LyondellBasell Industries N.V. Fair Value Disclosure
15. Fair Value Measurement
The following table presents the financial instruments outstanding as of December 31, 2016 and 2015 that are measured at fair value on a recurring basis.
| December 31, 2016 | |||||||||||||||
| Fair | |||||||||||||||
| Millions of dollars | Value | Level 1 | Level 2 | Level 3 | |||||||||||
| Assets– | |||||||||||||||
| Derivatives: | |||||||||||||||
| Basis swaps | $ | 21 | $ | - - | $ | 21 | $ | - - | |||||||
| Cross-currency swaps | 285 | - - | 285 | - - | |||||||||||
| Forward exchange contracts | 10 | $ | - - | 10 | - - | ||||||||||
| Forward-starting interest rate swaps | 1 | - - | 1 | - - | |||||||||||
| Fixed-for-floating interest rate swaps | 15 | - - | 15 | - - | |||||||||||
| Commodities | 5 | 2 | 3 | - - | |||||||||||
| Embedded derivatives | 1 | - - | 1 | - - | |||||||||||
| Non-derivatives: | |||||||||||||||
| Available-for-sale securities | 738 | - - | 738 | - - | |||||||||||
| Available-for-sale securities measured at net asset value* | 335 | ||||||||||||||
| $ | 1,411 | $ | 2 | $ | 1,074 | $ | - - | ||||||||
| Liabilities– | |||||||||||||||
| Derivatives: | |||||||||||||||
| Forward-starting interest rate swaps | $ | 16 | $ | - - | $ | 16 | $ | - - | |||||||
| Fixed-for-floating interest rate swaps | 4 | - - | 4 | - - | |||||||||||
| Commodities | 1 | 1 | - - | - - | |||||||||||
| Embedded derivatives | 10 | - - | 10 | - - | |||||||||||
| Foreign currency | 1 | - - | 1 | - - | |||||||||||
| Non-derivatives: | |||||||||||||||
| Performance share awards | 41 | 41 | - - | - - | |||||||||||
| $ | 73 | $ | 42 | $ | 31 | $ | - - | ||||||||
| December 31, 2015 | |||||||||||||||
| Millions of dollars | Fair | ||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets– | |||||||||||||||
| Derivatives: | |||||||||||||||
| Basis swaps | $ | 18 | $ | - - | $ | 18 | $ | - - | |||||||
| Cross-currency swaps | 300 | - - | 300 | - - | |||||||||||
| Forward-starting interest rate swaps | 8 | - - | 8 | - - | |||||||||||
| Fixed-for-floating interest rate swaps | 25 | - - | 25 | - - | |||||||||||
| Commodities | 8 | 8 | - - | - - | |||||||||||
| Embedded derivatives | 4 | - - | 4 | - - | |||||||||||
| Foreign currency | 1 | - - | 1 | - - | |||||||||||
| Non-derivatives: | |||||||||||||||
| Available-for-sale securities | 719 | - - | 719 | - - | |||||||||||
| Available-for-sale securities measured at net asset value* | 345 | ||||||||||||||
| $ | 1,428 | $ | 8 | $ | 1,075 | $ | - - | ||||||||
| Liabilities– | |||||||||||||||
| Derivatives: | |||||||||||||||
| Forward exchange contracts | $ | 24 | $ | - - | $ | 24 | $ | - - | |||||||
| Forward-starting interest rate swaps | 6 | - - | 6 | - - | |||||||||||
| Commodities | 2 | - - | 2 | - - | |||||||||||
| Foreign currency | 3 | - - | 3 | - - | |||||||||||
| Non-derivatives: | |||||||||||||||
| Performance share awards | 40 | 40 | - - | - - | |||||||||||
| $ | 75 | $ | 40 | $ | 35 | $ | - - | ||||||||
* In accordance with Fair Measurement Topic 820, Subtopic 10, certain investments measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The amounts presented in this table are intended to facilitate reconciliation to the Consolidated Balance Sheets.
The fair value of the commodities assets classified as Level 2 is associated with our commodity swaps designated as cash-flow hedges. The fair values of the commodities assets and liabilities classified as Level 1 are associated with our commodity derivatives not designated as hedges.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2016 and 2015.
The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of December 31, 2016 and 2015. Short-term and long-term loans receivable, which represent our repurchase agreements, and short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying and fair values of short-term and long-term debt exclude capital leases.
| December 31, 2016 | ||||||||||||||||||
| Carrying | Fair | |||||||||||||||||
| Millions of dollars | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Non-derivatives: | ||||||||||||||||||
| Assets: | ||||||||||||||||||
| Short-term loans receivable | $ | 369 | $ | 369 | $ | - - | $ | 369 | $ | - - | ||||||||
| Liabilities: | ||||||||||||||||||
| Short-term debt | $ | 90 | $ | 98 | $ | - - | $ | 98 | $ | - - | ||||||||
| Long-term debt | 8,382 | 9,147 | - - | 9,146 | 1 | |||||||||||||
| Total | $ | 8,472 | $ | 9,245 | $ | - - | $ | 9,244 | $ | 1 | ||||||||
| December 31, 2015 | ||||||||||||||||||
| Carrying | Fair | |||||||||||||||||
| Millions of dollars | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Non-derivatives: | ||||||||||||||||||
| Assets: | ||||||||||||||||||
| Short-term loans receivable | $ | 289 | $ | 289 | $ | - - | $ | 289 | $ | - - | ||||||||
| Long-term loans receivable | 98 | 98 | - - | 98 | - - | |||||||||||||
| Total | $ | 387 | $ | 387 | $ | - - | $ | 387 | $ | - - | ||||||||
| Liabilities: | ||||||||||||||||||
| Short-term debt | $ | 26 | $ | 23 | $ | - - | $ | 23 | $ | - - | ||||||||
| Long-term debt | 7,671 | 8,034 | - - | 8,032 | 2 | |||||||||||||
| Total | $ | 7,697 | $ | 8,057 | $ | - - | $ | 8,055 | $ | 2 | ||||||||
The fair value of all non-derivative financial instruments included in Current assets described below, Current liabilities, including Short-term debt excluding precious metal financings, and Accounts payable, approximates the applicable carrying value due to the short maturity of those instruments. Current assets include Cash and cash equivalents, Restricted cash, held-to-maturity time deposits and Accounts receivable.
We use the following inputs and valuation techniques to estimate the fair value of our financial instruments:
Basis Swaps—The fair value of our basis swap contracts is calculated using the present value of future cash flows discounted using observable inputs such as known notional value amounts, yield curves, and spot and forward exchange rates.
Cross-Currency Swaps―The fair value of our cross-currency swaps is calculated using the present value of future cash flows discounted using observable inputs with the foreign currency leg revalued using published spot and future exchange rates on the valuation date.
Forward-Starting Interest Rate Swaps—The fair value of our forward-starting interest rate swaps is calculated using the present value of future cash flows method and based on observable inputs such as benchmark interest rates.
Fixed-for-Floating Interest Rate Swaps—The fair value of our fixed-for-floating interest rate swaps is calculated using the present value of future cash flows method and based on observable inputs such as interest rates and market yield curves.
Commodity and Embedded Derivatives―The fair values of our commodity derivatives classified as Level 1 and embedded derivatives are measured using closing market prices at the end of the reporting period obtained from the New York Mercantile Exchange and from third-party broker quotes and pricing providers.
The fair value of our commodity swaps classified as Level 2 in 2015 is determined using a combination of observable and unobservable inputs. The observable inputs consist of future market values of various crude and heavy fuel oils, which are readily available through public data sources. The unobservable input, which is the estimated discount or premium used in the market pricing, is calculated using an internally-developed, multi-linear regression model based on the observable prices of the known components and their relationships to historical prices. A significant change in this unobservable input would not have a material impact on the fair value measurement of our Level 2 commodity swaps.
Foreign Currency Derivatives and Forward Exchange Contracts―The fair value of our foreign currency derivatives is based on forward market rates.
Available-for-Sale Securities—Fair value is calculated using observable market data for similar securities and broker quotes from recognized purveyors of market data or the net asset value for limited partnership investments provided by the fund administrator.
Performance Share Awards—Fair value is determined using the quoted market price of our stock.
Short-Term and Long-Term Loans Receivable—Valuations are based on discounted cash flows, which consider prevailing market rates for the respective instrument maturity in addition to corroborative support from the minimum underlying collateral requirements.
Short-Term Debt―Fair values of short-term borrowings related to precious metal financing arrangements are determined based on the current market price of the associated precious metal.
Long-Term Debt―Fair value is calculated using pricing data obtained from well-established and recognized vendors of market data for debt valuations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2016 | Feb 17, 2017 | Showing above |
| 2015 | Feb 16, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.