Washington, D.C. 20549
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ora non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act:
Explanatory Note
References in this Annual Report on Form 10-K (this "report") to "we," "our," "us" or like terms refer to Westlake Corporation, formerly known as Westlake Chemical Corporation ("Westlake" or the "Company").
Cautionary Statements about Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Certain of the statements contained in this Form 10-K are forward-looking statements. All statements, other than statements of historical facts, included in this Form 10-K that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expected" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as:
•future operating rates, margins, cash flows and demand for our products;
•industry market outlook, including the price of crude oil;
•widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus ("COVID-19") pandemic, and efforts to contain its transmission;
•our plans to respond to the challenges presented by the COVID-19 pandemic, including planned reductions of costs and increases of operating efficiencies;
•production capacities;
•the impact of ongoing supply chain constraints and workforce availability caused by the COVID-19 pandemic;
•currency devaluation;
•our ability to borrow additional funds under the Credit Agreement;our credit agreement;
•our ability to meet our liquidity needs;
•our ability to meet debt obligations under our debt instruments;
•our intended quarterly dividends;
•future capacity additions and expansions in the industry;industries in which we compete;
•results of acquisitions including the results, effects and benefits of the acquisitions of the Boral Target Companies, LASCO, Dimex and Hexion epoxy (each as defined below);
•timing, funding and results of capital projects, such as the expansion program at our Calvert City facility and the construction of the LACC plant;projects;
•pension plan obligations, funding requirements and investment policies;
•compliance with present and future environmental regulations and costs associated with environmentally relatedenvironmentally-related penalties, capital expenditures, remedial actions and proceedings, including any new laws, regulations or treaties that may come into force to limit or control carbon dioxide and other GHGgreenhouse gas emissions or to address other issues of climate change;
•effects of pending legal proceedings; and
•timing of and amount of capital expenditures.
We have based these statements on assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under "Risk Factors" and those described from time to time in our other filings with the SEC including, but not limited to, the following:
•the ultimate timing, outcome and results of integrating the operations of the Boral Target Companies, LASCO, Dimex and Hexion epoxy and the ultimate outcome of our operating efficiencies applied to the products and services of the Boral Target Companies, LASCO, Dimex and Hexion epoxy; the effects of the Acquisitions (as defined below), including the combined company's future financial condition, results of operations, strategy and plans; and expected synergies and other benefits from the Acquisitions and our ability to realize such synergies and other benefits;
•general economic and business conditions;
•the cyclical nature of the chemical industry;and building products industries;
•the availability, cost and volatility of raw materials and energy;
•uncertainties associated with the United States, European and worldwide economies, including those due to political tensions and unrest in the Middle East the Commonwealth of Independent States (including Ukraine) and elsewhere;
•uncertainties associated with pandemic infectious diseases, particularly COVID-19;
•current and potential governmental regulatory actions in the United States and other countries and political unrest in other areas;countries;
•industry production capacity and operating rates;
•the supply/demand balance for our products;
•competitive products and pricing pressures;
•instability in the credit and financial markets;
•access to capital markets;
•terrorist acts;
•operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);
•changes in laws or regulations;regulations, including trade policies;
•technological developments;
•information systems failures and cyberattacks;
•foreign currency exchange risks;
•our ability to implement our business strategies; and
•creditworthiness of our customers.
Many of such factors are beyond our ability to control or predict. Any of the factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. 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. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements.
Industry and Market Data
Industry and market data used throughout this Form 10-K were obtained through internal company research, surveys and studies conducted by unrelated third parties and publicly available industry and general publications, including information from IHS Markit (formerly IHS Chemical) ("IHS"). We have not independently verified market and industry data from external sources. While we believe internal company estimates are reliable and market definitions are appropriate, neither such estimates nor these definitions have been verified by any independent sources.
Production Capacity
Unless we state otherwise, annual production capacity estimates used throughout this Form 10-K represent rated capacity of the facilities at December 31, 2017.2021. We calculated rated capacity by estimating the number of days in a typical year that a production unit of a plant is expected to operate, after allowing for downtime for regular maintenance, and multiplying that number by an amount equal to the unit's optimal daily output based on the design feedstock mix. Because the rated capacity of a production unit is an estimated amount, actual production volumes may be more or less than the rated capacity.
PART I
Item 1. Business
General
We are a vertically integrated global manufacturer and marketer of basic chemicals, vinyls, polymersperformance and building products.essential materials and housing and infrastructure products that enhances the lives of people every day. Our products include some of the most widely used chemicalsmaterials in the world, which are fundamental to many diverse consumer and industrial markets, including residential construction, flexible and rigid packaging, automotive products, coatings,healthcare products, water treatment, refrigerants, residential and commercial constructioncoatings as well as other durable and non-durable goods. We operatehave historically operated in two principal operating segments, Vinyls and Olefins. As a result of recent acquisitions, in the fourth quarter of 2021, we reorganized our business into two principal operating segments, Performance and Essential Materials and Housing and Infrastructure Products. Performance and Essential Materials includes Westlake North American Vinyls, Westlake North American Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake Olefins and Vinyls.Westlake Polyethylene. Housing and Infrastructure Products includes Westlake Royal Building Products, Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. The change has been retrospectively reflected in the periods presented in this Form 10-K. We are highly integrated along our olefins productmaterials chain with significant downstream integration from ethylene and chlor-alkali (chlorine and caustic soda) into vinyls, polyethylene and styrene monomer. We are also an integrated global producer of vinyls withhave substantial downstream integration from PVC into polyvinyl chloride ("PVC")our building products.products, PVC pipes and fittings and PVC compounds in our Housing and Infrastructure Products segment.
We began operations in 1986 after our first polyethylene plant, an Olefins segment business, near Lake Charles, Louisiana was acquired from Occidental Petroleum Corporation. We began our vinyls operations in 1990 with the acquisition of a vinyl chloride monomer ("VCM") plant in Calvert City, Kentucky from Goodrich Corporation. In 1992, we commenced our Vinyls segment's building products operations after acquiring three PVC pipe plants.1986. Since 1986, we have grown rapidly into an integrated global producer of petrochemicals, vinyls, polymerschemicals and building products. We achieved this growth by acquiring existing plants or constructing new plants and completing numerous capacity or production line expansions. We regularly consider acquisitions and other internal and external growth opportunities that would be consistent with, or complementary to, our overall business strategy.
In 2014, we formed Westlake Chemical Partners LP ("Westlake Partners") to operate, acquire and develop ethylene production facilities and related assets. Also in 2014, Westlake Partners completed an initial public offering of 12,937,500 common units (the "Westlake Partners IPO"). On September 29, 2017,As of February 16, 2022, Westlake Partners completedPartners' assets consisted of a secondary offering of 5,175,000 common units at a price of $22.00 per unit and purchased an additional 5.0% newly-issued22.8% limited partner interest in Westlake Chemical OpCo LP ("OpCo") for approximately $229 million resulting in an aggregate 18.3% limited partner interest in OpCo effective July 1, 2017. As of February 14, 2018, Westlake Partners' assets consist of an 18.3% limited partner interest in OpCo,, as well as the general partner interest in OpCo. Prior to the Westlake Partners IPO, OpCo's assets were wholly-owned by us. OpCo's assets include two ethylene production facilities at our olefins facility at ourin Lake Charles, site, one ethylene production facility at our Calvert City site and a 200-mile common carrier ethylene pipeline that runs from Mont Belvieu, Texas to the Longview, Texas site, which includes our Longview polyethylene production facility. We retain an 81.7%a 77.2% limited partner interest in OpCo, a 43.8%40.1% limited partner interest in Westlake Partners (consisting of 14,122,230 common units), a general partner interest in Westlake Partners and incentive distribution rights. The operations of Westlake Partners are consolidated in our financial statements. We are party to certain agreements with Westlake Partners and OpCo whereby, among other things, OpCo sells us 95% of the ethylene it produces on a cost-plus basis that is expected to generate a fixed margin per pound of $0.10. We use this ethylene in the production processes of both our OlefinsPerformance and Vinyls segments.Essential Materials segment. For more information, see "—Olefins Business"Performance and "—VinylsEssential Materials Business" below.
On August 31, 2016,January 2, 2019, we completed the acquisition of AxiallNAKANTM, a global compounding solutions business. NAKAN's products are used in a wide-variety of applications, including in the automotive, building and construction, and medical industries. With this acquisition, our PVC compounding business now has facilities worldwide in China, France, Germany, Italy, Japan, Mexico, Spain, the United States and Vietnam, as well as a world-class research facility in France and several application laboratories.
On November 12, 2019, we completed the acquisition of an additional 34.8% of the membership interests in LACC, LLC ("LACC") from Lotte Chemical USA Corporation, a subsidiary of Lotte Chemical Corporation ("Axiall") for $33.00 per share in an all-cash transaction (the "Merger"Lotte"), pursuantfor approximately $817 million (the "Transaction"). Prior to the Transaction, we owned approximately 12% of the membership interests in LACC. As of December 31, 2021, we owned an aggregate 46.8% membership interest in LACC. The LACC ethylene plant has 2.2 billion pounds per year of ethylene production capacity and is adjacent to our chlor-alkali facility in Lake Charles. During the third quarter of 2019, the LACC ethylene plant began commercial operations. As a result of the Transaction, we receive our proportionate share of LACC's ethylene production on a cash-cost basis, which is expected to benefit our integrated downstream operations.
In January 2022, we notified Lotte of our exercise of an option to acquire an additional 3.2% membership interest in LACC from Lotte for approximately $90 million.
On June 20, 2021, we, through one of our wholly-owned subsidiaries, entered into an Equity Purchase Agreement (the "Boral Purchase Agreement") by and among Boral Building Products Inc., a Michigan corporation, Boral Stone Products LLC, a Delaware limited liability company, Boral Lifetile Inc., a California corporation, Boral Windows LLC, a Utah limited liability company, Boral Industries Inc., a California corporation ("Boral Industries"), and, solely for the limited purposes set forth therein, we and Boral Limited, an Australian corporation ("Boral"). Pursuant to the terms of the Boral Purchase Agreement, we agreed to acquire from Boral Industries all of the issued and Planoutstanding equity interests of Mergercertain subsidiaries of Boral Industries engaged in Boral's North American building products businesses in roofing, siding, trim and shutters, decorative stone and windows (the "Merger Agreement""Boral Target Companies"), dated. On October 1, 2021, we completed the acquisition of the Boral Target Companies (the "Boral Acquisition"). The total closing purchase consideration was $2,132 million subject to working capital post-closing adjustments as well as a potential earn-out payment of up to $65 million if the windows division of Boral Target Companies generates EBITDA in excess of a specified target in its fiscal year ending June 10, 2016, by30, 2024. The assets acquired and among Westlake, Axiallliabilities assumed and Lagoon Merger Sub,the results of operations of this business are included in the Housing and Infrastructure Products segment.
On August 19, 2021, we completed the acquisition of, and acquired all of the equity interests in LASCO Fittings, Inc. ("LASCO"), a wholly-owned subsidiarymanufacturer of Westlake. Axiall is a manufacturerinjected-molded PVC fittings that serve the plumbing, pool and international marketerspa, industrial, irrigation and retail markets in the United States from AalbertsU.S. Holding Corp. and Aalberts N.V. (the "LASCO Acquisition"). The total closing purchase consideration was $277 million. The assets acquired and liabilities assumed and the results of chemicalsoperations of LASCO are included in the Housing and building products, with manufacturing sites in North America. As a resultInfrastructure Products segment.
On September 10, 2021, we completed the acquisition of, and acquired all of the combinationequity interests in, DX Acquisition Corp. ("Dimex"), a producer of various consumer products made from post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic elastomer materials, including, landscape edging; industrial, home and office matting; marine dock edging; and masonry joint controls (the "Dimex Acquisition" and, together with Axiall,the Boral Acquisition and the LASCO Acquisition, the "2021 Acquisitions"). The total closing purchase consideration was $172 million. The assets acquired and liabilities assumed and the results of operations of Dimex are included in the Housing and Infrastructure Products segment.
On February 1, 2022, we completed the acquisition of the global epoxy business of Hexion Inc. ("Hexion epoxy"). The total closing purchase consideration was approximately $1,200 million, subject to post-closing adjustments (the "Hexion Acquisition" and, together with the 2021 Acquisitions, the "Acquisitions"). The assets acquired and liabilities assumed and the results of operations of Hexion epoxy will be included in the Performance and Essential Materials segment. This acquisition represents a significant strategic expansion of Westlake's Performance and Essential Materials businesses into additional high-growth, innovative and sustainable-oriented applications – such as wind turbine blades and light-weight automotive structural components. Because epoxies are produced from chlorine and caustic soda, the third-largesttransaction also provides vertical integration with Westlake's global chlor-alkali producerbusinesses.
Performance and the third-largest PVC producerEssential Materials Business
Products
Principal products in the world.our integrated Performance and Essential Materials segment include ethylene, polyethylene, styrene, chlor-alkali (chlorine and caustic soda) and chlorinated derivative products, ethylene dichloride ("EDC"), VCM and PVC. We manage our integrated vinyls production chain to optimize product margins and capacity utilization.
We benefit from highly integratedmanufacture ethylene through three of the OpCo plants and our portion of LACC's production capacity located in Lake Charles and Calvert City. Chlor-alkali materials are produced at our three plants located in Lake Charles, two plants located in Germany and one plant each located in Calvert City, Plaquemine, Geismar, Natrium, Longview and Beauharnois. Our VCM is produced at our two plants in Lake Charles, two plants located in Germany and one plant each at Calvert City, Plaquemine and Geismar. Our PVC is produced at our four plants located in Germany and one plant each at Calvert City, Plaquemine, Geismar and Aberdeen. Polyethylene and associated products are produced at our two polyethylene plants in Lake Charles and three polyethylene plants and a specialty polyethylene wax plant at our Longview site. Our chlorinated derivative products are produced at our plants in Lake Charles and Natrium. Styrene monomer is produced at our plant located in our Lake Charles facility. Our Asian manufacturing facilities that allow us to process raw materials into higher value-added chemicalsare located near Shanghai, in China, and buildingin Kaohsiung, Taiwan, through our 95%- and 60%-owned joint ventures, respectively, where we produce chlor-alkali, PVC and associated products. As of February 14, 2018,16, 2022, we (directly and through OpCo, our investment in LACC, and our 95%- and 60% owned Asian-owned joint ventures)ventures in China and Taiwan, respectively) had approximately 40.741 billion pounds per year of aggregate production capacity at numerous manufacturing sites in North America, Europe and Asia.Asia in our Performance and Essential Materials segment.
Products
The following table illustrates our Performance and Essential Materials segment production capacities at February 14, 201816, 2022 by principal product and the primary end uses of these materials:
|
| | | | | | | | | | | | | | | | | | | |
Product(1) | | Annual Capacity(2) | | End Uses | | Principal Manufacturing Facilities (4) (5) (6) |
| | (Millions of pounds) | | | | |
Ethylene(1)(3) | | 2,9904,750 |
| | Polyethylene, ethylene dichloride ("EDC"),VCM, polyethylene, EDC, styrene,
ethylene oxide/ethylene glycol | | Calvert City, Kentucky
Lake Charles, Louisiana |
| Chlorine | | 7,190 | | | VCM, EDC, organic/inorganic chemicals, bleach and water treatment | | Calvert City, Kentucky
Geismar, Louisiana
Lake Charles, Louisiana
Plaquemine, Louisiana
Natrium, West Virginia
Gendorf and Knapsack, Germany |
| Caustic Soda | | 7,910 | | | Pulp and paper, organic/inorganic chemicals, neutralization and alumina | | Calvert City, Kentucky
Geismar, Louisiana
Lake Charles, Louisiana
Plaquemine, Louisiana
Natrium, West Virginia
Gendorf and Knapsack, Germany |
| VCM | | 7,940 | | | PVC, PVC Compounds | | Calvert City, Kentucky
Geismar, Louisiana
Lake Charles, Louisiana
Plaquemine, Louisiana
Gendorf and Knapsack, Germany |
| Specialty PVC | | 980 | | | Automotive sealants, cable sheathing, medical applications and other applications | | Burghausen, Cologne, and Gendorf, Germany |
| Commodity PVC | | 6,820 | | | Construction materials including pipe, siding, profiles for windows and doors, film and sheet for packaging and other applications | | Calvert City, Kentucky
Geismar, Louisiana
Plaquemine, Louisiana
Aberdeen, Mississippi
Cologne and Knapsack, Germany |
| Low-Density Polyethylene ("LDPE") | | 1,500 |
| | High clarity packaging and bags, shrink films, laundry and dry cleaning bags, ice bags, frozen foodsfood packaging, bakery
bags, coated paper board, cup stock, paper folding
cartons, lids, closures and general purpose molding | | Lake Charles, Louisiana
Longview, Texas |
Linear Low-Density Polyethylene ("LLDPE") | | 1,070 |
| | Heavy-duty films and bags, general purpose liners | | Lake Charles, Louisiana
Longview, Texas |
StyreneChlorinated Derivative Materials | | 5702,290 |
| | Coatings, flavorants, films, refrigerants, water treatment applications, chemicals and pharmaceutical production | | Lake Charles, Louisiana
Natrium, West Virginia |
| Styrene | | 570 | | | Consumer disposables, packaging material, appliances, paints and coatings, resins and building materials | | Lake Charles, Louisiana |
| |
(1) | Production capacity owned by OpCo. |
(1) EDC, a VCM intermediate product, is not included in the table.
(2) Includes capacity related to our 95%- and 60%-owned Asian joint ventures.
(3) Includes production capacity in Lake Charles and Calvert City owned by OpCo and our portion of LACC's production capacity in Lake Charles. For additional information on OpCo, see "Ethylene" below.
(4) Except as noted in notes (5) and (6) below, we own each of these facilities.
(5) We lease the land on which our Gendorf, Burghausen, Knapsack and Cologne, Germany facilities and the Longview, Texas facility are located.
(6) We lease a portion of the land on which our Aberdeen and Calvert City facilities are located.
Ethylene. Ethylene is the world's most widely used petrochemical in terms of volume. It is the key building block used to produce a large number of higher value-added chemicals including polyethylene, EDC, VCM and styrene. OpCo has the capacity to produce approximately 3.0 billion pounds of ethylene per year at our olefins facility at our Lake Charles site, and we have the capability to consume all of OpCo's production that we purchase at Lake Charles to produce EDC, VCM, polyethylene and styrene monomer in our Olefins business and to produce VCM and EDC in our Vinyls business. OpCo also produces ethylene for our Vinyls segment at our Calvert City site, and substantially all of the ethylene we purchase from OpCo at Calvert City is used internally in the production of VCM. For OpCo's annual ethylene production that is purchased by us for our Vinyls business, see "Business—Vinyls Business."monomer. In addition, we (through OpCo) produce ethylene co-products including chemical grade propylene, crude butadiene, pyrolysis gasoline and hydrogen. We (through OpCo) sell our entire output of these co-products to external customers. OpCo completed an upgradeThe ethylene from OpCo's facility in Calvert City and capacity expansionLACC is utilized to produce VCM at our facilities. We obtain the remainder of its Petro 1the ethylene unitwe need for our business from third party purchases. The use of ethane feedstock by our ethylene plants enables us to enhance our low-cost materials chain integration.
Chlorine and Caustic Soda. We are the second-largest chlor-alkali producer in the world. We combine salt and electricity to produce chlorine and caustic soda, commonly referred to as chlor-alkali, at our Lake Charles, sitePlaquemine, Natrium, Calvert City, Geismar, Beauharnois, Longview (WA), Gendorf, Knapsack and Kaohsiung facilities. We use our chlorine production in our VCM and chlorinated derivative products plants. We currently have the capacity to supply all of our chlorine requirements internally. Any remaining chlorine is sold into the merchant chlorine market. Our caustic soda is sold to external customers who use it for, among other things, the production of pulp and paper, organic and inorganic chemicals and alumina.
VCM. VCM is used to produce PVC, solvents and PVC-related products. We use ethylene and chlorine to produce EDC, which is used in turn, to produce VCM. We have the capacity to produce approximately 6.3 billion pounds and 1.6 billion pounds of VCM per year at our North American and European facilities, respectively. The majority of our VCM is used internally in our PVC operations. VCM and EDC not used internally are sold externally.
PVC. PVC, the world's third most widely used plastic, is an attractive alternative to traditional materials such as glass, metal, wood, concrete and other plastic materials because of its versatility, durability and cost-competitiveness. PVC is produced from VCM, which is, in turn, made from chlorine and ethylene.
We are the second-largest PVC producer in the third quarterworld. With the completion of 2016.our previously announced expansion projects at our Geismar and Burghausen plants in 2019, we have the capacity to produce approximately 6.8 billion pounds and 1.0 billion pounds of commodity and specialty PVC per year, respectively, at our various facilities globally. We use some of our PVC internally in the production of our building products, PVC pipes and fittings and PVC compounds in the Housing and Infrastructure Products segment. The Petro 1 expansion project increased OpCo's ethylene capacity by approximately 250 million pounds annually.remainder of our PVC is sold to downstream fabricators and the international markets.
Polyethylene. Polyethylene, the world's most widely consumed polymer, is used in the manufacture of a wide variety of film, coatings and molded product applications primarily used in packaging. Polyethylene is generally classified as either LDPE, LLDPE or high-density polyethylene ("HDPE"). The density correlates to the relative stiffness of the end-use products. The difference between LDPE and LLDPE is molecular, and products produced from LLDPE, in general, have higher strength properties than products produced from LDPE. LDPE exhibits better clarity and other physical properties and is used in end products such as bread bags, dry cleaning bags, food wraps, milk carton coatings and snack food packaging. LLDPE is used for higher film strength applications such as stretch film and heavy dutyheavy-duty sacks. HDPE is used to manufacture products such as grocery, merchandise and trash bags, rigid plastic containers, plastic closures and pipe.
We are thea leading producer of LDPE by capacity in North America and predominantly use the autoclave technology (versus tubular technology), which is capable of producing higher marginhigher-margin specialty polyethylene products. In 2017,2021, our annual capacity of approximately 1.5 billion pounds of LDPE was available in numerous formulations to meet the needs of our diverse customer base. We also have the capacity to produce approximately 1.1 billion pounds of LLDPE per year in various formulations. We produce LDPE and LLDPE at both the Lake Charles and Longview (TX) facilities. Our Lake Charles and Longview facilities also have the capability to produce HDPE. We sell polyethylene to external customers as a final product in pellet form.
Chlorinated Derivative Materials. Our chlorinated derivative products include ethyl chloride, perchloroethylene, trichloroethylene, tri-ethane® solvents, VersaTRANS® solvents, calcium hypochlorite, hydrochloric acid ("HCL") and pelletized caustic soda ("PELS"). We have the capacity to produce approximately 2.3 billion pounds of chlorinated derivative products per year, primarily at our Lake Charles, Natrium, Beauharnois and Longview (WA) facilities. The majority of our chlorinated derivative products are sold to external customers who use these products for, among other things, refrigerants, water treatment applications, chemicals and pharmaceutical production, food processing, steel pickling, solvent and cleaning chemicals and natural gas and oil production.
Styrene. Styrene is used to produce derivatives such as polystyrene, acrylonitrile butadiene styrene, unsaturated polyester and synthetic rubber. These derivatives are used in a number of applications including consumer disposables, food packaging, housewares, paints and coatings, building materials, tires and toys. We produce styrene at our Lake Charles plant, where we have the capacity to produce approximately 570 million pounds of styrene per year, all of which is sold to external customers.
Electricity. Our Lake Charles, Plaquemine and Natrium cogeneration assets have the capacity to generate electricity of approximately 420, 240 and 100 megawatts, respectively, per year. Our North American joint ventures include a 50% interest in RS Cogen L.L.C. ("RS Cogen") that generates electricity, of which our share is approximately 212 megawatts.
Feedstocks
We are highly integrated along our olefins productmaterials production chain. We (through OpCo) produce most of the ethylene required to produce our polyethylene and styrene. Ethylene can be produced from either petroleum liquid feedstocks, such as naphtha, condensates and gas oils, or from natural gas liquid feedstocks, such as ethane, propane and butane. Both of OpCo's Lake Charles ethylene plants use ethane as the primary feedstock. Pursuant to a feedstock supply agreement between us and OpCo, OpCo receives ethane feedstock at our olefins facility at our Lake Charles site through several pipelines from a variety of suppliers in Texas and Louisiana. We own a 50% interest in a 104-mile natural gas liquids pipeline from Mont Belvieu to our Lake Charles site. OpCo owns a 200-mile ethylene pipeline that runs from Mont Belvieu to our Longview (TX) site.
Additionally, through OpCo, we produce most of the ethylene required at our Calvert City facility utilizing ethane feedstock. The LACC ethylene facility is located adjacent to our chlor-alkali facility in Lake Charles and has an ethylene production capacity of 2.2 billion pounds per year. During the third quarter of 2019, the LACC ethylene plant began its commercial operations. At December 31, 2021, we, through one of our subsidiaries, owned 46.8% of the membership interests in LACC. We receive our proportionate share in ethylene production on a cash-cost basis and primarily use it to produce VCM. In addition to ethylene supplied by OpCo and LACC, we also acquire ethylene from third parties in order to supply a portion of our ethylene requirements. In Germany, we have access to, and partially own, an ethylene pipeline.
We acquire butene and hexene to manufacture polyethylene and benzene to manufacture styrene. We receive butene and hexene at the Lake Charles site and hexene at the Longview (TX) site via rail car from several suppliers. We receive benzene via barges, ships and pipeline pursuant to short-term arrangements. We purchase butene and hexene pursuant to multi-year contracts, somecontracts.
The salt requirements for several of our larger chlor-alkali plants are supplied internally from salt domes we either own or lease and the salt is transported by pipelines we own. We purchase the salt required for our other chlor-alkali plants pursuant to long-term contracts.Electricity and steam for one of our Lake Charles facilities are produced by both on-site cogeneration units and through a toll arrangement with RS Cogen, a joint venture in which are renewable for an additional term subject to either partywe own a 50% interest. RS Cogen operates a process steam, natural gas-fired cogeneration facility adjacent to the contract notifyingsite. Electricity and steam for the other party that it does not wish to renewPlaquemine facility are supplied internally by our on-site cogeneration unit. A portion of our Natrium facility's electricity requirements is produced by our on-site generation unit, and the contract.remainder is purchased. We purchase electricity for our Lake Charles facilityremaining facilities under long-term contracts. We purchase VCM for our Asian PVC plant on a contract and spot basis.
Sustainability
As a leading global producer of plastics, we understand the importance of reducing the environmental impact of our feedstocks, production and usage, and developing innovations, together with our customers, to meet their objectives while also reducing their environmental impact. To further these objectives, we have launched environmentally friendly product innovations. In 2021, we introduced our GreenVinTM Caustic Soda and GreenVinTM PVC products in Germany. Due to the extensive global use of PVC and caustic soda, these developments present an opportunity for Westlake customers to enhance the sustainable qualities of their products.
Caustic Soda is an essential ingredient for the production of many materials, ranging from paper, detergents, construction materials, food packaging, pharmaceuticals and water treatments products. The plants of our German subsidiary Vinnolit, have been producing caustic soda in chlor-alkali electrolysis exclusively with the energy-saving and environmentally friendly membrane process since 2009. Since the central process step is electrified, power from renewable sources can be used to save CO2 emissions by displacing fossil fuels. By using such renewable power sources, the CO2 footprint of GreenVinTM Caustic Soda is reduced by approximately 30% compared to conventional Vinnolit caustic soda.
PVC is an essential ingredient in making some of the world's most prevalent items, including residential siding, pipe and fittings for various water, sewer and industrial contracts.applications, PVC profiles for windows, doors, fence, resin paste and artificial leather among others and decking along with films for various inflatables, wallcovering, tapes and roofing applications. The CO2 footprint of Vinnolit's new lower-carbon PVC, which was introduced to the market under the brand name GreenVinTM and is produced with power from renewable sources, is reduced by approximately 25% compared to conventional Vinnolit PVC.
Marketing, Sales and Distribution
We have an internala dedicated sales force for our business, organized by product line and region that sells our products directly to our customers. In addition, we rely on distributors to market products to smaller customers. Our polyethylene customers are some of the nation's largest producers of film and flexible packaging.
We and OpCo sell ethylene and ethylene co-products to external customers. OpCo's primary ethylene co-products are chemical grade propylene, crude butadiene, pyrolysis gasoline and hydrogen.
We have storage agreements and exchange agreements that allowprovide us and OpCo with access to customers who are not directly connected to the pipeline system that we own. OpCo ships crude butadiene and pyrolysis gasoline by rail or truck. Additionally, we transport our polyethylene and styrene by rail or truck. Further, styrene can be transported by barge or ship.
No single customer accounted for 10% or more of net sales for the Olefins segment in 2017.
Competition
The markets in which our Olefins business operates are highly competitive. We compete on the basis of customer service, product deliverability, quality, consistency, performance and price. Our competitors in the ethylene, polyethylene and styrene markets are some of the world's largest chemical companies, including Chevron Phillips Chemical Company, DowDuPont Inc., ExxonMobil Chemical Company, Formosa Plastics Corporation, LyondellBasell Industries, N.V. and NOVA Chemicals Corporation.
Vinyls Business
Products
Principal products in our integrated Vinyls segment include PVC and PVC compounds, VCM, EDC, chlor-alkali (chlorine and caustic soda) and chlorinated derivative products and, through OpCo, ethylene. We also manufacture and sell building products fabricated from PVC, including siding, pipe, fittings, profiles, trim, mouldings, fence and decking products, window and door components and film and sheet products. We manage our integrated Vinyls production chain, from the basic chemicals to finished building products, to optimize product margins and capacity utilization. Our primary North American chemical manufacturing facilities are located in our Calvert City, Kentucky and Lake Charles, Plaquemine and Geismar, Louisiana sites. Our Calvert City site includes an ethylene plant, which is owned by OpCo, a chlor-alkali plant, a VCM plant and a PVC plant. Our Lake Charles site includes three chlor-alkali plants, two VCM plants, a chlorinated derivative products plant and cogeneration assets. Our Plaquemine site includes a chlor-alkali plant, a VCM plant, a PVC plant and cogeneration assets. Our Geismar site includes a chlor-alkali plant, a VCM plant and a PVC plant. We also produce chlorine, caustic soda, hydrogen and chlorinated derivative products at our Natrium, West Virginia, Longview, Washington and Beauharnois, Quebec facilities and PVC resin and PVC compounds at several facilities in Mississippi. Our European chemical manufacturing facilities are located in Germany and the United Kingdom and include two chlor-alkali plants, two VCM plants and six PVC plants. Our Asian manufacturing facilities are located near Shanghai, in the People's Republic of China, and in Kaohsiung, Taiwan, through our 95% and 60% owned joint ventures, respectively, and include a PVC plant, a PVC film and sheet plant, a chlor-alkali plant and a chlorinated derivative products plant. As of February 14, 2018, we owned 24 building product facilities.
The following table illustrates our production capacities at February 14, 2018 by principal product and the end uses of these products:
|
| | | | | |
Product (1)
| | Annual Capacity (2)
| | End Uses |
| | (Millions of pounds) | | |
Specialty PVC | | 1,100 |
| | Automotive sealants, cable sheathing, medical
applications and other applications
|
Commodity PVC | | 6,030 |
| | Construction materials including pipe, siding, profiles for
windows and doors, film and sheet for packaging
and other applications
|
VCM | | 7,480 |
| | PVC |
Chlorine | | 7,140 |
| | VCM, organic/inorganic chemicals, bleach |
Caustic Soda | | 7,860 |
| | Pulp and paper, organic/inorganic chemicals,
neutralization, alumina
|
Chlorinated Derivative Products | | 2,290 |
| | Coatings, flavorants, films, refrigerants, water treatment applications, chemicals and pharmaceutical production |
Ethylene(3)
| | 730 |
| | VCM |
Building Products | | 1,950 |
| | Pipe: water and sewer, plumbing, irrigation, conduit;
fittings; profiles and foundation building products;
window and door components; fence and deck
components; siding, trim and mouldings; film and sheet
|
| |
(1) | EDC, a VCM intermediate product, is not included in the table. |
| |
(2) | Includes capacity related to our 95% and 60% owned Asian joint ventures. |
| |
(3) | Production capacity owned by OpCo. |
PVC and PVC Compounds. PVC, the world's third most widely used plastic, is an attractive alternative to traditional materials such as glass, metal, wood, concrete and other plastic materials because of its versatility, durability and cost-competitiveness. PVC is produced from VCM, which is, in turn, made from chlorine and ethylene. PVC compounds are highly customized formulations that offer specific end-use properties based on customer-determined manufacturing specifications. PVC compounds are made by combining PVC resin with various additives in order to make either rigid and impact-resistant or soft and flexible compounds. The various compounds are then fabricated into end-products through extrusion, calendering, injection-molding or blow-molding. Flexible PVC compounds are used for wire and cable insulation, medical films and packaging, flooring, wall coverings, automotive interior and exterior trims and packaging. Rigid extrusion PVC compounds are commonly used in window and door profiles, vertical blinds and construction products, including pipe and siding. Injection-molding PVC compounds are used in specialty products such as computer housings and keyboards, appliance parts and bottles.
We are the third-largest PVC producer in the world. We have the capacity to produce approximately 6.0 billion pounds and 1.1 billion pounds of commodity and specialty PVC per year, respectively, at our various facilities globally. We use some of our North American-produced PVC internally in the production of our building products, pipes and fittings and PVC compounds.compounds in the Housing and Infrastructure Products segment. The remainder of our PVC including the PVC produced at our European and Asian facilities, is sold to downstream fabricators and the international markets.
VCM. VCM is used to produce PVC, solvents and PVC-related products. We use ethylene and chlorine to produce VCM. We have the capacity to produce approximately 6.0 billion pounds and 1.5 billion pounds of VCM per year at our North American and European facilities, respectively. The majority of our VCM is used internally in our PVC operations. VCM not used internally is sold to other vinyl resins producers in domestic and international markets.
Chlorine and Caustic Soda. We combine salt and electricity to produce chlorine and caustic soda, commonly referred to as chlor-alkali, at our Lake Charles, Plaquemine, Natrium, Calvert City, Geismar, Beauharnois, Longview, Gendorf, and Knapsack, Germany and Kaohsiung facilities. We are the third-largest chlor-alkali producer in the world. We use our chlorine production in our VCM and chlorinated derivative products plants. We currently have the capacity to supply all of our chlorine requirements internally. Any remaining chlorine is sold into the North American merchant chlorine market. Our caustic soda is sold to external customers who use it for, among other things, the production of pulp and paper, organic and inorganic chemicals and alumina.
Chlorinated Derivative Products. Our chlorinated derivative products include ethyl chloride, perchloroethylene, trichloroethylene, tri-ethane® solvents, VersaTRANS® solvents, calcium hypochlorite, hydrochloric acid ("HCL") and pelletized caustic soda ("PELS"). We have the capacity to produce approximately 2.3 billion pounds of chlorinated derivative products per year, primarily at our Lake Charles, Natrium, Beauharnois and Longview facilities. The majority of our chlorinated derivative products are sold to external customers who use these products for, among other things, refrigerants, water treatment applications, chemicals and pharmaceutical production, food processing, steel pickling, solvent and cleaning chemicals and natural gas and oil production.
Ethylene. We use the ethylene we purchase that is produced by OpCo at Calvert City to produce VCM. OpCo's Calvert City ethylene plant has the capacity to produce approximately 20% of the ethylene required for our total VCM production. We obtain the remainder of the ethylene we need for our Vinyls business from OpCo's Lake Charles plants and from third party purchases. OpCo's Calvert City ethylene plant utilizes ethane feedstock and enables us, through OpCo, to enhance our vinyl chain integration. In January 2016, OpCo announced an expansion project to increase the ethylene capacity of its ethylene plant at our Calvert City facility. The expansion was completed in 2017 and, along with other initiatives, increased ethylene capacity by approximately 100 million pounds annually.
Building Products. Products made from PVC are used in construction materials ranging from water and sewer systems to home and commercial applications for siding, trim, mouldings, fence, deck, window and door systems. Our building products consist of two primary product groups: (i) exterior products, which includes siding, trim, mouldings, window profiles, fence and decking products; and (ii) PVC pipe, specialty PVC pipe and fittings. We manufacture and market exterior products under the Royal Building Products®, Celect Cellular Exteriors by Royal®, Zuri Premium Decking by Royal®, Royal S4S Trim Board® and Exterior Portfolio® brand names. We manufacture and market specialty pipe and fittings, water, sewer, irrigation and conduit pipe products under the North American Pipe® and Royal Building Products® brand names. We manufacture film and sheet at our Shanghai facility for both Asian and global markets. All of our building products are sold to external customers. The combined capacity of our 24 building products plants is approximately 2.0 billion pounds per year.
Feedstocks
We are highly integrated along our vinyls production chain. We produce most of the ethylene required by our Calvert City and Geismar facilities (through OpCo). Ethylene produced at OpCo's Calvert City facility utilizes ethane feedstock. We purchase the remainder of the ethylene required for our other North American and European facilities from a number of sources under various contracts. We have access to, and partially own, an ethylene pipeline in Germany. We have long-term leases on salt domes, from which we supply our salt brine requirements by pipeline, close to our Lake Charles chlor-alkali plant. The salt requirements for our Plaquemine and Natrium chlor-alkali plants are supplied internally from our salt domes. We purchase the salt required for our other chlor-alkali plants pursuant to long-term contracts. Electricity and steam for one of our Lake Charles facilities are produced by both on-site cogeneration units and through a toll arrangement with RS Cogen, LLC ("RS Cogen"), a joint venture in which we own a 50% interest. RS Cogen operates a process steam, natural gas-fired cogeneration facility adjacent to the site. Electricity and steam for the Plaquemine facility is supplied internally by our on-site cogeneration unit. A portion of our Natrium facility's electricity requirements is produced by our on-site generation unit, and the remainder purchased under an industrial contract. We purchase electricity for our remaining North American and European facilities under long-term industrial contracts. We purchase VCM for our Asian PVC plant on a contract and spot basis.
Our North American and Asian facilities supply predominantly all of the PVC required for our building products plants. We may also purchase PVC at market prices, if needed. The remaining feedstocks for building products include pigments, fillers, stabilizers and other ingredients, which we purchase under short-term contracts based on prevailing market prices.
Marketing, Sales and Distribution
We have a dedicated sales force for our business, organized by product line and region. In addition, we rely on distributors to market products to smaller customers. We use some of our North American-produced PVC internally in the production of our building products and PVC compounds. The remainder of our PVC, including the PVC produced at our European and Asian facilities, is sold to downstream fabricators and the international markets. We have the capacity to use a majority of our chlorine internally to produce VCM and EDC, most of which, in turn, is used to produce PVC. We also use our chlorine internally to produce chlorinated derivative products. We sell the remainder of our chlorine and substantially all of our caustic soda production to external customers. The majority of our products are shipped from production facilities directly to the customer via pipeline, truck, rail, barge and/or ship. The remaining products are shipped from production facilities to third party chemical terminals and warehouses until being sold to customers.
No single customer accounted for 10% or more of net sales for the Performance and Essential Materials segment in 2021.
Competition
The markets in which our Performance and Essential Materials businesses operate are highly competitive. Competition in the materials market is based on product availability, product quality and consistency, product performance, customer service and price. Our competitors in the ethylene, polyethylene and styrene markets are some of the world's largest chemical companies, including Chevron Phillips Chemical Company, Dow Inc., ExxonMobil Chemical Company, Formosa Plastics Corporation, LyondellBasell Industries, N.V., NOVA Chemicals Corporation and Sasol Limited. We compete in the chlor-alkali and PVC markets with other producers including Formosa Plastics Corporation, INOVYN ChlorVinyls Limited, KEM ONE Group SAS, Olin Corporation, Orbia Advanced Corporation, Oxy Chem, LP, Shintech, Inc. and VYNOVA Group.
Housing and Infrastructure Products Business
Our Brands and Products
We are the second largest manufacturer ofmanufacture and sell housing and infrastructure products including residential PVC siding; PVC trim and moldings; roofing applications; decorative stone; windows; PVC decking; PVC films for various inflatables, wallcovering, tape and roofing applications; polymer composite roof tiles; PVC pipe and fittings for various water, sewer, electrical and industrial applications; PVC compounds used in various housing, medical and automobile products; and a variety of consumer and commercial products such as landscape edging; industrial, home and office matting; marine dock edging; and masonry joint controls.
Our housing and infrastructure products consist of several product groups including: (i) exterior and interior building products, which includes siding, trim and mouldings, stone, roofing, windows and outdoor living products; (ii) PVC pipe, specialty PVC pipe and fittings; and (iii) PVC compounds. Many of our products are made from PVC, including products for water and sewer systems and home and light commercial applications for siding, trim and mouldings, outdoor living products, windows and PVC compounds.
Siding. Our siding products include insulated siding and vinyl siding and accessory products. Additionally, we offer premium siding products such as Celect® Cellular Composite Siding and, as a result of the Boral Acquisition, TruExterior® Siding.Our siding business is also a leader in non-wood shutters and siding accessories along with an array of specialty tools to aid installation. Our brands include Royal® Siding, Portsmouth Shake and Shingle™, Foundry® Specialty Siding, TruExterior® Siding&Trim, Celect® Cellular Exteriors, Mid-America® Exteriors, Tapco Tools®, and many more.
Trim and Mouldings. We offer a wide variety of trim and moulding products, including exterior and interior products for homes, multi-family and light commercial structures that are used as substitute for wood and wood composite offerings. Our brands include Royal® Trim and Mouldings, TruExterior® Siding&Trim, and, Kleer Lumber®, among others.
Stone. We are a leader in the masonry stone veneer category, with both mortar applied products and mechanically fastened products that are used as a substitute for stone in interior applications such as fireplaces, kitchens and bathrooms, as well as exterior walls and accents. Our stone brands include Cultured Stone®, Eldorado Stone®, Versetta Stone®, StoneCraft IndustriesTM and Dutch Quality Stone, among others.
Roofing. Our DaVinci® Roofscapes is a premium composite roofing. Additional product offerings include concrete and clay roof tiles and stone coated steel roofing. Our other major roofing name brands include NewPointTM,Concrete Roof Tile, USTile® Clay Roofing Products, United SteelTM, and Stone Coated Roofing among others.
Windows. As a result of the Boral Acquisition, we are a regional fabricator of vinyl windows in the South and Southeast markets of the United States. Our brands include Legacy Collection™, the Krestmark® Collection, and the Magnolia Collection™.
Outdoor Living Products. Our outdoor living products include Zuri® Premium Decking and Kindred® Outdoor kitchens and fire bowls.
PVC Pipe. We manufacture and sell pipe ranging from ½ inch to 36 inch in diameter, in gasketed, solvent welded, and restrained joint configurations.Our pipe products are used in residential water and sewer applications; municipal potable water and sewer infrastructure; plumbing and industrial applications, including drain, waste & vent ("DWV"); electrical duct and conduit; turf irrigation, water well and other major water transport market segments. We manufacture and market pipe for water, sewer, irrigation and conduit pipe products under the NAPCO brand name.
Specialty PVC Pipe. Our specialty PVC pipe includes the Certa-Lok® pipe and Certa-Lok® CLIC joining systems, which provide restrained joints with rapid assembly, designed for use in potable water, sewer, fire protection, agriculture, well-casing, electrical conduit and other piping system applications in the residential and various infrastructure markets. Other specialty products include a system for high rise DWV installations that incorporates low smoke and flame properties. Our Molecularly Oriented PVC ("PVCO") pipe is produced with less PVC than conventional pipe. We also manufacture and market specialty pipe under the Certa-Set®, Certa-Set®CLIC, Certa-Flo®, Certa-Com®, Yelomine®,Fluid-Tite®, Kwik-Set®, Sure-Fit®, Cobra Lock®, and Kor-Flo® brand names, among others.
Fittings. Our fittings productsinclude a range of injection molded and custom fabricated fittings including:injection mold DWV fittings for residential, low-rise and high-rise commercial installations; molded gasketed and solvent weld sewer fittings up to 15 inches, molded gasketed municipal pressure fittings and molded fittings for the pool, spa, industrial markets and electrical assemblies; and fabricated custom fittings up to 36 inches for municipal and plumbing installations. We manufacture and market specialty fittings under the NAPCO, LASCO, and Surge Guard® brand names, among others.
PVC Compounds. PVC compounds are customized formulations that offer specific end-use properties based on customer-determined manufacturing specifications. PVC compounds are made by capacitycombining PVC resin with various additives in order to make either rigid and impact-resistant or soft and flexible compounds. The various compounds are then fabricated into end-products through extrusion, calendaring, injection-molding or blow-molding. Flexible PVC compounds are used for wire and cable insulation, medical applications and packaging, flooring, wall coverings, automotive interior and exterior trims and packaging. Rigid extrusion PVC compounds are commonly used in window and door profiles, vertical blinds and construction products, including pipe and siding. Injection-molding PVC compounds are used in specialty products such as computer housings and keyboards, appliance parts and containers. Powder compounds are primarily used in window and door profiles and pipe and fittings.
Recycled Products. WestlakeDimex is a producer of various products made from post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic elastomer materials. These products include landscape edging; industrial, home and office matting; marine dock edging; and masonry joint controls.
Raw Materials and Suppliers
Our North American PVC facilities within the Performance and Essential Materials segment supply most of the PVC required by building products for our housing exteriors and PVC pipes and fittings plants. Our raw materials for stone, roofing and accessories, windows, shutters and specialty tool products are externally purchased. PVC required for the PVC compounds plants is either internally sourced from our North American and Asian facilities within the Performance and Essential Materials segment or externally purchased based on the location of the plants. The remaining feedstocks required, including pigments, fillers, stabilizers and other ingredients, are purchased under short-term contracts based on prevailing market prices.
Manufacturing
We operate 63 manufacturing locations primarily in the United States. States and Canada where we produce siding, trim and mouldings, stone, roofing, windows, outdoor living products, PVC pipes, specialty PVC pipes and fittings. In addition, we have 12 manufacturing locations across the world where we produce PVC compounds, including locations in North America, Europe and Asia. The following table illustrates the properties owned and leased by the Housing and Infrastructure Products business:
| | | | | | | | | | | | | | | | | | |
| | Manufacturing Facilities | | |
| | Owned | | Leased | | | | |
| | | | | | | | |
| North America | | 45 | | 23 | | | | |
| Europe | | 3 | | 1 | | | | |
| Asia | | 3 | | — | | | | |
Marketing, Sales and Distribution
We sell a majority of our siding, trim and mouldings, stone, roofing, windows and outdoor living products, PVC pipe, specialty PVC pipe and fittings and film and sheet products through a combination of our internal sales force and some manufacturer's representatives. In the United States and Canada, we operate 19 company-owned37 leased and 5 owned distribution branchescenters and warehouses that sellservice and supply our vinyl sidingproducts to local customers, contractors and accessories and trim and mouldings products, as well as pipe and fittings.distributors. We also engage in advertising programs primarily directed at trade professionals and homeowners that are intended to develop awareness and interest in our products. In addition, we display our building products at trade shows. Our 12 PVC Compounds facilities across the world sell through a combination of our internal sales force and distributors.
No single customer accounted for 10% or more of net sales for the VinylsHousing and Infrastructure Products segment in 2017.2021.
Competition
The markets in which our Vinyls business operateshousing and infrastructure businesses operate are highly competitive. Competition in the vinyls market is based on product availability, product performance, customer servicehousing and price. We compete in the vinyls market with other producers including Formosa Plastics Corporation, Oxy Chem, LP, Shintech, Inc., Olin Corporation, Mexichem, S.A.B. de C.V., INOVYN ChlorVinyls Limited, VYNOVA Group and Kem One Group SAS.
Competition in the buildinginfrastructure products market is based on on-time delivery, product quality, product innovation, customer service, product consistency, on-time delivery and price. We compete in the buildinghousing and infrastructure products market with other producers and fabricators including Associated Materials LLC., CertainTeed Corporation, Cornerstone Building Brands, Inc., Diamond Plastics Corporation, JM Eagle, Ply Gem Holdings, Inc., CertainTeed Corporation, IPEX Inc., Associated Materials LLCJM Eagle Inc., Trex Company, Inc. and CPG International, LLC.The Azek Company and with producers of PVC compounds including GEON Performance Solutions and Teknor Apex Company, Inc.
Seasonality
Though we generally experience demand for our products throughout the year, our sales, particularly of housing products have historically experienced some seasonality. We have typically experienced moderately higher levels of sales of our residential products in the first half of the year due to inventory restocking and improved weather for construction. Our sales are affected by the individual decisions of distributors and dealers on the levels of inventory they carry, their views on product demand, their financial condition and the manner in which they choose to manage inventory risk. Our sales are also generally impacted by the number of days in a quarter or a year that contractors and other professionals are able to install our products. This can vary dramatically based on, among other things, weather events such as rain, snow and extreme temperatures. We have generally experienced lower levels of sales of our housing products in the fourth quarter due to adverse weather conditions in certain markets, which typically reduces the construction and renovation activity during the winter season.
Environmental
As is common in our industry, we are subject to environmental laws and regulations related to the use, storage, handling, generation, transportation, emission, discharge, disposal and remediation of, and exposure to, hazardous and non-hazardous substances and wastes in all of the countries in which we do business. National, state or provincial and local standards regulating air, water and land quality affect substantially all of our manufacturing locations around the world. Compliance with such laws and regulations has required and will continue to require capital expenditures and increase operating costs.
It is our policy to comply with all environmental, health and safety requirements and to provide safe and environmentally sound workplaces for our employees. In some cases, compliance can be achieved only by incurring capital expenditures. In 2017,2021, we made capital expenditures of $15$33 million related to environmental compliance. We estimate that we will make capital expenditures of approximately $42$56 million in 20182022 and $42$83 million in 2019,2023, respectively, related to environmental compliance. The expected 20182022 and 20192023 capital expenditures are relatively higher than the amounts we have spent related to environmental compliance in recent years in large part due to capital expenditures related to previously existing and new Environmental Protection Agency (the "EPA") regulations and requirements with respectcorrective actions required by the EPA to resolve the Axiall chlor-alkali sites.flare enforcement matter discussed below. The remainder of the 20182022 and 20192023 estimated expenditures are related to equipment replacement and upgrades. We anticipate that stringent environmental regulations will continue to be imposed on us and the industry in general. Although we cannot predict with certainty future expenditures, management believes that our current spending trends will continue.
From time to time, we receive notices or inquiries from government entities regarding alleged violations of environmental laws and regulations pertaining to, among other things, the disposal, emission and storage of chemical substances, including hazardous wastes. Pursuant to Item 103 of the SEC's Regulation S-K, requires disclosure of certainthe following environmental matters wheninvolve a governmental authority isas a party to the proceedings and the proceedings involve potential monetary sanctions unlessthat we reasonably believe such sanctions would notcould exceed $100,000.$1 million (which is less than one percent of our current assets on a consolidated basis as of December 31, 2021):
During September 2010, our vinyls facilities in north Lake Charles and Plaquemine each received a Consolidated Compliance Order and Notice of Potential Penalty, alleging violations of various requirements of those facilities' air permits, based largely on self-reported permit deviations related to record-keeping violations. We have been negotiating a possible global settlement of these and several other matters with Louisiana Department of Environmental Quality. We believe the resolution of these matters may require the payment of a monetary sanction in excess of $100,000.
•For several years, the EPA has been conducting an enforcement initiative against petroleum refineries and petrochemical plants with respect to emissions from flares. On April 21, 2014, we received a Clean Air Act Section 114 Information Request from the EPA which sought information regarding flares at the Calvert City Kentucky facility and certain Lake Charles facilities. The EPA has informed us that the information provided leads the EPA to believe that some of the flares are out of compliance with applicable standards. The EPA has indicated that it is seeking a consent decree that would obligate us to take corrective actions relating to the alleged noncompliance. We believe the resolution of these matters may require the payment of a monetary sanction in excess of $100,000.
Regional offices of the EPA have investigated, and in some cases inspected, our compliance with Risk Management Program requirements under the Clean Air Act at our Calvert City, Kentucky; Natrium, West Virginia and Geismar, Louisiana facilities. We believe the resolution of these matters may require the payment of a monetary sanction in excess of $100,000.
In October 2017, the Enforcement Division of Kentucky Department of Environmental Protection ("KDEP") indicated that it intended to proceed with enforcement on two Notices of Violation ("NOVs") received by our Calvert City, Kentucky facility in December 2016 and May 2017. The NOVs allege violations of state and federal air requirements in connection with the operation of the olefins unit at the facility. We have engaged in negotiations with KDEP to resolve these alleged violations. We believe the resolution of these matters may require the payment of a monetary sanction in excess of $100,000.$1 million.
We do not believe that the resolution of any or all of these flare matters will have a material adverse effect on our financial condition, results of operations or cash flows.
Also see our discussion of our environmental matters contained in Item 1A, "Risk Factors" below, Item 3, "Legal Proceedings" below and Note 2022 to our consolidated financial statements included in Item 8 of this Form 10-K.
EmployeesHuman Capital
Westlake is committed to acting in a safe, ethical, environmentally, and socially responsible manner. We have been a public company for 17 years, but we still think of our employees as members of our extended family. We value the integrity, creativity, dedication and diversity of ideas that our employees bring to work every day.
Diversity, Equity and Inclusion (DEI)
As a global company, we recognize the diversity of our employees, customers and communities, and believe in creating an inclusive and equitable environment that represents a broad spectrum of backgrounds and cultures. A significant portion of our management team and our Board of Directors comes from diverse backgrounds, and we are focused on hiring and retaining diverse and talented employees. Our Board of Directors has charged the Compensation Committee with oversight responsibility of the Company's DEI efforts.
As an Asian American and Pacific Islander ("AAPI")-controlled business, we feel a special commitment to ensuring that Westlake continues to offer opportunities for employees of all backgrounds and experiences. As of December 31, 2017,2021, approximately 37% of our employees in the United States and Canada self-identified as Black, indigenous, Hispanic, or AAPI. Although we do not collect demographic data in our European and Asian workforces, we know that we are a diverse, multinational company.
Training and Professional Development
As part of our retention and promotion efforts, we invest in internal leadership development. Westlake regularly provides its employees with training opportunities, including safety training, technical courses, compliance with company policies, business and professional development training, and professional growth classes. In conjunction with technical training, we believe that the non-technical training helps to create well-rounded, and highly-driven, employees. In addition, we periodically conduct employee surveys to gauge employee engagement and identify areas for additional focus.
Headcount
As of December 31, 2021, we had approximately 8,80014,550 employees in the following areas:
|
| | | | | | | |
| Category | | Number |
OlefinsPerformance and Essential Materials segment | | 8205,400 |
|
VinylsHousing and Infrastructure Products segment | | 7,6108,760 |
|
| Corporate and other | | 370390 |
|
| | |
Approximately 32%Our employees are distributed across 16 countries. As of December 31, 2021, approximately 72% were employed in the United States. Approximately 24.7% of our employees are represented by labor unions, and all of these union employees are working under collective bargaining agreements that expire at various times through 2022.2026. We have multiple collective bargaining agreements in Europe, CanadaNorth America and the United States, with varying expiration years,Asia, covering different groups of our work force. There were no strikes, lockouts or work stoppages in 20172021, and we believe that our relationship with our employees and unions is open and positive.
Attracting, developing and retaining talented people is crucial to executing our strategy. Our ability to recruit and retain such talent depends on a number of factors, including compensation and benefits, career opportunities and work environment. We provide our employees with competitive compensation packages, development programs that enable continued learning and growth, and comprehensive and competitive benefit packages worldwide. Our compensation and benefits arrangements generally are tailored to local markets of operation.
Health and Safety
The health and safety of our employees and our operations is our highest priority. Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our manufacturing, research and development, and administrative office locations. We require each of our locations to perform regular safety audits to ensure proper safety policies, program procedures, analyses and training are in place.
Our focus on safety starts at the top with our Board of Directors. Safety is a key performance indicator that is reported on and discussed at every Board meeting. Our Health, Safety and Environment ("HSE") team plays a pivotal role in overseeing all related policy protections, risk identification and other aspects of our business.
Several of our U.S. manufacturing sites have been recognized by the U.S. Occupational Safety & Health Administration's ("OSHA") Voluntary Protection Program ("VPP") for their low injury rates, employee engagement and safety programs. All of our chemical sites in Germany satisfy the Deutsche Industrie Norm ISO 45001 certification program, which is comparable to VPP.
With respect to the ongoing COVID-19 pandemic, we have adopted safety guidelines and practices, including safety and health training for existing and new employees, remote working, health screening of employees, contact tracing for reported exposure, enforcing self-isolation after exposure, provisions for mask wearing, modifications to the in-office work environment, social distancing, increased sanitation stations and increased cleaning of offices and workstations.
Intellectual Property and Technology
Historically,We rely upon both trademark and service mark protection to protect our brands, and have registered or applied to register many of these on a world-wide basis. We have over 1000 active and pending trademark registrations worldwide for our various business segments. We also rely on a combination of patents and un-patented proprietary know-how and trade secrets to preserve our competitive technology strategy has been to selectively acquireposition in the market. We have over 900 issued patents and pending patent applications in the United States and several other countries. While some of our production capacity operates under licenses from third-parties, as well as developthird parties, other parts of our production operate under technology that was developed internally. Consequently, we offer our own proprietary technology. Our selection process incorporates many factors, includingindependently developed technology for licensing when the cost ofopportunity makes sense on a commercial basis. Although the technology,Company considers its patents, licenses, trademarks and trade secrets in the abilityaggregate to meet our customers' requirements, raw material and energy consumption rates, product quality, capital costs, maintenance requirements and reliability. Most of the technology licensed from third-party providers is perpetual and has been paid in full. We own an intellectual property portfolio developed from focused research in both process and product technology. After acquiring or developingconstitute a technology,valuable asset that provides competitive advantage to us, we devote considerable effort to effectively employ the technology and further its development, with a focus towards continuous improvementdo not regard any one of our competitive positions.
Conversely, we have selectively grantedbusinesses as being materially dependent upon any single or group of related patents, trademarks, licenses, to our patented Energx® technology for LLDPE production and for proprietary LDPE reactor mixing technology. We have also granted several licenses for EDC/VCM technology, including the direct chlorination process and catalyst, and S-PVC (Suspension PVC for thermoplastic process) process and technology.or trade secrets.
Segment and Geographic Information
Information regarding sales, income from operations and assets attributable to our Olefins and Vinyls segments, and geographical information is presented in Note 21 to our consolidated financial statements included in Item 8 of this Form 10-K.
Available Information
Our Web sitewebsite address is www.westlake.com. We make our Web siteOur website content is available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. We make available on this Web sitewebsite under "Investor Relations/SEC Filings,Financials," free of charge, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those materials as soon as reasonably practicable after we electronically file those materials with, or furnish those materials to, the SEC. The SEC also maintains a Web sitewebsite at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including us.
We intend to satisfy the requirement under Item 5.05 of Form 8-K to disclose any amendments to our Code of Ethics and any waiver from a provision of our Code of Ethics by posting such information on our Web sitewebsite at www.westlake.com under "Investor Relations/Corporate Governance."
Item 1A. Risk Factors
Risk Factors Relating to Our Operations
The impact and effects of public health crises, pandemics and epidemics, including the ongoing coronavirus ("COVID-19") pandemic, could materially adversely affect our business, financial condition and results of operations.
Public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could materially adversely affect our business, financial condition and results of operations. The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns, among others. There have been widespread adverse impacts on the global economy, many of our facilities and on our employees, customers and suppliers. We have encountered supply chain constraints and disruptions and workforce availability issues as a result of COVID-19 related actions.
Despite the availability of vaccines in all of the jurisdictions in which we operate, the COVID-19 pandemic may continue unabated or worsen, including as a result of the emergence of more infectious strains of the virus or vaccine hesitancy. The perceived risk of infection and health risks associated with COVID-19 has and will continue to alter behaviors of consumers and policies of companies around the world.
We have modified certain business practices (including those related to employee travel, employee work locations and employee work practices) to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. However, the inability to operate our facilities or the reduced demand for our products could adversely affect our business. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform certain functions could be harmed. The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of COVID-19 within the United States and the parts of the world in which we operate, the impact of governmental actions designed to prevent the spread of COVID-19 and the development, availability, timely distribution and acceptance of effective treatments and vaccines worldwide, all of which are highly uncertain and cannot be predicted with certainty at this time.
Cyclicality in the petrochemical industry has in the past, and may in the future, result in reduced operating margins or operating losses.
Our historical operating results reflect the cyclical and volatile nature of the petrochemical industry. The industry is mature and capital intensive. Margins in this industry are sensitive to supply and demand balances both domestically and internationally, which historically have been cyclical. The cycles are generally characterized by periods of tight supply, leading to high operating rates and margins, followed by periods of oversupply primarily resulting from excess new capacity additions, leading to reduced operating rates and lower margins.
Moreover, profitability in the petrochemical industry is affected by the worldwide level of demand along with vigorous price competition which may intensify due to, among other things, new industry capacity. In general, weak economic conditions either in the United States, Europe or the rest of the world tend to reduce demand and put pressure on margins. It is not possible to predict accurately the supply and demand balances, market conditions and other factors that will affect industry operating margins in the future.
New olefins capacity additions, principally of olefins in North America, Asia and the Middle East, and North America, a number of which have been announced in recent years,recently completed, may lead to periods of over-supply and lower profitability. As a result, our OlefinsPerformance and Essential Materials segment operating margins may be negatively impacted.
Continued slow recovery in the U.S. construction markets and budgetary constraints in municipal spending have contributed to lower North American demand for our vinyls products. Likewise, European industry production capacities currently exceed demand in the region, largely due to the weak economic environment in Europe. Looking forward, our Vinyls segment operating rates and margins may continue to be negatively impacted by the slow recovery of the U.S. construction markets and the European economy.
We sell commodity products in highly competitive markets and face significant competition and price pressure.
We sell our products in highly competitive markets. Due to the commodity nature of many of our products, competition in these markets is based primarily on price and to a lesser extent on performance, product quality, product deliverability and customer service. As a result, we generally are not able to protect our market position for these products by product differentiation and may not be able to pass on cost increases to our customers. Accordingly, increases in raw material and other costs may not necessarily correlate with changes in prices for these products, either in the direction of the price change or in magnitude. Specifically, timing differences in pricing between raw material prices, which may change daily, and contract product prices, which in many cases are negotiated monthly or less often, sometimes with an additional lag in effective dates for increases, have had and may continue to have a negative effect on profitability. Significant volatility in raw material costs tends to place pressure on product margins as sales price increases could lag behind raw material cost increases. Conversely, when raw material costs decrease, customers could seek relief in the form of lower sales prices.
Volatility in costs of raw materials and energy may result in increased operating expenses and adversely affect our results of operations and cash flows.
Significant variations in the costs and availability of raw materials and energy may negatively affect our results of operations. These costs have risen significantly in the past due primarily to oil and natural gas cost increases. We purchase significant amounts of ethane feedstock, natural gas, ethylene and salt to produce several basic chemicals. We also purchase significant amounts of electricity to supply the energy required in our production processes. The cost of these raw materials and energy, in the aggregate, represents a substantial portion of our operating expenses. The prices of raw materials and energy generally follow price trends of, and vary with market conditions for, crude oil and natural gas, which are highly volatile and cyclical.cyclical, as well as the ability of domestic producers to export natural gas liquids, ethane and ethylene. Changes to regulatory policies applicable to the German energy sector for industrial users have contributed to higher prices for industrial users of energy in the past and may continue to do so in the future. Our results of operations have been and could in the future be significantly affected by increases in these costs.
Price increases increase our working capital needs and, accordingly, can adversely affect our liquidity and cash flows. In addition, because we utilize the first-in, first-out ("FIFO") method of inventory accounting, during periods of falling raw material prices and declining sales prices, our results of operations for a particular reporting period could be negatively impacted as the lower sales prices would be reflected in operating income more quickly than the corresponding drop in feedstock costs. We use derivative instruments in an attempt to reduce price volatility risk on some feedstock commodities. In the future, we may decide not to hedge any of our raw material costs or any hedges we enter into may not have successful results. Also, our hedging activities involve credit risk associated with our hedging counterparties, and a deterioration in the financial markets could adversely affect our hedging counterparties and their abilities to fulfill their obligations to us.
Lower prices of crude oil, such as those experienced sincefrom the third quarter of 2014 and continuing through 2017 (as of December 31, 2017, approximately 44% lower than their 2014 peak levels), have2020, led to a reduction in the cost advantage for natural gas liquids-based ethylene crackers in North America, such as ours, as compared to naphtha-based ethylene crackers that use crude oil derivatives.crackers. As a result, our margins and cash flows have been and may continue to bewere negatively impacted. This impact could be magnified to the extent crude oil prices drop even further and depending on how long prices remain at these levels. Lower crude oil and natural gas prices could lead to a reduction in hydraulic fracturing in the United States, which could reduce the availability of feedstock and increase prices of feedstock for our operations. Higher natural gas prices could also adversely affect our ability to export products that we produce in the United States outside of the United States. In addition to the impact that this has on our exports from the United States, reduced competitiveness of U.S. producers also has in the past increased the availability of chemicals in North America, as U.S. production that would otherwise have been sold overseas was instead offered for sale domestically, resulting in excess supply and lower prices in North America. We could also face the threat of imported products from countries that have a cost advantage. Additionally, theFurthermore, additional export ofstorage facilities for natural gas liquids, ethane and ethylene may lead to higher exports of such products from the United States or greater restrictions on hydraulic fracturing could restrict the availability of our raw materials in the United States, thereby increasing our costs.
External factors beyond our control can cause fluctuations in demand for our products and in our prices and margins, which may negatively affect our results of operations and cash flows.
External factors beyond our control can cause volatility in raw material prices, demand for our products, product prices and volumes and deterioration in operating margins. These factors can also magnify the impact of economic cycles on our business and results of operations. Examples of external factors include:
•general economic conditions, including in the United States, Europe and Asia;
•new capacity additions in North America, Europe, Asia and the Middle East;
•the level of business activity in the industries that use our products;
•competitor action;
•technological innovations;
•currency fluctuations;
•increases in interest rates;
•international events and circumstances;
•pandemics and other public health threats and efforts to contain their transmission;
•war, sabotage, terrorism and civil unrest;
•governmental regulation, including in the United States, Europe and Asia;
•public attitude towards climate change and safety, health and the environment;
•perceptions of our products by potential buyers of our products, as well as the public generally, and related changes in behavior, including with respect to recycling;
•severe weather and natural disasters; and
•credit worthiness of customers and vendors.
A number of our products are highly dependent on durable goods markets, such as housing and construction, which are themselves particularly cyclical. The significant weaknessWeakness in the U.S. residential housing market since 2006 and economic weakness in Europe hadcould have an adverse effect on demand and margins for our products. If the global economy worsens in general, or the U.S. residential housing market or the European economy worsens in particular, demand for our products and our results of operations and cash flows could be adversely affected.
We may reduce production at or idle a facility for an extended period of time or exit a business because of high raw material prices, an oversupply of a particular product and/or a lack of demand for that particular product, which makes production uneconomical. Temporary outages sometimes last for several quarters or, in certain cases, longer and cause us to incur costs, including the expenses of maintaining and restarting these facilities. Factors such as increases in raw material costs or lower demand in the future may cause us to further reduce operating rates, idle facilities or exit uncompetitive businesses.
Hostilities in the Middle East, the Commonwealth of Independent States (including Ukraine) or elsewhere or the occurrence, or threat of occurrence, of terrorist attacks could adversely affect the economies of the United States, Europe and other developed countries. A lower level of economic activity in the United States, Europe or globally could result in a decline in demand for our products, which could adversely affect our net sales and margins and limit our future growth prospects. Volatility in prices for crude oil and natural gas could also result in increased feedstock costs. Furthermore, sustained lower prices of crude oil, such as the prices experienced since the third quarter of 2014 and continuing through 2017, have led and may continue to lead to lower margins in the United States. In addition, these risks could cause increased instability in the financial and insurance markets and could adversely affect our ability to access capital and to obtain insurance coverage that we consider adequate or is otherwise required by our contracts with third parties.
The housing market may not continue to grow at the same rate, or may decline, and any decline in the homebuilding industry may adversely affect our operating results.
We cannot predict whether and to what extent the housing market in the United States will continue to grow, particularly if interest rates for mortgage loans and construction costs rise. Other factors that might impact growth in the homebuilding industry include uncertainty in domestic and international financial, credit and consumer lending markets amid slow economic growth or recessionary conditions in various regions or industries around the world, including as a result of the COVID-19 pandemic, tight lending standards and practices for mortgage loans that limit consumers' ability to qualify for mortgage financing to purchase a home, higher home prices, population declines or slower rates of population growth or U.S. Federal Reserve policy changes. Given these factors, we can provide no assurance that the present housing market will continue to be strong.
If there is limited economic growth, a decline in employment and consumer income, a general change in consumer behavior, including as a result of the COVID-19 pandemic, and/or tightening of mortgage lending standards, practices and regulation, or if interest rates for mortgage loans or home prices rise, there could be a corresponding adverse effect on our financial condition, results of operations or cash flows, including, but not limited to, the amount of revenues or profits we generate in our housing and infrastructure products segment.
We operate internationally and are subject to related risks, including exchange rate fluctuations, exchange controls, political risk and other risks relating to international operations.
We operate internationally and are subject to the risks of doing business on a global basis. These risks include, but are not limited to, fluctuations in currency exchange rates, currency devaluations, imposition or the threat of trade barriers (which could, among other things, negatively impact our ability to export our products outside of the U.S.)United States), imposition or the threat of tariffs and duties (which could, among other things, lead to lower demand for our products outside of the United States), restrictions on the transfer of funds, changes in law and regulatory requirements, involvement in judicial proceedings in unfavorable jurisdictions, economic instability and disruptions, political unrest and epidemics. If the U.S. administration makes certain changes to its foreign trade policies such changes could lead to the imposition of additional trade barriers and tariffs on us in foreign jurisdictions. Our operating results could be negatively affected by any of these risks.
A deterioration in global economic conditions may have a negative impact on our business and financial condition.
A deterioration in global economic conditions may have a negative impact on our business and our financial condition. Our ability to access the capital markets may be severely restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, the availability of additional financing at cost effective interest rates cannot be assured. A deterioration in global economic conditions could have an impact on the lenders under our revolving credit facility or on our customers and suppliers, causing them to fail to meet their obligations to us. Additionally, a deterioration in global economic conditions could result in reduced demand for our products, which would have a negative impact on our revenues and profits.
Our inability to compete successfully may reduce our operating profits.
The petrochemical industry isindustries in which we operate are highly competitive. Historically, there have been a number of mergers, acquisitions, spin-offs and joint ventures in the industry. This restructuring activity has resulted in fewer but more competitive producers, many of which are larger than we are and have greater financial resources than we do. Among our competitors are some of the world's largest chemical companies and chemical industry joint ventures. Competition within the petrochemical industry and in the manufacturing of buildinghousing and infrastructure products is affected by a variety of factors, including:
•product price;
•balance of product supply/demand;
•material, technology and process innovation;
•technical support and customer service;
•quality;
•reliability of raw material and utility supply;
•availability of potential substitute materials; and
•product performance.
Changes in the competitive environment could have a material adverse effect on our business and our operations. These changes could include:
•the emergence of new domestic and international competitors;
•the rate of capacity additions by competitors;
•the additions of export storage facilities for natural gas liquids, ethane and ethylene;
•changes in customer base due to mergers;
•the intensification of price competition in our markets;
•the introduction of new or substitute products by competitors; and
•the technological innovations of competitors.
Our production facilities process some volatile and hazardous materials that subject us to operating risks that could adversely affect our operating results.
We have chemical manufacturing sites in the United States,North America, Europe and Asia. Our operations are subject to the usual hazards associated with chemical, plastics, housing and plasticsinfrastructure products manufacturing and the related use, storage, transportation and disposal of feedstocks, products and wastes, including:
•pipeline leaks and ruptures;
•explosions;
•fires;
•severe weather and natural disasters;
•mechanical failure;
•unscheduled downtime;
•labor difficulties;
•transportation interruptions;
•transportation accidents involving our chemical products;
•remediation complications;
•chemical spills;
spills, discharges or releases of toxic or hazardous substances or gases;
storage tank leaks;
•other environmental risks;
•sabotage;
•terrorist attacks; and
•political unrest.
According to some experts, globalGlobal climate change could result in heightened hurricane activity in the Gulf of Mexico and other weather and natural disaster hazards worldwide. If this materializes, severe weather and natural disaster hazards could pose an even greater risk for our facilities, particularly those in Louisiana.
All these hazards can cause personal injury and loss of life, catastrophic damage to or destruction of property and equipment and environmental damage, and may result in a suspension of operations and the imposition of civil or criminal penalties. We could becomeare from time to time subject to environmental claims brought by governmental entities or third parties. A loss or shutdown over an extended period of operations at any one of our chemical manufacturing facilities would have a material adverse effect on us. We maintain property, business interruption and casualty insurance that we believe is in accordance with customary industry practices, but we cannot be fully insured against all potential hazards incident to our business, including losses resulting from war risks or terrorist acts. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial condition, results of operations or cash flows.
We are exposed to significant losses from products liability, personal injury and other claims relating to the products we manufacture. Additionally, individuals currently seek, and likely will continue to seek, damages for alleged personal injury or property damage due to alleged exposure to chemicals at our facilities or to chemicals otherwise owned, controlled or manufactured by us. We are also subject to present and future claims with respect to workplace exposure, workers' compensation and other matters. Any such claims, whether with or without merit, could be time consuming, expensive to defend and could divert management's attention and resources. We maintain and expect to continue to maintain insurance for products liability, workplace exposure, workers' compensation and other claims, but the amount and scope of such insurance may not be adequate or available to cover a claim that is successfully asserted against us. In addition, such insurance could become more expensive and difficult to maintain and may not be available to us on commercially reasonable terms or at all. The results of any future litigation or claims are inherently unpredictable, but such outcomes could have a material adverse effect on our financial condition, results of operations or cash flows.
We rely on a limited number of outside suppliers for specified feedstocks and services.
We obtain a significant portion of our raw materials from a few key suppliers. If any of these suppliers is unable to meet its obligations under any present or future supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials. Any interruption of supply or any price increase of raw materials could have a material adverse effect on our business and results of operations. A vendor may choose, subject to existing contracts, to modify its relationship due to general economic concerns or concerns relating to the vendor or us, at any time. Any significant change in the terms that we have with our key suppliers, or any significant additional requirements from our suppliers that we provide them additional security in the form of prepayments or with letters of credits, could materially adversely affect our financial condition, results of operations or cash flows.
We rely heavily on third party transportation, which subjects us to risks and costs that we cannot control. Such risks and costs may materially adversely affect our operations.
We rely heavily on railroads, barges, pipelines, ships, trucks and other shipping companies to transport raw materials to the manufacturing facilities used by our businesses and to ship finished products to customers. These transport operations are subject to various hazards and risks, including extreme weather conditions, work stoppages and operating hazards (including pipeline leaks and ruptures and storage tank leaks), as well as interstate transportation regulations. In addition, the methods of transportation we utilize, including shipping chlorine and other chemicals by railroad, may be subject to additional, more stringent and more costly regulations in the future. If we are delayed or unable to ship finished products or unable to obtain raw materials as a result of any such new regulations or public policy changes related to transportation safety, or these transportation companies fail to operate properly, or if there were significant changes in the cost of these services due to new or additional regulations, or otherwise, we may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship goods, which could result in a material adverse effect on our business and results of operations.
We may pursue acquisitions, dispositions and joint ventures and/or other transactions that may impact our results of operations and financial condition. We may have difficulties integrating the operations of the Boral Target Companies, LASCO, Dimex, Hexion epoxy, and future acquired businesses.
We seek opportunities to maximize efficiency and create stockholder value through various transactions. These transactions may include various domestic and international business combinations, purchases or sales of assets or contractual arrangements or joint ventures that are intended to result in the realization of synergies, the creation of efficiencies or the generation of cash to reduce debt.ventures. In this regard, we regularly consider acquisition opportunities that would be consistent or complementary to our existing business strategies. To the extent permitted under our credit facility, the indenture governing our senior notes and other debt agreements, some of these transactions may be financed by additional borrowings by us. Although we would pursue these transactions because we expect them to yield longer-term benefits if the efficiencies and synergies we expect are realized, they could adversely affect our results of operations in the short term because of the costs associated with such transactions and because they may divert management's attention from existing business operations. Other transactions may advance future cash flows from some of our businesses, thereby yielding increased short-term liquidity, but consequently resulting in lower cash flows from these operations over the longer term. These transactions may not yield the business benefits, synergies or financial benefits anticipated by management. Integration of other acquired operations cancould lead to restructuring charges or other costs. We
Our ability to realize the anticipated benefits of the Acquisitions will depend, to a large extent, on our ability to integrate our business with the businesses of the Boral Target Companies, LASCO, Dimex and Hexion epoxy. The combination of such independent businesses is a complex, costly and time-consuming process. As a result, we have devoted, and will continue to devote significant management attention and resources to integrating each of the Boral Target Companies', LASCO's, Dimex's and Hexion epoxy's business practices and operations with our existing business practices and operations. The integration process may have difficultiesdisrupt the businesses and, if implemented ineffectively or if impacted by unforeseen negative economic or market conditions or other factors, we may not realize the full anticipated benefits of the Acquisitions. Our failure to meet the challenges involved in integrating such businesses could adversely affect our results of operations.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, or diversion of management's attention. Even if the operations of our businesses and the businesses of the Boral Target Companies, LASCO, Dimex and Hexion epoxy are integrated successfully, we may not realize the full benefits of the Acquisitions, including the synergies, cost savings or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Furthermore, additional unanticipated costs may be incurred in the integration of the businesses. All of these factors could decrease or delay the expected benefits of the Acquisitions and negatively impact us.
If we are unable to integrate or to successfully manage businesses that we may acquire in the future, our business, financial condition and results of operations could be adversely affected. We may not be able to realize the operating efficiencies, synergies, cost savings or other acquired businesses.benefits expected from acquisitions for a number of reasons, including the following:
•we may fail to integrate the businesses we acquire into a cohesive, efficient enterprise;
•our resources, including management resources, are limited and may be strained if we engage in a large acquisition or significant number of acquisitions, and acquisitions may divert our management's attention from initiating or carrying out programs to save costs or enhance revenues; and
•our failure to retain key employees and contracts of the businesses we acquire.
Our operations and assets are subject to extensive environmental, health and safety laws and regulations.
We use large quantities of hazardous substances and generate large quantities of hazardous wastes and emissions in our manufacturing operations. Due to the largeassociated quantities of hazardous substances and wastes, our industry is highly regulated and monitored by various environmental regulatory authorities such as the EPA, federal or state analogs in other countries and the European Union, which promulgatespromulgated the Industrial Emission Directive ("IED"). As such, we are subject to extensive international, national, state and local laws, regulations and directives pertaining to pollution and protection of the environment, health and safety, which govern, among other things, emissions to the air, discharges onto land or waters, the maintenance of safe conditions in the workplace, the remediation of contaminated sites, and the generation, handling, storage, transportation, treatment and disposal of waste materials. Some of these laws, regulations and directives are subject to varying and conflicting interpretations. Many of these laws, regulations and directives provide for substantial fines and potential criminal sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions or reduce the likelihood or impact of hazardous substance releases, whether permitted or not. For example, all of our petrochemical facilities in the United States and Europe may require improvements to comply with certain changes in process safety management requirements.
New laws, rules and regulations as well as changes to laws, rules and regulations may also affect us. For example, on April 17, 2012, the EPA promulgated maximum achievable control technology ("MACT") standards for major sources and generally available control technology ("GACT") standards for area sources of PVC production. The rule sets emission limits and work practice standards for total organic air toxics and for three specific air toxics: vinyl chloride, chlorinated di-benzo dioxins and furans ("CD/DF"), and hydrogen chloride and includes requirements to demonstrate initial and continuous compliance with the emission standards. In June 2012, the EPA received petitions for reconsideration of the rule. On November 9, 2020, the EPA proposed rule amendments to address issues raised in the petitions for reconsideration. While this rule is the subject of legal challenge and EPA reconsideration, the rule has not been stayed. Although we cannot predict the outcome or timing of the legal challenges or EPA reconsideration, the EPA's proposed rule amendments could require us to incur further capital expenditures, or increase our operating costs, to levels higher than what we have previously estimated.
In March 2011, the EPA proposed amendments to the national emission standards for hazardous air pollutants ("NESHAPs") for mercury emissions from mercury cell chlor-alkali plants. These proposed amendments would require improvements in work practices to reduce fugitive mercury emissions. In addition, on January 8, 2021, the EPA proposed amendments to the 2003 NESHAPs for mercury cell chlor-alkali plants residual risk and technology review. Among other things, the proposed rule would require work practice standards for the cell rooms and instrumental monitoring of cell room fugitive emissions, modify regulatory provisions regarding startup, shutdown, and malfunctions, and add standards for fugitive chlorine emissions from mercury cell chlor-alkali plants, which are not currently regulated under the NESHAP. The EPA extended the public comment period on the proposed rule to March 24, 2021. The EPA has yet to publish the final rule and we cannot predict the timing or content of the final regulation. We operate a mercury cell production unit at our Natrium facility. If the proposed amendments were finalized, they could result in additional restrictions on our operations or increased compliance costs.
Our operations produce greenhouse gas ("GHG") emissions, which have been the subject of increased scrutiny and regulation. In December 2015, the United States joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake "ambitious efforts" to limit the average global temperature and to conserve and enhance sinks and reservoirs of greenhouse gases. The United States signed the Paris Agreement in April 2016, and the Paris Agreement went into effect in November 2016. In November 2019, the United States submitted formal notification to the United Nations that it intended to withdraw from the Paris Agreement. The withdrawal took effect in November 2020. However, President Biden signed an executive order on January 20, 2021 for reentry of the United States into the Paris Agreement and on February 19, 2021, President Biden formally rejoined the Paris Agreement. As part of rejoining the Paris Agreement, President Biden announced that the United States would commit to a 50 to 52 percent reduction from 2005 levels of GHG emissions by 2030 and set the goal of reaching net-zero GHG emissions by 2050. Legislation to regulate GHG emissions has periodically been introduced in the United States Congress, and such legislation may be proposed or adopted in the future. There has been a wide-ranging policy debate regarding the impact of these gases and possible means for their regulation. Some of the proposals would require industries to meet stringent new standards that would require substantial reductions in carbon emissions. The adoption and implementation of any international, federal or state legislation or regulations that restrict emissions of GHGs could result in increased compliance costs or additional operating restrictions.
Various jurisdictions have considered or adopted laws and regulations on GHG emissions, with the general aim of reducing such emissions. The EPA currently requires certain industrial facilities to report their GHG emissions, and to obtain permits with stringent control requirements before constructing or modifying new facilities with significant GHG emissions. In the European Union, the Emissions Trading Scheme obligates certain emitters to obtain GHG emission allowances to comply with a cap and trade system for GHG emissions. In addition, the European Union has committed to reduce domestic GHG emissions by at least 55% below the 1990 level by 2030. As our chemical manufacturing processes result in GHG emissions, these and other GHG laws and regulations could affect our costs of doing business.
Similarly, the Toxic Substances Control Act ("TSCA") imposes reporting, record-keeping and testing requirements, and restrictions relating to the production, handling, and use of chemical substances. The TSCA reform legislation enacted in June 2016 expanded the EPA's authority to review and regulate new and existing chemicals. Under the reform legislation, the EPA is required to, among other things, undertake rule making within statutory time frames related to: (1) chemical risk evaluation, designation and management; (2) reporting of mercury supply, use and trade; and (3) management of persistent, bioaccumulative, and toxic chemical substances ("PBTs"). In June 2017,response to this mandate, the EPA issued three rules that implement the TSCA reform legislation. One rule establishesestablishing the EPA's process and criteria for identifying high priority chemicals for risk evaluation. Another rule setsevaluation and setting the EPA's approach for determining whether these high priority chemicals present an unreasonable risk to health or the environment. These twoPursuant to its rules, are currently the subjectEPA designated certain chemical substances as high priority for risk evaluation. We manufacture several of legal challenges by environmental groups. The thirdthese chemical substances. Although we cannot predict with certainty the extent of our future liabilities and costs at this time, we do not anticipate that the evaluation of these chemical substances will have a material adverse effect on our business, financial condition, operating results or cash flows. In addition, the TSCA inventory reset rule requiresrequired industry reporting of chemicals manufactured or processed in the United States over a 10-year period ending in 2016. This reporting is used by the past 10 years. EPA to identify which chemicals are active or inactive on the TSCA Inventory. Beginning in 2019, chemical manufacturers and processors are required to notify and obtain approval by the EPA before reintroducing inactive chemicals into commerce. A final mercury reporting rule published in June 2018 requires manufacturers, including manufacturers who use mercury in a manufacturing process, to report information about their mercury supply, use and trade. The first periodic reporting deadline under the mercury reporting rule was July 1, 2019. The EPA used the information collected to develop an inventory of mercury and mercury-added products as well as mercury-use manufacturing processes. The EPA also recommended actions and rule amendments based on the collected information. We cannot predict the timing or content of these actions or amendments, or their ultimate cost to, or impact on us.
On June 28, 2021, the EPA proposed reporting and recordkeeping requirements for Per- and Polyfluoroalkyl Substances ("PFAS") under TSCA. The proposed rule would require manufacturers, and importers, that have manufactured or imported PFAS chemicals since January 1, 2011, to electronically report information regarding PFAS uses, production volumes, disposal, exposures, and hazards. The EPA has not yet issued a final rule; however, PFAS chemicals have come under increased scrutiny by federal, state, and local governments. For example, many states have banned the use of PFAS in certain consumer products and set Maximum Contaminant Levels for PFAS in drinking water. The EPA is also considering regulating certain PFAS chemicals under the Safe Drinking Water Act, and has announced that it intends to develop a proposed National Primary Drinking Water Regulation for perfluorooctanesulfonic acid ("PFOS") and perfluorooctanoic acid ("PFOA"), two of the most common PFAS chemicals. We are unable to predict the impact these requirements and concepts may have on our future costs of compliance.
Under the IED, European Union member state governments are expected to adopt rules and implement environmental permitting programs relating to air, water and waste for industrial facilities. In this context, concepts such as the "best available technique" are being explored. Future implementation of these concepts may result in technical modifications in our European facilities. In addition, under the Environmental Liability Directive, European Union member states can require the remediation of soil and groundwater contamination in certain circumstances, under the "polluter pays principle." We are unable to predict the impact these requirements and concepts may have on our future costs of compliance.
Local, state, federal and foreign governments have increasingly proposed or implemented restrictions on certain plastic-based products, including single-use plastics and plastic food packaging. Plastics have also faced increased public scrutiny due to negative coverage of plastic waste in the environment. Increased regulation on the use of plastics could cause reduced demand for our polyethylene products, which could adversely affect our business, operating results and financial condition.
These rules or future new, amended or proposed laws or rules may result in an increase in regulations, which could increase our costs or reduce our production, which could have a material adverse effect on our business, financial condition, operating results or cash flows. In addition, we cannot accurately predict future developments, such as increasingly strict environmental and safety laws or regulations, and inspection and enforcement policies, as well as resulting higher compliance costs, which might affect the handling, manufacture, use, emission, disposal or remediation of products, other materials or hazardous and non-hazardous waste, and we cannot predict with certainty the extent of our future liabilities and costs under environmental, health and safety laws and regulations. These liabilities and costs may be material.
In March 2011, the EPA proposed amendments to the emission standards for hazardous air pollutants for mercury emissions from mercury cell chlor-alkali plants. These proposed amendments would require improvements in work practices to reduce fugitive mercury emissions. We operate a mercury cell production unit at our Natrium facility. We cannot predict the timing or content of the final regulation, or its ultimate cost to, or impact on us.
Our operations produce greenhouse gas ("GHG") emissions, which have been the subject of increased scrutiny and regulation. In December 2015, the United States joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake "ambitious efforts" to limit the average global temperature and to conserve and enhance sinks and reservoirs of greenhouse gases. The United States signed the Paris Agreement in April 2016, and the Paris Agreement went into effect in November 2016. However, in June 2017, the Trump Administration announced that the United States intends to withdraw from the Paris Agreement. Pursuant to the terms of the Paris Agreement, the earliest date the United States can effectively withdraw is November 2020. The United States' adherence to the exit process and/or the terms on which the United States may reenter the Paris Agreement or a separately negotiated agreement are unclear at this time. Legislation to regulate GHG emissions has also been introduced in the United States Congress, and there has been a wide-ranging policy debate regarding the impact of these gases and possible means for their regulation. Some of the proposals would require industries to meet stringent new standards that would require substantial reductions in carbon emissions. Those reductions could be costly and difficult to implement.
Various jurisdictions have considered or adopted laws and regulations on GHG emissions, with the general aim of reducing such emissions. The EPA currently requires certain industrial facilities to report their GHG emissions, and to obtain permits with stringent control requirements before constructing or modifying new facilities with significant GHG emissions. In the European Union, the Emissions Trading Scheme obligates certain emitters to obtain GHG emission allowances to comply with a cap and trade system for GHG emissions. In addition, the European Union has committed to reduce domestic GHG emissions by at least 40% below the 1990 level by 2030. As our chemical manufacturing processes result in GHG emissions, these and other GHG laws and regulations could affect our costs of doing business.
Under the IED, European Union member state governments are expected to adopt rules and implement environmental permitting programs relating to air, water and waste for industrial facilities. In this context, concepts such as the "best available technique" are being explored. Future implementation of these concepts may result in technical modifications in our European facilities. In addition, under the Environmental Liability Directive, European Union member states can require the remediation of soil and groundwater contamination in certain circumstances, under the "polluter pays principle." We are unable to predict the impact these requirements and concepts may have on our future costs of compliance.
We also may face liability for alleged personal injury or property damage due to exposure to chemicals or other hazardous substances at our facilities or to chemicals that we otherwise manufacture, handle or own. Although these types of claims have not historically had a material impact on our operations, a significant increase in the success of these types of claims could have a material adverse effect on our business, financial condition, operating results or cash flows.
Environmental laws may have a significant effect on the nature and scope of, and responsibility for, cleanup of contamination at our current and former operating facilities, the costs of transportation and storage of raw materials and finished products, the costs of reducing emissions and the costs of the storage and disposal of wastewater. The U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), similar state laws and certain European directives impose joint and several liability for the costs of remedial investigations and actions on the entities that generated waste, arranged for disposal of the wastes, transported to or selected the disposal sites and the past and present owners and operators of such sites. All such potentially responsible parties (or any one of them, including us) may be required to bear all of such costs regardless of fault, legality of the original disposal or ownership of the disposal site. In addition, CERCLA, similar state laws and certain European directives could impose liability for damages to natural resources caused by contamination.
Although we seek to take preventive action, our operations are inherently subject to accidental spills, discharges or other releases of hazardous substances that may make us liable to governmental entities or private parties. This may involve contamination associated with our current and former facilities, facilities to which we sent wastes or by-products for treatment or disposal and other contamination. Accidental discharges may occur in the future, future action may be taken in connection with past discharges, governmental agencies may assess damages or penalties against us in connection with any past or future contamination, or third parties may assert claims against us for damages allegedly arising out of any past or future contamination. In addition, we may be liable for existing contamination related to certain of our facilities for which, in some cases, we believe third parties are liable in the event such third parties fail to perform their obligations.
Capital projects are subject to risks, including delays and cost overruns, which could have an adverse impact on our financial condition and results of operations.
We have capital expansion plans for our facilities. Expansion projects may be subject to delays or cost overruns, including delays or cost overruns resulting from any one or more of the following:
•unexpectedly long delivery times for, or shortages of, key equipment, parts or materials;
•shortages of skilled labor and other personnel necessary to perform the work;
•delays and performance issues;
•failures or delays of third-party equipment vendors or service providers;
•unforeseen increases in the cost of equipment, labor and raw materials;
•work stoppages and other labor disputes;
•unanticipated actual or purported change orders;
•disputes with contractors and suppliers;
•design and engineering problems;
•latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions;
•financial or other difficulties of our contractors and suppliers;
•sabotage;
sabotage;
•terrorist attacks;
•interference from adverse weather conditions; and
•difficulties in obtaining necessary permits or in meeting permit conditions.
Significant cost overruns or delays could materially affect our financial condition and results of operations. Additionally, actual capital expenditures could materially exceed our planned capital expenditures.
Our level of debt could adversely affect our ability to operate our business.
As of December 31, 2017,2021, our indebtedness, including the current portion, totaled $3.8$5.2 billion, and our debt represented approximately 42%38% of our total capitalization. Our annual interest expense for 20172021 was $159$176 million, net of interest capitalized of $4$3 million. Our level of debt and the limitations imposed on us by our existing or future debt agreements could have significant consequences on our business and future prospects, including the following:
•a portion of our cash flows from operations will be dedicated to the payment of interest and principal on our debt and will not be available for other purposes;
•we may not be able to obtain necessary financing in the future for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
•our less leveraged competitors could have a competitive advantage because they have greater flexibility to utilize their cash flows to improve their operations;
•we may be exposed to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of interest, which would result in higher interest expense in the event of increases in interest rates;
•we could be vulnerable in the event of a downturn in our business that would leave us less able to take advantage of significant business opportunities and to react to changes in our business and in market or industry conditions; and
•should we pursue additional expansions of existing assets or acquisition of third partythird-party assets, we may not be able to obtain additional liquidity at cost effective interest rates.
These factors could be magnified or accelerated to the extent we were to finance future acquisitions with significant amounts of debt.
To service our indebtedness and fund our capital requirements, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and pay cash dividends will depend on our ability to generate cash in the future, including any distributions that we may receive from Westlake Partners. This is subject to general economic, financial, currency, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flows from operations, we may not receive sufficient distributions from Westlake Partners, and currently anticipated cost savings and operating improvements may not be realized on schedule. We also generate revenues denominated in currencies other than that of our indebtedness and may have difficulty converting those revenues into the currency of our indebtedness. We may need to refinance all or a portion of our indebtedness on or before maturity. In addition, we may not be able to refinance any of our indebtedness, including our credit facility and our senior notes, on commercially reasonable terms or at all. All of these factors could be magnified if we were to finance any future acquisitions with significant amounts of debt.
The Credit Agreement and the indenture governing certain of our senior notes impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some actions.
The Credit Agreement and the indenture governing certain of our senior notes impose significant operating and financial restrictions on us. These restrictions limit our ability to:
pay dividends on, redeem or repurchase our capital stock;
make investments and other restricted payments;
•incur additional indebtedness or issue preferred stock;indebtedness;
•create liens;
permit dividend or other payment restrictions on our restricted subsidiaries;
•sell all or substantially all of our assets or consolidate or merge with or into other companies; and
engage in transactions with affiliates; and
•engage in sale-leaseback transactions.
These limitations are subject to a number of important qualifications and exceptions. However, the effectiveness of many of these restrictions in the indenture governing certain of our senior notes is currently suspended under the indenture because those notes are currently rated investment grade by at least two nationally recognized credit rating agencies. The Credit Agreement also requires us to maintain a quarterly total leverage ratio.
These covenants may adversely affect our ability to finance future business opportunities or acquisitions. A breach of any of these covenants could result in a default in respect of the related debt. If a default occurred, the relevant lenders could elect to declare the debt, together with accrued interest and other fees, to be immediately due and payable. In addition, any acceleration of debt under the Credit Agreement will constitute a default under some of our other debt, including the indentures governing our senior notes.
Our participation in joint ventures and similar arrangements exposes us to a number of risks, including risks of shared control.
We are party to several joint ventures and similar arrangements, including an investment, together with Lotte Chemical USA Corporation ("Lotte"), in a joint venture, to build an ethylene facility, LACC, LLC ("LACC")., to build and operate an ethylene facility. Our participation in joint ventures and similar arrangements, by their nature, requires us to share control with unaffiliated third parties. In particular, with respect to our investment in LACC, we are a 10% holder and, therefore, our partner Lotte will have primary control over operations, including management of the contractors responsible for constructing the ethylene facility. If there are differences in views among joint venture participants in how to operate a joint venture that result in delayed decisions or the failure to make decisions, or our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business plan and fulfill its obligations. In that case, we may be required to write down the value of our investment in a joint venture, increase the level of financial or other commitments to the joint venture or, if we have contractual agreements with the joint venture, our operations may be materially adversely affected. Any of the foregoing could have a material adverse effect on our financial condition, results of operations or cash flows.
LACC may incur additional costs or delays in the construction of the LACC ethylene facility.
We have a commitment to contribute up to $225 million toward the construction of the LACC ethylene facility, which equates to approximately 10% of the equity in LACC. If there are cost overruns, our investment could be diluted below 10% if we do not make additional contributions to maintain our ownership position. The construction of the LACC ethylene facility without delays or significant cost overruns is subject to substantial risks, including:
shortages and inconsistent quality of equipment, materials, and labor;
labor costs and productivity;
work stoppages;
contractor or supplier delay or non-performance under construction or other agreements or non-performance by other major participants in construction projects;
delays in or failure to receive necessary permits, approvals, tax credits, and other regulatory authorizations;
delays associated with start-up activities, including major equipment failure, system integration, and operations, and/or unforeseen engineering problems;
changes in project design or scope;
impacts of new and existing laws and regulations, including environmental laws and regulations;
the outcome of legal challenges to projects, including legal challenges to regulatory approvals;
failure to construct in accordance with licensing requirements;
continued public and policymaker support for such projects;
adverse weather conditions or natural disasters;
sabotage;
terrorist attacks;
environmental and geological conditions;
delays or increased costs to interconnect facilities; and
other unanticipated cost increases.
Regulations concerning the transportation of hazardous chemicals and the security of chemical manufacturing facilities could result in higher operating costs.
Targets such as chemical manufacturing facilities may be at greater risk of terrorist attacks than other targets. As a result, the chemical industry responded to the issues surrounding the terrorist attacks of September 11, 2001 by implementing initiatives relating to the security of chemicals industry facilities and the transportation of hazardous chemicals. Simultaneously, local, state, national and international governments put into effect a regulatory process that led to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals. Our business or our customers' businesses could be adversely affected because of the cost of complying with these regulations.
A change in tax laws, treaties or regulations, or their interpretation or application, could have a negative impact on our business and results of operations.
We are subject to changes in applicable tax laws, treaties or regulations in the jurisdictions in which we operate. A material change in these tax laws, treaties or regulations, or their interpretation or application, could have a negative impact on our business and results of operations.
We may have difficulties integrating the operations of future acquired businesses.
If we are unable to integrate or to successfully manage businesses that we may acquire in the future, our business, financial condition and results of operations could be adversely affected. We may not be able to realize the operating efficiencies, synergies, cost savings or other benefits expected from the acquisitions for a number of reasons, including the following:
we may fail to integrate the businesses we acquire into a cohesive, efficient enterprise;
our resources, including management resources, are limited and may be strained if we engage in a large acquisition or significant number of acquisitions, and acquisitions may divert our management's attention from initiating or carrying out programs to save costs or enhance revenues; and
our failure to retain key employees and contracts of the businesses we acquire.
Future acquisitions could lead to significant restructuring or other changes.
Regulations related to "conflict minerals" could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo and adjoining countries (collectively, the "Covered Countries"). The term "conflict minerals" encompasses tantalum, tin, tungsten (and their ores) and gold.
In August 2012, pursuant to the Dodd-Frank Act, the SEC adopted new annual disclosure and reporting requirements applicable to any company that files periodic public reports with the SEC, if any conflicts minerals are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that company. These new annual reporting requirements require companies to describe reasonable country of origin inquiries, due diligence measures and the results of those activities and related determinations.
Because we have a highly complex, multi-layered supply chain, we may incur significant costs to comply with these requirements. In addition, the implementation of procedures to comply with these requirements could adversely affect the sourcing, supply and pricing of materials, including components, used in our products. Our suppliers (or suppliers to our suppliers) may not be able or willing to provide all requested information or to take other steps necessary to ensure that no conflict minerals financing or benefiting armed groups are included in materials or components supplied to us for our manufacturing purposes. Also, we may encounter challenges to satisfy customers that may require all of the components of products purchased by them to be certified as conflict free. If we are not able to meet customer certification requirements, customers may choose to disqualify us as a supplier. In addition, since the applicability of the new conflict minerals requirements is limited to companies that file periodic reports with the SEC, not all of our competitors will need to comply with these requirements unless they are imposed by customers. As a result, those competitors may have cost and other advantages over us.
Our operations could be adversely affected by labor relations.
The vast majority of our employees in Europe and Asia, and some of our employees in North America, are represented by labor unions and works councils. Our operations may be adversely affected by strikes, work stoppages and other labor disputes.
We have certain material pension and other postretirementpost-retirement employment benefit ("OPEB") obligations. Future funding obligations related to these obligations could restrict cash available for our operations, capital expenditures or other requirements or require us to borrow additional funds.
We have certainU.S. and non-U.S. defined benefit pension plans covering certain current and former employeesemployees. Certain non-U.S. defined benefit plans associated with our European operations that we have not been funded and we are not obligated to fund those plans under applicable law. In addition, we assumed certain U.S. and non-U.S. tax-qualified and non-tax-qualified pension obligations, as well as OPEB obligations, in connection with the Merger. The non-tax-qualified pension liabilities and OPEB obligations to provide retiree health benefits assumed as a result of the Merger are unfunded. As of December 31, 2017,2021, the projected benefit obligationobligations for our pension and OPEB plans were approximately $949$825 million and $76$62 million, respectively. The fair value of pension investment assets was $668$583 million as of December 31, 2017.2021. The total underfunded status of the pension obligations calculated on a projected benefit obligation basis as of December 31, 20172021 was approximately $281$242 million, including the Westlake SalariedDefined Benefit Plan and the Vinnolit Pension Plan (locally known as 'Grund- und Zusatzversorgung' in Germany), which waswere underfunded by approximately $120$83 million and $128 million, respectively, on an individual plan basis.
The unfunded OPEB obligations as of December 31, 20172021 were approximately $76$62 million. We will require future operating cash flows to fund our pension and OPEB obligations, which could restrict available cash for our operations, capital expenditures and other requirements. We may also not generate sufficient cash to satisfy these obligations, which could require us to seek funding from other sources, including through additional borrowings, which could materially increase our outstanding debt or debt service requirements.
If our goodwill, indefinite-lived intangible assets or other intangible assets become impaired in the future, we may be required to record non-cash charges to earnings, which could be significant.
Under GAAP, we review goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or circumstances indicate that their carrying value may not be recoverable. Other intangible assets are reviewed if events or circumstances indicate that their carrying value may not be recoverable. The process of impairment testing for our goodwill and intangible assets involves a number of judgments and estimates made by management including the fair values of assets and liabilities, future cash flows, our interpretation of current economic indicators and market conditions, overall economic conditions and our strategic operational plans with regards to our business units. If the judgments and estimates used in our analysis are not realized or change due to external factors, then actual results may not be consistent with these judgments and estimates, and our goodwill and intangible assets may become impaired in future periods. If our goodwill, indefinite-lived intangible assets or other intangible assets are determined to be impaired in the future, we may be required to record non-cash charges to earnings during the period in which the impairment is determined, which could be significant and have an adverse effect on our financial condition and results of operations.
The trading price of our common stock may negatively impact us.
Volatility in the capital and credit markets may cause downward pressure on stock prices and credit availability. A decline in the market value of our common stock could make it more difficult for us to raise any equity capital.
The conversion of Axiall's Enterprise Resource Planning ("ERP") information systems to Westlake's ERP information systems may negatively impact our operations.
We are highly dependent on our information systems infrastructure in order to process orders, track inventory, ship products in a timely manner, prepare invoices to our customers, maintain regulatory compliance and otherwise carry on our business in the ordinary course. Because Axiall had its own ERP information systems, we currently operate on multiple ERP information systems, which complicates our processing, reporting and analysis of business transactions and other information. Since we must process and reconcile our information from multiple systems, the chance of errors is increased, and we may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to our ability to maintain our books and records and comply with regulatory requirements. We expect to transition the Axiall systems to Westlake's ERP systems. The transition involves numerous risks, including:
diversion of management's attention away from normal daily business operations;
delays and cost overruns;
loss of or delays in accessing data;
increased demand on our operations support personnel;
initial dependence on unfamiliar systems while training personnel to use new systems; and
increased operating expenses resulting from training, conversion and transition support activities.
Any of the foregoing could result in a material increase in information technology compliance or other related costs and could materially negatively impact our operations. In addition, any failures in the transition to Westlake's ERP system could delay and/or impede our ability to order materials and services, manufacture products, fill and ship customer orders, invoice customers, generate management reports and timely prepare consolidated financial statements and maintain appropriate internal control over financial reporting, and thus, could unfavorably impact our operations and regulatory compliance in a significant manner.
Failure to adequately protect critical data and technology systems could materially affect our operations.
Information technology system failures, network disruptions and breaches of data security due to internal or external factors including cyber-attacks could disrupt our operations by causing delays or cancellation of customer orders, impede the manufacture or shipment of products or cause standard business processes to become ineffective, resulting in the unintentional disclosure of information or damage to our reputation. While weCyber-attacks could include, but are not limited to, ransomware attacks, malicious software, attempts to gain unauthorized access to our data and the unauthorized release, corruption or loss of our data and personal information, interruptions in communication, loss of our intellectual property or theft of our sensitive or proprietary technology, loss or damage to our data delivery systems, or other cybersecurity and infrastructure systems, including our property and equipment. We have taken steps to address these concernsrisks by implementing network security and internal control measures, including employee training, comprehensive monitoring of our networks and systems, maintenance of backup and protective systems and disaster recovery and incident response plans. Our employees, systems, networks, products, facilities and services remain potentially vulnerable to sophisticated cyber-assault, especially while certain employees are working remotely during the COVID-19 pandemic, and, as such, there can be no assurance that a system failure, network disruption or data security breach will not have a material adverse effect on our business, financial condition, operating results or cash flows.
Fluctuations in foreign currency exchange and interest rates could affect our consolidated financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues,sales, operating income and the value of balance sheet items denominated in foreign currencies. Because of the geographic diversity of our operations, weaknesses in various currencies might occur in one or many of such currencies over time. From time to time, we may use derivative financial instruments to further reduce our net exposure to currency exchange rate fluctuations. However, fluctuations in foreign currency exchange rates, such as the recent strengthening of the U.S. dollar against major currencies, including, in particular, the Euro and the Canadian dollar, could nevertheless materially adversely affect our financial results.
In addition, we are exposed to volatility in interest rates. When appropriate, we may use derivative financial instruments to reduce our exposure to interest rate risks. However, our financial risk management program may not be successful in reducing the risks inherent in exposures to interest rate fluctuations.
Our property insurance has only partial coverage for acts of terrorism and, in the event of terrorist attack, we could lose net sales and our facilities.
As a result of the terrorist attacks of September 11, 2001 and other events, ourOur insurance carriers createdmaintain certain exclusions for losses from terrorism from our property insurance policies. While separate terrorism insurance coverage is available, premiums for full coverage are very expensive, especially for chemical facilities, and the policies are subject to high deductibles. Available terrorism coverage typically excludes coverage for losses from acts of war and from acts of foreign governments as well as nuclear, biological and chemical attacks. We have determined that it is not economically prudent to obtain full terrorism insurance, especially given the significant risks that are not covered by such insurance. Where feasible we have secured some limited terrorism insurance coverage on our property where insurers have included it in their overall programs. In the event of a terrorist attack impacting one or more of our facilities, we could lose the net sales from the facilities and the facilities themselves, and could become liable for any contamination or for personal or property damage due to exposure to hazardous materials caused by any catastrophic release that may result from a terrorist attack.
Risks Related to Taxes
A change in tax laws, treaties or regulations, or their interpretation or application, could have a negative impact on our business and results of operations.
We operate in many different countries and in many states within the United States, and we are subject to changes in applicable tax laws, treaties or regulations in the jurisdictions in which we operate. A material change in these tax laws, treaties or regulations, or their interpretation or application, could have a negative impact on our business and results of operations.
We depend in part on distributions from Westlake Partners to generate cash for our operations, capital expenditures, debt service and other uses. Westlake Partners' tax treatment depends on its status as a partnership for federal income tax purposes, and it not being subject to a material amount of entity-level taxation. We depend in part on distributions from Westlake Partners to generate cash for our operations, capital expenditures, debt service and other uses. If the Internal Revenue Service ("IRS") were to treat Westlake Partners as a corporation for federal income tax purposes, or if Westlake Partners becomebecame subject to entity-level taxation for state tax purposes, its cash available for distribution would be substantially reduced, which would also likely cause a substantial reduction in the value of its common units that we hold.
The anticipated after-tax economic benefit of an investment in the common units of Westlake Partners depends largely on Westlake Partners being treated as a partnership for U.S. federal income tax purposes. Despite the fact that Westlake Partners is organized as a limited partnership under Delaware law, it would be treated as a corporation for U.S. federal income tax purposes unless it satisfies a "qualifying income" requirement (the "Qualifying Income
Exception") under Section 7704 of the Internal Revenue Code of 1986, as amended (the "Code"). Failure to meet the Qualifying Income Exception would causerequirement. Based on Westlake Partners' current operations and current Treasury Regulations, Westlake Partners to be treated as a corporation for U.S. federalbelieves it satisfies the qualifying income tax purposes.requirement.
Prior to its initial public offering, Westlake Partners requested and obtained a favorable private letter ruling from the IRS to the effect that, based on facts presented in the private letter ruling request, income from the production, transportation, storage and marketing of ethylene and its co-products constitutes "qualifying income" within the meaning of Section 7704 of the Code. FailureInternal Revenue Code of 1986, as amended. However, no ruling has been or will be requested regarding Westlake Partners' treatment as a partnership for U.S. federal income tax purposes. Failing to meet the Qualifying Income Exceptionqualifying income requirement or a change in current law could cause Westlake Partners to be treated as a corporation for U.S. federal income tax purposes or otherwise subject Westlake Partners to taxation as an entity.
If Westlake Partners were treated as a corporation for federal income tax purposes, it would pay U.S. federal income tax on its taxable income at the corporate tax rate. Because a tax would be imposed upon Westlake Partners as a corporation, its cash available for distribution to its unitholders would be substantially reduced. Therefore, treatment of Westlake Partners as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to its unitholders, likely causing a substantial reduction in the value of its common units.
Westlake Partners' partnership agreement provides that if a law is enacted or an existing law is modified or interpreted in a manner that subjects Westlake Partners to taxation as a corporation or otherwise subjects Westlake Partners to entity-level taxation for U.S. federal, state, local or foreign income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on Westlake Partners. At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. Westlake Partners currently owns assets and conducts business in several states, most of which impose entity-level franchise or gross receipt taxes on partnerships. Imposition of similar entity-level taxes on Westlake Partners in other jurisdictions in which Westlake Partners conducts operations in the future could substantially reduce its cash available for distribution.
Risks Related to the Ownership of Our Securities
We will be controlled by our principal stockholder and its affiliates as long as they own a majority of our common stock, and our other stockholders will be unable to affect the outcome of stockholder voting during that time. Our interests may conflict with those of the principal stockholder and its affiliates, and we may not be able to resolve these conflicts on terms possible in arms-length transactions.
As long as TTWF LP (the "principal stockholder") and its affiliates (the "principal stockholder affiliates") own a majority of our outstanding common stock, they will be able to exert significant control over us, and our other stockholders, by themselves, will not be able to affect the outcome of any stockholder vote. As a result, the principal stockholder, subject to any fiduciary duty owed to our minority stockholders under Delaware law, will be able to control all matters affecting us (some of which may present conflicts of interest), including:
•the composition of our Board of Directors and, through the Board, any determination with respect to our business direction and policies, including the appointment and removal of officers and the determination of compensation;
•any determinations with respect to mergers or other business combinations or the acquisition or disposition of assets;
•our financing decisions, capital raising activities and the payment of dividends; and
•amendments to our amended and restated certificate of incorporation or amended and restated bylaws.
The principal stockholder will be permitted to transfer a controlling interest in us without being required to offer our other stockholders the ability to participate or realize a premium for their shares of common stock. A sale of a controlling interest to a third party may adversely affect the market price of our common stock and our business and results of operations because the change in control may result in a change of management decisions and business policy. Because we have elected not to be subject to Section 203 of the General Corporation Law of the State of Delaware, the principal stockholder may find it easier to sell its controlling interest to a third party than if we had not so elected.
In addition to any conflicts of interest that arise in the foregoing areas, our interests may conflict with those of the principal stockholder affiliates in a number of other areas, including:
•business opportunities that may be presented to the principal stockholder affiliates and to our officers and directors associated with the principal stockholder affiliates, and competition between the principal stockholder affiliates and us within the same lines of business;
•the solicitation and hiring of employees from each other; and
•agreements with the principal stockholder affiliates relating to corporate services that may be material to our business.
We may not be able to resolve any potential conflicts with the principal stockholder affiliates, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party, particularly if the conflicts are resolved while we are controlled by the principal stockholder affiliates. Our amended and restated certificate of incorporation provides that the principal stockholder affiliates have no duty to refrain from engaging in activities or lines of business similar to ours and that the principal stockholder affiliates will not be liable to us or our stockholders for failing to present specified corporate opportunities to us.
Public and investor sentiment towards climate change and other environmental, social and governance ("ESG") matters could adversely affect our cost of capital and the price of our common stock.
There have been intensifying efforts within the investment community (including investment advisors, investment fund managers, sovereign wealth funds, public pension funds, universities and individual investors) to promote the divestment of, or limit investment in, the stock of companies in the petrochemical industry. There has also been pressure on lenders and other financial services companies to limit or curtail financing of companies in the industry. Because we operate within the petrochemical industry, if these efforts continue or expand, our stock price and our ability to raise capital may be negatively impacted.
Members of the investment community are increasing their focus on ESG practices and disclosures by public companies, including practices and disclosures related to climate change and sustainability, DEI initiatives and heightened governance standards. As a result, we may continue to face increasing pressure regarding our ESG disclosures and practices. Additionally, members of the investment community may screen companies such as ours for ESG disclosures and performance before investing in our stock. Over the past few years, there has also been an acceleration in investor demand for ESG investing opportunities, and many large institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG investments. With respect to any of these investors, our ESG disclosures and efforts may not satisfy the investor requirements or their requirements may not be made known to us. If we or our securities are unable to meet the ESG standards or investment criteria set by these investors and funds, we may lose investors or investors may allocate a portion of their capital away from us, our cost of capital may increase, and our stock price may be negatively impacted.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
OurInformation concerning the principal manufacturing facilities and principallocations from which our products are manufactured are included in the tables set forth below. Except as noted, we own each of these facilities.
|
| | |
Location | | Principal Products |
Lake Charles, Louisiana | | Ethylene, polyethylene, styrene, VCM, chlorine, caustic soda,
chlorinated derivative products, electricity
|
Longview, Texas (1)
| | Polyethylene, polyethylene wax |
Calvert City, Kentucky (2)
| | PVC, VCM, chlorine, caustic soda, ethylene |
Plaquemine, Louisiana | | PVC, VCM, chlorine, caustic soda, electricity |
Geismar, Louisiana | | PVC, VCM, chlorine, caustic soda |
Gendorf, Bavaria, Germany (1)
| | PVC, VCM, chlorine, caustic soda |
Burghausen, Bavaria, Germany (1)
| | PVC |
Knapsack, North Rhine-Westphalia, Germany (1)
| | PVC, VCM, chlorine, caustic soda |
Cologne, North Rhine-Westphalia, Germany (1)
| | PVC |
| |
(1) | We lease the land on which our facilities are located. |
| |
(2) | We lease a portion of the land on which our Calvert City facility is located. |
Olefins
Our olefins facility at our Lake Charles site consists of three tracts on approximately 1,700 acresunder the captions "Performance and Essential Materials Business—Products" and "Housing and Infrastructure Products Business—Products" contained in Lake Charles, each within three miles of one another. The site includes two ethylene plants, which are owned by OpCo, two polyethylene plants and a styrene monomer plant. The combined capacity of OpCo's two Lake Charles ethylene plants is approximately 3.0 billion pounds per year. The capacity of our two polyethylene plants is approximately 1.5 billion pounds per year and the capacity of our styrene plant is approximately 570 million pounds per year. One of our polyethylene plants has two production units that use gas phase technology with the capability to manufacture both LLDPE and HDPE.
Our Lake Charles site includes a marine terminal that provides for worldwide shipping capabilities. The site also is located near rail transportation facilities, which allows for efficient delivery of raw materials and prompt shipment of our products to customers. In addition, the site is connected by pipeline systems to our ethylene feedstock sources in both Texas and Louisiana. Within the site, OpCo's ethylene plants are connected by pipeline systems to our polyethylene and styrene plants.
Our Longview site consists of three polyethylene plants, a specialty polyethylene wax plant, and a 200-mile ethylene pipeline owned by OpCo that runs from Mont Belvieu to our Longview site. The plants are located inside a large Eastman Chemical Company ("Eastman") facility where Eastman produces a number of other chemical products. We can access ethylene to support our polyethylene operations either by purchasing ethylene from Eastman at the site or by transporting ethylene from OpCo's Lake Charles plant into the Gulf Coast grid and by transporting ethylene through our ethylene pipeline into our Longview facility. The technologies we use to produce polyethylene at Longview are similar to the technologies that we employ at Lake Charles. The Longview facility has a total capacity of approximately 1.1 billion pounds per year.
Vinyls
Our Calvert City site is situated on approximately 750 acres on the Tennessee River in Kentucky and includes an ethylene plant, which is owned by OpCo, a chlor-alkali plant, a VCM plant and a PVC plant. The capacity of OpCo's Calvert City ethylene plant is approximately 730 million pounds per year and the capacity of our chlor-alkali plant is approximately 550 million pounds of chlorine and 605 million pounds of caustic soda per year. Our chlorine plant utilizes efficient, state-of-the-art membrane technology. Our VCM plant has a capacity of approximately 1.5 billion pounds per year and our Calvert City PVC plant has a capacity of approximately 1.5 billion pounds per year. In January 2016, OpCo announced an expansion project to increase the ethylene capacity of its ethylene plant at our Calvert City facility. The expansion was completed in 2017 and, along with other initiatives, increased ethylene capacity by approximately 100 million pounds annually.
Our vinyls facility at our Lake Charles site consists of two tracts of land making up approximately 1,690 acres, each within three miles of the other. The site operates a diverse portfolio of manufacturing plants, including three chlor-alkali plants, two VCM plants, a chlorinated derivative products plant and cogeneration assets. Our Lake Charles chlor-alkali plants are designed to produce approximately 2.8 billion pounds of chlorine and approximately 3.0 billion pounds of caustic soda per year. Our chlorine plants utilize both membrane and diaphragm technology. Our Lake Charles VCM plants have a capacity of approximately 2.1 billion pounds per year and our chlorinated derivative products plants have a capacity of approximately 715 million pounds per year. Our Lake Charles cogeneration assets have the capacity to generate approximately 420 Megawatts of electricity per year.
Our Plaquemine site is located on approximately 860 acres on the west bank of the Mississippi River in Iberville Parish and includes a chlor-alkali plant, a VCM plant, a PVC plant and cogeneration assets. The capacity of Plaquemine's chlor-alkali plant is approximately 940 million pounds of chlorine and approximately 1.0 billion pounds of caustic soda per year. Our chlorine plant utilizes diaphragm technology. Our Plaquemine VCM plant has a capacity of approximately 1.6 billion pounds per year and our PVC plant has a capacity of approximately 1.9 billion pounds per year. Our Plaquemine cogeneration assets have the capacity to generate approximately 240 Megawatts of electricity per year.
Our Geismar site is situated on approximately 185 acres on the east bank of the Mississippi River and includes a chlor-alkali plant, a VCM plant and a PVC plant. Our Geismar chlor-alkali plant is designed to produce approximately 700 million pounds of chlorine and approximately 770 million pounds of caustic soda per year. Our chlorine plant utilizes membrane technology. Our Geismar VCM plant has a capacity of approximately 850 million pounds per year and our PVC plant has a capacity of approximately 730 million pounds per year.
Our other North American vinyls manufacturing sites consist of facilities in Natrium, Longview and Beauharnois and include five chlor-alkali plants and four chlorinated derivative products plants. In addition, we have PVC resin and PVC compounds facilities located in Aberdeen, Gallman, Madison and Prairie, Mississippi. The chlor-alkali plants have a combined capacity of approximately 1.0 billion pounds of chlorine and approximately 1.1 billion pounds of caustic soda per year, the PVC plant has a capacity of approximately 1.0 billion pounds per year and our chlorinated derivative products plants have a combined capacity of approximately 1.3 billion pounds per year.
Our European vinyls manufacturing sites consist of five facilities in Germany and one facility in the United Kingdom, and include two membrane chlor-alkali plants, two VCM plants and six PVC plants. The chlor-alkali plants have a combined capacity of approximately 950 million pounds of chlorine and approximately 1.0 billion pounds of caustic soda per year, the VCM plants have a combined capacity of approximately 1.5 billion pounds per year and the PVC plants have a combined capacity of approximately 1.7 billion pounds per year.
As of February 14, 2018, we owned 24 building products plants, consisting of 13 PVC pipe plants, eight siding, trim and mouldings plants, two profile plants producing PVC fence, decking, windows and door profiles and one film and sheet plant. The majority of our plants are strategically located near major markets and serve customers throughout the United States, Canada and Asia. The combined capacity of our building product plants is approximately 2.0 billion pounds per year. In addition, we have 19 company-owned building products distribution branches in Canada."Item 1. Business."
Headquarters
Our principal executive offices are located in Houston, Texas. Some of our office space is leased, at market rates, from an affiliate of our principal stockholder. See Note 1820 to the audited consolidated financial statements appearing elsewhere in this Form 10-K and "Certain Relationships and Related Party Transactions" in our proxy statement to be filed with the SEC pursuant to Regulation 14A with respect to our 20182022 annual meeting of stockholders (the "Proxy Statement").
Item 3. Legal Proceedings
In addition to the matters described under Item"Item 1. Business—EnvironmentalEnvironmental" and Note 2022 to our consolidated financial statements included in Item 8 of this Form 10-K, we are involved in various legal proceedings incidental to the conduct of our business. We do not believe that any of these legal proceedings will have a material adverse effect on our financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosure
Not Applicable.
Information about our Executive Officers of the Registrant
James Y. Chao (age 70)74). Mr. Chao has been our Chairman of the Board of Directors since July 2004 and became a director in June 2003. From May 1996 to July 2004, he served as our Vice Chairman. Mr. Chao has over 45 years of global experience in the chemical industry. In addition, Mr. Chao has been the Chairman of the Board of Westlake Partners' general partner since its formation in March 2014. From June 2003 until November 2010, Mr. Chao was the executive chairman of Titan Chemicals Corp. Bhd. He has served as a Special Assistant to the Chairman of China General Plastics Group and worked in various financial, managerial and technical positions at Mattel Incorporated, Developmental Bank of Singapore, Singapore Gulf Plastics Pte. Ltd. and Gulf Oil Corporation. Mr. Chao, along with his brother Albert Chao, assisted their father T.T. Chao in founding Westlake Corporation (formerly known as Westlake Chemical Corporation. Mr.Corporation). He is the brother of Albert Y. Chao is on the boardand Dorothy C. Jenkins, father of Baylor CollegeDavid T. Chao and uncle of Medicine and KIPP (Knowledge Is Power Program).John T. Chao. Mr. Chao received his B.S. degree from Massachusetts Institute of Technology and an M.B.A. from Columbia University.
Albert Y. Chao (age 68)72). Mr. Chao has been our President since May 1996 and a director since June 2003. Mr. Chao became our Chief Executive Officer in July 2004. Mr. Chao has over 40 years of global experience in the chemical industry. In 1985, Mr. Chao assisted his father T.T. Chao and his brother James Chao in founding Westlake Corporation (formerly known as Westlake Chemical Corporation,Corporation), where he served as Executive Vice President until he succeeded James Chao as President. In addition, Mr. Chao has been the President, Chief Executive Officer and a director of Westlake Partners' general partner since its formation in March 2014. He has held positions in the Controller's Group of Mobil Oil Corporation, in the Technical Department of Hercules Incorporated, in the Plastics Group of Gulf Oil Corporation and has served as Assistant to the Chairman of China General Plastics Group and Deputy Managing Director of a plastics fabrication business in Singapore. He is the brother of James Y. Chao and Dorothy C. Jenkins, father of John T. Chao and uncle of David T. Chao. Mr. Chao is a trustee emeritus of Rice University. Mr. Chao received a bachelor's degree from Brandeis University and an M.B.A. from Columbia University.
M. Steven Bender (age 61)65). Mr. Bender has been our Executive Vice President and Chief Financial Officer since July 2017. From February 2008 to July 2017, Mr. Bender served as our Senior Vice President and Chief Financial Officer. In addition, Mr. Bender served as our Treasurer from July 2011 to April 2017, a position he also held from February 2008 until December 2010. From February 2007 to February 2008, Mr. Bender served as our Vice President, Chief Financial Officer and Treasurer and from June 2005 to February 2007, he served as our Vice President and Treasurer. In addition, Mr. Bender has been the Senior Vice President, Chief Financial Officer and a director of Westlake Partners' general partner since its formation in March 2014, its Executive Vice President and Chief Financial Officer since February 2021, and its Treasurer since April 2015.Senior Vice President and Chief Financial Officer from March 2014 to February 2021. Prior to joining Westlake, from June 2002 until June 2005, Mr. Bender served as Vice President and Treasurer of KBR, Inc., and from 1996 to 2002 he held the position of Assistant Treasurer for Halliburton Company. Prior to that, he held various financial positions within that company. Additionally, he was employed by Texas Eastern Corporation for over a decade in a variety of increasingly responsible audit, finance and treasury positions. Mr. Bender received a Bachelor of Business Administration from Texas A&M University and an M.B.A. from Southern Methodist University. Mr. Bender is also a Certified Public Accountant.
Robert F. Buesinger (age 61)65). Mr. Buesinger has been our Executive Vice President, Housing and Infrastructure Products, IT and Digital since February 2022 and was our Executive Vice President, Vinyl Products since July 2017. From April 2010 to July 2017, Mr. Buesinger served as our Senior Vice President, Vinyls. Prior to joining us, Mr. Buesinger served as the General Manager and President of Chevron Phillips Chemical Company L.P.'s Performance Pipe Division from February 2010 to March 2010. From June 2008 to January 2010, Mr. Buesinger held the position of General Manager in the Alpha Olefins and Poly Alpha Olefins business of Chevron Phillips Chemical Company L.P. From April 2005 to May 2008, he served as the President and Managing Director of Chevron Phillips Singapore Chemicals Pte. Ltd. and Asia Region General Manager for Chevron Phillips Chemical Company L.P. Prior to that, he held various technical and sales management positions within that company. Mr. Buesinger holds a B.S. in Chemical Engineering from Tulane University.
Lawrence E. (Skip) Teel (age 59). Mr. Teel has been our Executive Vice President, Olefins since July 2017. From July 2014 to July 2017, Mr. Teel served as our Senior Vice President, Olefins and, from July 2012 to July 2014, he served as our Vice President, Olefins. In addition, Mr. Teel has been the Senior Vice President, Olefins of Westlake Partners' general partner since July 2014. Mr. Teel joined us in September 2009 as Director, Olefins and Feedstock after a 23-year career with Lyondell Chemical Company where he served as the Vice President, Refining from August 2006 to May 2008. From 2001 to 2006, Mr. Teel held the position of Director, Corporate Planning and Business Development at Lyondell Chemical Company. During his career, he has held a variety of marketing, operations and general management assignments. Mr. Teel received a B.S. in Chemical Engineering from New Mexico State University and an M.S. in Finance from the University of Houston.
L. Benjamin Ederington (age 47)51). Mr. Ederington has been our Senior Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary since July 2017. From December 2015 to July 2017, Mr. Ederington served as our Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary and, from October 2013 to December 2015, he served as our Vice President, General Counsel and Corporate Secretary. In addition, Mr. Ederington has been the Vice President, General Counsel, Secretary and a director of Westlake Partners' general partner since its formation in March 2014.2014, its Senior Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary since February 2021, and its Vice President, General Counsel and Secretary from March 2014 to February 2021. Prior to joining Westlake, he held a variety of senior legal positions at LyondellBasell Industries, N.V. and its predecessor companies, LyondellBasell Industries AF SCA and Lyondell Chemical Company, including most recently as Associate General Counsel, Commercial & Strategic Transactions from March 2010 to September 2013.Transactions. He began his legal career more than 20 years ago at the law firm of Steptoe & Johnson, LLP. Mr. Ederington holds a B.A. from Yale University and received his J.D. from Harvard University.
Roger L. Kearns (age 58). Mr. Kearns has been our Executive Vice President and Chief Operating Officer since January 2021. From April 2018 to December 2020, Mr. Kearns served as our Executive Vice President, Vinyls Chemicals. Prior to joining Westlake, from 2008 to April 2018, he was a member of the Executive Committee at Solvay S.A. in Belgium. From 2013 to 2018, he had responsibility for Solvay's advanced materials business cluster, as well as its corporate research organization and its North America region. From 2008 to 2012 he was responsible for overseeing Solvay's Asia-Pacific businesses, including its vinyls operations in the region. Prior to that, from 2004 through 2007, he was President of Solvay Advanced Polymers in the United States and earlier, from 2001 through 2003, he led Solvay's performance compounds business unit. Since beginning his career with Solvay in 1986, he held a series of manufacturing, technical, corporate development, marketing and business management positions in the United States, Europe and Asia. Mr. Kearns holds a bachelor's degree in Chemical Engineering from the Georgia Institute of Technology and an MBA from Stanford University.
Andrew Kenner (age 53)57). Mr. Kenner has been our Senior Vice President, Operations since January 2021. From July 2017 to December 2020, Mr. Kenner served as our Senior Vice President, Chemical Manufacturing since July 2017. Fromand, from July 2008 to July 2017, Mr. Kennerhe served as our Vice President, Manufacturing. Mr. Kenner joined us after a 19-year career at Valero Energy Corporation where he served as Vice President and General Manager of Valero's Delaware City Refinery from September 2005 to July 2008. From August 2004 to September 2005,and its Houston Refinery, as well as other leadership positions in Valero's refining system. Mr. Kenner held the position of Vice President and General Manager of Valero's Houston Refinery. Mr. Kenner holdsreceived a B.S. in Aerospace Engineering from Texas A&M University and a M.S. in Chemical Engineering from the University of Texas at Austin.
George J. MangieriJohnathan S. Zoeller (age 67)46). Mr. MangieriZoeller has been our Senior Vice President and Chief Accounting Officer since July 2017.March 2020. From February 2007August 2018 to July 2017,March 2020, Mr. MangieriZoeller served as ourVice President and Chief Accounting Officer and, from April 2000 to February 2007, he served as our Vice President andCorporate Controller. In addition, Mr. MangieriZoeller has been the Vice President and Chief Accounting Officer of Westlake Partners' general partner since its formation in March 2014. Prior to joining2020. Mr. Zoeller joined us Mr. Mangieri served as Vice President and Controllerwith over 19 years of Zurn Industries, Inc. from 1998 to 2000. He previously was employed as Vice President and Controller for Imo Industries, Inc. in New Jersey, and spent over 10 years in public accounting with Ernst & Youngexperience, the majority of which was spent at KPMG LLP, where he servedwas responsible for clients in the chemicals, oilfield services and oil/gas exploration and production industries. Mr. Zoeller held a variety of senior accounting positions at KPMG, including most recently as Senior Manager.Partner, Audit from October 2011 to August 2018. He receivedbegan his career with Arthur Andersen LLP in 1998. Mr. Zoeller holds a Bachelor of ScienceAccounting degree and a Master of Accounting degree from Monmouth College andthe University of Mississippi. He is a Certified Public Accountant.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common StockStockholder Matters
As of February 14, 2018,16, 2022, there were 3934 holders of record of our common stock. Our common stock is listed on the New York Stock Exchange under the symbol "WLK." Set forth below are
Unregistered Sales of Equity Securities
We did not have any unregistered sales of equity securities during the high and low closing prices for our common stock, asquarter or fiscal year ended December 31, 2021 that we have not previously reported on the New York Stock Exchange composite tape for the periods indicated and the cash dividends declared in these periods.
|
| | | | | | | | | | | | |
| | | High | | Low | | Cash Dividends Declared |
| Year Ended December 31, 2017 | | | | | | |
| 4th Quarter | | $ | 106.53 |
| | $ | 83.10 |
| | $ | 0.2100 |
|
| 3rd Quarter | | 83.55 |
| | 65.85 |
| | 0.2100 |
|
| 2nd Quarter | | 67.34 |
| | 60.09 |
| | 0.1906 |
|
| 1st Quarter | | 67.21 |
| | 57.29 |
| | 0.1906 |
|
| Year Ended December 31, 2016 | | | | | | |
| 4th Quarter | | $ | 59.17 |
| | $ | 49.84 |
| | $ | 0.1906 |
|
| 3rd Quarter | | 53.50 |
| | 41.21 |
| | 0.1906 |
|
| 2nd Quarter | | 52.22 |
| | 39.88 |
| | 0.1815 |
|
| 1st Quarter | | 53.60 |
| | 41.01 |
| | 0.1815 |
|
The $1.0 billion unsecured revolving credit facility (the "Credit Agreement") and the indenture governing the Senior Notes restrict our ability to pay dividendsa Quarterly Report on Form 10-Q or other distributionsa Current Report on our equity securities. However, the effectiveness of these restrictions in the indenture governing the senior notes is currently suspended because the senior notes are currently rated investment grade by at least two nationally recognized credit rating agencies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" for additional information.Form 8-K.
Issuer Purchases of Equity Securities
The following table provides information on our purchase of equity securities during the quarter ended December 31, 2017:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price
Paid Per
Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| October 2021 | | — | | | $ | — | | | — | | | $ | 101,151,083 | |
| November 2021 | | 398 | | | 102.04 | | | — | | | 101,151,083 | |
| December 2021 | | 2,024 | | | 89.93 | | | — | | | 101,151,083 | |
| Total | | 2,422 | | | $ | 91.92 | | | — | | | |
(1)Represents 398 and 2,024 shares withheld in November 2021 and December 2021, respectively, in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to our employees under the 2013 Plan.
(2)In November 2014, our Board of Directors authorized a $250 million stock repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150 million. In August 2018, our Board of Directors approved the further expansion of the existing 2014 Program by an additional $150 million. As of December 31, 2021, 7,431,520 shares of our common stock had been acquired at an aggregate purchase price of approximately $449 million under the 2014 Program. Transaction fees and commissions are not reported in the average price paid per share in the table above. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flows from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| October 2017 | | 3,202 |
| | $ | 83.28 |
| | — |
| | $ | 171,285,000 |
|
| November 2017 | | — |
| | $ | — |
| | — |
| | $ | 171,285,000 |
|
| December 2017 | | — |
| | $ | — |
| | — |
| | $ | 171,285,000 |
|
| Total | | 3,202 |
| | $ | 83.28 |
| | — |
| | |
| |
(1) | Represents shares withheld in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to our employees under the 2013 Plan. |
| |
(2) | In November 2014, our Board of Directors authorized a $250 million stock repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150 million. As of December 31, 2017, 4,193,598 shares of our common stock had been acquired at an aggregate purchase price of approximately $229 million under the 2014 Program. Transaction fees and commissions are not reported in the average price paid per share in the table above. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flows from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time. |
Equity Compensation Plan Information
Securities authorized for issuance under equity compensation plans are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of securities
to be issued upon
exercise of outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) | | Number of securities
remaining available
for future issuance under equity
compensation plans
(excluding securities
reflected in column
(a))
(c) |
| Equity compensation plans approved by security holders | | 2,502,349 | | (1) | $ | 72.43 | | (2) | 2,551,487 | |
| Equity compensation plans not approved by security holders | | N/A | | N/A | | N/A |
| Total | | 2,502,349 | | | $ | 72.43 | | (2) | 2,551,487 | |
|
| | | | | | | | | | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by security holders | | 1,933,467 |
| | $ | 26.95 |
| | 4,855,527 |
|
| Equity compensation plans not approved by security holders | | N/A |
| | N/A |
| | N/A |
|
| Total | | 1,933,467 |
| | $ | 26.95 |
| | 4,855,527 |
|
(1)Includes shares reserved for issuance pursuant to restricted stock units, stock options and performance stock units.
(2)Price applies only to the stock options included in column (a). Exercise price is not applicable to the other awards included in column (a).
Other information regarding our equity compensation plans is set forth in the section entitled "Executive Compensation" in our Proxy Statement, which information is incorporated herein by reference.
Item 6. Selected Financial and Operational Data (1)[Reserved]
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| | | (dollars in millions, except share amounts, per share data and volume data) |
| Statement of Operations Data: | | | | | | | | | | |
| Net sales | | $ | 8,041 |
| | $ | 5,076 |
| | $ | 4,463 |
| | $ | 4,415 |
| | $ | 3,759 |
|
| Gross profit | | 1,769 |
| | 981 |
| | 1,185 |
| | 1,317 |
| | 1,101 |
|
| Selling, general and administrative expenses | | 399 |
| | 258 |
| | 218 |
| | 179 |
| | 144 |
|
| Amortization of intangibles | | 108 |
| | 38 |
| | 7 |
| | 5 |
| | 4 |
|
| Transaction and integration-related costs | | 29 |
| | 104 |
| | — |
| | 9 |
| | — |
|
| Income from operations | | 1,233 |
| | 581 |
| | 960 |
| | 1,124 |
| | 953 |
|
| Interest expense | | (159 | ) | | (79 | ) | | (35 | ) | | (37 | ) | | (18 | ) |
Other income (expense), net (2) | | 7 |
| | 56 |
| | 38 |
| | (3 | ) | | 7 |
|
| Income before income taxes | | 1,081 |
| | 558 |
| | 963 |
| | 1,084 |
| | 942 |
|
| Provision for (benefit from) income taxes | | (258 | ) | | 138 |
| | 298 |
| | 399 |
| | 332 |
|
| Net income | | 1,339 |
| | 420 |
| | 665 |
| | 685 |
| | 610 |
|
Net income attributable to noncontrolling interests | | 35 |
| | 21 |
| | 19 |
| | 6 |
| | — |
|
Net income attributable to Westlake Chemical Corporation | | $ | 1,304 |
| | $ | 399 |
| | $ | 646 |
| | $ | 679 |
| | $ | 610 |
|
Earnings Per Share Attributable to Westlake Chemical Corporation: (3) | | | | | | | | | | |
| Basic | | $ | 10.05 |
| | $ | 3.07 |
| | $ | 4.88 |
| | $ | 5.09 |
| | $ | 4.57 |
|
| Diluted | | $ | 10.00 |
| | $ | 3.06 |
| | $ | 4.86 |
| | $ | 5.07 |
| | $ | 4.55 |
|
Weighted average shares outstanding (3) | | | | | | | | | | |
| Basic | | 129,087,043 |
| | 129,367,712 |
| | 131,823,707 |
| | 133,111,230 |
| | 133,224,256 |
|
| Diluted | | 129,540,013 |
| | 129,974,822 |
| | 132,301,812 |
| | 133,643,414 |
| | 133,779,250 |
|
| Balance Sheet Data (end of period): | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,531 |
| | $ | 459 |
| | $ | 663 |
| | $ | 881 |
| | $ | 461 |
|
| Marketable securities | | — |
| | — |
| | 520 |
| | — |
| | 239 |
|
| Restricted cash | | 1 |
| | 161 |
| | — |
| | — |
| | — |
|
Working capital (4) | | 1,496 |
| | 1,225 |
| | 1,652 |
| | 1,475 |
| | 1,244 |
|
| Total assets | | 12,076 |
| | 10,890 |
| | 5,569 |
| | 5,208 |
| | 4,054 |
|
| Total long-term debt, net | | 3,127 |
| | 3,679 |
| | 758 |
| | 758 |
| | 757 |
|
Total Westlake Chemical Corporation stockholders' equity | | 4,874 |
| | 3,524 |
| | 3,266 |
| | 2,912 |
| | 2,419 |
|
Cash dividends declared per share (3) | | $ | 0.8012 |
| | $ | 0.7442 |
| | $ | 0.6930 |
| | $ | 0.5820 |
| | $ | 0.4125 |
|
| Other Operating Data: | | | | | | | | | | |
| Cash flows from: | | | | | | | | | | |
| Operating activities | | $ | 1,538 |
| | $ | 834 |
| | $ | 1,079 |
| | $ | 1,032 |
| | $ | 753 |
|
| Investing activities | | (652 | ) | | (2,563 | ) | | (1,006 | ) | | (773 | ) | | (1,002 | ) |
| Financing activities | | 160 |
| | 1,533 |
| | (287 | ) | | 165 |
| | (80 | ) |
| Depreciation and amortization | | 601 |
| | 378 |
| | 246 |
| | 208 |
| | 158 |
|
| Capital expenditures | | 577 |
| | 629 |
| | 491 |
| | 431 |
| | 679 |
|
EBITDA (5) | | 1,841 |
| | 1,015 |
| | 1,244 |
| | 1,329 |
| | 1,118 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| | | (dollars in millions, except share amounts, per share data and volume data) |
External Sales Volume (millions of pounds): | | | | | | | | | | |
| Olefins Segment | | | | | | | | | | |
| Polyethylene | | 2,363 |
| | 2,392 |
| | 2,445 |
| | 2,364 |
| | 2,244 |
|
| Styrene, feedstock and other | | 828 |
| | 794 |
| | 1,182 |
| | 941 |
| | 1,094 |
|
| Vinyls Segment | | | | | | | | | | |
| PVC, caustic soda and other | | 15,997 |
| | 8,118 |
| | 5,026 |
| | 3,174 |
| | 1,995 |
|
| Building products | | 1,193 |
| | 770 |
| | 629 |
| | 572 |
| | 487 |
|
| |
(1) | The historical selected financial and operational data should be read together with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data included in this Form 10-K. |
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(2) | Other income (expense), net is composed of the realized gain from previously held outstanding shares of common stock of Axiall, financing costs incurred in connection with the Merger, interest income, income or loss from equity method investments, dividend income, gains or losses from sales of securities, foreign exchange currency gains or losses, gain on acquisition, impairment of equity method investments, management fee income and other gains and losses. |
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(3) | On February 14, 2014, our Board of Directors authorized a two-for-one split of our common stock. Stockholders of record as of February 28, 2014 were entitled to one additional share for every share outstanding, which was distributed on March 18, 2014. All share amounts and per share data for the year ended December 31, 2013 have been restated to reflect the effect of the two-for-one stock split. |
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(4) | Working capital equals current assets less current liabilities. |
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(5) | EBITDA (a non-GAAP financial measure) is calculated as net income before interest expense, income taxes, depreciation and amortization. The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as one that purports to measure historical and future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. We have included EBITDA in this Form 10-K because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. EBITDA allows for meaningful company-to-company performance comparisons by adjusting for factors such as interest expense, depreciation and amortization and taxes, which often vary from company to company. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flows and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented in this Form 10-K may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes (1) interest expense, which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations, (2) depreciation, which is a necessary element of our costs and ability to generate revenues because we use capital assets and (3) income taxes, which is a necessary element of our operations. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. The following table reconciles EBITDA to net income and to net cash provided by operating activities. |
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| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| | | (dollars in millions) |
| Net cash provided by operating activities | | $ | 1,538 |
| | $ | 834 |
| | $ | 1,079 |
| | $ | 1,032 |
| | $ | 753 |
|
Changes in operating assets and liabilities
and other | | (733 | ) | | (313 | ) | | (374 | ) | | (288 | ) | | (49 | ) |
| Deferred income taxes | | 534 |
| | (101 | ) | | (40 | ) | | (59 | ) | | (94 | ) |
| Net income | | 1,339 |
| | 420 |
| | 665 |
| | 685 |
| | 610 |
|
| Add: | | | | | | | | | | |
| Depreciation and amortization | | 601 |
| | 378 |
| | 246 |
| | 208 |
| | 158 |
|
| Interest expense | | 159 |
| | 79 |
| | 35 |
| | 37 |
| | 18 |
|
| Provision for (benefit from) income taxes | | (258 | ) | | 138 |
| | 298 |
| | 399 |
| | 332 |
|
| EBITDA | | $ | 1,841 |
| | $ | 1,015 |
| | $ | 1,244 |
| | $ | 1,329 |
| | $ | 1,118 |
|
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a vertically integrated global manufacturer and marketer of petrochemicals, polymersperformance and buildingessential materials and housing and infrastructure products. OurWe have historically operated in two principal operating segments, areVinyls and Olefins. As a result of recent acquisitions, we reorganized our business into two principal operating segments, Performance and Essentials Materials and Housing and Infrastructure Products in the fourth quarter of 2021. Performance and Essential Materials segment includes Westlake North American Vinyls, Westlake North American Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake Olefins and Vinyls. We use the majority of our internally-produced basic chemicals to produce higher value-added chemicalsWestlake Polyethylene. Housing and building products.
Consumption of the basic chemicals that we manufactureInfrastructure Products segment includes Westlake Royal Building Products, Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. The change has been retrospectively reflected in the commodity portionsperiods presented in this Form 10-K. We are highly integrated along our materials chain with significant downstream integration from ethylene and chlor-alkali (chlorine and caustic soda) into vinyls, polyethylene and styrene monomer. We also have substantial downstream integration from PVC into our building products, PVC pipes and fittings and PVC compounds in our Housing and Infrastructure Products segment.
Performance and Essentials Materials
Ethane-based ethylene producers have experienced a cost advantage over naphtha-based ethylene producers during periods of higher crude oil prices. This cost advantage has resulted in a strong export market for polyethylene and other ethylene derivatives and has benefited operating margins and cash flows for our olefinsPerformance and vinyls processes has increased significantly sinceEssential Materials segment during such periods. However, we began operationshave seen a significant reduction in 1986. the cost advantage enjoyed by North American ethane-based ethylene producers during periods of lower crude oil prices. In the past year, we have seen volatility in ethane and ethylene prices, primarily due to changes in demand resulting from the COVID-19 pandemic, anticipated timing for certain new ethylene capacity additions and availability of natural gas liquids. Additionally, we have seen volatility in ethane and ethylene prices in 2021 due to winter storm Uri and Hurricane Ida that resulted in shutdowns of many industry production facilities on the Gulf Coast and delayed or extended the timing of planned turnarounds of various ethylene crackers.
Our olefinsperformance and vinyls productsessential materials such as ethylene, PVC, polyethylene and chlor-alkali are some of the most widely used chemicalsmaterials in the world and are upgraded into a wide variety of higher value-added chemical products used in many end-markets. PetrochemicalsOur performance and essential materials are used by customers in food and specialty packaging; industrial and consumer packaging; medical health applications; PVC pipe applications; consumer durables; mobility and transportation; and infrastructure products. Chlor-alkali and petrochemicals are typically manufactured in large volume by a number of different producers using widely available technologies. The chlor-alkali and petrochemical industry exhibitsindustries exhibit cyclical commodity characteristics, and margins are influenced by changes in the balance between supply and demand and the resulting operating rates, the level of general economic activity and the price of raw materials. Due to the significant size of new plants, capacity additions are built in large increments and typically require several years of demand growth to be absorbed. The cycle is generally characterized by periods of tight supply, leading to high operating rates and margins, followed by a decline in operating rates and margins primarily as a result of excess new capacity additions. Due to
Westlake is the significant sizesecond-largest chlor-alkali producer and the second-largest PVC producer in the world. Demand for our products in the first half of new plants, capacity additions are built2020 was negatively impacted by the onset of the COVID-19 pandemic. Global demand for most of our products started strengthening in large incrementsthe second half of 2020 and typically require several years of demand growth to be absorbed.
Since 2009remained strong throughout 2021, and continuing through 2017, a cost advantage for ethane-based ethylene producers over naphtha-based ethylene producers has allowed a strong export market for polyethylene and ethylene derivatives and higher margins for North American chemical producers, including Westlake. Continued strongwe expect global demand for polyethylene has benefited operating marginsmost of our products to remain robust in 2022. Depending on the performance of the global economy, potential changes in international trade and cash flows for our Olefins segment in recent years. However, we have seen a significant reduction intariffs policies, the cost advantage enjoyed by North American ethane-based ethylene producers due to lowertrend of crude oil prices, beginning in the third quartertiming of 2014 and continuing through 2017 (which has resulted in reduced prices and margins). Looking forward,the new ethylene and polyethylene capacity additions in North America, Asia and the Middle East in 2022 and a numberbeyond, and the sustainability of new capacities announced in recent years, may lead to periodsthe current, strong demand for most of over-supply and lower profitability. As a result, our Olefins segment operating margins mayproducts, our financial condition, results of operations or cash flows could be negatively impacted.
Since the U.S. housing market collapse in 2008, continued slow recovery in the U.S. construction markets and budgetary constraints in municipal spending have contributed to lower North American demand for our vinyls products, which has negatively impacted our Vinyls segment operating rates and margins. However, since late 2010, the PVC industry in the U.S. has experienced an increase in PVC resin exports, driven largely by more competitive feedstock and energy cost positions in the U.S. As a consequence, the U.S. PVC resin industry operating rates have improved since 2010. In addition, our July 2014 acquisition of Vinnolit Holdings GmbH and its subsidiary companies ("Vinnolit"), an integrated global leader in specialty PVC resins, has contributed to improved operating margins and cash flows for our Vinyls segment. Globally, there were large chlor-alkali capacity additions between 2008 and 2015 resulting in excess capacity and lower industry operating rates which exerted downward pressure on caustic soda pricing. Announced capacity is now complete and increasing demand driven by the improving economic growth and U.S. producers' competitive export position is expected to result in improved operating rates and caustic soda pricing. Westlake is the second-largest purchaser of ethylene in the U.S. and lower prices of ethylene couldor positively impact our Vinyls segment.impacted.
We purchase significant amounts of ethane feedstock, natural gas, ethylene and salt from external suppliers for use in production of basic chemicals in the olefinsperformance and vinyls chains.essential materials. We also purchase significant amounts of electricity to supply the energy required in our production processes. While we have agreements providing for the supply of ethane feedstock, natural gas, ethylene, salt and electricity, the contractual prices for these raw materials and energy vary with market conditions and may be highly volatile. Factors that have caused volatility in our raw material prices in the past, and which may do so in the future include:
•the availability of feedstock from shale gas and oil drilling;
•supply and demand for crude oil;
•shortages of raw materials due to increasing demand;
•ethane and liquefied natural gas exports;
•capacity constraints due to higher construction costs for investments, construction delays, strike action or involuntary shutdowns;
•the general level of business and economic activity; and
•the direct or indirect effect of governmental regulation.
Significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases. Conversely, when raw material costs decrease, customers may seek immediate relief in the form of lower sales prices. We currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs. Normally, there is a pricing relationship between a commodity that we process and the feedstock from which it is derived. When this pricing relationship deviates from historical norms, we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship.
Our historical results have been significantly affected by our plant production capacity, our efficient use of that capacity and our ability to increase capacity. Since our inception, we have followed a disciplined growth strategy that focuses on plant acquisitions, new plant construction and internal expansion. We evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs. We also regularly look at acquisition opportunities that would be consistent with, or complimentary to, our overall business strategies. Depending on the size of the acquisition, any such acquisitions could require external financing.
As noted above in Item 1A, "Risk Factors," we are subject to extensive environmental regulations, which may impose significant additional costs on our operations in the future. Further, concerns about GHG emissions and their possible effects on climate change has led to the enactment of regulations, and to proposed legislation and additional regulations, that could affect us in the form of increased cost of feedstocks and fuel, other increased costs of production and decreased demand for our products. While we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term, we cannot predict the longer-term effect of any of these regulations or proposals on our future financial condition, results of operations or cash flows.
Housing and Infrastructure Products
Our Housing and Infrastructure Products segment is primarily comprised of building products, PVC pipes and fittings and PVC compound products. Our sales are affected by the individual decisions of distributors and dealers on the levels of inventory they carry, their views on product demand, their financial condition and the manner in which they choose to manage inventory risk. A significant portion of our performance in this segment is driven by the activities in the residential construction and repair and remodeling markets in North America. Performance of our housing and infrastructure products businesses over time are generally reflective of the trends of building permits and housing starts in the New Residential Construction Survey by the U.S. Census Bureau and Repair and Remodeling Index (RRI) provided by the National Association of Home Builders ("NAHB") among others. Looking ahead, we expect that the approval of the Infrastructure Investment and Jobs Act in November 2021 will have a favorable impact on certain industries related to our Housing and Infrastructure Products segment in the future.
The following table presents annual historical housing starts per the U.S. Census Bureau and the 2022 outlook per the NAHB:
| | | | | | | | | | | | | | |
| Period | | Single and Multi-family Housing Starts
(in thousands of units) | | % Change |
| | | | |
| 2019 | | 1,290 | | 3% |
| 2020 | | 1,380 | | 7% |
| 2021 | | 1,597 | | 16% |
| | | | |
| 2022 | | 1,605 | | |
| | | | |
| | | | |
North American PVC facilities within the Performance and Essential Materials segment supply most of the PVC required for our building products and PVC pipes and fittings plants. Our raw materials for stone, roofing and accessories, windows, shutters and specialty tool products are externally purchased. PVC required for the PVC compounds plants is either internally sourced from our North American and Asian facilities within the Performance and Essential Materials segment or externally purchased based on the location of the plants. The remaining feedstocks required, including pigments, fillers, stabilizers and other ingredients, are purchased under short-term contracts based on prevailing market prices.
Factors that have caused volatility in our raw material prices and production processes in the past, and which may do so in the future include significant fluctuation in prices of these raw materials in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials. Increasing raw material prices directly impact our cost of sales and our ability to maintain margins depends on implementing price increases in response to increasing raw material costs. The market for our products may or may not accept price increases, and as such, our future financial condition, results of operations or cash flows could be materially impacted.
Non-GAAP Financial Measures
The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows butthat (1) excludes amounts, or includesis subject to adjustments that have the effect of excluding amounts, that would not be so adjustedare included in the most directly comparable measure calculated and presented in accordance with GAAP measures.in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this report, we disclose non-GAAP financial measures, primarily earnings before interest, taxes, depreciation and amortization ("EBITDA"). We define EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. The non-GAAP financial measures described in this Form 10-K are not substitutes for the GAAP measures of earnings and cash flows.
EBITDA is included in this Form 10-K because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or ofnet income, income from operations and net cash flowsprovided by operating activities and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization and income taxes. Reconciliations for EBITDA are included in the "Results of Operations" section below.
RecentSignificant Developments
COVID-19, Industry Conditions and Our Business
On December 22, 2017,March 11, 2020, the U. S. Tax CutsWorld Health Organization declared the ongoing COVID-19 outbreak a pandemic and Jobs Actrecommended containment and mitigation measures worldwide. The pandemic has resulted in widespread adverse impacts on the global economy. We experienced significant disruptions in the second quarter of 2020 as the pandemic and its impact on the global economy spread through most of our markets. We were designated as an essential industry by many governments based on the nature of the products we manufacture. While demand for some of our products used in cleaning, packaging and medical applications and manufacturing continued to be firm, we expected lower demand for certain of our other products that led us to proactively temporarily idle production at several of our smaller non-integrated plants and reduce operating rates at others in the beginning of the second quarter of 2020. Since the middle of the second quarter of 2020, a general ease in government restrictions in many jurisdictions across the world has resulted in a gradual increase in demand for our products. As a result, all of our idled plants recommenced production. Except for the impact of the winter storm Uri and Hurricane Ida, operating rates have improved for most of our plants since the second half of 2020 due to continuing increase in demand for our products. Though the government restrictions across the world generally eased through the fourth quarter of 2021, there is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus. Factors that could impact the spread of COVID-19 include timing and logistics with respect to the distribution of vaccines globally, the efficacy of the available vaccines (including with respect to the more recent variants of COVID-19), vaccine hesitancy and the availability of other treatments. We continue to monitor the volatile environment and may reduce operating rates or idle production if the pandemic and its financial impacts persist or worsen. Considering the uncertain and volatile environment, we could continue to experience significant disruptions to our business operations in the near future.
Acquisitions
Hexion Global Epoxy Business
On November 24, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into a Stock Purchase Agreement (the "Tax Act""Hexion Purchase Agreement") was signed into law. The Tax Act,by and among other changes, reducesHexion Inc. ("Hexion"), an Ohio corporation, and, solely for the U.S. corporate income tax rate from 35%limited purposes set forth therein, Westlake. Pursuant to 21% effective January 1, 2018 and also requiresthe terms of the Hexion Purchase Agreement, Westlake agreed to acquire Hexion's global epoxy business for a one-time deemed repatriationpurchase price of foreign earnings at specified rates. We areapproximately $1,200 million in cash, subject to certain closing date adjustments as set forth in the provisionsHexion Purchase Agreement. On February 1, 2022, we completed the acquisition of Hexion's global epoxy business (the "Hexion Acquisition"). The assets acquired and liabilities assumed and the results of operations of Hexion's epoxy business will be included in the Performance and Essential Materials segment. This acquisition represents a significant strategic expansion of Westlake's Performance and Essential Materials businesses into additional high-growth, innovative and sustainable-oriented applications – such as wind turbine blades and light-weight automotive structural components. Because epoxies are produced from chlorine and caustic soda, the transaction also provides vertical integration with our global chlor-alkali businesses.
Boral Target Companies
On June 20, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into an Equity Purchase Agreement (the "Boral Purchase Agreement") by and among Boral Building Products Inc., a Michigan corporation, Boral Stone Products LLC, a Delaware limited liability company, Boral Lifetile Inc., a California corporation, Boral Windows LLC, a Utah limited liability company, Boral Industries Inc., a California corporation ("Boral Industries"), and, solely for the limited purposes set forth therein, Westlake and Boral Limited, an Australian corporation ("Boral"). Pursuant to the terms of the Financial Accounting Standards Board Accounting Standard Codification 740, Income Taxes, which requires the revaluation of deferred tax assets and liabilities in the period the tax rate change is enacted. The SEC staff guidance allows registrantsBoral Purchase Agreement, Westlake agreed to record provisional amounts during a measurement period when the registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, not to exceed one year. Under the above accounting guidance, we made a provisional adjustment in the 2017 consolidated financial statements. We recognized a one-time income tax benefit of approximately $591 million for items that we could reasonably estimate such as revaluation of deferred tax assets and liabilities and the one-time U.S. tax on the mandatory deemed repatriation of our post-1986 foreign earnings.
On December 18, 2017, we delivered notices to redeemacquire from Boral Industries all of the issued and outstanding equity interests of certain subsidiaries of Boral Industries engaged in Boral's North American building products businesses in roofing, siding, trim and shutters, decorative stone and windows (the "Boral Target Companies"). On October 1, 2021, we completed the acquisition of the Boral Target Companies (the "Boral Acquisition"). The total closing purchase consideration was $2,132 million subject to working capital post-closing adjustments as well as a potential earn-out payment of up to $65 million if the windows division of the Boral Target Companies generates EBITDA in excess of a specified target in its fiscal year ending June 30, 2024. The assets acquired and liabilities assumed and the results of operations of this business are included in the Housing and Infrastructure Products segment.
Westlake 4.625% Senior Notes dueDimex Inc.
On August 2, 2021, ($625 million aggregate principal amount)Westlake, through one of its wholly-owned subsidiaries, entered into that certain Stock Purchase Agreement (the "Dimex Purchase Agreement") with DX Acquisition Corp., a Delaware corporation ("Dimex"), each of Dimex's stockholders, and for limited purposes, Westlake and Grey Mountain Partners Fund III Holdings, L.P., pursuant to which Westlake agreed to acquire Dimex. On September 10, 2021, we completed the acquisition of, and acquired all of the outstanding Eagle Spincoequity interests in, Dimex (the "Dimex Acquisition") and subsequently renamed the acquired company Westlake Dimex Inc. 4.625% ("Westlake Dimex"). The total closing purchase consideration was $172 million, subject to working capital post-closing adjustments. The assets acquired and liabilities assumed and the results of operations of Westlake Dimex are included in the Housing and Infrastructure Products segment. Westlake Dimex is a producer of various consumer products made from post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic elastomer materials, including, landscape edging; home, office and industrial matting; marine dock edging; and masonry joint controls.
LASCO Fittings, Inc.
On July 4, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into that certain Equity Purchase Agreement with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts") and wholly-owned subsidiary of Aalberts N.V., pursuant to which Westlake agreed to acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts. On August 19, 2021, we completed the acquisition of, and acquired all of the equity interests in, LASCO (the "LASCO Acquisition"). The total closing purchase consideration was $277 million. The assets acquired and liabilities assumed and the results of operations of LASCO are included in the Housing and Infrastructure Products segment. LASCO is a manufacturer of injected-molded PVC fittings that serve the plumbing, pool and spa, industrial, irrigation and retail markets in the United States.
Senior Notes dueOffering
On August 19, 2021, ($63 million aggregate principal amount) (collectively,we completed the "2021 Notes") at a redemption price equal to 102.31% of the principal amount of the 2021 Notes plus accrued and unpaid interest on the 2021 Notes to the redemption date. The 2021 Notes were redeemed on February 15, 2018 using cash on hand, including the net proceeds from the November 2017registered public offering of $500for $1,700 million aggregate principal amount of Westlake's 4.375% Senior Notes due 2047 and the November 2017 remarketingsenior notes, comprised of $250$300 million aggregate principal amount of Louisiana Local Government Environmental Facilities and Community Development Authority Revenue Refunding Bonds (GO Zone) (Non-AMT)0.875% senior notes due 2024 (the "Refunding Bonds""0.875% 2024 Senior Notes").
On December 5, 2017, Westlake Partners increased the capacity of its existing revolving credit agreement with Westlake Chemical Finance Corporation from $300 million to $600 million. The facility maturity date is April 29, 2021.
On November 28, 2017, we closed the public offering of $500, $350 million aggregate principal amount of 4.375%2.875% senior notes due 2041 (the "2.875% 2041 Senior Notes due 2047. On November 29, 2017, we closed the remarketing of $250Notes"), $600 million aggregate principal amount of the Refunding Bonds. We issued $2503.125% senior notes due 2051 (the "3.125% 2051 Senior Notes") and $450 million aggregate principal amount of 3.50%3.375% senior unsecured notes due 2061 (the "3.375% 2061 Senior Notes" and, together with the 0.875% 2024 Senior Notes, due 2032 to collateralize our obligations under the loan agreement relating to2.875% 2041 Senior Notes and the Refunding Bonds.
On September 29, 2017, Westlake Partners completed a secondary offering of 5,175,000 common units at a price of $22.00 per unit and purchased an additional 5.0% newly-issued limited partner interest in Westlake Chemical OpCo LP ("OpCo") for approximately $229 million, resulting in an aggregate 18.3% limited partner interest in OpCo effective July 1, 2017. Net proceeds to Westlake Partners from3.125% 2051 Senior Notes, the sale of the units was $111 million,"Notes"). The net of underwriting discounts, structuring fees and estimated offering expenses of approximately $3 million. Westlake Partners used the proceeds from the offering of the Notes were used to fund a portion of the purchase prices of the 2021 Acquisitions. See "Liquidity and Capital Resources—Debt" below and Note 11 to the consolidated financial statements included in this Form 10-K for more information.
Hurricane Ida
On August 29, 2021, Hurricane Ida made a landfall in Louisiana as a category 4 storm. Due to Hurricane Ida, several of our facilities in the region experienced disruption to their operations, resulting in lost production and sales and higher maintenance expense. Our facilities impacted by Hurricane Ida have resumed production.
Petro 2 Facility Flash Fire
In September 2021, OpCo's Petro 2 ethylene unit commenced turnaround activities. On September 27, 2021, shortly after the turnaround commenced, there was a flash fire at the quench tower of the Petro 2 facility. Several contractors working on the quench tower were injured. Although there was no sustained fire or offsite impact resulting from the incident and the existing revolving credit facility with Westlake Chemical Finance Corporation, our subsidiary,quench tower did not sustain significant damage, due to fund the purchasesubsequent investigation by the Occupational Safety and Health Administration, the duration of the additional 5.0% interest in OpCo.
During September 2017, we directed the Louisiana Local Government Authority Environmental Facilitiesturnaround was extended and Community Development Authority (the "Authority") to optionally redeem in full $250 million aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 2032 on November 1, 2017 at a redemption price of par. The 6 ¾% tax-exempt revenue bonds due November 2032 were issued by the Authorityconcluded in December 2007 under the Gulf Opportunity Zone Act of 2005 (the "GO Zone Act") for our benefit and were subject to optional redemption by the Authority at any time on or after November 1, 2017 for 100.0% of the principal plus accrued unpaid interest, if any. The 6 ¾% tax-exempt revenue bonds due November 2032 were redeemed on November 1, 2017. In2021. There are lawsuits pending in connection with the redemptionflash fire at the quench tower.
On August 30, 2017, following Westlake Partners' cash distribution for the second quarter of 2017, the requirement under Westlake Partners' partnership agreement for the conversion of all subordinated units was satisfied. As a result, effective August 30, 2017, 12,686,115 subordinated units owned by us converted into common units on a one-for-one basis and thereafter participate on terms equal with all other common units in distributions of available cash.
On August 1, 2017, we, Westlake Partners and OpCo executed an Investment Management Agreement (the "Investment Management Agreement") that authorized Westlake to invest Westlake Partners' and OpCo's excess cash.
On August 1, 2017, our wholly-owned subsidiary, Westlake Chemical Finance Corporation, entered into an amendment to the revolving credit facility with Westlake Partners, resulting in the extension of the credit facility's maturity date from April 29, 2018 to April 29, 2021.
We completed an upgrade and capacity expansion of our Calvert City ethylene unit in April 2017. The expansion, along with other initiatives, increased ethylene capacity by approximately 100 million pounds annually to a total annual ethylene capacity of approximately 730 million pounds.
Results of Operations
Segment Data
The table below and descriptions that follow represent the consolidated results of operations of the Company for the years ended December 31, 2021, 2020 and 2019.
Net External Sales
The table below presents net external sales on a disaggregated basis for our two principal operating segments. Performance materials net external sales primarily consists of sales of PVC and polyethylene. Essential materials net external sales primarily consist of sales of caustic soda, styrene, and related derivative materials. Housing products net external sales primarily consist of sales of housing exterior and interior products, residential pipes and fittings and residential PVC compounds. Infrastructure products net external sales primarily consist of sales of non-residential pipes and fittings and non-residential PVC compounds.
| | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | 2019 | | |
| | | | | | | | |
| | (dollars in millions, except per share data) | | |
| Net external sales | | | | | | | | |
| Performance and Essential Materials | | | | | | | | |
| Performance materials | | $ | 5,997 | | | $ | 3,428 | | | $ | 3,574 | | | |
| Essential materials | | 2,673 | | | 2,037 | | | 2,610 | | | |
| | | | | | | | |
| Total performance and essential materials | | 8,670 | | | 5,465 | | | 6,184 | | | |
| Housing and Infrastructure Products | | | | | | | | |
| Housing products | | 2,334 | | | 1,497 | | | 1,390 | | | |
| Infrastructure products | | 774 | | | 542 | | | 544 | | | |
| Total housing and infrastructure products | | 3,108 | | | 2,039 | | | 1,934 | | | |
| Total | | $ | 11,778 | | | $ | 7,504 | | | $ | 8,118 | | | |
| | | | | | | | |
| Income (loss) from operations | | | | | | | | |
| Performance and Essential Materials | | $ | 2,549 | | | $ | 231 | | | $ | 569 | | | |
| Housing and Infrastructure Products | | 356 | | | 256 | | | 136 | | | |
| Corporate and other | | (105) | | | (58) | | | (49) | | | |
| Total income from operations | | 2,800 | | | 429 | | | 656 | | | |
| Interest expense | | (176) | | | (142) | | | (124) | | | |
| Other income, net | | 53 | | | 44 | | | 38 | | | |
| Provision for (benefit from) income taxes | | 607 | | | (42) | | | 108 | | | |
| Net income | | 2,070 | | | 373 | | | 462 | | | |
| Net income attributable to noncontrolling interests | | 55 | | | 43 | | | 41 | | | |
| Net income attributable to Westlake Corporation | | $ | 2,015 | | | $ | 330 | | | $ | 421 | | | |
| Diluted earnings per share | | $ | 15.58 | | | $ | 2.56 | | | $ | 3.25 | | | |
EBITDA (1) | | $ | 3,693 | | | $ | 1,246 | | | $ | 1,407 | | | |
_____________
(1)See above for discussions on non-GAAP financial measures. See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | | | | | |
| | | (dollars in millions, except per share data) |
| Net external sales | | | | | | |
| Olefins | | | | | | |
| Polyethylene | | $ | 1,518 |
| | $ | 1,463 |
| | $ | 1,651 |
|
| Styrene, feedstock and other | | 533 |
| | 431 |
| | 609 |
|
| Total Olefins | | 2,051 |
| | 1,894 |
| | 2,260 |
|
| Vinyls | | | | | | |
| PVC, caustic soda and other | | 4,769 |
| | 2,493 |
| | 1,718 |
|
| Building products | | 1,221 |
| | 689 |
| | 485 |
|
| Total Vinyls | | 5,990 |
| | 3,182 |
| | 2,203 |
|
| Total | | $ | 8,041 |
| | $ | 5,076 |
| | $ | 4,463 |
|
| | | | | | | |
| Income (loss) from operations | | | | | | |
| Olefins | | $ | 655 |
| | $ | 558 |
| | $ | 747 |
|
| Vinyls | | 647 |
| | 174 |
| | 255 |
|
| Corporate and other | | (69 | ) | | (151 | ) | | (42 | ) |
| Total income from operations | | 1,233 |
| | 581 |
| | 960 |
|
| Interest expense | | (159 | ) | | (79 | ) | | (35 | ) |
| Other income (expense), net | | 7 |
| | 56 |
| | 38 |
|
| Provision for (benefit from) income taxes | | (258 | ) | | 138 |
| | 298 |
|
| Net income | | 1,339 |
| | 420 |
| | 665 |
|
| Net income attributable to noncontrolling interests | | 35 |
| | 21 |
| | 19 |
|
| Net income attributable to Westlake Chemical Corporation | | $ | 1,304 |
| | $ | 399 |
| | $ | 646 |
|
| Diluted earnings per share | | $ | 10.00 |
| | $ | 3.06 |
| | $ | 4.86 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| | Average Sales
Price | | Volume | | Average Sales
Price | | Volume |
| Product sales price and volume percentage change from prior year | | | | | | | | |
| Performance and Essential Materials | | +58 | % | | +1 | % | | -6 | % | | -6 | % |
| Housing and Infrastructure Products | | +33 | % | | +19 | % | | — | % | | +5 | % |
| Company average | | +51 | % | | +6 | % | | -4 | % | | -3 | % |
| | | | | | | | | | | | | | | | | | | | |
Average Industry Prices (1) |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Average domestic prices | | | | | | |
Natural Gas ($/MMBtu) (2) | | 3.9 | | | 2.1 | | | 2.7 | |
Ethane (cents/lb) (3) | | 10.4 | | | 6.4 | | | 7.3 | |
Propane (cents/lb) (4) | | 24.7 | | | 11.0 | | | 12.7 | |
Ethylene (cents/lb) (5) | | 42.9 | | | 17.5 | | | 18.5 | |
Polyethylene (cents/lb) (6) | | 94.5 | | | 57.5 | | | 59.0 | |
Styrene (cents/lb) (7) | | 83.5 | | | 56.0 | | | 79.1 | |
Caustic soda ($/short ton) (8) | | 787 | | | 674 | | | 692 | |
Chlorine ($/short ton) (9) | | 387 | | | 180 | | | 175 | |
PVC (cents/lb) (10) | | 105.3 | | | 74.0 | | | 68.4 | |
| | | | | | |
| Average export prices | | | | | | |
Polyethylene (cents/lb) (11) | | 81.2 | | | 44.2 | | | 41.0 | |
Caustic soda ($/short ton) (12) | | 380 | | | 250 | | | 273 | |
PVC (cents/lb) (13) | | 77.4 | | | 39.6 | | | 34.9 | |
Housing Starts Data (14)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | (in thousands of units) |
| Single and Multi-family Housing Starts | | 1,597 | | 1,380 | | 1,290 |
(1)Industry pricing data was obtained through IHS Markit ("IHS"). We have not independently verified the data.
(2)Average Burner Tip contract prices of natural gas over the period.
(3)Average Mont Belvieu spot prices of purity ethane over the period.
(4)Average Mont Belvieu spot prices of non-TET propane over the period.
(5)Average North American spot prices of ethylene over the period.
(6)Average North American Net Transaction prices of polyethylene low density GP-Film grade over the period.
(7)Average North American contract prices of styrene over the period.
(8)Average USGC-CSLi index values for caustic soda over the period. As stated by IHS, "the caustic soda price listing represents the USGC-CSLi values. USGC-CSLi does not reflect contract price discounts, implementation lags, caps or other adjustments factors. Additionally, it is not intended to represent a simple arithmetic average of all market transactions occurring during the month. Rather, the USGC-CSLi is most representative of the month-to-month caustic soda price movement for contract volumes of liquid 50% caustic soda rather than the absolute value of contract prices at a particular point in time. It is intended to serve only as a benchmark."
(9)Average North American contract prices of chlorine over the period.
(10)Average North American contract prices of pipe grade PVC over the period. As stated by IHS, "the contract resin prices posted reflect an "index" or "market" for prices before discounts, rebates, incentives, etc."
(11)Average North American export price for low density polyethylene GP-Film grade over the period.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 |
| | | Average Sales Price | | Volume | | Average Sales Price | | Volume |
Product sales price and volume percentage change from prior year | | | | | | | | |
| Olefins | | +9 | % | | -1 | % | | -9 | % | | -7 | % |
| Vinyls | | +14 | % | | +74 | % | | -4 | % | | +48 | % |
| Company average | | +12 | % | | +46 | % | | -6 | % | | +20 | % |
(13)Average North American spot export prices of PVC over the period. |
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
Average industry prices (1) | | | | | | |
| Ethane (cents/lb) | | 8.3 |
| | 6.6 |
| | 6.2 |
|
| Propane (cents/lb) | | 18.1 |
| | 11.4 |
| | 10.7 |
|
Ethylene (cents/lb) (2) | | 28.0 |
| | 26.9 |
| | 30.6 |
|
Polyethylene (cents/lb) (3) | | 71.1 |
| | 65.3 |
| | 71.6 |
|
Styrene (cents/lb) (4) | | 86.5 |
| | 64.8 |
| | 60.7 |
|
Caustic ($/short ton) (5) | | 800.4 |
| | 645.0 |
| | 581.0 |
|
Chlorine ($/short ton) (6) | | 323.8 |
| | 297.7 |
| | 266.9 |
|
PVC (cents/lb) (7) | | 62.6 |
| | 54.7 |
| | 51.0 |
|
Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities
The following table presents the reconciliation of EBITDA to net income, income from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
| |
(1) | Industry pricing data was obtained through IHS. We have not independently verified the data. |
| |
(2) | Represents average North American spot prices of ethylene over the period as reported by IHS. |
| |
(3) | Represents average North American net transaction prices of polyethylene low density GP-Film grade over the period as reported by IHS. |
| |
(4) | Represents average North American contract prices of styrene over the period as reported by IHS. |
| |
(5) | Represents average North American undiscounted contract prices of caustic soda over the period as reported by IHS. |
| |
(6) | Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS. |
| |
(7) | Represents average North American contract prices of PVC over the period as reported by IHS. Effective January 1, 2017, IHS made a non-market downward adjustment of 15 cents per pound to PVC prices. For comparability, we adjusted each prior-year period's PVC price downward by 15 cents per pound consistent with the IHS non-market adjustment. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 | | | | |
| | | | | | | | | | |
| | (dollars in millions) |
| Net cash provided by operating activities | | $ | 2,394 | | | $ | 1,297 | | | $ | 1,301 | | | | | |
| Changes in operating assets and liabilities and other | | (301) | | | (778) | | | (785) | | | | | |
| Deferred income taxes | | (23) | | | (146) | | | (54) | | | | | |
| Net income | | 2,070 | | | 373 | | | 462 | | | | | |
| Less: | | | | | | | | | | |
| Other income, net | | 53 | | | 44 | | | 38 | | | | | |
| Interest expense | | (176) | | | (142) | | | (124) | | | | | |
| Benefit from (provision for) income taxes | | (607) | | | 42 | | | (108) | | | | | |
| Income from operations | | 2,800 | | | 429 | | | 656 | | | | | |
| Add: | | | | | | | | | | |
| Depreciation and amortization | | 840 | | | 773 | | | 713 | | | | | |
| Other income, net | | 53 | | | 44 | | | 38 | | | | | |
| EBITDA | | $ | 3,693 | | | $ | 1,246 | | | $ | 1,407 | | | | | |
2021 Compared with 2020
Summary
For the year ended December 31, 2017,2021, net income attributable to Westlake Chemical Corporation was $1,304$2,015 million, or $10.00$15.58 per diluted share, on net sales of $8,041$11,778 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $905$1,685 million, or $6.94$13.02 per diluted share, compared to 20162020 net income attributable to Westlake Chemical Corporation of $399$330 million, or $3.06$2.56 per diluted share, on net sales of $5,076$7,504 million. Net income for the year ended December 31, 2017 increased versus the prior year primarily due to (1) the tax benefit recorded in the fourth quarter of 2017 of approximately $591 million, or $4.54 per diluted share, resulting from the reduction of the federal corporate income tax rate under the Tax Act; (2) earnings contributed by Axiall, which was acquired on August 31, 2016; (3) higher sales prices for our major products, resulting in improved margins; and (4) lower transaction and integration-related costs associated with the integration of Axiall. These increases versus the prior year were partially offset by (1) higher interest expense due to the debt assumed as a result of the Axiall acquisition; (2) higher unabsorbed fixed manufacturing and other costs associated with turnarounds; and (3) the realized gain in 2016 of $49 million from the previously held common stock of Axiall. Net sales for the year ended December 31, 2017 increased $2,965 million to $8,041 million compared to net sales for the year ended December 31, 2016 of $5,076 million, mainly due to higher sales contributed by Axiall and higher sales prices for our major products. Income from operations was $1,233$2,800 million for the year ended December 31, 20172021 as compared to $581$429 million for the year ended December 31, 2016,2020, an increase of $652$2,371 million. The increase in net income and income from operations was mainly a result of earnings contributed by Axiall,primarily due to significantly higher global sales prices and integrated margins for our major products due to the strengthening of demand for our products resulting from continued improvement in global economic activity from the severe impact of the COVID-19 pandemic in 2020, strong residential construction and lower transactionrepair and integration-related costs, partially offset by higher unabsorbed fixed manufacturingremodeling markets in North America and strong demand from the packaging and other costs associated with turnaroundsconsumer markets. Net income and unplanned outages, as compared to 2016. Pre-tax transaction and integration-related costsincome from operations for the year ended December 31, 20172021 were $29positively impacted by higher margin contribution on ethylene produced by LACC. Net income and income from operations for the year ended December 31, 2021 was negatively impacted by higher feedstock costs, fuel costs and selling, general and administrative expense. The year ended December 31, 2020 net income included an income tax rate benefit of $95 million or $0.16 per diluted share after tax, as compared to $104 million in 2016.
2017 Compared with 2016
Net Sales.resulting from the carryback of federal net operating losses permitted by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Net sales increased by $2,965$4,274 million or 58%, to $8,041$11,778 million in 20172021 from $5,076$7,504 million in 2016, primarily attributable to higher sales volume contributed by Axiall and higher sales prices for our major products. Overall sales volumes increased by 46% in 2017 as compared to 2016, primarily attributable to higher sales contributed by Axiall. Average sales prices for 2017 increased by 12% as compared to 2016.
Gross Profit. Gross profit margin percentage increased to 22% in 2017 from 19% in 2016. The gross profit margin for 2017 was higher primarily due to higher sales prices for our major products and higher sales volumes for caustic soda, chlorine and PVC resin contributed primarily by Axiall, as compared to 2016. These increases were offset by higher unabsorbed fixed manufacturing and other costs associated with turnarounds and unplanned outages and a proportionately larger sales volume for the Vinyls segment, for which industry margins in 2017 and 2016 were lower as compared to the Olefins industry.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $141 million, or 55%, in 2017 as compared to 2016, primarily because a full year of Axiall's expenses were included in 2017, as compared to only four months in 2016 and an increase in employee compensation.
Amortization of Intangibles. Amortization of intangibles are comprised of amortization expense for customer relationships, trade name and other intangibles assets. The amortization expense increased by $70 million in 2017, as compared to 2016, because a full year of expense related to the intangible assets acquired in Axiall acquisition was included in 2017, as compared to only four months in 2016.
Transaction and Integration-related Costs. Transaction and integration-related costs were $29 million in 2017 as compared to $104 million in 2016. Transaction and integration-related costs were $75 million lower in 2017 as compared to 2016 predominantly because significant transaction and integration-related costs were incurred at the time of the Merger in 2016. The transaction and integration costs in 2017 primarily consisted of severance benefits provided to former Axiall employees in conjunction with the Merger and integration costs and consulting fees related to the Merger. The transaction and integration costs in 2016 primarily consisted of severance benefits provided to former Axiall executives in conjunction with the Merger, including the conversion of Axiall restricted stock units into our restricted stock units, transitional service expenses for certain former Axiall employees, retention agreement costs and consulting and professional fees related to the Merger.
Interest Expense. Interest expense increased by $80 million to $159 million in 2017 from $79 million in 2016, primarily as a result of higher average debt outstanding for the year as well as decreased capitalized interest on major capital projects in 2017 as compared to 2016. The debt balance increased in August 2016 to finance the Merger. See "Liquidity and Capital Resources—Debt" below for further discussion of our indebtedness.
Other Income (Expense), Net. Other income, net decreased by $49 million to $7 million in 2017 from $56 million in 2016. The decrease was mainly attributable to the realized gain in 2016 of $49 million from the previously held common stock of Axiall.
Income Taxes. The effective income tax rate was a benefit of 24% in 2017 as compared to an expense of 25% in 2016. The effective income tax rate for 2017 was below the U.S. federal statutory rate of 35% primarily due to the approximately $591 million income tax benefit as a result of the revaluation of deferred tax assets and liabilities and the one-time U.S. tax on the mandatory deemed repatriation of our post-1986 foreign earnings as part of the Tax Act, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, foreign earnings rate differential and foreign withholding tax related to such earnings. The effective income tax rate for 2016 was below the U.S. federal statutory rate of 35% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures and adjustments related to prior years' tax returns as filed, change in state apportionment and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger.
Olefins Segment
Net Sales. Net sales increased by $157 million, or 8%, to $2,051 million in 2017 from $1,894 million in 2016,2020, mainly due to higher sales prices for our major products comparedas well as higher sales volumes for Housing and Infrastructure Products due to the prior year. Averageour acquisitions in 2021.
Net Sales. Net sales prices for the Olefins segment increased by 9% in 2017 as compared$4,274 million, or 57%, to 2016, while average sales volumes decreased by 1% in 2017 as compared to 2016, primarily due to lower polyethylene sales.
Income from Operations. Income from operations was $655$11,778 million in 2017 as compared to $5582021 from $7,504 million in 2016. This increase was mainly2020, primarily attributable to higher olefins integrated product margins, primarily due to higher sales prices for our major products as well as higher operating ratessales volumes for Housing and lowerInfrastructure Products due to our acquisitions in 2021. Average sales prices for 2021 increased by 51% as compared to 2020 due to the strong demand for our products resulting from continued improvement in global economic activity, strong residential construction, repair and remodeling markets in North America, and strong demand from the packaging and other consumer markets. Sales volumes increased by 6% in 2021 as compared to 2020, primarily due to the 2021 Acquisitions.
Gross Profit. Gross profit margin percentage increased to 30% in 2021 from 14% in 2020. The increase in gross profit margin was primarily due to higher sales prices and margins for our major products. Gross profit margin for the year ended December 31, 2021 was also positively impacted by the margin contributed from LACC's produced ethylene. Gross profit margin for the year ended December 31, 2021 was negatively impacted by higher feedstock and fuel costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $102 million to $551 million in 2021 from $449 million in 2020. This increase was mainly due to higher employee compensation, selling and consulting expenses and the inclusion of expenses related to the 2021 Acquisitions.
Amortization of Intangibles. Amortization expense increased by $14 million to $123 million in 2021 from $109 million for 2020, primarily due to the amortization of intangibles associated with the 2021 Acquisitions.
Restructuring, Transaction and Integration-related Costs. Restructuring, transaction and integration-related costs were $21 million in 2021 as compared to $36 million in 2020. The restructuring, transaction and integration-related costs of $21 million for the year ended December 31, 2021 primarily consisted of costs associated with turnaroundsthe 2021 Acquisitions. Restructuring, transaction and unplanned outagesintegration-related costs of $36 million in the year ended December 31, 2020 was primarily related to the closure of a non-integrated PVC plant located in Germany and included the $8 million write-off of certain assets and other expenses associated with the plant closure.
Interest Expense. Interest expense increased by $34 million to $176 million in 2021 from $142 million in 2020, primarily as a result of higher average debt outstanding in 2021 as compared to the year ended December 31, 2020 and the settlement of interest rate lock arrangements associated with the issuance of the Notes. See "Liquidity and Capital Resources—Debt" below and Note 11 to the consolidated financial statements included in this Form 10-K for further discussion of our indebtedness.
Other Income, Net. Other income, net of $53 million in 2021 was higher as compared to other income, net of $44 million in 2020. This increase was primarily due to higher expected return on pension plan assets.
Income Taxes. The effective income tax rate was an expense of 23% in 2021 as compared to a benefit of 13% in 2020. The change in effective tax rate in 2021 as compared to 2020 was primarily due to the income tax rate benefit in the year ended December 31, 2020 resulting from the carryback of federal net operating loss to taxable years that were taxed at the U.S. corporate tax rate of 35% as permitted under the CARES Act, partially offset by the reduction in the Section 199 domestic manufacturing deduction as a result of the net operating loss carryback.
Performance and Essential Materials Segment
Net Sales. Net sales for the Performance and Essential Materials segment increased by $3,205 million, or 59%, to $8,670 million in 2021 from $5,465 million in 2020. Average sales prices for the Performance and Essential Materials segment increased by 58% in 2021 as compared to 2020. The higher performance materials sales prices were due to higher polyethylene and PVC resin sales prices. The higher essential materials sales prices were primarily driven by the higher prices for caustic due to improved global economic activity. Sales volumes for the Performance and Essential Materials segment remained relatively consistent in 2021 as compared to 2020.
Income from Operations. Income from operations for the Performance and Essential Materials segment increased by $2,318 million to $2,549 million in 2021 from $231 million in 2020. This increase in income from operations was primarily due to higher sales prices and margins for polyethylene, PVC resin and caustic soda, mainly resulting from the continued improvement in global economic activity from the severe impact of the COVID-19 pandemic in 2020. The increase in income from operations as compared to the prior year. These increases were partially offsetyear was negatively impacted by higher energyfeedstock and fuel costs. Income from operations for 2016the year ended December 31, 2021 was also impacted by Winter Storm Uri and Hurricane Ida, while income from operations for the year ended December 31, 2020 was negatively impacted by the planned turnaround and expansiononset of the Lake Charles Petro 1 ethylene unit along with other unplanned outages. Trading activity for 2017 resulted in a loss of $4 million as compared to a gain of $20 million for 2016.COVID-19 pandemic and Hurricanes Laura and Delta.
VinylsHousing and Infrastructure Products Segment
Net Sales. Net sales for the Housing and Infrastructure Products segment increased by $2,808$1,069 million, or 88%52%, to $5,990$3,108 million in 20172021 from $3,182$2,039 million in 2016. This2020. In addition to the net sales from the businesses we acquired in the second half of 2021, the increase in net sales was mainly attributable to higher sales volume contributed primarilyalso driven by Axiall and higher sales prices for our major products.products in the housing and infrastructure businesses. Average sales volumesprices increased by 74%33% from 2020 to due to strong demand for our major products in 2017,the residential construction and repair and remodeling markets. Sales volumes for the Housing and Infrastructure Products segment increased by 19% in 2021 as compared to 2016 primarily because a full year2020 due to strong demand as well as the businesses we acquired in the second half of Axiall's2021.
Income from Operations. Income from operations for the Housing and Infrastructure Products segment increased by $100 million to $356 million in 2021 from $256 million in 2020. The increase in income from operations was includedprimarily due to significantly higher sales prices and margins driven by robust housing construction and remodeling activity resulting from the continued economic recovery from the COVID-19 pandemic.Additionally, 2021 experienced higher energy costs as well as the impacts from Winter Storm Uri and Hurricane Ida, while income from operations for the year ended December 31, 2020 was negatively impacted by the onset of the COVID-19 pandemic and Hurricanes Laura and Delta.
2020 Compared with 2019
Summary
For the year ended December 31, 2020, net income attributable to Westlake Corporation was $330 million, or $2.56 per diluted share, on net sales of $7,504 million. This represents a decrease in 2017net income attributable to Westlake Corporation of $91 million, or $0.69 per diluted share, compared to 2019 net income attributable to Westlake Corporation of $421 million, or $3.25 per diluted share, on net sales of $8,118 million. Net income for the year ended December 31, 2020 decreased as compared to only four months of Axiall's operations included in 2016. Averagethe prior year primarily due to lower global sales prices for several of our major products, including caustic soda, and lower sales volumes for caustic soda resulting from the Vinyls segment increasedimpact of the COVID-19 pandemic and lower crude oil prices. Net income for 2020 was also impacted by 14%the shutdowns of our Lake Charles facilities in 2017 as comparedthe second half of 2020 due to 2016.
IncomeHurricanes Laura and Delta, which resulted in lower plant operating rates, higher maintenance expense and lower production for many of our major products. In addition, in 2020 we had a higher interest expense related to higher average borrowings. These decreases were partially offset by the income tax rate benefit of $95 million, or $0.74 per diluted share, resulting from Operations.the carryback of federal net operating losses permitted by the CARES Act, higher sales volumes for housing and infrastructure products, higher contributions from our ethylene joint venture LACC, LLC ("LACC") and lower fuel costs and selling, general and administrative expenses. Income from operations was $647$429 million in 2017for the year ended December 31, 2020 as compared to $174$656 million for the year ended December 31, 2019, a decrease of $227 million. The decrease in income from operations was primarily due to lower global sales prices for our major products, lower sales volume for caustic soda, lower operating rates and higher maintenance expense due to Hurricanes Laura and Delta. The decreases were partially offset by higher sales volumes for housing and infrastructure products and higher contributions from LACC, lower fuel costs and selling, general and administrative costs. Net sales decreased by $614 million to $7,504 million in 2016. This increase was2020 from $8,118 million in 2019, mainly attributabledue to earnings contributed by Axiall and higherlower sales prices and volumes for several of our major products. These increases wereproducts, including caustic soda, partially offset by higher unabsorbed fixed manufacturingsales volumes for housing and other costs associated withinfrastructure products in the planned turnaroundsecond half of the year ended December 31, 2020.
Net Sales. Net sales decreased by $614 million, or 8%, to $7,504 million in 2020 from $8,118 million in 2019, primarily attributable to lower sales prices and expansion at the Calvert City facilityvolumes for several of our major products, including caustic soda, partially offset by higher sales volumes for housing and other turnarounds and unplanned outages in addition to higher energy costs in 2017,infrastructure products. Average sales prices for 2020 decreased by 4% as compared to 2016.2019 due to slower global economic activity as a result of the COVID-19 pandemic and lower crude oil prices. Sales volumes decreased by 3% in 2020 as compared to 2019.
2016 Compared with 2015
Net Sales. Net sales increased by $613 million, orGross Profit. Gross profit margin percentage decreased to 14%, in 2020 from 16% in 2019. The gross profit margin decreased primarily due to $5,076 million in 2016 from $4,463 million in 2015. This increase was mainly attributable to sales contributed by Axiall and higher sales volume for PVC resin, partially offset by lower global sales prices for allseveral of our major products and lower sales volumes for our major olefins products, as compared tocaustic soda resulting from the prior year. Average sales prices for 2016 decreased by 6% as compared to 2015. Sales prices forimpact of the year ended December 31, 2016 were negatively impacted byCOVID-19 pandemic and lower crude oil prices as compared to the prior year. Overall sales volumes increased by 20% in 2016 as compared to 2015, primarily attributable to sales contributed by Axiall, as compared to the prior year.
Gross Profit.prices. Gross profit margin percentage decreasedwas also impacted by the shutdown of our Lake Charles facilities in the second half of 2020 due to 19%Hurricanes Laura and Delta, which resulted in 2016 from 27% in 2015. The decrease in gross profit margin percentage was mainly the resultlower plant operating rates, higher maintenance expense and lower production for many of lower sales prices for our major products, as compared to the prior year, and the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of OpCo's Lake Charles Petro 1 ethylene unit, the unplanned outage at our Calvert City facility and other planned turnarounds and unplanned outages. Sales prices decreased an average of 6% for the year ended December 31, 2016 as compared to 2015. In addition, gross profit for the year ended December 31, 2016 included the negative impact of selling higher cost Axiall inventory recorded at fair value. The decrease in gross profit for the year ended December 31, 2016 wasproducts. These decreases were partially offset by higher sales volumes for housing and infrastructure products and lower average feedstock and energy costs and higher product margins at our European operations, as compared to the prior year.fuel costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $40decreased by $9 million or 18%,to $449 million in 2016 as compared to 2015. The increase2020 from $458 million in 2019. This decrease was mainly attributabledue to generallower employee compensation and administrative costs incurred by Axiall for the period from August 31, 2016 to December 31, 2016, partially offset by lower consulting and professional fees, as compared to 2015.selling expenses.
Amortization of Intangibles. The increase in amortization Amortization expense of $31for 2020 was $109 million, in 2016 as comparedwhich was comparable to 2015 was mainly because of customer relationships, trade name and other intangibles assets acquired in the Merger.$109 million for 2019.
Restructuring, Transaction and Integration-related Costs. TransactionCosts. Restructuring, transaction and integration-related costs were $104$36 million in 20162020 as compared to $37 million in 2019. The restructuring, transaction and integration-related costs for 2020 primarily related to the closure of a non-integrated PVC plant located in Germany and included the $8 million write-off of certain assets and other expenses associated with the plant closure. The restructuring, transaction and integration-related costs for 2019 primarily consisted of severance benefits provided to former Axiall executives in conjunction with the Merger, including the conversionrestructuring expenses of Axiall restricted stock units into our restricted stock units, transitional service expenses for certain former Axiall employees, retention agreement costs$26 million and consulting and professional fees related to the Merger.acquisition costs.
Interest Expense. Interest expense increased by $44$18 million to $79$142 million in 20162020 from $35$124 million in 2015, largely2019, primarily as a result of higher average debt outstanding partially offset by increased capitalized interest on major capital projects in 20162020 as compared to 2015. See "Liquidity and Capital Resources-Debt" below for a further discussion of our indebtedness.
Other Income (Expense), Net. Other income, net increased $18 million to $56 million2019. The higher average debt balance in 2016 from $38 million in 2015. This increase2020 was primarily attributabledue to the realized gainborrowing of approximately $49$1 billion under our revolving credit facility in March 2020 out of an abundance of caution (which we fully repaid in June 2020), the issuance of the €700 million fromaggregate principal amount of 1.625% 2029 Senior Notes in July 2019, which were outstanding for the previously held outstanding sharesfull calendar year in 2020 (as compared to less than half a year in 2019), and the issuance of common stockthe $300 million aggregate principal amount of Axiall3.375% 2030 Senior Notes in June 2020 and higherlower interest income for 2016capitalization due to lower activity with respect to capital expenditure projects during 2020 as compared to the prior year, partially offset by the expenses relatedpurchase in lieu of redemption of the 6 ½% 2029 GO Zone Bonds, the 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Bonds. See "Liquidity and Capital Resources—Debt" below and Note 11 to the bridge loan facility and other financing costsconsolidated financial statements included in connection with the Merger.this Form 10-K for further discussion of our indebtedness.
Other Income, Net. Other income, (expense), net for 2015 included a gain of approximately $16 million related to the bargain purchase gain from the acquisition of a controlling interest in Suzhou Huasu Plastics Co., Ltd. ("Huasu"), net of related expenses, partially offset by the impairment and loss from the disposition$44 million in 2020 was higher as compared to other income, net of an equity method investment.$38 million in 2019. This increase was primarily due to higher expected return on pension plan assets.
Income Taxes. The effective income tax rate was 25%a benefit of 13% in 20162020 as compared to 31%an expense of 19% in 2015.2019. The change in effective income tax rate for 2016 was below the U.S. federal statutory rate of 35% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures and adjustments related to prior years' tax returns as filed, change in state apportionment and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger. The effective income tax rate for 2015 was below the U.S. federal statutory rate of 35% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, income attributable to noncontrolling interests, the non-recognition of tax related to the bargain purchase of a controlling interest in Huasu, the foreign earnings rate differential and the increased benefit in certain prior years' deductions due to a change in the calculation methodology of the domestic manufacturing deduction and adjustments related to prior years' tax returns as filed, partially offset by state income taxes.
Olefins Segment
Net Sales. Net sales decreased by $366 million, or 16%, to $1,894 million in 2016 from $2,260 million in 2015, mainly due to lower sales prices for our major products and lower sales volumes for most of our major products2020 as compared to the prior year.year was primarily due to the income tax rate benefit resulting from the carryback of federal net operating loss to taxable years that were taxed at the U.S. corporate tax rate of 35% as permitted under the CARES Act, partially offset by the reduction in the Section 199 domestic manufacturing deduction as a result of the net operating loss carryback.
Performance and Essential Materials Segment
Net Sales. Net sales for the Performance and Essential Materials segment decreased by $719 million, or 12%, to $5,465 million in 2020 from $6,184 million in 2019. Average sales prices for the OlefinsPerformance and Essential Materials segment decreased by 9%6% in 20162020, as compared to 2015, while average2019. The lower performance materials sales prices were due to lower polyethylene prices as a result of increased production from new industry capacity and lower PVC resin sales prices due to slower global economic activity as a result of the COVID-19 pandemic. The lower essential materials sales prices were driven by lower caustic soda prices. Average sales volumes decreased by 7%6% in 20162020 as compared to 2015.
Income from Operations. Income from operations was $558 million in 2016 as compared2019 due to $747 million in 2015. This decrease was predominantly attributable to lower olefins integrated product margins, primarilythe slower global economic activity as a result of the COVID-19 pandemic. Lower performance materials global sales volumes were due to lower polyethylene and PVC resin sales volumes and lower essential materials sales volumes were driven by lower caustic soda sales volume.
Income from Operations. Income from operations for the Performance and Essential Materials segment decreased by $338 million to $231 million in 2020 from $569 million in 2019. This decrease in income from operations was primarily due to lower caustic soda and PVC resin sales prices as compared to 2015, and the lostlower PVC resin and polyethylene sales volumes, partially offset by lower production rates, unabsorbed fixed manufacturing costspurchased ethylene, ethane feedstock and other costs related to the turnaround and expansion of OpCo's Lake Charles Petro 1 ethylene unit and other planned turnarounds and unplanned outages in 2016.fuel costs. Trading activity for 2016in 2020 resulted in a gain of $20approximately $4 million as compared to a loss of $11$26 million for 2015.in 2019.
VinylsHousing and Infrastructure Products Segment
Net Sales. Net sales for the Housing and Infrastructure Products segment increased by $979$105 million, or 44%5%, to $3,182$2,039 million in 20162020 from $2,203$1,934 million in 2015. This2019. Sales volumes for the Housing and Infrastructure Products segment increased by 5% in 2020 as compared to 2019, primarily due to higher demand for our major products in the residential construction and repair and remodeling markets, partially offset by lower infrastructure products sales due to the impact of the COVID-19 pandemic.
Income from Operations. Income from operations for the Housing and Infrastructure Products segment increased by $120 million to $256 million in 2020 from $136 million in 2019. The increase in income from operations was primarily attributabledue to sales contributed by Axiall and higher sales volumevolumes and prices for PVC resin,our major housing products and lower feedstock costs partially offset by lower sales prices for our majorinfrastructure products. Average sales prices for the Vinyls segment decreased by 4% in 2016 as compared to 2015. Average sales volumes increased by 48% in 2016 as compared to 2015, primarily related to sales contributed by Axiall, as compared to the prior year.
Income from Operations. Income from operations was $174 million in 2016 as compared to $255 million in 2015. This decrease was primarily driven by the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the unplanned outage at our Calvert City facility and the planned turnaround at our Lake Charles vinyls facility in 2016. Income from operations for the year ended December 31, 2016 was also lower as a result of lower sales prices for our major products, partially offset by higher product margins at our European operations, as compared to 2015. In addition,The income from operations for the year ended December 31, 2016 included2020 was also negatively impacted by the negative impactonset of selling higher cost Axiall inventory recorded at fair value.the COVID-19 pandemic and Hurricanes Laura and Delta.
Cash Flows
Operating Activities
Operating activities provided cash of $1,538$2,394 million in 20172021, as compared to cash provided by operating activities of $834$1,297 million in 2016.2020. The $704$1,097 million increase in cash flows from operating activities was mainly due to anthe increase in income from operations, and a decrease inwhich was partially offset by working capital requirements. Income from operations increased by $652 million in 2017, as comparedchanges and an unfavorable change related to the prior year, mainly as a result of higher sales prices, resulting in a higher margin, as well as higher earnings contributed by Axiall.turnaround at OpCo's Petro 2 facility and other turnaround activities. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, inventories, prepaid expenses and other current assets, less accounts payable and accrued and other liabilities, providedused cash of $155$383 million in 2017,2021, as compared to $59$17 million of cash providedused in 2016, a favorable2020, an unfavorable change of $96$366 million. The favorable change was mainly due to a decreasemajority of the unfavorable changes in cash usage in 2017 of $141 million resulting from2021 were driven by higher accounts receivable and higher inventories, partially offset by higher accounts payable and accrued liabilities, partially offsetand other liabilities. The unfavorable change in accounts receivable was primarily driven by higher accounts receivables,sales prices resulting in higher trade customer balances. The higher inventories, accounts payable and accrued and other liabilities in 2021 were primarily driven by higher inventory cost and an increase in cash usage of $90 million,operating activities, as compared to 2016.2020.
Operating activities provided cash of $834$1,297 million in 20162020 as compared to cash provided by operating activities of $1,079$1,301 million in 2015.2019. The $245 million decreasechanges in cash flows from operating activities wasin 2020, as compared to 2019, were mainly due to adriven by the decrease in income from operations, an increase inthe income tax refund of $188 million under the CARES Act and working capital requirements, and an increase in deferred turnaround costs associated with OpCo's Lake Charles Petro 1 turnaround, partially offset by lower income taxes paid as compared to 2015. Income from operations decreased by $379 million in 2016, as compared to the prior year, mostly attributable to (1) lower sales prices for all of our major products; (2) transaction and integration-related costs associated with the Merger; and (3) the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of OpCo's Lake Charles Petro 1 ethylene unit, the unplanned outage at our Calvert City facility and other planned turnarounds and unplanned outages.changes. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, net, inventories, prepaid expenses and other current assets, less accounts payable and accrued and other liabilities providedused cash of $59$17 million in 2016,2020, as compared to $128$68 million of cash provided in 2015,2019, an unfavorable change of $69$85 million. The change was mainlyUnfavorable changes in working capital were due to an increasea change in accounts receivable, which was driven by higher sales in the fourth quarter of $161 million2020 and the expected additional income tax refund resulting from the CARES Act, as discussed previously. Favorable changes in inventory, partially offset by a decrease in current liabilities (accountsworking capital were due to lower inventories and higher accounts payable and accrued liabilities) of $90 million.
liabilities, primarily driven by the changes in inventory levels and operating activities.
Investing Activities
Net cash used for investing activities during 20172021 was $652$3,213 million as compared to net cash used of $2,563$509 million in 2016. We used $2,4382020. The increase in investing activities in 2021 was primarily due to the acquisitions of Boral, LASCO and Dimex for $2,554 million of cash,in the aggregate, net of cash acquired, for the acquisition of Axiall in 2016.acquired. Capital expenditures were $577$658 million in 20172021 compared to $629$525 million in 2016.2020. The higher capital expenditures in 2021 were primarily associated with the turnaround at OpCo's Petro 2 facility. Capital expenditures in 20172021 and 2020 were incurred on severalprimarily related to projects including the upgradeto improve production capacity or reduce costs, maintenance and expansion of OpCo's Calvert City ethylene plantsafety projects and environmental projects at our Calvert City site.various facilities. During 2021, we contributed $22 million to LACC and $2 million to an unconsolidated investee compared to a net return of investment of $40 million from LACC in 2020.
Net cash used for investing activities during 2020 was $509 million as compared to net cash used of $1,954 million in 2019. Capital expenditures were $525 million in 2020 compared to $787 million in 2019. The decrease in capital expenditures was primarily due to fewer expansion projects in 2020, as compared to 2019. Capital expenditures in 20162020 were primarily incurred on the upgrade and expansion of OpCo's Petro 1 ethylene unit at our Lake Charles site. The remaining capital expenditures in 2017 and 2016 primarily related to projects to improve production capacity or reduce costs, maintenance and safety projects and environmental projects at our various facilities. In addition,2020, we spent $66received $44 million from our joint venture, LACC, representing a return of investment and we contributed $4 million. The Company's contribution to unconsolidated subsidiaries in 2020 was primarily comprised of $14 million towards our investment in RS Cogen. Investing activities in 2019 were primarily due to acquisitions for $314 million, net of cash acquired, the purchase of the additional 34.8% interest in LACC for $817 million in 2017 related to our contribution to LACCNovember 2019 and payment of $45 million to fund the construction costs of the ethylene plant, as compared to $17 million in 2016. Please see "Liquidity and Capital Resources—Liquidity and Financing Arrangements" below for further discussion. We did not purchase any securities in 2017 compared to a total of $138 million of securities purchased in 2016. Other 2016 investing activity was related to the receipt of proceeds of $663 million from the sales and maturities of our investments.
Net cash used for investing activities during 2016 was $2,563 million as compared to net cash used of $1,006 million in 2015. We used $2,438 million, net of cash acquired, for the acquisition of Axiall. Capital expenditures were $629 million in 2016 compared to $491 million in 2015.LACC. Capital expenditures in 2016 were mainly incurred on the upgrade and2019 included certain announced expansion of OpCo's Petro 1 ethylene unit at our Lake Charles site and OpCo's Calvert City ethylene plant at our Calvert City site. Capital expenditures in 2015 were primarily incurred on the upgrade and expansion of OpCo's Petro 1 ethylene unit at our Lake Charles site. The remaining capital expenditures in 2016 and 2015 primarily related toprojects as well as projects to improve production capacity or reduce costs, maintenance and safety projects and environmental projects at our various facilities. Purchases of securities in 2016 totaled $138 million and were comprised of corporate debt securities, U.S. government debt securities and equity securities. We also received aggregate proceeds of $663 million from the sales and maturities of our investments in 2016. The 2015 activity was primarily related to the purchases of securities and the receipt of proceeds from the sales and maturities of our investments. In addition, we acquired cash of $16 million, net of cash paid, in connection with the acquisition of a controlling interest in Huasu.
Financing Activities
Net cash provided by financing activities during 20172021 was $160$1,437 million as compared to net cash used of $216 million in 2020. The activities during 2021 were primarily related to the registered public offering of $300 million aggregate principal amount of the 0.875% 2024 Senior Notes, $350 million aggregate principal amount of the 2.875% 2041 Senior Notes, $600 million aggregate principal amount of the 3.125% 2051 Senior Notes and $450 million aggregate principal amount of the 3.375% 2061 Senior Notes and the payment of debt issuance costs of $18 million related to the Notes. The remaining activities in 2021 were primarily related to the $145 million payment of cash dividends, the $48 million payment of cash distributions to noncontrolling interests and repurchases of our common stock for an aggregate purchase price of $30 million.
Net cash used for financing activities during 2020 was $216 million as compared to net cash provided of $1,533$630 million in 2016. We2019. In 2020, out of abundance of caution, we borrowed $1,000 million under our revolving credit facility, which we subsequently fully repaid in June 2020. In 2020, we completed the registered public offering of $300 million aggregate principal amount of the 3.375% 2030 Senior Notes and we purchased in lieu of optional redemption the $100 million 6 ½% 2029 GO Zone Senior Notes, the $89 million 6 ½% 2035 GO Zone Senior Notes and the $65 million 6 ½% 2035 IKE Zone Senior Notes. The remaining activities in 2020 were primarily related to the $137 million payment of cash dividends, the $55 million payment of cash distributions to noncontrolling interests, repurchases of common stock of $54 million and repayment of short-term notes payable of $17 million. In 2019, we received net proceeds in 2017 of (1) $495$784 million from the issuance in November 2017 of the 4.375%1.625% 2029 Senior Notes due 2047; (2) $250 million from the remarketing in November 2017 of the Refunding Bonds; (3) $111and $63 million from the issuance of Westlake Partners common units as a result of its secondary offering in September 2017; and (4) $225 million from a drawdown under the Credit Agreement. In 2017, we used cash of (1) $150 million for the repayment of our prior term loan; (2) $250 million for the redemption of the 6 ¾% tax exempt revenue bonds due November 2032; and (3) $550 million for the repayment of borrowings under the Credit Agreement. During 2017, the restriction on $154 million of cash was also removed as a result of the repayment of our term loan.units. The remaining 2017 activity wasactivities in 2019 were primarily related to the $103$132 million payment of cash dividends, the $28$50 million payment of cash distributions to noncontrolling interests the $6 million payment of debt issuance costs and activities related to Huasu's short-term notes payable to banks in connection with payments of suppliers through letters of credit. The 2016 activity was mainly related to the issuance of senior notes and our prior term loan and borrowings under the Credit Agreement, partially offset by repayment of borrowings under the Credit Agreement, the payment of cash dividends, the payment of cash distributions to noncontrolling interests, the payment of debt issuance costs and the repurchase of shares of our common stock.
Net cash provided by financing activities during 2016 was $1,533 million as compared to net cash used of $287 million in 2015. Net proceeds from (1) the issuance of senior notes and (2) our term loan and the drawdown of the Credit Agreement were $1,429 million and $608 million, respectively, partially offset by the $125 million partial repayment of the Credit Agreement in 2016. The remaining 2016 activity was primarily related to the $97 million payment of cash dividends, the 17 million payment of cash distributions to noncontrolling interests, $36 million payment of debt issuance costs and the $67 million of cash used for the repurchases of shares of our common stock partially offset by the receiptfor an aggregate purchase price of proceeds of $2 million from the exercise of stock options. The 2015 activity was mainly related to the payment of cash dividends, the payment of cash distributions to noncontrolling interests, the proceeds from and the repayments of Huasu's short-term notes payable to banks and the repurchase of shares of our common stock.$30 million.
Liquidity and Capital Resources
Liquidity and Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash from operations, short-term borrowings under the Credit Agreement and our long-term financing.
In November 2014, our Board of Directors authorized a $250 million stock repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150 million. In August 2018, our Board of Directors approved the further expansion of the existing 2014 Program by an additional $150 million. As of December 31, 2017,2021, we had repurchased 4,193,5987,431,520 shares of our common stock for an aggregate purchase price of approximately $229$449 million under the 2014 Program. During the year ended December 31, 2017, no2021, 355,800 shares of our common stock were repurchased for an aggregate purchase price of $30 million under the 2014 Program. Purchases under the 2014 Program may be made either through the open market or in privately negotiated transactions. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
We are partyOn October 4, 2018, Westlake Partners and Westlake Partners GP, the general partner of Westlake Partners, entered into an Equity Distribution Agreement with UBS Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC to a joint venture investment with Lotte Chemical USA Corporation ("Lotte")offer and sell Westlake Partners common units, from time to build an ethylene facility, LACC, LLC ("LACC"). The ethylene facility is located adjacent to our vinyls facility in Lake Charles. Pursuant to the contribution and subscription agreement, we agreed to make a maximum capital commitment to LACC oftime, up to $225 million to fund the construction costs of the ethylene plant, which represents approximately 10% of the interests in LACC. The construction of the ethylene plant commenced in January 2016, with an anticipated start-up during the first quarter of 2019. As of December 31, 2017, we had funded approximately $125 million of our portion of the construction costs of the ethylene plant.
In November 2017, we closed our publicaggregate offering of $500 million aggregate principal amount of 4.375% Senior Notes due 2047. Also$50 million. This Equity Distribution Agreement was amended on February 28, 2020 to reference a new shelf registration for utilization under this agreement. No common units have been issued under this program in November 2017, the Authority completed the offering of $250 million aggregate principal amount of 3.50% tax-exempt Refunding Bonds due November 1, 2032. The net proceeds from the offering of 3.50% tax-exempt Refunding Bonds due November 1, 2032 were used to redeem $250 million aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 1, 2032 issued by the Authority under the GO Zone Act in December 2007.
On February 15, 2018, all of the 2021 Senior Notes ($688 million aggregate principal amount) were redeemed.2019, 2020 or 2021.
We believe that our sources of liquidity as described above are adequate to fund our normal operations and ongoing capital expenditures. Funding of any potential large expansions such as our recent Acquisitions or any potential future acquisitions wouldor the repayment of debt may likely necessitate, and therefore depend on our ability to obtain, additional financing in the future. We may not be able to access additional liquidity at cost effective interest rates due to the volatility of the commercial credit markets.
On August 19, 2021, we completed the registered public offering of the Notes. See "Liquidity and Capital Resources—Debt" below for more information.
Cash and Cash Equivalents
As of December 31, 2017,2021, our cash and cash equivalents totaled $1,531$1,908 million. In addition, we have the Credit Agreement available to supplement cash if needed, as described under "Debt" below.
Debt
As of December 31, 2017,2021, our indebtedness including the current portion, totaled $3,837$5,180 million. See Note 911 to the audited consolidated financial statements appearing elsewhere in this Form 10-K for a discussion of our long-term indebtedness. Defined terms used in this section have the definitions assigned to such terms in Note 911 to the consolidated financial statements.statements included in Item 8 of this Form 10-K.
Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and unless we were to undertake a new expansion or large acquisition, we believe our cash flows from operations, available cash and available borrowings under the Credit Agreement will be adequate to meet our normal operating needs for the foreseeable future.
Credit Agreement
On August 23, 2016,July 24, 2018, we entered into a new $1 billion revolving credit facility that is scheduled to mature on July 24, 2023 (the "Credit Agreement"). The Credit Agreement bears interest at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75% in each case depending on the credit rating of the Company. As of December 31, 2021, we had no borrowings outstanding under the Credit Agreement. As of December 31, 2021, we had no outstanding letters of credit and had borrowing availability of $1 billion under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of December 31, 2021, we were in compliance with the total leverage ratio financial maintenance covenant.
The Credit Agreement also contains certain events of default and if and for so long as certain events of default have occurred and are continuing, any overdue amounts outstanding under the Credit Agreement will accrue interest at an increased rate, the lenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the lenders. None of our subsidiaries entered into an unsecured revolving credit facility (the "Credit Agreement"), by and among us, the other borrowers and guarantors referredare required to therein, the lenders from time to time party thereto (collectively, the "Lenders"), the issuing banks party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent. Underguarantee our obligations under the Credit Agreement, the Lenders have committed to provide an unsecured five-year revolving credit facility in an aggregate principal amountAgreement.
The Credit Agreement includes a $150 million sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50 million commitment for swing-lineswingline loans to be provided on a same-day basis. We may also increase the size of the facility, in increments of at least $25 million, up to a maximum of $500 million, subject to certain conditions and if certain Lenderslenders agree to commit to such an increase.
At December 31, 2017, we had under the Credit Agreement (i) no borrowings outstanding, (ii) outstanding letters of credit totaling $6 million and (iii) borrowing availability of $994 million. Borrowings under the Credit Agreement will bear interest, at our option, at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% that will vary depending on our credit rating or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75% that will vary depending on our credit rating. The Credit Agreement also requires an undrawn commitment fee ranging from 0.10% to 0.25% that will vary depending on our credit rating.
Our obligations under the Credit Agreement are guaranteed by our current and future material domestic subsidiaries, subject to certain exceptions. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. The Credit Agreement also contains certain events of default and if and for so long as an event of default has occurred and is continuing, any amounts outstanding under the Credit Agreement will accrue interest at an increased rate, the Lenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the Lenders. As of December 31, 2017, we were in compliance with the total leverage ratio financial maintenance covenant. See Note 9 to the consolidated financial statements for more information regarding the Credit Agreement.
GO Zone Bonds and IKE Zone Bonds
In November 2017, the Authority completed the offering of $250 million aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032, the net proceeds of which were used to redeem $250 million aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 1, 2032 issued by the Authority under the GO Zone Act in December 2007. In November 2017, the Authority completed the remarketing of $250 million aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032 (the "Refunding Bonds"). The Refunding Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2027, for 100% of the principal plus accrued interest.
In July 2010, the Authority completed the reoffering of $100 million of the 6 ½% 2029 GO Zone Bonds. In connection with the reoffering of the 6 ½% 2029 GO Zone Bonds, the Company issued $100 million of the 6 ½% 2029 GO Zone Senior Notes. In December 2010, the Authority issued $89 million of the 6 ½% 2035 GO Zone Bonds. In connection with the issuance of the 6 ½% 2035 GO Zone Bonds, the Company issued $89 million of the 6 ½% 2035 GO Zone Senior Notes. In December 2010, the Authority completed the offering of $65 million of the 6 ½% 2035 IKE Zone Senior Notes under Section 704 of the IKE Zone Act.
The 6 ½% 2029 GO Zone Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time prior to August 1, 2020 for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after August 1, 2020, the 6 ½% 2029 GO Zone Bonds are subject to optional redemption by the Authority upon the direction of the Company for 100% of the principal plus accrued interest. The 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Senior Notes are subject to optional redemption by the Authority upon the direction of the Company at any time prior to November 1, 2020 for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after November 1, 2020, the 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Senior Notes are subject to optional redemption by the Authority upon the direction of the Company for 100% of the principal plus accrued interest. See Note 9 to the consolidated financial statements for more information regarding the tax-exempt bonds and the Tax-Exempt Bond Related Senior Notes.
3.60% Senior Notes due 2022
In July 2012, we issued $250 million aggregate principal amount of the 3.60% 2022 Senior Notes. We may optionally redeem the 3.60% 2022 Senior Notes at any time and from time to time prior to April 15, 2022 (three months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after April 15, 2022, we may optionally redeem the 3.60% 2022 Senior Notes for 100% of the principal plus accrued interest. The holders of the 3.60% 2022 Senior Notes may require us to repurchase the 3.60% 2022 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.60% 2022 Senior Notes). See Note 9 to the consolidated financial statements for more information regarding the 3.60% 2022 Senior Notes.
3.60%0.875% Senior Notes due 2026 and 5.0% Senior Notes due 20462024
In August 2016, we completed the private offering of $750 million aggregate principal amount of our 3.60% 2026 Senior Notes and $700 million aggregate principal amount of our 5.0% 2046 Senior Notes. All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% 2026 Senior Notes or 5.0% 2046 Senior Notes in excess of $40 million are guarantors of the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes. The 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes and guarantees are unsecured and rank equally with our existing and future senior unsecured obligations and each guarantor's existing and future senior unsecured obligations. See Note 9 to the consolidated financial statements for more information regarding the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes.
4.625% Senior Notes due 2021, and 4.875% Senior Notes due 2023
In September 2016, we completed offers to exchange (the "Axiall Exchange Offers") any and all of the $688 million aggregate principal amount of the 4.625% Subsidiary 2021 Senior Notes and the $450 million aggregate principal amount of the 4.875% Subsidiary 2023 Senior Notes (together with the 4.625% Subsidiary 2021 Senior Notes, the "Subsidiary Notes") issued by Axiall for new senior notes issued by us having the same maturity and interest rates as the Subsidiary Notes. Pursuant to the Axiall Exchange Offers, $625 million aggregate principal amount of the 4.625% Subsidiary 2021 Senior Notes and $434 million aggregate principal amount of the 4.875% Subsidiary 2021 Senior Notes were exchanged for an identical amount of 4.625% Westlake 2021 Senior Notes and 4.875% Westlake 2021 Senior Notes, respectively, leaving outstanding $63 million aggregate principal amount of 4.625% Subsidiary 2021 Senior Notes and $16 million aggregate amount of 4.875% Subsidiary 2021 Notes. In December 2017, we delivered notices for the optional redemption of all of the outstanding 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes (collectively, the "2021 Notes"). The 2021 Notes were redeemed on February 15, 2018 at a redemption price equal to 102.313% of the principal amount of the 2021 Notes plus accrued and unpaid interest on the 2021 Notes to the redemption date. The $16 million of the aggregate principal amount of the 4.875% Subsidiary 2023 Senior Notes are the senior unsecured obligations of Eagle Spinco Inc. The $434 million aggregate principal amount of the 4.875% Westlake 2023 Senior Notes are our senior obligations and are guaranteed on a senior basis by certain of our existing and future domestic subsidiaries. The 4.875% Westlake 2023 Senior Notes and guarantees are unsecured and rank equally with our existing and future senior unsecured obligations and each guarantor's existing and future senior unsecured obligations. All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 4.875% Westlake 2023 Senior Notes in excess of $40 million are guarantors of the 4.875% Westlake 2023 Senior Notes. See Note 9 to the consolidated financial statements for more information regarding the 4.625% Westlake 2021 Senior Notes, the 4.625% Subsidiary 2021 Senior Notes, the 4.875% Westlake 2023 Senior Notes and the 4.875% Subsidiary 2023 Senior Notes.
In December 2017, we delivered notices for the optional redemption of all of the outstanding 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes (collectively, the "2021 Notes"). The 2021 Notes were optionally redeemed on February 15, 2018 at a redemption price equal to 102.313% of the principal amount of the 2021 Notes plus accrued and unpaid interest on the 2021 Notes to the redemption date.
4.375% Senior Notes due 2047
In November 2017, we completed the registered public offering of $500$300 million aggregate principal amount of 4.375%the 0.875% 2024 Senior Notes due November 15, 2047.Notes. We may optionally redeem the 4.375% 20470.875% 2024 Senior Notes at any time and from time to time prior to May 15, 2047 (six months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. Onon or after MayAugust 15, 2047, we may optionally redeem the 4.375% 2047 Senior Notes2022 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 4.375% 20470.875% 2024 Senior Notes may require us to repurchase the 4.375% 20470.875% 2024 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 4.375% 20470.875% 2024 Senior Notes). See Note 9
3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, we completed the private offering of $750 million aggregate principal amount of our 3.60% 2026 Senior Notes and $700 million aggregate principal amount of our 5.0% 2046 Senior Notes. In March 2017, the Company commenced registered exchange offers to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for new notes that are identical in all material respects to the consolidated financial statements for more information regarding3.60% 2026 Senior Notes and the 4.375% 20475.0% 2046 Senior Notes.Notes, except that the offer and issuance of the new Securities and Exchange Commission-registered notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The exchange offers expired on April 24, 2017, and approximately 99.97% of the 3.60% 2026 Senior Notes and 100% of the 5.0% 2046 Senior Notes were exchanged. The notes that were not exchanged in the exchange offers have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities law.
Revenue Bonds
In December 1997, we entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $11 million principal amount of tax-exempt waste disposal revenue bonds in order to finance our construction of waste disposal facilities for an ethylene plant. The waste disposal revenue bonds expire in December 2027 and are subject to redemption and mandatory tender for purchase prior to maturity under certain conditions. Interest on the waste disposal revenue bonds accrues at a rate determined by a remarketing agent and is payable quarterly. The interest rate on the waste disposal revenue bonds at December 31, 20172021 and 20162020 was 1.73%0.14% and 0.79%0.14%, respectively.
1.625% Senior Notes due 2029
AsIn July 2019, we completed the registered public offering of €700 million aggregate principal amount of the 1.625% 2029 Senior Notes due July 17, 2029. The Company received approximately $779 million of net proceeds from the offering. We may optionally redeem the 1.625% 2029 Senior Notes at any time and from time to time prior to April 17, 2029 (three months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after April 17, 2029, we may optionally redeem the 1.625% 2029 Senior Notes for 100% of the principal amount plus accrued interest. The holders of the 1.625% 2029 Senior Notes may require us to repurchase the 1.625% 2029 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 1.625% 2029 Senior Notes).
3.375% Senior Notes due 2030
In June 2020, we completed the registered public offering of $300 million aggregate principal amount of the 3.375% 2030 Senior Notes due June 15, 2030. The Company received approximately $297 million of net proceeds from the offering, and used a portion of the net proceeds to fund the purchase in lieu of optional redemption of the 6 ½% 2029 GO Zone Bonds, the 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Bonds. We may optionally redeem the 3.375% 2030 Senior Notes at any time and from time to time prior to March 15, 2030 (three months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after March 15, 2030, we may optionally redeem the 3.375% 2030 Senior Notes for 100% of the principal amount plus accrued interest. The holders of the 3.375% 2030 Senior Notes may require us to repurchase the 3.375% 2030 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.375% 2030 Senior Notes).
3.50% 2032 GO Zone Refunding Bonds
In November 2017, the Louisiana Local Government Environmental Facility and Development Authority (the "Authority") completed the offering of $250 million aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032 (the "Refunding Bonds"), the net proceeds of which were used to redeem $250 million aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 1, 2032 issued by the Authority under the GO Zone Act in December 2007. In connection with the issuance of the Refunding Bonds, we issued $250 million of the 3.50% 2032 GO Zone Refunding Senior Notes. The Refunding Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2027, for 100% of the principal plus accrued interest.
2.875% Senior Notes due 2041
In August 2021, we completed the registered public offering of $350 million aggregate principal amount of the 2.875% 2041 Senior Notes. We may optionally redeem the 2.875% 2041 Senior Notes at any time and from time to time prior to February 15, 2041 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 2.875% 2041 Senior Notes being redeemed that would be due if the 2.875% 2041 Senior Notes matured on February 15, 2041, discounted to the redemption date on a semi-annual basis, plus 20 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 2.875% 2041 Senior Notes at any time on or after February 15, 2041 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 2.875% 2041 Senior Notes may require us to repurchase the 2.875% 2041 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 2.875% 2041 Senior Notes).
4.375% Senior Notes due 2047
In November 2017, we completed the registered public offering of $500 million aggregate principal amount of 4.375% Senior Notes due November 15, 2047. We may optionally redeem the 4.375% 2047 Senior Notes at any time and from time to time prior to May 15, 2047 (six months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after May 15, 2047, we may optionally redeem the 4.375% 2047 Senior Notes for 100% of the principal amount plus accrued interest. The holders of the 4.375% 2047 Senior Notes may require us to repurchase the 4.375% 2047 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 4.375% 2047 Senior Notes).
3.125% Senior Notes due 2051
In August 2021, we completed the registered public offering of $600 million aggregate principal amount of the 3.125% 2051 Senior Notes. We may optionally redeem the 3.125% 2051 Senior Notes at any time and from time to time prior to February 15, 2051 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.125% 2051 Senior Notes being redeemed that would be due if the 3.125% 2051 Senior Notes matured on February 15, 2051, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 3.125% 2051 Senior Notes at any time on or after February 15, 2051 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.125% 2051 Senior Notes may require us to repurchase the 3.125% 2051 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.125% 2051 Senior Notes).
3.375% Senior Notes due 2061
In August 2021, we completed the registered public offering of $450 million aggregate principal amount of the 3.375% 2061 Senior Notes. We may optionally redeem the 3.375% 2061 Senior Notes at any time and from time to time prior to February 15, 2061 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.375% 2061 Senior Notes being redeemed that would be due if the 3.375% 2061 Senior Notes matured on February 15, 2061, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 3.375% 2061 Senior Notes at any time on or after February 15, 2061 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.375% 2061 Senior Notes may require us to repurchase the 3.375% 2061 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.375% 2061 Senior Notes).
8.73% 2022 RS Cogen Debt
In July 2000, RS Cogen, our 50%-owned joint venture, entered into a $75 million aggregate principal amount senior credit facility institutional loan at an interest rate of 8.73%. All of the assets of RS Cogen are pledged as collateral under its senior credit facility. Borrowings under this senior credit facility are repayable quarterly over the remaining term. The Company does not guarantee RS Cogen's debt commitments and RS Cogen is not a guarantor for any of the Company's other long-term debt obligations. The balance outstanding under this loan was $19 million at December 31, 2017, we were in compliance with all2021.
2026 Term Loans
In March 2021, Taiwan Chlorine Industries, Ltd., our 60%-owned joint venture, entered into five-year loan agreements for a maximum total limit of the covenants with respect to the Tax-Exempt Related Senior Notes, the 4.625% Westlakeapproximately $22 million. The interest rate on these loans at December 31, 2021 Senior Notes, the 4.625% Subsidiary 2021 Senior Notes,was 0.20%. The unsecured loans include a government rate subsidy and have a 5-year maturity. The balance outstanding under these loans was approximately $9 million at December 31, 2021.
The indenture governing the 3.60% 2022 Senior Notes, the 4.875% Westlake 2023 Senior Notes, the 4.875% Subsidiary 20230.875% 2024 Senior Notes, the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375% 2030 Senior Notes, the 3.50% 2032 GO Zone Refunding Senior Notes, the 2.875% 2041 Senior Notes, the 5.0% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the Credit Agreement3.125% 2051 Senior Notes, and the 3.375% 2061 Senior Notes contains customary events of default and covenants that, among other things and subject to certain exceptions, restrict us and certain of our waste disposal revenue bonds.subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale and leaseback transactions and (3) consolidate, merge or transfer all or substantially all of its assets.
As of December 31, 2021, we were in compliance with all of our long-term debt covenants.
Westlake Chemical Partners LP Credit Arrangements
Our subsidiary, Westlake Chemical Finance Corporation, is the lender party to a $600 million revolving credit facility with Westlake Chemical Partners LP ("Westlake Partners"), originally entered into on April 29, 2015. The2015 and amended in August and December 2017. In addition, on March 19, 2020, Westlake Partners and Westlake Chemical Finance Corporation entered into an amendment to the revolving credit facility, to extend the maturity date to March 19, 2023 and add a phase-out provision for LIBOR, which is scheduled to mature on April 29, 2021.be replaced by an alternate benchmark rate. Borrowings under the revolverrevolving credit facility bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (depending on Westlake Partners' consolidated leverage ratio), payable quarterly. Westlake Partners may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. As of December 31, 2017,2021, outstanding borrowings under the revolving credit facility totaled $254$377 million and bore interest at the LIBOR rate plus 2.0%.
Our subsidiary, Westlake Development Corporation,Polymers LLC, is the lender partyadministrative agent to a $600 million revolving credit facility with OpCo. The revolving credit facility maturesis scheduled to mature in 2019.September 2023. As of December 31, 2017,2021, outstanding borrowings under the credit facility totaled $220$23 million and bore interest at the LIBOR rate plus 3.0%2.0%, which is accrued in arrears quarterly.
We consolidate Westlake Partners and OpCo for financial reporting purposes as we have a controlling financial interest. As such, the revolving credit facilities described above between our subsidiaries and Westlake Partners and OpCo are eliminated upon consolidation.
Contractual Obligations and Commercial CommitmentsOther Obligations
In addition toThe Company's material cash requirements for contractual and other obligations in the near term (next 12 months) and the long term period (2023 and thereafter) include long-term debt, we are required to makeinterest payments, relating to various types of obligations. The following table summarizes our contractual obligations as of December 31, 2017 relating to long-term debt, operating leases, capital leases, pension benefits funding, post-retirement healthcare benefits, purchase obligations and asset retirement obligations.
Debt Obligations and Interest Payments. As of December 31, 2021, we had debt obligations of $269 million and related interest payments forexpense of $165 million due within the next five yearsnear term, and thereafter. The amounts do not include deferred chargesdebt obligations of $5,014 million and related interest expense of $3,001 million due over the long-term period, respectively. Maturities of our debt consist of $269 million in 2022, $300 million in 2024, and $759 million in 2026. There are no other items classifiedscheduled maturities of debt in other liabilities2022 through 2026. See Note 11, "Long-Term Debt," in the consolidated balance sheetNotes to Consolidated Financial Statements in Item 8 for further information on our debt obligations and the expected timing of future principal and interest payments.
Operating leases. As of December 31, 2021, there was $119 million in operating lease obligations due within the near term, and $553 million due over the long-term period, respectively. See Note 7, "Leases," in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the uncertaintytiming of expected future payments.
Pension Benefits Funding and Post-retirement Healthcare Benefits. Pension benefits funding obligations due within the near term were $6 million while post-retirement healthcare benefit payment obligations due within the near term were $8 million as of December 31, 2021. As of December 31, 2021, we had $77 million and $53 million of pension benefit funding and post-retirement healthcare benefit obligations due over the long-term period, respectively. The estimate of the future payment schedule.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period |
| | | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter |
| | | | | | | | | | | |
| | | (dollars in millions) |
| Contractual Obligations | | | | | | | | | | |
| Long-term debt | | $ | 3,853 |
| | $ | 688 |
| | $ | — |
| | $ | 250 |
| | $ | 2,915 |
|
| Operating leases | | 1,029 |
| | 108 |
| | 170 |
| | 100 |
| | 651 |
|
| Capital leases | | 22 |
| | 3 |
| | 6 |
| | 4 |
| | 9 |
|
| Pension benefits funding | | 143 |
| | 6 |
| | 11 |
| | 15 |
| | 111 |
|
| Post-retirement healthcare benefits | | 110 |
| | 8 |
| | 16 |
| | 16 |
| | 70 |
|
| Purchase obligations | | 5,264 |
| | 1,522 |
| | 1,777 |
| | 1,080 |
| | 885 |
|
| Interest payments | | 2,438 |
| | 144 |
| | 280 |
| | 276 |
| | 1,738 |
|
| Asset retirement obligations | | 38 |
| | 4 |
| | 2 |
| | 1 |
| | 31 |
|
| Investment in LACC | | 100 |
| | 54 |
| | 46 |
| | — |
| | — |
|
| Total | | $ | 12,997 |
| | $ | 2,537 |
| | $ | 2,308 |
| | $ | 1,742 |
| | $ | 6,410 |
|
| Other Commercial Commitments | | | | | | | | | | |
| Standby letters of credit | | $ | 47 |
| | $ | 41 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
Pension Benefits Funding. This represents the projected timing of contributions tofuture payments under our defined benefit pension plans which cover certain eligible employees in the United States and non-U.S. countries.
Post-retirement Healthcare Benefits. This represents the projected timing of contributions tocountries and our post-retirement healthcare benefits to the employees of twocertain subsidiaries who meet certain minimum age and service requirements.requirements involves the use of certain assumptions, including retirement ages and payout periods. See Note 14, "Employee Benefits," in the Notes to Consolidated Financial Statements in Item 8 for further information on our obligations and the timing of expected future payments.
Purchase Obligations. Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including a minimum quantity and price. We are party to various obligations to purchase goods and services, including commitments to purchase various feedstock, utilities, nitrogen, oxygen, product storage, pipeline usage and logistic support, in each case in the ordinary course of our business, as well as various purchase commitments for our capital projects. The amounts shown in the table above reflect our estimates based on the contractual quantities and the prices in effect under contractual agreements asAs of December 31, 2017.2021, we had $1,890 million of enforceable and legally binding purchase commitments due within the near term, and $5,220 million due over the long-term period.
Interest Payments. Interest payments are based on interest rates in effect atAsset Retirement Obligations. As of December 31, 2017.
2021, we had an immaterial amount of asset retirement obligations due within the near term, and $61 million due over the long-term period. Asset retirement obligations. Thisobligations includes the estimated costs and timing of payments to satisfy our recognized asset retirement obligations.
Investment We recognize asset retirement obligations in LACC. This includes our portionthe period in which the liability becomes probable and reasonably estimable. Initially, the asset retirement obligation is recorded at fair value and capitalized as a component of the forecasted capital contributions relatedcarrying value of the long-lived asset to which the engineering, procurementobligation relates. See Note 1, "Description of Business and constructionSignificant Accounting Policies," in the Notes to Consolidated Financial Statements in Item 8 for further detail of LACC's new ethylene plant.our asset retirement obligations.
Uncertain income tax positions. We have recognized a liability for our uncertain income tax positions of approximately $4 million as of December 31, 2017. We do not believe we are likely to pay any material amounts during the year ending December 31, 2018. The ultimate resolution and timing of payment for remaining matters continues to be uncertain and are therefore excluded from the Contractual Obligations table above.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. We have evaluated the accounting policies used in the preparation of the accompanying consolidated financial statements and related notes and believe those policies are reasonable and appropriate.
We apply those Our significant accounting policies are summarized in Note 1 to the consolidated financial statements appearing elsewhere in this Form 10-K.
Critical accounting estimates are those estimates made in accordance with GAAP that we believe best reflect the underlying businessinvolve a significant level of estimation uncertainty and economic events, consistent with GAAP.have had or are reasonably likely to have a material impact on our financial condition or results of operation. Our more critical accounting policiesestimates include those related to long-lived assets, fair value estimates, accruals for long-term employee benefits, accounts receivable, income taxes and environmental and legal obligations. Inherent in such policiesestimates are certain key assumptions and estimates.assumptions. We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment. Our significant accounting policies are summarized in Note 1 to the audited consolidated financial statements appearing elsewhere in this Form 10-K. We believe the following to be our most critical accounting policies applied inestimates required for the preparation of our financial statements.
Long-Lived Assets. Key estimates related to long-lived assets include useful lives, recoverability of carrying values and existence of any retirement obligations. Such estimates could be significantly modified. The carrying values of long-lived assets could be impaired by significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the United States and world economies, the cyclical nature of the chemical and refining industries and uncertainties associated with governmental actions.
We evaluate long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and the operational performance of our businesses. Actual impairment losses incurred could vary significantly from amounts estimated. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Additionally, future events could cause us to conclude that impairment indicators exist and that associated long-lived assets of our businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
The estimated useful lives of long-lived assets range from one to 40 years. Depreciation and amortization of these assets, including amortization of deferred turnaround costs, under the straight-line method over their estimated useful lives totaled $601$840 million, $378$773 million and $246$713 million in 2017, 20162021, 2020 and 2015,2019, respectively. If the useful lives of the assets were found to be shorter than originally estimated, depreciation or amortization charges would be accelerated.
We defer the costs of planned major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected unit. Total costs deferred on turnarounds were $47$215 million, $77$24 million and $3$40 million in 2017, 20162021, 2020 and 2015, respectively. Amortization in 2017, 2016 and 2015 of previously deferred turnaround costs was $30 million, $22 million and $18 million,2019, respectively. As of December 31, 2017,2021, deferred turnaround costs, net of accumulated amortization, totaled $111$261 million. Amortization in 2021, 2020 and 2019 of deferred turnaround costs was $56 million, $48 million and $55 million, respectively. Expensing turnaround costs as incurred would likely result in greater variability of our quarterly operating results and would adversely affect our financial position and results of operations.
Additional information concerning long-lived assets and related depreciation and amortization appears in Notes 6 and 78 to the audited consolidated financial statements appearing elsewhere in this Form 10-K.
Fair Value Estimates. We develop estimates of fair value to allocate the purchase price paid to acquire a business to the assets acquired and liabilities assumed in an acquisition, to assess impairment of long-lived assets, goodwill and intangible assets and to record marketable securities derivative instruments and pension plan assets. We use all available information to make these fair value determinations, including the engagement of third-party consultants. At December 31, 2017,2021, our recorded goodwill was $1,012 million, which was associated with the acquisition of Axiall, our specialty PVC pipe business and our Longview facilities.$2,024 million. In addition, we record all derivative instruments, pension plan assets and certain marketable securities at fair value. The fair value of these items is determined by quoted market prices or from observable market-based inputs. See Notes 12 and 14Note 16 to the consolidated financial statements appearing elsewhere in this Form 10-K for more information.
Business Combinations and Intangible Assets Including Goodwill. We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will be adjusted in the same period's financial statements, including the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Separately recognized transactions associated with business combinations are generally expensed subsequent to the acquisition date. The application of business combination and impairment accounting requires the use of significant estimates and assumptions. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. The fair value of the customer relationships acquired are estimated by management through a discounted cash flow model using the multi-period excess earnings methodology, which involves the use of significant estimates and assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates, among other items. The fair value of the technology and trade names acquired is estimated by management through a discounted cash flow model using the relief from royalty methodology, which involves the use of significant estimates and assumptions related to revenue growth rates, and discount rates.
Goodwill is testedevaluated for impairment at least annually, or when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below its carrying value.value, and otherwise at least annually. We have historically operated in two principal operating segments, Vinyls and Olefins. In the fourth quarter of 2021, we reorganized our business into two principal operating segments, Performance and Essential Materials and Housing and Infrastructure Products. As part of the reorganization, we assessed and re-defined reporting units effective as of the beginning of the fourth quarter of 2021, including reallocation of goodwill on a relative fair value basis as applicable to affected reporting units. Goodwill impairment analyses were performed as of the effective reorganization date both before and after the reorganization. We will perform our annual impairment testsassessment for both the OlefinsPerformance and VinylsEssential Materials and Housing and Infrastructure Products reporting units in October each year. We may elect to perform an optional qualitative assessment to determine whether a quantitative impairment analysis is required. The qualitative assessment considers factors such as macroeconomic conditions, industry and April, respectively.market considerations, cost factors related to raw materials and labor, current and projected financial performance, changes in management or strategy, and market capitalization. Alternatively, we may unconditionally elect to bypass the qualitative assessment and perform a quantitative goodwill impairment assessment in any period.
We elected to perform the quantitative assessment for both of our segments' reporting units during 2021. The quantitative analysis compares a reporting unit's fair value to its carrying amount to determine whether goodwill is impaired. The fair values of the reporting units are calculated using both a discounted cash flow methodology and a market value methodology. The discounted cash flow projections are based on a forecast to reflect the cyclicality of the business. The forecast is based on historical results and estimates by management, including its strategic and operational plans, and financial performance of the market. The future cash flows are discounted to present value using an applicable discount rate. The significant assumptions used in determining the fair value of the reporting unit using the market value methodology include the determination of appropriate market comparables and the estimated multiples of EBITDA a willing buyer is likely to pay. Even if the fair values of the reporting units decreased by 10%, from the fair values determined in the most recent quantitative tests performed during 2021, the carrying values of the reporting units would not have exceeded their fair values. See Item 1A, "Risk Factors—If our goodwill, indefinite-lived intangible assets or other intangible assets become impaired in the future, we may be required to record non-cash charges to earnings, which could be significant."
The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.
Long-Term Employee Benefit Costs. Our costs for long-term employee benefits, particularly pension and postretirement medical and life benefits, are incurred over long periods of time and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties and is sensitive to changes in those assumptions. It is our responsibility, often with the assistance of independent experts, to select assumptions that represent the best estimates of those uncertainties. It is also our responsibility to review those assumptions periodically and, if necessary, adjust the assumptions to reflect changes in economic or other factors.
Accounting for employee retirement plans involves estimating the cost of benefits that are to be provided in the future and attempting to match, for each employee, that estimated cost to the period worked. To accomplish this, we rely extensively on advice from actuaries, and we make assumptions about inflation, investment returns, mortality, employee turnover and discount rates that ultimately impact amounts recorded. Changes in these assumptions may result in different expense and liability amounts. One of the more significant assumptions relates to the discount rate for measuring benefit obligations. At December 31, 2017,2021, the projected pension benefit obligations for U.S. and non-U.S. plans were calculated using assumed weighted average discount rates of 3.4%2.6% and 1.8%1.4%, respectively. The discount rates were determined using a benchmark pension discount curve and applying spot rates from the curve to each year of expected benefit payments to determine the appropriate discount rate. As a result of the funding relief provided by the enactment of the Bipartisan Budget Act of 2015, no minimum funding requirements are expected during 20182022 for the U.S. pension plans. Additional information on the 20182022 funding requirements and key assumptions underlying these benefit costs appear in Note 1214 to the audited consolidated financial statements appearing elsewhere in this Form 10-K.
The following table reflects the sensitivity of the benefit obligation of our pension plans to changes in the actuarial assumptions:
| | | | | 2017 | | 2021 |
| | | U.S. Plans | | Non-U.S. Plans | | U.S. Plans | | Non-U.S. Plans |
| | | | | | | | | |
| | | (dollars in millions) | | (dollars in millions) |
| Projected benefit obligation, end of year | | $ | 807 |
| | $ | 128 |
| Projected benefit obligation, end of year | | $ | 673 | | | $ | 152 | |
| Discount rate increases by 100 basis points | | (88 | ) | | (20 | ) | Discount rate increases by 100 basis points | | (72) | | | (21) | |
| Discount rate decreases by 100 basis points | | 107 |
| | 26 |
| Discount rate decreases by 100 basis points | | 87 | | | 26 | |
A one-percentage point increase or decrease in assumed healthcare trend rates would not have a significant effect on the amounts reported for the healthcare plans.
While we believe that the amounts recorded in the consolidated financial statements appearing elsewhere in this Form 10-K related to these retirement plans are based on the best estimates and judgments available, the actual outcomes could differ from these estimates.
Income Taxes. We utilize the liability method of accounting for income taxes. Under the liability method, deferred tax assets or liabilities are recorded based upon temporary differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities during the period. Valuation allowances are recorded against deferred tax assets when it is considered more likely than not that the deferred tax assets will not be realized. Additional information on income taxes appears in Note 17 to the consolidated financial statements appearing elsewhere in this Form 10-K.
Environmental and Legal Obligations. We consult with various professionals to assist us in making estimates relating to environmental costs and legal proceedings. We accrue an expense when we determine that it is probable that a liability has been incurred and the amount is reasonably estimable. While we believe that the amounts recorded in the accompanying consolidated financial statements related to these contingencies are based on the best estimates and judgments available, the actual outcomes could differ from our estimates. Additional information about certain legal proceedings and environmental matters appears in Note 2022 to the audited consolidated financial statements appearing elsewhere in this Form 10-K.
Asset Retirement Obligations. We recognize asset retirement obligations in the period in which the liability becomes probable and reasonably estimable. Initially, the asset retirement obligation is recorded at fair value and capitalized as a component of the carrying value of the long-lived asset to which the obligation relates. The liability is recorded at its future value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, a gain or loss is recorded. We have conditional asset retirement obligations for the removal and disposal of hazardous materials from certain of our manufacturing facilities. Additional information on asset retirement obligations appears in Note 1, under Asset Retirement Obligations, to the consolidated financial statements appearing elsewhere in this Form 10-K.
We also have conditional asset retirement obligations that have not been recognized because the fair values of the conditional legal obligations cannot be measured due to the indeterminate settlement date of the obligations. Settlements of the unrecognized conditional asset retirement obligations are not expected to have a material adverse effect on our financial condition, results of operations or cash flows in any individual reporting period.
Recent Accounting Pronouncements
See Note 1 to the audited consolidated financial statements included in Item 8 of this Form 10-K for a full description of recent accounting pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.condition.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with changes in the business cycle. We try to protect against such instability through various business strategies. Our strategies include ethylene product feedstock flexibility and moving downstream into the olefins and vinylsour other products where pricing is more stable. We use derivative instruments in certain instances to reduce price volatility risk on feedstocks and products. Based on our open derivative positions on ethane at December 31, 2017,2021, a hypothetical $0.10 increase in the price of a gallon of ethane would have increased our income before income taxes by $3$17 million and a hypothetical $0.10 increase in the price of a gallonmillion British thermal units of propanenatural gas would have increaseddecreased our income before income taxes by $4$1 million. Additional information concerning derivative commodity instruments appears in Notes 14 and 15 to the consolidated financial statements.
Interest Rate Risk
We are exposed to interest rate risk with respect to fixed and variable rate debt. At December 31, 2017,2021, we had $3,842$5,263 million aggregate principal amount of fixed rate debt. We are subject to the risk of higher interest cost if and when this debt is refinanced. If interest rates were 1%1.0% higher at the time of refinancing, our annual interest expense would increase by approximately $38$53 million. Also, at December 31, 2017,2021, we had $11$20 million principal amount of variable rate debt outstanding, which primarily represents the tax exempttax-exempt waste disposal revenue bonds. We do not currently hedge our variable interest rate debt, but we may do so in the future. The average variable interest rate for our variable rate debt of $11$20 million as of December 31, 20172021 was 1.73%0.17%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would not result in a material change in the interest expense. During June and July 2021, in order to manage the interest rate risk associated with potential borrowings, we entered into treasury lock agreements to fix the treasury yield component of the interest cost. These agreements settled in August 2021 on the issuance of the Notes.
LIBOR is used as a reference rate for borrowings under our revolving line of credit. The phase-out of LIBOR commenced at the end of 2021 and is set to conclude by June 30, 2023. We do not expect the impact of the LIBOR phase out to be material as we did not have any external LIBOR-based borrowings outstanding at December 31, 2021.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk associated with our international operations. However, the effect of fluctuations in foreign currency exchange rates caused by our international operations has not had a material impact on our overall operating results. We may engage in activities to mitigate our exposure to foreign currency exchange risk in certain instances through the use of currency exchange derivative instruments, including forward exchange contracts, cross-currency swaps or spot purchases. A forward exchange contract obligates us to exchange predetermined amounts of specified currencies at a stated exchange rate on a stated date. A cross-currency swap obligates us to make periodic payments in the local currency and receive periodic payments in our functional currency based on the notional amount of the instrument. In January 2018, we entered into foreign exchange hedging contracts designated as net investment hedges with an aggregate notional value of €220 million designed to reduce the volatility in stockholders' equity from changes in currency exchange rates associated with our net investments in foreign operations. In July 2019, we terminated a portion of the foreign exchange hedging contract with a notional value of €70 million. The notional value of the remaining net investment hedges was €150 million at December 31, 2021. The arrangement is scheduled to settle in 2026.
In July 2019, we completed the registered public offering of €700 million aggregate principal amount of the 1.625% 2029 Senior Notes. We designated this euro-denominated debt as a non-derivative net investment hedge of a portion of our net investments in euro functional-currency denominated subsidiaries to offset foreign currency fluctuations.
|
| |
Item 8. | Financial Statements and Supplementary Data |
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
| | | | | |
| Page |
| |
| Page |
| |
| Management's Report on Internal Control over Financial Reporting | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | |
| Consolidated Financial Statements: | |
Consolidated Balance Sheets as of December 31, 20172021 and 20162020 | |
Consolidated Statements of Operations for the Years Ended December 31, 2017, 20162021, 2020 and 20152019 | |
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 20162021, 2020 and 2015 2019 | |
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2017, 20162021, 2020 and 2015 2019 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162021, 2020 and 20152019 | |
| Notes to Consolidated Financial Statements | |
Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or because the required information is shown in the financial statements or notes thereto.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Westlake Chemical Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Westlake's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Westlake management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2017.2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on its assessment, Westlake's management has concluded that the Company's internal control over financial reporting was effective as of December 31, 20172021 based on those criteria.
During the year ended December 31, 2021, the Company acquired the issued and outstanding equity interests of certain subsidiaries of Boral Industries engaged in Boral's North American building products businesses ("Boral Target Companies"). Because the Company acquired Boral Target Companies during the current fiscal year, management has excluded Boral Target Companies from the scope of its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021. This exclusion is in accordance with the general guidance published by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation. Boral Target Companies' total assets and total net sales represented 4.7% and 2.3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of internal control over financial reporting as of December 31, 20172021 as stated in their report that appears on the following page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders
of Westlake Chemical Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Westlake Corporation (formerly known as Westlake Chemical CorporationCorporation) and its subsidiaries (the "Company") as of December 31, 20172021 and 2016,2020, and the related consolidated statements of operations, of comprehensive income, of changes in stockholders' equity and of cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management's Report on Internal Control Over Financial Reporting, management has excluded certain subsidiaries acquired from Boral Industries engaged in Boral's North American building products businesses ("Boral Target Companies") from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company in a purchase business combination during 2021. We have also excluded the Boral Target Companies from our audit of internal control over financial reporting. The Boral Target Companies are wholly-owned subsidiaries whose total assets and total net sales excluded from management's assessment and our audit of internal control over financial reporting represent 4.7% and 2.3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Boral Target Companies - Valuation of Certain Customer Relationship Intangible Assets
As described in Notes 1 and 2 to the consolidated financial statements, on October 1, 2021, the Company completed its acquisition of the Boral Target Companies for a total purchase price of $2,132 million. The Company records business combinations using the acquisition method of accounting. Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values, which resulted in the recognition of $645 million of customer relationship intangible assets. As disclosed by management, the fair value of the customer relationships acquired is estimated with a discounted cash flow model using the multi-period excess earnings methodology, which involves the use of significant estimates and assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates, among other items.
The principal considerations for our determination that performing procedures relating to the valuation of certain acquired customer relationship intangible assets from the acquisition of the Boral Target Companies is a critical audit matter are the significant judgment by management in determining the fair value of certain customer relationship intangible assets; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to acquisition accounting, including controls over management's valuation of certain customer relationship intangible assets and controls over the determination of significant assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates. These procedures also included, among others, reading the purchase agreement and testing management's process for estimating the fair value of certain customer relationship intangible assets. Testing management's process included evaluating the appropriateness of the multi-period excess earnings method, testing the completeness and accuracy of the underlying data, and evaluating the reasonableness of management's significant assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates. Evaluating the reasonableness of the revenue growth rates and operating margins involved considering the past performance of the acquired businesses, consistency with economic and industry forecasts, and whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the multi-period excess earnings method and in evaluating the reasonableness of the significant assumptions related to discount rates and customer attrition rates.
/s/PricewaterhouseCoopers LLP
Houston, Texas
February 21, 201823, 2022
We have served as the Company's auditor since 1986, which includes periods before the Company became subject to SEC reporting requirements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | December 31, | | December 31, |
| | | 2017 | | 2016 | | 2021 | | 2020 |
| | | | | | | | | |
| | | (in millions of dollars, except par values and share amounts) | | (in millions of dollars, except
par values and share amounts) |
| ASSETS | | | | | ASSETS | |
| Current assets | | | | | Current assets | |
| Cash and cash equivalents | | $ | 1,531 |
| | $ | 459 |
| Cash and cash equivalents | | $ | 1,908 | | | $ | 1,313 | |
| | Accounts receivable, net | | 1,001 |
| | 939 |
| Accounts receivable, net | | 1,868 | | | 1,214 | |
| Inventories | | 900 |
| | 801 |
| Inventories | | 1,407 | | | 918 | |
| Prepaid expenses and other current assets | | 30 |
| | 48 |
| Prepaid expenses and other current assets | | 80 | | | 32 | |
| Restricted cash | | 1 |
| | 161 |
| |
| | Total current assets | | 3,463 |
| | 2,408 |
| Total current assets | | 5,263 | | | 3,477 | |
| Property, plant and equipment, net | | 6,412 |
| | 6,420 |
| Property, plant and equipment, net | | 7,606 | | | 6,920 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | | 562 | | | 461 | |
| Goodwill | | 1,012 |
| | 947 |
| Goodwill | | 2,024 | | | 1,083 | |
| Customer relationships, net | | 616 |
| | 611 |
| Customer relationships, net | | 1,083 | | | 444 | |
| Other intangible assets, net | | 161 |
| | 176 |
| Other intangible assets, net | | 497 | | | 168 | |
| Equity method investments | | Equity method investments | | 1,007 | | | 1,059 | |
| Other assets, net | | 412 |
| | 328 |
| Other assets, net | | 417 | | | 223 | |
| Total assets | | $ | 12,076 |
| | $ | 10,890 |
| Total assets | | $ | 18,459 | | | $ | 13,835 | |
| LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
| Current liabilities | | | | | Current liabilities | |
| Accounts payable | | $ | 600 |
| | $ | 496 |
| Accounts payable | | $ | 879 | | | $ | 536 | |
| Accrued liabilities | | 657 |
| | 538 |
| |
| Accrued and other liabilities | | Accrued and other liabilities | | 1,196 | | | 821 | |
| Current portion of long-term debt, net | | 710 |
| | — |
| Current portion of long-term debt, net | | 269 | | | — | |
| Term loan | | — |
| | 149 |
| |
| | Total current liabilities | | 1,967 |
| | 1,183 |
| Total current liabilities | | 2,344 | | | 1,357 | |
| Long-term debt, net | | 3,127 |
| | 3,679 |
| Long-term debt, net | | 4,911 | | | 3,566 | |
| Deferred income taxes | | 1,111 |
| | 1,650 |
| Deferred income taxes | | 1,681 | | | 1,368 | |
| Pension and other post-retirement benefits | | 344 |
| | 365 |
| Pension and other post-retirement benefits | | 291 | | | 391 | |
| Operating lease liabilities | | Operating lease liabilities | | 461 | | | 376 | |
| Other liabilities | | 158 |
| | 121 |
| Other liabilities | | 243 | | | 199 | |
| Total liabilities | | 6,707 |
| | 6,998 |
| Total liabilities | | 9,931 | | | 7,257 | |
| Commitments and contingencies (Note 20) | |
|
| |
|
| |
| Commitments and contingencies (Note 22) | | Commitments and contingencies (Note 22) | | | | |
| Stockholders' equity | | | | | Stockholders' equity | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding | | — |
| | — |
| Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding | | — | | | — | |
Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and 134,651,380 shares issued at December 31, 2017 and 2016, respectively | | 1 |
| | 1 |
| |
Common stock, held in treasury, at cost; 5,232,875 and 5,726,377 shares at December 31, 2017 and 2016, respectively | | (302 | ) | | (319 | ) | |
Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and 134,651,380 shares issued at December 31, 2021 and 2020, respectively | | Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and 134,651,380 shares issued at December 31, 2021 and 2020, respectively | | 1 | | | 1 | |
Common stock, held in treasury, at cost; 6,735,639 and 6,821,174 shares at December 31, 2021 and 2020, respectively | | Common stock, held in treasury, at cost; 6,735,639 and 6,821,174 shares at December 31, 2021 and 2020, respectively | | (399) | | | (401) | |
| Additional paid-in capital | | 555 |
| | 551 |
| Additional paid-in capital | | 581 | | | 569 | |
| Retained earnings | | 4,613 |
| | 3,412 |
| Retained earnings | | 7,808 | | | 5,938 | |
| Accumulated other comprehensive income (loss) | | 7 |
| | (121 | ) | |
| Total Westlake Chemical Corporation stockholders' equity | | 4,874 |
| | 3,524 |
| |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (36) | | | (64) | |
| Total Westlake Corporation stockholders' equity | | Total Westlake Corporation stockholders' equity | | 7,955 | | | 6,043 | |
| Noncontrolling interests | | 495 |
| | 368 |
| Noncontrolling interests | | 573 | | | 535 | |
| Total equity | | 5,369 |
| | 3,892 |
| Total equity | | 8,528 | | | 6,578 | |
| Total liabilities and equity | | $ | 12,076 |
| | $ | 10,890 |
| Total liabilities and equity | | $ | 18,459 | | | $ | 13,835 | |
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | | | |
| | | (in millions of dollars, except share amounts and per share data) | | (in millions of dollars,
except per share data and share amounts) |
| Net sales | | $ | 8,041 |
| | $ | 5,076 |
| | $ | 4,463 |
| Net sales | | $ | 11,778 | | | $ | 7,504 | | | $ | 8,118 | |
| Cost of sales | | 6,272 |
| | 4,095 |
| | 3,278 |
| Cost of sales | | 8,283 | | | 6,481 | | | 6,858 | |
| Gross profit | | 1,769 |
| | 981 |
| | 1,185 |
| Gross profit | | 3,495 | | | 1,023 | | | 1,260 | |
| Selling, general and administrative expenses | | 399 |
| | 258 |
| | 218 |
| Selling, general and administrative expenses | | 551 | | | 449 | | | 458 | |
| Amortization of intangibles | | 108 |
| | 38 |
| | 7 |
| Amortization of intangibles | | 123 | | | 109 | | | 109 | |
| Transaction and integration-related costs | | 29 |
| | 104 |
| | — |
| |
| Restructuring, transaction and integration-related costs | | Restructuring, transaction and integration-related costs | | 21 | | | 36 | | | 37 | |
| Income from operations | | 1,233 |
| | 581 |
| | 960 |
| Income from operations | | 2,800 | | | 429 | | | 656 | |
| Other income (expense) | | | | | | | Other income (expense) | |
| Interest expense | | (159 | ) | | (79 | ) | | (35 | ) | Interest expense | | (176) | | | (142) | | | (124) | |
| Other income, net | | 7 |
| | 56 |
| | 38 |
| Other income, net | | 53 | | | 44 | | | 38 | |
| Income before income taxes | | 1,081 |
| | 558 |
| | 963 |
| Income before income taxes | | 2,677 | | | 331 | | | 570 | |
| Provision for (benefit from) income taxes | | (258 | ) | | 138 |
| | 298 |
| Provision for (benefit from) income taxes | | 607 | | | (42) | | | 108 | |
| Net income | | 1,339 |
| | 420 |
| | 665 |
| Net income | | 2,070 | | | 373 | | | 462 | |
| Net income attributable to noncontrolling interests | | 35 |
| | 21 |
| | 19 |
| Net income attributable to noncontrolling interests | | 55 | | | 43 | | | 41 | |
| Net income attributable to Westlake Chemical Corporation | | $ | 1,304 |
| | $ | 399 |
| | $ | 646 |
| |
Earnings per common share attributable to Westlake Chemical Corporation: | | | | | | | |
| Net income attributable to Westlake Corporation | | Net income attributable to Westlake Corporation | | $ | 2,015 | | | $ | 330 | | | $ | 421 | |
| Earnings per common share attributable to Westlake Corporation: | | Earnings per common share attributable to Westlake Corporation: | | | | | | |
| Basic | | $ | 10.05 |
| | $ | 3.07 |
| | $ | 4.88 |
| Basic | | $ | 15.66 | | | $ | 2.57 | | | $ | 3.26 | |
| Diluted | | $ | 10.00 |
| | $ | 3.06 |
| | $ | 4.86 |
| Diluted | | $ | 15.58 | | | $ | 2.56 | | | $ | 3.25 | |
| Weighted average shares outstanding | | | | | | | |
| Weighted average common shares outstanding: | | Weighted average common shares outstanding: | | | | | | |
| Basic | | 129,087,043 |
| | 129,367,712 |
| | 131,823,707 |
| Basic | | 128,002,911 | | | 127,850,592 | | | 128,395,184 | |
| Diluted | | 129,540,013 |
| | 129,974,822 |
| | 132,301,812 |
| Diluted | | 128,697,982 | | | 128,089,058 | | | 128,757,293 | |
| Dividends per common share | | $ | 0.8012 |
| | $ | 0.7442 |
| | $ | 0.6930 |
| |
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | | | | | |
| | | (in millions of dollars) |
| Net income | | $ | 1,339 |
| | $ | 420 |
| | $ | 665 |
|
| Other comprehensive income (loss), net of income taxes | | | | | | |
| Pension and other post-retirement benefits liability | | | | | | |
Pension and other post-retirement reserves adjustment (excluding amortization) | | 19 |
| | 60 |
| | 18 |
|
| Amortization of benefits liability | | 2 |
| | 1 |
| | 3 |
|
Income tax provision on pension and other post-retirement benefits liability | | (7 | ) | | (24 | ) | | (6 | ) |
| Foreign currency translation adjustments | | | | | | |
| Foreign currency translation | | 124 |
| | (34 | ) | | (60 | ) |
| Income tax provision on foreign currency translation | | (5 | ) | | — |
| | — |
|
| Available-for-sale investments | | | | | | |
| Unrealized holding gains (losses) on investments | | — |
| | 62 |
| | (4 | ) |
| Reclassification of net realized gains to net income | | — |
| | (54 | ) | | (4 | ) |
| Income tax benefit (provision) on available-for-sale investments | | — |
| | (3 | ) | | 3 |
|
| Other comprehensive income (loss) | | 133 |
| | 8 |
| | (50 | ) |
| Comprehensive income | | 1,472 |
| | 428 |
| | 615 |
|
Comprehensive income attributable to noncontrolling interests, net of tax of $1, $0 and $0 for 2017, 2016 and 2015, respectively | | 40 |
| | 21 |
| | 19 |
|
| Comprehensive income attributable to Westlake Chemical Corporation | | $ | 1,432 |
| | $ | 407 |
| | $ | 596 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
| | (in millions of dollars) |
| Net income | | $ | 2,070 | | | $ | 373 | | | $ | 462 | |
| Other comprehensive income (loss), net of income taxes | | | | | | |
| Pension and other post-retirement benefits | | | | | | |
| Pension and other post-retirement benefits reserves adjustment | | 60 | | | (37) | | | (32) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Income tax benefit (provision) on pension and other post-retirement benefits | | (16) | | | 10 | | | 8 | |
| | | | | | |
| Foreign currency translation adjustments | | | | | | |
| Foreign currency translation | | 2 | | | 23 | | | 17 | |
| Income tax benefit (provision) on foreign currency translation | | (17) | | | 18 | | | (4) | |
| | | | | | |
| Other comprehensive income (loss), net of income taxes | | 29 | | | 14 | | | (11) | |
| Comprehensive income | | 2,099 | | | 387 | | | 451 | |
Comprehensive income attributable to noncontrolling interests, net of tax of $2, $1 and $2 for 2021, 2020 and 2019, respectively | | 56 | | | 47 | | | 42 | |
| Comprehensive income attributable to Westlake Corporation | | $ | 2,043 | | | $ | 340 | | | $ | 409 | |
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Common Stock, Held in Treasury | | | | | | | | | | |
| | | Number of Shares | | Amount | | Number of Shares | | At Cost | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total |
| | | | | | | | | | | | | | | | | | | |
| | | (in millions of dollars, except share amounts) |
| Balances at December 31, 2014 | | 134,679,064 |
| | $ | 1 |
| | 1,787,546 |
| | $ | (96 | ) | | $ | 530 |
| | $ | 2,556 |
| | $ | (79 | ) | | $ | 290 |
| | $ | 3,202 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 646 |
| | — |
| | 19 |
| | 665 |
|
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50 | ) | | — |
| | (50 | ) |
Common stock repurchased | | — |
| | — |
| | 2,701,937 |
| | (163 | ) | | — |
| | — |
| | — |
| | — |
| | (163 | ) |
Shares issued—stock- based compensation | | (15,820 | ) | | — |
| | (44,585 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Stock-based compensation, net of tax on stock options exercised | | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | 12 |
|
| Dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (92 | ) | | — |
| | — |
| | (92 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
Noncontrolling interest in acquired business | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| Balances at December 31, 2015 | | 134,663,244 |
| | 1 |
| | 4,444,898 |
| | (258 | ) | | 542 |
| | 3,110 |
| | (129 | ) | | 296 |
| | 3,562 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 399 |
| | — |
| | 21 |
| | 420 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Common stock repurchased | | — |
| | — |
| | 1,511,109 |
| | (67 | ) | | — |
| | — |
| | — |
| | — |
| | (67 | ) |
Shares issued—stock- based compensation | | (11,864 | ) | | — |
| | (117,019 | ) | | 3 |
| | 5 |
| | — |
| | — |
| | — |
| | 8 |
|
Stock-based compensation, net of tax on stock options exercised | | — |
| | — |
| | (112,611 | ) | | 3 |
| | 4 |
| | — |
| | — |
| | — |
| | 7 |
|
| Dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (97 | ) | | — |
| | — |
| | (97 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (17 | ) | | (17 | ) |
Noncontrolling interest in acquired business | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 68 |
| | 68 |
|
| Balances at December 31, 2016 | | 134,651,380 |
| | 1 |
| | 5,726,377 |
| | (319 | ) | | 551 |
| | 3,412 |
| | (121 | ) | | 368 |
| | 3,892 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,304 |
| | — |
| | 35 |
| | 1,339 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 128 |
| | 5 |
| | 133 |
|
Shares issued—stock- based compensation | | — |
| | — |
| | (493,502 | ) | | 17 |
| | (6 | ) | | — |
| | — |
| | — |
| | 11 |
|
Stock-based compensation, net of tax on stock options exercised | | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
| Dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (103 | ) | | — |
| | — |
| | (103 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28 | ) | | (28 | ) |
Issuance of Westlake Chemical Partners LP common units | | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | 115 |
| | 111 |
|
| Balances at December 31, 2017 | | 134,651,380 |
| | $ | 1 |
| | 5,232,875 |
| | $ | (302 | ) | | $ | 555 |
| | $ | 4,613 |
| | $ | 7 |
| | $ | 495 |
| | $ | 5,369 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Common Stock,
Held in Treasury | | | | | | | | | | |
| | Number of
Shares | | Amount | | Number of
Shares | | At Cost | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated Other Comprehensive
Income (Loss) | | Noncontrolling Interests | | Total |
| | | | | | | | | | | | | | | | | | |
| | (in millions of dollars, except share amounts) |
| Balances at December 31, 2018 | | 134,651,380 | | | $ | 1 | | | 6,183,125 | | | $ | (382) | | | $ | 556 | | | $ | 5,477 | | | $ | (62) | | | $ | 486 | | | $ | 6,076 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 421 | | | — | | | 41 | | | 462 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | 1 | | | (11) | |
| Common stock repurchased | | — | | | — | | | 517,712 | | | (30) | | | — | | | — | | | — | | | — | | | (30) | |
| Shares issued—stock-based compensation | | — | | | — | | | (434,228) | | | 35 | | | (25) | | | (9) | | | — | | | — | | | 1 | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | 24 | | | — | | | — | | | — | | | 24 | |
| Dividends declared | | — | | | — | | | — | | | — | | | — | | | (132) | | | — | | | — | | | (132) | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (50) | | | (50) | |
| Issuance of Westlake Chemical Partners LP common units | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | 65 | | | 63 | |
| Balances at December 31, 2019 | | 134,651,380 | | | 1 | | | 6,266,609 | | | (377) | | | 553 | | | 5,757 | | | (74) | | | 543 | | | 6,403 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 330 | | | — | | | 43 | | | 373 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 10 | | | 4 | | | 14 | |
| Common stock repurchased | | — | | | — | | | 995,529 | | | (54) | | | — | | | — | | | — | | | — | | | (54) | |
| Shares issued—stock-based compensation | | — | | | — | | | (440,964) | | | 30 | | | (13) | | | (12) | | | — | | | — | | | 5 | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | 29 | | | | | — | | | — | | | 29 | |
| Dividends declared | | — | | | — | | | — | | | — | | | — | | | (137) | | | — | | | — | | | (137) | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (55) | | | (55) | |
| | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2020 | | 134,651,380 | | | 1 | | | 6,821,174 | | | (401) | | | 569 | | | 5,938 | | | (64) | | | 535 | | | 6,578 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 2,015 | | | — | | | 55 | | | 2,070 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 28 | | | 1 | | | 29 | |
| Common stock repurchased | | — | | | — | | | 355,800 | | | (30) | | | — | | | — | | | — | | | — | | | (30) | |
| Shares issued—stock-based compensation | | — | | | — | | | (441,335) | | | 32 | | | (19) | | | — | | | — | | | — | | | 13 | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | 31 | | | | | — | | | — | | | 31 | |
| Dividends declared | | — | | | — | | | — | | | — | | | — | | | (145) | | | — | | | — | | | (145) | |
| Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (48) | | | (48) | |
| Noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 30 | | | 30 | |
| Balances at December 31, 2021 | | 134,651,380 | | | $ | 1 | | | 6,735,639 | | | $ | (399) | | | $ | 581 | | | $ | 7,808 | | | $ | (36) | | | $ | 573 | | | $ | 8,528 | |
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| | | | | | | |
| | | (in millions of dollars) |
| Cash flows from operating activities | | | | | | |
| Net income | | $ | 1,339 |
| | $ | 420 |
| | $ | 665 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
| Depreciation and amortization | | 601 |
| | 378 |
| | 246 |
|
| Stock-based compensation expense | | 23 |
| | 14 |
| | 10 |
|
Gains realized on previously held shares of Axiall common stock and from sales of securities | | — |
| | (54 | ) | | (4 | ) |
Gain on acquisition, net of loss on the fair value remeasurement of preexisting equity interest | | — |
| | — |
| | (21 | ) |
| Loss from disposition of property, plant and equipment | | 22 |
| | 9 |
| | 11 |
|
| Deferred income taxes | | (534 | ) | | 101 |
| | 40 |
|
| Other losses (gains), net | | (3 | ) | | 5 |
| | 6 |
|
Changes in operating assets and liabilities, net of effect of business acquisitions | | | | | | |
| Accounts receivable | | (40 | ) | | 50 |
| | 63 |
|
| Inventories | | (32 | ) | | (62 | ) | | 99 |
|
| Prepaid expenses and other current assets | | 26 |
| | 11 |
| | (4 | ) |
| Accounts payable | | 86 |
| | 12 |
| | (22 | ) |
| Accrued liabilities | | 115 |
| | 48 |
| | (8 | ) |
| Other, net | | (65 | ) | | (98 | ) | | (2 | ) |
| Net cash provided by operating activities | | 1,538 |
| | 834 |
| | 1,079 |
|
| Cash flows from investing activities | | | | | | |
| Acquisition of business, net of cash acquired | | (13 | ) | | (2,438 | ) | | 16 |
|
| Additions to property, plant and equipment | | (577 | ) | | (629 | ) | | (491 | ) |
| Additions to cost method investment | | (66 | ) | | (17 | ) | | — |
|
| Proceeds from disposition of equity method investment | | — |
| | — |
| | 28 |
|
| Proceeds from sales and maturities of securities | | — |
| | 663 |
| | 49 |
|
| Purchase of securities | | — |
| | (138 | ) | | (605 | ) |
| Other | | 4 |
| | (4 | ) | | (3 | ) |
| Net cash used for investing activities | | (652 | ) | | (2,563 | ) | | (1,006 | ) |
| Cash flows from financing activities | | | | | | |
| Debt issuance costs | | (6 | ) | | (36 | ) | | — |
|
| Dividends paid | | (103 | ) | | (97 | ) | | (92 | ) |
| Distributions to noncontrolling interests | | (28 | ) | | (17 | ) | | (15 | ) |
| Proceeds from debt issuance and drawdown of revolver | | 233 |
| | 608 |
| | 53 |
|
Net proceeds from issuance of Westlake Chemical Partners LP common units | | 111 |
| | — |
| | — |
|
| Proceeds from senior notes issuance | | 745 |
| | 1,429 |
| | — |
|
| Repayment of term loan | | (150 | ) | | — |
| | — |
|
| Restricted cash associated with term loan | | 154 |
| | (154 | ) | | — |
|
| Repayment of revolver | | (550 | ) | | (125 | ) | | — |
|
| Repayment of notes payable | | (257 | ) | | (13 | ) | | (74 | ) |
| Repurchase of common stock for treasury | | — |
| | (67 | ) | | (163 | ) |
| Other | | 11 |
| | 5 |
| | 4 |
|
| Net cash provided by (used for) financing activities | | 160 |
| | 1,533 |
| | (287 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | 26 |
| | (8 | ) | | (4 | ) |
| Net increase (decrease) in cash and cash equivalents | | 1,072 |
| | (204 | ) | | (218 | ) |
| Cash and cash equivalents at beginning of the year | | 459 |
| | 663 |
| | 881 |
|
| Cash and cash equivalents at end of the year | | $ | 1,531 |
| | $ | 459 |
| | $ | 663 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
| | (in millions of dollars) |
| Cash flows from operating activities | | | | | | |
| Net income | | $ | 2,070 | | | $ | 373 | | | $ | 462 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
| Depreciation and amortization | | 840 | | | 773 | | | 713 | |
| Stock-based compensation expense | | 31 | | | 29 | | | 25 | |
| Loss from disposition and write-off of property, plant and equipment | | 28 | | | 33 | | | 49 | |
| Deferred income taxes | | 23 | | | 146 | | | 54 | |
| Other losses, net | | 16 | | | 21 | | | 1 | |
| Changes in operating assets and liabilities, net of effect of business acquisitions | | | | | | |
| Accounts receivable | | (528) | | | (161) | | | 59 | |
| Inventories | | (309) | | | 29 | | | 112 | |
| Prepaid expenses and other current assets | | (27) | | | 2 | | | (1) | |
| Accounts payable | | 242 | | | 67 | | | (89) | |
| Accrued and other liabilities | | 239 | | | 46 | | | (13) | |
| Other, net | | (231) | | | (61) | | | (71) | |
| Net cash provided by operating activities | | 2,394 | | | 1,297 | | | 1,301 | |
| Cash flows from investing activities | | | | | | |
| Acquisition of businesses, net of cash acquired | | (2,554) | | | — | | | (314) | |
| Additions to investments in unconsolidated subsidiaries | | (24) | | | (18) | | | (862) | |
| Additions to property, plant and equipment | | (658) | | | (525) | | | (787) | |
| Return of investment from an unconsolidated subsidiary | | — | | | 44 | | | — | |
| | | | | | |
| Other, net | | 23 | | | (10) | | | 9 | |
| Net cash used for investing activities | | (3,213) | | | (509) | | | (1,954) | |
| Cash flows from financing activities | | | | | | |
| Debt issuance costs | | (18) | | | (3) | | | (7) | |
| Distributions to noncontrolling interests | | (48) | | | (55) | | | (50) | |
| Dividends paid | | (145) | | | (137) | | | (132) | |
| Proceeds from debt issuance and drawdown of revolver, net | | 1,671 | | | 1,299 | | | 784 | |
| Proceeds from issuance of Westlake Chemical Partners LP common units, net | | — | | | — | | | 63 | |
| Proceeds from (repayment of) short-term notes payable, net | | 8 | | | (17) | | | 2 | |
| | | | | | |
| Repayment of revolver and senior notes | | — | | | (1,254) | | | — | |
| | | | | | |
| Repurchase of common stock for treasury | | (30) | | | (54) | | | (30) | |
| Other, net | | (1) | | | 5 | | | — | |
| Net cash provided by (used for) financing activities | | 1,437 | | | (216) | | | 630 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (14) | | | 15 | | | (2) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | 604 | | | 587 | | | (25) | |
| Cash, cash equivalents and restricted cash at beginning of the year | | 1,337 | | | 750 | | | 775 | |
| Cash, cash equivalents and restricted cash at end of the year | | $ | 1,941 | | | $ | 1,337 | | | $ | 750 | |
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of dollars, except share amounts and per share data)
1. Description of Business and Significant Accounting Policies
Description of Business
Westlake Corporation, formerly known as Westlake Chemical Corporation (the "Company") operates as an integrated global manufacturer and marketer of basic chemicals, vinyls, polymersperformance and buildingessential materials and housing and infrastructure products. These products include some of the most widely used chemicalsmaterials in the world, which are fundamental to many diverse consumer and industrial markets, including residential construction, flexible and rigid packaging, automotive products, healthcare products, water treatment, coatings residential and commercial construction as well as other durable and non-durable goods. The Company's customers range from large chemical processors and plastics fabricators to small construction contractors, municipalities and supply warehouses primarily throughout North America, Europe and Europe.Asia. The petrochemical industry isindustries in which the Company operates are subject to price fluctuations and volatile feedstock pricing typical of a commodity-based industry, the effects of which may not be immediately passed along to customers.
Acquisition of Axiall The Company changed its name from Westlake Chemical Corporation
On August 31, 2016, the Company completed the acquisition of Axiall to Westlake Corporation ("Axiall") for $33.00 per share in an all-cash transaction (the "Merger"), pursuant to the terms of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of June 10, 2016, by and among Westlake, Axiall and Lagoon Merger Sub, Inc., a wholly-owned subsidiary of Westlake (the "Merger Sub"). During the third quarter of 2016, in order to finance a portion of the consideration and related fees and expenses, and for other general corporate purposes, the Company issued $1,450 aggregate principal amount of senior notes. In addition, the Company entered into a $1,000 unsecured revolving credit facility (the "Credit Agreement").on February 18, 2022.
Westlake Chemical Partners LP
In 2014, the Company formed Westlake Chemical Partners LP ("Westlake Partners") to operate, acquire and develop ethylene production facilities and related assets. Westlake Partners' assets consist of a limited partner interest in Westlake Chemical OpCo LP ("OpCo"), as well as the general partner interest in OpCo. OpCo's assets include two2 ethylene production facilities at the Company's Lake Charles, Louisiana site, one1 ethylene production facility at the Company's Calvert City, Kentucky site and a 200-mile common carrier ethylene pipeline that runs from Mont Belvieu, Texas to the Company's Longview, Texas site. As of December 31, 2017,2021, the Company held an 81.7%a 77.2% limited partner interest in OpCo and a controlling interest in Westlake Partners. The operations of Westlake Partners are consolidated in the Company's financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and subsidiaries in which the Company directly or indirectly owns more than a 50% voting interest and exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. Investments in majority-owned companies where the Company does not exercise control and investments in nonconsolidated affiliates (20%-50% owned companies, joint ventures and partnerships) are accounted for using the equity method of accounting. Undistributed earnings from joint ventures included in retained earnings were immaterial as of December 31, 2017.2021. All intercompany transactions and balances are eliminated in consolidation.
Noncontrolling interests represent the direct equity interests held by investors in the Company's consolidated subsidiaries, Westlake Partners, and Taiwan Chlorine Industries, Ltd. and Suzhou Huasu Plastics Co., Ltd.
The Company holds a 50% interest in RS Cogen, LLC ("RS Cogen") with Entergy Power RS, LLC ("Entergy") holding the remaining interest. Effective January 2021, the Company consolidated RS Cogen into its consolidated financial statements and classified Entergy's 50% interest in RS Cogen as a component of noncontrolling interest on the consolidated balance sheet.
Recasting of Certain Prior Period Information
The Company has historically operated in two principal operating segments, Vinyls and Olefins. In the fourth quarter of 2021, the Company reorganized its business into two principal operating segments, Performance and Essential Materials and Housing and Infrastructure Products. The Olefins, PVC, VCM, chlorine, caustic soda and chlorinated derivative materials and polyethylene are included in the Performance and Essential Materials segment. Building products, pipe and fittings and PVC compounds are included in the Housing and Infrastructure Products segment. These reporting changes have been retrospectively reflected in the segment results for all periods presented.
Certain reclassifications have been made to the prior-year financial statements to conform to the current year presentation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with the accounting principles generally accepted in the United States.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible into cash and have a maturity of three months or less at the date of acquisition.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of risk consist principally of trade receivables from customers engaged in manufacturing polyethylene products, polyvinyl chloride ("PVC") products and PVC pipe products. The Company performs periodic credit evaluations of the customers' financial condition and generally does not require collateral. The Company maintains allowances for potential losses.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Allowance for Doubtful AccountsCredit Losses
The determination of the allowance for doubtful accountscredit losses is based on estimation of the amount of accounts receivable that the Company believes are unlikely to be collected. Estimating this amount requires analysis of the financial strength of the Company's customers, the use of historical experience, the Company's accounts receivable aged trial balance, customer specific collectability analysis and specific collectibility analysis.an evaluation of economic conditions. The allowance for doubtful accountscredit losses is reviewed quarterly. Past due balances over 90 days and high riskhigh-risk accounts as determined by the analysis of financial strength of customers are reviewed individually for collectibility.collectability.
Inventories
Inventories primarily include product, material and supplies. Inventories are stated at lower of cost or net realizable value. Cost is determined using the first-in, first-out ("FIFO") or average method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, net of accumulated depreciation. Cost includes expenditures for improvements and betterments that extend the useful lives of the assets and interest capitalized on significant capital projects. Capitalized interest was $3, $4 $10 and $10$9 for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. Repair and maintenance costs are charged to operations as incurred. Gains and losses on the disposition or retirement of fixed assets are reflected in the consolidated statement of operations when the assets are sold or retired.
The accounting guidance for asset retirement obligations requires the recording of liabilities equal to the fair value of asset retirement obligations and corresponding additional asset costs, when there is a legal asset retirement obligation as a result of existing or enacted law, statute or contract.
Depreciation is provided by utilizing the straight-line method over the estimated useful lives of the assets as follows:
|
| | | | | | | | | | |
| Classification | | Years |
| Buildings and improvements | | 40 |
| Plant and equipment | 25 | 10-25 |
Ethylene pipelineOther | 35 |
Other | 3-15 |
Impairment of Long-Lived Assets
The accounting guidance for the impairment or disposal of long-lived assets requires that the Company reviewreviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. Assets are considered to be impaired if the carrying amount of an asset exceeds the future undiscounted cash flows. The impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Impairment of Goodwill and Intangible Assets
The accounting guidance requires that goodwillGoodwill is tested for impairment at least annually, or when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below its carrying value. The Company performed its annual impairment tests for the OlefinsPerformance and VinylsEssential Materials and Housing and Infrastructure Products segments' goodwill in October 2017 and April 2017, respectively,2021, and the impairment tests indicated that the recorded goodwill was not impaired. There has been no impairment of the Olefins or Vinyls segments' goodwill since the goodwill was initially recorded. Other intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment in accordance with the provisions of the accounting guidance. See Note 78 for more information on the Company's annual goodwill impairment tests.
Equity Method Investments
TableThe Company accounts for investments using the equity method of Contentsaccounting if the Company has the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if the Company has an ownership interest representing between 20% and 50% of the voting rights. Under the equity method of accounting, investments are stated initially at cost and are adjusted for subsequent additional investments and the proportionate share of profit or losses and distributions. The Company records its share of the profits or losses of the equity investments, net of income taxes, in the consolidated statements of income. The equity method investments are evaluated for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of investment to the carrying value of investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other-than-temporary, the excess of the carrying value over the estimated fair value is recognized in the consolidated financial statements as an impairment.WESTLAKE CHEMICAL CORPORATIONOther Assets, net
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Other assets, net include turnaround costs, investments in unconsolidated subsidiaries, restricted cash, deferred charges and other long-term assets.
(in millions of dollars, except share amounts and per share data)
Turnaround Costs
The Company accounts for turnaround costs under the deferral method. Turnarounds are the scheduled and required shutdowns of specific operating units in order to perform planned major maintenance activities. The costs related to the significant overhaul and refurbishment activities include maintenance materials, parts and direct labor costs. The costs of the turnaround are deferred when incurred at the time of the turnaround and amortized (within depreciation and amortization) on a straight-line basis until the next planned turnaround, which rangestypically range from three to six years. Deferred turnaround costs are presented as a component of other assets, net. The cash outflows related to these costs are included in operating activities in the consolidated statement of cash flows.
Business Combinations
The Company records business combinations using the acquisition method of accounting. Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Changes in the estimated fair values of net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will adjust the amount of the purchase price allocable to goodwill. Measurement period adjustments are reflected in the period in which they occur.
Income Taxes
The Company utilizes the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets or liabilities are recorded based upon temporary differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities during the period. Valuation allowances are recorded against deferred tax assets when it is considered more likely than not that the deferred tax assets will not be realized.
On December 22, 2017, the United States ("U.S.") Tax Cuts
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and Jobs Act (the "Tax Act") was signed into law. The Tax Act, among other changes, reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and also requires a one-time deemed repatriation of foreign earnings at specified rates. The Company made a provisional adjustment of $591 of income tax benefit in the 2017 consolidated financial statements for items that the Company could reasonably estimate such as revaluation of deferred tax assets and liabilities and a one-time U.S. tax on the mandatory deemed repatriation of the Company's post-1986 foreign earnings. For additional information, see Note 15.per share data)
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at the exchange rate as of the end of the year. Statement of operations items are translated at the average exchange rate for the year. The resulting translation adjustment is recorded as a separate component of stockholders' equity.
Revenue Recognition
Revenue is recognized when persuasive evidencethe Company transfers control of an arrangement exists, products are deliveredinventories to its customers. Amounts recognized as revenues reflect the customer,consideration to which the sales price is fixed or determinable and collectability is reasonably assured. For domestic contracts, title and risk of loss passesCompany expects to the customer upon delivery under executed customer purchase orders or contracts. For export contracts, the title and risk of loss passes to customers at the time specified by each contract.be entitled in exchange for those inventories. Provisions for discounts, rebates and returns are provided forincorporated in the estimate of variable consideration and reflected as a reduction to revenue in the same period as the related sales.
Control of inventories generally transfers upon shipment for domestic sales. The Company excludes taxes collected on behalf of customers from the estimated contract price. For export contracts, the point at which control passes to the customer varies depending on the terms specified in the customer contract.
The Company generally invoices customers and recognizes revenue and accounts receivable upon transferring control of inventories. In limited circumstances, the Company transfers control of inventories shortly before it has an unconditional right to receive consideration, resulting in recognition of contract assets. The Company also receives advance payments from certain customers, resulting in recognition of contract liabilities. Contract assets and liabilities are generally settled within the period and are not material to the consolidated balance sheets. The Company expenses sales commissions when incurred. These costs are recorded.recorded within selling, general and administrative expenses. Aside from the amounts disclosed within Note 9, the Company does not disclose the value of unsatisfied performance obligations because its contracts with customers (1) have an original expected duration of one year or less or (2) have only variable consideration that is calculated based on market prices at specified dates and is allocated to wholly unsatisfied performance obligations.
ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606") requires disclosure of disaggregated revenue into categories that depict the nature of how the Company's revenue and cash flows are affected by economic factors. The Company discloses revenues by business and segment in Note 23.
Leases
The Company is obligated under various long-term and short-term operating leases for rail cars, buildings, land and other transportation and storage assets. The Company determines whether an arrangement is, or contains, a lease at contract inception. Some of the Company's arrangements contain both lease and non-lease components. For certain transportation equipment leases, the Company accounts for the lease and non-lease components as a single lease component. The Company records right-of-use assets and corresponding lease liabilities for operating leases with terms greater than one year. Operating lease right-of-use assets and liabilities are recorded at the present value of the fixed lease payments over the life of the lease. The majority of the Company's leases do not provide an implicit rate. Therefore, the Company uses its incremental borrowing rate at lease commencement to measure operating lease right-of-use assets and lease liabilities. Certain of the Company's leases provide for renewal and purchase options. Renewal and purchase options are evaluated at lease commencement and included in the lease term if they are reasonably certain to be exercised. Short-term leases are recognized in rental expense on a straight-line basis over the lease term and are not recorded in the consolidated balance sheets. The Company's finance leases are not material to the consolidated financial statements.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Transportation and Freight
Amounts billed to customers for freight and handling costs on outbound shipments are included in net sales in the consolidated statements of operations. Transportation and freight costs incurred by the Company on outbound shipments are included in cost of sales in the consolidated statements of operations.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Price Risk Management
The accounting guidance for derivative instruments and hedging activities requires that the Company recognize allrecognizes derivative instruments on the balance sheet at fair value, and changes in thea derivative's fair value must beare currently recognized in earnings or comprehensive income, depending on the designation of the derivative. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in comprehensive income and is recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings currently. The derivative instruments did not have a material impact on the Company's consolidated financial statements.
Asset Retirement Obligations
The Company has conditional asset retirement obligations for the removal and disposal of hazardous materials from certain of the Company's manufacturing facilities.
The Company recognizes asset retirement obligations in the period in which the liability becomes probable and reasonably estimable. Recognized asset retirement obligations are initially recorded at fair value and capitalized as a component of the carrying value of the long-lived asset to which the obligation relates. The liability is accreted to its future value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, a gain or loss is recorded. As of December 31, 2017,2021, the Company had $3$1 and $18$23 of asset retirement obligations recorded as accrued and other liabilities and other liabilities, respectively. As of December 31, 2016,2020, the Company had $4$12 and $17 of asset retirement obligations recorded as accrued and other liabilities and other liabilities, respectively.
The Company also has conditional asset retirement obligations that have not been recognized because the fair values of the conditional legal obligations cannot be measured due to the indeterminate settlement date of the obligations. Settlements of the unrecognized conditional asset retirement obligations are not expected to have a material adverse effectseffect on the Company's financial condition, results of operations or cash flows in any individual reporting period.
Environmental Costs
Environmental costs relating to current operations are expensed or capitalized, as appropriate, depending on whether such costs provide future economic benefits. Remediation liabilities are recognized when the costs are considered probable and can be reasonably estimated. Measurement of liabilities is based on currently enacted laws and regulations, existing technology and undiscounted site-specific costs. Environmental liabilities in connection with properties that are sold or closed are realized upon such sale or closure, to the extent they are probable and estimable and not previously reserved. Recognition of any joint and several liabilities is based upon the Company's best estimate of its final pro rata share of the liability.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
The coronavirus ("COVID-19") pandemic resulted in widespread adverse impacts on the global economy in 2020. As the COVID-19 pandemic and its impacts on the global economy continue, the Company may experience impacts on its business operations. However, the impact that COVID-19 will have on the financial condition, results of operations and cash flows of the Company cannot be estimated with certainty at this time as it will depend on future developments, including, among others, the timing and logistics with respect to the distribution of vaccines globally and the efficacy of the available vaccines (including with respect to the more recent variants of COVID-19), vaccine hesitancy and the availability of other treatments, the ultimate duration of the pandemic, geographic spread and severity of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, actions taken by customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Recent Accounting Pronouncements
RevenueBusiness Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers Update (ASU No. 2014-09)No.2021-08)
In May 2014,October 2021, the Financial Accounting Standards Board ("FASB") issued an accounting standards update onthat requires acquiring entities to recognize and measure contract assets and contract liabilities in a comprehensive new revenue recognition standard that will supersedebusiness combination in accordance with the existing revenue recognition guidance. The new accounting guidance createson Revenue from Contracts with Customers (ASC 606). The guidance in this update improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a framework by which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either "full retrospective" adoption, meaning that the standard is applied to all of the periods presented with a cumulative catch-up as of the earliest period presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch-up as of the current period. In July and December 2016, the FASB issued various additional authoritative guidance for the new revenue recognition standard.business combination. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and2022. Early adoption of the guidance is not expected to have a materialpermitted. The Company is in the process of evaluating the impact of this standard on the Company's consolidated financial position, results of operations and cash flows. The Company has elected the modified retrospective method of adoption.
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01)
In January 2016, the FASB issued an accounting standards update making certain changes principally to the current guidance for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Among other things, the guidance (1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (2) provide entities with a policy election to record equity investments without readily determinable fair values at cost, less impairment, and subsequent adjustments for observable price changes (changes in the basis of these equity investments to be reported in net income); (3) requires an entity that has elected the fair value option for financial liabilities to recognize changes in fair value due to instrument-specific credit risk separately in other comprehensive income; (4) clarified current guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities; and (5) requires specific disclosure pertaining to financial assets and financial liabilities in the financial statements. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Leases (ASU No. 2016-02)
In February 2016, the FASB issued an accounting standards update on a new lease standard that will supersede the existing lease guidance. The standard requires a lessee to recognize assets and liabilities related to long-term leases that are classified as operating leases under current guidance on its balance sheet. An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures related to leases. The accounting standard will be effective for reporting periods beginning after December 15, 2018. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Credit Losses (ASU No. 2016-13)
In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Cash Flows (ASU No. 2016-15)
In August 2016, the FASB issued an accounting standards update providing new guidance on the classification of certain cash receipts and payments including debt extinguishment costs, debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments, proceeds from the settlement of insurance claims and life insurance policies and distributions received from equity method investees in the statement of cash flows. This update is required to be applied using the retrospective transition method to each period presented unless it is impracticable to be applied retrospectively. In such situation, this guidance is to be applied prospectively. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Cash Flows (ASU No. 2016-18)
In November 2016, the FASB issued an accounting standards update to clarify certain existing principles in Accounting Standards Codification ("ASC") 230, Cash flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. The accounting standard will be effective for reporting periods beginning after December 15, 2017. Upon adoption, the Company will retrospectively adjust its financial statements to reflect restricted cash in the beginning and ending cash and restricted cash balances within the statements of cash flows. Transfers between cash and restricted cash will be excluded from net changes in cash and cash equivalents within the statements of cash flows.
Business Combinations (ASU No. 2017-01)
In January 2017, the FASB issued an accounting standards update to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Intangibles-Goodwill and Other (ASU No. 2017-04)
In January 2017, the FASB issued an accounting standards update to simplify the subsequent measurement of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (ASU No. 2017-05)
In February 2017, the FASB issued an accounting standards update to clarify the scope of guidance related to other income—gains and losses from the derecognition of nonfinancial assets, and to add guidance for partial sales of nonfinancial assets. The new guidance clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. The guidance also outlines that when an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling interest, it will measure the retained interest at fair value resulting in full gain or loss recognition upon sale of the controlling interest. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Compensation - Retirement Benefits (ASU No. 2017-07)
In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires employers to disaggregate the service cost component from the other components of net periodic benefit cost and report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments also allow only the service cost component to be eligible for capitalization when applicable. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Compensation - Stock Compensation (ASU No. 2017-09)
In May 2017, the FASB issued the accounting standards update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting in Topic 718. Essentially, an entity will not have to account for the effects of a modification if: (1) the fair value of the modified award is the same immediately before and after the modification; (2) the vesting conditions of the modified award are the same immediately before and after the modification; and (3) the classification of the modified award as either an equity instrument or liability instrument is the same immediately before and after the modification. This update is to be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (ASU No. 2017-12)
In August 2017, the FASB issued an accounting standards update to improve financial reporting of hedging relationships, to better portray the economic results of an entity's risk management activities in the financial statements and to simplify application of hedge accounting guidance. The accounting standard eliminates certain hedge effectiveness measurement and reporting requirements and expands the types of permissible hedging strategies. The accounting standard will be effective for reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance, to be applied retrospectively to the beginning of the fiscal year. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
Investments-Equity Method and Joint VenturesIncome Taxes (ASU No. 2016-07)2019-12)
In March 2016,December 2019, the FASB issued an accounting standards update providing newremoving certain exceptions for investments, intraperiod allocations and interim calculations and adding guidance for theto reduce complexity in accounting for equity method investments. The new guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. In addition, the guidance requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.income taxes. The accounting standard isbecame effective for reporting periods beginning after December 15, 2016.2020. The Company adopted this accounting standard effective January 1, 20172021, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Stock CompensationReference Rate Reform (ASU No. 2016-09)2020-04)
In March 2016,2020, the FASB issued an accounting standards update to simplify several aspects of theprovide optional expedients and exceptions for applying generally accepted accounting for share-based paymentprinciples to contracts, hedging relationships and other transactions including income tax consequences, classifications of awards as either equity or liabilities andaffected by reference rate reform, if certain related classifications on the statement of cash flows. In addition, the new guidance permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur.criteria are met. The accounting standard isamendments in this update are effective for reporting periods beginning afterall entities from March 12, 2020 through December 15, 2016.31, 2022. The Company adopted this accounting standard effective JanuaryOctober 1, 2017 and elected to continue estimating forfeitures as required prior to adoption of the accounting standards update. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Amendments to the Consolidation Analysis (ASU No. 2016-17)
In October 2016, the FASB issued an accounting standards update making certain changes to the current consolidation guidance. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The amendments will be effective for annual periods beginning after December 15, 2016. The Company adopted this accounting standard, applied prospectively, effective January 1, 2017,2021, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
2. Acquisitions
Axiall CorporationBoral Target Companies in North America.
On June 20, 2021, the Company, through a wholly-owned subsidiary, entered into an Equity Purchase Agreement (the "Boral Purchase Agreement") by and among Boral Building Products Inc., a Michigan corporation, Boral Stone Products LLC, a Delaware limited liability company, Boral Lifetile Inc., a California corporation, Boral Windows LLC, a Utah limited liability company, Boral Industries Inc., a California corporation ("Boral Industries"), and solely for the limited purposes set forth therein, the Company, and Boral Limited, an Australian corporation ("Boral"). Pursuant to the terms of the Boral Purchase Agreement, the Company agreed to acquire from Boral Industries all of the issued and outstanding equity interests of certain subsidiaries of Boral Industries engaged in Boral's North American building products businesses in roofing, siding, trim and shutters, decorative stone and windows (the "Boral Target Companies") for a purchase price of $2,150 in cash, subject to working capital post-closing adjustments. The Boral Purchase Agreement also includes a potential earn-out payment from the Company to Boral Industries of up to $65 if the windows division of the Boral Target Companies generates EBITDA in excess of a specified target in its fiscal year ending June 30, 2024. On October 1, 2021, the Company completed its acquisition of, Boral Target Companies (the "Boral Acquisition") for a total purchase price of $2,132 in an all-cash transaction and accounted for the acquisition under the business combination method in accordance with Accounting Standard Codification Topic 805 ("ASC 805"), Business Combinations. The Boral Target Companies acquisition is consistent with the Company's vertical integration strategy of enhancing margin stability and downstream products. The additional product lines through the acquisition will broaden the Company's footprint in the fast-growing housing markets in North America. The assets acquired and liabilities assumed and the results of operations of Boral Target Companies are included in the Housing and Infrastructure Products segment.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
A summary of the purchase consideration follows:
| | | | | | | | | |
| Base purchase price | | $ | 2,150 | | |
| Net working capital adjustment | | (2) | | |
| Closing indebtedness | | (16) | | |
| Total purchase price consideration | | $ | 2,132 | | |
For the year ended December 31, 2021, the Company recognized acquisition-related costs of $17 for advisory, consulting and professional fees, and other expenses that were expensed as restructuring, transaction and integration-related costs as a component of the income from operations.
The following table summarizes the fair value of identified assets acquired and liabilities assumed at the date of acquisition. The preliminary allocation of consideration transferred is based on management's estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $771 was recorded, most of which will not be deductible for income tax purposes. The goodwill is assigned to the Company's Housing and Infrastructure Products segment. The final allocation of purchase consideration could include changes in the estimated fair value of (1) inventories; (2) property, plant and equipment; (3) intangible assets comprising of customer relationships, trade names, developed technologies; (4) deferred income taxes; and (5) other assets.
The information below represents the purchase price allocation:
| | | | | | | | | |
| Cash | | $ | 5 | | |
| Accounts receivable | | 119 | | |
| Inventories | | 156 | | |
| Prepaid expenses and other current assets | | 3 | | |
| | | |
| Property, plant and equipment | | 489 | | |
| Operating lease right-of-use assets | | 87 | | |
| Intangible assets | | 952 | | |
| Other assets | | 18 | | |
| Total assets acquired | | 1,829 | | |
| Accounts payable | | 46 | | |
| Accrued and other liabilities | | 103 | | |
| Deferred income taxes | | 244 | | |
| Operating lease liabilities | | 73 | | |
| Other liabilities | | 2 | | |
| Total liabilities assumed | | 468 | | |
| Total identifiable net assets acquired | | 1,361 | | |
| Goodwill | | 771 | | |
| Total purchase consideration | | $ | 2,132 | | |
The excess of the total equity value of Boral based on the purchase consideration over net assets acquired was recorded as goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. The synergies relate to enhanced leading positions in the home building products and materials sector and increased margin stability.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
The following table summarizes the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date:
| | | | | | | | | | | | | | |
| | Fair Value | | Remaining Useful Life
(in years) |
| Trade name | | $ | 200 | | | 21 - 22 |
| Technology | | 107 | | | 20 - 22 |
| Customer relationships | | 645 | | | 12 - 22 |
| Total Identified Intangible Assets | | $ | 952 | | | |
There are no indefinite-lived intangible assets derived acquired as a result of the Boral Target Companies acquisition. Definite lived intangible assets acquired as a result of the Boral acquisition are amortized on a straight-line basis to reflect the pattern in which the economic benefits of the intangible assets are realized.
The fair value for Trade name and Technology were estimated using the income approach, specifically the relief-from-royalty method which estimates the cost savings that accrue to the owner of the intangible assets that would otherwise be payable as royalties or licenses fees on revenues earned through the use of the asset. The fair value of Customer Relationships was estimated using the multi-period excess earnings method. The excess earning method model estimates revenues and cash flows derived from the asset and then deducts portions of the cash flow that can be attributed to supporting assets. The resulting cash flow, which is attributable solely to the asset acquired, is then discounted at a rate of return commensurate with the risk of the asset to calculate the present value.
Unaudited Pro Forma Financial Information
The acquired Boral Target Companies contributed net revenues and net loss of $275 and $15, respectively, to the Company for the period from October 1, 2021 to December 31, 2021. The following unaudited pro forma summary presents the results of operations as if the acquisition of Boral Target Companies occurred on January 1, 2020:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Revenues | | $ | 12,653 | | | $ | 8,553 | |
| Net income attributable to Westlake Corporation | | $ | 2,035 | | | $ | 268 | |
The amounts have been calculated after applying the Company's accounting policies and adjusting the results of Boral Target Companies to reflect additional depreciation, amortization, and other purchase accounting adjustment assuming the fair value adjustments to the property and equipment and intangibles assets and other purchase accounting adjustments have been applied on January 1, 2020. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, and are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2020 or of future operating performance.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
LASCO Fittings, Inc.
On July 4, 2021, the Company, through a wholly-owned subsidiary, entered into an Equity Purchase Agreement with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts") and wholly-owned subsidiary of Aalberts N.V., pursuant to which, the Company, agreed to acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts. LASCO is a manufacturer of injected-molded PVC fittings that serve the plumbing, pool and spa, industrial, irrigation and retail markets in the United States. On August 31, 2016,19, 2021, the Company completed its acquisition of, and acquired all the remaining equity interest in, Axiall, a Delaware corporation. Prior to the acquisition, the Company held 3.1 million shares in Axiall. Pursuant to the terms of the Merger Agreement, dated as of June 10, 2016, by and among Westlake, Axiall and the Merger Sub, the Company acquired all of the remaining issued and outstanding shares of common stock of Axiall for $33.00 per shareequity interests in, cash. Pursuant to the Merger Agreement, Merger SubLASCO (the "LASCO Acquisition"). The total closing purchase consideration was merged with and into Axiall, and Axiall survived the Merger as a wholly-owned subsidiary of the Company.$277. The combined companyacquisition is the third-largest global chlor-alkali producer and the third-largest global PVC producer. The Company's management believes that this strategic acquisition will enhance its strategy of integration and will further strengthen its role in the North American markets.
Axiall produces a highly integrated chain of chlor-alkali and derivative products, including chlorine, caustic soda, vinyl chloride monomer ("VCM"), PVC resin, PVC compounds and chlorinated derivative products. Axiall also manufactures and sells building products, including siding, trim, mouldings, pipe and pipe fittings.
Total consideration transferred for the Merger was $2,540. The Merger wasbeing accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of the acquired businessLASCO are included in the Company's VinylsHousing and Infrastructure Products segment.
For LASCO net sales and net income since the acquisition date and the acquisition-related costs recognized in the consolidated statement of operations for the year ended December 31, 2016,2021 were not material to the Company recognized $104Company's consolidated statement of transaction and integration-related costs. This included acquisition-related costsoperations. The pro forma impact of $49this acquisition has not been presented as it is not material to the Company's consolidated statements of operations for advisory, consulting and professional fees and other expenses during the yearyears ended December 31, 2016. Transaction2021 and integration-related costs also2020. The Company recognized intangible assets of $77, of which $50 is included $55 duringin customer relationships, net on the year endedCompany's consolidated balance sheets as of December 31, 2016 related to the settlement2021, and goodwill of Axiall share-based awards, retention agreement costs and severance benefits provided to former Axiall employees in connection$106 with the Merger.
The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition. The allocationremainder of the purchase consideration transferredprimarily allocated to property, plant, and equipment, net and working capital balances. The goodwill is based on management's estimates, judgments and assumptions. When determining the fair values of assets acquired, liabilities assumed and noncontrolling interests of the acquiree, management made significant estimates, judgments and assumptions. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $942 was recorded.expected to be deductible for income tax purposes. The goodwill recognized is primarily attributable to synergies relatedthe expected value to be achieved from the acquisition synergies. The intangible assets that have been acquired are being amortized over a period of 17 to 18 years.
Dimex LLC.
On August 2, 2021, the Company, through a wholly-owned subsidiary, entered into a Stock Purchase Agreement with DX Acquisition Corp., a Delaware corporation ("Dimex"), each of Dimex's stockholders, and for limited purposes, the Company and Grey Mountain Partners Fund III Holdings, L.P., pursuant to which the Company agreed to acquire Dimex. Dimex is a producer of various consumer products made from post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic elastomer materials, including landscape edging; industrial, home and office matting; marine dock edging; and masonry joint controls. On September 10, 2021, the Company completed its acquisition of, and acquired all of the equity interests in, Dimex (the "Dimex Acquisition" and, together with the Boral Acquisition and the LASCO Acquisition, the "2021 Acquisitions"). The total closing purchase consideration was $172. The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of Dimex are included in the Housing and Infrastructure Products segment. Dimex net sales and net income since the acquisition date and the acquisition-related costs recognized in the consolidated statement of operations for the year ended December 31, 2021 were not material to the Company's vinyls integration strategy that are expected to arise from the Merger. Allconsolidated statement of the goodwilloperations. The pro forma impact of this acquisition has not been presented as it is assignednot material to the Company's Vinyls segment. As a portionconsolidated statements of operations for the years ended December 31, 2021 and 2020. The Company recognized intangible assets of $69, of which $45 is included in customer relationships, net on the Company's consolidated balance sheets as of December 31, 2021, and goodwill of $66, most of which will not be deductible for income tax purposes, with the remainder of the purchase consideration primarily allocated to property, plant, and equipment, net and working capital balances. The goodwill arisingis primarily attributable to the expected value to be achieved from the Merger is attributableacquisition synergies. The intangible assets that have been acquired are being amortized over a period of 17 to foreign19 years.
Hexion Epoxy Business.
On November 24, 2021, the Company, through a wholly-owned subsidiary, entered into a Stock Purchase Agreement (the "Hexion Purchase Agreement") by and among Hexion Inc. ("Hexion"), an Ohio corporation, and solely for the limited purposes set forth therein, the Company. Pursuant to the terms of the Hexion Purchase Agreement, the Company agreed to acquire Hexion's global epoxy business for a purchase price of approximately $1,200 in cash, subject to certain closing date adjustments as set forth in the Hexion Purchase Agreement (the "Hexion Acquisition"). On February 1, 2022, the Company completed the acquisition of, and acquired all of the equity interests in, the Hexion Acquisition. The assets acquired and liabilities assumed and the results of operations thereof Hexion's global epoxy business will be a continuing foreign currency impact to goodwillincluded in the consolidatedPerformance and Essential Materials segment. Due to the recent closing of this acquisition, certain financial statements.information related to this acquisition, including the fair value of total consideration transferred or estimated to be transferred, is not yet finalized.
|
| | | | |
| | | Final Purchase Consideration as of August 31, 2016 |
| Closing stock purchase: | | |
| Offer per share | | $ | 33.00 |
|
| Multiplied by number of shares outstanding at acquisition (in thousands of shares) | | 67,277 |
|
| Fair value of Axiall shares outstanding purchased by the Company | | 2,220 |
|
| Plus: | | |
| Axiall debt repaid at acquisition | | 247 |
|
Seller's transaction costs paid by the Company (1) | | 48 |
|
| Total fair value of consideration transferred | | 2,515 |
|
| | | |
Fair value of Axiall share-based awards attributed to pre-combination service (2) | | 12 |
|
| Additional settlement value of shares acquired | | 13 |
|
| Purchase consideration | | 2,540 |
|
| | | |
Fair value of previously held equity interest in Axiall (3) | | 102 |
|
| Total fair value allocated to net assets acquired | | $ | 2,642 |
|
| |
(1) | Transactions costs incurred by the seller included legal and advisory costs incurred for the benefit of Axiall's former shareholders and board of directors to evaluate the Company's initial Merger proposals, explore strategic alternatives and negotiate the purchase price. |
| |
(2) | The fair value of share-based awards attributable to pre-combination service includes the ratio of the pre-combination service performed to the original service period of the Axiall restricted share units and options, including related dividend equivalent rights. |
| |
(3) | Prior to the Merger, the Company owned 3.1 million shares in Axiall. The investment in Axiall was carried at estimated fair value with unrealized gains recorded as a component of accumulated other comprehensive loss in the consolidated balance sheet. The Company recognized a $49 gain for the investment in other income, net in the consolidated statements of operations upon gaining control. |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
The following table summarizes the purchase price allocation:
|
| | | | |
| | | Net Assets Acquired as of August 31, 2016 |
| Cash | | $ | 88 |
|
Accounts receivable (1) | | 422 |
|
| Income tax receivable | | 51 |
|
Inventories (2) | | 349 |
|
| Prepaid expenses and other current assets | | 56 |
|
Property, plant and equipment (2) | | 2,942 |
|
Customer relationships (weighted average lives of 9.8 years) (3) | | 670 |
|
| Other intangible assets: | |
|
| Trade name (weighted average lives of 6.8 years) | | 50 |
|
| Technology (weighted average lives of 5.4 years) | | 42 |
|
| Supply contracts and leases (weighted average lives of 6.3 years) | | 27 |
|
| Other assets | | 94 |
|
| Total assets acquired | | $ | 4,791 |
|
| Accounts and notes payable | | 254 |
|
| Interest payable | | 8 |
|
| Income tax payable | | 2 |
|
| Accrued compensation | | 44 |
|
| Accrued liabilities | | 154 |
|
Deferred income taxes (4) | | 958 |
|
| Tax reserve non-current | | 3 |
|
| Pension and other post-retirement obligations | | 311 |
|
| Other liabilities | | 102 |
|
| Long-term debt | | 1,187 |
|
| Total liabilities assumed | | $ | 3,023 |
|
| Total identifiable net assets acquired | | $ | 1,768 |
|
| Noncontrolling interest | | (68 | ) |
| Goodwill | | 942 |
|
| Total fair value allocated to net assets acquired | | $ | 2,642 |
|
| |
(1) | The fair value of accounts receivable acquired was $422, with the gross contractual amount being $435. The Company expects $13 to be uncollectible. |
| |
(2) | The Company obtained additional information related to its inventories and property, plant and equipment, which led to an increase in inventories of $43, a decrease in property plant and equipment of $193 and a corresponding increase in goodwill of $150 compared to the estimated fair values included in the 2016 Form 10-K. |
| |
(3) | The Company obtained additional information related to its customer relationship balances which led to an increase in customer relationships of $80 and a corresponding decrease in goodwill compared to the estimated fair values included in the 2016 Form 10-K. |
| |
(4) | Decreases in the estimated fair values of identified assets acquired led to a decrease in deferred income taxes of $27 compared to the estimated fair values included in the 2016 Form 10-K. |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
The acquired business contributed net sales and net loss of $976 and $96, respectively, to the Company for the period from August 31, 2016 to December 31, 2016. The net loss for the period from August 31, 2016 to December 31, 2016 included integration-related costs and the negative impact of selling higher cost Axiall inventory recorded at fair value. The following unaudited consolidated pro forma information presents consolidated pro forma information as if the Merger had occurred on January 1, 2015:
|
| | | | | | | | |
| | | Pro Forma |
| | | Year Ended December 31, |
| | | 2016 | | 2015 |
| Net sales | | $ | 7,081 |
| | $ | 7,793 |
|
| | | | | |
Net income (1) | | $ | 397 |
| | $ | 663 |
|
| Net income (loss) attributable to noncontrolling interest | | 23 |
| | (2 | ) |
Net income attributable to Westlake Chemical Corporation (1) | | $ | 374 |
| | $ | 665 |
|
| Earnings per common share attributable to Westlake Chemical Corporation: | | | | |
| Basic | | $ | 2.88 |
| | $ | 5.02 |
|
| Diluted | | $ | 2.86 |
| | $ | 5.00 |
|
| |
(1) | The 2016 pro forma net income amounts include Axiall's historical charges recorded during the eight-month period prior to the closing of the Merger for (1) divestitures; (2) restructuring; and (3) legal and settlement claims, net, of $27, $23 and $23, respectively. These amounts have not been eliminated for pro forma results because they do not relate to nonrecurring transaction-specific costs related to the Merger. |
The pro forma amounts above have been calculated after applying the Company's accounting policies and adjusting the Axiall results to reflect (1) the increase to depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2015; (2) the elimination of net sales and cost of sales between the Company and Axiall; (3) additional pension service costs; (4) amortization of debt premium and accretion of asset retirement obligations and environmental liabilities as part of the Company's adjustments to fair value; (5) incremental interest expense that would have been incurred assuming the financing arrangements entered into by the Company and the repayment of a portion of Axiall's outstanding debt had occurred on January 1, 2015; (6) the elimination of transaction-related costs; (7) the elimination of Axiall's goodwill impairment charges during 2015; and (8) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments relate. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Merger, are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the Merger had occurred as of January 1, 2015 or of future operating performance.
Suzhou Huasu Plastics Co., Ltd.
On June 1, 2015, the Company acquired an additional 35.7% equity interest in Suzhou Huasu Plastics Co., Ltd. ("Huasu") from INEOS Chlor Vinyls Holdings B.V., increasing its interest in Huasu to 95%. Huasu is a PVC joint venture based near Shanghai, in the People's Republic of China and has a combined annual capacity of approximately 300 million pounds of PVC resin and 145 million pounds of PVC film and sheet.
Prior to the acquisition of this 35.7% interest, the Company owned a 59.3% interest in Huasu. The Company accounted for the investment using the equity method of accounting because Huasu did not meet the definition of a variable interest entity and because contractual arrangements giving certain substantive participatory rights to minority shareholders prevented the Company from exercising a controlling financial interest over Huasu. As a result of the Company obtaining control over Huasu, the Company's 59.3% interest was remeasured to fair value, resulting in a loss of $2, which is included in other income, net in the consolidated statement of operations for the year ended December 31, 2015.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
The closing date purchase price of $6 was paid with available cash on hand. The acquisition was accounted for under the acquisition method of accounting. The transaction resulted in a bargain purchase acquisition-date gain of $23 and is recognized in other income, net in the consolidated statement of operations for the year ended December 31, 2015. The Company believes there are several factors that contributed to this transaction resulting in a bargain purchase acquisition-date gain, including the slowdown in the growth of, and current weakness in, the Chinese economy. The assets acquired and liabilities assumed and the results of operations of this acquired business are included in the Vinyls segment.
3. Financial Instruments
Cash Equivalents
The Company had $644 and $0 of held-to-maturity securities with original maturities of three months or less, primarily consisting of corporate debt securities, classified as cash equivalents at December 31, 2017 and 2016, respectively. The Company's investments in held-to-maturity securities were held at amortized cost, which approximates fair value.
Restricted Cash and Cash Equivalents
The Company had restricted cash and cash equivalents of $23$33 and $24 at December 31, 2017, which was2021 and 2020, respectively. The Company's restricted cash and cash equivalents are primarily related to balances that are restricted for payment of distributions to certain of the Company's current and former employees. The Company had restricted cashemployees and cash equivalents of $186 at December 31, 2016, which wasare reflected primarily related to the balances deposited with and held as security by the lender under the Company's prior term loan facility and for distributions to certain of the Company's current and former employees. The current portion of restricted cash and cash equivalents was $1 and $161 at December 31, 2017 and 2016, respectively. The non-current portion of restricted cash and cash equivalents was $22 and $25 at December 31, 2017 and 2016, respectively, and is reflected underin other assets, net in the consolidated balance sheets.
Available-for-Sale Marketable Securities
The Company had no available-for-sale securities at December 31, 2017 and 2016. The proceeds from sales and maturities of available-for-sale securities included in the consolidated statements of cash flows and the gross realized gains included in the consolidated statements of operations are reflected in the table below. No gross realized losses were realized during these periods. The cost of securities sold was determined using the specific identification method.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Proceeds from sales and maturities of securities | | $ | — |
| | $ | 663 |
| | $ | 49 |
|
| Gross realized gains | | — |
| | 54 |
| | 4 |
|
4. Accounts Receivable
Accounts receivable consist of the following at December 31:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Trade customers | | $ | 1,764 | | | $ | 1,086 | |
| Related parties | | 3 | | | 9 | |
| Allowance for credit losses | | (26) | | | (17) | |
| | 1,741 | | | 1,078 | |
| Federal and state taxes | | 62 | | | 92 | |
| Other | | 65 | | | 44 | |
| Accounts receivable, net | | $ | 1,868 | | | $ | 1,214 | |
5. Inventories
Inventories consist of the following at December 31:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Finished products | | $ | 842 | | | $ | 524 | |
| Feedstock, additives, chemicals and other raw materials | | 374 | | | 227 | |
| Materials and supplies | | 191 | | | 167 | |
| Inventories | | $ | 1,407 | | | $ | 918 | |
6. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Land | | $ | 284 | | | $ | 207 | |
| Buildings and improvements | | 818 | | | 652 | |
| Plant and equipment | | 9,355 | | | 8,687 | |
| Other | | 629 | | | 557 | |
| | 11,086 | | | 10,103 | |
| Less: Accumulated depreciation | | (4,134) | | | (3,710) | |
| | 6,952 | | | 6,393 | |
| Construction in progress | | 654 | | | 527 | |
| Property, plant and equipment, net | | $ | 7,606 | | | $ | 6,920 | |
Depreciation expense on property, plant and equipment of $604, $558 and $519 is included primarily in cost of sales in the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019, respectively.
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Trade customers | | $ | 974 |
| | $ | 820 |
|
| Affiliates | | 9 |
| | 8 |
|
| Allowance for doubtful accounts | | (22 | ) | | (18 | ) |
| | | 961 |
| | 810 |
|
| Federal and state taxes | | 7 |
| | 90 |
|
| Other | | 33 |
| | 39 |
|
| Accounts receivable, net | | $ | 1,001 |
| | $ | 939 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
7. Leases
5. InventoriesLease-related asset and liability balances were as follows:
Inventories consist | | | | | | | | | | | | | | |
| | December 31,
2021 | | December 31,
2020 |
| Operating Leases | | | | |
| Right-of-use assets | | $ | 562 | | | $ | 461 | |
| | | | |
| Accrued and other liabilities | | $ | 106 | | | $ | 89 | |
| Operating lease liabilities | | 461 | | | 376 | |
| Total operating lease liabilities | | $ | 567 | | | $ | 465 | |
| | | | |
| Weighted Average Remaining Term (in years) | | 9 | | 8 |
| Weighted Average Lease Discount Rate | | 2.7 | % | | 3.1 | % |
The Company's operating lease cost is comprised of payments related to operating leases recorded in the following at December 31:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Finished products | | $ | 549 |
| | $ | 501 |
|
| Feedstock, additives and chemicals | | 221 |
| | 217 |
|
| Materials and supplies | | 130 |
| | 83 |
|
| Inventories | | $ | 900 |
| | $ | 801 |
|
6. Property, Plantconsolidated balance sheet and Equipment
Property, plant and equipment consist ofshort-term rental payments for leases that are not recorded in the following at December 31:
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Land | | $ | 198 |
| | $ | 194 |
|
| Buildings and improvements | | 495 |
| | 465 |
|
| Plant and equipment | | 7,281 |
| | 6,914 |
|
| Other | | 388 |
| | 377 |
|
| | | 8,362 |
| | 7,950 |
|
| Less: Accumulated depreciation | | (2,338 | ) | | (1,919 | ) |
| | | 6,024 |
| | 6,031 |
|
| Construction in progress | | 388 |
| | 389 |
|
| Property, plant and equipment, net | | $ | 6,412 |
| | $ | 6,420 |
|
Depreciation expense on property, plant and equipment of $449, $305 and $209 is included inconsolidated balance sheet. Variable operating lease cost of sales inwas not material to the consolidated statements of operations for the years ended December 31, 2017, 20162021 and 2015,2020. The components of operating lease expense were as follows:
| | | | | | | | | | | | | | |
| | December 31,
2021 | | December 31,
2020 |
Operating lease cost (1) | | $ | 117 | | | $ | 117 | |
| Short-term lease cost | | 85 | | | 70 | |
| Total operating lease cost | | $ | 202 | | | $ | 187 | |
_____________________________
(1)Includes fixed lease payments for operating leases recorded in the consolidated balance sheet.
Maturities of lease liabilities were as follows at December 31, 2021:
| | | | | | | | |
| | Operating Leases |
| 2022 | | $ | 119 | |
| 2023 | | 103 | |
| 2024 | | 83 | |
| 2025 | | 63 | |
| 2026 | | 52 | |
| Thereafter | | 252 | |
| Total lease payments | | 672 | |
| Less: imputed interest | | (105) | |
| Present value of lease liabilities | | $ | 567 | |
Related Party Leases
The Company leases certain assets under operating leases with related parties. Right-of-use assets and the associated operating lease liabilities for related party operating leases were approximately $33 and $41 as of December 31, 2021 and December 31, 2020, respectively. The Company recognized operating lease cost for fixed lease payments to related parties of $11 and $12 for the years ended December 31, 2021 and 2020, respectively.
7.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
8. Goodwill Intangibles and Other Intangible Assets
Goodwill
The following table summarizes gross carrying amounts and changes in the carrying amount of goodwill for the years ended December 31, 20172021 and 2016 are2020. The Company reorganized its operating segments during the fourth quarter of 2021. Prior year information has been updated to conform with the current year presentation for changes in operating segments discussed in Notes 1 and 23.
| | | | | | | | | | | | | | | | | | | | |
| | Performance and Essential Materials Segment | | Housing and Infrastructure Products Segment | | Total |
| Balance at December 31, 2019 | | $ | 898 | | | $ | 176 | | | $ | 1,074 | |
| | | | | | |
| Effects of changes in foreign exchange rates | | 3 | | | 6 | | | 9 | |
| Balance at December 31, 2020 | | 901 | | | 182 | | | 1,083 | |
| | | | | | |
| Goodwill acquired during the year | | — | | | 943 | | | 943 | |
| | | | | | |
| Effects of changes in foreign exchange rates | | 1 | | | (3) | | | (2) | |
| Balance at December 31, 2021 | | $ | 902 | | | $ | 1,122 | | | $ | 2,024 | |
As part of the reorganization of operating segments, the Company assessed and re-defined reporting units effective as follows:
|
| | | | | | | | | | | | |
| | | Olefins Segment | | Vinyls Segment | | Total |
| Balance at December 31, 2015 | | $ | 30 |
| | $ | 32 |
| | $ | 62 |
|
| Goodwill acquired during the year | | — |
| | 888 |
| | 888 |
|
| Effects of changes in foreign exchange rates | | — |
| | (3 | ) | | (3 | ) |
| Balance at December 31, 2016 | | 30 |
| | 917 |
| | 947 |
|
| Measurement period adjustment | | — |
| | 55 |
| | 55 |
|
| Effects of changes in foreign exchange rates | | — |
| | 10 |
| | 10 |
|
| Balance at December 31, 2017 | | $ | 30 |
| | $ | 982 |
| | $ | 1,012 |
|
Olefins Segmentof the beginning of the fourth quarter of 2021, including reallocation of goodwill on a relative fair value basis as applicable to affected reporting units. Goodwill
impairment analyses were performed as of the effective reorganization date both before and after the reorganization. The fair valuevalues of the Olefins segment, the reporting unit assessed during October 2017, was calculatedunits were determined using both a discounted cash flow methodology and a market value methodology. Based upon this assessment, the Company determined that it was more likely than not that the fair value of the reporting units exceeds its carrying value both prior to the reorganization and after the reorganization.
The discounted cash flow projections were based on a nine-yearlong-term forecast from 2018 to 2026, to reflect the cyclicality of the Company's Olefins business.businesses. The forecast was based on prices and spreads projected by IHS Markit ("IHS"), a chemical industry organization offering market and business advisory services for the chemical market, historical results and estimates by management, including its strategic and operational plans. Other significant assumptions used in the discounted cash flow projection included sales volumes based on production capacities. The future cash flows were discounted to present value using a discount rate of 8%. The significant assumptions used in determining the fair values of the reporting units using the market value methodology included the determination of appropriate market comparables and the estimated multiples of EBITDA a willing buyer was likely to pay.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Vinyls Segment Goodwill
Due to the Merger, the Company reorganized the reporting units of the Vinyls segment during 2017. Goodwill was reassigned based on a relative fair value approach. The fair values of the North America, Europe, Taiwan and China reporting units assessed during the April 2017 impairment test were calculated using both a discounted cash flow methodology and a market value methodology.
The discounted cash flow projections were based on a nine-year forecast, from 2018 to 2026 to reflect the cyclicality of the housing and construction markets as the Company's Vinyls businesses are significantly influenced by those markets. The forecast was based on prices and spreads projected by IHS, historical results and estimates by management, including its strategic and operational plans. Other significant assumptions used in the discounted cash flow projection included sales volumes based on production capacities. The future cash flows were discounted to present value using a discount rate ranging from 9%8.8% to 12%10.8%. The significant assumptions used in determining the fair values of the reporting units using the market value methodology include the determination of appropriate market comparables and the estimated multiples of EBITDAnet income before interest expense, income taxes, depreciation and amortization ("EBITDA") a willing buyer is likely to pay.
Prior to the reorganization of the operating segments, the Company performed its annual impairment analysis for the legacy Vinyls segment reporting units during the second quarter of 2021, and determined that it was more likely than not that the fair value of each of the Vinyls segment reporting units exceeds its carrying value.
Intangible Assets
Intangible assets consisted of the following at December 31:
| | | | | 2017 | | 2016 | | Weighted Average Life | | 2021 | | 2020 | | Weighted
Average
Life |
| | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net | | | Cost | | Accumulated
Amortization | | Net | | Cost | | Accumulated
Amortization | | Net | |
| Customer relationships | | $ | 754 |
| | $ | (138 | ) | | $ | 616 |
| | $ | 662 |
| | $ | (51 | ) | | $ | 611 |
| | 10 | Customer relationships | | $ | 1,581 | | | $ | (498) | | | $ | 1,083 | | | $ | 845 | | | $ | (401) | | | $ | 444 | | | 15 |
| Other intangible assets: | | | | | | | | | | | | | | Other intangible assets: | | | | | | | | | | | | | |
Licenses and intellectual property | | 124 |
| | (55 | ) | | 69 |
| | 121 |
| | (44 | ) | | 77 |
| | 13 | Licenses and intellectual property | | 311 | | | (109) | | | 202 | | | 178 | | | (94) | | | 84 | | | 16 |
| Trademarks | | 93 |
| | (17 | ) | | 76 |
| | 88 |
| | (7 | ) | | 81 |
| | 13 | |
| Trade name | | Trade name | | 342 | | | (63) | | | 279 | | | 125 | | | (50) | | | 75 | | | 17 |
| Other | | 31 |
| | (15 | ) | | 16 |
| | 31 |
| | (13 | ) | | 18 |
| | 12 | Other | | 34 | | | (18) | | | 16 | | | 35 | | | (26) | | | 9 | | | 13 |
Total other intangible assets | | $ | 248 |
| | $ | (87 | ) | | $ | 161 |
| | $ | 240 |
| | $ | (64 | ) | | $ | 176 |
| | Total other intangible assets | | $ | 687 | | | $ | (190) | | | $ | 497 | | | $ | 338 | | | $ | (170) | | | $ | 168 | | |
Scheduled amortization of intangible assets for the next five years is as follows: $167, $115, $110, $107 $106, $105, $103 and $81$98 in 2018, 2019, 2020, 20212022, 2023, 2024, 2025 and 2022,2026, respectively.
Other assets, net include net turnaround costs, cost-method investments, equity-method investments, restricted cash and deferred charges.
8. Term Loan
On August 10, 2016, an indirect subsidiary of the Company, Westlake International Holdings II C.V., a limited partnership organized under the laws of the Netherlands (the "CV Borrower"), entered into a credit agreement with Bank of America, N.A., as agent and lender, providing the CV Borrower with a $150 term loan facility. The term loan facility had a scheduled maturity date of March 31, 2017. The term loan was fully repaid in January 2017. The loans thereunder bore interest at a floating interest rate equal to LIBOR plus 2% per annum, payable in arrears on the last day of each three-month period following the date of funding and at maturity.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
9. Equity Method Investments
9.LACC, LLC Joint Venture
In 2015, Eagle US 2 LLC ("Eagle"), a wholly-owned subsidiary of the Company, and Lotte Chemical USA Corporation, a subsidiary of Lotte Chemical Corporation ("Lotte"), formed a joint venture, LACC, LLC ("LACC"), to design, build and operate an ethylene facility with 2.2 billion pounds per year of ethylene production capacity. Pursuant to a contribution and subscription agreement between Eagle and LACC, Eagle contributed $225 to LACC to fund construction costs of the ethylene plant, representing approximately 12% of the membership interests in LACC.
On November 12, 2019, the Company, through Eagle, completed the acquisition of an additional 34.8% of the membership interests in LACC from Lotte for approximately $817. In January 2022, the Company notified Lotte of its exercise of an option to acquire an additional 3.2% of the membership interests in LACC from Lotte for approximately $90. As of December 31, 2021, the Company's investment exceeded the underlying equity in net assets by approximately $166 which was assigned to goodwill and not amortized.
The ethylene plant was built adjacent to the Company's chlor-alkali facility in Lake Charles. During the third quarter of 2019, the ethylene plant began commercial operations.
The Company accounts for its investment in LACC under the equity method of accounting. The LACC joint venture is a cost-sharing arrangement between the members of LACC. The members of LACC receive their proportionate shares of ethylene offtake each month and fund cash operating costs, excluding depreciation and amortization. As a result, LACC recognizes net losses equal to depreciation and amortization each period. The Company's equity in losses from LACC, which is equal to its share of depreciation and amortization expenses, is recognized in cost of sales in the consolidated statements of operations. The Company's investment in LACC is recorded as a component of equity method investments in the consolidated balance sheets. The Company's capital contributions to fund its share of capital expenditures are classified within investing activities in the consolidated statements of cash flows.
The Company's ethylene offtake from LACC was approximately 909 million and 787 million pounds during the years ended December 31, 2021 and 2020, respectively.
Changes in the Company's investment in LACC for the years ended December 31, 2021 and 2020 were as follows:
| | | | | | | | |
| | Investment in LACC |
| Balance at December 31, 2019 | | $ | 1,038 | |
| Cash contributions | | 4 | |
| | |
| Depreciation and amortization | | (37) | |
| Return of investment | | (44) | |
| Balance at December 31, 2020 | | 961 | |
| Cash contributions | | 22 | |
| | |
| Depreciation and amortization | | (40) | |
| | |
| Balance at December 31, 2021 | | $ | 943 | |
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Services Provided to LACC and Lotte
The Company provides certain utilities and other services to LACC and Lotte. Pursuant to a construction and reimbursement agreement, LACC and Lotte agreed to reimburse the Company for construction costs over a 6.5-year period beginning in 2020. In addition to the reimbursements for construction costs, the Company charges LACC and Lotte certain fixed fees under an operating, maintenance and logistics agreement. The Company accounts for the reimbursement of construction costs and the fixed fees as components of the total transaction price and recognizes it ratably in net sales over approximately 25 years. The remaining performance obligations at December 31, 2021, representing these fixed components of the transaction price, totaled $55 and $76 from LACC and Lotte, respectively. The associated contract liabilities recorded from LACC and Lotte totaled $14 and $18 as of December 31, 2021, respectively, and $10 and $12 as of December 31, 2020, respectively. In addition to the reimbursements for construction costs and other fixed fees, the Company charges LACC and Lotte certain variable fees.
Other Equity Method Investments
In addition to LACC, the Company has other equity method investments amounting to $64 and $98 as of December 31, 2021 and 2020, respectively. See Note 20 for more detailed information.
10. Accounts Payable
Accounts payable consist of the following:
| | | | | | | | | | | | | | |
| | December 31,
2021 | | December 31,
2020 |
| Accounts payable—third parties | | $ | 849 | | | $ | 529 | |
| Accounts payable to related parties | | 15 | | | — | |
| Notes payable | | 15 | | | 7 | |
| Accounts payable | | $ | 879 | | | $ | 536 | |
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
11. Long-Term Debt
Long-term debt consisted of the following at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Net Long-Term Debt | | Principal Amount | | Unamortized Discount and Debt Issuance Costs | | Net Long-Term Debt |
| 3.60% senior notes due 2022 (the "3.60% 2022 Senior Notes") | | $ | 250 | | | $ | — | | | $ | 250 | | | $ | 250 | | | $ | (1) | | | $ | 249 | |
| 0.875% senior notes due 2024 (the "0.875% 2024 Senior Notes") | | 300 | | | (2) | | | 298 | | | — | | | — | | | — | |
| 3.60% senior notes due 2026 (the "3.60% 2026 Senior Notes") | | 750 | | | (5) | | | 745 | | | 750 | | | (6) | | | 744 | |
| Loan related to tax-exempt waste disposal revenue bonds due 2027 | | 11 | | | — | | | 11 | | | 11 | | | — | | | 11 | |
| 1.625% senior notes due 2029 (the "1.625% 2029 Senior Notes") | | 794 | | | (8) | | | 786 | | | 859 | | | (10) | | | 849 | |
| 3.375% senior notes due 2030 (the "3.375% 2030 Senior Notes") | | 300 | | | (4) | | | 296 | | | 300 | | | (4) | | | 296 | |
| 3.50% senior notes due 2032 (the "3.50% 2032 GO Zone Refunding Senior Notes") | | 250 | | | (1) | | | 249 | | | 250 | | | (1) | | | 249 | |
| 2.875% senior notes due 2041 (the "2.875% 2041 Senior Notes") | | 350 | | | (11) | | | 339 | | | — | | | — | | | — | |
| 5.0% senior notes due 2046 (the "5.0% 2046 Senior Notes") | | 700 | | | (22) | | | 678 | | | 700 | | | (23) | | | 677 | |
| 4.375% senior notes due 2047 (the "4.375% 2047 Senior Notes") | | 500 | | | (8) | | | 492 | | | 500 | | | (9) | | | 491 | |
| 3.125% senior notes due 2051 (the "3.125% 2051 Senior Notes") | | 600 | | | (23) | | | 577 | | | — | | | — | | | — | |
| 3.375% senior notes due 2061 (the "3.375% 2061 Senior Notes") | | 450 | | | (19) | | | 431 | | | — | | | — | | | — | |
| 8.73% RS Cogen debt due 2022 (the "8.73% 2022 RS Cogen Debt") | | 19 | | | — | | | 19 | | | — | | | — | | | — | |
| Term loan 2026 (the "2026 Term Loan") | | 9 | | | — | | | 9 | | | — | | | — | | | — | |
| Total long-term debt | | 5,283 | | | (103) | | | $ | 5,180 | | | 3,620 | | | (54) | | | 3,566 | |
| Less current portion: | | | | | | | | | | | | |
| 3.60% 2022 Senior Notes | | (250) | | | — | | | (250) | | | — | | | — | | | — | |
| 8.73% 2022 RS Cogen Debt | | (19) | | | — | | | (19) | | | — | | | — | | | — | |
| Long-term debt, net of current portion | | $ | 5,014 | | | $ | (103) | | | $ | 4,911 | | | $ | 3,620 | | | $ | (54) | | | $ | 3,566 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| | | Principal Amount | | Unamortized Premium, Discount and Debt Issuance Costs | | Net Long-Term Debt | | Principal Amount | | Unamortized Premium, Discount and Debt Issuance Costs | | Net Long-Term Debt |
| Revolving credit facility | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 325 |
| | $ | — |
| | $ | 325 |
|
4.625% senior notes due 2021 (the "4.625% Westlake 2021 Senior Notes") | | 625 |
| | 20 |
| | 645 |
| | 625 |
| | 27 |
| | 652 |
|
4.625% senior notes due 2021 (the "4.625% Subsidiary 2021 Senior Notes") | | 63 |
| | 2 |
| | 65 |
| | 63 |
| | 3 |
| | 66 |
|
3.60% senior notes due 2022 (the "3.60% 2022 Senior Notes") | | 250 |
| | (1 | ) | | 249 |
| | 250 |
| | (2 | ) | | 248 |
|
4.875% senior notes due 2023 (the "4.875% Westlake 2023 Senior Notes") | | 434 |
| | 11 |
| | 445 |
| | 434 |
| | 13 |
| | 447 |
|
4.875% senior notes due 2023 (the "4.875% Subsidiary 2023 Senior Notes") | | 16 |
| | — |
| | 16 |
| | 16 |
| | 1 |
| | 17 |
|
3.60% senior notes due 2026 (the "3.60% 2026 Senior Notes") | | 750 |
| | (10 | ) | | 740 |
| | 750 |
| | (11 | ) | | 739 |
|
Loan related to tax-exempt waste disposal revenue bonds due 2027 | | 11 |
| | — |
| | 11 |
| | 11 |
| | — |
| | 11 |
|
6 ½% senior notes due 2029 (the "6 ½% 2029 GO Zone Senior Notes") | | 100 |
| | (1 | ) | | 99 |
| | 100 |
| | (1 | ) | | 99 |
|
6 ¾% senior notes due 2032 (the "6 ¾% 2032 GO Zone Senior Notes") | | — |
| | — |
| | — |
| | 250 |
| | (2 | ) | | 248 |
|
6 ½% senior notes due 2035 (the "6 ½%
2035 GO Zone Senior Notes") | | 89 |
| | (1 | ) | | 88 |
| | 89 |
| | (1 | ) | | 88 |
|
6 ½% senior notes due 2035 (the "6 ½%
2035 IKE Zone Senior Notes") | | 65 |
| | — |
| | 65 |
| | 65 |
| | — |
| | 65 |
|
5.0% senior notes due 2046 (the "5.0% 2046 Senior Notes") | | 700 |
| | (25 | ) | | 675 |
| | 700 |
| | (26 | ) | | 674 |
|
4.375% senior notes due 2047 (the "4.375% 2047 Senior Notes") | | 500 |
| | (9 | ) | | 491 |
| | — |
| | — |
| | — |
|
3.50% senior notes due 2032 (the "3.50% 2032 Go Zone Refunding Senior Notes") | | 250 |
| | (2 | ) | | 248 |
| | — |
| | — |
| | — |
|
| Total long-term debt | | 3,853 |
| | (16 | ) | | 3,837 |
| | 3,678 |
| | 1 |
| | 3,679 |
|
Less: Current portion - 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes | | 688 |
| | 22 |
| | 710 |
| | — |
| | — |
| | — |
|
| Long-Term Debt, net of current portion | | $ | 3,165 |
| | $ | (38 | ) | | $ | 3,127 |
| | $ | 3,678 |
| | $ | 1 |
| | $ | 3,679 |
|
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Credit Agreement
TheOn July 24, 2018, the Company hasentered into a new $1,000 revolving credit facility that maturesis scheduled to mature on July 24, 2023 (the "Credit Agreement") and, in connection therewith, terminated the previous $1,000 revolving credit facility that was scheduled to mature on August 23, 2021.2021 (the "Prior Credit Agreement"). The Credit Agreement bears interest at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75%, in each case depending on the credit rating of the Company. As ofAt December 31, 2017,2021, the Company had no borrowings outstanding under the Credit Agreement. As of December 31, 2017,2021, the Company had no outstanding letters of credit totaling $6 and had $1,000 of borrowing availability of $994 under the Credit Agreement. The obligations of the Company under the Credit
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Agreement are guaranteed by current and future material domestic subsidiaries of the Company, subject to certain exceptions. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of December 31, 2021, the Company was in compliance with the total leverage ratio financial maintenance covenant. The Credit Agreement also contains certain events of default and if and for so long as an eventcertain events of default hashave occurred and isare continuing, any overdue amounts outstanding under the Credit Agreement will accrue interest at an increased rate, the Lenderslenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the Lenders. Aslenders.
The Credit Agreement includes a $150 sub-limit for letters of December 31, 2017,credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50 commitment for swingline loans to be provided on a same-day basis. The Company may also increase the size of the facility, in increments of at least $25, up to a maximum of $500, subject to certain conditions and if certain lenders agree to commit to such an increase.
3.60% Senior Notes due 2022
In July 2012, the Company issued $250 aggregate principal amount of the 3.60% 2022 Senior Notes. The 3.60% 2022 Senior Notes are unsecured and were issued with an original issue discount of $1. There is no sinking fund and no scheduled amortization of the 3.60% 2022 Senior Notes prior to maturity. The Company may optionally redeem the 3.60% 2022 Senior Notes in complianceaccordance with the total leverage ratio financial maintenance covenant.terms of the 3.60% 2022 Senior Notes.
0.875% Senior Notes due 2024
In August 2021, the Company completed the registered public offering of $300 aggregate principal amount of the 0.875% 2024 Senior Notes. The Company may optionally redeem the 0.875% 2024 Senior Notes at any time and from time to time on or after August 15, 2022 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 0.875% 2024 Senior Notes may require us to repurchase the 0.875% 2024 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 0.875% 2024 Senior Notes).
3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, the Company issued $750 aggregate principal amount of the 3.60% 2026 Senior Notes and $700 aggregate principal amount of the 5.0% 2046 Senior Notes. In March 2017, the Company commenced registered exchange offers to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for new notes that are identical in all material respects to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes, except that the offer and issuance of the new Securities and Exchange Commission ("SEC")-registeredCommission-registered notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The exchange offers expired on April 24, 2017, and approximately 99.97% of the 3.60% 2026 Senior Notes and 100% of the 5.0% 2046 Senior Notes were exchanged. The 3.60% 2026 Senior Notes that were not exchanged in the 3.60% 2026 Senior Notes exchange offer have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities law.
4.625% Senior Notes due 2021 and 4.875% Senior Notes due 2023
In September 2016, the Company issued $625 aggregate principal amount of the 4.625% Westlake 2021 Senior Notes and $434 aggregate principal amount of the 4.875% Westlake 2023 Senior Notes upon the closing of the Company's offers to exchange any and all of the $688 aggregate principal amount of the outstanding 4.625% senior notes due 2021 issued by Eagle Spinco Inc., a wholly-owned subsidiary of Axiall ("Eagle Spinco"), and the $450 aggregate principal amount of the outstanding 4.875% senior notes due 2023 issued by Axiall. In the exchange offers, $625 aggregate principal amount of the 4.625% Westlake 2021 Senior Notes and $434 aggregate principal amount of the 4.875% Westlake 2023 Senior Notes were issued by the Company, leaving outstanding $63 aggregate principal amount of the 4.625% Subsidiary 2021 Senior Notes and $16 aggregate principal amount of the 4.875% Subsidiary 2023 Senior Notes. In March 2017, the Company commenced registered exchange offers to exchange the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes for new SEC-registered notes that are identical in all material respects to the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes, except that the offer and issuance of the new notes have been registered under the Securities Act. The exchange offers expired on April 24, 2017, and 100% of both the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes were exchanged.
In December 2017, the Company delivered irrevocable notices for the optional redemption of all of the outstanding 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes (collectively, the "2021 Notes"). The 2021 Notes were redeemed on February 15, 2018 at a redemption price equal to 102.313% of the principal amount of the 2021 Notes plus accrued and unpaid interest on the 2021 Notes to the redemption date. The 2021 Notes were classified as a component of current liabilities in the consolidated balance sheet at December 31, 2017, based on the terms of the redemption.
3.60% Senior Notes due 2022
In July 2012, the Company issued $250 aggregate principal amount of the 3.60% 2022 Senior Notes. The 3.60% 2022 Senior Notes are unsecured and were issued with an original issue discount of $1. There is no sinking fund and no scheduled amortization of the 3.60% 2022 Senior Notes prior to maturity. The Company may optionally redeem the 3.60% 2022 Senior Notes in accordance with the terms of the 3.60% 2022 Senior Notes. All of the Company's domestic subsidiaries that guarantee other indebtedness of the Company or of another guarantor of the 3.60% 2022 Senior Notes in excess of $5 are guarantors of the 3.60% 2022 Senior Notes.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
4.375% Senior Notes due 2047
In November 2017, the Company completed the registered public offering of $500 aggregate principal amount of the 4.375% 2047 Senior Notes. The 4.375% 2047 Senior Notes are unsecured and mature on November 15, 2047. There is no sinking fund and no scheduled amortization of the 4.375% 2047 Senior Notes prior to maturity. The Company may optionally redeem the 4.375% 2047 Senior Notes in accordance with the terms of the 4.375% 2047 Senior Notes. All of the Company's domestic subsidiaries that guarantee other indebtedness of the Company or another guarantor or the 4.375% 2047 Senior Notes in excess of $40 are guarantors of the 4.375% 2047 Senior Notes.
The indenture governing the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, the 4.625% Westlake 2021 Senior Notes, the 4.875% Westlake 2023 Senior Notes, 3.60% 2022 Senior Notes and 4.375% 2047 Senior Notes contains customary events of default and covenants that will restrict the Company and certain of the Company's subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of its assets.
IKE Zone Bonds
In December 2010, the Louisiana Local Government Authority Environmental Facilities and Community Development Authority (the "Authority"), a political subdivision of the State of Louisiana, completed the offering of $65 of 6 ½% tax-exempt revenue bonds due November 1, 2035 (the "6 ½% 2035 IKE Zone Senior Notes") under Section 704 of the Emergency Economic Stabilization Act of 2008 (the "IKE Zone Act").
GO Zone Bonds
In December 2010, the Authority issued $89 of 6 ½% tax-exempt revenue bonds due November 1, 2035 under the Gulf Opportunity Zone Act of 2005 (the "GO Zone Act") (the "6 ½% 2035 GO Zone Bonds"). In connection with the issuance of the 6 ½% 2035 GO Zone Bonds, the Company issued $89 of the 6 ½% 2035 GO Zone Senior Notes. In July 2010, the Authority completed the reoffering of $100 of 6 ½% tax-exempt revenue bonds due August 1, 2029 under the GO Zone Act (the "6 ½% 2029 GO Zone Bonds"). In connection with the reoffering of the 6 ½% 2029 GO Zone Bonds, the Company issued $100 of the 6 ½% 2029 GO Zone Senior Notes. In December 2007, the Authority issued $250 of 6 ¾% tax-exempt revenue bonds due November 1, 2032 under the GO Zone Act (the "6 ¾% 2032 GO Zone Bonds"). In connection with the issuance of the 6 ¾% 2032 GO Zone Bonds, the Company issued $250 of the 6 ¾% 2032 GO Zone Senior Notes.
Each series of the tax-exempt bonds is subject to redemption and the holders may require the bonds to be repurchased upon a change of control or a change in or loss of the current tax status of the bonds. In addition, the bonds are subject to optional redemption by the Authority upon the direction of the Company if certain events have occurred in connection with the operation of the projects for which the bond proceeds may be used, including if the Company has determined that the continued operation of any material portion of the projects would be impracticable, uneconomical or undesirable for any reason.
In September 2017, the Company directed the Authority to optionally redeem in full the $250 aggregate principal amount of the 6 ¾% 2032 GO Zone Bonds on November 1, 2017. In connection with the redemption of the 6 ¾% 2032 GO Zone Bonds, the Authority was required to cause the GO Zone Bonds trustee to surrender the 6 ¾% 2032 GO Zone Senior Notes to the Senior Notes trustee for cancellation. The 6 ¾% 2032 GO Zone Bonds were redeemed and the 6 ¾% 2032 GO Zone Senior Notes were cancelled on November 1, 2017.
In November 2017, the Authority completed the remarketing of $250 aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032 (the "3.50% 2032 GO Zone Bonds"). In connection with the remarketing of the 3.50% 2032 GO Zone Bonds, the Company issued $250 of the 3.50% 2032 Senior Notes. The 3.50% 2032 GO Zone Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2027, for 100% of the principal amount plus accrued interest. The indenture governing the 3.50% 2032 Senior Notes contains customary events of default and covenants that will restrict the Company and certain of the Company's subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all of substantially all of its assets.
In connection with each offering of the tax-exempt bonds, the Company entered into a loan agreement with the Authority pursuant to which the Company agreed to pay all of the principal, premium, if any, and interest on the bonds and certain other amounts to the Authority. The net proceeds from the offerings were loaned by the Authority to the Company. The Company used the proceeds to expand, refurbish and maintain certain of its facilities in the Louisiana Parishes of Calcasieu and Ascension. The bonds are unsecured and rank equally in right of payment with other existing and future unsecured senior
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
indebtedness. All domestic restricted subsidiaries that guarantee other debt of the Company or of another guarantor of the 6 ½% 2029 GO Zone Senior Notes, the 3.50% 2032 Senior Notes and the 6 ½% 2035 GO Zone Senior Notes (collectively, the "GO Zone Senior Notes") and the 6 ½% 2035 IKE Zone Senior Notes (together with the Go Zone Senior Notes, the "Tax-Exempt Bond Related Senior Notes") in excess of $5 ($40 in the case of the 3.50% 2032 Senior Notes) are guarantors of the Tax-Exempt Bond Related Senior Notes. As of December 31, 2017, the Company had drawn all proceeds from the tax-exempt bonds.
The indentures governing the Tax-Exempt Bond Related Senior Notes, excluding the 3.50% 2032 Senior Notes, contain customary covenants and events of default. Accordingly, these agreements generally impose significant operating and financial restrictions on the Company. These restrictions, among other things, provide limitations on incurrence of additional indebtedness, the payment of dividends, certain investments and acquisitions and sales of assets. However, the effectiveness of certain of these restrictions is currently suspended because the Tax-Exempt Bond Related Senior Notes are currently rated investment grade by at least two nationally recognized credit rating agencies. The most significant of these provisions, if it were currently effective, would restrict the Company from incurring additional debt, except specified permitted debt (including borrowings under its credit facility), when the Company's fixed charge coverage ratio is below 2.0:1. These limitations are subject to a number of important qualifications and exceptions, including, without limitation, an exception for the payment of the Company's regular quarterly dividend of up to $0.10 per share. If the restrictions were currently effective, distributions in excess of $100 would not be allowed unless, after giving pro forma effect to the distribution, the Company's fixed charge coverage ratio is at least 2.0:1 and such payment, together with the aggregate amount of all other distributions after January 13, 2006, is less than the sum of 50% of the Company's consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which financial statements have been filed, plus 100% of net cash proceeds received after October 1, 2003 as a contribution to the Company's common equity capital or from the issuance or sale of certain securities, plus several other adjustments.
Revenue Bonds
In December 1997, the Company entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $11 principal amount of tax-exempt waste disposal revenue bonds in order to finance the Company's construction of waste disposal facilities for an ethylene plant. The waste disposal revenue bonds expire in December 2027 and are subject to redemption and mandatory tender for purchase prior to maturity under certain conditions. The interest rate on the waste disposal revenue bonds at December 31, 20172021 and 20162020 was 1.73%0.14% and 0.79%0.14%, respectively.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
1.625% Senior Notes due 2029
On July 17, 2019, the Company completed the registered public offering of €700 aggregate principal amount of the 1.625% 2029 Senior Notes. The Company received approximately $779 of net proceeds from the offering. The 1.625% 2029 Senior Notes will accrue interest from July 17, 2019 at a rate of 1.625% per annum, payable annually in arrears on July 17 of each year, beginning July 17, 2020. The Company may optionally redeem the 1.625% 2029 Senior Notes in accordance with the terms of the 1.625% 2029 Senior Notes. The Company designated this euro-denominated debt as a non-derivative net investment hedge of a portion of the Company's net investments in euro functional-currency denominated subsidiaries to offset foreign currency fluctuations.
3.375% Senior Notes due 2030
On June 12, 2020, the Company completed the registered public offering of $300 aggregate principal amount of the 3.375% 2030 Senior Notes. There is no sinking fund and no scheduled amortization of the 3.375% 2030 Senior Notes prior to maturity. The 3.375% 2030 Senior Notes accrue interest from June 12, 2020 at a rate of 3.375% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2020. The Company may optionally redeem the 3.375% 2030 Senior Notes in accordance with the terms of the 3.375% 2030 Senior Notes.
3.50% 2032 GO Zone Refunding Bonds
In November 2017, the Louisiana Local Government Environmental Facility and Development Authority (the "Authority") completed the remarketing of $250 aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032 (the "3.50% 2032 GO Zone Bonds"), the net proceeds of which were used to redeem $250 aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 1, 2032 issued by the Authority under the GO Zone Act in December 2007. In connection with the remarketing of the 3.50% 2032 GO Zone Bonds, the Company issued $250 aggregate principal amount of the 3.50% 2032 GO Zone Refunding Senior Notes. The 3.50% 2032 GO Zone Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2027, for 100% of the principal amount plus accrued interest.
2.875% Senior Notes due 2041
In August 2021, the Company completed the registered public offering of $350 aggregate principal amount of the 2.875% 2041 Senior Notes. The Company may optionally redeem the 2.875% 2041 Senior Notes at any time and from time to time prior to February 15, 2041 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 2.875% 2041 Senior Notes being redeemed that would be due if the 2.875% 2041 Senior Notes matured on February 15, 2041, discounted to the redemption date on a semi-annual basis, plus 20 basis points, and plus accrued and unpaid interest. In addition, the Company may optionally redeem the 2.875% 2041 Senior Notes at any time on or after February 15, 2041 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 2.875% 2041 Senior Notes may require us to repurchase the 2.875% 2041 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 2.875% 2041 Senior Notes).
4.375% Senior Notes due 2047
In November 2017, the Company completed the registered public offering of $500 aggregate principal amount of the 4.375% 2047 Senior Notes. The 4.375% 2047 Senior Notes are unsecured and mature on November 15, 2047. There is no sinking fund and no scheduled amortization of the 4.375% 2047 Senior Notes prior to maturity. The Company may optionally redeem the 4.375% 2047 Senior Notes in accordance with the terms of the 4.375% 2047 Senior Notes.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
3.125% Senior Notes due 2051
In August 2021, the Company completed the registered public offering of $600 aggregate principal amount of the 3.125% 2051 Senior Notes. The Company may optionally redeem the 3.125% 2051 Senior Notes at any time and from time to time prior to February 15, 2051 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.125% 2051 Senior Notes being redeemed that would be due if the 3.125% 2051 Senior Notes matured on February 15, 2051, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, the Company may optionally redeem the 3.125% 2051 Senior Notes at any time on or after February 15, 2051 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.125% 2051 Senior Notes may require us to repurchase the 3.125% 2051 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.125% 2051 Senior Notes).
3.375% Senior Notes due 2061
In August 2021, the Company completed the registered public offering of $450 aggregate principal amount of the 3.375% 2061 Senior Notes. The Company may optionally redeem the 3.375% 2061 Senior Notes at any time and from time to time prior to February 15, 2061 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.375% 2061 Senior Notes being redeemed that would be due if the 3.375% 2061 Senior Notes matured on February 15, 2061, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, the Company may optionally redeem the 3.375% 2061 Senior Notes at any time on or after February 15, 2061 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.375% 2061 Senior Notes may require us to repurchase the 3.375% 2061 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.375% 2061 Senior Notes).
8.73% 2022 RS Cogen Debt
In July 2000, RS Cogen, the Company's 50%-owned joint venture, entered into a $75 aggregate principal amount senior credit facility institutional loan at an interest rate of 8.73%. All of the assets of RS Cogen are pledged as collateral under its senior credit facility. Borrowings under this senior credit facility are repayable quarterly over the remaining term. The Company does not guarantee RS Cogen's debt commitments and RS Cogen is not a guarantor for any of the Company's other long-term debt obligations. The balance outstanding under this loan was $19 at December 31, 2021.
2026 Term Loans
In March 2021, Taiwan Chlorine Industries, Ltd., the Company's 60%-owned joint venture, entered into five-year loan agreements for a maximum total limit of approximately $22. The interest rate on these loans at December 31, 2021 was 0.20%. The unsecured loans include a government rate subsidy and have a 5-year maturity. The balance outstanding under these loans was approximately $9 at December 31, 2021.
The indenture governing the 3.60% 2022 Senior Notes, the 0.875% 2024 Senior Notes, the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375% 2030 Senior Notes, the 3.50% 2032 GO Zone Refunding Senior Notes, the 2.875% 2041 Senior Notes, the 5.0% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the 3.125% 2051 Senior Notes, and the 3.375% 2061 Senior Notes (together, the "Notes") contains customary events of default and covenants that, among other things and subject to certain exceptions, restrict us and certain of the Company's subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale and leaseback transactions and (3) consolidate, merge or transfer all or substantially all of its assets. The Notes are unsecured and none of the Company's subsidiaries have guaranteed any series of the Notes.
As of December 31, 2017,2021, the Company was in compliance with all of the covenants with respect to the Tax-Exempt Bond Related Senior Notes, 4.625% Westlake 2021 Senior Notes, 4.625% Subsidiary 2021 Senior Notes, 3.60% 2022 Senior Notes, 4.875% Westlake 2023 Senior Notes, 4.875% Subsidiary 2023 Senior Notes, 3.60% 2026 Senior Notes, 5.0% 2046 Senior Notes, 4.375% 2047 Senior Notes, Credit Agreement and the waste disposal revenue bonds.its long-term debt covenants.
The weighted average interest rate on all long-term debt was 4.5%3.2% and 4.4%3.4% at December 31, 20172021 and 2016,2020, respectively. Unamortized debt issuance costs on long-term debt were $26$42 and $24$28 at December 31, 20172021 and 2016,2020, respectively.
WESTLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Aggregate scheduled maturities of long-term debt during the next five years consist of $250$269 in 2022.2022, $300 in 2024, and $759 in 2026. There are no other scheduled maturities of debt in 20192022 through 2021. The Westlake 4.625% Senior Notes due 2021 and the Eagle Spinco Inc. 4.625% Senior Notes due 2021 were optionally redeemed on February 15, 2018.2026.
10.12. Stockholders' Equity
The Company's Board of Directors has declared regular quarterly dividends to holders of its common stock aggregating $103, $97$145, $137 and $92$132 for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
Common Stock
Each share of common stock entitles the holder to one vote on all matters on which holders are permitted to vote, including the election of directors. There are no cumulative voting rights. Accordingly, holders of a majority of the total votes entitled to vote in an election of directors will be able to elect all of the directors standing for election. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of the common stock will share equally on a per share basis any dividends when, as and if declared by the Board of Directors out of funds legally available for that purpose. If the Company is liquidated, dissolved or wound up, the holders of the Company's common stock will be entitled to a ratable share
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
of any distribution to stockholders, after satisfaction of all the Company's liabilities and of the prior rights of any outstanding class of the Company's preferred stock. The Company's common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Company's common stock.
Preferred Stock
The Company's charter authorizes the issuance of shares of preferred stock. The Company's Board of Directors has the authority, without shareholder approval, to issue preferred shares from time to time in one or more series, and to fix the number of shares and terms of each such series. The Board may determine the designations and other terms of each series including dividend rates, whether dividends will be cumulative or non-cumulative, redemption rights, liquidation rights, sinking fund provisions, conversion or exchange rights and voting rights.
Stock Repurchase Program
In August 2011, the Company's Board of Directors authorized a stock repurchase program of the Company's common stock totaling $100 (the "2011 Program"). As of March 31, 2015, the Company had repurchased 1,944,161 shares of its common stock for an aggregate purchase price of approximately $100 under the 2011 Program, the full amount of the 2011 Program. In November 2014, the Company's Board of Directors approved a new $250 share repurchase program (the "2014 Program"). OnIn November 20, 2015, the Company's Board of Directors approved the expansion of the 2014 Program by an additional $150. In August 2018, the Company's Board of Directors approved the expansion of the 2014 Program by an additional $150. The total number of shares repurchased by the Company under the 2014 Program was none355,800, 995,529 and 1,511,109517,712 for the years ended December 31, 20172021, 2020 and 2016,2019, respectively. As of December 31, 2021, the Company had repurchased a total of 7,431,520 shares of its common stock for an aggregate purchase price of approximately $449.
Any shares repurchased under the 2011 and 2014 ProgramsProgram are held by the Company as treasury stock and may be used for general corporate purposes, including for the 2013 Omnibus Incentive Plan. Beginning inIn 2014, the Company began delivering treasury shares to employees and non-employee directors for options exercised and for the settlement of restricted stock units. The cost of treasury shares delivered wasis determined using the specific identification method.
11.13. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Pension and Other Post-Retirement Benefits Liability, Net of Tax | | Cumulative Foreign Currency
Exchange, Net of Tax | | Total |
| Balances at December 31, 2019 | | $ | 3 | | | $ | (77) | | | $ | (74) | |
| | | | | | |
| | | | | | |
| Net other comprehensive income (loss) attributable to Westlake Corporation | | (27) | | | 37 | | | 10 | |
| Balances at December 31, 2020 | | (24) | | | (40) | | | (64) | |
| | | | | | |
| | | | | | |
| Net other comprehensive income (loss) attributable to Westlake Corporation | | 44 | | | (16) | | | 28 | |
| Balances at December 31, 2021 | | $ | 20 | | | $ | (56) | | | $ | (36) | |
|
| | | | | | | | | | | | | | | | |
| | | Benefits Liability, Net of Tax | | Cumulative Foreign Currency Exchange | | Net Unrealized Holding Gains on Investments, Net of Tax | | Total |
| Balances at December 31, 2015 | | $ | (8 | ) | | $ | (116 | ) | | $ | (5 | ) | | $ | (129 | ) |
Other comprehensive income (loss) before reclassifications | | 36 |
| | (34 | ) | | 57 |
| | 59 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | | 1 |
| | — |
| | (52 | ) | | (51 | ) |
Net other comprehensive income (loss) attributable to Westlake Chemical Corporation | | 37 |
| | (34 | ) | | 5 |
| | 8 |
|
| Balances at December 31, 2016 | | 29 |
| | (150 | ) | | — |
| | (121 | ) |
Other comprehensive income before reclassifications | | 12 |
| | 114 |
| | — |
| | 126 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | | 2 |
| | — |
| | — |
| | 2 |
|
Net other comprehensive income attributable to Westlake Chemical Corporation | | 14 |
| | 114 |
| | — |
| | 128 |
|
| Balances at December 31, 2017 | | $ | 43 |
| | $ | (36 | ) | | $ | — |
| | $ | 7 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations:
|
| | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Location of Reclassification (Income (Expense)) in Consolidated Statements of Operations | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Amortization of pension and other post-retirement items | | | | | | | | |
| Net loss | | (1) | | $ | (2 | ) | | $ | (2 | ) | | $ | (3 | ) |
| | | | | (2 | ) | | (2 | ) | | (3 | ) |
| | | Benefit from income taxes | | — |
| | 1 |
| | 1 |
|
| | | | | (2 | ) | | (1 | ) | | (2 | ) |
Net unrealized gains on available-for- sale investments | | | | | | | | |
Realized gain on available- for-sale investments | | Other income, net | | — |
| | 54 |
| | 4 |
|
| | | Provision for income taxes | | — |
| | (2 | ) | | (1 | ) |
| | | | | — |
| | 52 |
| | 3 |
|
| Total reclassifications for the period | | | | $ | (2 | ) | | $ | 51 |
| | $ | 1 |
|
| |
(1) | These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, see Note 12. |
12.14. Employee Benefits
Defined Contribution Plans
U.S. Plans
The Company has a defined contribution savings plansplan covering the eligible U.S. regular full-time and part-time employees, whereby eligible employees may elect to contribute up to 100% of their annual eligible compensation, subject to an annual plan limit in line with the annual elective contribution limit as determined by the Internal Revenue Service. The Company matches its employee's contribution up to a certain percentage of such employee's compensation, per the terms of the respective plans.plan. The Company may, at its discretion and per the terms of the respective plans,plan, make an additional non-matching contribution in an amount as the Board of Directors may determine. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company recorded approximately $23, $11$24, $21 and $8,$20, respectively, to expense for these contributions.
Further, within a defined contribution savingsthe plan, the Company also makes an annual retirement contribution to substantially all employees of one subsidiary who have completed one year of service.certain subsidiaries. The Company's contributions to the plan are determined as a percentage of employees' base and overtime pay. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company charged approximately $29, $17$35, $34 and $12,$32, respectively, to expense for these contributions.
Non-U.S. Plans
The Company has various defined contribution plans in Germany, United Kingdom, Italy and Belgiumseveral countries covering eligible employees of the Company's European operations.Company. The Company's contributions to the plans are based on applicable laws in each country. Contributions to the Company's non-U.S. defined contribution plans are made by both the employee and the Company. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company charged approximately $5, $2$4, $4 and $2,$4, respectively, to expense for its contributions to these plans.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions of dollars, except share amounts and per share data)
Defined Benefit Plans
U.S. Plans
The Company has noncontributory defined benefit pension plans that cover certain eligible salaried and wage employees of certain subsidiaries. However, eligibility for the Company's plans has been frozen. Benefits for salaried employees under these plans are based primarily on years of service and employees' pay near retirement. Benefits for wage employees are based upon years of service and a fixed amount as periodically adjusted. The Company recognizes the years of service prior to the Company's acquisition of the subsidiary's facilities for purposes of determining vesting, eligibility and benefit levels for certain employees of the subsidiary and for determining vesting and eligibility for certain other employees of the subsidiary. The measurement date for these plans is December 31.
In December 2014, the Company announced a plan amendment to one of the Company's defined benefit pension plans. Under the plan amendment, no additional benefits may be earned by participants after January 31, 2015 and participants' accrued benefits will freeze at the levels earned as of January 31, 2015. In addition, the amendment added a lump sum payment option effective February 1, 2015. The Company made a similar plan amendment to another of its defined benefit pension plans in 2012. In conjunction with both of the defined benefit pension plans' amendments, the Company amended, in 2014 and 2012, its defined contribution savings plan to allow participants impacted by the amendments to participate in the Company's annual retirement contribution program.
In connection with the Merger, the Company assumed certain U.S. pension plans and other post-retirement benefit plans covering Axiall employees. The Axiall pension plans were closed to new participants and provide benefits to certain employees and retirees. The Axiall pension plans' assets and obligations merged into the Company's defined benefit pension plan for salaried employees during 2017. The other post-retirement benefit plans are unfunded and provide medical and life insurance benefits for certain employees and their dependents.
Non-U.S. Plans
The Company has defined benefit pension plans covering current and former employees associated with the Company's European operations. These pension plans are closed to new participants and are for employees in Germany who commenced employment before July 1, 2007.participants. Benefits for employees for these plans are based primarily on employees' pay near retirement. TheseThe majority of these pension plans are unfunded and have no plan assets. In connection with the Merger, the Company assumed certain defined benefit pension plans. These pension plans are for employees outside of the U.S., namely in Canada and Taiwan. The measurement date for the non-U.S. plans is December 31.
Details of the changes in benefit obligations, plan assets and funded status of the Company's pension plans are as follows:
In the U.S., the Pension Protection Act of 2006 (the "Pension Protection Act") established a relationship between a qualified pension plan's funded status and the actual benefits that can be provided. Restrictions on plan benefits and additional funding and notice requirements are imposed when a plan's funded status is less than certain threshold levels. For the 20172021 plan year, the funded status for the Company's U.S. pension plans are above 80% and, as such, are exempt from the Pension Protection Act's benefit restrictions.
Pension plans with an accumulated benefit obligation in excess of plan assets at December 31 are as follows:
The following table provides the components of net periodic benefit costs, other changes in plan assets and benefit obligation recognized in other comprehensive income.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for the plans are as follows:
The discount rates for the Company's U.S. and non-U.S. plans are determined using a benchmark pension discount curve and applying spot rates from the curve to each year of expected benefit payments to determine the appropriate discount rate for the Company. The assumed long-term return on plan assets is estimated by considering factors such as the plan's overall investment strategy, current economic conditions and historical averages.
Equity securities primarily include investments in large-cap and small-cap companies located in the U.S. and international developed and emerging markets stocks. Fixed income securities are comprised of investment and non-investment grade bonds, including U.S. Treasuries and U.S. and non-U.S. corporate bonds of companies from diversified industries. Each pension fund investment policy allows a discretionary range in various asset classes within the asset allocation model of up to 10%. The Company does not believe that there are significant concentrations of risk in the pension plan assets due to its strategy of asset diversification. At December 31, 2017,2021, plan assets did not include direct ownership of the Company's common stock.
Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The investments in the collective trust and mutual funds are valued using a market approach based on the net asset value of units held. The fair values of the Company's U.S. plan assets at December 31, by asset category, are as follows:
The Company's funding policy for its U.S. plans is consistent with the minimum funding requirements of federal law and regulations, and based on preliminary estimates, the Company expectsdoes not expect to make any contributions of approximately $3 forto the pension plans in 2018.
Non-U.S. Plans
Contributions to the Company's multi-employer plans are expensed as incurred and were as follows:
The following table provides a reconciliation of the benefit obligations of the Company's unfunded post-retirement healthcare plans.
The following table provides the components of net periodic benefit costs, other changes in plan assets and benefit obligation recognized in other comprehensive income.
The weighted-average assumptions used to determine post-retirement healthcare plan obligations and net periodic benefit costs for the plans are as follows:
The discount rate is determined using a benchmark pension discount curve and applying spot rates from the curve to each year of expected benefit payments to determine the appropriate discount rate for the Company. A one percentage-point increase or decrease in assumed healthcare trend rates would not have a significant effect on the amounts reported for the healthcare plans.
The Company used the Black-Scholes option pricing model to value its options. The table below presents the weighted average value and assumptions used in determining each option's fair value. Volatility was calculated using historical trends of the Company's common stock price.
The Company's wholly-owned subsidiary and the general partner of Westlake Partners, Westlake Chemical Partners GP LLC ("WLKPWestlake Partners GP"), maintains a unit-based compensation plan for directors and employees of WLKP GP and Westlake Partners.
The Westlake Partners 2014 Long-term Incentive Plan ("Westlake Partners 2014 Plan") permits various types of equity awards including but not limited to grants of phantom units and restricted units. Awards granted under the Westlake Partners 2014 Plan may be settled with Westlake Partners units or in cash or a combination thereof. Compensation expense for these awards was not material to the Company's consolidated financial statements for the years ended December 31, 2017, 20162021, 2020 and 2015.2019.
The Company's provision for (benefit from) income taxes consists of the following:
The tax effects of the principal temporary differences between financial reporting and income tax reporting at December 31 are as follows:
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is no longer subject to examinations by tax authorities before the year 2011.2014.
The Company has unvested restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share include the effecteffects of certain stock options.options and performance stock units.
The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:
The Company leases office space for management and administrative services from an affiliate of the Company's principal stockholder. For each of the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company incurred lease payments of approximately $3, $3 and $2, respectively.$3.
The Company is involved in a number of legal and regulatory matters, principally environmental in nature, that are incidental to the normal conduct of its business, including lawsuits, investigations and claims. The outcome of these matters are inherently unpredictable. The Company believes that, in the aggregate, the outcome of all known legal and regulatory matters will not have a material adverse effect on its consolidated financial statements; however, under certain circumstances, if required to recognize costs in a specific period, when combined with other factors, outcomes with respect to such matters may be material to the Company's consolidated statements of operations in any particular period in which costs, if any, are recognized.such period. The Company's assessment of the potential impact of environmental matters, in particular, is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental matters, and the potential for technological and regulatory developments. In addition, the impact of evolving claims and programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these matters. The Company anticipates that the resolution of many legal and regulatory matters, and in particular environmental matters, will occur over an extended period of time.
In connection with the 1990 and 1997 acquisitions of the Goodrich chemical manufacturing complex in Calvert City, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated by Goodrich's operations. In 1993, Goodrich spun off the predecessor of PolyOne,Avient, and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination. In 2003, litigation arose among the Company, Goodrich and PolyOneAvient with respect to the allocation of the cost of remediating contamination at the site. The parties settled this litigation in December 2007 and the case was dismissed. In the settlement, the parties agreed that, among other things: (1) PolyOneAvient would pay 100% of the costs (with specified exceptions), net of recoveries or credits from third parties, incurred with respect to environmental issues at the Calvert City site from August 1, 2007 forward; and (2) either the Company or PolyOneAvient might, from time to time in the future (but not more than once every five years), institute an arbitration proceeding to adjust that percentage. In May 2017, PolyOneAvient filed a demand for arbitration. In this proceeding, PolyOne seeksAvient sought to readjust the percentage allocation of future costs and to recover approximately $17$11 from the Company in reimbursement of previously paid remediation costs. The Company filed aCompany's cross demand for arbitration seeking $6 in unreimbursed remediation costs incurred during the relevant period.period was dismissed from the proceedings when Avient paid such costs in full at the beginning of the arbitration hearing.
The Company has various unconditional purchase obligations, primarily to purchase goods and services, including commitments to purchase various utilities, feedstock, nitrogen, oxygen, product storage and pipeline usage. UnrecordedAt December 31, 2021, unrecorded unconditional total purchase obligations for the next five years are as follows: $430, $412, $376, $330were $5,079, which included approximately $922 in 2022, $695 in 2023, $590 in 2024, $571 in 2025, $511 in 2026, and $95 $1,790 thereafter.
A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance.
Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to our executive officers is set forth in Part I of this Form 10-K.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
Item 15. Exhibits and Financial Statement Schedules
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.