|
|
|
Financial projections beginning May 1, 2010 were estimated based on a 4-year
and 8-month detailed forecast followed with a higher level 10-year forecast. These
projections reflected certain economic and industry information relevant to the
operating businesses of LyondellBasell N.V. and estimated cyclical trends where
appropriate. Various time periods within the approximately 15-year forecast period were
evaluated including the entire period itself. To the extent that such cycles are, or
commodity price volatility within any cycle is, greater or smaller than estimated, the
estimate of the reorganization value could vary significantly; |
|
|
|
|
The projected cash flows associated with the projections were discounted at a
range of rates that reflected the estimated range of weighted average cost of capital
(WACC); |
|
|
|
|
The imputed discounted cash flow value comprises the sum of (i) the present
value of the projected unlevered free cash flows over the projection period; and (ii)
the present value of a terminal value, which represents the estimate of value
attributable to performance beyond the projection period. Cash flows and associated
imputed values were calculated on both a consolidated and reportable segment basis; |
|
|
|
|
WACCs utilized in the consolidated discounted cash flow analysis ranged from
11% to 12%. The range of WACCs utilized were developed from an analysis of the yields
associated with LyondellBasell N.V.s own debt financings and the equity costs of peer
companies as well as the anticipated mix of LyondellBasell N.V.s debt and equity; |
16
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting
(Continued) |
|
|
|
A range of terminal value EBITDA multiples were selected which, where
appropriate, represented estimated industry cycle average market capitalization/EBITDA
multiples; and |
|
|
|
|
Additional discounted cash flow analysis was performed for LyondellBasell
N.V.s unconsolidated joint ventures. |
In April 2010 the U.S. Bankruptcy Court approved the total reorganization enterprise value on a
cash-free and debt-free basis for consolidated LyondellBasell AF at approximately $14.2 billion to
$16.2 billion, with a midpoint of $15.2 billion. This estimate incorporated adjustments to include
the estimated reorganization value of LyondellBasell AFs interests in unconsolidated joint
ventures, and deducted the estimated book value of third party non-controlling interests in
consolidated joint ventures. The Plan of Reorganization, which was confirmed and approved by the
U.S. Bankruptcy Court on April 23, 2010, without objection by any third party, adopted the midpoint
of $15.2 billion as the reorganization value used to calculate and settle claims.
Fresh-start accounting requires us to allocate the reorganization value approved by the U.S.
Bankruptcy Court to the individual assets and liabilities based upon their estimated fair values.
The determination of fair values of assets and liabilities is subject to significant estimation and
assumptions. The following unaudited balance sheet information illustrates the financial effects
as of May 1, 2010 of implementing the Plan of Reorganization and the adoption of fresh-start
accounting. Adjustments recorded to the Predecessor balance sheet, resulting from the consummation
of the Plan of Reorganization and the adoption of fresh-start accounting, are summarized below.
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
Successor |
|
|
LyondellBasell |
|
Reorganization |
|
Fresh Start |
|
LyondellBasell |
Millions
of dollars |
|
AF |
|
Adjustments |
|
Adjustments |
|
N.V. |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
817 |
|
|
$ |
1,894 |
|
a |
$ |
- - |
|
|
$ |
2,711 |
|
Accounts receivable |
|
|
3,771 |
|
|
|
1 |
|
|
|
- - |
|
|
|
3,772 |
|
Inventories |
|
|
3,552 |
|
|
|
- - |
|
|
|
1,297 |
|
h |
|
4,849 |
|
Prepaid expenses and other current assets |
|
|
1,098 |
|
|
|
(20 |
) |
|
|
(30 |
) |
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
9,238 |
|
|
|
1,875 |
|
|
|
1,267 |
|
|
|
12,380 |
|
Property, plant and equipment, net |
|
|
14,554 |
|
|
|
- - |
|
|
|
(7,474 |
) |
i |
|
7,080 |
|
Investments and long-term receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in PO joint ventures |
|
|
867 |
|
|
|
- - |
|
|
|
(415 |
) |
j |
|
452 |
|
Equity investments |
|
|
1,173 |
|
|
|
- - |
|
|
|
351 |
|
k |
|
1,524 |
|
Other investments and long-term
receivables |
|
|
97 |
|
|
|
- - |
|
|
|
(46 |
) |
k |
|
51 |
|
Goodwill |
|
|
- - |
|
|
|
- - |
|
|
|
1,098 |
|
l |
|
1,098 |
|
Intangible assets, net |
|
|
1,689 |
|
|
|
- - |
|
|
|
(215 |
) |
m |
|
1,474 |
|
Other assets |
|
|
340 |
|
|
|
154 |
|
b |
|
(241 |
) |
n |
|
253 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
27,958 |
|
|
$ |
2,029 |
|
|
$ |
(5,675 |
) |
|
$ |
24,312 |
|
|
|
|
|
|
|
|
|
|
17
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting (Continued) |
CONSOLIDATED BALANCE SHEET (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
Successor |
|
|
LyondellBasell |
|
Reorganization |
|
Fresh Start |
|
LyondellBasell |
Millions
of dollars |
|
AF |
|
Adjustments |
|
Adjustments |
|
N.V. |
Liabilities not subject to compromise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
485 |
|
|
$ |
(480 |
) |
c |
$ |
- - |
|
|
$ |
5 |
|
Short-term debt |
|
|
6,842 |
|
|
|
(6,392 |
) |
c |
|
- - |
|
|
|
450 |
|
Accounts payable |
|
|
2,351 |
|
|
|
1 |
|
|
|
- - |
|
|
|
2,352 |
|
Accrued liabilities |
|
|
1,373 |
|
|
|
46 |
|
d |
|
(18 |
) |
|
|
1,401 |
|
Deferred income taxes |
|
|
162 |
|
|
|
(4 |
) |
|
|
285 |
|
o |
|
443 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
11,213 |
|
|
|
(6,829 |
) |
|
|
267 |
|
|
|
4,651 |
|
Long-term debt |
|
|
304 |
|
|
|
6,477 |
|
c |
|
- - |
|
|
|
6,781 |
|
Other liabilities |
|
|
1,416 |
|
|
|
808 |
|
e |
|
(163 |
) |
p |
|
2,061 |
|
Deferred income taxes |
|
|
2,009 |
|
|
|
1,408 |
|
o |
|
(2,497 |
) |
o |
|
920 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to compromise |
|
|
21,945 |
|
|
|
(21,945 |
) |
f |
|
- - |
|
|
|
- - |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A,
0.04 par value,
1,000 million shares authorized and
301,771,794 shares issued at May 1, 2010 |
|
|
- - |
|
|
|
16 |
|
g |
|
- - |
|
|
|
16 |
|
Class B, 0.04 par value,
275 million shares authorized and
263,901,979 shares issued at May 1, 2010 |
|
|
- - |
|
|
|
14 |
|
g |
|
- - |
|
|
|
14 |
|
Additional paid-in capital |
|
|
- - |
|
|
|
9,815 |
|
g |
|
- - |
|
|
|
9,815 |
|
Predecessor common stock,
124 par value, 403,226 shares authorized
and issued at April 30, 2010 |
|
|
60 |
|
|
|
(60 |
) |
|
|
- - |
|
|
|
- - |
|
Predecessor additional paid-in capital |
|
|
563 |
|
|
|
(563 |
) |
|
|
- - |
|
|
|
- - |
|
Predecessor retained earnings (deficit) |
|
|
(9,452 |
) |
|
|
12,958 |
|
f |
|
(3,506 |
) |
q |
|
- - |
|
Predecessor accumulated other
comprehensive income (loss) |
|
|
(212 |
) |
|
|
(70 |
) |
|
|
282 |
|
q |
|
- - |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(9,041 |
) |
|
|
22,110 |
|
|
|
(3,224 |
) |
|
|
9,845 |
|
Non-controlling interests |
|
|
112 |
|
|
|
- - |
|
|
|
(58 |
) |
r |
|
54 |
|
|
|
|
|
|
|
|
|
|
Total equity (deficit) |
|
|
(8,929 |
) |
|
|
22,110 |
|
|
|
(3,282 |
) |
|
|
9,899 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity (deficit) |
|
$ |
27,958 |
|
|
$ |
2,029 |
|
|
$ |
(5,675 |
) |
|
$ |
24,312 |
|
|
|
|
|
|
|
|
|
|
18
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting (Continued) |
Reorganization and Fresh-Start Accounting Adjustments
Reorganization
a. |
|
Cash and cash equivalentsThe adjustments to cash and cash equivalents represent net cash
inflows, after giving effect to transactions pursuant to the Plan of Reorganization, including
proceeds from the issuance of new notes, borrowings under the new Senior Term Loan Facility,
receipt of proceeds from the rights offering; payments relating to the discharge of debts and
other liabilities subject to compromise; and the funding of the custodial and litigation
trusts. |
|
|
|
|
|
Millions
of dollars |
|
|
|
|
Sources of funds: |
|
|
|
|
Senior Secured Notes due 2017, $2,250 million, 8.0% |
|
$ |
2,250 |
|
Senior Secured Notes due 2017, 375 million, 8.0% |
|
|
497 |
|
Senior Term Loan Facility due 2016 ($5 million of discount) |
|
|
495 |
|
Issuance of class B ordinary shares |
|
|
2,714 |
|
|
|
|
|
|
|
5,956 |
|
Use of funds: |
|
|
|
|
Debtor-in-Possession Credit Agreements |
|
|
|
|
Term Loan facility due 2010: |
|
|
|
|
New Money Loans |
|
|
(2,167 |
) |
ABL Facility |
|
|
(985 |
) |
Settlement with unsecured creditors |
|
|
(260 |
) |
DIP exit fees |
|
|
(195 |
) |
Funding of Millennium and environmental custodial trusts |
|
|
(270 |
) |
Deferred financing costs |
|
|
(156 |
) |
Other |
|
|
(29 |
) |
|
|
|
|
|
|
(4,062 |
) |
|
|
|
|
|
|
|
|
Net cash proceeds from reorganization |
|
$ |
1,894 |
|
|
|
|
b. |
|
Other assetsChanges to other assets primarily comprise capitalized debt issuance costs
resulting from the incurrence of new debt. |
19
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting (Continued) |
|
c. |
|
DebtThe changes in debt are summarized below: |
|
|
|
|
|
Millions of dollars |
|
|
|
|
Current maturities of senior secured credit facility settled with class A ordinary shares |
|
|
|
|
Senior secured credit facility: |
|
|
|
|
Term Loan A due 2013, Dutch tranche |
|
$ |
(322 |
) |
$1,000 million revolving credit facility |
|
|
(163 |
) |
|
|
|
|
|
|
(485 |
) |
Current maturities New Senior Term Loan Facility due 2016 |
|
|
5 |
|
|
|
|
|
|
$ |
(480 |
) |
|
|
|
|
|
|
|
|
Debtor-in-Possession Credit Agreements |
|
|
|
|
Term Loan facility due 2010: |
|
|
|
|
New Money Loans |
|
$ |
(2,167 |
) |
Roll-up Loans Senior Secured Credit Facility |
|
|
(3,240 |
) |
ABL Facility |
|
|
(985 |
) |
|
|
|
|
|
$ |
(6,392 |
) |
|
|
|
|
|
|
|
|
New long-term debt: |
|
|
|
|
Senior Secured Notes due 2017, $2,250 million, 8.0% |
|
$ |
2,250 |
|
Senior Secured Notes due 2017, 375 million, 8.0% |
|
|
497 |
|
Senior Term Loan Facility due 2016 ($5 million of discount) |
|
|
495 |
|
Senior Secured Notes due 2018, $3,240 million, 11.0% |
|
|
3,240 |
|
|
|
|
|
|
|
6,482 |
|
Less: Current maturities |
|
|
(5 |
) |
|
|
|
Additional longterm debt |
|
$ |
6,477 |
|
|
|
|
d. |
|
Accrued liabilitiesThe net of payments and accruals related to the Plan of Reorganization,
including the issuance of warrants to purchase class A ordinary shares with a fair value of
$101 million. |
|
e. |
|
Other liabilitiesThe adjustments to Other liabilities primarily reflect the Companys
agreement to continue sponsoring the pension plans previously reported as Liabilities subject
to compromise. |
20
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting (Continued) |
|
f. |
|
Liabilities subject to compromiseThe adjustment to Liabilities subject to compromise
reflects the discharge of Liabilities subject to compromise through a series of transactions
involving liabilities, equity and cash. The table below summarizes the discharge of debt: |
|
|
|
|
|
Millions of dollars |
|
|
|
|
Liabilities subject to compromise |
|
$ |
21,945 |
|
Current maturities of senior secured credit facility settled with class A ordinary shares |
|
|
485 |
|
|
|
|
|
|
|
22,430 |
|
Issuance of class A ordinary shares |
|
|
(7,131 |
) |
Warrants |
|
|
(101 |
) |
Assumption of pension plan liabilities |
|
|
(854 |
) |
Settlement unsecured creditors |
|
|
(300 |
) |
Loss of receivables from deconsolidated companies |
|
|
(75 |
) |
Other |
|
|
(352 |
) |
|
|
|
Gain on discharge of liabilities subject to compromise before tax |
|
$ |
13,617 |
|
|
|
|
|
|
|
|
|
Millions of dollars |
|
|
|
|
Gain on discharge of liabilities subject to compromise before tax |
|
$ |
13,617 |
|
Provision for income taxes |
|
|
(1,413 |
) |
|
|
|
Gain on discharge of liabilities subject to compromise after tax |
|
|
12,204 |
|
Elimination of Predecessors retained earnings |
|
|
754 |
|
|
|
|
Retained earnings adjustment |
|
$ |
12,958 |
|
|
|
|
g. |
|
EquityThe changes to Equity reflect LyondellBasell N.V.s issuance of common stock. |
Fresh-Start Accounting
In applying fresh-start accounting at May 1, 2010, we recorded the assets acquired and the
liabilities assumed from LyondellBasell AF at fair value, except for deferred income taxes and
certain liabilities associated with employee benefits, which were recorded in accordance with ASC
852 and ASC 740, respectively. The significant assumptions related to the valuations of our assets
and liabilities recorded in connection with fresh-start accounting are discussed herein. All
valuation inputs, with the exception of the calculation of crude oil related raw material
inventories, are considered to be Level 3 inputs, as they are based on significant inputs that are
not observable in the market. Crude oil related raw material inventories were valued using a
combination of Level 1 and Level 2 inputs depending on the availability of publicly available
quoted market prices. For additional information on Level 1, Level 2 and Level 3 inputs, see Note
2.
h. |
|
InventoryWe recorded Inventory at its fair value of $4,849 million, which was determined as
follows: |
|
|
|
Finished goods were valued 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; |
21
LYONDELLBASELL INDUSTRIES N.V.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting (Continued) |
|
|
|
Work in process was valued 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; and |
|
|
|
|
Raw materials were valued based on current replacement cost. |
|
|
Compared to amounts recorded by LyondellBasell AF, finished goods increased by $888 million,
work in process increased by $65 million, raw materials increased by $313 million and other
inventories increased by $31 million. |
|
i. |
|
Property, Plant and EquipmentWe recorded Property, plant and equipment, which includes land,
buildings and equipment, furniture and fixtures and construction in progress, at its fair
value. Fair value was based on the highest and best use of the assets. We considered and
applied two approaches to determine fair value: |
|
|
|
The market, sales comparison or trended cost approach was utilized for land, buildings
and land improvements. This approach relies upon recent sales, offerings of similar assets
or a specific inflationary adjustment to original purchase price to arrive at a probable
selling price. Certain adjustments were made to reconcile differences in attributes
between the comparable sales and the appraised assets. |
|
|
|
|
The cost approach was utilized for certain assets primarily consisting of our machinery
and equipment. This approach considers the amount required to construct or purchase a new
asset of equal utility at current prices, with adjustments in value for physical
deterioration, and functional and economic obsolescence. The machinery and equipment
amounts determined under the cost approach were adjusted for functional obsolescence, which
represents a loss in value due to unfavorable external conditions such as the facilities
locality, comparative inherent technology and comparative energy efficiency. Physical
deterioration is an adjustment made in the cost approach to reflect the real operating age
of any individual asset. LyondellBasell N.V.s estimated economic obsolescence is the
difference between the discounted cash flows (income approach) expected to be realized from
utilization of the assets as a group, compared to the initial estimate of value from the
cost approach method. In the analysis, the lower of the income approach and cost approach
was used to determine the fair value of machinery and equipment in each reporting segment.
Where the value per reportable segment, using the income approach, exceeded the value of
machinery and equipment plus separately identifiable intangible assets, goodwill was
generated. |
|
|
The following table summarizes the components of Property, plant and equipment, net, at April
30, 2010, and reflects the application of fresh-start accounting at May 1, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
Millions of dollars |
|
May 1, 2010 |
|
|
April 30, 2010 |
Land |
|
$ |
290 |
|
|
|
$ |
280 |
|
Manufacturing facilities and equipment |
|
|
6,176 |
|
|
|
|
13,219 |
|
Construction in progress |
|
|
614 |
|
|
|
|
1,055 |
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
7,080 |
|
|
|
$ |
14,554 |
|
|
|
|
|
|
|
22
LYONDELLBASELL INDUSTRIES N.V.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting
(Continued) |
|
j. |
|
Investments in Propylene Oxide (PO) Joint VenturesInvestments in PO Joint Ventures were
valued using the techniques described above to value Property, plant and equipment. The equity
ownership reflects our direct proportional share of the property, plant and equipment of the
PO Joint Ventures. The fair value of the Companys equity interests in PO Joint Ventures is
$452 million. |
|
k. |
|
Equity Investments and Other Investments and Long-term ReceivablesOur equity in the net
assets of our nonconsolidated affiliates was recorded at fair value of $1,575 million
determined using discounted cash flow analyses, and included the following assumptions and
estimates: |
|
|
|
Forecasted cash flows, which incorporate projections of sales volumes, revenues,
variable costs, fixed costs, other income and costs, and capital expenditures, after
considering potential changes in unconsolidated affiliates portfolio and local market
conditions; |
|
|
|
|
A terminal value calculated for investments and long-term receivables with forecasted
cash flows, not limited by contractual terms or the estimated life of the main investment
asset, by assuming a maintainable level of after-tax debt-free cash flow multiplied by a
capitalization factor reflecting the investors WACC adjusted for the estimated long-term
perpetual growth rate; and |
|
|
|
|
A discount rate ranging from 11% to 15% that considered various factors, including
market and country risk premiums and tax rates to determine the investors WACC given the
assumed capital structure of comparable companies. |
|
|
The aggregate fair value of equity in net assets of nonconsolidated affiliates accounted for
using the equity method was $1,524 million. |
|
l. |
|
GoodwillWe recorded Goodwill of $1,098 million, primarily resulting from the requirement to
record the tax effect of the differences for the tax and book basis of the Companys assets
and liabilities. |
|
m. |
|
Intangible AssetsWe recorded Intangible assets at their fair values of $1,474 million. The
following is a summary of the approaches used to determine the fair value of significant
intangible assets: |
|
|
|
We recorded the fair value of developed proprietary technology licensing and catalyst
contracts of $210 million using an excess earnings methodology. Significant assumptions
used in the calculation included: |
|
|
|
Forecasted contractual income (fees generated) for each license technology
category less directly attributable marketing as well as research and development
costs; |
|
|
|
|
Discount rates of 17% based on LyondellBasell N.V.s WACC adjusted for
perceived business risks related to the developed technologies; and |
|
|
|
|
Economic lives estimated from 4 to 9 years. |
|
|
|
We recorded the fair value of favorable utility contracts of $355 million using
discounted cash flows. Significant assumptions used in this calculation included: |
|
|
|
The forward price of natural gas; |
23
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. |
|
Fresh-Start Accounting
(Continued) |
|
|
|
The projected market settlement price of electricity; |
|
|
|
|
Discount rates of 17% based on LyondellBasell N.Vs WACC adjusted for perceived
business risks; and |
|
|
|
|
Economic lives estimated from 11 to 16 years. |
|
|
|
We recorded the fair value of $132 million for in-process research and development at
the cost incurred to date adjusted for the probability of future marketability. |
|
|
|
|
We recorded the fair value of emission allowances of $731 million. Observed market
activity for emission allowance trades is primarily generated only by legislation changes.
As participants react to legislation, market trades occur as companies pursue their
individual lowest cost compliance strategies. Trading, in the absence of an additional
significant market participant, generally ceases once compliance is attained. As such, we
could not identify any objective inputs based on market activity and an avoided cost of
replacement methodology was used to determine estimated fair value. The significant
assumptions used in valuing emission allowances include: |
|
|
|
Business demand for utilization of the allowances held; |
|
|
|
|
Engineering and construction costs required to reduce each marginal emission denomination; and |
|
|
|
|
Development of new technologies to aid in the cost and effectiveness of compliance. |
|
|
|
In addition we recorded other intangible assets, including capitalized software and
software licenses, at its fair value of $46 million. |
n. |
|
Other AssetsThe adjustment primarily relates to the current deferred taxes and the change in
the classification of precious metals from Other assets to Property, plant and equipment. |
|
o. |
|
Deferred Income Taxes, Current and Non-currentThe application of fresh-start accounting on
May 1, 2010 resulted in the remeasurement of deferred income tax liabilities associated with
the revaluation of the companys assets and liabilities pursuant to ASC 852. Deferred income
taxes were recorded at amounts determined in accordance with ASC 740. |
|
p. |
|
Other LiabilitiesThe adjustment in accrued liabilities is primarily a result of the
revaluation of deferred revenues based on discounted net cash outflows. |
|
q. |
|
Retained DeficitThe changes to retained deficit reflect our revaluation of the assets and
liabilities of $5,598 million recorded in Reorganization items in the Consolidated Statement
of Income, net of $2,092 million related tax adjustments. |
|
r. |
|
Non-controlling InterestsWe recorded the fair value of non-controlling interests which
resulted in a decrease of $58 million. |
24
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As part of fresh-start accounting our Accounts receivable were valued at market. We recorded a
provision for doubtful accounts of $11 million during the three and five months ended September 30,
2010. Our allowance for doubtful accounts at September 30, 2010 was $11 million. LyondellBasell
AFs allowance for doubtful accounts was $109 million at December 31, 2009.
Inventories consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
September 30, |
|
|
|
December 31, |
|
Millions of dollars |
|
2010 |
|
|
2009 |
Finished goods |
|
$ |
2,816 |
|
|
|
$ |
2,073 |
|
Work-in-process |
|
|
270 |
|
|
|
|
164 |
|
Raw materials and supplies |
|
|
1,326 |
|
|
|
|
1,040 |
|
|
|
|
|
|
|
Total inventories |
|
$ |
4,412 |
|
|
|
$ |
3,277 |
|
|
|
|
|
|
|
In connection with application of fresh-start accounting on May 1, 2010, we recorded inventory,
which is primarily crude-oil derived, at its fair value of $4,849 million (see Note 4). The
increase in inventory of $1,297 million was primarily in the U.S. and largely due to the price of
crude oil.
The Successor period includes non-cash charges totaling $365 million to adjust the value of
inventory. Of the total charge, $333 million was driven largely by the decrease in the price of
crude oil and was primarily related to our raw materials and finished goods inventory for the
period from May 1 through June 30, 2010. An additional non-cash charge of $32 million, primarily
related to lower market prices for certain of our finished goods inventory, was recognized for the three
months ended September 30, 2010.
7. |
|
Property, Plant and Equipment, Goodwill, Intangibles and Other Assets |
The components of Property, plant and equipment, at cost, and the related accumulated depreciation
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
September 30, |
|
|
|
December 31, |
|
Millions of dollars |
|
2010 |
|
|
2009 |
Land |
|
$ |
296 |
|
|
|
$ |
297 |
|
Manufacturing facilities and equipment |
|
|
6,363 |
|
|
|
|
17,665 |
|
Construction in progress |
|
|
819 |
|
|
|
|
1,029 |
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
7,478 |
|
|
|
|
18,991 |
|
Less accumulated depreciation |
|
|
(262 |
) |
|
|
|
(3,839 |
) |
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
7,216 |
|
|
|
$ |
15,152 |
|
|
|
|
|
|
|
25
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
7. |
|
Property, Plant and
Equipment, Goodwill, Intangibles and Other Assets (Continued) |
Depreciation and amortization expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
May 1 |
|
|
January 1 |
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
2010 |
|
2009 |
|
2009 |
Property, plant and equipment |
|
$ |
165 |
|
|
$ |
259 |
|
|
|
$ |
499 |
|
|
$ |
367 |
|
|
$ |
1,145 |
|
Investment in PO joint ventures |
|
|
- - |
|
|
|
9 |
|
|
|
|
19 |
|
|
|
14 |
|
|
|
42 |
|
Emission allowances |
|
|
18 |
|
|
|
30 |
|
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
Various contracts |
|
|
39 |
|
|
|
52 |
|
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
Technology, patent and license costs |
|
|
- - |
|
|
|
- - |
|
|
|
|
25 |
|
|
|
26 |
|
|
|
75 |
|
Software costs |
|
|
- - |
|
|
|
1 |
|
|
|
|
12 |
|
|
|
5 |
|
|
|
12 |
|
Other |
|
|
- - |
|
|
|
- - |
|
|
|
|
10 |
|
|
|
31 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and
amortization |
|
$ |
222 |
|
|
$ |
351 |
|
|
|
$ |
565 |
|
|
$ |
443 |
|
|
$ |
1,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with application of fresh-start accounting on May 1, 2010, we recorded Property,
plant and equipment, which includes land, buildings and equipments, furniture and fixtures and
construction in progress, at its fair value of $7,080 million (see Note 4).
On February 25, 2010, based on the continued impact of global economic conditions on polypropylene
demand, LyondellBasell AF announced a project to cease production at, and permanently shut down,
its polypropylene plant at Terni, Italy. LyondellBasell AF recognized charges of $23 million
related to plant and other closure costs in the first quarter of 2010. In July 2010, the plant
ceased production. We are in consultation with representatives of the works council with respect
to the consequences for approximately 120 affected employees at the site.
Cash flows used to test LyondellBasell AFs assets for impairment at April 30, 2010 were the same
cash flows used in fresh-start accounting but on an undiscounted basis and did not result in an
impairment of long-lived tangible and intangible assets.
Asset Retirement ObligationsThe liabilities recognized for all asset retirement obligations were
$140 million and $132 million at September 30, 2010 and December 31, 2009, respectively.
GoodwillWe recorded goodwill of $1,098 million upon application of fresh-start accounting (see
Note 4). Goodwill is not amortized, but is tested for impairment annually or more frequently when
indicators of impairment exist. We review the recorded value of goodwill for impairment annually
during the fourth quarter, or sooner if events or changes in circumstances indicate the carrying
amount may exceed fair value. Recoverability is determined by comparing the estimated fair value
of a reporting unit to the carrying value, including the related goodwill, of that reporting unit.
We use the present value of expected net cash flows to determine the estimated fair value of the
reporting units. The impairment test requires us to make cash flow assumptions including, among
other things, future margins, volumes, operating costs, capital expenditures, growth rates and
discount rates. Our assumptions regarding future margins and volumes require significant judgment
as actual margins and volumes have fluctuated in the past and will
likely continue to do so. Goodwill at September 30, 2010 reflects the
$7 million effect of changes in currency exchange rates since April
30, 2010.
26
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
7. |
|
Property, Plant and Equipment, Goodwill, Intangibles and Other Assets (Continued) |
IntangiblesIn connection with application of fresh-start accounting on May 1, 2010, we recorded
Intangible assets at their fair values of $1,474 million (see Note 4).
The components of identifiable intangible assets, at cost, and the related accumulated amortization
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Millions of dollars |
|
Cost |
|
Amortization |
|
Net |
|
|
Cost |
|
Amortization |
|
Net |
In-process research and
development costs |
|
$ |
136 |
|
|
$ |
- - |
|
|
$ |
136 |
|
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
Technology, patent and
license costs |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
1,021 |
|
|
|
(338 |
) |
|
|
683 |
|
Emission allowances |
|
|
731 |
|
|
|
(30 |
) |
|
|
701 |
|
|
|
|
733 |
|
|
|
(62 |
) |
|
|
671 |
|
Various contracts |
|
|
580 |
|
|
|
(56 |
) |
|
|
524 |
|
|
|
|
350 |
|
|
|
(118 |
) |
|
|
232 |
|
Debt issuance costs |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
598 |
|
|
|
(477 |
) |
|
|
121 |
|
Software costs |
|
|
51 |
|
|
|
(1 |
) |
|
|
50 |
|
|
|
|
71 |
|
|
|
(6 |
) |
|
|
65 |
|
Catalyst costs |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
127 |
|
|
|
(89 |
) |
|
|
38 |
|
Other |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
111 |
|
|
|
(60 |
) |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
1,498 |
|
|
$ |
(87 |
) |
|
$ |
1,411 |
|
|
|
$ |
3,011 |
|
|
$ |
(1,150 |
) |
|
$ |
1,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of Other assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
September 30, |
|
|
|
December 31, |
|
Millions of dollars |
|
2010 |
|
|
2009 |
Precious metals |
|
$ |
- - |
|
|
|
$ |
90 |
|
Debt issuance costs |
|
|
149 |
|
|
|
|
- - |
|
Company-owned life insurance |
|
|
60 |
|
|
|
|
52 |
|
Pension assets |
|
|
- - |
|
|
|
|
19 |
|
Deferred tax assets |
|
|
19 |
|
|
|
|
115 |
|
Other |
|
|
44 |
|
|
|
|
87 |
|
|
|
|
|
|
|
Total other assets |
|
$ |
272 |
|
|
|
$ |
363 |
|
|
|
|
|
|
|
8. |
|
Investments in PO Joint Ventures |
We, together with Bayer AG and Bayer Corporation (collectively Bayer), share ownership in a U.S.
PO manufacturing joint venture and a separate joint venture for certain related PO technology.
Bayers ownership interest represents ownership of annual in-kind PO production of the joint
venture of 1.5 billion pounds in 2009. We take in-kind the remaining PO production and all
co-products, styrene monomer (SM or styrene), and tertiary butyl alcohol (TBA) production
from the joint venture.
In addition, the Company and Bayer each have a 50% interest in a separate European manufacturing
joint venture, which includes a world-scale PO/SM plant at Maasvlakte near Rotterdam, The
Netherlands. The Company and Bayer each are entitled to 50% of the PO and SM production at the
European joint venture.
27
LYONDELLBASELL INDUSTRIES N.V.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
8. |
|
Investment in PO Joint Ventures (Continued) |
Changes in the investments in the U.S. and European PO joint ventures for 2010 and 2009 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. PO Joint |
|
|
European PO |
|
|
Total PO Joint |
|
Millions of dollars |
|
Venture |
|
Joint Venture |
|
Ventures |
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in PO joint ventures May 1, 2010 |
|
$ |
303 |
|
|
$ |
149 |
|
|
$ |
452 |
|
Cash contributions (return of investment) |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
Depreciation and amortization |
|
|
(8 |
) |
|
|
(1 |
) |
|
|
(9 |
) |
Effect of exchange rate changes |
|
|
- - |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Investments
in PO joint ventures September 30, 2010 |
|
$ |
295 |
|
|
$ |
152 |
|
|
$ |
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in PO joint ventures January 1, 2010 |
|
$ |
533 |
|
|
$ |
389 |
|
|
$ |
922 |
|
Cash contributions (return of investment) |
|
|
- - |
|
|
|
(5 |
) |
|
|
(5 |
) |
Depreciation and amortization |
|
|
(14 |
) |
|
|
(5 |
) |
|
|
(19 |
) |
Effect of exchange rate changes |
|
|
- - |
|
|
|
(31 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
Investments
in PO joint ventures April 30, 2010 |
|
$ |
519 |
|
|
$ |
348 |
|
|
$ |
867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in PO joint ventures January 1, 2009 |
|
$ |
562 |
|
|
$ |
392 |
|
|
$ |
954 |
|
Cash contributions |
|
|
12 |
|
|
|
1 |
|
|
|
13 |
|
Depreciation and amortization |
|
|
(31 |
) |
|
|
(11 |
) |
|
|
(42 |
) |
Effect of exchange rate changes |
|
|
- - |
|
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Investments
in PO joint ventures September 30, 2009 |
|
$ |
543 |
|
|
$ |
400 |
|
|
$ |
943 |
|
|
|
|
|
|
|
|
In connection with application of fresh-start accounting on May 1, 2010, our equity interests in PO
joint ventures were valued at their fair value of $452 million (see Note 4).
28
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The changes in equity investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
May 1 |
|
|
|
January 1 |
|
|
Nine months |
|
|
|
through |
|
|
|
through |
|
|
ended |
|
|
|
September 30, |
|
|
|
April 30, |
|
|
September 30, |
|
Millions of dollars |
|
2010 |
|
|
2010 |
|
2009 |
Beginning balance |
|
$ |
1,524 |
|
|
|
$ |
1,085 |
|
|
$ |
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investee net income |
|
|
56 |
|
|
|
|
84 |
|
|
|
49 |
|
Impairment recognized by investor |
|
|
- - |
|
|
|
|
- - |
|
|
|
(215 |
) |
|
|
| |
|
| |
|
Income (loss) from equity investments |
|
|
56 |
|
|
|
|
84 |
|
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received |
|
|
(28 |
) |
|
|
|
(18 |
) |
|
|
(21 |
) |
Contributions to joint venture |
|
|
7 |
|
|
|
|
20 |
|
|
|
8 |
|
Currency exchange effects |
|
|
8 |
|
|
|
|
(8 |
) |
|
|
34 |
|
Other |
|
|
15 |
|
|
|
|
10 |
|
|
|
2 |
|
|
|
| |
|
| |
|
Ending balance |
|
$ |
1,582 |
|
|
|
$ |
1,173 |
|
|
$ |
1,072 |
|
|
|
|
|
|
|
|
|
Summarized balance sheet information and the Companys share of equity investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
September 30, 2010 |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Company |
|
Millions of dollars |
|
100% |
|
|
Share |
|
|
|
100% |
|
|
Share |
|
Current assets |
|
$ |
3,861 |
|
|
$ |
1,355 |
|
|
|
$ |
2,760 |
|
|
$ |
1,016 |
|
Noncurrent assets |
|
|
6,868 |
|
|
|
2,238 |
|
|
|
|
6,887 |
|
|
|
2,172 |
|
|
|
| |
| |
|
| |
|
Total assets |
|
|
10,729 |
|
|
|
3,593 |
|
|
|
|
9,647 |
|
|
|
3,188 |
|
Current liabilities |
|
|
2,492 |
|
|
|
905 |
|
|
|
|
1,881 |
|
|
|
695 |
|
Noncurrent liabilities |
|
|
4,227 |
|
|
|
1,183 |
|
|
|
|
4,207 |
|
|
|
1,180 |
|
|
|
| |
| |
|
| |
|
Net assets |
|
$ |
4,010 |
|
|
$ |
1,505 |
|
|
|
$ |
3,559 |
|
|
$ |
1,313 |
|
|
|
|
|
|
|
|
|
|
|
29
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
9. |
|
Equity Investments (Continued) |
Summarized income statement information and the Companys share for the periods for which the
respective equity investments were accounted for under the equity method is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three months |
|
|
|
Three months |
|
|
|
ended |
|
|
|
ended |
|
|
|
September 30, 2010 |
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Company |
|
Millions of dollars |
|
100% |
|
|
Share |
|
|
|
100% |
|
|
Share |
|
Revenues |
|
$ |
1,995 |
|
|
$ |
745 |
|
|
|
$ |
1,375 |
|
|
$ |
614 |
|
Cost of sales |
|
|
(1,717 |
) |
|
|
(672 |
) |
|
|
|
(1,354 |
) |
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
278 |
|
|
|
73 |
|
|
|
|
21 |
|
|
|
88 |
|
Net operating expenses |
|
|
(55 |
) |
|
|
(18 |
) |
|
|
|
(61 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
223 |
|
|
|
55 |
|
|
|
|
(40 |
) |
|
|
63 |
|
Interest income |
|
|
- - |
|
|
|
- - |
|
|
|
|
1 |
|
|
|
1 |
|
Interest expense |
|
|
(63 |
) |
|
|
(18 |
) |
|
|
|
(32 |
) |
|
|
(11 |
) |
Foreign currency translation |
|
|
(66 |
) |
|
|
(13 |
) |
|
|
|
13 |
|
|
|
5 |
|
Income from equity
investments |
|
|
55 |
|
|
|
13 |
|
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
149 |
|
|
|
37 |
|
|
|
|
(55 |
) |
|
|
59 |
|
Provision for income taxes |
|
|
19 |
|
|
|
8 |
|
|
|
|
38 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
130 |
|
|
$ |
29 |
|
|
|
$ |
(93 |
) |
|
$ |
47 |
|
|
|
|
|
|
|
|
|
|
|
30
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
9. |
|
Equity Investments (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
May 1 |
|
|
|
January 1 |
|
|
Nine months |
|
|
|
through |
|
|
|
through |
|
|
ended |
|
|
|
September 30, 2010 |
|
|
|
April 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
Company |
|
Millions of dollars |
|
100% |
|
|
Share |
|
|
|
100% |
|
|
Share |
|
|
100% |
|
|
Share |
|
Revenues |
|
$ |
3,377 |
|
|
$ |
1,298 |
|
|
|
$ |
3,127 |
|
|
$ |
989 |
|
|
$ |
4,021 |
|
|
$ |
1,463 |
|
Cost of sales |
|
|
(2,939 |
) |
|
|
(1,157 |
) |
|
|
|
(2,699 |
) |
|
|
(869 |
) |
|
|
(3,860 |
) |
|
|
(1,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
438 |
|
|
|
141 |
|
|
|
|
428 |
|
|
|
120 |
|
|
|
161 |
|
|
|
151 |
|
Net operating expenses |
|
|
(118 |
) |
|
|
(40 |
) |
|
|
|
(82 |
) |
|
|
(29 |
) |
|
|
(202 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
320 |
|
|
|
101 |
|
|
|
|
346 |
|
|
|
91 |
|
|
|
(41 |
) |
|
|
100 |
|
Interest income |
|
|
2 |
|
|
|
- - |
|
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
|
|
1 |
|
Interest expense |
|
|
(84 |
) |
|
|
(24 |
) |
|
|
|
(43 |
) |
|
|
(13 |
) |
|
|
(66 |
) |
|
|
(24 |
) |
Foreign currency translation |
|
|
(24 |
) |
|
|
(7 |
) |
|
|
|
83 |
|
|
|
24 |
|
|
|
(15 |
) |
|
|
(9 |
) |
Income from equity
investments |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
3 |
|
|
|
2 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
210 |
|
|
|
66 |
|
|
|
|
391 |
|
|
|
105 |
|
|
|
(108 |
) |
|
|
69 |
|
Provision for income taxes |
|
|
18 |
|
|
|
10 |
|
|
|
|
67 |
|
|
|
21 |
|
|
|
65 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
192 |
|
|
$ |
56 |
|
|
|
$ |
324 |
|
|
$ |
84 |
|
|
$ |
(173 |
) |
|
$ |
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with application of fresh-start accounting on May 1, 2010, we recorded equity
investments at their fair value of $1,524 million (see Note 4). The carrying value of the
Companys equity investments at September 30, 2010 of $1,583 million reflects the 2010 aggregate
fair value adjustment, which is different than the Companys share of its equity investment in the
underlying assets of $1,505 million. In 2009, the Company recognized pretax impairment charges
totaling $228 million for impairment of the carrying value of its investments in certain joint
ventures, of which $215 million was recognized in the nine months ended September 30, 2009.
A joint venture of ours is in default under its financing arrangement due to a delay in the
start-up of its assets and as a result of LyondellBasell AFs voluntary filing for relief under
chapter 11 of the U.S. Bankruptcy Code on April 24, 2009. The parties are currently negotiating in
good faith to resolve the default and at present there is no evidence that such negotiations will
not be concluded successfully or that the resolution of this matter will have a material adverse
impact on our operations or liquidity.
Accounts payable at September 30, 2010 and December 31, 2009 included liabilities in the amount of
$11 million and $13 million, respectively, for checks issued in excess of associated bank balances,
but not yet presented for collection.
31
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Long-term loans, notes and other long-term debt due to banks and other unrelated parties consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
September 30, |
|
|
|
December 31, |
|
Millions of dollars |
|
2010 |
|
|
|
2009 |
|
Bank credit facilities: |
|
|
|
|
|
|
|
|
|
Senior Term Loan Facility due 2016 ($5 million of discount) |
|
$ |
494 |
|
|
|
$ |
- - |
|
Senior secured credit facility: |
|
|
|
|
|
|
|
|
|
Term Loan A
due 2013 Dutch tranche |
|
|
- - |
|
|
|
|
331 |
|
$1,000 million revolving credit facility |
|
|
- - |
|
|
|
|
164 |
|
Senior Secured Notes due 2017, $2,250 million, 8.0% |
|
|
2,250 |
|
|
|
|
- - |
|
Senior Secured Notes due 2017, 375 million, 8.0% |
|
|
512 |
|
|
|
|
- - |
|
Senior Secured Notes due 2018, $3,240 million, 11.0% |
|
|
3,240 |
|
|
|
|
- - |
|
Guaranteed Notes, due 2027 |
|
|
300 |
|
|
|
|
300 |
|
Other |
|
|
11 |
|
|
|
|
7 |
|
|
|
|
|
|
|
Total |
|
|
6,807 |
|
|
|
|
802 |
|
Less current maturities |
|
|
(8 |
) |
|
|
|
(497 |
) |
|
|
|
|
|
|
Long-term debt |
|
$ |
6,799 |
|
|
|
$ |
305 |
|
|
|
|
|
|
|
Short-term loans, notes and other short-term debt due to banks and other unrelated parties
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
September 30, |
|
|
|
December 31, |
|
Millions of dollars |
|
2010 |
|
|
|
2009 |
|
Bank credit facilities: |
|
|
|
|
|
|
|
|
|
$1,750 million Senior Secured Asset-Based Revolving Credit Agreement |
|
$ |
- - |
|
|
|
$ |
- - |
|
Debtor-in-Possession Credit Agreements: |
|
|
|
|
|
|
|
|
|
Term Loan facility due 2010: |
|
|
|
|
|
|
|
|
|
New Money Loans |
|
|
- - |
|
|
|
|
2,167 |
|
Roll-up Loans Senior Secured Credit Facility: |
|
|
|
|
|
|
|
|
|
Term Loan A
due 2013 U.S. tranche |
|
|
- - |
|
|
|
|
385 |
|
Term Loan A
due 2013 Dutch tranche |
|
|
- - |
|
|
|
|
122 |
|
Term Loan B
due 2014 U.S. tranche |
|
|
- - |
|
|
|
|
2,012 |
|
Term Loan B
due 2014 German tranche |
|
|
- - |
|
|
|
|
465 |
|
Revolving
Credit Facility U.S. tranche |
|
|
- - |
|
|
|
|
202 |
|
Revolving
Credit Facility Dutch tranche |
|
|
- - |
|
|
|
|
54 |
|
ABL Facility |
|
|
- - |
|
|
|
|
325 |
|
Receivables securitization program |
|
|
465 |
|
|
|
|
377 |
|
Accounts receivable factoring facility |
|
|
6 |
|
|
|
|
24 |
|
Financial payables to equity investees |
|
|
10 |
|
|
|
|
12 |
|
Other |
|
|
37 |
|
|
|
|
37 |
|
|
|
|
|
|
|
Total short-term debt |
|
$ |
518 |
|
|
|
$ |
6,182 |
|
|
|
|
|
|
|
32
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
On April 8, 2010, LBI Escrow issued $2,250 million of 8% senior secured notes due 2017 and 375
million of senior secured notes due 2017, (collectively, the Senior Secured Notes). Also on
April 8, 2010, LBI Escrow entered into a six-year, $500 million senior term loan facility (the
Senior Term Loan Facility) and borrowed $500 million thereunder. LyondellBasell Industries N.V.
paid fees of $72 million related to the issuance of these facilities. On April 30, 2010, Lyondell
Chemical was merged with and replaced LBI Escrow as issuer of the Senior Secured Notes and borrower
under the Senior Term Loan Facility. In connection with the issuance of the Senior Secured Notes,
we entered into a registration rights agreement that requires us to exchange the Senior Secured
Notes for notes with substantially identical terms as the Senior Secured Notes except the new notes
will be registered with the SEC under the Securities Act of 1933, as amended, and will therefore be
free of any transfer restrictions. The registration rights agreement requires a registration
statement for the exchange to be effective with the SEC by April 30, 2011 and the exchange to be
consummated within 45 days thereafter. If we do not meet these deadlines, the interest rate on the
Senior Secured Notes will be increased by 0.25% per annum for the 90-day period following April 30,
2011 and will increase by an additional 0.25% for each subsequent 90-day period that the
registration and exchange are not completed, up to a maximum of 1.00% per annum.
On April 8, 2010, Lyondell Chemical completed the financing of a new $1,750 million U.S.
asset-based facility (U.S. ABL Facility), which may be used for advances or to issue up to $700
million of letters of credit. Lyondell Chemical paid fees of $70 million related to the completion
of this financing. At September 30, 2010, there were no borrowings outstanding under the U.S. ABL
facility and outstanding letters of credit totaled $514 million. Pursuant to the U.S. ABL
facility, Lyondell Chemical could, subject to a borrowing base, borrow up to $1,236 million. The
borrowing base is determined using formulae applied to accounts receivable and inventory balances,
and is reduced to the extent of outstanding letters of credit under the facility. Advances under
this new facility are available to Lyondell Chemical, Equistar Chemicals LP (Equistar), Houston
Refining LP, or LyondellBasell Acetyls LLC as of April 30, 2010.
Consistent with the terms of the Plan of Reorganization, on the Emergence Date, Lyondell Chemical
issued Senior Secured 11% Notes under an indenture of approximately $3,240 million, replacing the
DIP Roll-up Notes incurred under the Bankruptcy Cases as part of the DIP Term Loan Facility.
On April 30, 2010, in accordance with provisions in the Plan of Reorganization, payments totaling
$2,362 million were made to repay, in full, $2,167 million outstanding under the DIP Term Loan
Facility and a related $195 million exit fee. The outstanding amount of $985 million under the DIP
ABL Facility was also repaid on April 30, 2010. In addition, $18,310 million of debt classified as
liabilities subject to compromise was discharged pursuant to the Plan of Reorganization (see Note
4).
33
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Receivables securitization programsThe Company had an accounts receivable securitization program
under which it could receive funding of up to 450 million against eligible receivables of certain
European subsidiaries. This facility was refinanced, in full, on May 4, 2010 and replaced with a
new three-year European securitization facility. Transfers of accounts receivable under this
program do not qualify as sales; therefore, the transferred accounts receivable and the proceeds
received through such transfers are included in trade receivables, net, and short-term debt in the
Consolidated Balance Sheets. In October 2010, the amounts outstanding under the receivable
securitization program were repaid. The lenders will receive a commitment fee on the
unused commitments.
Accounts Receivable Factoring FacilityOn October 8, 2009, the Company entered into an accounts
receivable factoring facility for up to 100 million. The factoring facility is for an indefinite
period, non-recourse, unsecured and terminable by either party subject to notice. The amount of
outstanding receivables sold under this facility was $6 million as of September 30, 2010.
Senior Secured NotesThe Senior Secured Notes are jointly and severally, and fully and
unconditionally guaranteed by LyondellBasell N.V. and, subject to certain exceptions, each existing
and future wholly owned U.S. restricted subsidiary of LyondellBasell N.V. (other than Lyondell
Chemical, as issuer), other than any such subsidiary that is a subsidiary of a non-U.S. subsidiary
(the Subsidiary Guarantors and, together with LyondellBasell N.V., the Guarantors).
The Senior Secured Notes rank equally in right of payment with all existing and future senior debt
of Lyondell Chemical and the Guarantors; the notes and guarantees rank junior to obligations of
LyondellBasell N.V. subsidiaries that do not guarantee the Senior Secured Notes.
The Senior Secured Notes and guarantees are secured by:
|
|
|
a first priority lien on substantially all of Lyondell Chemicals and the Subsidiary
Guarantors existing and future property and assets other than the assets securing the U.S.
ABL Facility; |
|
|
|
|
a first priority lien on the capital stock of Lyondell Chemical and all Subsidiary
Guarantors (other than any such subsidiary that is a subsidiary of a non-U.S. subsidiary); |
|
|
|
|
a first priority lien on 65% of the capital stock and 100% of the non-voting capital
stock of the first-tier non-U.S. subsidiaries of Lyondell Chemical or of LyondellBasell
N.V.; |
|
|
|
|
a second priority lien on the accounts receivables, inventory, related contracts and
other rights and assets related to the foregoing and proceeds thereof that secure the U.S.
ABL Facility on a first priority basis; |
|
|
|
|
subject, in each case, to certain exceptions permitted liens and releases under certain
circumstances. |
The Senior Secured Notes are redeemable by Lyondell Chemical prior to maturity at certain specified
redemption premiums, depending on the date the notes are redeemed.
The Senior Secured Notes are redeemable at par after May 1, 2016
and contain covenants, subject
to certain exceptions, that restrict, among other things, debt and lien incurrence; investments;
certain restricted payments; sales of assets and mergers; and affiliate transactions.
Several of the restrictive covenants would be suspended if we receive an investment grade rating
from two rating agencies. The Senior Secured Notes are not subject to the maintenance of any
specific financial covenant.
34
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Senior Term Loan FacilityBorrowings under the Senior Term Loan Facility will bear interest at
either (a) a LIBOR rate adjusted for certain additional costs or (b) a base rate determined by
reference to the highest of the administrative agents prime rate, the federal funds effective rate
plus 0.5%, or one-month LIBOR plus 1.0% (the Base Rate), in each case plus an applicable margin.
The Senior Term Loan Facility is guaranteed, jointly and severally, and fully and unconditionally,
on a senior secured basis, initially by the Guarantors. Subject to permitted liens and other
exceptions, Lyondell Chemicals obligations and guarantees will be secured on a pari passu basis
with the Senior Secured Notes by first priority security interests in the collateral securing the
Senior Secured Notes and by a second priority security interest in the collateral securing the ABL
Facility described below.
The Senior Term Loan Facility contains covenants that are substantially similar to the Senior
Secured Notes. The Senior Term Loan Facility is not subject to the maintenance of any specific
financial covenant.
U.S. ABL FacilityOn April 8, 2010, the Company entered into a four-year $1,750 million U.S.
asset-based facility. Borrowings under the U.S. ABL Facility bear interest at the Base Rate or
LIBOR, plus an applicable margin, and the lenders are paid a commitment fee on the average daily
unused commitments.
Obligations under the U.S. ABL Facility are guaranteed jointly and severally, and fully and
unconditionally, on a senior secured basis, by the Guarantors (except, in the case of any Guarantor
that is a borrower under the facility, to the extent of its own obligations in its capacity as a
borrower). The borrowers obligations under the U.S. ABL Facility and the related guarantees are
secured by (i) a first priority lien on all present and after-acquired inventory, accounts
receivable, related contracts and other rights, deposit accounts into which proceeds of the
foregoing are credited, and books and records related thereto, together with all proceeds of the
foregoing, in each case to the extent of the rights, title and interest therein of any ABL
borrowers and (ii) a second priority lien on the Senior Secured Notes and Senior Term Loan
collateral.
Mandatory prepayments of the loans under the U.S. ABL Facility will be made from net cash proceeds
from certain sales of collateral securing the facility and insurance and condemnation awards
involving the facility.
The U.S. ABL Facility contains covenants that are substantially similar to the Senior Secured
Notes.
In addition, during the first two years, in the event (i) excess availability under the U.S. ABL
Facility falls below $300 million for five consecutive business days or below $250 million on any
business day, or (ii) total liquidity falls below $550 million for five consecutive business days
or below $500 million on any business day, we are required to comply with a minimum fixed charge
coverage ratio of not less than 1.00 to 1.00, measured quarterly. Following the second anniversary
of the effective date, in the event (i) excess availability under the U.S. ABL facility falls below
$400 million for five consecutive business days or below $325 million on any business day, or (ii)
total liquidity falls below $650 million for five consecutive business days or below $575 million
on any business day, we are also required to meet the minimum fixed charge coverage ratio. The
fixed charge coverage ratio is defined in the facility generally as the ratio of earnings before
interest, taxes, depreciation and amortization less capital expenditures to consolidated interest
expense, plus dividends on preferred or other preferential stock, adjusted for relevant taxes, and
scheduled repayments of debt. The availability under the U.S. ABL Facility was $1,236 million as
of September 30, 2010.
35
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Senior Secured 11% NotesOn April 30, 2010, Lyondell Chemical issued $3,240 million of Senior
Secured 11% Notes in exchange for DIP Roll-up Notes incurred under the Bankruptcy Cases. The
Senior Secured 11% Notes are guaranteed by the same Guarantors that support the Senior Secured
Notes, the Senior Term Loan Facility and the U.S. ABL Facility. The Senior Secured 11% Notes are secured by the same security package as the Senior Secured Notes,
the Senior Term Loan Facility and the U.S. ABL Facility on a third priority basis and bear interest
at a rate equal to 11%. The Senior Secured 11% Notes are redeemable
by Lyondell Chemical prior to maturity at specified redemption
premiums, depending on the date the notes are redeemed.
The Senior Secured 11% Notes are redeemable at par after May 1, 2013.
OtherIn the five months ended September 30, 2010, amortization of debt premiums and debt issuance
costs resulted in amortization expense of $15 million that was included in interest expense in the
Consolidated Statements of Income.
Contractual
interest for the Debtors was $236 million and $914 million for the one and four-month periods ended
April 30, 2010, respectively; and $695 million and $1,998 million for the three and nine months
ended September 30, 2009, respectively.
12. |
|
Financial Instruments and Derivatives |
Cash ConcentrationOur cash equivalents are placed in high-quality commercial paper, money market
funds and time deposits with major international banks and financial institutions.
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 policies. Designation of the derivatives as fair-value or
cash-flow hedges is performed on a specific exposure basis. Hedge accounting may or may not be
elected with respect to certain short-term exposures. The changes in fair value of these hedging
instruments will be offset in part or in whole by corresponding changes in the fair value or cash
flows of the underlying exposures being hedged.
Commodity PricesWe are exposed to commodity price volatility related to anticipated purchases of
natural gas, crude oil and other raw materials and to sales of our products. We selectively use
commodity swap, option, and futures contracts with various terms to manage the volatility related
to these risks. Such contracts are generally limited to durations of one year or less. Cash-flow
hedge accounting may be elected for these derivative transactions. In cases, when the duration of
a derivative is short, hedge accounting generally would not be elected. When hedge accounting is
not elected, the changes in fair value of these instruments will be recorded in earnings. When
hedge accounting is elected, gains and losses on these instruments will be deferred in accumulated
other comprehensive income (AOCI), to the extent that the hedge remains effective, until the
underlying transaction is recognized in earnings.
36
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. |
|
Financial Instruments and Derivatives (Continued) |
The Company entered into futures contracts with respect to sales of gasoline and heating oil.
These futures transactions were not designated as hedges, and the changes in the fair value of the
futures contracts were recognized in earnings. In the five months ended September 30, 2010, we
settled futures positions for gasoline and heating oil of 194 million gallons and 172 million
gallons, respectively, resulting in a net loss of $6 million and a net gain of less than $1
million, respectively. At September 30, 2010, futures contracts for 55 million gallons of gasoline
and heating oil in the notional amount of $118 million, maturing in October and November 2010, were
outstanding. The fair values, based on quoted market prices, resulted in a net receivable of less
than $1 million at September 30, 2010.
In addition, we settled futures positions for crude oil of 2 million barrels during the five months
ended September 30, 2010, resulting in net gains of $3 million. These futures transactions were
not designated as hedges.
We also entered into futures contracts during the five months ended September 30, 2010 with respect
to purchases of crude oil and sales of gasoline. These futures transactions were not designated as
hedges. We settled futures positions for gasoline of 1 million barrels in the five months ended
September 30, 2010, resulting in a net gain of $5 million. We settled futures positions for crude
oil of 1 million barrels in the five months ended September 30, 2010, resulting in a net loss of $7
million.
Foreign Currency RatesWe have significant operations in several countries of which functional
currencies are primarily the U.S. dollar for U.S. operations and the Euro for operations in Europe.
We enter into transactions denominated in currencies other than our functional currency and the
functional currencies of our subsidiaries and are, therefore, exposed to foreign currency risk on
receivables and payables. We maintain risk management control systems intended to monitor foreign
currency risk attributable to both the outstanding foreign currency balances and future
commitments. The risk management control systems involve the centralization of foreign currency
exposure management, the offsetting of exposures and the estimating of expected impacts of changes
in foreign currency rates on our earnings. We enter into foreign currency forward contracts to
reduce the effects of net currency exchange exposures. At September 30, 2010, foreign currency
forward contracts in the notional amount of $87 million, maturing in October 2010, were
outstanding.
For forward contracts that economically hedge recognized monetary assets and liabilities in foreign
currencies, no hedge accounting is applied. Changes in the fair value of foreign currency forward
contracts are reported in the Consolidated Statements of Income and offset the currency exchange
results recognized on the assets and liabilities.
Foreign Currency Gain (Loss)Other income, net, in the Consolidated Statements of Income reflected
a loss of $18 million and a gain of $22 million in the three and five months ended September 30,
2010, respectively; losses of $258 million for the four months ended April 30, 2010; and gains of
$90 million and $179 million for the three and nine months ended September 30, 2009, respectively,
related to changes in currency exchange rates.
Interest
RatesPursuant to the provisions of the Plan of Reorganization, $201 million in
liabilities associated with interest rate swaps designated as cash flow hedges in the notional
amount of $2,350 million were discharged on April 30, 2010. The Predecessor Company discontinued
accounting for the interest rate swap as a hedge and, in April 2010, $153 million of unamortized
loss was released from AOCI and recognized in earnings.
37
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. |
|
Financial Instruments and Derivatives (Continued) |
WarrantsAs of September 30, 2010, LyondellBasell N.V. has warrants to purchase 11,508,204 class A
ordinary shares at an exercise price of $15.90 per class A ordinary share issued and outstanding.
The warrants have anti-dilution protection for in-kind stock dividends, stock splits, stock
combinations and similar transactions and may be exercised at any time during the period from April
30, 2010 to the close of business on April 30, 2017. Upon an affiliate change of control, the
holders of the warrants may put the warrants to LyondellBasell N.V. at a price equal to, as
applicable, the in-the-money value of the warrants or the Black-Scholes value of the warrants.
The fair value of each warrant granted is estimated based on quoted market price as of September
30, 2010.
The fair values of the warrants were determined to be $160 million and $101 million at September
30, 2010 and at April 30, 2010, respectively.
The following table summarizes financial instruments outstanding as of September 30, 2010 and
December 31, 2009 that are measured at fair value on a recurring basis and the bases used to
determine their fair value in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
Significant |
|
|
|
|
|
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
|
|
Notional |
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
Millions of dollars
|
|
Amount |
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline and heating oil |
|
$ |
118 |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
$ |
183 |
|
|
$ |
160 |
|
|
$ |
160 |
|
|
$ |
- - |
|
|
$ |
- - |
|
Foreign currency |
|
|
87 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
270 |
|
|
$ |
160 |
|
|
$ |
160 |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline, heating oil and
crude oil |
|
$ |
38 |
|
|
$ |
2 |
|
|
$ |
- - |
|
|
$ |
2 |
|
|
$ |
- - |
|
Foreign currency |
|
|
234 |
|
|
|
20 |
|
|
|
- - |
|
|
|
20 |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
272 |
|
|
$ |
22 |
|
|
$ |
- - |
|
|
$ |
22 |
|
|
$ |
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of all non-derivative financial instruments included in current assets, including
cash and cash equivalents and accounts receivable, and accounts payable, approximated the applicable
carrying value due to the short maturity of those instruments.
38
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. |
|
Financial Instruments and Derivatives (Continued) |
The following table provides the fair value of derivative instruments and their balance sheet
classifications at September 30, 2010:
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
Balance Sheet Classification |
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments |
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
|
|
|
|
|
Not designated as hedges: |
|
|
|
|
|
|
|
|
Commodities |
|
Prepaid expenses and other current assets |
|
$ |
- - |
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
Not designated as hedges: |
|
|
|
|
|
|
|
|
Warrants |
|
Other liabilities |
|
$ |
160 |
|
Foreign currency |
|
Accrued liabilities |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
160 |
|
|
|
|
|
|
|
|
|
The following table summarizes the pretax effect of derivative instruments charged directly to
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Financial Instruments |
|
|
|
|
Gain (Loss) |
|
Additional |
|
|
|
|
Gain (Loss) |
|
Reclassified |
|
Gain (Loss) |
|
|
|
|
Recognized |
|
from AOCI |
|
Recognized |
|
Income Statement |
Millions of dollars
|
|
in AOCI |
|
to Income |
|
in Income |
|
Classification |
Successor |
|
|
|
|
|
|
|
|
|
|
For the period May 1 through |
|
|
|
|
|
|
|
|
|
|
September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
$ - -
|
|
$ - -
|
|
$ |
|
(59) |
|
Other income
(expense), net |
Commodities
|
|
- -
|
|
- -
|
|
|
|
(4) |
|
Cost of sales |
Foreign currency
|
|
- -
|
|
- -
|
|
|
|
(1) |
|
Other income
(expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ - -
|
|
$ - -
|
|
$ |
|
(64) |
|
|
|
|
|
|
|
|
|
|
|
|
|
39
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. |
|
Financial Instruments and Derivatives (Continued) |
The carrying value and the estimated fair value of the Companys non-derivative financial
instruments are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
|
Carrying |
|
Fair |
Millions of dollars |
|
Value |
|
Value |
|
|
Value |
|
Value |
Short and long-term debt, including
current maturities and debt
classified as liabilities subject to
compromise |
|
$ |
7,325 |
|
|
$ |
7,891 |
|
|
|
$ |
25,354 |
|
|
$ |
13,986 |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the bases used to measure certain liabilities at fair value on a
recurring basis, which are recorded at historical cost or amortized cost, in the consolidated
balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
Fair Value Measurement |
|
|
|
|
|
|
|
|
Quoted prices |
|
|
|
|
|
|
|
|
|
|
|
|
in active |
|
Significant |
|
|
|
|
Carrying |
|
|
|
|
|
markets for |
|
other |
|
Significant |
|
|
Value |
|
Fair Value |
|
identical |
|
observable |
|
unobservable |
|
|
September 30, |
|
September 30, |
|
assets |
|
inputs |
|
inputs |
Millions of dollars |
|
2010 |
|
2010 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Short and long-term debt,
including current maturities |
|
$ |
7,325 |
|
|
$ |
7,891 |
|
|
$ |
- - |
|
|
$ |
7,362 |
|
|
$ |
529 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table is a reconciliation of the beginning and ending balances of Level 1, Level 2
and Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
|
|
Measurement |
|
Measurement |
|
Fair Value |
|
|
Using Quoted |
|
Using |
|
Measurement |
|
|
prices in active |
|
Significant |
|
Using |
|
|
markets for |
|
Other |
|
Significant |
|
|
identical assets |
|
Observable |
|
Unobservable |
Millions of dollars |
|
(Level 1) |
|
Inputs (Level 2) |
|
Inputs (Level 3) |
Debt
and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 1, 2010 |
|
$ |
- - |
|
|
$ |
6,758 |
|
|
$ |
558 |
|
Purchases, sales, issuances, and settlements (net) |
|
|
- - |
|
|
|
(1 |
) |
|
|
64 |
|
Transfers in and/or out of Level 3 |
|
|
84 |
|
|
|
- - |
|
|
|
(84 |
) |
Total gains or losses (realized/unrealized) |
|
|
76 |
|
|
|
605 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
160 |
|
|
$ |
7,362 |
|
|
$ |
529 |
|
|
|
|
|
|
|
|
|
40
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. |
|
Financial Instruments and Derivatives (Continued) |
For liabilities classified as Level 1, the fair value is measured using quoted prices in active
markets. The total fair value is either the price of the most recent trade at the time of the
market close or the official close price, as defined
by the exchange in which the asset is most actively traded on the last trading day of the period,
multiplied by the
number of units held without consideration of transaction costs. For liabilities classified as
Level 2, fair value is based on the price a market participant would pay for the security, adjusted
for the terms specific to that asset and liability. Broker quotes were obtained from well
established and recognized vendors of market data for debt valuations. The inputs for liabilities
classified as Level 3 reflect our assessment of the assumptions that a market participant would use
in determining the price of the asset or liability, including our liquidity risk at September 30,
2010.
Quoted
market prices as of September 30, 2010 were used to estimate the fair
value of our warrants. A Black-Scholes option-pricing model was used
to estimate the fair value of the warrants at April 30, 2010;
therefore, the $84 million fair value as of April 30, 2010 has been
transferred from Level 3 to Level 1 in the above table.
13. |
|
Pension and Other Postretirement Benefits |
Net periodic pension benefits included the following cost components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
May 1 |
|
|
January 1 |
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
2010 |
|
2009 |
|
2009 |
Service cost |
|
$ |
11 |
|
|
$ |
18 |
|
|
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
38 |
|
Interest cost |
|
|
23 |
|
|
|
39 |
|
|
|
|
31 |
|
|
|
21 |
|
|
|
67 |
|
Expected return on plan assets |
|
|
(22 |
) |
|
|
(37 |
) |
|
|
|
(31 |
) |
|
|
(22 |
) |
|
|
(68 |
) |
Amortization |
|
|
- - |
|
|
|
- - |
|
|
|
|
3 |
|
|
|
4 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost |
|
$ |
12 |
|
|
$ |
20 |
|
|
|
$ |
18 |
|
|
$ |
15 |
|
|
$ |
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Three months |
|
May 1 |
|
|
|
|
|
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
January 1 |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
through |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
April 30, 2010 |
|
2009 |
|
2009 |
Service cost |
|
$ |
8 |
|
|
$ |
12 |
|
|
|
$ |
9 |
|
|
$ |
9 |
|
|
$ |
26 |
|
Interest cost |
|
|
13 |
|
|
|
22 |
|
|
|
|
17 |
|
|
|
15 |
|
|
|
46 |
|
Expected return on plan assets |
|
|
(8 |
) |
|
|
(13 |
) |
|
|
|
(10 |
) |
|
|
2 |
|
|
|
(19 |
) |
Amortization |
|
|
- - |
|
|
|
- - |
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost |
|
$ |
13 |
|
|
$ |
21 |
|
|
|
$ |
17 |
|
|
$ |
27 |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
13. |
|
Pension and Other Postretirement Benefits (Continued) |
Net periodic other postretirement benefits included the following cost components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
May 1 |
|
|
|
|
|
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
January 1 |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
through |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
April 30, 2010 |
|
2009 |
|
2009 |
Service cost |
|
$ |
1 |
|
|
$ |
2 |
|
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
4 |
|
Interest cost |
|
|
4 |
|
|
|
7 |
|
|
|
|
5 |
|
|
|
5 |
|
|
|
14 |
|
Amortization |
|
|
- - |
|
|
|
- - |
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
5 |
|
|
$ |
9 |
|
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans |
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
May 1 |
|
|
|
|
|
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
January 1 |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
through |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
April 30, 2010 |
|
2009 |
|
2009 |
Service cost |
|
$ |
- - |
|
|
$ |
- - |
|
|
|
$ |
- - |
|
|
$ |
2 |
|
|
$ |
6 |
|
Interest cost |
|
|
1 |
|
|
|
1 |
|
|
|
|
1 |
|
|
|
- - |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1 |
|
|
$ |
1 |
|
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the Plan of Reorganization, except with respect to the Supplemental Executive Retirement
Plan, all benefit plans and collective bargaining agreements remained in force subsequent to the
Debtors emergence from chapter 11 proceedings. Accordingly, approximately $854 million of pension
and other post-retirement benefit liabilities were reclassified from liabilities subject to
compromise to current or long-term liabilities, as appropriate, upon emergence from bankruptcy (see
Note 4).
Employees in the U.S. are eligible to participate in defined contribution plans (Employee Savings
Plans) by contributing a portion of their compensation. We match a part of the employees
contribution. The Predecessor had temporarily suspended contributions beginning in March 2009 as a
result of filing voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy
Code. In May 2010, we resumed matching contributions under the Employee Savings Plans.
42
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
14. |
|
Incentive and Share-Based Compensation |
Medium-Term Incentive PlanUpon the Debtors emergence from chapter 11 proceedings, we replaced
the Predecessor Companys Management Incentive Plan with the 2010 Medium-Term Incentive Plan
(MTI). The MTI is designed to link the interests of senior management with the interests of
shareholders by tying incentives to measurable corporate performance. The MTI provides for payouts
based on our return on assets and cost improvements over the calendar years 2010 through 2012.
Benefits under the MTI will vest on the date, following December 31, 2012, on which the
Compensation Committee of the Supervisory Board certifies the performance results and will be paid
on March 31 following the end of the performance cycle. The MTI provides for an accelerated
pro-rata payout in the event of a change in control of the Successor Company. We recorded $2
million and $3 million of compensation expense for the three and five months ended September 30,
2010, respectively based on the expected achievement of performance results.
Long-Term Incentive PlanUpon the Debtors emergence from chapter 11 proceedings, we created the
2010 Long-Term Incentive Plan (LTI). Under the LTI, the Compensation Committee is authorized to
grant restricted stock, restricted stock units, stock options, stock appreciation rights and other
types of equity-based awards. The Compensation Committee determines the recipients of the equity
awards, the type of award made, the required performance measures, and the timing and duration of
each grant. The maximum number of shares of LyondellBasell N.V. stock reserved for issuance under
the LTI is 22,000,000. In connection with the Debtors emergence from bankruptcy, awards were
granted to our senior management and we have since granted awards for new hires and promotions. As
of September 30, 2010, there were 9,514,397 shares remaining available for issuance.
The LTI awards resulted in compensation expense of $9 million and $14 million for the three and
five months ended September 30, 2010, respectively, and $24 million for the one month ended April
30, 2010. The tax benefits were $3 million and $5 million for the three and five months ended
September 30, 2010, respectively, and $8 million for the one month ended April 30, 2010.
Restricted Stock UnitsRestricted stock units entitle the recipient to be paid out an equal number
of class A ordinary shares on the fifth anniversary of the grant date, subject to forfeiture in the
event of certain termination events. Restricted stock units are accounted for as an equity award
with compensation cost recognized ratably over the vesting period.
The following table summarizes restricted stock unit activity for the five months ended September
30, 2010 in thousands of units:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted- |
|
|
Units |
|
average price |
|
Outstanding at May 1, 2010 |
|
|
- - |
|
|
$ |
- - |
|
Granted |
|
|
2,024 |
|
|
|
17.60 |
|
Paid |
|
|
- - |
|
|
|
|
|
Forfeited |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
2,011 |
|
|
$ |
17.60 |
|
|
|
|
|
|
43
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
14. |
|
Incentive and Share-Based Compensation (Continued) |
For the three and five months ended September 30, 2010, the compensation expense related to the
outstanding restricted stock units was $2 million and $3 million, and the related tax benefit was
less than $1 million and $1 million, respectively. As of September 30, 2010, the unrecognized
compensation cost related to restricted stock units was $32 million, which is expected to be
recognized over a weighted-average period of 5 years.
Stock OptionsStock options are granted with an exercise price equal to the market price of class
A ordinary shares at the date of grant. The stock options are accounted for as an equity award
with compensation cost recognized using the graded vesting method. We issued certain Stock options
to purchase 1% of the number of common stock shares outstanding at the Debtors emergence from
bankruptcy. These options vest in five equal, annual installments beginning on May 14, 2009 and
may be exercised for a period of seven years following the grant date at a price of $17.61 per
share, the fair value of the Companys common stock based on its reorganized value at the date of
emergence. All other stock options vest in equal increments on the second, third and fourth
anniversary of the grant date and have a contractual term of ten years, with accelerated vesting
upon death, disability, or change in control and exercise prices ranging from $16.45 to $21.03.
The fair value of each stock option award is estimated, based on several assumptions, on the date
of grant using the Black-Scholes option valuation model. Upon adoption of ASC 718 Stock
Compensation, we modified our methods used to determine these assumptions based on the Securities
and Exchange Commissions Staff Accounting Bulletin No. 107. We estimated volatility based on the
historic average of the common stock of our peer companies and the historic stock price volatility
over the expected term. The fair value and the assumptions used for the 2010 grants are shown in
the table below.
|
|
|
|
|
Weighted-average Fair Value per share of options granted |
|
|
$ 7.81 |
|
Fair value assumptions: |
|
|
|
|
Dividend yield |
|
|
0.00 |
% |
Expected volatility |
|
|
47.0 |
% |
Risk-free interest rate |
|
|
1.82-2.94 |
% |
Weighted-average expected term, in years |
|
|
5.2 |
|
44
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
14. |
|
Incentive and Share-Based Compensation (Continued) |
The following table summarizes stock option activity for the four months ended April 30, 2010 and
the five months ended September 30, 2010 in thousands of shares for the non-qualified stock
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
Predecessor |
|
Shares |
|
Price |
|
Term |
|
Value |
Outstanding at January 1, 2010 |
|
|
- - |
|
|
$ |
- - |
|
|
|
|
|
|
|
|
|
Granted |
|
|
5,639 |
|
|
|
17.61 |
|
|
7.0 years |
|
|
|
|
Exercised |
|
|
- - |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2010 |
|
|
5,639 |
|
|
$ |
17.61 |
|
|
7.0 years |
|
$ |
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2010 |
|
|
- - |
|
|
$ |
- - |
|
|
|
|
|
|
$ |
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 1, 2010 |
|
|
5,639 |
|
|
$ |
17.61 |
|
|
7.0 years |
|
|
|
|
Granted |
|
|
3,064 |
|
|
|
17.60 |
|
|
9.6 years |
|
|
|
|
Exercised |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
8,703 |
|
|
$ |
17.60 |
|
|
7.7 years |
|
$ |
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010 |
|
|
1,128 |
|
|
$ |
17.61 |
|
|
6.6 years |
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option expense was $4 million and $7 million for the three and five months ended
September 30, 2010, respectively, and $19 million for the four months ended April 30, 2010. The
related tax benefits were $1 million, $3 million and $6 million for the three and five months ended
September 30, 2010, and four months ended April 30, 2010, respectively. As of September 30, 2010,
the unrecognized compensation cost related to non-qualified stock options was $42 million, which is
expected to be recognized over a weighted-average period of 4 years.
Restricted Stock SharesOn April 30, 2010, we issued restricted class A ordinary shares. The
shares may not be sold or transferred and have no voting rights, until the restrictions lapse on
May 14, 2014.
45
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
14. |
|
Incentive and Share-Based Compensation (Continued) |
The following table summarizes restricted stock shares activity for the four months ended April 30,
2010 and the five months ended September 30, 2010 in thousands of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Number of |
|
average grant |
Predecessor |
|
Shares |
|
date fair value |
Outstanding at January 1, 2010 |
|
|
- - |
|
|
$ |
- - |
|
Granted |
|
|
1,772 |
|
|
|
17.61 |
|
Paid |
|
|
- - |
|
|
|
- - |
|
Forfeited |
|
|
- - |
|
|
|
- - |
|
|
|
|
|
|
Outstanding at April 30, 2010 |
|
|
1,772 |
|
|
$ |
17.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
Outstanding at May 1, 2010 |
|
|
1,772 |
|
|
$ |
17.61 |
|
Granted |
|
|
- - |
|
|
|
- - |
|
Paid |
|
|
- - |
|
|
|
- - |
|
Forfeited |
|
|
- - |
|
|
|
- - |
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
1,772 |
|
|
$ |
17.61 |
|
|
|
|
|
|
The total restricted stock shares expense was $3 million, $4 million and $5 million for the three
and five months ended September 30, 2010, and four months ended April 30, 2010, respectively. The
related tax benefit was $1 million, $1 million and $2 million for the three and five months ended
September 30, 2010, and four months ended April 30, 2010, respectively. As of September 30, 2010,
the unrecognized compensation cost related to restricted stock shares was $23 million, which is
expected to be recognized over a weighted-average period of 4 years.
Stock Appreciation RightsCertain employees in Europe were granted stock appreciation rights
(SARs) under the LTI. SARs gives those employees the right to receive an amount of cash equal to
the appreciation in the market value of the Companys class A ordinary shares from the awards
grant date to the exercise date. Because the SARs are settled in cash, they are accounted for as
a liability award. The SARs vest over three years beginning with the second anniversary of the
grant date. We recognized less than $1 million of compensation expense related to SARs for each of
the three and five months ended September 30, 2010.
46
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In the five months ended September 30, 2010, we recorded a tax provision of $282 million,
representing an effective tax rate of 25.7% on pre-tax income of $1,096 million. In the four
months ended April 30, 2010, the Predecessor recorded a tax benefit of $693 million, representing
an effective tax rate of (8.9)% on pre-tax income of $7,811 million. In the first nine months of
2009 the Company recorded a tax benefit of $851 million, representing an effective tax rate of
29.6% on a pre-tax loss of $2,872 million. The provision for the 2010 Successor period differs
from the U.S. statutory rate of 35% primarily due to income or loss, sourced from countries with
other than 35% statutory rates and the reduction of valuation allowances against certain of our
deferred tax assets related to non-U.S. operating loss carryforwards that were realized during the
period. The tax provision for the Predecessor period differs from the U.S. statutory rate
primarily because a significant portion of the pre-tax gain from the discharge of pre-petition
liabilities will not result in future tax liabilities, which was somewhat offset by restructuring
charges for which no tax benefit was provided. The tax benefit recorded for the first nine months
of 2009 was lower than the statutory rate primarily due to restructuring costs for which no tax
benefit was provided, non-deductible impairment charges related to equity investments and income or
loss, sourced from countries with other than 35% statutory rates. The reduced tax benefit was
partly offset by the reduction of valuation allowances recorded in prior periods against non-U.S.
net operating loss carryforwards, changes in estimates for prior year items, and the recognition
of uncertain tax positions.
The application of fresh-start accounting on May 1, 2010 resulted in the re-measurement of deferred
income tax liabilities associated with the revaluation of the Companys assets and liabilities
pursuant to ASC 852 (see Note 4). As a result, deferred income taxes were recorded at amounts
determined in accordance with ASC 740 of $1,362 million. Further, the Company recorded valuation
allowances against certain of our deferred tax assets resulting from this re-measurement.
LyondellBasell N.V. is incorporated and is resident in The Netherlands. However, since the
Companys 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 35% as opposed to the Dutch
statutory rate of 25.5% to provide a more meaningful insight into those differences. This summary
for the Predecessor period is shown below:
|
|
|
|
|
|
|
Predecessor |
|
|
January 1 |
|
|
through |
|
|
April 30, |
Millions of dollars |
|
2010 |
Theoretical income tax at U.S. statutory rate |
|
$ |
2,733 |
|
Increase (reduction) resulting from: |
|
|
|
|
Discharge of debt and other reorganization related items |
|
|
(3,339 |
) |
Non-deductible professional fees |
|
|
46 |
|
State income taxes, net of federal benefit |
|
|
54 |
|
Changes in valuation allowances |
|
|
37 |
|
Uncertain tax positions |
|
|
23 |
|
Notional royalties |
|
|
(11 |
) |
Other income taxes, net of federal benefit |
|
|
(34 |
) |
Non-U.S. income taxed at lower statutory rates |
|
|
(173 |
) |
Other, net |
|
|
(29 |
) |
|
|
|
Income tax benefit |
|
$ |
(693 |
) |
|
|
|
47
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. |
|
Income Taxes (Continued) |
Under the Plan of Reorganization, a substantial portion of the Companys pre-petition debt
securities, revolving credit facility and other obligations was extinguished. Absent an exception,
a debtor recognizes cancellation of indebtedness income (CODI) upon discharge of its outstanding
indebtedness for an amount of consideration that is less than its adjusted issue price. The
Internal Revenue Code of 1986, as amended (IRC), provides that a debtor in a bankruptcy case may
exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any
CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI
realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of
(i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair
market value of any other consideration, including equity, issued. As a result of the market value
of equity upon emergence from chapter 11 bankruptcy proceedings, the estimated amount of U.S. CODI
exceeded the estimated amount of the Companys U.S. tax attributes by approximately $6,800 million.
These estimates are subject to revision, as the actual reduction in tax attributes does not occur
until the first day of the Companys tax year subsequent to the date of emergence, or January 1,
2011.
As a result of attribute reduction, we do not expect to retain any U.S. net operating loss
carryforwards, alternative minimum tax credits or capital loss carryforwards. In addition, we
expect that most, if not all, of our tax bases in depreciable assets in the U.S. will be
eliminated. Accordingly, we expect that the liability for U.S. income taxes in future periods will
reflect these adjustments and the estimated U.S. cash tax liabilities for the years following 2010
will be significantly higher than in 2009 or 2010.
IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation
to utilize its tax attributes, as well as certain built-in-losses, against future U.S. taxable
income in the event of a change in ownership. The Debtors emergence from chapter 11 bankruptcy
proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation
under the IRC is based on the value of the corporation as of the emergence date. We do not expect
that the application of these limitations will have any material affect upon our U.S. federal
income tax liabilities after 2010. Germany has similar provisions that preclude the use of certain
tax attributes generated prior to a change of control. As of the Emergence Date, the Company had
tax benefits associated with excess interest expense carryforwards in the amount of $16 million
that will be eliminated as a result of the emergence. The reversal of tax benefits associated with
the loss of these carryforwards is reflected in the Predecessor period.
As of December 31, 2009 the Company had U.S. tax loss carryforwards of $854 million and alternative
minimum tax credit carryforwards of $214 million. These carryforwards are expected to be
eliminated as of December 31, 2010 as a result of the CODI attribute reduction. However, these
carryforwards are still available for utilization through the end of 2010, subject to limitation
under IRC sections 382 and 383 (see above).
48
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. |
|
Income Taxes (Continued) |
Deferred income taxes represent temporary differences in the recognition of certain items for
financial reporting and income tax purposes. A summary of the estimated components of the net
deferred income tax liabilities after the application of the fresh-start adjustments to fair value
is shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
Predecessor |
|
|
May 1, |
|
December 31, |
Millions of dollars |
|
2010 |
|
2009 |
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation |
|
$ |
1,469 |
|
|
$ |
3,251 |
|
Investments in joint venture partnerships |
|
|
363 |
|
|
|
482 |
|
Accrued interest |
|
|
- - |
|
|
|
341 |
|
Other intangible assets |
|
|
26 |
|
|
|
142 |
|
Inventory |
|
|
693 |
|
|
|
238 |
|
Deferred charges and revenues |
|
|
241 |
|
|
|
307 |
|
Other |
|
|
20 |
|
|
|
17 |
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
2,812 |
|
|
|
4,778 |
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
|
719 |
|
|
|
1,031 |
|
Employee benefit plans |
|
|
426 |
|
|
|
543 |
|
Deferred interest carryforwards |
|
|
847 |
|
|
|
638 |
|
AMT credits |
|
|
- - |
|
|
|
214 |
|
Goodwill |
|
|
- - |
|
|
|
44 |
|
State and foreign income taxes, net of federal tax benefit |
|
|
85 |
|
|
|
107 |
|
Deferred charges and revenues |
|
|
10 |
|
|
|
19 |
|
Environmental reserves |
|
|
4 |
|
|
|
549 |
|
Other |
|
|
190 |
|
|
|
167 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
2,281 |
|
|
|
3,312 |
|
Deferred tax asset valuation allowances |
|
|
(831 |
) |
|
|
(666 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
1,450 |
|
|
|
2,646 |
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
1,362 |
|
|
$ |
2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet classifications: |
|
|
|
|
|
|
|
|
Deferred tax
assets - current |
|
$ |
1 |
|
|
$ |
4 |
|
Deferred tax
assets long term |
|
|
- - |
|
|
|
115 |
|
Deferred income liability current |
|
|
443 |
|
|
|
170 |
|
Deferred income liability long term |
|
|
920 |
|
|
|
2,081 |
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
1,362 |
|
|
$ |
2,132 |
|
|
|
|
|
|
|
|
We continue to maintain a valuation allowance related to net deferred tax assets in several
non-U.S. jurisdictions. The current and future provision for income taxes is significantly
impacted by the initial recognition of and changes in valuation allowances until it is more likely
than not that the deferred tax assets will be realized. Future provision for income taxes will
include no tax benefit with respect to losses incurred and no tax expense with respect to income
generated in these countries until the respective valuation allowance is eliminated.
49
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. |
|
Income Taxes (Continued) |
If, in the future, taxable income is generated on a sustained basis in jurisdictions where a full
valuation allowance has been recorded, the conclusion regarding the need for full valuation
allowances in these tax jurisdictions could change, resulting in the reversal of some or all of the
valuation allowances. If operations generate taxable income prior to reaching profitability on a
sustained basis, a portion of the valuation allowance related to the corresponding realized tax
benefit for that period will be reversed, without changing the conclusion on the need for a full
valuation allowance against the remaining net deferred tax assets. As a result, our current and
future provision for income taxes is significantly impacted by the initial recognition of, and
changes in, valuation allowances in certain countries and the Successor period effective tax rate
of 25.7% may not be indicative of our future effective tax rate.
16. |
|
Commitments and Contingencies |
CommitmentsWe have various purchase commitments for materials, supplies and services incident to
the ordinary conduct of business, generally for quantities required for our businesses and at
prevailing market prices. These commitments are designed to assure sources of supply and are not
expected to be in excess of normal requirements. At September 30, 2010, we had commitments of
approximately $14 million related to rebuilding an expanded world-scale high-density polyethylene
plant at our Münchsmünster, Germany site. Our other capital expenditure commitments at September
30, 2010 were in the normal course of business.
Environmental RemediationOur accrued liability for future environmental remediation costs at
current and former plant sites and other remediation sites totaled $95 million as of September 30,
2010. The liabilities for individual sites range from less than
$1 million to $23 million. The
remediation expenditures are expected to occur over a number of years, and not to be concentrated
in any single year. In our opinion, it is reasonably possible that losses in excess of the
liabilities recorded may have been incurred. However, we cannot estimate any amount or range of
such possible additional losses. New information about sites, new technology or future
developments such as involvement in investigations by regulatory agencies, could require us to
reassess our potential exposure related to environmental matters.
The following table summarizes the activity in the Companys accrued environmental liability
included in Accrued liabilities and Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
May 1 |
|
|
January 1 |
|
Nine months |
|
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2010 |
|
2009 |
Balance at beginning of period |
|
$ |
93 |
|
|
|
$ |
89 |
|
|
$ |
256 |
|
Additional provisions |
|
|
3 |
|
|
|
|
11 |
|
|
|
1 |
|
Amounts paid |
|
|
(2 |
) |
|
|
|
(2 |
) |
|
|
(5 |
) |
Reclassification to Liabilities subject to compromise |
|
|
- - |
|
|
|
|
- - |
|
|
|
(133 |
) |
Foreign exchange effects |
|
|
1 |
|
|
|
|
(5 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
95 |
|
|
|
$ |
93 |
|
|
$ |
122 |
|
|
|
|
|
|
|
|
|
50
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
16. |
|
Commitments and Contingencies (Continued) |
The Debtors resolved substantially all of their liability related to third-party sites (including
sites where the Debtors were subject to a Comprehensive Environmental Response, Compensation and
Liability Act or similar state order to fund or perform such cleanup, such as the river and the
other portions of the Kalamazoo River Superfund Site that the Debtors do not own) through creation
of the Environmental Custodial Trust and agreement on allowed claim values as set forth in the
Debtors Third Amended Plan of Reorganization and Settlement Agreement Among the Debtors, the
Environmental Custodial Trust Trustee, The United States, and certain environmental Agencies filed
with the U.S. Bankruptcy Court on March 30, 2010 and approved by the court on April 23, 2010. Upon
the Debtors emergence from bankruptcy, certain real properties owned by the Debtors, including the
Schedule III Debtors (as defined in the Plan of Reorganization), were transferred to the
Environmental Custodial Trust, which now owns and is responsible for these properties. Consistent
with the Debtors settlement with the governmental agencies and its Plan of Reorganization,
approximately $170 million of cash was also used to fund the Environmental Custodial Trust and to
make certain direct payments to the Environmental Protection Agency and certain state environmental
agencies.
Litigation and Other MattersOn April 12, 2005, BASF Corporation (BASF) filed a lawsuit in New
Jersey against Lyondell Chemical asserting various claims relating to alleged breaches of a product
sales contract and seeking damages in excess of $100 million. Lyondell Chemical denies it breached
the contracts. Lyondell Chemical believed the maximum refund due to BASF was $22.5 million on such
product sales and has paid such amount to BASF. On August 13, 2007, the jury returned a verdict in
favor of BASF in the amount of approximately $170 million (which includes the above $22.5 million).
On October 3, 2007, the judge determined that prejudgment interest on the verdict was $36 million.
Lyondell Chemical is appealing this verdict and has posted a bond, which is collateralized by a
$200 million letter of credit. On April 21, 2010, oral arguments related to the appeal were held.
We do not expect the resolution of this matter to have a material adverse effect on our
consolidated financial position, liquidity, or results of operations, although it is possible that
any such resolution could have a material adverse effect on our results of operation for any period
in which a resolution occurs.
IndemnificationWe are parties to various indemnification arrangements, including arrangements
entered into in connection with acquisitions, divestitures and the formation 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 September 30, 2010, 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.
In
addition, certain third parties entered into agreements with the Predecessor, LyondellBasell AF, to
indemnify LyondellBasell AF for a significant portion of the potential obligations that could arise
with respect to costs relating to contamination at the Berre site in France and the Ferrara and
Brindisi sites in Italy. These indemnity obligations are currently in dispute.
We recognized a pretax charge of $64 million as a change of estimate in the third quarter
2010 related to the dispute, which arose during that period.
51
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
16. |
|
Commitments and Contingencies (Continued) |
As part of our technology licensing contracts, we give indemnifications to our licensees for
liabilities arising from possible patent infringement claims with respect to proprietary licensed
technology. Such indemnifications have a stated maximum amount and generally cover a period of
five to ten years.
OtherWe have identified an agreement related to a project in Kazakhstan under which a payment was
made that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the FCPA). We
have engaged outside counsel to investigate these activities, under the oversight of the Audit
Committee of the Supervisory Board, and to evaluate internal controls and compliance policies and
procedures. We made a voluntary disclosure of these matters to the U.S. Department of Justice and
are cooperating fully with that agency. The ultimate outcome of this matter cannot be predicted at
this time or whether other matters raising compliance issues will be discovered, including under
other statutes. In this respect, we may not have conducted business in compliance with the FCPA
and may not have had policies and procedures in place adequate to ensure compliance. Therefore, we
cannot reasonably estimate a range of liability for any potential penalty resulting from these
matters. Violations of these laws could result in criminal and civil liabilities and other forms
of relief that could be material to us.
Certain of our non-U.S. subsidiaries conduct business in countries subject to U.S. economic
sanctions, including Iran. U.S. laws and regulations, and new European regulations, prohibit
certain persons from engaging in business activities, in whole or in part, with sanctioned
countries, organizations and individuals. The U.S. Congress recently passed legislation that could
result in the imposition of sanctions on U.S. and non-U.S. persons and entities doing business with
Iran. In connection with our continuing review of compliance risks in this area, certain
activities have been identified that raise compliance issues under applicable sanctions laws and
regulations. We have made voluntary disclosure of these matters to the U.S. Treasury Department
and intend to cooperate fully with that agency. The ultimate outcome of this matter cannot be
predicted at this time because our investigations are ongoing. Therefore, we cannot reasonably
estimate a range of liability for any potential penalty resulting from these matters. In addition,
our management has made the decision to cease all business with the government, entities and
individuals in Iran and we are working with regulatory authorities to implement this decision.
These business activities present a potential risk that could subject the Company to civil and
criminal penalties as well as private legal proceedings that could be material to us. Likewise,
violations of these laws could result in criminal and civil liabilities and other forms of relief
that could be material to us. We cannot predict the ultimate outcome of this matter at this time
because our investigations and withdrawal activities are ongoing.
We and our joint ventures are, from time to time, defendants in lawsuits and other commercial
disputes, some of which are not covered by insurance. Many of these suits make no specific claim
for relief. Although final determination of any liability and resulting financial impact with
respect to any such matters cannot be ascertained with any degree of certainty, we do not believe
that any ultimate uninsured liability resulting from these matters will, individually or in the
aggregate, have a material adverse effect on the financial position, liquidity or results of
operations of LyondellBasell N.V.
GeneralIn our opinion, the matters discussed in this note are not expected to have a material
adverse effect on the financial position or liquidity of LyondellBasell N.V. However, the adverse
resolution in any reporting period of one or more of these matters could have a material impact on
our results of operations for that period, which may be mitigated by contribution or
indemnification obligations of others, or by any insurance coverage that may be available.
52
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
17. |
|
Stockholders Equity and Non-Controlling Interests |
Common StockOn April 30, 2010, approximately 563.9 million shares of LyondellBasell N.V. common
stock, including 300 million shares of class A new ordinary shares were issued in exchange for
allowed claims under the Plan of Reorganization. In addition, approximately 263.9 million shares
of LyondellBasell N.V. class B ordinary shares were issued in connection with a rights offering for
gross proceeds of $2.8 billion.
Conversion of Class B Ordinary SharesAt the earlier of (i) the request of the relevant holder of
class B ordinary shares with respect to the number of class B ordinary shares specified by such
holder (ii) acquisition by us of one or more class B ordinary shares or (iii) the first date upon
which the closing price per share of the class B ordinary shares has exceeded 200% of $10.61 for at
least forty-five trading days within a period of sixty consecutive trading days (provided that the
closing price per share of the class B ordinary shares exceeded such threshold on both the first
and last day of the sixty day period), each such class B ordinary share will be converted into one
class A ordinary share.
Liquidation PreferenceIn the event of our dissolution, to the extent assets remain available for
distribution to shareholders following the payment of our creditors, each holder of class B
ordinary share is entitled to receive an amount equal to $10.61 per class B ordinary share before
any distribution is made to the holders of class A ordinary shares.
Treasury sharesIn connection with our formation, we issued one million one hundred twenty-five
thousand (1,125,000), four eurocent (0.04) each, class A ordinary shares for 45 thousand to
Stichting TopCo, a foundation formed under the laws of The Netherlands (the Foundation). On
April 30, 2010, we repurchased the shares from the Foundation for zero consideration. These shares
are classified as Treasury Stock on our Consolidated Balance Sheet.
Non-Controlling InterestsComprehensive loss of non-controlling interests consisted of the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
May 1 |
|
|
January 1 |
|
Three months |
|
Nine months |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
ended |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
2010 |
|
|
2010 |
|
2009 |
|
2009 |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable
to non-controlling interests |
|
$ |
(2 |
) |
|
$ |
7 |
|
|
|
$ |
(53 |
) |
|
$ |
4 |
|
|
$ |
11 |
|
Fixed
operating fees paid to
Lyondell Chemical by the
PO/SM II partnership |
|
|
(5 |
) |
|
|
(9 |
) |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7 |
) |
|
$ |
(2 |
) |
|
|
$ |
(60 |
) |
|
$ |
(1 |
) |
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
53
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Basic earnings per share for the periods subsequent to April 30, 2010 are based upon the weighted
average number of shares of common stock outstanding during the periods. Diluted earnings per
share also include the effect of outstanding restricted stock. The outstanding stock options and
warrants were anti-dilutive.
Earnings per share data and dividends declared per share of common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Three months |
|
May 1 |
|
|
ended |
|
through |
|
|
September 30, |
|
September 30, |
Millions
of dollars |
|
2010 |
|
2010 |
Net income |
|
$ |
467 |
|
|
$ |
814 |
|
Less: net loss attributable to non-controlling interests |
|
|
7 |
|
|
|
2 |
|
|
|
|
|
|
Net income attributable to LyondellBasell N.V. |
|
$ |
474 |
|
|
$ |
816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of shares |
|
|
|
|
|
|
|
|
Basic weighted average class A and class B ordinary shares issued and outstanding |
|
|
564 |
|
|
|
564 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Restricted stock shares/units |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
Dilutive potential shares |
|
|
565 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.84 |
|
|
$ |
1.45 |
|
Diluted |
|
$ |
0.84 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options and warrants in millions |
|
|
20.2 |
|
|
|
20.2 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock |
|
$ |
- - |
|
|
$ |
- - |
|
Pro-forma Earnings (Loss) per ShareLyondellBasell N.V. has provided pro forma earnings per share
(loss) (EPS) on its Consolidated Income Statements for all predecessor periods presented,
reflecting the issuance of common stock in connection with the Companys emergence from bankruptcy
on April 30, 2010. Pro forma EPS was calculated based on historical net income (loss) of the
Predecessor and assuming the shares outstanding as of May 1, 2010 consisting of approximately 563.9
million shares of LyondellBasell N.V. common stock, including 300 million shares of class A common
stock and approximately 263.9 million shares of class B common stock. Pro forma diluted EPS
includes an additional 1,708,852 shares reflecting the effect of outstanding warrants and
restricted stock on May 1, 2010. Pro forma diluted loss per share excludes the antidilutive
effects of the outstanding warrants and restricted stock on May 1, 2010.
54
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19. |
|
Segment and Related Information |
LyondellBasell N.V. operates in five segments:
|
|
|
Olefins and PolyolefinsAmericas, primarily manufacturing and marketing of olefins,
including ethylene; its co-products, primarily propylene, butadiene, and aromatics, which
include benzene and toluene; as well as ethanol; and polyolefins, including polyethylene,
comprising HDPE, LDPE and linear low density polyethylene (LLDPE), and polypropylene; and
Catalloy process resins; |
|
|
|
|
Olefins and PolyolefinsEurope, Asia, International, primarily manufacturing and
marketing of olefins, including ethylene and its co-products, primarily propylene and
butadiene; polyolefins, including polyethylene, comprising HDPE, LDPE and polypropylene;
polypropylene-based compounds, materials and alloys (PP Compounds), Catalloy process
resins and polybutene-1 polymers; |
|
|
|
|
Intermediates and Derivatives, primarily manufacturing and marketing of PO; PO
co-products, including styrene and the TBA intermediates tertiary butyl alcohol (TBA),
isobutylene and tertiary butyl hydroperoxide; PO derivatives, including propylene glycol,
propylene glycol ethers and butanediol; ethylene derivatives, including ethylene glycol,
ethylene oxide (EO), and other EO derivatives; acetyls, including vinyl acetate monomer,
acetic acid and methanol and fragrance and flavor chemicals; |
|
|
|
|
Refining and Oxyfuels, primarily manufacturing and marketing of refined petroleum
products, including gasoline, ultra-low sulfur diesel, jet fuel, lubricants (lube oils),
alkylate, and oxygenated fuels, or oxyfuels, such as methyl tertiary butyl ether (MTBE)
and ethyl tertiary butyl ether (ETBE); and |
|
|
|
|
Technology, primarily licensing of polyolefin process technologies and supply of
polyolefin catalysts and advanced catalysts. |
Summarized financial information concerning reportable segments is shown in the following table for
the periods presented. Presentation of the prior years amounts have been reclassified to conform
to our current operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
Refining |
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates & |
|
and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
Three months ended
September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
2,223 |
|
|
$ |
3,148 |
|
|
$ |
1,367 |
|
|
$ |
3,448 |
|
|
$ |
131 |
|
|
$ |
(15 |
) |
|
$ |
10,302 |
|
Intersegment |
|
|
1,024 |
|
|
|
99 |
|
|
|
86 |
|
|
|
419 |
|
|
|
26 |
|
|
|
(1,654 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,247 |
|
|
|
3,247 |
|
|
|
1,453 |
|
|
|
3,867 |
|
|
|
157 |
|
|
|
(1,669 |
) |
|
|
10,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
448 |
|
|
|
231 |
|
|
|
207 |
|
|
|
83 |
|
|
|
38 |
|
|
|
(19 |
) |
|
|
988 |
|
Income from
equity investments |
|
|
6 |
|
|
|
20 |
|
|
|
3 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
29 |
|
55
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19. |
|
Segment and Related Information (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
Refining |
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates |
|
and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
& Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
May 1 through
September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
3,723 |
|
|
$ |
5,246 |
|
|
$ |
2,307 |
|
|
$ |
5,626 |
|
|
$ |
183 |
|
|
$ |
(11 |
) |
|
$ |
17,074 |
|
Intersegment |
|
|
1,528 |
|
|
|
141 |
|
|
|
86 |
|
|
|
644 |
|
|
|
49 |
|
|
|
(2,448 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,251 |
|
|
|
5,387 |
|
|
|
2,393 |
|
|
|
6,270 |
|
|
|
232 |
|
|
|
(2,459 |
) |
|
|
17,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
597 |
|
|
|
345 |
|
|
|
316 |
|
|
|
97 |
|
|
|
61 |
|
|
|
(6 |
) |
|
|
1,410 |
|
Income from
equity investments |
|
|
9 |
|
|
|
45 |
|
|
|
2 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
Refining |
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates |
|
and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
& Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
January 1 through
April 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
3,220 |
|
|
$ |
4,018 |
|
|
$ |
1,820 |
|
|
$ |
4,293 |
|
|
$ |
104 |
|
|
$ |
12 |
|
|
$ |
13,467 |
|
Intersegment |
|
|
963 |
|
|
|
87 |
|
|
|
- - |
|
|
|
455 |
|
|
|
41 |
|
|
|
(1,546 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,183 |
|
|
|
4,105 |
|
|
|
1,820 |
|
|
|
4,748 |
|
|
|
145 |
|
|
|
(1,534 |
) |
|
|
13,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating
income (loss) |
|
|
320 |
|
|
|
115 |
|
|
|
157 |
|
|
|
(99 |
) |
|
|
39 |
|
|
|
(41 |
) |
|
|
491 |
|
Current cost
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690 |
|
Income (loss) from
equity investments |
|
|
5 |
|
|
|
80 |
|
|
|
(1 |
) |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
84 |
|
56
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19. |
|
Segment and Related Information (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
Refining |
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates |
|
and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
& Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
Three months ended
September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
1,831 |
|
|
$ |
2,524 |
|
|
$ |
1,051 |
|
|
$ |
3,105 |
|
|
$ |
99 |
|
|
$ |
2 |
|
|
$ |
8,612 |
|
Intersegment |
|
|
573 |
|
|
|
127 |
|
|
|
- - |
|
|
|
401 |
|
|
|
36 |
|
|
|
(1,137 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,404 |
|
|
|
2,651 |
|
|
|
1,051 |
|
|
|
3,506 |
|
|
|
135 |
|
|
|
(1,135 |
) |
|
|
8,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating
income (loss) |
|
|
132 |
|
|
|
118 |
|
|
|
72 |
|
|
|
(33 |
) |
|
|
31 |
|
|
|
12 |
|
|
|
332 |
|
Current cost
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
Income (loss) from
equity investments |
|
|
4 |
|
|
|
(169 |
) |
|
|
(3 |
) |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
Refining |
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates |
|
and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
& Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
Nine months ended
September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
4,689 |
|
|
$ |
6,310 |
|
|
$ |
2,622 |
|
|
$ |
8,068 |
|
|
$ |
320 |
|
|
$ |
2 |
|
|
$ |
22,011 |
|
Intersegment |
|
|
1,330 |
|
|
|
230 |
|
|
|
- - |
|
|
|
870 |
|
|
|
81 |
|
|
|
(2,511 |
) |
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,019 |
|
|
|
6,540 |
|
|
|
2,622 |
|
|
|
8,938 |
|
|
|
401 |
|
|
|
(2,509 |
) |
|
|
22,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating
income (loss) |
|
|
100 |
|
|
|
46 |
|
|
|
191 |
|
|
|
(157 |
) |
|
|
148 |
|
|
|
(25 |
) |
|
|
303 |
|
Current cost
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
Income (loss) from
equity investments |
|
|
4 |
|
|
|
(155 |
) |
|
|
(15 |
) |
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
(166 |
) |
Sales and other operating revenues and operating income (loss) in the Other column above include
elimination of intersegment transactions.
57
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19. |
|
Segment and Related
Information (Continued) |
Long-lived assets, including goodwill, are summarized and reconciled to consolidated totals in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and |
|
Europe, |
|
|
|
|
|
|
|
|
|
|
|
|
Polyolefins |
|
Asia & |
|
Intermediates |
|
Refining and |
|
|
|
|
|
|
Millions of dollars |
|
Americas |
|
International |
|
& Derivatives |
|
Oxyfuels |
|
Technology |
|
Other |
|
Total |
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
$ |
1,699 |
|
|
$ |
2,449 |
|
|
$ |
1,805 |
|
|
$ |
859 |
|
|
$ |
330 |
|
|
$ |
74 |
|
|
$ |
7,216 |
|
Investment in
PO Joint Ventures |
|
|
- - |
|
|
|
- - |
|
|
|
447 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
447 |
|
Equity investments |
|
|
156 |
|
|
|
1,314 |
|
|
|
112 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
1,582 |
|
Goodwill |
|
|
557 |
|
|
|
182 |
|
|
|
356 |
|
|
|
- - |
|
|
|
10 |
|
|
|
- - |
|
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
$ |
4,103 |
|
|
$ |
2,901 |
|
|
$ |
2,485 |
|
|
$ |
4,776 |
|
|
$ |
231 |
|
|
$ |
58 |
|
|
$ |
14,554 |
|
Investment in
PO Joint Ventures |
|
|
- - |
|
|
|
- - |
|
|
|
867 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
867 |
|
Equity investments |
|
|
107 |
|
|
|
966 |
|
|
|
100 |
|
|
|
- - |
|
|
|
- - |
|
|
|
- - |
|
|
|
1,173 |
|
We have evaluated subsequent events through the date the financial statements were issued.
58
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis contains forward-looking statements including, without
limitation, statements relating to our plans, strategies, objectives, expectations, and intentions
that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The words forecast, intend, believe, expect, plan, schedule, target,
should, goal, may, anticipate, estimate, and similar expressions identify forward-looking
statements. We do not undertake to update, revise or correct any of the forward-looking
information. Readers are cautioned that such forward-looking statements should be read in
conjunction with the disclosures under the heading: CAUTIONARY STATEMENT FOR THE PURPOSES OF THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 beginning on page
84.
GeneralLyondellBasell N.V. is a global manufacturer of chemicals and plastics, a refiner of crude
oil, including heavy, high-sulfur crude oil, a significant producer of gasoline blending components
and a licensor of technology processes. LyondellBasell N.V. has five reporting segments: Olefins
and PolyolefinsAmericas (O&PAmericas),
Olefins and PolyolefinsEurope, Asia and
International (O&PEAI), Intermediates and Derivatives (I&D), Refining and Oxyfuels, and
Technology.
This discussion should be read in conjunction with the information contained in the Consolidated
Financial Statements of LyondellBasell Industries N.V., together with its consolidated subsidiaries
(collectively, LyondellBasell N.V., the Successor Company or the Successor), and the notes
thereto contained elsewhere in this report as well as the Consolidated Financial Statements of
LyondellBasell Industries AF S.C.A. (LyondellBasell AF, the Predecessor Company or the
Predecessor) for the year ended December 31, 2009 included in Amendment 4 to the Form 10 filed
with the Securities and Exchange Commission on September 28, 2010. When we use the terms we,
us, our or similar words in this discussion, unless the context otherwise requires, we are
referring to LyondellBasell N.V.
In addition to comparisons of current operating results with the same period in the prior year, we
have included, as additional disclosure, certain trailing quarter comparisons of third quarter
2010 operating results to second quarter 2010 operating results. Our businesses are highly
cyclical, in addition to experiencing some less significant seasonal effects. Trailing quarter
comparisons may offer important insight into current business directions.
EMERGENCE FROM CHAPTER 11 PROCEEDINGS
Bankruptcy FilingOn January 6, 2009, certain of LyondellBasell AFs U.S. subsidiaries and one of
its European holding companies, Basell Germany Holdings GmbH (Germany Holdings and collectively,
the Initial Debtors) filed voluntary petitions for relief under chapter 11 of title 11 of the
United States Bankruptcy Code (the U.S. Bankruptcy Code) in the U.S. Bankruptcy Court. In
addition, voluntary petitions for relief under chapter 11 of the U.S. Bankruptcy Code were filed by
LyondellBasell Industries AF S.C.A., the Luxembourg holding company, and its General Partner,
LyondellBasell AF GP S.à.r.l. on April 24, 2009 and by thirteen additional U.S. subsidiaries on May
8, 2009 (collectively with the Initial Debtors, the Debtors). All 94 of these cases (the
Bankruptcy Cases) were jointly administered under the caption In re Lyondell Chemical Company,
et al, and the Debtors operated their businesses and managed their properties as
debtors-in-possession under the jurisdiction of the U.S. Bankruptcy Court and in accordance with
the applicable provisions of the U.S. Bankruptcy Code and orders of the U.S. Bankruptcy Court.
On April 23, 2010, the U.S. Bankruptcy Court confirmed LyondellBasell AFs Third Amended and
Restated Plan of Reorganization and the Debtors emerged from chapter 11 protection on April 30,
2010 (the Emergence Date). As a result of the emergence from chapter 11 proceedings, certain
prepetition liabilities against the Debtors were discharged to the extent set forth in the Plan of
Reorganization and otherwise applicable law and the Debtors made distributions to their creditors
in accordance with the terms of the Plan of Reorganization.
Plan of ReorganizationLyondellBasell N.V. became the successor parent holding company for the
subsidiaries of LyondellBasell AF after completion of the Bankruptcy Cases. LyondellBasell N.V. is
a company with limited
59
liability (Naamloze Vennootschap) incorporated under Dutch law by deed of incorporation dated
October 15, 2009. LyondellBasell AF, which was the predecessor parent holding company, is no
longer part of the consolidated LyondellBasell group subsequent to the Emergence Date.
Under the Plan of Reorganization, the organizational structure of the Company in North America was
simplified by the removal of 90 legal entities. The ultimate ownership of 49 of these entities
(identified as Schedule III Debtors in the Plan of Reorganization) were transferred to a new owner,
the Millennium Custodial Trust, a trust established for the benefit of certain creditors, and these
entities are no longer part of LyondellBasell N.V. In addition, certain real properties owned by
the Debtors, including the Schedule III Debtors, were transferred to the Environmental Custodial
Trust, which now owns and is responsible for these properties. Any associated liabilities of the
entities transferred to and owned by the Millennium Custodial Trust are the responsibility of those
entities and claims regarding those entities will be resolved solely using their assets and the
assets of the trust. In total, $250 million of cash was used to fund the two trusts, including
approximately $80 million for the Millennium Custodial Trust and approximately $170 million for the
Environmental Custodial Trust and to make certain direct payments to the Environmental Protection
Agency and certain state environmental agencies.
Pursuant to the Plan of Reorganization, administrative and priority claims, as well as the new
money debtor-in-possession (DIP) financing were repaid in full. The lenders of the DIP loans
representing a dollar-for-dollar roll-up or conversion of previously outstanding senior secured
loans (DIP Roll-up Notes) received Senior Secured 11% Notes in the same principal amount as the
DIP Roll-up Notes. Holders of senior secured claims received a combination of LyondellBasell N.V.
class A ordinary shares; rights to purchase class B ordinary shares of LyondellBasell N.V.;
LyondellBasell N.V. stock warrants; and cash in exchange for their claims. Pursuant to the Amended
Lender Litigation Settlement approved by the U.S. Bankruptcy Court on March 11, 2010, allowed
general unsecured claims received a combination of cash and class A ordinary shares of LyondellBasell N.V.
See Liquidity and Capital Resources below for a discussion of the emergence financing.
Tax Impact of ReorganizationUnder the Plan of Reorganization, the Companys pre-petition debt
securities, revolving credit facility and other obligations were extinguished. Absent an
exception, a debtor recognizes cancellation of indebtedness income (CODI) upon discharge of its
outstanding indebtedness for an amount of consideration that is less than its adjusted issue price.
The Internal Revenue Code of 1986, as amended (IRC), provides that a debtor in a bankruptcy case
may exclude CODI from income but must reduce certain of its tax attributes by the amount of any
CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI
realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of
(i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair
market value of any other consideration, including equity, issued. As a result of the market value
of our equity upon emergence from chapter 11 bankruptcy proceedings, the estimated amount of CODI
exceeded the estimated amount of its tax attributes by approximately $6,800 million. These
estimates are subject to revision, as the actual reduction in tax attributes does not occur until
the first day of the subsequent tax year, or January 1, 2011.
As a result of tax attribute reduction, we do not expect to retain any U.S. net operating loss
carryforwards, alternative minimum tax credits or capital loss carryforwards. In addition, we
expect that most, if not all, of our tax basis in depreciable assets will be eliminated.
Accordingly, it is expected that our liability for U.S. income taxes in future periods will reflect
these adjustments and our estimated cash tax liabilities for the years following 2010 will be
significantly higher than in 2009 or 2010.
IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation
to utilize its tax attributes, as well as certain built-in-losses, against future U.S. taxable
income in the event of a change in ownership. The Companys emergence from bankruptcy is
considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is
based on the value of the corporation as of the emergence date. We do not expect that the
application of these limitations will have a material affect upon our U.S. federal income tax
liabilities after 2010. Germany has similar provisions that preclude the use of certain tax
attributes generated prior to a change of control. As of the Emergence Date, the Company had tax
benefits associated with excess interest expense carryforwards in the amount of $16 million that
were eliminated as a result of the emergence. The reversal of tax benefits associated with the
loss of these carryforwards is reflected in the Predecessor period.
60
Our current and future provisions for income taxes are significantly impacted by the initial
recognition of, and changes in, valuation allowances in certain countries and are dependent upon
future earnings and earnings sustainability in those jurisdictions. Consequently, our effective
tax rate of 25.7% in the Successor period may not be indicative of future effective tax rates.
Financial InformationFollowing the completion of the Bankruptcy Cases, LyondellBasell AFs equity
interests in its indirect subsidiaries terminated and LyondellBasell N.V., the successor holding
company, now owns and operates, directly and indirectly, substantially the same business owned and
operated by LyondellBasell AF prior to emergence from bankruptcy. For accounting purposes, the
operations of LyondellBasell AF, the Predecessor Company, are deemed to have ceased on April 30,
2010 and LyondellBasell N.V., the Successor Company, is deemed to have begun operations on that
date. Effective May 1, 2010, we adopted fresh-start accounting. References in the following
discussions to the Company for periods prior to April 30, 2010, the Emergence Date, are to the
Predecessor Company and, for periods after the Emergence Date, to the Successor Company.
The accompanying consolidated financial statements present separately the period prior to April 30,
2010 and the period after the Debtors emergence from bankruptcy to recognize the application of
fresh-start accounting. Management believes that combining the Successor and Predecessor periods
for the second quarter and first nine months of 2010, which is a non-GAAP presentation, provides a
more meaningful comparison of the 2010 and 2009 results of operations and cash flows when
considered with the effects of fresh-start accounting described below. The effects of fresh-start
accounting are specifically addressed throughout the discussion of our operating results.
References in the following discussion to the second quarter and first nine months of 2010 are to
the combined Successor and Predecessor periods unless otherwise described as Successor or
Predecessor.
The primary impacts of our reorganization pursuant to the Plan of Reorganization and the adoption
of fresh-start accounting on the Companys results of operations are as follows:
InventoryWe adopted the last-in, first-out (LIFO) method of accounting for inventory upon
implementation of fresh-start accounting. Prior to the emergence from bankruptcy, LyondellBasell
AF used both the first-in, first-out (FIFO) and LIFO methods of accounting to determine inventory
cost. The LIFO method was used for certain U.S. inventories to maintain consistency with
LyondellBasell AFs U.S. federal income tax treatment of those inventories. Operating results on
these bases are discussed in Results of Operations, which is supplemented by a discussion of
segment operating results under Segment Analysis. For purposes of evaluating segment results,
management reviewed operating results for LyondellBasell AF determined using current cost, which
approximates results using the LIFO method of accounting for inventory. Subsequent to the
Emergence Date, our operating results are reviewed using the LIFO method of accounting for
inventory. While determining the impact of the adoption of LIFO on predecessor periods is not
practicable, we believe that the current cost method used by the Predecessor for segment reporting
is similar to LIFO and the current cost method would have resulted in a decrease of cost of sales
of $64 million for the nine months ended September 30, 2009.
In addition, on April 30, 2010, pursuant to ASC Topic 852, Reorganizations, we recorded inventory,
which is primarily crude-oil derived, at fair value. The increase in inventory of $1,297 million
was primarily in the U.S. and was largely driven by the price of crude oil. The per barrel
benchmark price of WTI crude oil at April 30, 2010 had increased to $86.15. By June 30, 2010, the
per barrel benchmark price of WTI crude oil had declined to $75.63, contributing to a $333 million
lower of cost or market adjustment primarily to our raw materials and finished goods inventory and
associated increase in cost of sales for the period from May 1 through June 30, 2010. In the third
quarter 2010, as a result of lower market prices for certain of our finished goods inventory we also
recorded a non-cash charge of $32 million to adjust the value to the lower of cost or market.
61
Depreciation and amortization expenseDepreciation and amortization expense is lower in the
Successor period as a result of our revaluation of assets for fresh-start accounting. For
additional information on the revaluation of assets, see Note 4 to the Consolidated Financial
Statements. Depreciation and amortization as reported for all periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
163 |
|
|
|
$ |
339 |
|
|
$ |
255 |
|
|
|
$ |
464 |
|
|
$ |
1,060 |
|
Amortization |
|
|
47 |
|
|
|
|
97 |
|
|
|
80 |
|
|
|
|
75 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
4 |
|
|
|
|
4 |
|
|
|
7 |
|
|
|
|
8 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
8 |
|
|
|
|
3 |
|
|
|
9 |
|
|
|
|
18 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
222 |
|
|
|
$ |
443 |
|
|
$ |
351 |
|
|
|
$ |
565 |
|
|
$ |
1,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenseLower interest expense in the Successor period was largely driven by the
discharge of debt, upon which interest was accruing during the bankruptcy, through the Companys
reorganization on April 30, 2010 pursuant to the Plan of Reorganization, partially offset by
interest expense on the new debt incurred as part of the emergence from bankruptcy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Interest expense |
|
$ |
(182 |
) |
|
|
$ |
(445 |
) |
|
$ |
(314 |
) |
|
|
$ |
(713 |
) |
|
$ |
(1,379 |
) |
62
Our results of operations for the three months ended September 30, 2010 and 2009 discussed in these
Results of Operations are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
|
Three months |
|
|
ended |
|
|
ended |
|
|
September 30, |
|
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2009 |
Sales and other operating revenues |
|
$ |
10,302 |
|
|
|
$ |
8,612 |
|
Cost of sales |
|
|
9,075 |
|
|
|
|
7,956 |
|
Selling, general and administrative expenses |
|
|
204 |
|
|
|
|
199 |
|
Research and development expenses |
|
|
35 |
|
|
|
|
38 |
|
|
|
|
|
|
|
Operating income |
|
|
988 |
|
|
|
|
419 |
|
Interest expense |
|
|
(182 |
) |
|
|
|
(445 |
) |
Interest income |
|
|
(4 |
) |
|
|
|
4 |
|
Other income (expense), net |
|
|
(97 |
) |
|
|
|
135 |
|
Income (loss) from equity investments |
|
|
29 |
|
|
|
|
(168 |
) |
Reorganization items |
|
|
(13 |
) |
|
|
|
(928 |
) |
Provision for (benefit from) income taxes |
|
|
254 |
|
|
|
|
(332 |
) |
|
|
|
|
|
|
Net income (loss) |
|
$ |
467 |
|
|
|
$ |
(651 |
) |
|
|
|
|
|
|
Our results of operations for the nine months ended September 30, 2010 and 2009 discussed in these
Results of Operations are presented in the table below. References to the nine months ended
September 30, 2010 in the discussion are to the combined Successor and Predecessor periods unless
otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
May 1 |
|
|
January 1 |
|
Nine months |
|
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2010 |
|
2009 |
Sales and other operating revenues |
|
$ |
17,074 |
|
|
|
$ |
13,467 |
|
|
$ |
22,011 |
|
Cost of sales |
|
|
15,273 |
|
|
|
|
12,414 |
|
|
|
20,906 |
|
Selling, general and administrative
expenses |
|
|
333 |
|
|
|
|
308 |
|
|
|
633 |
|
Research and development expenses |
|
|
58 |
|
|
|
|
55 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
1,410 |
|
|
|
|
690 |
|
|
|
367 |
|
Interest expense |
|
|
(314 |
) |
|
|
|
(713 |
) |
|
|
(1,379 |
) |
Interest income |
|
|
8 |
|
|
|
|
5 |
|
|
|
15 |
|
Other income (expense), net |
|
|
(43 |
) |
|
|
|
(265 |
) |
|
|
291 |
|
Income (loss) from equity investments |
|
|
56 |
|
|
|
|
84 |
|
|
|
(166 |
) |
Reorganization items |
|
|
(21 |
) |
|
|
|
8,010 |
|
|
|
(2,000 |
) |
Provision for (benefit from) income
taxes |
|
|
282 |
|
|
|
|
(693 |
) |
|
|
(851 |
) |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
814 |
|
|
|
$ |
8,504 |
|
|
$ |
(2,021 |
) |
|
|
|
|
|
|
|
|
Segment operating results are reviewed in the Segment Analysis below for the Successor period
using the LIFO method of accounting for inventory and for the Predecessor periods on a current cost
basis.
63
OVERVIEW OF RESULTS OF OPERATIONS
Global market conditions in the third quarter and first nine months of 2010 continued to improve
from the weak conditions experienced in 2009. Industry operating rates and average sales prices
generally improved for the third quarter and first nine months of 2010, as compared to the same
2009 periods.
The pace of improvement the global economy experienced in the first and second quarters of 2010
slowed somewhat in the third quarter 2010. However, demand in the durable goods sector, including
the automotive markets, continued to be higher over the comparable periods in 2009. As a result,
demand and operating rates in the third quarter and first nine months of 2010 were higher, compared
to the same periods in 2009, which were characterized by weaker demand and generally lower
operating rates. In addition, certain of our business segments benefited from planned and
unplanned competitor operating disruptions, particularly during the second quarter 2010.
Excluding the impacts of fresh-start accounting discussed above in Emergence from Chapter 11
Proceedings, operating results in the third quarter and first nine months of 2010 generally
reflected higher product margins and higher sales volumes, compared to the third quarter and first
nine months of 2009. Reliable operations and the effect of industry supply disruptions resulted in
significantly higher margins and higher sales volumes in the O&P-Americas business segment. Higher
operating results in the O&PEAI and the I&D business segments were primarily a reflection of
increased sales volumes and higher product margins due to improvement in the durable goods markets,
especially the automotive market. The Refining and Oxyfuels business segment results were higher
in the third quarter and first nine months of 2010 primarily due to higher refining margins, while
lower licensing revenue in the Technology business translated into lower results for the first nine
months of 2010.
References to industry benchmark prices or costs, including the weighted average cost of ethylene
production, are generally to industry prices and costs reported by Chemical Marketing Associates,
Incorporated (CMAI), except that references to industry benchmarks for refining and oxyfuels
market margins are to industry prices reported by Platts, a reporting service of The McGraw-Hill
Companies and crude oil and natural gas benchmark price references are to Bloomberg.
RESULTS OF OPERATIONS
RevenuesRevenues were $10,302 million in the third quarter 2010 compared to revenues of $8,612
million in the third quarter 2009 and $30,541 million in the first nine months of 2010 compared to
$22,011 in the first nine months of 2009. The $1,690 million and $8,530 million increases in the
third quarter and first nine months of 2010 compared to the third quarter and first nine months of
2009 were primarily due to higher demand and reflected the effect of higher average product sales
prices and higher sales volumes in all but the Refining and Oxyfuels segment.
Cost of SalesCost of sales were $9,075 million in the third quarter 2010 compared to $7,956
million in the third quarter 2009 and $27,687 million in the first nine months of 2010 compared to
$20,906 million in the first nine months of 2009.
The third quarter 2010 includes a $32 million non-cash charge to adjust the value of finished goods
inventory to market value as September 30, 2010. The Successor period for the five-months ended
September 30, 2010 also includes a non-cash charge of $333 million to adjust the value of
inventory, primarily raw materials and finished goods, at June 30, 2010 to market value, which was
lower than the April 30, 2010 value applied during fresh-start accounting as discussed above.
Lower depreciation and amortization expense of $226 million and $443 million, respectively, in the
third quarter and first nine months of 2010, compared to the third quarter and first nine months of
2009, was primarily the result of the $7,474 million write-down of Property, plant and equipment
associated with the revaluation of our assets in fresh-start accounting.
The third quarter and first nine months of 2010 include a $64 million charge
as a change in estimate related to a dispute that arose during the
third quarter 2010 over environmental liability. The 2010 Predecessor period included a charge of $23 million for
plant closure and other costs related to a polypropylene plant in Terni, Italy (see Note 7 to the
Consolidated Financial Statements). Remaining increases in cost of sales for the third quarter and
first nine months of 2010 were primarily due to increased sales volumes combined with higher raw
material and utility costs. The higher raw material costs reflect the effects of higher
64
crude oil in both 2010 periods and higher natural gas liquids-based raw material prices in the
first nine months of 2010.
R&D ExpenseResearch and development expenses were $35 million in the third quarter 2010 compared
to $38 million in the third quarter 2009 and $113 million in the first nine months of 2010 compared
to $105 million in the first nine months of 2009. The 2009 periods include the effect of a $12
million government subsidy.
Operating IncomeOperating income was $988 million in the third quarter 2010 compared to $419
million in the third quarter 2009 and $2,100 million in the first nine months of 2010 compared to
$367 million in the first nine months of 2009. The increases of $569 million and $1,733 million in
the third quarter and first nine months of 2010, respectively, reflect higher product margins and
greater demand due to improved global market conditions in the third quarter and first nine months
of 2010 compared to the same 2009 periods when demand, particularly in the early part of the year,
was very weak. Results for the third quarter and first nine months of 2010 also benefited from
lower depreciation and amortization expense recognized during the Successor periods as a result of
the write-down of assets in fresh-start accounting. The increases in results in the third quarter
and first nine months of 2010 were partially offset by the charges to adjust inventory in the
Successor periods of $32 million and $333 million, respectively, described above in cost of sales
and the $64 million charge associated with a change in estimate related to a dispute over
environmental indemnity that arose during the third quarter 2010; and in the first
nine months of 2010, by the negative effect of lost production and higher costs stemming from the
unplanned outage related to the crude unit fire at the Houston refinery during the Successor period
in the second quarter of 2010. In the first nine months of 2010, the Predecessor included a charge
of $23 million for the Terni, Italy plant discussed in cost of sales. Operating results for each
of the business segments are reviewed further in the Segment Analysis section below.
Interest ExpenseInterest expense was $182 million in the third quarter 2010 compared to $445
million in the third quarter 2009 and $1,027 million compared to $1,379 million in the first nine
months of 2010 and 2009, respectively. The lower interest expense reflected in the 2010 periods is
primarily due to the discharge of debt in accordance with the Plan of Reorganization upon the
Companys emergence from bankruptcy, upon which interest was accruing during the bankruptcy,
partially offset by interest expense on the debt incurred as part of the Companys emergence from
bankruptcy. This net decrease was partially offset by higher interest expense in the Predecessor
period included in the first nine months of 2010, primarily related to the DIP financing and a
charge of $153 million related to a terminated interest rate swap. Contractual interest expense
for the Predecessor periods included in the first nine months of 2010 was $914 million compared to
$695 million and $1,998 million for the third quarter and first nine months of 2009, respectively.
Other Income (Expense), netOther expense, net of $97 million in the third quarter 2010 compared
to other income of $135 million in the third quarter 2009. Other expense, net of $308 million in
the first nine months of 2010 compared to other income of $291 million in the first nine months of
2009. Other expense, net, in the third quarter and first nine months of 2010 included foreign
exchange losses of $20 million and $238 million, respectively, and the negative effect of the fair
value adjustment of the warrants to purchase our class A ordinary shares of $76 million and $59
million, respectively. In the third quarter and first nine months of 2009, other income, net,
included foreign exchange gains of $90 million and $179 million, respectively. Other income, net,
in the first nine months of 2009 also included involuntary conversion gains of $120 million. The
conversion gains represented partial settlement of outstanding insurance claims related to damages
sustained in 2005 at the polymers plant in Münchsmünster, Germany.
65
Reorganization
ItemsWe had reorganization items expense of $13 million in the third quarter 2010
and income from reorganization items of $7,989 million in the first nine months of 2010, and
reorganization items expense of $928 million and $2,000 million, respectively, in the third quarter
and first nine months of 2009. The third quarter 2010 expense is related to professional fees.
Income from reorganization items in the first nine months of 2010 included gains totaling $13,617
million related to settlement of liabilities subject to compromise, deconsolidation of entities
upon emergence, adjustments related to rejected contracts, and a reduction of environmental
remediation liabilities. These gains were partially offset by a charge of $5,656 million related
to the changes in net assets resulting from the application of fresh-start accounting and by
several one-time emergence costs, including the success and other fees earned by certain
professionals upon the Companys emergence from bankruptcy, damages related to the rejection of
executory contracts and plant closure costs. Reorganization items expense in the third quarter and
first nine months of 2009 included charges for asset write-offs associated with a lease rejection;
contract termination charges and costs related primarily to the shutdown of the Companys olefins
plant at Chocolate Bayou, Texas; and the long-term idling of the ethylene glycol facility in
Beaumont, Texas. Also included were severance charges, professional fees, and a charge for the
write off of deferred debt issuance costs related to the Senior Notes due 2015.
Income TaxWe recorded a tax provision of $282 million, representing an effective tax rate of
25.7% on pre-tax income of $1,096 million in the five-month Successor period. In the four months
ended April 30, 2010, the Predecessor recorded a tax benefit of $693 million, representing an
effective tax rate of (8.9)% on pre-tax income of $7,811 million. In the first nine months of 2009
the Company recorded a tax benefit of $851 million, representing an effective tax rate of 29.6% on
a pre-tax loss of $2,872 million. The provision for the Successor period differs from the U.S.
statutory rate of 35% primarily due to income, or loss, sourced from countries with other than 35%
statutory rates and the reduction of valuation allowances against certain of our deferred tax
assets related to non-U.S. operating loss carryforwards that were realized during the period. The
tax provision for the Predecessor period included in the first four months of 2010 differs from the
U.S. statutory rate primarily because a significant portion of the pre-tax gain from the discharge
of pre-petition liabilities will not result in future tax liabilities, which was somewhat offset by
restructuring charges for which no tax benefit was provided. The tax benefit recorded for the
first nine months of 2009 was lower than the statutory rate primarily due to restructuring costs
for which no tax benefit was provided, non-deductible impairment charges related to equity
investments and income, or loss, sourced from countries with other than 35% statutory rates. The
reduced tax benefit was partly offset by the reduction of valuation allowances recorded in prior
periods against non-U.S. net operating loss carryforwards, changes in estimates for prior year
items, and the recognition of uncertain tax positions.
Net
Income (Loss)Net income, which includes the impact of reorganization and adoption of
fresh-start accounting discussed above in Emergence from Chapter 11 Proceedings, was $467 million
in the third quarter 2010, while the Predecessor had a loss of $651 million in the third quarter
2009. The following table summarizes the major components contributing to net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
Three months |
|
|
Three months |
|
|
ended |
|
|
ended |
|
|
September 30, |
|
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2009 |
Operating income |
|
$ |
988 |
|
|
|
$ |
419 |
|
Interest expense, net |
|
|
(186 |
) |
|
|
|
(441 |
) |
Other income (expense), net |
|
|
(97 |
) |
|
|
|
135 |
|
Income (loss) from equity investments |
|
|
29 |
|
|
|
|
(168 |
) |
Reorganization items |
|
|
(13 |
) |
|
|
|
(928 |
) |
Provision for (benefit from) income taxes |
|
|
254 |
|
|
|
|
(332 |
) |
|
|
|
|
|
|
Net income (loss) |
|
$ |
467 |
|
|
|
$ |
(651 |
) |
|
|
|
|
|
|
66
Combined net income, which includes the impact of reorganization and adoption of fresh-start
accounting discussed above in Emergence from Chapter 11 Proceedings, was $9,318 million in the
first nine months of 2010, while the Predecessor had a net loss of $2,021 million in the first nine
months of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
May 1 |
|
|
January 1 |
|
Nine months |
|
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars
|
|
2010 |
|
|
2010 |
|
2009 |
Operating income (loss) |
|
$ |
1,410 |
|
|
|
$ |
690 |
|
|
$ |
367 |
|
Interest expense, net |
|
|
(306 |
) |
|
|
|
(708 |
) |
|
|
(1,364 |
) |
Other income (expense), net |
|
|
(43 |
) |
|
|
|
(265 |
) |
|
|
291 |
|
Income (loss) from equity investments |
|
|
56 |
|
|
|
|
84 |
|
|
|
(166 |
) |
Reorganization items |
|
|
(21 |
) |
|
|
|
8,010 |
|
|
|
(2,000 |
) |
Provision for (benefit from) income taxes |
|
|
282 |
|
|
|
|
(693 |
) |
|
|
(851 |
) |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
814 |
|
|
|
$ |
8,504 |
|
|
$ |
(2,021 |
) |
|
|
|
|
|
|
|
|
Segment Analysis
Our
operations are primarily in five reportable segments:
O&PAmericas; O&PEAI; I&D; Refining
and Oxyfuels; and Technology. These operations comprise substantially the same businesses owned
and operated by LyondellBasell AF prior to the Companys emergence from bankruptcy. However, for
accounting purposes, the operations of LyondellBasell AF are deemed to have ceased on April 30,
2010 and LyondellBasell N.V. is deemed to have begun operations on that date. The results of
operations for the Successor are not comparable to the Predecessor due to adjustments made under
fresh-start accounting as described in Emergence from Chapter 11 Proceedings. The impact of
these items is addressed in the discussion of each segments results below.
67
The following tables reflect selected financial information for our reportable segments. Operating
income (loss) for segment reporting is on a LIFO basis for the Successor and on a current cost
basis for the Predecessor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other
operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&PAmericas segment |
|
$ |
3,247 |
|
|
|
$ |
2,404 |
|
|
$ |
5,251 |
|
|
|
$ |
4,183 |
|
|
$ |
6,019 |
|
O&PEAI segment |
|
|
3,247 |
|
|
|
|
2,651 |
|
|
|
5,387 |
|
|
|
|
4,105 |
|
|
|
6,540 |
|
I&D segment |
|
|
1,453 |
|
|
|
|
1,051 |
|
|
|
2,393 |
|
|
|
|
1,820 |
|
|
|
2,622 |
|
Refining and Oxyfuels segment |
|
|
3,867 |
|
|
|
|
3,506 |
|
|
|
6,270 |
|
|
|
|
4,748 |
|
|
|
8,938 |
|
Technology segment |
|
|
157 |
|
|
|
|
135 |
|
|
|
232 |
|
|
|
|
145 |
|
|
|
401 |
|
Other, including
intersegment eliminations |
|
|
(1,669 |
) |
|
|
|
(1,135 |
) |
|
|
(2,459 |
) |
|
|
|
(1,534 |
) |
|
|
(2,509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,302 |
|
|
|
$ |
8,612 |
|
|
$ |
17,074 |
|
|
|
$ |
13,467 |
|
|
$ |
22,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&PAmericas segment |
|
$ |
448 |
|
|
|
$ |
132 |
|
|
$ |
597 |
|
|
|
$ |
320 |
|
|
$ |
100 |
|
O&PEAI segment |
|
|
231 |
|
|
|
|
118 |
|
|
|
345 |
|
|
|
|
115 |
|
|
|
46 |
|
I&D segment |
|
|
207 |
|
|
|
|
72 |
|
|
|
316 |
|
|
|
|
157 |
|
|
|
191 |
|
Refining and Oxyfuels segment |
|
|
83 |
|
|
|
|
(33 |
) |
|
|
97 |
|
|
|
|
(99 |
) |
|
|
(157 |
) |
Technology segment |
|
|
38 |
|
|
|
|
31 |
|
|
|
61 |
|
|
|
|
39 |
|
|
|
148 |
|
Other, including intersegment
eliminations |
|
|
(19 |
) |
|
|
|
12 |
|
|
|
(6 |
) |
|
|
|
(41 |
) |
|
|
(25 |
) |
Current cost adjustment |
|
|
- - |
|
|
|
|
87 |
|
|
|
- - |
|
|
|
|
199 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
988 |
|
|
|
$ |
419 |
|
|
$ |
1,410 |
|
|
|
$ |
690 |
|
|
$ |
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from equity
investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&PAmericas segment |
|
$ |
6 |
|
|
|
$ |
4 |
|
|
$ |
9 |
|
|
|
$ |
5 |
|
|
$ |
4 |
|
O&PEAI segment |
|
|
20 |
|
|
|
|
(169 |
) |
|
|
45 |
|
|
|
|
80 |
|
|
|
(155 |
) |
I&D segment |
|
|
3 |
|
|
|
|
(3 |
) |
|
|
2 |
|
|
|
|
(1 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29 |
|
|
|
$ |
(168 |
) |
|
$ |
56 |
|
|
|
$ |
84 |
|
|
$ |
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Olefins and PolyolefinsAmericas Segment
OverviewIn our O&PAmericas segment, we manufacture and market olefins, including ethylene and
its co-products, primarily propylene, butadiene and aromatics, which include benzene and toluene,
as well as ethanol; and polyolefins, which include polyethylene, comprising high density
polyethylene (HDPE), low density polyethylene (LDPE) and linear low density polyethylene
(LLDPE), and polypropylene (PP) and Catalloy process resins. The manufacturing and marketing
is generally in the Americas, which includes the U.S., Canada, Mexico and South America.
Market demand in the U.S. for ethylene was higher during the third quarter and first nine months of
2010 resulting in higher industry operating rates compared to rates experienced during the third
quarter and first nine months of 2009. Ethylene margins were higher as benchmark sales prices
increased significantly more than the benchmark weighted average cost of ethylene production.
These margins were strengthened further by higher prices for co-products propylene and butadiene.
Ethylene prices and margins peaked in March 2010 but remained at high levels compared to the first
nine months of 2009. Demand for polyolefins in the third quarter and first nine months of
68
2010 was comparable to the third quarter and first nine months of 2009 as export declines were
offset by improved domestic demand.
The
O&PAmericas segment operating results in the third quarter and first nine months of 2010
primarily reflected strong demand and higher margins for ethylene due to improved economic
conditions in 2010 and unplanned operating issues at competitor facilities in the first half of the
year. Polypropylene results were higher in the third quarter and first nine months of 2010
compared to the same period in 2009. Polyethylene results were higher in the third quarter 2010
and lower in the first nine months of 2010 compared to the same 2009 periods. Operating results for
the Successor period included in the third quarter and first nine months of 2010 reflected the
impacts of the Companys reorganization and fresh-start accounting, including a non-cash charge to
adjust inventory to market value and the benefit of lower depreciation and amortization expense
related to the write-down of segment assets (see Results of
OperationsCost of Sales). The net
effect of these items contributed to the improved results of operations in the third quarter and
first nine months of 2010 compared to the same 2009 periods.
Ethylene
Raw MaterialsBenchmark crude oil and natural gas prices generally have been indicators of
the level and direction of movement of raw material and energy costs for ethylene and its
co-products in the O&PAmericas segment. Ethylene and its co-products are produced from two major
raw material groups:
|
|
|
crude oil-based liquids (liquids or heavy liquids), including naphtha, condensates,
and gas oils, the prices of which are generally related to crude oil prices; and |
|
|
|
|
natural gas liquids (NGLs), principally ethane and propane, the prices of which are
generally affected by natural gas prices. |
Although the prices of these raw materials are generally related to crude oil and natural gas
prices, during specific periods the relationships among these materials and benchmarks may vary
significantly.
In the U.S., LyondellBasell N.V. has the ability to shift its ratio of raw materials used in the
production of ethylene and its co-products to take advantage of the relative costs of heavy liquids
and NGLs. During the third quarter and first nine months of 2010, production economics for the
industry continued to favor NGLs. During the third quarter 2010, approximately 70% of the
Companys U.S. ethylene production was from NGLs, predominantly ethane.
The following table shows the average U.S. benchmark prices for crude oil and natural gas for the
applicable three- and nine-month periods, as well as benchmark U.S. sales prices for ethylene and
propylene, which LyondellBasell N.V. produces and sells or consumes internally. The benchmark
weighted average cost of ethylene production, which is reduced by co-product revenues, is based on
CMAIs estimated ratio of heavy liquid raw materials and NGLs used in U.S. ethylene production and
is subject to revision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and |
|
|
Percent Change Versus Prior Year Period Average |
|
|
For the three months |
|
|
|
|
|
For the nine months |
|
|
|
|
ended |
|
|
|
|
|
ended |
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
|
|
|
2010 |
|
2009 |
|
Change |
|
2010 |
|
2009 |
|
Change |
Crude oil dollars per barrel |
|
|
76.09 |
|
|
|
68.24 |
|
|
|
12 |
% |
|
|
77.65 |
|
|
|
57.32 |
|
|
|
35 |
% |
Natural gas dollars per million BTUs |
|
|
4.35 |
|
|
|
3.32 |
|
|
|
31 |
% |
|
|
4.58 |
|
|
|
3.66 |
|
|
|
25 |
% |
Weighted average cost of
ethylene production cents per pound |
|
|
25.36 |
|
|
|
23.79 |
|
|
|
7 |
% |
|
|
28.81 |
|
|
|
24.08 |
|
|
|
20 |
% |
United States cents per pound: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyethylene (high density) |
|
|
77.67 |
|
|
|
69.33 |
|
|
|
12 |
% |
|
|
81.67 |
|
|
|
64.67 |
|
|
|
26 |
% |
Ethylene |
|
|
38.33 |
|
|
|
32.25 |
|
|
|
19 |
% |
|
|
45.42 |
|
|
|
31.75 |
|
|
|
43 |
% |
Polypropylene |
|
|
82.67 |
|
|
|
72.67 |
|
|
|
14 |
% |
|
|
86.78 |
|
|
|
60.89 |
|
|
|
43 |
% |
Propylene polymer grade |
|
|
56.17 |
|
|
|
46.17 |
|
|
|
22 |
% |
|
|
60.33 |
|
|
|
34.33 |
|
|
|
76 |
% |
69
The
following table sets forth the O&PAmericas segments sales and other operating revenues,
operating income and selected product sales volumes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other
operating revenues |
|
$ |
3,247 |
|
|
|
$ |
2,404 |
|
|
$ |
5,251 |
|
|
|
$ |
4,183 |
|
|
$ |
6,019 |
|
Operating income |
|
|
448 |
|
|
|
|
132 |
|
|
|
597 |
|
|
|
|
320 |
|
|
|
100 |
|
Income from
equity investments |
|
|
6 |
|
|
|
|
4 |
|
|
|
9 |
|
|
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Volumes, in
millions of pounds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene |
|
|
2,184 |
|
|
|
|
2,037 |
|
|
|
3,433 |
|
|
|
|
2,768 |
|
|
|
6,119 |
|
Propylene |
|
|
790 |
|
|
|
|
799 |
|
|
|
1,303 |
|
|
|
|
1,019 |
|
|
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, in
millions of pounds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polypropylene |
|
|
672 |
|
|
|
|
606 |
|
|
|
1,121 |
|
|
|
|
836 |
|
|
|
1,803 |
|
Polyethylene |
|
|
1,517 |
|
|
|
|
1,505 |
|
|
|
2,367 |
|
|
|
|
1,754 |
|
|
|
4,083 |
|
RevenuesRevenues for the third quarter 2010 increased by $843 million, or 35%, compared to
revenues in the third quarter 2009. For the first nine months of 2010, revenues increased by
$3,415 million, or 57%, compared to revenues in the first nine months of 2009. The increases in
the third quarter and first nine months of 2010 compared to the same periods in 2009 were primarily
due to the effect of significantly higher average sales prices for most products and for the first
nine months of 2010, higher sales volumes for ethylene and polypropylene. The increases in average
sales prices and sales volumes in the 2010 periods were driven by increased demand due to general
economic recovery and a decrease in supply resulting from operating issues at competitor plants.
Operating IncomeOperating income in the third quarter 2010 increased by $316 million compared to
the third quarter 2009 and increased by $817 million in the first nine months of 2010 compared to
the first nine months of 2009. Operating results for the third quarter and first nine months of
2010 were negatively impacted by non-cash charges of $26 million and $197 million, respectively, to
adjust inventory to market values. Lower depreciation and amortization expense of $93 million and
$141 million, respectively, in the third quarter and first nine months of 2010 compared to the
third quarter and first nine months of 2009 was primarily the result of our write-down of Property,
plant and equipment associated with the revaluation of our assets in fresh-start accounting.
The remaining increases in the third quarter and first nine months of 2010, compared to the third
quarter and first nine months of 2009, were primarily due to higher product margins, particularly
for ethylene. Ethylene margins in both 2010 periods improved significantly compared to 2009 as
higher average sales prices more than offset higher raw material costs. Margins on polyethylene
products also increased in the third quarter 2010 compared to third quarter 2009 as higher margin
domestic sales displaced lower margin export sales. Lower polyethylene margins in the first nine
months of 2010, reflected the negative impact of higher ethylene prices and increased utility
costs, compared to the same period in 2009. Operating income for polypropylene, including
Catalloy, also improved in the third quarter and first nine months of 2010 compared to the same
periods in 2009 primarily due to higher product margins.
70
Third Quarter 2010 versus Second Quarter 2010
Operating income was $448 million in the third quarter 2010 compared to operating income of $324
million in the second quarter 2010. Operating results included non-cash charges of $26 million in
the third quarter 2010 and $171 million in the second quarter 2010 to adjust inventory that had
declined in value after the Emergence Date. The adjustments to inventory are primarily the result
of fresh-start accounting adjustments to inventory following our emergence from bankruptcy.
Excluding the non-cash lower of cost or market adjustments to inventory, the decrease in operating
income of the segments underlying operations is primarily due to lower ethylene margins, partially
offset by higher polyethylene margins and higher sales volumes. The lower ethylene product margins
reflect a decrease in the average sales price that more than offset the decrease in raw material
costs. The higher polyethylene margins are primarily due to higher domestic demand, which resulted
in the displacement of lower margin export business with higher margin domestic sales. Ethylene
and polyethylene sales volumes increased in the third quarter 2010 due in part to a scheduled
maintenance turnaround at our Morris, Illinois facility that was completed during the second
quarter 2010.
Olefins
and PolyolefinsEurope, Asia and International Segment
OverviewIn
our O&PEAI segment, we manufacture and market olefins, including ethylene and
propylene, primarily for internal consumption, and butadiene; and polyolefins, which include
polyethylene, comprising high density polyethylene (HDPE), low density polyethylene (LDPE) and
polypropylene, as well as polypropylene-based compounds, materials and alloys (PP Compounds),
Catalloy process resins and polybutene-1 (PB-1) polymers. The manufacturing and marketing is
generally in Europe, Asia and other regions outside of the Americas with the exception of PP
Compounds and PB-1, which are manufactured and marketed globally by
the O&PEAI segment.
Ethylene market demand in Europe was generally higher in the third quarter and first nine months of
2010 compared to the same periods in 2009 as planned and unplanned competitor outages resulted in
tight supply and higher operating rates in the second and third quarters of 2010. Global
polyolefin markets also improved in the first nine months of 2010 compared to the 2009 period. The
improvement in polypropylene and LDPE reflected tight supply conditions amid planned and unplanned
outages throughout the 2010 periods.
The O&P-EAI segment operating results for the third quarter and first nine months of 2010 reflected
higher product margins for olefins and polyolefins. Higher sales volumes for PP Compounds and
polypropylene in both 2010 periods, compared to the same periods in 2009, reflect higher demand,
primarily from the automotive industry. Operating results for the Successor period included in the
third quarter and first nine months of 2010 also reflected the impacts of fresh-start accounting,
including the benefit of lower depreciation and amortization expense related to the write-down of
segment assets and a non-cash charge to adjust inventory to market value (see Results of
OperationsCost of Sales).
Ethylene
Raw MaterialsIn Europe, heavy liquids are the primary raw materials for LyondellBasell
N.V.s ethylene production.
71
The following table shows the average West Europe benchmark prices for Brent crude oil, a heavy
liquid raw material, for the applicable periods, as well as benchmark West Europe prices for
ethylene and propylene, which LyondellBasell N.V. produces and consumes internally or purchases
from unrelated suppliers, and certain polyethylene and polypropylene products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Benchmark Price and Percent Change Versus |
|
|
Prior Year Period Average |
|
|
For the three months ended |
|
|
|
|
|
For the nine months ended |
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
|
|
|
2010 |
|
2009 |
|
Change |
|
2010 |
|
2009 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent crude oil dollars per barrel |
|
|
77.80 |
|
|
|
72.53 |
|
|
|
7 |
% |
|
|
78.33 |
|
|
|
65.22 |
|
|
|
20 |
% |
Weighted average cost of ethylene
production 0.01 per pound |
|
|
26.52 |
|
|
|
22.82 |
|
|
|
16 |
% |
|
|
27.49 |
|
|
|
22.72 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe 0.01 per pound |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyethylene (high density) |
|
|
52.39 |
|
|
|
47.18 |
|
|
|
11 |
% |
|
|
52.54 |
|
|
|
41.53 |
|
|
|
27 |
% |
Ethylene |
|
|
43.06 |
|
|
|
37.12 |
|
|
|
16 |
% |
|
|
42.78 |
|
|
|
31.78 |
|
|
|
35 |
% |
Polypropylene (homopolymer) |
|
|
60.33 |
|
|
|
44.30 |
|
|
|
36 |
% |
|
|
57.33 |
|
|
|
38.15 |
|
|
|
50 |
% |
Propylene |
|
|
43.06 |
|
|
|
31.95 |
|
|
|
35 |
% |
|
|
42.35 |
|
|
|
25.59 |
|
|
|
66 |
% |
Average Exchange Rate $US per |
|
|
1.2893 |
|
|
|
1.4310 |
|
|
|
(10 |
)% |
|
|
1.3164 |
|
|
|
1.3656 |
|
|
|
(4 |
)% |
The
following table sets forth the O&PEAI segments sales and other operating revenues, operating
income, income from equity investments and selected product sales volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other
operating revenues |
|
$ |
3,247 |
|
|
|
$ |
2,651 |
|
|
$ |
5,387 |
|
|
|
$ |
4,105 |
|
|
$ |
6,540 |
|
Operating income |
|
|
231 |
|
|
|
|
118 |
|
|
|
345 |
|
|
|
|
115 |
|
|
|
46 |
|
Income (loss) from equity investments |
|
|
20 |
|
|
|
|
(169 |
) |
|
|
45 |
|
|
|
|
80 |
|
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Volumes,
in millions of pounds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethylene |
|
|
994 |
|
|
|
|
924 |
|
|
|
1,589 |
|
|
|
|
1,108 |
|
|
|
2,635 |
|
Propylene |
|
|
624 |
|
|
|
|
586 |
|
|
|
1,012 |
|
|
|
|
661 |
|
|
|
1,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, in
millions of
pounds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polypropylene |
|
|
1,889 |
|
|
|
|
1,505 |
|
|
|
3,072 |
|
|
|
|
2,170 |
|
|
|
4,845 |
|
Polyethylene |
|
|
1,316 |
|
|
|
|
1,260 |
|
|
|
2,127 |
|
|
|
|
1,783 |
|
|
|
3,611 |
|
RevenuesRevenues for the third quarter 2010 increased by $596 million, or 22%, compared to
revenues in the third quarter 2009, while revenues in the first nine months of 2010 increased by
$2,952 million, or 45% compared to revenues in the first nine months of 2009. The increases in the
third quarter and first nine months of 2010 compared to the same periods in 2009 were primarily due
to the effect of higher average sales prices across most products, particularly ethylene,
butadiene, polyethylene and polypropylene, as well as the effect of higher sales volumes.
72
Operating IncomeThe O&PEAI segment had operating income of $231 million in the third quarter
2010 compared to $118 million in the third quarter 2009 and operating income of $460 million in the
first nine months of 2010 compared to $46 million in the first nine months of 2009. Operating
results for the third quarter and first nine months of 2010 were negatively impacted by a $43
million charge associated with a change in estimate related to a
dispute that arose during the third quarter 2010 over environmental indemnity and by $5 million non-cash charges
to adjust inventory at both June 30, and September 30, 2010 to market value, which were lower than
the April 30, 2010 value applied during fresh-start accounting. Lower depreciation and
amortization expense of $30 million in the first nine months of 2010 compared to the same period in
2009 was primarily the result of our write-down of Property, plant and equipment associated with
the revaluation of our assets in fresh-start accounting. The remaining increases in the third
quarter and first nine months of 2010 compared to the third quarter and first nine months of 2009
primarily reflect higher product margins across most products and higher sales volumes,
particularly polypropylene and PP Compounds, partially offset by higher fixed costs. Fixed costs
in the third quarter and first nine months of 2010 increased due to increased production and
unfavorable currency effects.
Third Quarter 2010 versus Second Quarter 2010
The O&PEAI segment had operating income of $231 million in the third quarter 2010 compared to
operating income of $158 million in the second quarter 2010.
Operating results for the third quarter 2010 included a $43 million
charge associated with a change in estimate related to a dispute that
arose during that period over environmental liability.
Operating results for the second and
third quarter 2010 each contained a $5 million non-cash charge to adjust inventory that had
declined in value from the Emergence Date. The increase in the results of the segments underlying
operations primarily reflects higher product margins combined with increased sales volumes of
ethylene and polyethylene and lower fixed costs across products. Higher product margins for
ethylene and butadiene were partially offset by a decrease in the price of polyethylene caused by
increased global capacity in the third quarter 2010. Increased ethylene volumes are largely due to
scheduled plant maintenance at the Berre olefins plant in the second quarter 2010 and production at
the Münchsmünster, Germany plant, which commenced operations in the second quarter 2010.
Intermediates and Derivatives Segment
OverviewIn our I&D segment, we manufacture and market propylene oxide (PO); PO co-products,
including styrene monomer (styrene or SM) and the TBA intermediates, tertiary butyl alcohol
(TBA); isobutylene and tertiary butyl hydroperoxide; PO derivatives, including propylene glycol
(PG), propylene glycol ethers (PGE) and butanediol (BDO); ethylene derivatives, including
ethylene glycol (EG), ethylene oxide (EO) and other EO derivatives; acetyls, including vinyl
acetate monomer (VAM), acetic acid and methanol; and flavors and fragrances.
I&D operating results for the third quarter and first nine months of 2010 primarily reflected
higher sales volumes in the first nine months, higher PO and PO derivative product margins,
compared to the third quarter and first nine months of 2009. The higher sales volumes were
primarily due to demand in the third quarter and first nine months of 2010 that remained high for
PO and PO derivatives, and other intermediate chemical products. The propylene oxide business
benefited from planned and unplanned competitor downtime in the first half of 2010 as the market
for durable goods end-uses strengthened. Planned and unplanned outages at an ethylene oxide
facility contributed to lower results for intermediate chemicals in the third quarter 2010 compared
to third quarter 2009, and only partly offset higher intermediate chemicals sales volumes in the
nine months ended 2010 compared to the same period in 2009. Operating results for the Successor
periods included in the third quarter and first nine months of 2010 also reflected the impacts of
fresh-start accounting, including a non-cash charge, in the second quarter 2010, to adjust
inventory to market value that was offset by the benefit of lower depreciation and amortization
expense related to the write-down of segment assets (see Results of OperationsCost of Sales).
In 2009, LyondellBasell AF, restarted two PO facilities idled in late 2008 due to lower PO demand.
A facility located in Europe that is part of our joint venture with Bayer (see Note 8 to the
Consolidated Financial Statements) was restarted in May 2009. The second PO facility, located in
the U.S. restarted in September 2009.
73
The following table sets forth the Intermediates & Derivatives segments sales and other operating
revenues, operating income, loss from equity investments and selected product sales volumes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other operating
revenues |
|
$ |
1,453 |
|
|
|
$ |
1,051 |
|
|
$ |
2,393 |
|
|
|
$ |
1,820 |
|
|
$ |
2,622 |
|
Operating income |
|
|
207 |
|
|
|
|
72 |
|
|
|
316 |
|
|
|
|
157 |
|
|
|
191 |
|
Income (loss) from equity investments |
|
|
3 |
|
|
|
|
(3 |
) |
|
|
2 |
|
|
|
|
(1 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, in millions of
pounds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO and derivatives |
|
|
872 |
|
|
|
|
737 |
|
|
|
1,388 |
|
|
|
|
1,134 |
|
|
|
1,993 |
|
EO and derivatives |
|
|
206 |
|
|
|
|
299 |
|
|
|
363 |
|
|
|
|
358 |
|
|
|
798 |
|
Styrene |
|
|
827 |
|
|
|
|
666 |
|
|
|
1,338 |
|
|
|
|
858 |
|
|
|
1,574 |
|
Acetyls |
|
|
405 |
|
|
|
|
495 |
|
|
|
705 |
|
|
|
|
518 |
|
|
|
1,249 |
|
TBA intermediates |
|
|
454 |
|
|
|
|
386 |
|
|
|
783 |
|
|
|
|
613 |
|
|
|
950 |
|
RevenuesRevenues for the third quarter 2010 increased by $402 million, or 38%, compared to
revenues in the third quarter 2009, while revenues for the first nine months of 2010 increased by
$1,591 million, or 61%, compared to revenues in the first nine months of 2009. The increases in
revenue in both 2010 periods were primarily due to higher demand and reflect the effect of higher
product sales prices and higher sale volumes across most products. Higher sales volumes for BDO,
TBA intermediates and styrene more than offset a decrease in EO and EG sales volumes due to
turnaround activities in the third quarter 2010.
Operating IncomeThe I&D segment operating income in the third quarter 2010 increased by $135
million compared to the third quarter 2009 and by $282 million in the first nine months of 2010
compared to the first nine months of 2009. Operating results for the first nine months of 2010
were negatively impacted by a $25 million non-cash charge to adjust inventory at June 30, 2010 to
market value, which was lower than the value at April 30, 2010 applied during fresh-start
accounting. Lower depreciation and amortization expense of $39 million and $62 million,
respectively, in the third quarter and first nine months of 2010, compared to the same periods in
2009 was primarily the result of our write-down of Property, plant and equipment associated with
the revaluation of our assets in fresh-start accounting. The remaining increases in the third
quarter and first nine months of 2010 reflected the favorable effect of significantly higher sales
volumes for PO and PO derivatives, TBA intermediates products and styrene, lower fixed costs
related to PO, and higher product margins for PO, TBA intermediates and solvents compared to the
third quarter and first nine months of 2009. The increased volumes and margins across most
products are partially offset by decreased sales volumes for EO and EG and decreased margins for
styrene in the third quarter and first nine months of 2010 compared to the same periods in 2009.
Third Quarter 2010 versus Second Quarter 2010
Operating income for the I&D segment of $207 million in the third quarter 2010 compared to
operating income of $143 million in the second quarter 2010. Operating results for the second
quarter were negatively impacted by a $25 million inventory non-cash adjustment to market value and
application of fresh-start accounting. The increase in the results of the segments underlying
operations primarily reflects improved performance in PO sales volumes combined with margin
expansion in BDO and solvents and partially offset by a decrease in EO and EG sales volumes
compared to the second quarter 2010.
74
Refining and Oxyfuels Segment
OverviewIn its Refining and Oxyfuels segment, LyondellBasell N.V. produces refined petroleum
products, including gasoline, ultra low sulfur diesel, jet fuel, lubricants, alkylate, and
oxygenated fuels, or oxyfuels, such as methyl tertiary butyl ether (MTBE) and ethyl tertiary
butyl ether (ETBE).
LyondellBasell N.V.s full-conversion Houston refinery processes heavy, high sulfur Venezuelan
crude oil supplied under a contract with PDVSA Petróleo S.A. and purchased on the spot market, as
well as other heavy crude oils. Under the crude oil contract, the refinery purchases up to 215,000
barrels per day of heavy, high sulfur crude oil, which constitutes approximately 80% of its rated
crude oil refining capacity of 268,000 barrels per day. The Houston refinery generally purchases
the balance of its crude requirements on the spot market.
In the third quarter and first nine months of 2010, benchmark heavy crude refining margins averaged
higher compared to the same periods of 2009, primarily due to an increase in the differential
between the cost of heavy and light crude oil.
Refining and Oxyfuels segment operating results in the third quarter and first nine months of 2010
compared to the third quarter and first nine months of 2009 primarily reflected higher benchmark
refining margins and in the first nine months of 2010, lower crude processing volumes for the
Houston refinery. Crude processing volumes for the Berre refinery were higher in the first nine
months of 2010 compared to the same period in 2009. Houston refinery volumes were lower in the
first nine months of 2010 due to a crude unit fire, sulfur recovery constraints and unplanned
outages. Oxyfuels results in both 2010 periods were lower compared to a strong third quarter and
first nine months of 2009, primarily due to lower margins. Operating results for the Successor
period included in the third quarter and first nine months of 2010 also reflected the impacts of
fresh-start accounting, including non-cash charges to adjust inventory to market value and the
benefit of lower depreciation and amortization expense related to the write-down of segment assets
(see Results of OperationsCost of Sales).
75
The following table sets forth the Refining and Oxyfuels segments sales and other operating
revenues, operating loss and sales volumes for certain gasoline blending components for the
applicable three and six month periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other operating
revenues |
|
$ |
3,867 |
|
|
|
$ |
3,506 |
|
|
$ |
6,270 |
|
|
|
$ |
4,748 |
|
|
$ |
8,938 |
|
Operating income (loss) |
|
|
83 |
|
|
|
|
(33 |
) |
|
|
97 |
|
|
|
|
(99 |
) |
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, in millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline
blending components
MTBE/ETBE (gallons) |
|
|
248 |
|
|
|
|
243 |
|
|
|
407 |
|
|
|
|
266 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude processing rates
(thousands of barrels per day): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Refining |
|
|
261 |
|
|
|
|
262 |
|
|
|
217 |
|
|
|
|
263 |
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berre Refinery |
|
|
99 |
|
|
|
|
84 |
|
|
|
102 |
|
|
|
|
75 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
margins $ per
barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI 2-1-1 |
|
|
7.60 |
|
|
|
|
6.25 |
|
|
|
8.96 |
|
|
|
|
7.50 |
|
|
|
7.76 |
|
WTI Maya |
|
|
8.54 |
|
|
|
|
5.03 |
|
|
|
8.63 |
|
|
|
|
9.46 |
|
|
|
4.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16.14 |
|
|
|
|
11.28 |
|
|
|
17.59 |
|
|
|
|
16.96 |
|
|
|
12.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Urals 4-1-2-1 |
|
|
5.89 |
|
|
|
|
5.10 |
|
|
|
6.45 |
|
|
|
|
6.17 |
|
|
|
5.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
margins cents per
gallon |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETBE NWE |
|
|
45.19 |
|
|
|
|
70.05 |
|
|
|
54.01 |
|
|
|
|
58.46 |
|
|
|
72.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RevenuesRevenues for the third quarter 2010 increased by $361 million, or 10%, compared to the
third quarter 2009, while revenues increased by $2,080 million, or 23%, in the first nine months of
2010 compared to the first nine months of 2009. The increases in both periods were primarily due
to higher average sales prices at the Houston and Berre refineries. Sales volumes were relatively
flat across products quarter over quarter, however volumes were lower in the first nine months of
2010 compared to the same period in 2009, particularly for the Houston refinery and oxyfuel
products. Crude processing rates for the Houston refinery in the third quarters of 2010 and 2009
were comparable, and were 7% lower in the first nine months of 2010, compared to the first nine
months of 2009, primarily due to the crude unit fire in May 2010. The Berre refinerys crude
processing rates were 18% higher in the third quarter 2010 and 3% higher in the first nine months
of 2010 compared to the same 2009 periods.
Operating Income (Loss)Operating results for the third quarter 2010 increased $116 million
compared to the third quarter 2009. For the first nine months of 2010, operating results increased
by $155 million compared to the first nine months of 2009. Operating results for the third quarter
and first nine months of 2010 were negatively impacted by non-cash charges of $1 million and $133
million, respectively, to adjust inventory to market value, which was lower than the April 30, 2010
value applied during fresh-start accounting. Lower depreciation and amortization expense of $84
million and $174 million, respectively, in the third quarter and first nine months of 2010,
compared to the third quarter and first nine months of 2009, was primarily the result of the
write-down of Property, plant and equipment associated with the revaluation of our assets in
fresh-start accounting. Operating results in both 2010 periods were negatively affected by a $21
million charge associated with a change in estimate related to a dispute over
76
environmental indemnity, and in the first nine months of 2010, by the crude unit fire in May 2010,
resulting in lost production and $14 million of cash costs. Operating results in the first nine
months of 2009 included benefits of $50 million from the settlement of hedging activity at the
Houston refinery related to distillates. Apart from the effects of the crude unit fire and the
2009 settlement of distillate hedges, increases in the third quarter and first nine months of 2010
were primarily due to higher refinery product margins, partially offset by lower product margins
and sales volumes for oxyfuels. The decreased oxyfuels margins in 2010 are due to the
normalization of prices in 2010 compared to the exceptional prices achieved for the same periods in
2009.
Third Quarter 2010 versus Second Quarter 2010
The Refining and Oxyfuels segment had operating income of $83 million in the third quarter 2010
compared to operating income of $43 million in the second quarter 2010. Operating results included
non-cash charges to adjust inventory that had declined in value after the Emergence Date of $1
million and $132 million for the third and second quarters, respectively. The third quarter 2010
included the $21 million charge associated with a change in
estimate related to a dispute that arose during the period over environmental indemnity
while the second quarter included $14
million of cash costs related to the Houston refinery crude unit fire. Underlying operating
results decreased primarily due to lower crude refining and oxyfuels margins partially offset by
higher sales volumes in the third quarter at the Houston refinery after the effect of the crude
unit fire in the second quarter.
Technology Segment
OverviewThe Technology segment primarily develops and licenses leading polyolefin process
technologies and develops, manufactures and sells polyolefin catalysts. LyondellBasell N.V.s
Technology segment, which is largely based in Europe, sells licenses denominated in U.S. dollars
and Euros. The mix of U.S. dollar and Euro contracts and the resulting effect of changes in
currency exchange rates can have a significant effect on segment results.
77
The following table sets forth the Technology segments sales and other operating revenues and
operating income for the applicable three month periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
|
Nine |
|
|
months |
|
|
months |
|
May 1 |
|
|
January 1 |
|
months |
|
|
ended |
|
|
ended |
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
September 30, |
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2010 |
|
2009 |
Sales and other operating
revenues |
|
$ |
157 |
|
|
|
$ |
135 |
|
|
$ |
232 |
|
|
|
$ |
145 |
|
|
$ |
401 |
|
Operating income |
|
|
38 |
|
|
|
|
31 |
|
|
|
61 |
|
|
|
|
39 |
|
|
|
148 |
|
RevenuesRevenues for the third quarter 2010 increased by $22 million, or 16%, compared to the
third quarter 2009, while revenues for the first nine months of 2010 decreased by $24 million
compared to revenues in the first nine months of 2009. The increase in the third quarter 2010
compared to the same 2009 period was primarily due to higher process license revenue, while the
decrease in the first nine months of 2010 compared to the same 2009 period was primarily due to
lower process license revenue, partially offset by higher catalyst sales volumes. Revenues in both
2010 periods reflected the unfavorable effect of changes in currency exchange rates as the U.S.
dollar was stronger relative to the Euro compared to the same periods in 2009.
Operating IncomeOperating income for the third quarter 2010 increased $7 million compared to the
third quarter 2009 and decreased $48 million in the first nine months of 2010 compared to the first
nine months of 2009. Lower depreciation and amortization expense of $13 million in the first nine
months of 2010 was primarily the result of the write-down of Property, plant and equipment
associated with our revaluation of assets in fresh-start accounting.
The first nine months of 2009 benefited
from government R&D subsidies of $12 million. Operating income in the third quarter 2010 increased primarily due
to an increase in licensing and technology service revenue compared to the same period in 2009,
partially offset by the currency exchange effects. The decrease in operating income for the first
nine months of 2010 compared to the first nine months of 2009 was primarily due to the effects of
lower licensing revenue and currency exchange effects.
Third Quarter 2010 versus Second Quarter 2010
The Technology segment had operating income of $38 million in the third quarter 2010 compared to
$31 million in the second quarter 2010. The remaining increase is due to higher revenue from both
licensing and technology services, partially offset by decreased catalyst volumes.
78
FINANCIAL CONDITION
Operating, investing and financing activities of continuing operations, which are discussed below,
are presented in the following table for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
|
January 1 |
|
Nine months |
|
|
May 1 through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2010 |
|
2009 |
Source (use) of cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
2,229 |
|
|
|
$ |
(936 |
) |
|
$ |
(699 |
) |
Investing activities |
|
|
(266 |
) |
|
|
|
(213 |
) |
|
|
(406 |
) |
Financing activities |
|
|
45 |
|
|
|
|
3,315 |
|
|
|
866 |
|
Operating ActivitiesOperating activities provided cash of $1,293 million in the first nine months
of 2010 and used cash of $699 million in the first nine months of 2009. Cash provided in the
combined first nine months of 2010 primarily reflected an increase in earnings offset by payments
for reorganization items, claims under the Plan of Reorganization, and certain annual payments
relating to sales rebates, employee bonuses, property taxes and insurance premiums. The use of
cash in the first nine months of 2009 primarily reflected cash disbursements for vendor prepayments
and a $603 million increase in cash used by the main components
of working capital accounts
receivable and inventory, net of accounts payable, partially offset by a net benefit from earnings
adjusted for items affecting earnings but not requiring outlays of cash. The first nine months of
2009 included vendor prepayments of $242 million due to prepayments required by certain third
parties as a result of the Companys chapter 11 filing.
In the first nine months of 2010, the main components of working capital used cash of $437 million
compared to $100 million in the first nine months of 2009. The increase in these components of
working capital during the first nine months of 2010 primarily reflected a $616 million increase in
accounts receivable due to higher average sales prices and higher sales volumes, and a $237 million
increase in inventory, partially offset by a $416 million increase in accounts payable due to the
higher costs and volumes of feedstocks, and more favorable payment terms.
The increase in cash used by the main components of working capital in the first nine months of
2009 primarily reflected a $503 million required repayment to terminate an accounts receivable
securitization program. Operationally, $100 million of cash was used by the main components of
working capital, reflecting a $217 million increase in accounts receivable and a $122 million
decrease in accounts payable, the effect of which was partially offset by a $239 million decrease
in inventory.
Investing ActivitiesInvesting activities used cash of $479 million in the first nine months of
2010 and $406 million in the first nine months of 2009. The cash used in the first nine months of
2010 included $492 million of capital expenditures, partially offset by $12 million in proceeds
from a money market fund that had suspended rights to redemption in 2008. The cash used in the
first nine months of 2009 was primarily related to capital expenditures, partially offset by
proceeds from the sale of assets and insurance claims related to damages sustained in 2005 at the
polymers plant in Münchsmünster, Germany.
79
The following table summarizes capital expenditures for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
May 1 |
|
|
January 1 |
|
Nine months |
|
|
through |
|
|
through |
|
ended |
|
|
September 30, |
|
|
April 30, |
|
September 30, |
Millions of dollars |
|
2010 |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
O&PAmericas |
|
$ |
90 |
|
|
|
$ |
52 |
|
|
$ |
88 |
|
O&PEAI |
|
|
63 |
|
|
|
|
102 |
|
|
|
275 |
|
I&D |
|
|
44 |
|
|
|
|
8 |
|
|
|
10 |
|
Refining and Oxyfuels |
|
|
56 |
|
|
|
|
49 |
|
|
|
94 |
|
Technology |
|
|
10 |
|
|
|
|
12 |
|
|
|
26 |
|
Other |
|
|
3 |
|
|
|
|
3 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures by
segment |
|
|
266 |
|
|
|
|
226 |
|
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to PO Joint Ventures |
|
|
- - |
|
|
|
|
1 |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures of
continuing operations |
|
$ |
266 |
|
|
|
$ |
225 |
|
|
$ |
498 |
|
|
|
|
|
|
|
|
|
The above capital expenditures excludes costs of major periodic maintenance and repair activities,
including turnarounds and catalyst recharges, of $71 million and $40 million, in the Predecessor
periods of 2010 and 2009 presented in the table above, respectively.
Financing ActivitiesFinancing activities provided cash of $3,360 million in the first nine months
of 2010 and $866 million in the first nine months of 2009.
The Successor period reflects a net increase in borrowings of $61 million under the European
Securitization facility and payments related to the French Factoring Facility totaling $9 million.
As part of our emergence from bankruptcy, we received gross proceeds of $2,800 million on April 30,
2010 in connection with the issuance of class B ordinary shares in a rights offering and paid $86
million of fees, including $70 million of fees to equity backstop providers. On April 30, 2010 we
also received net proceeds of $3,242 million from the issuance of new debt by our subsidiary,
Lyondell Chemical, including Senior Secured Notes in the amounts of $2,250 million and 375 million
($497 million) and from proceeds of the Senior Term Loan facility of $495 million. Proceeds from
the rights offering and the Senior Notes, along with borrowings under the Senior Term Loan Facility
and the amended and restated European Securitization, were used to repay outstanding amounts of
$2,167 million under the DIP New Money Term Loan, $985 million under the DIP ABL Facility and to
pay a $195 million exit fee required under the DIP financing. We also paid fees totaling $92
million in connection with our new U.S. ABL Facility and amended and restated European
Securitization facility. Predecessor debt classified as Liabilities subject to compromise
immediately prior to emergence from bankruptcy was discharged pursuant to the Plan of
Reorganization (see Note 4 to Consolidated Financial Statements).
Apart from the payments reflected above, during the 2010 Predecessor period, we repaid a $5 million
Argentinean loan; made a $12 million mandatory quarterly amortization payment of the Dutch Tranche
A Dollar Term Loan, $3 million of which was related to the DIP Roll-Up Loans; and made payments of
$8 million on the French Factoring Facility. In addition, we made payments totaling $13 million
related to the extension of the DIP financing.
80
We also had a net increase in borrowings of $47 million under the European Securitization facility
in the 2010 Predecessor period.
In the first six nine months of 2009, LyondellBasell AF borrowed $2,167 million under the Term Loan
portion of the DIP financing, receiving net proceeds of $2,089 million and subsequently paid
additional bank fees of $71 million. In addition, LyondellBasell AF had net borrowings outstanding
under the DIP ABL facility of $160 million, and paid fees related to the facility of $93 million.
The chapter 11 filing in 2009 constituted a termination event under the then existing asset-based
credit facilities in the U.S., and LyondellBasell AF used $880 million of the net proceeds under
the DIP financing to repay $766 million and $114 million outstanding under an inventory-based
credit facility and a North American accounts receivable securitization program, respectively, and,
as noted under Operating Activities, used $503 million to repurchase outstanding accounts
receivable sold under the Companys previous receivables securitization facility. In addition,
LyondellBasell AF repaid a $100 million demand note related to emergency postpetition funding, $45
million (70 million Australian dollars) outstanding under an Australian term loan and made net
repayments of $339 million, related to the European receivables securitization program. During the
first nine months of 2009, LyondellBasell AF also made mandatory quarterly amortization payments of
the Dutch Tranche A Dollar Term Loan totaling $22 million, $5 million of which was related to the
DIP Roll-Up Loans, and borrowed $17 million related to letters of credit presented for payment
under the Senior Secured Revolving Credit Facility. LyondellBasell AF also received $18 million of
proceeds from an Argentinean bank loan. In the first nine months of 2009, LyondellBasell AF had
other cash used by financing activities of $25 million, which primarily reflected the effects of
bank overdrafts.
Liquidity and Capital ResourcesAs of September 30, 2010, we had cash on hand of $4,832 million.
In addition, we had total unused availability of $1,236 million at September 30, 2010, which
included the following:
|
|
|
$1,236 million under our $1,750 million U.S. ABL facility, which matures in 2014.
Availability under the U.S. ABL facility is subject to a borrowing base of $1,750 million
at September 30, 2010, and is reduced to the extent of outstanding borrowings and
outstanding letters of credit provided under the facility. At September 30, 2010, we had
$514 million of outstanding letters of credit and no outstanding borrowings under the
facility. |
|
|
|
|
The receivables securitization facility, described below, was utilized to the extent
permitted under the borrowing base in effect as of September 30, 2010. Borrowings of $465
million were outstanding under the facility at that date. However, in October 2010, the
outstanding amounts under the facility were repaid, thereby increasing availability under
the facility, subject to the borrowing base, to a maximum of 450 million. |
We also currently have an accounts receivable factoring facility described below, which may be
terminated with three months advance notice. In October 2010, we provided the lenders with notice
of our intent to terminate the agreement.
We intend to use excess cash on hand, cash from operating activities and proceeds from asset
divestitures to repay debt, which may include purchases of our outstanding bonds in the open market
or otherwise. We also plan to finance our ongoing working capital, capital expenditures, debt
service and other funding requirements through our future financial and operating performance,
which could be affected by general economic, financial, competitive, legislative, regulatory,
business and other factors, many of which are beyond our control. We believe that our excess
cash, cash from operating activities and proceeds from our revolving credit facilities provide us
with sufficient financial resources to meet our anticipated capital requirements and obligations as
they come due.
The consummation of the Debtors Plan of Reorganization created a significantly de-levered capital
structure. At September 30, 2010, we had total short-term and long-term debt, including current
maturities, of $7,325 million. At September 30, 2010, our current maturities of $8 million
included the $5 million scheduled amortization of the Senior Term Loan Facility and $3 million for
various non-U.S. loans. Our short-term debt of $518 million at
81
September 30, 2010 included $465 million under our receivable securitization facility, which was
repaid in October 2010 (see Receivables securitization below).
GuaranteesThe Senior Secured Notes are jointly and severally, and fully and unconditionally
guaranteed by LyondellBasell N.V. and, subject to certain exceptions, each of our existing and
future wholly owned U.S. restricted subsidiaries (other than Lyondell Chemical, as issuer), other
than any such subsidiary that is a subsidiary of a non-U.S. subsidiary (the Subsidiary Guarantors
and, together with LyondellBasell N.V., the Guarantors).
The Senior Term Loan is guaranteed, jointly and severally, and fully and unconditionally, on a
senior secured basis, initially by the Guarantors. Subject to permitted liens and other
exceptions, Lyondell Chemicals obligations and guarantees will be secured on a pari passu basis
with the Senior Secured Notes by first priority security interests in the collateral securing the
Senior Secured Notes and by a second priority security interest in the collateral securing the ABL
Facility described below.
Obligations under our U.S. ABL Facility are guaranteed jointly and severally, and fully and
unconditionally, on a senior secured basis, by the Guarantors (except, in the case of any Guarantor
that is a borrower under the facility, to the extent of its own obligations in its capacity as a
borrower). The borrowers obligations under the U.S. ABL Facility and the related guarantees are
secured by (i) a first priority lien on all present and after-acquired inventory, accounts
receivable, related contracts and other rights, deposit accounts into which proceeds of the
foregoing are credited and books and records related thereto, together with all proceeds of the
foregoing, in each case to the extent the rights, title and interest therein of any ABL borrowers
and (ii) a second priority lien on the Senior Secured Notes and Senior Term Loan collateral.
The Senior Secured 11% Notes are secured by the same security package as the Senior Secured Notes,
the Senior Term Loan Facility and the U.S. ABL Facility on a third-priority basis.
CovenantsThe Senior Secured Notes contains covenants, subject to certain restrictions, that
restrict, among other things,
|
|
|
debt and lien incurrences; |
|
|
|
|
investments; |
|
|
|
|
certain restricted payments; |
|
|
|
|
sales of assets and mergers; and |
|
|
|
|
affiliate transactions. |
Several of the restrictive covenants would be suspended if we receive an investment grade rating
from two rating agencies.
The Senior Term Loan Facility and the U.S.ABL facility contain covenants that are substantially
similar to the Senior Secured Notes. The Senior Secured Notes and the Senior Term Loan Facility
are not subject to the maintenance of specific financial covenants.
Mandatory prepayments of the loans under the U.S. ABL Facility will be made from net cash proceeds
from certain sales of collateral securing the facility and insurance and condemnation awards
involving the facility.
Receivables securitizationOn May 4, 2010, we amended and restated an existing securitization
agreement under which two of our non-U.S. subsidiaries may sell, subject to a borrowing base, up to
450 million in trade receivables. Transfers of accounts receivable under this three-year program
do not qualify as sales; therefore, the transferred accounts receivable and the proceeds received
through such transfers are included in trade receivables, net, and short-term debt in the
consolidated balance sheets. At September 30, 2010, the amount outstanding under the facility was
$465 million. In October 2010, the outstanding amounts under this facility were repaid.
82
Accounts Receivable Factoring AgreementOn October 8, 2009, a non-U.S. subsidiary of
LyondellBasell AF entered into an accounts receivable factoring facility for up to 100 million.
The factoring facility is for an indefinite period, non-recourse, unsecured and terminable by
either party subject to notice. At September 30, 2010, $6 million (4 million) was outstanding
under the accounts receivable factoring agreement. In October 2010, we notified the lender that we
would be terminating the factoring agreement. The termination of the facility is expected to be
completed in early 2011.
ACCOUNTING AND REPORTING CHANGES
For a discussion of the potential impact of new accounting pronouncements on our consolidated
financial statements, see Note 2 to the Consolidated Financial Statements.
83
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our
forward-looking statements by the words anticipate, estimate, believe, continue, could,
intend, may, plan, potential, predict,