(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange On Which Registered
Ordinary Shares, €0.04 Par Value
LYB
New York Stock Exchange
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. Yesx 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). Yesx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No x
The registrant had 334,353,962 ordinary shares, €0.04 par value, outstanding at April 28, 2021 (excluding 5,691,666 treasury shares).
LyondellBasell Industries N.V. is a limited liability company (Naamloze Vennootschap) incorporated under Dutch law by deed of incorporation dated October 15, 2009. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).
LyondellBasell N.V. is a worldwide manufacturer of chemicals and polymers, a refiner of crude oil, a significant producer of gasoline blending components and a developer and licensor of technologies for the production of polymers.
The accompanying unaudited Consolidated Financial Statements have been prepared from the books and records of LyondellBasell N.V. in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In our opinion, all adjustments, including normal recurring adjustments, considered necessary for a fair statement have been included. The results for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
2. Accounting and Reporting Changes
Recently Adopted Guidance
The following table provides a brief description of recently adopted Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”):
Standard
Description
ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging
This guidance clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 and includes scope considerations for entities that hold certain non-derivative forward contracts and purchased options to acquire equity securities that, upon settlement of the forward contract or exercise of the purchase option, would be accounted for under the equity method of accounting. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The prospective adoption of this guidance from January 1, 2021 did not have a material impact on our Consolidated Financial Statements.
ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity
This guidance simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity’s own equity. The standard also amends the accounting for convertible instruments in the diluted earnings per share calculation and requires enhanced disclosures of convertible instruments and contracts in an entity’s own equity. The guidance is effective for fiscal years beginning after December 15, 2021 and may be applied on a modified or fully retrospective basis.
The early adoption of this guidance on a modified retrospective basis from January 1, 2021 did not have a material impact on our Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Standard
Description
ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
This guidance amends and supersedes SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10762 related to financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities. The guidance is effective for annual and interim periods ending after January 4, 2021.
The adoption of this guidance from January 1, 2021 did not have a material impact on our Consolidated Financial Statements.
Accounting Guidance Issued But Not Adopted as of March 31, 2021
There are no ASUs issued and not yet adopted that could have a material impact on our Consolidated Financial Statements.
3. Revenues
Contract Balances—Contract liabilities were $185 million and $194 million at March 31, 2021 and December 31, 2020, respectively. Revenue recognized in each reporting period, included in the contract liability balance at the beginning of the period, was immaterial.
Disaggregation of Revenues—The following table presents our revenues disaggregated by key products:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents our revenues disaggregated by geography, based upon the location of the customer:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues:
United States
$
4,086
$
3,187
Germany
765
641
China
560
243
Italy
378
335
France
290
270
Poland
270
224
The Netherlands
270
212
Mexico
247
380
Japan
230
335
Other
1,986
1,667
Total
$
9,082
$
7,494
4. Accounts Receivable
Our accounts receivable are reflected in the Consolidated Balance Sheets net of allowance for credit losses of $15 million at March 31, 2021 and December 31, 2020.
5. Inventories
Inventories consisted of the following components:
Millions of dollars
March 31, 2021
December 31, 2020
Finished goods
$
2,733
$
2,816
Work-in-process
184
144
Raw materials and supplies
1,715
1,384
Total inventories
$
4,632
$
4,344
Our inventories are stated at the lower of cost or market (“LCM”). Cost is determined using the last-in, first-out (“LIFO”) inventory valuation methodology, which means that the most recently incurred costs are charged to cost of sales and inventories are valued at the earliest acquisition costs. Market is determined based on an assessment of the current estimated replacement cost and selling price of the inventory. In periods where the market price of our inventory declines substantially, cost values of inventory may be higher than the market value, and as a result we adjust the value of inventory to market value. Fluctuations in the prices of crude oil, natural gas and correlated products from period to period may result in the recognition of charges to adjust the value of inventory to the LCM in periods of falling prices and the reversal of those charges in subsequent interim periods, within the fiscal year, as market prices recover.
During the first three months of 2020, we recognized an LCM inventory valuation charge of $419 million related to the decline in pricing for many of our raw material and finished goods inventories since December 31, 2019.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair value hedging adjustments associated with the fair value hedge accounting of our fixed-for-floating interest rate swaps for the applicable periods are as follows:
Gains (Losses)
Cumulative Fair Value Hedging Adjustments Included in Carrying Amount of Debt
Inception Year
Three Months Ended March 31,
March 31,
December 31,
Millions of dollars
2021
2020
2021
2020
Senior Notes due 2021, 6.0%
2016
$
—
$
(16)
$
—
$
—
Guaranteed Notes due 2027, 3.5%
2017
4
(80)
(98)
(102)
Guaranteed Notes due 2022, 1.875%
2018
—
1
—
—
Guaranteed Notes due 2026, 0.875%
2020
1
—
(1)
(2)
Total
$
5
$
(95)
$
(99)
$
(104)
Fair value adjustments are recognized in Interest expense in the Consolidated Statements of Income.
Short-term loans, notes and other debt consisted of the following:
Millions of dollars
March 31, 2021
December 31, 2020
U.S. Receivables Facility
$
—
$
—
Commercial paper
500
500
Precious metal financings
162
140
Other
20
23
Total Short-term debt
$
682
$
663
Long-Term Debt
Senior Revolving Credit Facility—Our $2,500 million Senior Revolving Credit Facility, of which $2,440 million expires in June 2023 and the remainder expires in June 2022, may be used for dollar and euro denominated borrowings. The facility has a $500 million sub-limit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. Borrowings under the facility bear interest at either a base rate or LIBOR rate, plus an applicable margin. Additional fees are incurred for the average daily unused commitments. At March 31, 2021, we had no borrowings or letters of credit outstanding and $2,005 million of unused availability under this facility.
Term Loan due 2022—In March 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell Industries N.V., entered into a $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022. Borrowings under the credit agreement were available through December 31, 2019, subsequent to which no further borrowings may be made under the agreement. Outstanding borrowings bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell N.V.’s current credit ratings.
In January 2021, we repaid $500 million outstanding under our Term Loan due 2022. An additional $500 million was repaid in April 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Short-Term Debt
U.S. Receivables Facility—Our U.S. Receivables Facility, which expires in July 2021, has a purchase limit of $900 million in addition to a $300 million uncommitted accordion feature. This facility provides liquidity through the sale or contribution of trade receivables by certain of our U.S. subsidiaries to a wholly owned, bankruptcy-remote subsidiary on an ongoing basis and without recourse. We pay variable interest rates on our secured borrowings. Additional fees are incurred for the average daily unused commitments. This facility also provides for the issuance of letters of credit up to $200 million. We plan on extending
all or a portion of this facility prior to its maturity in July 2021 in accordance with the terms of the agreement. At March 31, 2021, we had no borrowings or letters of credit outstanding and $900 million unused availability under this facility.
Commercial Paper Program—We have a commercial paper program under which we may issue up to $2,500 million of privately placed, unsecured, short-term promissory notes (“commercial paper”). Interest rates on the commercial paper outstanding at March 31, 2021 are based on the terms of the notes and range from 0.19% to 0.27%. At March 31, 2021, we had $500 million of outstanding commercial paper.
Weighted Average Interest Rate—At March 31, 2021 and December 31, 2020, our weighted average interest rates on outstanding Short-term debt was 0.9%.
Additional Information
Debt Discount and Issuance Costs—Amortization of debt discounts and debt issuance costs resulted in amortization expense of $5 million and $4 million for the three months ended March 31, 2021 and 2020, respectively, which is included in Interest expense in the Consolidated Statements of Income.
As of March 31, 2021, we are in compliance with our debt covenants.
7. Financial Instruments and Fair Value Measurements
We are exposed to market risks, such as changes in commodity pricing, interest rates and currency exchange rates. To manage the volatility related to these exposures, we selectively enter into derivative contracts pursuant to our risk management policies.
A summary of our financial instruments, risk management policies, derivative instruments, hedging activities and fair value measurement can be found in Notes 2 and 13 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. If applicable, updates have been included in the respective sections below.
Cash and Cash Equivalents—At March 31, 2021 and December 31, 2020, we had marketable securities classified as Cash and cash equivalents of $560 million and $682 million, respectively.
Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency gains of $3 million and losses of $7 million for the three months ended March 31, 2021 and 2020, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding for the periods presented that are measured at fair value on a recurring basis:
March 31, 2021
December 31, 2020
Millions of dollars
Notional Amount
Fair Value
Notional Amount
Fair Value
Balance Sheet Classification
Assets–
Derivatives designated as hedges:
Commodities
$
25
$
5
$
19
$
3
Prepaid expenses and other current assets
Commodities
30
4
41
4
Other Assets
Foreign currency
358
56
—
26
Prepaid expenses and other current assets
Interest rates
—
1
—
—
Prepaid expenses and other current assets
Interest rates
117
1
122
2
Other assets
Derivatives not designated as hedges:
Commodities
111
5
71
2
Prepaid expenses and other current assets
Foreign currency
34
1
149
—
Prepaid expenses and other current assets
Non-derivatives:
Available-for-sale debt securities
265
266
348
349
Short-term investments
Equity securities
117
117
353
353
Short-term investments
Total
$
1,057
$
456
$
1,103
$
739
Liabilities–
Derivatives designated as hedges:
Commodities
$
—
$
—
$
—
$
2
Accrued liabilities
Foreign currency
855
116
1,213
146
Accrued liabilities
Foreign currency
2,682
209
2,682
302
Other liabilities
Interest rates
1,150
120
1,000
343
Other liabilities
Derivatives not designated as hedges:
Commodities
191
22
113
14
Accrued liabilities
Foreign currency
717
5
76
1
Accrued liabilities
Total
$
5,595
$
472
$
5,084
$
808
As of March 31, 2021, our limited partnership investments included in our equity securities discussed below are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. All other financial instruments in the table above, including equity securities as of December 31, 2020, are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments on the Consolidated Balance Sheets.
At March 31, 2021, our outstanding foreign currency contracts, not designated as hedges, mature from April 2021 to March 2022. Our commodity contracts, not designated as hedges, mature in May 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis for the periods presented. Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities for which the carrying value approximates fair value are excluded from the table below. Short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying and fair values of short-term and of long-term debt exclude commercial paper and other miscellaneous debt. All financial instruments in the table below are classified as Level 2.
March 31, 2021
December 31, 2020
Millions of dollars
Carrying Value
Fair Value
Carrying Value
Fair Value
Non-derivatives:
Liabilities:
Short-term debt
$
162
$
181
$
140
$
154
Long-term debt
14,715
15,895
15,266
17,290
Total
$
14,877
$
16,076
$
15,406
$
17,444
Net Investment Hedges—The following table summarizes our net investment hedges outstanding for the periods presented:
March 31, 2021
December 31, 2020
Millions of euro/dollars
Notional Value
Notional Value
Expiration Date
Equivalent US$
Equivalent US$
Foreign currency
€
1,667
$
1,890
€
1,667
$
1,890
2021 to 2030
In April 2021, we entered into a foreign currency contract with a notional value of €250 million that was designated as a net investment hedge.
Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding for the periods presented:
March 31, 2021
December 31, 2020
Millions of dollars
Notional Value
Notional Value
Expiration Date
Foreign currency
$
2,005
$
2,005
2021 to 2027
Interest rates
1,000
1,000
2023 to 2024
Commodities
55
60
2021 to 2022
As of March 31, 2021 and December 31, 2020, Other assets include$172 million and $238 million of collateral held with our counterparties related to our forward-starting interest rate swaps, respectively. Related cash flows are included in financing activities in the Consolidated Statements of Cash Flows.
As of March 31, 2021, on a pre-tax basis, $5 million is scheduled to be reclassified from Accumulated other comprehensive loss as an increase to Interest expense over the next twelve months.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair Value Hedges—The following table summarizes our fair value hedges outstanding for the periods presented:
March 31, 2021
December 31, 2020
Millions of dollars
Notional Value
Notional Value
Expiration Date
Interest rates
$
267
$
122
2026 to 2030
In March 2021, we entered into a fixed-for-floating interest rate swap to mitigate the change in the fair value of $150 million of our $500 million, 3.375% guaranteed notes due 2030 associated with the risk of variability in the 3-month LIBOR rate component.
In April 2021, we entered into two fixed-for-floating interest rate swaps to mitigate the change in the fair value associated with the risk of variability in the 3-month LIBOR rate component of $150 million of our $500 million, 2.875% guaranteed notes due 2025 and $150 million of our $1,000 million, 3.5% guaranteed notes due 2027.
The fixed-rate and variable-rate components for these trades are settled semi-annually and quarterly, respectively.
Impact on Earnings and Other Comprehensive Income—The following tables summarize the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive loss (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings:
Effects of Financial Instruments
Three Months Ended March 31,
Gain (Loss) Recognized in AOCI
Gain (Loss) Reclassified from AOCI to Income
Gain (Loss) Recognized in Income
Income Statement
Millions of dollars
2021
2020
2021
2020
2021
2020
Classification
Derivatives designated as hedges:
Commodities
$
6
$
—
$
(1)
$
—
$
—
$
—
Cost of sales
Foreign currency
148
164
(92)
(53)
12
16
Interest expense
Interest rates
223
(535)
1
—
2
96
Interest expense
Derivatives not designated as hedges:
Commodities
—
—
—
—
3
(9)
Sales and other operating revenues
Commodities
—
—
—
—
11
(3)
Cost of sales
Foreign currency
—
—
—
—
(14)
(4)
Other income, net
Non-derivatives designated as hedges:
Long-term debt
—
22
—
—
—
—
Other income, net
Total
$
377
$
(349)
$
(92)
$
(53)
$
14
$
96
The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in Other comprehensive income for the three months ended March 31, 2021 and 2020 were gains of $4 million and less than $1 million, respectively.
The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in Interest expense for the three months ended March 31, 2021 and 2020 were gains of $3 million and $4 million, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The pre-tax effect of the periodic receipt of fixed interest and payment of variable interest associated with our fixed-for-floating interest rate swaps resulted in less than $1 million and $2 million decreases in Interest expense during the three months ended in March 31, 2021 and 2020, respectively.
Investments in Available-for-Sale Debt Securities—The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of our outstanding available-for-sale debt securities:
Millions of dollars
Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Debt securities at March 31, 2021
$
265
$
1
$
—
$
266
Debt securities at December 31, 2020
348
1
—
349
No allowance for credit losses related to our available-for-sale debt securities were recorded for the three months ended March 31, 2021 and for the year ended December 31, 2020.
As of March 31, 2021, bonds classified as available-for-sale debt securities had remaining maturities between 1 month and 3 months.
We received proceeds of $74 million from maturities of our available-for-sale debt securities during the three months ended March 31, 2021. No proceeds were received from maturities of our available-for-sale debt securities during the three months ended March 31, 2020. In addition, no proceeds were received and no gain or loss was realized in connection with the sales of our available-for-sale debt securities during the three months ended March 31, 2021 and 2020, respectively.
We had no available-for-sale debt securities which were in a continuous unrealized loss position for less than or greater than twelve months as of March 31, 2021 and December 31, 2020.
Investments in Equity Securities—Our investment in equity securities consists of an investment in a limited partnership with a notional amount of $117 million and $353 million as of March 31, 2021 and December 31, 2020, respectively. Carrying amount approximate fair value. The investment is carried at its net asset value as a practical expedient at March 31, 2021 and fair value at December 31, 2020. The investment is under voluntary liquidation by the fund administrator and we expect the investment to be fully liquidated within the next twelve months, during which time redemption or sale of the investment is restricted.
We received proceeds of $226 million and $1 million related to our investments in equity securities during the three months ended March 31, 2021 and 2020, respectively. Proceeds of $16 million were received in April 2021.
We recognized unrealized gains of less than $1 million on our equity securities that were outstanding during the three months ended March 31, 2021 and 2020.
8. Income Taxes
For interim tax reporting, we estimate an annual effective tax rate which is applied to the year-to-date ordinary income (loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur. Our effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains (losses), the amount of exempt income, changes in unrecognized tax benefits associated with uncertain tax positions and changes in tax laws.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Our exempt income primarily includes interest income, export incentives, and equity earnings of joint ventures. Interest income earned by certain of our European subsidiaries through intercompany financings is taxed at rates substantially lower than the U.S. statutory rate. Export incentives relate to tax benefits derived from elections and structures available for U.S. exports. Equity earnings attributable to the earnings of our joint ventures, when paid through dividends to certain European subsidiaries, are exempt from all or portions of normal statutory income tax rates. We currently anticipate the favorable treatment for interest income, dividends, and export incentives to continue in the near term; however, this treatment is based on current law and tax rulings, which could change.
Our effective income tax rate for the three months ended March 31, 2021 was 6.1% compared with 34.4% for the three months ended March 31, 2020. The lower effective tax rate was primarily attributable to the remeasurement of U.S. deferred tax liabilities that occurred in the prior year as a result of the Coronavirus Aid, Relief, and Economic Security Act, also known as the “CARES Act”, and return to accrual adjustments primarily from a tax benefit associated with a step-up of certain Italian assets to fair market value. The tax benefit associated with a step-up of certain Italian assets resulted from a tax change which allows a voluntary step-up of tangible and intangible assets to fair market value in exchange for a substitute tax. During the first quarter of 2021, we assessed a reasonable estimate of the step-up of select assets and recognized a net tax benefit of $120 million. These drivers were partially offset by the reduced relative impact of our tax rate drivers, primarily exempt income, due to increased pre-tax earnings.
9. Commitments and Contingencies
Commitments—We have various purchase commitments for materials, supplies and services incidental to the ordinary conduct of business, generally for quantities required for our businesses and at prevailing market prices. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. As of March 31, 2021, we had capital expenditure commitments, which we incurred in our normal course of business, including commitments of approximately $316 million related to building our new PO/TBA plant in Houston, Texas.
Financial Assurance Instruments—We have obtained letters of credit, performance and surety bonds and have issued financial and performance guarantees to support trade payables, potential liabilities and other obligations. Considering the frequency of claims made against the financial instruments we use to support our obligations, and the magnitude of those financial instruments in light of our current financial position, management does not expect that any claims against or draws on these instruments would have a material adverse effect on our Consolidated Financial Statements. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current operations.
Environmental Remediation—Our accrued liability for future environmental remediation costs at current and former plant sites and other remediation sites totaled $130 million and $133 million as of March 31, 2021 and December 31, 2020, respectively. At March 31, 2021, the accrued liabilities for individual sites range from less than $1 million to $16 million. The remediation expenditures are expected to occur over a number of years, and not concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded may have been incurred. However, we cannot estimate any amount or range of such possible additional losses. New information about sites, new technology or future developments such as involvement in investigations by regulatory agencies, could require us to reassess our potential exposure related to environmental matters.
Indemnification—We are parties to various indemnification arrangements, including arrangements entered into in connection with acquisitions, divestitures and the formation and dissolution of joint ventures. Pursuant to these arrangements, we provide indemnification to and/or receive indemnification from other parties in connection with liabilities that may arise in connection with the transactions and in connection with activities prior to completion of the transactions. These indemnification arrangements typically include provisions pertaining to third-party claims relating to environmental and tax matters and various types of litigation. As of March 31, 2021, 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(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 certain proprietary licensed technologies. Such indemnifications have a stated maximum amount and generally cover a period of 5 to 10 years.
Legal Proceedings—We are subject to various lawsuits and claims, including but not limited to, matters involving contract disputes, environmental damages, personal injury and property damage. We vigorously defend ourselves and prosecute these matters as appropriate.
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor legal proceedings in which we are a party. Our process facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us to track those cases that have been scheduled for trial, mediation or other resolution. We regularly assess the adequacy of legal accruals based on our professional judgment, experience and the information available regarding our cases.
Based on a consideration of all relevant facts and circumstances, we do not believe the ultimate outcome of any currently pending lawsuit against us will have a material adverse effect upon our operations, financial condition or Consolidated Financial Statements.
10. Shareholders’ Equity and Redeemable Non-controlling Interests
Shareholders’ Equity
Dividend Distributions—In March 2021, we paid a cash dividend of $1.05 per share for an aggregate of $352 million to shareholders of record on March 8, 2021.
Ordinary Shares—The changes in the outstanding amounts of ordinary shares are as follows:
Three Months Ended March 31,
2021
2020
Ordinary shares outstanding:
Beginning balance
334,015,220
333,476,883
Share-based compensation
247,964
196,037
Employee stock purchase plan
49,956
81,215
Purchase of ordinary shares
—
(50,685)
Ending balance
334,313,140
333,703,450
Treasury Shares—The changes in the amounts of treasury shares held by the Company are as follows:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Accumulated Other Comprehensive Loss—The components of, and after-tax changes in, Accumulated other comprehensive loss as of and for the three months ended March 31, 2021 and 2020 are presented in the following tables:
Millions of dollars
Financial Derivatives
Unrealized Gains on Available -for-Sale Debt Securities
Defined Benefit Pension and Other Postretirement Benefit Plans
Foreign Currency Translation Adjustments
Total
Balance – January 1, 2021
$
(426)
$
1
$
(752)
$
(766)
$
(1,943)
Other comprehensive income (loss) before reclassifications
315
—
—
(93)
222
Tax expense before reclassifications
(68)
—
—
(14)
(82)
Amounts reclassified from accumulated other comprehensive loss
(92)
—
15
—
(77)
Tax (expense) benefit
20
—
(4)
—
16
Net other comprehensive income (loss)
175
—
11
(107)
79
Balance – March 31, 2021
$
(251)
$
1
$
(741)
$
(873)
$
(1,864)
Millions of dollars
Financial Derivatives
Unrealized Gains on Available -for-Sale Debt Securities
Defined Benefit Pension and Other Postretirement Benefit Plans
Foreign Currency Translation Adjustments
Total
Balance – January 1, 2020
$
(200)
$
—
$
(711)
$
(873)
$
(1,784)
Other comprehensive loss before reclassifications
(388)
(3)
—
(195)
(586)
Tax (expense) benefit before reclassifications
88
1
—
(4)
85
Amounts reclassified from accumulated other comprehensive loss
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The amounts reclassified out of each component of Accumulated other comprehensive loss are as follows:
Three Months Ended March 31,
Affected Line Item on the Consolidated Statements of Income
Millions of dollars
2021
2020
Reclassification adjustments for:
Financial derivatives:
Foreign currency
$
(92)
$
(53)
Interest expense
Commodities
(1)
—
Cost of sales
Interest rates
1
—
Interest expense
Income tax expense (benefit)
(20)
(15)
Provision for income taxes
Financial derivatives, net of tax
(72)
(38)
Amortization of defined pension items:
Prior service cost
1
1
Other income, net
Actuarial loss
14
13
Other income, net
Income tax expense (benefit)
4
4
Provision for income taxes
Defined pension items, net of tax
11
10
Total reclassifications, before tax
(77)
(39)
Income tax benefit
(16)
(11)
Provision for income taxes
Total reclassifications, after tax
$
(61)
$
(28)
Amount included in net income
Redeemable Non-controlling Interests
Our redeemable non-controlling interests relate to shares of cumulative perpetual special stock (“redeemable non-controlling interest stock”) issued by our consolidated subsidiary, formerly known as A. Schulman. As of March 31, 2021 and December 31, 2020, we had 115,374 shares of redeemable non-controlling interest stock outstanding.
In February 2021, we paid cash dividends of $15.00 per share to our redeemable non-controlling interest shareholders of record as of January 15, 2021. These dividends totaled $2 million for each of the three months ended March 31, 2021 and 2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Per Share Data
Basic earnings per share are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share includes the effect of certain stock option awards and other equity-based compensation awards. We have unvested restricted stock units that are considered participating securities for earnings per share.
Earnings per share data and dividends declared per share of common stock are as follows:
Three Months Ended March 31,
2021
2020
Millions of dollars
Continuing Operations
Discontinued Operations
Continuing Operations
Discontinued Operations
Net income (loss)
$
1,072
$
(2)
$
143
$
1
Dividends on redeemable non-controlling interests
(2)
—
(2)
—
Net (income) loss attributable to participating securities
(2)
—
—
—
Net income (loss) attributable to ordinary shareholders – basic and diluted
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Segment and Related Information
Our operations are managed by senior executives who report to our Chief Executive Officer, the chief operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the operating results of each of the operating segments for performance evaluation and resource allocation. The activities of each of our segments from which they earn revenues and incur expenses are described below:
•Olefins and Polyolefins—Americas (“O&P—Americas”). Our O&P—Americas segment produces and markets olefins and co-products, polyethylene and polypropylene.
•Olefins and Polyolefins—Europe, Asia, International (“O&P—EAI”). Our O&P—EAI segment produces and markets olefins and co-products, polyethylene and polypropylene.
•Intermediates and Derivatives (“I&D”). Our I&D segment produces and markets propylene oxide and its derivatives, oxyfuels and related products, and intermediate chemicals such as styrene monomer, acetyls, ethylene oxide and ethylene glycol.
•Advanced Polymer Solutions (“APS”). Our APS segment produces and markets compounding and solutions, such as polypropylene compounds, engineered plastics, masterbatches, engineered composites, colors and powders, and advanced polymers, which includes Catalloy and polybutene-1.
•Refining. Our Refining segment refines heavy, high-sulfur crude oil and other crude oils of varied types and sources available on the U.S. Gulf Coast into refined products, including gasoline and distillates.
•Technology. Our Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.
Our chief operating decision maker uses EBITDA as the primary measure for reviewing profitability of our segments, and therefore, we have presented EBITDA for all segments. We define EBITDA as earnings before interest, income taxes, and depreciation and amortization.
“Other” includes intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefit costs other than service costs. Sales between segments are made primarily at prices approximating prevailing market prices.
Summarized financial information concerning reportable segments is shown in the following tables for the periods presented:
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company”, “we”, “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).
OVERVIEW
First quarter performance built upon the economic momentum we saw toward the end of last year. We experienced improved consumer-driven demand, recovery in durable goods markets and industry supply constraints, which enabled price increases and drove margin improvements for many of our products. During February 2021, unusually cold weather and related power outages impacted operations in our industry across the state of Texas and reduced our production volumes. In March 2021 we achieved the first full quarter of results for our recently formed Louisiana Integrated PolyEthylene JV LLC joint venture (the “Louisiana Joint Venture”) in which we have a 50% ownership interest. We benefited from the increased geographic diversity of our portfolio as the Louisiana ethylene cracker operated continuously when most Texas assets were down due to the cold weather. Tight markets and strong demand drove margin improvements in our O&P—Americas and O&P—EAI segments. Higher demand from automotive and other non-durable markets increased volumes for our Advanced Polymer Solutions segment while margins compressed due to rapidly rising raw material costs.
Significant items that affected our results during the first quarter of 2021 relative to the first quarter of 2020 include:
•O&P—Americas results increased primarily due to olefin margin improvements and the first full quarter of results for our newly formed Louisiana Joint Venture;
•O&P—EAI results improved as a result of higher polyolefin margins and equity income, partly offset by lower olefin margins; and
•I&D results declined primarily driven by lower volumes across most businesses from the downtime in Texas due to the weather events.
Other noteworthy items since the beginning of the year include the following:
•In January 2021, signed an agreement to form a 50 percent owned joint venture with the China Petroleum & Chemical Corporation which will construct a new PO and SM unit in China; and
•In both January and April 2021, repaid $500 million outstanding under our Term Loan due 2022, for a total repayment of $1 billion.
Results of operations for the periods discussed are presented in the table below:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
9,082
$
7,494
Cost of sales
7,678
6,868
Selling, general and administrative expenses
287
295
Research and development expenses
29
27
Operating income
1,088
304
Interest expense
(110)
(89)
Interest income
2
3
Other income, net
25
—
Income from equity investments
137
—
Income from continuing operations before income taxes
1,142
218
Provision for income taxes
70
75
Income from continuing operations
1,072
143
(Loss) income from discontinued operations, net of tax
(2)
1
Net income
$
1,070
$
144
RESULTS OF OPERATIONS
Revenues—Revenues increased by $1,588 million, or 21%, in the first quarter of 2021 compared to the first quarter of 2020. Average sales prices in the first quarter of 2021 were higher for many of our products as sales prices generally correlate with crude oil prices, which increased relative to the corresponding period in 2020. These higher prices led to a 26% increase in revenue in the first quarter of 2021. Favorable foreign exchange impacts resulted in a revenue increase of 4% during the first quarter of 2021. Lower sales volumes resulted in a revenue decrease of 9% relative to the first quarter of 2020 primarily due to unusually cold temperatures and associated electrical power outages that led to shutdowns in our Refining and I&D manufacturing facilities in Texas partially offset by revenues generated from our Louisiana Joint Venture.
Cost of Sales—Cost of sales increased by $810 million, or 12%, in the first quarter of 2021 compared to the first quarter of 2020. This increase primarily related to higher feedstock and energy costs. Additionally, in the first quarter of 2020, we recognized an LCM inventory valuation charge of $419 million related to the decline in market pricing for many of our raw material and finished goods inventories during the quarter.
Operating Income—Operating income increased by $784 million, or 258%, in the first quarter of 2021 compared to the first quarter of 2020. In the first quarter of 2021, operating income in our O&P–Americas, Refining, O&P–EAI, Technology and APS segments increased by $449 million, $184 million, $124 million, $35 million and $34 million, respectively, relative to the first quarter of 2020. The increases were partially offset by a decline of $43 million in our I&D segment in the first quarter of 2021 compared to the first quarter of 2020. Results for each of our business segments are discussed further in the “Segment Analysis” section below.
Income from Equity Investments—Income from our equity investments increased $137 million, or 100%, in the first quarter of 2021 compared to the first quarter of 2020. The increase was primarily due to increases in Income from equity investments in our O&P–EAI segment driven primarily by higher margins due to increased demand.
Income Taxes—Our effective income tax rate for the three months ended March 31, 2021 was 6.1% compared with 34.4% for the three months ended March 31, 2020. The lower effective tax rate was primarily attributable to the remeasurement of U.S. deferred tax liabilities that occurred in the prior year as a result of the CARES Act (-20.9%) and return to accrual adjustments primarily from a tax benefit associated with a step-up of certain Italian assets to fair market value (-11.3%). These drivers were partially offset by the reduced relative impact of our tax rate drivers, primarily exempt income, due to increased pre-tax earnings (7.1%).
Comprehensive Income—Comprehensive income increased by $1,534 million in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher net income, net favorable impacts of financial derivative instruments driven by periodic changes in benchmark interest rates and improved foreign currency translation adjustments.
In the first quarter of 2021 and 2020, the cumulative after-tax effects of our derivatives designated as cash flow hedges were net gains of $175 million and net losses of $338 million, respectively. Pre-tax gains of $223 million and pre-tax losses of $535 million related to forward-starting interest rate swaps were driven by periodic changes in benchmark interest rates in the first quarter of 2021 and 2020, respectively. The fluctuations of the U.S. dollar against the euro and the periodic changes in benchmark interest rates, in the first quarter of 2021 and 2020, resulted in pre-tax gains of $86 million and $147 million, respectively, related to our cross-currency swaps. Pre-tax losses of $92 million and $53 million related to our cross-currency swaps were reclassified from Accumulated other comprehensive loss to Interest expense in the first quarter of 2021 and 2020, respectively. The remaining change pertains to our commodity cash flow hedges.
The predominant functional currency for our operations outside of the U.S. is the euro. Relative to the U.S. dollar, the value of the euro decreased during the first quarter of 2021 and 2020, resulting in losses reflected in the Consolidated Statements of Comprehensive Income. The losses related to unrealized changes in foreign currency translation impacts were partially offset by pre-tax gains of $62 million and $39 million in the first quarter of 2021 and 2020, respectively, which represent the effective portion of our net investment hedges.
We use earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefits other than service costs are included in “Other”. For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest GAAP measure, Income from continuing operations before income taxes, see Note 12 to our Consolidated Financial Statements.
Revenues and the components of EBITDA for the periods presented are reflected in the table below:
Overview—EBITDA improved in the first quarter of 2021 relative to the first quarter of 2020 primarily due to higher olefin margins.
Ethylene Raw Materials—We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids 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 first quarter of 2021 and 2020 approximately 60% of the raw materials used in our North American crackers was ethane.
The following table sets forth selected financial information for the O&P–Americas segment including Income from equity investments, which is a component of EBITDA:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
2,859
$
1,792
Income from equity investments
30
2
EBITDA
867
366
Revenues—Revenues for our O&P–Americas segment increased by $1,067 million, or 60%, in the first quarter of 2021 compared to the first quarter of 2020.
Average sales prices were higher in the first quarter of 2021 compared to the first quarter of 2020 which resulted in a revenue increase of 50% in the first quarter of 2021. Volume improvements resulted in a revenue increase of 10% in the first quarter of 2021 primarily due to a full quarter of results associated with our Louisiana Joint Venture partially offset by the effects of unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities in Texas.
EBITDA—EBITDA increased by $501 million, or 137%, in the first quarter of 2021 compared to the first quarter of 2020. First quarter of 2020 results included a $111 million LCM inventory valuation charge primarily driven by a decline in the price of heavy liquids and ethylene during the quarter. The absence of a similar charge in the first quarter 2021 resulted in a 30% change in EBITDA. The first full quarter of results for our newly formed Louisiana Joint Venture improved EBITDA by 36% during the quarter.
Including the results of the Louisiana Joint Venture, higher olefin results led to a 89% improvement in EBITDA in the first quarter of 2021, primarily due to ethylene variable margin improvements associated with higher sales prices. Polypropylene results led to a 12% increase in EBITDA in the first quarter of 2021, largely due to improved margins attributed to higher price spreads over propylene in the first quarter of 2021. Higher income from our equity investments led to increases in EBITDA of 7% in the first quarter of 2021 mainly attributable to improved results at our polypropylene joint venture in Mexico.
Olefins and Polyolefins–Europe, Asia, International Segment
Overview—EBITDA for the first quarter of 2021 increased compared to the first quarter of 2020 mainly as a result of higher polymer margins and equity income, partly offset by lower olefin margins.
The following table sets forth selected financial information for the O&P–EAI segment including Income (loss) from equity investments, which is a component of EBITDA:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
3,047
$
2,224
Income (loss) from equity investments
95
(3)
EBITDA
412
189
Revenues—Revenues increased by $823 million, or 37%, in the first quarter of 2021 compared to the first quarter of 2020.
Average sales prices in the first quarter of 2021 were higher across most products as sales prices generally correlate with crude oil prices, which on average, increased compared to the same period in 2020. These higher average sales prices were responsible for a revenue increase of 18% in the first quarter of 2021. Volume improvements resulted in a revenue increase of 12% in the first quarter of 2021 from strong polymer demand. Favorable foreign exchange impacts resulted in a revenue increase of 7% in the first quarter of 2021.
EBITDA—EBITDA increased by $223 million, or 118%, in the first quarter of 2021 compared to the first quarter of 2020. First quarter of 2020 results included a $36 million LCM inventory valuation charge primarily driven by a decline in the price of naphtha during the quarter. The absence of a similar charge in the first quarter 2021 resulted in a 19% change in EBITDA.
Improved polyethylene and polypropylene results increased EBITDA by 54% and 35%, respectively, in the first quarter of 2021. These improvements were largely attributed to higher margins due to strong demand. Lower olefins results led to a 51% decrease in EBITDA in the first quarter of 2021, primarily driven by lower margins attributable to increased feedstock costs. Higher income from our equity investments led to increases in EBITDA of 52% in the first quarter of 2021 mainly attributable to higher polyolefin margins due to increased demand. Favorable foreign exchange impacts resulted in a 11% increase in EBITDA in the first quarter of 2021.
Overview—EBITDA declined in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by lower volumes across most businesses, in particular propylene oxide and derivatives.
The following table sets forth selected financial information for the I&D segment including Income from equity investments, which is a component of EBITDA:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
1,767
$
1,770
Income from equity investments
12
2
EBITDA
182
203
Revenues—Revenues decreased by $3 million, remaining relatively flat, in the first quarter of 2021 compared to the first quarter of 2020. Lower sales volumes resulted in a 17% decline in sales, primarily driven by a decline in production due to the impact of unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities in Texas. This decrease was largely offset by higher average sales prices in the first quarter of 2021 for most products as sales prices generally correlate with crude oil prices, which on average, increased compared to the same period in 2020. This increase in average sales prices resulted in a 14% increase in revenue. Favorable foreign exchange impacts also increased revenue by 3% in the first quarter of 2021.
EBITDA—EBITDA decreased by $21 million, or 10%, in the first quarter of 2021 compared to the first quarter of 2020. In the first quarter of 2020 EBITDA for our I&D segment included a $78 million LCM inventory valuation charge primarily driven by a decline in the price of various gasoline blending components and butane during the quarter. The absence of a similar charge in the first quarter 2021 resulted in a 38% change in EBITDA.
Oxyfuels and related products results declined, resulting in a 35% decrease in EBITDA in the first quarter of 2021. Approximately 60% of this decline was driven by a decrease in margins due to lower blending premium over gasoline prices, higher feedstock costs and higher utility costs related to Texas weather events. The remaining decrease was due to lower volumes driven by Texas weather events and lower gasoline demand. Declines in propylene oxide and derivatives results led to an EBITDA decrease of 12% in the first quarter of 2021. This decrease was a result of lower volumes driven by Texas weather events as discussed above and planned maintenance. Approximately half of this volume decrease was offset by margin improvements due to tight market supply. Intermediate chemicals results declined, contributing to a 10% decrease in EBITDA primarily due to a decrease in margins due to higher feedstock costs. Higher income from our equity investments led to increases in EBITDA of 5% in the first quarter of 2021 mainly attributable to improved results at our joint venture in China. Favorable foreign exchange impacts increased EBITDA by 4% in the first quarter of 2021.
Planned maintenance in 2021 is expected to reduce EBITDA by approximately $115 million, which is $30 million lower than previously estimated, due to reduced scope of work and associated downtime for the maintenance.
Advanced Polymer Solutions Segment
Overview—EBITDA for our APS segment increased in the first quarter of 2021 relative to the first quarter of 2020, primarily due to improved compounding and solution results and the absence of integration costs related to the acquisition of A. Schulman recognized in the first quarter of 2020.
The following table sets forth selected financial information for the APS segment including losses from equity investments, which is a component of EBITDA:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
1,270
$
1,096
Income (loss) from equity investments
—
(1)
EBITDA
135
113
Revenues—Revenues increased by $174 million, or 16%, in the first quarter of 2021 compared to the first quarter of 2020. Foreign exchange impacts resulted in a revenue increase of 8% in the first quarter of 2021. Sales volumes increased in the first quarter of 2021 stemming from higher market demand for compounding and solutions, including higher automotive and construction demand, which led to a 4% increase in revenue. Average sales price increased resulting in a 4% increase in revenue in the first quarter of 2021.
EBITDA—EBITDA increased by $22 million, or 19%, in the first quarter of 2021 compared to the first quarter of 2020. Increased compounding and solutions results led to an EBITDA increase of 8% in the first quarter of 2021. This increase was mainly attributable to higher volumes driven by increased demand for our products utilized in the automotive and construction end markets in Asia and Europe. Integration activities related to our 2018 acquisition of A. Schulman Inc. were substantially completed during the third quarter of 2020. In the absence of these integration costs in the first quarter of 2021, EBITDA changed 12% during the quarter. Favorable foreign exchange impacts increased EBITDA by 6% in the first quarter 2021.
Refining Segment
Overview—EBITDA increased in the first quarter of 2021 relative to the first quarter of 2020 primarily due to the absence of an LCM inventory valuation charge which was recognized in the first quarter of 2020.
The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “Brent” is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. “Maya” is a heavy sour crude oil grade produced in Mexico that is a relevant benchmark for heavy sour crude oils in the U.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global.
Revenues—Revenues decreased by $322 million, or 22%, in the first quarter of 2021 compared to the first quarter of 2020. Heavy crude oil processing rates decreased during the first quarter of 2021 due to planned and unplanned outages, including the effects of unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities in Texas. This decline in sales volumes resulted in a 32% reduction in revenue. This decrease was partially offset by higher product prices, which led to a revenue increase of 10% due to an average Brent crude oil price increase of approximately $10 per barrel in the first quarter of 2021.
EBITDA—EBITDA increased by $162 million, or 60%, in the first quarter of 2021 compared to the first quarter of 2020. First quarter 2020 results included a $192 million LCM inventory valuation charge primarily driven by a decline in the price of crude oil and refined products, the absence of a similar charge in the first quarter 2021 resulted in a 71% change in EBITDA. This increase in the first quarter of 2021 was partially offset by a 7% decrease in EBITDA due to lower heavy crude oil processing rates driven by the impact of facility outages as discussed above and lower demand for transportation fuels. Margin declines resulted in a 4% decrease in EBITDA driven by a decrease in the Maya 2-1-1 market margin due to tighter heavy oil supply and a decrease in refined product demand as well as higher costs of Renewable Identification Numbers (“RINs”).
Technology Segment
Overview—EBITDA increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to higher licensing revenues.
The following table sets forth selected financial information for the Technology segment:
Three Months Ended March 31,
Millions of dollars
2021
2020
Sales and other operating revenues
$
165
$
122
EBITDA
94
56
Revenues—Revenues increased by $43 million, or 35%, in the first quarter of 2021 compared to the first quarter of 2020. Higher licensing revenues resulted in a 20% increase in the first quarter of 2021 compared to the first quarter of 2020. Higher catalyst volumes resulted in a 8% increase in revenue in the first quarter of 2021 primarily driven by a strong demand. Favorable foreign exchange impact led to a revenue increase of 7% in the first quarter of 2021.
EBITDA—EBITDA increased by $38 million, or 68%, in the first quarter of 2021 compared to the first quarter of 2020. Higher licensing revenues from more contracts reaching significant milestones in the first quarter of 2021 compared to the first quarter of 2020 resulted in a 41% increase in EBITDA. Higher catalyst volumes resulted in a 14% increase in EBITDA. Foreign exchange impacts, which on average, were favorable led to a 9% increase in EBITDA in the first quarter of 2021.
Operating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:
Three Months Ended March 31,
Millions of dollars
2021
2020
Cash provided by (used in) :
Operating activities
$
571
$
542
Investing activities
(59)
(663)
Financing activities
(782)
884
Operating Activities—Cash provided by operating activities of $571 million in the first quarter of 2021 reflected earnings adjusted for non-cash items, payments for employee bonuses, income taxes, income from equity investments, and cash used by the main components of working capital—Accounts receivable, Inventories and Accounts payable.
In the first quarter of 2021, the main components of working capital used $626 million of cash driven primarily by an increase in Accounts receivable and Inventories partially offset by an increase in Accounts payable. The increase in Accounts receivable was driven by higher revenues for our O&P—Americas, O&P—EAI, and APS segments. The increase in Inventory was primarily driven by higher inventory volumes, due to lower crude oil consumption as a result of Texas weather events, and prices within our Refining segment. The increase in Accounts payables was primarily driven by increased raw material costs.
Cash provided by operating activities of $542 million in the first quarter of 2020 reflected earnings adjusted for non-cash items, payments for employee bonuses, income taxes, and cash consumed by the main components of working capital.
In the first quarter of 2020, the main components of working capital used $110 million of cash driven primarily by a decrease in Accounts payable partially offset by a decrease in Inventories. The decrease in Accounts payable was primarily due to lower feedstock prices in our O&P–EAI segment as well as a decrease in crude oil purchases in our Refining segment. The decrease in Inventory was primarily driven by company-wide inventory reduction initiatives as well as higher sales volumes in our O&P–EAI segment compared to the fourth quarter 2019 and turnaround activities in our I&D segment.
Investing Activities—We invest cash in investment-grade and other high-quality instruments that provide adequate flexibility to redeploy funds as needed to meet our cash flow requirements while maximizing yield.
In the first quarters of 2021 and 2020 we received proceeds of $226 million and $1 million, respectively, from our investments in equity securities. Additionally, we received proceeds of $74 million in the first quarter of 2021 upon the maturity of certain available-for-sale debt securities.
Capital expenditures for the first three months of 2021 totaled $340 million compared to $660 million for the first three months of 2020, resulting in a decrease of $320 million or 48% in 2021 compared to 2020. Reduced spending within our I&D segment accounted for 32% of the decline which was driven by decreased spending at our PO/TBA plant. Additionally, spending in our O&P—Americas segment decreased by 21% due to the completion of our Hyperzone polyethylene plant in 2020 and a decline in other plant improvement projects in 2021. See Note 12 to the Consolidated Financial Statements for additional information regarding capital spending by segment.
Financing Activities—We made dividend payments totaling $352 million and $351 million in the first quarters of 2021 and 2020, respectively.
In January 2021, we repaid $500 million outstanding under our Term Loan due 2022.
In the first quarters of 2021 and 2020 we received a return of collateral of $66 million and posted collateral of $238 million, respectively, related to the positions held with our counterparties for certain forward-starting interest rate swaps.
In March 2020, we borrowed $500 million from our Senior Revolving Credit Facility and $500 million from our U.S. Receivables Facility to increase our liquidity.
In the first quarter 2020, we received net proceeds of $516 million, through the issuance and repurchase of commercial paper instruments under our commercial paper program.
Additional information related to the issuance of debt and commercial paper can be found in Note 6 to the Consolidated Financial Statements.
Liquidity and Capital Resources
Overview
We plan to fund our ongoing working capital, capital expenditures, debt service and other funding requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof, may be used to fund the purchase of shares under our share repurchase authorization.
We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. Our focus on funding our dividends while remaining committed to a strong investment grade balance sheet continues to be the foundation of our capital deployment strategy. In the near term, we are prioritizing debt reduction on our balance sheet.
Cash and Liquid Investments
As of March 31, 2021, we had Cash and cash equivalents and marketable securities classified as Short-term investments totaling $1,835 million, which includes $1,197 million in jurisdictions outside of the U.S., principally in the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.
Credit Arrangements
At March 31, 2021, we had total debt, including current maturities, of $15,425 million, and $197 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities.
We had total unused availability under our credit facilities of $2,905 million at March 31, 2021, which included the following:
•$2,005 million under our $2,500 million Senior Revolving Credit Facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. A small portion of our availability under this facility is impacted by changes in the euro/U.S. dollar exchange rate. At March 31, 2021, we had $500 million of outstanding commercial paper, net of discount, no borrowings or letters of credit outstanding under this facility; and
•$900 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At March 31, 2021, we had no borrowings or letters of credit outstanding under this facility.
We believe that our recent value-driven growth investments should benefit us over the coming years. With an improving outlook for cash generation, we remain committed to further strengthening our investment grade balance sheet through deleveraging. In January 2021, we repaid $500 million outstanding under our Term Loan due 2022. An additional $500 million was repaid in April 2021. We expect that our robust cash generation from operations should continue throughout the year and our top priority for capital deployment in 2021 is debt reduction, which will enable meaningful progress toward improving our credit metrics to two times total debt to EBITDA.
At any time and from time to time, we may repay or redeem our outstanding debt, including purchases of our outstanding bonds in the open market, through privately negotiated transactions or a combination thereof, in each case using cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt or proceeds from asset divestitures. Any repayment or redemption of our debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In connection with such repurchases or redemptions, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.
In accordance with our current interest rate risk management strategy and subject to management’s evaluation of market conditions and the availability of favorable interest rates among other factors, we may from time to time enter into interest rate swap agreements to economically convert a portion of our fixed rate debt to variable rate debt or convert a portion of our variable rate debt to fixed rate debt.
CURRENT BUSINESS OUTLOOK
With no significant planned maintenance for our assets during the second quarter, we plan to operate at nearly full capacity worldwide to meet improved demand that is expected to persist due to low inventories and maintenance downtime across our industry. Strong North American integrated polyethylene margins should continue as U.S. producers seek to fulfill domestic order backlogs, rebuild inventories and serve export demand. During the second half of 2021, increased mobility should drive higher demand for gasoline and jet fuel, improving margins for our Refining and I&D segments. We also expect that moderating feedstock costs will increase second quarter margins for our Advanced Polymer Solutions segment.
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.
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,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.
We based forward-looking statements on our current expectations, estimates and projections of our business and the industries in which we operate. We caution you that these statements are not guarantees of future performance. They involve assumptions about future events that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
•the cost of raw materials represents a substantial portion of our operating expenses, and energy costs generally follow price trends of crude oil, natural gas liquids and/or natural gas; price volatility can significantly affect our results of operations and we may be unable to pass raw material and energy cost increases on to our customers due to the significant competition that we face, the commodity nature of our products and the time required to implement pricing changes;
•our operations in the United States (“U.S.”) have benefited from low-cost natural gas and natural gas liquids; decreased availability of these materials (for example, from their export or regulations impacting hydraulic fracturing in the U.S.) could reduce the current benefits we receive;
•if crude oil prices fall materially, or remain low relative to U.S. natural gas prices, we would see less benefit from low-cost natural gas and natural gas liquids and it could have a negative effect on our results of operations;
•industry production capacities and operating rates may lead to periods of oversupply and low profitability;
•we may face unplanned operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failures, unscheduled downtime, supplier disruptions, labor shortages, strikes, work stoppages or other labor difficulties, transportation interruptions, spills and releases and other environmental incidents) at any of our facilities, which would negatively impact our operating results; for example, because the Houston refinery is our only refining operation, we would not have the ability to increase production elsewhere to mitigate the impact of any outage at that facility;
•changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate could increase our costs, restrict our operations and reduce our operating results;
•our ability to execute our organic growth plans may be negatively affected by our ability to complete projects on time and on budget;
•our ability to acquire new businesses and assets and integrate those operations into our existing operations and make cost-saving changes in operations;
•uncertainties associated with worldwide economies could create reductions in demand and pricing, as well as increased counterparty risks, which could reduce liquidity or cause financial losses resulting from counterparty default;
•uncertainties related to the extent and duration of the pandemic-related decline in demand, or other impacts due to the pandemic in geographic regions or markets served by us, or where our operations are located, including the risk of prolonged recession;
•the negative outcome of any legal, tax and environmental proceedings or changes in laws or regulations regarding legal, tax and environmental matters may increase our costs, reduce demand for our products, or otherwise limit our ability to achieve savings under current regulations;
•any loss or non-renewal of favorable tax treatment under agreements or treaties, or changes in laws, regulations or treaties, may substantially increase our tax liabilities;
•we may be required to reduce production or idle certain facilities because of the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries, which would negatively affect our operating results;
•we rely on continuing technological innovation, and an inability to protect our technology, or others’ technological developments could negatively impact our competitive position;
•we have significant international operations, and fluctuations in exchange rates, valuations of currencies and our possible inability to access cash from operations in certain jurisdictions on a tax-efficient basis, if at all, could negatively affect our liquidity and our results of operations;
•we are subject to the risks of doing business at a global level, including wars, terrorist activities, political and economic instability and disruptions and changes in governmental policies, which could cause increased expenses, decreased demand or prices for our products and/or disruptions in operations, all of which could reduce our operating results;
•if we are unable to comply with the terms of our credit facilities, indebtedness and other financing arrangements, those obligations could be accelerated, which we may not be able to repay; and
•we may be unable to incur additional indebtedness or obtain financing on terms that we deem acceptable, including for refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.
Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Our management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.
All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market and regulatory risks is described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020. Our exposure to such risks has not changed materially in the three months ended March 31, 2021.
Item 4. CONTROLS AND PROCEDURES
As of March 31, 2021, with the participation of our management, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer) carried out an evaluation, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the Act), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.
There have been no changes in our internal controls over financial reporting, as defined in Rule 13a-15(f) of the Act, in the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Information regarding our litigation and other legal proceedings can be found in Note 9 to the Consolidated Financial Statements, which is incorporated into this Item 1 by reference.
Additional information about our other environmental proceedings can be found in Part I, Item 3 of our 2020 Annual Report on Form 10-K, which is incorporated into this Item 1 by reference.
Item 1A. RISK FACTORS
There have been no material changes to the risk factors associated with our business previously disclosed in “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
XBRL Instance Document–The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
XBRL Schema Document
101.CAL*
XBRL Calculation Linkbase Document
101.DEF*
XBRL Definition Linkbase Document
101.LAB*
XBRL Labels Linkbase Document
101.PRE*
XBRL Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
+ Management contract or compensatory plan, contract or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
