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 outcomesoutcome 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.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net external sales | | | | | | | | |
Olefins | | | | | | | | |
Polyethylene | | $ | 377,269 |
| | $ | 380,810 |
| | $ | 1,121,603 |
| | $ | 1,098,500 |
|
Styrene, feedstock and other | | 124,974 |
| | 116,555 |
| | 412,869 |
| | 324,369 |
|
Total Olefins | | 502,243 |
| | 497,365 |
| | 1,534,472 |
| | 1,422,869 |
|
Vinyls | | | | | | | | |
PVC, caustic soda and other | | 1,252,963 |
| | 599,276 |
| | 3,541,409 |
| | 1,492,650 |
|
Building products | | 353,683 |
| | 182,387 |
| | 954,785 |
| | 424,757 |
|
Total Vinyls | | 1,606,646 |
| | 781,663 |
| | 4,496,194 |
| | 1,917,407 |
|
| | $ | 2,108,889 |
| | $ | 1,279,028 |
| | $ | 6,030,666 |
| | $ | 3,340,276 |
|
| | | | | | | | |
Intersegment sales | | | | | | | | |
Olefins | | $ | 106,722 |
| | $ | 30,614 |
| | $ | 290,658 |
| | $ | 85,856 |
|
Vinyls | | 260 |
| | 2,130 |
| | 871 |
| | 2,719 |
|
| | $ | 106,982 |
| | $ | 32,744 |
| | $ | 291,529 |
| | $ | 88,575 |
|
| | | | | | | | |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousandsmillions of dollars, except share amounts and per share data)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Income (loss) from operations | | | | | | | | |
Olefins | | $ | 165,438 |
| | $ | 118,475 |
| | $ | 488,532 |
| | $ | 408,274 |
|
Vinyls | | 216,515 |
| | 22,235 |
| | 431,276 |
| | 136,559 |
|
Corporate and other | | (16,206 | ) | | (94,147 | ) | | (51,647 | ) | | (116,056 | ) |
| | $ | 365,747 |
| | $ | 46,563 |
| | $ | 868,161 |
| | $ | 428,777 |
|
| | | | | | | | |
Depreciation and amortization | | | | | | | | |
Olefins | | $ | 35,029 |
| | $ | 36,649 |
| | $ | 111,244 |
| | $ | 95,582 |
|
Vinyls | | 117,490 |
| | 56,136 |
| | 331,585 |
| | 128,691 |
|
Corporate and other | | 1,115 |
| | 1,444 |
| | 5,704 |
| | 2,920 |
|
| | $ | 153,634 |
| | $ | 94,229 |
| | $ | 448,533 |
| | $ | 227,193 |
|
| | | | | | | | |
Other income (expense), net | | | | | | | | |
Olefins | | $ | (184 | ) | | $ | 1,101 |
| | $ | 1,555 |
| | $ | 3,706 |
|
Vinyls | | (970 | ) | | (1,226 | ) | | 1,087 |
| | 1,722 |
|
Corporate and other | | 3,212 |
| | 41,390 |
| | 3,949 |
| | 46,663 |
|
| | $ | 2,058 |
| | $ | 41,265 |
| | $ | 6,591 |
| | $ | 52,091 |
|
| | | | | | | | |
Provision for (benefit from) income taxes | | | | | | | | |
Olefins | | $ | 58,218 |
| | $ | 31,956 |
| | $ | 152,482 |
| | $ | 136,429 |
|
Vinyls | | 60,784 |
| | (3,912 | ) | | 114,979 |
| | 29,655 |
|
Corporate and other | | (10,383 | ) | | (34,596 | ) | | (34,771 | ) | | (36,752 | ) |
| | $ | 108,619 |
| | $ | (6,552 | ) | | $ | 232,690 |
| | $ | 129,332 |
|
| | | | | | | | |
Capital expenditures | | | | | | | | |
Olefins | | $ | 20,960 |
| | $ | 96,469 |
| | $ | 70,043 |
| | $ | 285,359 |
|
Vinyls | | 107,515 |
| | 83,523 |
| | 329,968 |
| | 180,392 |
|
Corporate and other | | 4,894 |
| | 178 |
| | 14,260 |
| | 1,579 |
|
| | $ | 133,369 |
| | $ | 180,170 |
| | $ | 414,271 |
| | $ | 467,330 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | |
Other income, net | | | | | | | | | | | | | | | |
Performance and Essential Materials | | $ | 12 | | | $ | 9 | | | $ | 25 | | | $ | 25 | | | | | | | | |
Housing and Infrastructure Products | | 3 | | | — | | | 9 | | | 4 | | | | | | | | |
Corporate and other | | 9 | | | 4 | | | 18 | | | 6 | | | | | | | | |
| | $ | 24 | | | $ | 13 | | | $ | 52 | | | $ | 35 | | | | | | | | |
| | | | | | | | | | | | | | | |
Provision for (benefit from) income taxes | | | | | | | | | | | | | | | |
Performance and Essential Materials | | $ | 40 | | | $ | 179 | | | $ | 464 | | | $ | 388 | | | | | | | | |
Housing and Infrastructure Products | | 44 | | | 25 | | | 146 | | | 65 | | | | | | | | |
Corporate and other | | — | | | (11) | | | (18) | | | (30) | | | | | | | | |
| | $ | 84 | | | $ | 193 | | | $ | 592 | | | $ | 423 | | | | | | | | |
| | | | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | | | | | | | |
Performance and Essential Materials | | $ | 265 | | | $ | 126 | | | $ | 678 | | | $ | 367 | | | | | | | | |
Housing and Infrastructure Products | | 51 | | | 17 | | | 126 | | | 45 | | | | | | | | |
Corporate and other | | 2 | | | 1 | | | 7 | | | 2 | | | | | | | | |
| | $ | 318 | | | $ | 144 | | | $ | 811 | | | $ | 414 | | | | | | | | |
A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Income from operations | | $ | 516 | | | $ | 861 | | | $ | 2,723 | | | $ | 1,927 | |
Interest expense | | (44) | | | (61) | | | (134) | | | (130) | |
Other income, net | | 24 | | | 13 | | | 52 | | | 35 | |
Income before income taxes | | $ | 496 | | | $ | 813 | | | $ | 2,641 | | | $ | 1,832 | |
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Total assets | | | | |
Performance and Essential Materials | | $ | 13,990 | | | $ | 11,938 | |
Housing and Infrastructure Products | | 5,129 | | | 5,021 | |
Corporate and other | | 1,306 | | | 1,500 | |
| | $ | 20,425 | | | $ | 18,459 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Income from operations | | $ | 365,747 |
| | $ | 46,563 |
| | $ | 868,161 |
| | $ | 428,777 |
|
Interest expense | | (40,036 | ) | | (24,366 | ) | | (118,784 | ) | | (36,966 | ) |
Other income (expense), net | | 2,058 |
| | 41,265 |
| | 6,591 |
| | 52,091 |
|
Income before income taxes | | $ | 327,769 |
| | $ | 63,462 |
| | $ | 755,968 |
| | $ | 443,902 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousandsmillions of dollars, except share amounts and per share data)
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Total assets | | | | |
Olefins | | $ | 2,015,888 |
| | $ | 2,092,617 |
|
Vinyls | | 8,695,509 |
| | 8,287,204 |
|
Corporate and other | | 532,728 |
| | 510,432 |
|
| | $ | 11,244,125 |
| | $ | 10,890,253 |
|
20.16. Westlake Chemical Partners LP Offerings
In March 2014, wethe Company formed Westlake Chemical Partners LP ("WLKP"Westlake Partners") to operate, acquire and develop ethylene production facilities and related assets. On August 4,Also in 2014, WLKPWestlake Partners completed its initial public offering (the "IPO") of 12,937,500 common units atunits.
As of September 30, 2022, Westlake Partners had a price of $24.00 per unit. Net proceeds to WLKP from the sale of the units was approximately $286,100, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $24,400. At the consummation of the IPO, WLKP's assets consisted of a 10.6%22.8% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), as well as the general partner interest in OpCo. Immediately after the IPO,and the Company retained an 89.4%a 77.2% limited partner interest in OpCo and a significant interest in WLKP. The initial public offering representedWestlake Partners through the saleCompany's ownership of 47.8%Westlake Partners' general partner, 40.1% of the limited partner interests (consisting of 14,122,230 common units) and incentive distribution rights.
On 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 offer and sell Westlake Partners' common units, in WLKP.
On April 29, 2015, WLKP purchasedfrom time to time, up to an additional 2.7% newly-issued limited partner interest in OpCo. On September 29, 2017, WLKP purchased an additional 5.0% newly-issued limited partner interest in OpCo.
On September 29, 2017, WLKP completedaggregate offering amount of $50. This Equity Distribution Agreement was amended on February 28, 2020 to reference a secondary offering of 5,175,000new shelf registration for utilization under this agreement. No common units at a price of $22.00 per unit. Net proceeds to WLKP from the sale of the units was $110,739, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $3,111. At September 30, 2017, WLKP had a 18.3% limited partner interest in OpCo, and the Company retained a 81.7% limited partner interest in OpCo and a significant interest in WLKP.
21. Subsequent Events
Subsequent events were evaluated through the date on which the consolidated financial statements were issued.
22. Guarantor Disclosures
The Company's payment obligationsissued under the 3.60% senior notes due 2022, the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes are fully and unconditionally guaranteed by each of its current and future domestic subsidiaries that guarantee other debt of the Company or of another guarantor of those notes in excess of $5,000 (the "Guarantor Subsidiaries"). Each Guarantor Subsidiary is 100% owned by Westlake Chemical Corporation (the "100% Owned Guarantor Subsidiaries"). In October 2016, the Company executed a Joinder Agreement with the Administrative Agent of the Credit Agreement, whereby certain subsidiaries of the Company were added as Guarantor Subsidiaries. These guarantees are the joint and several obligations of the Guarantor Subsidiaries. The following unaudited condensed consolidating financial information presents the financial condition, results of operations and cash flows of Westlake Chemical Corporation, the 100% owned Guarantor Subsidiaries, and the remaining subsidiaries that do not guarantee the 3.60% senior notes due 2022 , the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes (the "Non-Guarantor Subsidiaries"), together with consolidating eliminations necessary to present the Company's results on a consolidated basis.
In August 2016, certain of the Company's subsidiary guarantors were released from their guarantees of the Company's 3.60% senior notes due 2022 in connection with the replacement of the Company's revolving credit facility. Westlake Chemical OpCo LP, which was previously separately presented as a less than 100% owned guarantor, and certain of the Company's other 100% owned subsidiaries that were previously presented as guarantors, are now reflected as Non-Guarantor Subsidiaries in the condensed consolidating guarantor financial information. Prior periods were retrospectively adjusted to conform to the current presentation of Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Informationthis program as of September 30, 20172022.
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Balance Sheet | | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 334,111 |
| | $ | 33,089 |
| | $ | 311,033 |
| | $ | — |
| | $ | 678,233 |
|
Accounts receivable, net | | 3,060,591 |
| | 4,048,824 |
| | 432,238 |
| | (6,398,674 | ) | | 1,142,979 |
|
Inventories | | — |
| | 631,322 |
| | 203,513 |
| | — |
| | 834,835 |
|
Prepaid expenses and other current assets | | 16,616 |
| | 31,785 |
| | 22,365 |
| | (35,906 | ) | | 34,860 |
|
Restricted cash | | — |
| | 1,275 |
| | 7,351 |
| | — |
| | 8,626 |
|
Total current assets | | 3,411,318 |
| | 4,746,295 |
| | 976,500 |
| | (6,434,580 | ) | | 2,699,533 |
|
Property, plant and equipment, net | | — |
| | 4,330,104 |
| | 2,013,533 |
| | — |
| | 6,343,637 |
|
Other assets, net | | | | | | | | | | |
Goodwill | | — |
| | 854,896 |
| | 156,446 |
| | — |
| | 1,011,342 |
|
Customer relationships, net | | — |
| | 493,960 |
| | 141,924 |
| | — |
| | 635,884 |
|
Other intangible assets, net | | — |
| | 92,155 |
| | 74,011 |
| | — |
| | 166,166 |
|
Deferred charges and other assets, net | | 9,890,164 |
| | 551,732 |
| | 1,372,070 |
| | (11,426,403 | ) | | 387,563 |
|
Total other assets, net | | 9,890,164 |
| | 1,992,743 |
| | 1,744,451 |
| | (11,426,403 | ) | | 2,200,955 |
|
Total assets | | $ | 13,301,482 |
| | $ | 11,069,142 |
| | $ | 4,734,484 |
| | $ | (17,860,983 | ) | | $ | 11,244,125 |
|
Current liabilities | | | | | | | | | | |
Accounts payable | | $ | 5,821,323 |
| | $ | 830,824 |
| | $ | 128,673 |
| | $ | (6,220,016 | ) | | $ | 560,804 |
|
Accrued liabilities | | 155,106 |
| | 436,816 |
| | 232,114 |
| | (214,564 | ) | | 609,472 |
|
Total current liabilities | | 5,976,429 |
| | 1,267,640 |
| | 360,787 |
| | (6,434,580 | ) | | 1,170,276 |
|
Long-term debt, net | | 3,256,280 |
| | 4,334,142 |
| | 223,578 |
| | (4,464,598 | ) | | 3,349,402 |
|
Deferred income taxes | | — |
| | 1,577,209 |
| | 106,587 |
| | (22,882 | ) | | 1,660,914 |
|
Pension and other liabilities | | — |
| | 364,011 |
| | 148,023 |
| | — |
| | 512,034 |
|
Total liabilities | | 9,232,709 |
| | 7,543,002 |
| | 838,975 |
| | (10,922,060 | ) | | 6,692,626 |
|
Total Westlake Chemical Corporation stockholders' equity | | 4,068,773 |
| | 3,526,140 |
| | 3,412,784 |
| | (6,938,923 | ) | | 4,068,774 |
|
Noncontrolling interests | | — |
| | — |
| | 482,725 |
| | — |
| | 482,725 |
|
Total equity | | 4,068,773 |
| | 3,526,140 |
| | 3,895,509 |
| | (6,938,923 | ) | | 4,551,499 |
|
Total liabilities and equity | | $ | 13,301,482 |
| | $ | 11,069,142 |
| | $ | 4,734,484 |
| | $ | (17,860,983 | ) | | $ | 11,244,125 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information as of December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Balance Sheet | | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 146,990 |
| | $ | 53,006 |
| | $ | 259,457 |
| | $ | — |
| | $ | 459,453 |
|
Accounts receivable, net | | 2,117,540 |
| | 3,329,871 |
| | 323,931 |
| | (4,832,599 | ) | | 938,743 |
|
Inventories | | — |
| | 597,819 |
| | 203,281 |
| | — |
| | 801,100 |
|
Prepaid expenses and other current assets | | 30,748 |
| | 41,755 |
| | 12,494 |
| | (36,504 | ) | | 48,493 |
|
Restricted cash | | — |
| | — |
| | 160,527 |
| | — |
| | 160,527 |
|
Total current assets | | 2,295,278 |
| | 4,022,451 |
| | 959,690 |
| | (4,869,103 | ) | | 2,408,316 |
|
Property, plant and equipment, net | | — |
| | 4,475,943 |
| | 1,944,119 |
| | — |
| | 6,420,062 |
|
Other assets, net | | | | | | | | | | |
Goodwill | | — |
| | 791,706 |
| | 154,847 |
| | — |
| | 946,553 |
|
Customer relationships, net | | — |
| | 468,645 |
| | 142,970 |
| | — |
| | 611,615 |
|
Other intangible assets, net | | — |
| | 130,243 |
| | 71,177 |
| | (25,581 | ) | | 175,839 |
|
Deferred charges and other assets, net | | 9,170,042 |
| | 874,003 |
| | 1,115,877 |
| | (10,832,054 | ) | | 327,868 |
|
Total other assets, net | | 9,170,042 |
| | 2,264,597 |
| | 1,484,871 |
| | (10,857,635 | ) | | 2,061,875 |
|
Total assets | | $ | 11,465,320 |
| | $ | 10,762,991 |
| | $ | 4,388,680 |
| | $ | (15,726,738 | ) | | $ | 10,890,253 |
|
Current liabilities | | | | | | | | | | |
Accounts payable | | $ | 4,330,375 |
| | $ | 748,364 |
| | $ | 225,300 |
| | $ | (4,807,780 | ) | | $ | 496,259 |
|
Accrued liabilities | | 26,367 |
| | 389,216 |
| | 183,223 |
| | (61,323 | ) | | 537,483 |
|
Term loan | | — |
| | — |
| | 149,341 |
| | — |
| | 149,341 |
|
Total current liabilities | | 4,356,742 |
| | 1,137,580 |
| | 557,864 |
| | (4,869,103 | ) | | 1,183,083 |
|
Long-term debt, net | | 3,584,949 |
| | 4,090,775 |
| | — |
| | (3,997,070 | ) | | 3,678,654 |
|
Deferred income taxes | | — |
| | 1,581,260 |
| | 91,809 |
| | (22,494 | ) | | 1,650,575 |
|
Pension and other liabilities | | — |
| | 360,622 |
| | 125,274 |
| | — |
| | 485,896 |
|
Total liabilities | | 7,941,691 |
| | 7,170,237 |
| | 774,947 |
| | (8,888,667 | ) | | 6,998,208 |
|
Total Westlake Chemical Corporation stockholders' equity | | 3,523,629 |
| | 3,592,754 |
| | 3,245,317 |
| | (6,838,071 | ) | | 3,523,629 |
|
Noncontrolling interests | | — |
| | — |
| | 368,416 |
| | — |
| | 368,416 |
|
Total equity | | 3,523,629 |
| | 3,592,754 |
| | 3,613,733 |
| | (6,838,071 | ) | | 3,892,045 |
|
Total liabilities and equity | | $ | 11,465,320 |
| | $ | 10,762,991 |
| | $ | 4,388,680 |
| | $ | (15,726,738 | ) | | $ | 10,890,253 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Three Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 1,704,086 |
| | $ | 837,536 |
| | $ | (432,733 | ) | | $ | 2,108,889 |
|
Cost of sales | | — |
| | 1,371,813 |
| | 665,124 |
| | (426,100 | ) | | 1,610,837 |
|
Gross profit | | — |
| | 332,273 |
| | 172,412 |
| | (6,633 | ) | | 498,052 |
|
Selling, general and administrative expenses | | 1,509 |
| | 93,149 |
| | 37,617 |
| | (6,633 | ) | | 125,642 |
|
Transaction and integration-related costs | | — |
| | 6,387 |
| | 276 |
| | — |
| | 6,663 |
|
Income (loss) from operations | | (1,509 | ) | | 232,737 |
| | 134,519 |
| | — |
| | 365,747 |
|
Other income (expense) | | | | | | | | | | |
Interest expense | | (38,811 | ) | | (44,381 | ) | | (1,635 | ) | | 44,791 |
| | (40,036 | ) |
Other income, net | | 37,563 |
| | 2,517 |
| | 6,769 |
| | (44,791 | ) | | 2,058 |
|
Income (loss) before income taxes | | (2,757 | ) | | 190,873 |
| | 139,653 |
| | — |
| | 327,769 |
|
Provision for (benefit from) income taxes | | (599 | ) | | 92,597 |
| | 16,621 |
| | — |
| | 108,619 |
|
Equity in net income of subsidiaries | | 212,989 |
| | — |
| | — |
| | (212,989 | ) | | — |
|
Net income | | 210,831 |
| | 98,276 |
| | 123,032 |
| | (212,989 | ) | | 219,150 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | 8,318 |
| | — |
| | 8,318 |
|
Net income attributable to Westlake Chemical Corporation | | $ | 210,831 |
| | $ | 98,276 |
| | $ | 114,714 |
| | $ | (212,989 | ) | | $ | 210,832 |
|
Comprehensive income attributable to Westlake Chemical Corporation | | $ | 254,400 |
| | $ | 98,455 |
| | $ | 158,160 |
| | $ | (256,615 | ) | | $ | 254,400 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 984,937 |
| | $ | 611,983 |
| | $ | (317,892 | ) | | $ | 1,279,028 |
|
Cost of sales | | — |
| | 892,198 |
| | 497,460 |
| | (312,763 | ) | | 1,076,895 |
|
Gross profit | | — |
| | 92,739 |
| | 114,523 |
| | (5,129 | ) | | 202,133 |
|
Selling, general and administrative expenses | | 2,092 |
| | 47,952 |
| | 27,814 |
| | (5,129 | ) | | 72,729 |
|
Transactions and integration-related costs | | — |
| | 82,687 |
| | 154 |
| | — |
| | 82,841 |
|
Income (loss) from operations | | (2,092 | ) | | (37,900 | ) | | 86,555 |
| | — |
| | 46,563 |
|
Other income (expense) | | | | | | | | | | |
Interest expense | | (22,130 | ) | | (22,207 | ) | | (908 | ) | | 20,879 |
| | (24,366 | ) |
Other income (expense), net | | 35,405 |
| | (15,189 | ) | | 41,928 |
| | (20,879 | ) | | 41,265 |
|
Income (loss) before income taxes | | 11,183 |
| | (75,296 | ) | | 127,575 |
| | — |
| | 63,462 |
|
Provision for (benefit from) income taxes | | (2,088 | ) | | (11,080 | ) | | 6,616 |
| | — |
| | (6,552 | ) |
Equity in net income of subsidiaries | | 52,391 |
| | — |
| | — |
| | (52,391 | ) | | — |
|
Net income | | 65,662 |
| | (64,216 | ) | | 120,959 |
| | (52,391 | ) | | 70,014 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | 4,352 |
| | — |
| | 4,352 |
|
Net income attributable to Westlake Chemical Corporation | | $ | 65,662 |
| | $ | (64,216 | ) | | $ | 116,607 |
| | $ | (52,391 | ) | | $ | 65,662 |
|
Comprehensive income attributable to Westlake Chemical Corporation | | $ | 39,636 |
| | $ | (64,113 | ) | | $ | 104,129 |
| | $ | (40,015 | ) | | $ | 39,637 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 4,880,682 |
| | $ | 2,377,862 |
| | $ | (1,227,878 | ) | | $ | 6,030,666 |
|
Cost of sales | | — |
| | 4,077,633 |
| | 1,889,571 |
| | (1,207,567 | ) | | 4,759,637 |
|
Gross profit | | — |
| | 803,049 |
| | 488,291 |
| | (20,311 | ) | | 1,271,029 |
|
Selling, general and administrative expenses | | 2,429 |
| | 281,412 |
| | 116,389 |
| | (20,311 | ) | | 379,919 |
|
Transaction and integration-related costs | | — |
| | 22,611 |
| | 338 |
| | — |
| | 22,949 |
|
Income (loss) from operations | | (2,429 | ) | | 499,026 |
| | 371,564 |
| | — |
| | 868,161 |
|
Other income (expense) | | | | | | | | | | |
Interest expense | | (115,156 | ) | | (133,048 | ) | | (5,623 | ) | | 135,043 |
| | (118,784 | ) |
Other income, net | | 112,002 |
| | 2,944 |
| | 26,688 |
| | (135,043 | ) | | 6,591 |
|
Income (loss) before income taxes | | (5,583 | ) | | 368,922 |
| | 392,629 |
| | — |
| | 755,968 |
|
Provision for (benefit from) income taxes | | (1,451 | ) | | 198,054 |
| | 36,087 |
| | — |
| | 232,690 |
|
Equity in net income of subsidiaries | | 505,981 |
| | — |
| | — |
| | (505,981 | ) | | — |
|
Net income | | 501,849 |
| | 170,868 |
| | 356,542 |
| | (505,981 | ) | | 523,278 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | 21,429 |
| | — |
| | 21,429 |
|
Net income attributable to Westlake Chemical Corporation | | $ | 501,849 |
| | $ | 170,868 |
| | $ | 335,113 |
| | $ | (505,981 | ) | | $ | 501,849 |
|
Comprehensive income attributable to Westlake Chemical Corporation | | $ | 613,350 |
| | $ | 171,413 |
| | $ | 233,030 |
| | $ | (404,443 | ) | | $ | 613,350 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 2,567,232 |
| | $ | 1,734,611 |
| | $ | (961,567 | ) | | $ | 3,340,276 |
|
Cost of sales | | — |
| | 2,233,395 |
| | 1,353,764 |
| | (945,967 | ) | | 2,641,192 |
|
Gross profit | | — |
| | 333,837 |
| | 380,847 |
| | (15,600 | ) | | 699,084 |
|
Selling, general and administrative expenses | | 3,648 |
| | 121,261 |
| | 70,448 |
| | (15,600 | ) | | 179,757 |
|
Transaction and integration-related costs | | — |
| | 90,396 |
| | 154 |
| | — |
| | 90,550 |
|
Income (loss) from operations | | (3,648 | ) | | 122,180 |
| | 310,245 |
| | — |
| | 428,777 |
|
Other income (expense) | | | | | | | | | | |
Interest expense | | (43,228 | ) | | (39,693 | ) | | (1,054 | ) | | 47,009 |
| | (36,966 | ) |
Other income (expense), net | | 40,807 |
| | (22,291 | ) | | 80,584 |
| | (47,009 | ) | | 52,091 |
|
Income (loss) before income taxes | | (6,069 | ) | | 60,196 |
| | 389,775 |
| | — |
| | 443,902 |
|
Provision for (benefit from) income taxes | | (8,268 | ) | | 106,792 |
| | 30,808 |
| | — |
| | 129,332 |
|
Equity in net income of subsidiaries | | 297,715 |
| | — |
| | — |
| | (297,715 | ) | | — |
|
Net income | | 299,914 |
| | (46,596 | ) | | 358,967 |
| | (297,715 | ) | | 314,570 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | 14,656 |
| | — |
| | 14,656 |
|
Net income attributable to Westlake Chemical Corporation | | $ | 299,914 |
| | $ | (46,596 | ) | | $ | 344,311 |
| | $ | (297,715 | ) | | $ | 299,914 |
|
Comprehensive income attributable to Westlake Chemical Corporation | | $ | 321,079 |
| | $ | (46,187 | ) | | $ | 364,402 |
| | $ | (318,214 | ) | | $ | 321,080 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income | | $ | 501,849 |
| | $ | 170,868 |
| | $ | 356,542 |
| | $ | (505,981 | ) | | $ | 523,278 |
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities | | | | | | | | | | |
Depreciation and amortization | | — |
| | 294,227 |
| | 154,306 |
| | — |
| | 448,533 |
|
Deferred income taxes | | (217 | ) | | 20,299 |
| | 3,212 |
| | — |
| | 23,294 |
|
Net changes in working capital and other | | (532,120 | ) | | (129,330 | ) | | 123,028 |
| | 505,981 |
| | (32,441 | ) |
Net cash provided by (used for) operating activities | | (30,488 | ) | | 356,064 |
| | 637,088 |
| | — |
| | 962,664 |
|
Cash flows from investing activities | | | | | | | | | | |
Additions to property, plant and equipment | | — |
| | (294,138 | ) | | (120,133 | ) | | — |
| | (414,271 | ) |
Additions to cost method investment | | — |
| | (47,000 | ) | | — |
| | — |
| | (47,000 | ) |
Proceeds from disposition of assets | | — |
| | 25 |
| | 146 |
| | — |
| | 171 |
|
Proceeds from involuntary conversion of assets | | — |
| | — |
| | 1,672 |
| | — |
| | 1,672 |
|
Receivable under the investment management agreement | | — |
| | — |
| | (119,000 | ) | | 119,000 |
| | — |
|
Settlements of derivative instruments | | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) |
Net cash used for investing activities | | — |
| | (341,120 | ) | | (237,315 | ) | | 119,000 |
| | (459,435 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | 498,272 |
| | (313,276 | ) | | (184,996 | ) | | — |
| | — |
|
Receivable under the investment management agreement | | 119,000 |
| | — |
| | — |
| | (119,000 | ) | | — |
|
Debt issuance costs | | (376 | ) | | — |
| | — |
| | — |
| | (376 | ) |
Dividends paid | | (76,491 | ) | | — |
| | — |
| | — |
| | (76,491 | ) |
Distributions to noncontrolling interests | | — |
| | 279,203 |
| | (299,970 | ) | | — |
| | (20,767 | ) |
Net proceeds from issuance of Westlake Chemical Partners LP common units | | — |
| | — |
| | 110,739 |
| | — |
| | 110,739 |
|
Proceeds from issuance of notes payable | | — |
| | — |
| | 5,946 |
| | — |
| | 5,946 |
|
Proceeds from drawdown of revolver | | 225,000 |
| | — |
| | — |
| | — |
| | 225,000 |
|
Restricted cash associated with term loan | | — |
| | — |
| | 154,000 |
| | — |
| | 154,000 |
|
Repayment of term loan | | — |
| | — |
| | (150,000 | ) | | — |
| | (150,000 | ) |
Repayment of notes payable | | — |
| | (788 | ) | | (5,907 | ) | | — |
| | (6,695 | ) |
Repayment of revolver | | (550,000 | ) | | — |
| | — |
| | — |
| | (550,000 | ) |
Other | | 2,204 |
| | — |
| | — |
| | — |
| | 2,204 |
|
Net cash provided by (used for) financing activities | | 217,609 |
| | (34,861 | ) | | (370,188 | ) | | (119,000 | ) | | (306,440 | ) |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS��Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | 21,991 |
| | — |
| | 21,991 |
|
Net increase (decrease) in cash and cash equivalents | | 187,121 |
| | (19,917 | ) | | 51,576 |
| | — |
| | 218,780 |
|
Cash and cash equivalents at beginning of period | | 146,990 |
| | 53,006 |
| | 259,457 |
| | — |
| | 459,453 |
|
Cash and cash equivalents at end of period | | $ | 334,111 |
| | $ | 33,089 |
| | $ | 311,033 |
| | $ | — |
| | $ | 678,233 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | 100% Owned Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income | | $ | 299,914 |
| | $ | (46,596 | ) | | $ | 358,967 |
| | $ | (297,715 | ) | | $ | 314,570 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities | | | | | | | | | | |
Depreciation and amortization | | — |
| | 118,645 |
| | 108,548 |
| | — |
| | 227,193 |
|
Deferred income taxes | | (5,178 | ) | | 100,908 |
| | 10,180 |
| | — |
| | 105,910 |
|
Net changes in working capital and other | | (313,676 | ) | | (39,859 | ) | | (47,693 | ) | | 297,715 |
| | (103,513 | ) |
Net cash provided by (used for) operating activities | | (18,940 | ) | | 133,098 |
| | 430,002 |
| | — |
| | 544,160 |
|
Cash flows from investing activities | | | | | | | | | | |
Acquisition of business, net of cash acquired | | — |
| | (2,437,829 | ) | | — |
| | — |
| | (2,437,829 | ) |
Additions to property, plant and equipment | | — |
| | (162,288 | ) | | (305,042 | ) | | — |
| | (467,330 | ) |
Additions to cost method investment | | — |
| | (4,000 | ) | | — |
| | — |
| | (4,000 | ) |
Proceeds from disposition of assets | | — |
| | 48 |
| | 165 |
| | — |
| | 213 |
|
Proceeds from sales and maturities of securities | | 658,338 |
| | — |
| | 4,600 |
| | — |
| | 662,938 |
|
Purchase of securities | | (138,422 | ) | | — |
| | — |
| | — |
| | (138,422 | ) |
Settlements of derivative instruments | | — |
| | (4,655 | ) | | — |
| | — |
| | (4,655 | ) |
Net cash provided by (used for) investing activities | | 519,916 |
| | (2,608,724 | ) | | (300,277 | ) | | — |
| | (2,389,085 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | (2,242,604 | ) | | 2,289,200 |
| | (46,596 | ) | | — |
| | — |
|
Debt issuance costs | | (33,617 | ) | | — |
| | (1,590 | ) | | — |
| | (35,207 | ) |
Dividends paid | | (71,933 | ) | | — |
| | — |
| | — |
| | (71,933 | ) |
Distributions to noncontrolling interests | | — |
| | 202,210 |
| | (214,510 | ) | | — |
| | (12,300 | ) |
Proceeds from debt issuance | | 1,428,512 |
| | — |
| | — |
| | — |
| | 1,428,512 |
|
Proceeds from issuance of notes payable | | — |
| | — |
| | 5,597 |
| | — |
| | 5,597 |
|
Proceeds from term loan and drawdown of revolver | | 450,000 |
| | — |
| | 150,000 |
| | — |
| | 600,000 |
|
Restricted cash associated with term loan | | — |
| | — |
| | (154,000 | ) | | — |
| | (154,000 | ) |
Repayment of notes payable | | — |
| | — |
| | (10,602 | ) | | — |
| | (10,602 | ) |
Repayment of revolver | | (125,000 | ) | | — |
| | — |
| | — |
| | (125,000 | ) |
Repurchase of common stock for treasury | | (67,406 | ) | | — |
| | — |
| | — |
| | (67,406 | ) |
Other | | 2,840 |
| | — |
| | — |
| | — |
| | 2,840 |
|
Net cash provided by (used for) financing activities | | (659,208 | ) | | 2,491,410 |
| | (271,701 | ) | | — |
| | 1,560,501 |
|
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | 2,418 |
| | — |
| | 2,418 |
|
Net increase (decrease) in cash and cash equivalents | | (158,232 | ) | | 15,784 |
| | (139,558 | ) | | — |
| | (282,006 | ) |
Cash and cash equivalents at beginning of period | | 303,131 |
| | 6,818 |
| | 352,576 |
| | — |
| | 662,525 |
|
Cash and cash equivalents at end of period | | $ | 144,899 |
| | $ | 22,602 |
| | $ | 213,018 |
| | $ | — |
| | $ | 380,519 |
|
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with information contained in the accompanying unaudited consolidated interim financial statements of Westlake Chemical Corporation ("Westlake") and the notes thereto and the consolidated financial statements and notes thereto of Westlake Chemical Corporation included in Westlake Chemical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 20162021 (the "2016"2021 Form 10-K"). Unless otherwise indicated, references in this report to "we," "our," "us" or like terms refer to Westlake Corporation ("Westlake" or the "Company"). The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.
Overview
We are a vertically integrated global manufacturer and marketer of petrochemicals, polymersperformance and buildingessential materials and housing and infrastructure products. OurWe operate in two principal operating segments, Performance and Essential Materials and Housing and Infrastructure Products. The Performance and Essential Materials segment includes Westlake North American Vinyls, Westlake North American Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake Olefins, Westlake Polyethylene and Westlake Epoxy. The Housing and Infrastructure Products segment includes Westlake Royal Building Products, Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. Prior to our segment reorganization in the fourth quarter of 2021, we operated in two principal operating segments, Vinyls and Olefins. The change has been retrospectively reflected in the periods presented in this Form 10-Q. We are Olefinshighly integrated along our materials chain with significant downstream integration from ethylene and Vinyls.chlor-alkali (chlorine and caustic soda) into vinyls, polyethylene, epoxy and styrene monomer. We usealso have substantial downstream integration from polyvinyl chloride ("PVC") into our building products, PVC pipes and fittings and PVC compounds in our Housing and Infrastructure Products segment.
During third quarter 2022, our European businesses continued to be impacted by higher energy prices, inflation and reduced demand. Our North American businesses, where we derive a majoritysignificant portion of our internally-produced basic chemicals to producerevenue, also saw impacts of rising energy costs and interest rates and slowing demand. In the near term, we expect that higher energy costs, inflation and other macroeconomic conditions could reduce margins and demand for most of our products.
Performance and Essential Materials
Our performance and essential materials such as ethylene, PVC, polyethylene, epoxy and chlor-alkali are some of the most widely used materials in the world and are upgraded into a variety of higher value-added chemicalsproducts used in many end-markets. Westlake is the second-largest chlor-alkali producer and buildingthe second-largest PVC producer in the world, which makes Westlake a global leading chlorovinyls producer. Our 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; renewable wind energy; coatings; and housing and construction products. Chlor-alkali and petrochemicals are typically manufactured globally in large volume by a number of different producers using widely available technologies. The chlor-alkali and petrochemical industries 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.
Since 2009Demand for our products in the first half of 2020 was negatively impacted by the onset of the COVID-19 pandemic. Global demand for most of our products started strengthening in the second half of 2020 and continuingremained strong through the third quarterfirst half of 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.2022. However, in the falling crude oil prices in recent years have resulted in reduced prices and margins. Continued strong global demand for polyethylene has resulted in improved operating margins and cash flows for our Olefins segment in recent years. However,past year, we have seen a significant reductionvolatility in natural gas, ethane and ethylene prices, primarily due to changes in demand, the timing for certain new ethylene capacity additions, the availability of natural gas liquids, and the ongoing conflict between Russia and Ukraine. Depending on the performance of the global economy, the timing of resolution of the conflict between Russia and Ukraine, disruption in the cost advantage enjoyed by North American ethane-based ethylene producers due to lowerglobal supply chain, volatility in natural gas and electricity prices in Europe and across the world, labor shortages and costs, potential resurgence of the COVID-19 pandemic, the trend of crude oil prices, beginning in the third quarter of 2014 and continuing through the third quarter of 2017. Looking forward, new ethylene and polyethylene capacity additions in North America, Asia and the Middle East and a number of new capacities announced in recent years, may lead to periods of over-supply and lower profitability. As a result, our Olefins segment operating margins may be negatively impacted.
Since the 2008 housing market collapse, 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 have 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. On August 31, 2016, we completed the acquisition of Axiall Corporation ("Axiall") for $33.00 per share in an all-cash transaction (the "Merger"). The combined company is the third-largest global chlor-alkali producer and the third-largest PVC producer in the world. Westlake is the second-largest purchaser of ethylene in the U.S. and lower prices could positively impact our Vinyls segment.
The economic environment in the U. S. and globally appears to be improving. However, depending on the performance of the global economy in the remainder of 20172022 and beyond, the sustainability of the current demand for most of our products in this segment, inflationary pressures and concerns over slower future economic growth, including the possibility of recession or financial market instability, our financial condition, results of operations or cash flows could be negatively or positively impacted.
On February 1, 2022, we completed the acquisition of Westlake Epoxy for a purchase consideration of $1,207 million. The assets acquired and liabilities assumed and the results of operations of the Westlake Epoxy business are 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 sustainability-oriented applications – such as wind turbine blades and light-weight automotive structural components. We supply epoxy resin systems to composite fabricators in the wind energy, automotive and pipe markets. Epoxy specialty resins are also used for a variety of high-end coating applications that require the superior adhesion, corrosion resistance and durability of epoxy, such as protective coatings for industrial flooring, pipe, marine and construction applications and automotive coatings.
As noted in Item 1A, "Risk Factors" in our 2021 Form 10-K, we are subject to extensive environmental regulations, which may impose significant additional costs on our operations in the future. Further, concerns about greenhouse gas 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, which began to decline at the end of the second quarter of 2022 due to rising mortgage rates. 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 the Repair and Remodeling Index provided by the National Association of Home Builders among others. Although we ultimately expect that the Infrastructure Investment and Jobs Act of 2021 and historically low residential housing construction may have a favorable long-term impact on certain industries related to our Housing and Infrastructure Products segment, the current inflationary environment impacting consumer spending and priorities, the possibility of recession or financial market instability, rapidly rising interest rates, decade high mortgage interest rates impacting consumer affordability, and ongoing labor and supply chain constraints are expected to have an unfavorable impact on the demand for housing and, as a result, our products produced by this segment.
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.
During the fourth quarter of 2021, we completed the acquisition of Boral's North American building products businesses in roofing, siding, trim and shutters, decorative stone and windows (the "Boral Target Companies") for $2,140 million. During the third quarter of 2021, we completed the acquisitions of LASCO Fittings, Inc. ("LASCO"), a manufacturer of injected-molded PVC fittings that serve the plumbing, pool and spa, industrial, irrigation and retail markets in the United States, for $277 million, and DX Acquisition Corp. ("Dimex"), a producer of various consumer products made from post-industrial-recycled PVC, polyethylene and thermoplastic elastomer materials, including, landscape edging; industrial, home and office matting; marine dock edging; and masonry joint controls, for $172 million. The results of operations for these acquired businesses are included in the Housing and Infrastructure Products segment for the nine months ended September 30, 2022.
Factors that have caused volatility in our raw material prices, energy costs and production processes in the past, and which may do so in the future, include significant fluctuation in prices of raw materials in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic, business or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, inflationary pressures, 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.
Recent Developments
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. The IRA, among other provisions, imposes a 15% corporate alternative minimum tax on the adjusted financial statement income of certain large corporations effective for tax years beginning after December 31, 2022 and a 1% excise tax on stock repurchases made by publicly traded U.S. corporations after December 31, 2022. The Company is in the process of evaluating the IRA and the impact it may have on the Company's consolidated financial statements.
Expansion of Share Repurchase Program
On August 12, 2022, our Board of Directors authorized the Company to repurchase an additional $500 million of shares of its common stock under its existing share repurchase program.
Non-GAAP Financial Measures
The body of accounting principles generally accepted in the United States is commonly referred to as "U.S. GAAP."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 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"). and Free Cash Flow. We define EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. We define Free Cash Flow as net cash provided by operating activities less additions to property, plant and equipment. The non-GAAP financial measures described in this Form 10-Q are not substitutes for the GAAP measures of earnings and cash flow.
flows.
EBITDA is included in this Form 10-Q 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. Free Cash Flow is included in this Form 10-Q 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 Free Cash Flow 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 Free Cash Flows. Management also believes that Free Cash Flow is useful to investors and securities analysts to evaluate our liquidity, evaluate strategic investment, evaluate our stock buyback plan and measure our ability to meet our future debt service. EBITDA isand Free Cash Flow are not a substitutesubstitutes for the GAAP measures of earnings or ofnet income, income from operations and net cash flowprovided 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 and Free Cash Flow differently and, therefore, EBITDA and Free Cash Flow as presented for us may not be comparable to EBITDA and Free Cash Flow reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization and income taxes.
Recent Developments
On September 29, 2017, Westlake Chemical Partners, LP ("WLKP") completed a secondary offeringReconciliations of 5,175,000 common units at a price of $22.00 per unitEBITDA to net income, income from operations and purchased an additional 5.0% newly-issued limited partner interest in Westlake Chemical OpCo LP ("OpCo") for approximately $229.2 million resulting in an aggregate 18.3% limited partner interest in OpCo effective July 1, 2017. Net proceedsnet cash provided by operating activities, and Free Cash Flow to WLKP from the sale of the units was $110.7 million, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $3.1 million. WLKP used the proceeds from the offering and the existing revolving credit facility with Westlake Chemical Finance Corporation, our subsidiary, to fund the purchase of the additional 5.0% interest in OpCo.
During September 2017, we directed the Louisiana Local Government Authority Environmental Facilities and Community Development Authority (the “Authority”) to optionally redeem in full $250.0 million aggregate principal amount of the 2007 Series revenue bonds (the “GO Zone Bonds”) on November 1, 2017 at a redemption price of par, plus accrued and unpaid interest, if any, to the redemption date. The GO Zone Bonds were issuedcash provided by the Authority in December 2007 under the Gulf Opportunity Zone Act of 2005 (GO Zone Act) for the benefit of the Company 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. In connection with the redemption of the Go Zone Bonds, the Authority is required to cause the GO Zone Bonds trustee to surrender the 6 ¾% tax exempt senior notes due November 2032 of $250.0 million, to the Senior Notes trustee for cancellation. We used cash on hand to fund the redemption of the GO Zone Bonds.
On August 30, 2017, following WLKP's cash distribution for the second quarter of 2017, the requirement under WLKP's partnership agreement for the conversion of all subordinated units was satisfied. As a result, effective August 30, 2017, the 12,686,115 subordinated units owned by us were 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, the Company, WLKP and OpCo executed an Investment Management Agreement (the "Investment Management Agreement") that authorized Westlake to invest the Partnership's 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 WLKP, resultingoperating activities are included in the extension"Results of the credit facility's maturity date from April 29, 2018 to April 29, 2021.
Operations" section below.
Results of Operations
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (dollars in thousands, except per share data) |
Net external sales | | | | | | | | |
Olefins | | | | | | | | |
Polyethylene | | $ | 377,269 |
| | $ | 380,810 |
| | $ | 1,121,603 |
| | $ | 1,098,500 |
|
Styrene, feedstock and other | | 124,974 |
| | 116,555 |
| | 412,869 |
| | 324,369 |
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Total Olefins | | 502,243 |
| | 497,365 |
| | 1,534,472 |
| | 1,422,869 |
|
Vinyls | | | | | | | | |
PVC, caustic soda and other | | 1,252,963 |
| | 599,276 |
| | 3,541,409 |
| | 1,492,650 |
|
Building products | | 353,683 |
| | 182,387 |
| | 954,785 |
| | 424,757 |
|
Total Vinyls | | 1,606,646 |
| | 781,663 |
| | 4,496,194 |
| | 1,917,407 |
|
Total | | $ | 2,108,889 |
| | $ | 1,279,028 |
| | $ | 6,030,666 |
| | $ | 3,340,276 |
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Income (loss) from operations | | | | | | | | |
Olefins | | $ | 165,438 |
| | $ | 118,475 |
| | $ | 488,532 |
| | $ | 408,274 |
|
Vinyls | | 216,515 |
| | 22,235 |
| | 431,276 |
| | 136,559 |
|
Corporate and other | | (16,206 | ) | | (94,147 | ) | | (51,647 | ) | | (116,056 | ) |
Total income from operations | | 365,747 |
| | 46,563 |
| | 868,161 |
| | 428,777 |
|
Interest expense | | (40,036 | ) | | (24,366 | ) | | (118,784 | ) | | (36,966 | ) |
Other income, net | | 2,058 |
| | 41,265 |
| | 6,591 |
| | 52,091 |
|
Provision for (benefit from) income taxes | | 108,619 |
| | (6,552 | ) | | 232,690 |
| | 129,332 |
|
Net income | | 219,150 |
| | 70,014 |
| | 523,278 |
| | 314,570 |
|
Net income attributable to noncontrolling interests | | 8,318 |
| | 4,352 |
| | 21,429 |
| | 14,656 |
|
Net income attributable to Westlake Chemical Corporation | | $ | 210,832 |
| | $ | 65,662 |
| | $ | 501,849 |
| | $ | 299,914 |
|
Diluted earnings per share | | $ | 1.61 |
| | $ | 0.51 |
| | $ | 3.85 |
| | $ | 2.29 |
|
EBITDA (1) | | $ | 521,439 |
| | $ | 182,057 |
| | $ | 1,323,285 |
| | $ | 708,061 |
|
The table below presents net external sales on a disaggregated basis for our two principal operating segments. Performance Materials net external sales primarily consist of sales of PVC, polyethylene and epoxy. 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. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (dollars in millions, except per share data) |
Net external sales | | | | | | | | |
Performance and Essential Materials | | | | | | | | |
Performance Materials | | $ | 1,689 | | | $ | 1,588 | | | $ | 5,678 | | | $ | 4,333 | |
Essential Materials | | 1,022 | | | 734 | | | 2,969 | | | 1,877 | |
Total Performance and Essential Materials | | 2,711 | | | 2,322 | | | 8,647 | | | 6,210 | |
Housing and Infrastructure Products | | | | | | | | |
Housing Products | | 1,018 | | | 536 | | | 3,106 | | | 1,491 | |
Infrastructure Products | | 227 | | | 197 | | | 742 | | | 570 | |
Total Housing and Infrastructure Products | | 1,245 | | | 733 | | | 3,848 | | | 2,061 | |
Total | | $ | 3,956 | | | $ | 3,055 | | | $ | 12,495 | | | $ | 8,271 | |
| | | | | | | | |
Income (loss) from operations | | | | | | | | |
Performance and Essential Materials | | $ | 353 | | | $ | 769 | | | $ | 2,197 | | | $ | 1,728 | |
Housing and Infrastructure Products | | 186 | | | 103 | | | 607 | | | 270 | |
Corporate and other | | (23) | | | (11) | | | (81) | | | (71) | |
Total income from operations | | 516 | | | 861 | | | 2,723 | | | 1,927 | |
Interest expense | | (44) | | | (61) | | | (134) | | | (130) | |
Other income, net | | 24 | | | 13 | | | 52 | | | 35 | |
Provision for income taxes | | 84 | | | 193 | | | 592 | | | 423 | |
Net income | | 412 | | | 620 | | | 2,049 | | | 1,409 | |
Net income attributable to noncontrolling interests | | 11 | | | 13 | | | 34 | | | 38 | |
Net income attributable to Westlake Corporation | | $ | 401 | | | $ | 607 | | | $ | 2,015 | | | $ | 1,371 | |
Diluted earnings per share | | $ | 3.10 | | | $ | 4.69 | | | $ | 15.54 | | | $ | 10.60 | |
EBITDA (1) | | $ | 804 | | | $ | 1,077 | | | $ | 3,560 | | | $ | 2,562 | |
Free Cash Flow (2) | | $ | 629 | | | $ | 611 | | | $ | 1,749 | | | $ | 1,223 | |
_____________
(1)See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below.
(2)See "Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities" below.
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(1) | See "Reconciliation of EBITDA to Net Income | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | Average Sales Price | | Volume | | Average Sales Price | | Volume |
Product sales price and to Net Cash Provided by Operating Activities" below.volume percentage change from prior-year period | | | | | | | | |
Performance and Essential Materials | | +7.3 | % | | +9.5 | % | | +24.0 | % | | +15.3 | % |
Housing and Infrastructure Products | | +31.1 | % | | +38.6 | % | | +44.6 | % | | +42.0 | % |
Company average | | +13.0 | % | | +16.5 | % | | +29.1 | % | | +21.9 | % |
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| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| | Average Sales Price | | Volume | | Average Sales Price | | Volume |
Product sales price and volume percentage change from prior-year period | | | | | | | | |
Olefins | | +1.8 | % | | -0.8 | % | | +9.2 | % | | -1.3 | % |
Vinyls | | +18.7 | % | | +86.8 | % | | +17.8 | % | | +116.7 | % |
Company average | | +12.1 | % | | +52.8 | % | | +14.1 | % | | +66.4 | % |
| | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Average industry prices (1) | | | | | | | | |
Ethane (cents/lb) | | 8.8 |
| | 6.3 |
| | 8.3 |
| | 6.2 |
|
Propane (cents/lb) | | 18.2 |
| | 11.2 |
| | 16.6 |
| | 10.7 |
|
Ethylene (cents/lb) (2) | | 24.7 |
| | 32.5 |
| | 27.8 |
| | 26.5 |
|
Polyethylene (cents/lb) (3) | | 70.7 |
| | 68.7 |
| | 69.0 |
| | 65.3 |
|
Styrene (cents/lb) (4) | | 85.1 |
| | 66.8 |
| | 85.0 |
| | 63.3 |
|
Caustic soda ($/short ton) (5) | | 811.7 |
| | 660.8 |
| | 777.8 |
| | 618.3 |
|
Chlorine ($/short ton) (6) | | 332.5 |
| | 304.2 |
| | 320.8 |
| | 295.3 |
|
PVC (cents/lb) (7) | | 62.5 |
| | 56.5 |
| | 61.7 |
| | 53.9 |
|
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(1) | Industry pricing data was obtained | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
Domestic US prices percentage change from IHS Chemical. We have not independently verified the data.prior-year period for fuel cost and feedstock |
| | | |
(2)Fuel cost (Natural Gas) | Represents average North American spot prices of ethylene over the period as reported by IHS Chemical. | +102.8 | % | | +107.1 | % |
Feedstock (Ethane) | | +58.0 | % | | +81.7 | % |
| | | | |
(3) | Represents average North American net transaction prices of polyethylene low density GP-Film grade over the period as reported by IHS Chemical. |
| | |
(4) | Represents average North American contract prices of styrene over the period as reported by IHS Chemical. |
| |
(5) | Represents average North American undiscounted contract prices of caustic soda over the period as reported by IHS Chemical. |
| |
(6) | Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS Chemical. |
| |
(7) | Represents average North American contract prices of polyvinyl chloride (PVC) over the period as reported by IHS Chemical. Effective January 1, 2017, IHS Chemical 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 Chemical non-market adjustment. |
Reconciliation of EBITDA to Net Income, Income from Operations and to Net Cash Provided by Operating Activities
The following table presents the reconciliation of EBITDA to net income, income from operations and to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (dollars in millions) |
Net cash provided by operating activities | | $ | 947 | | | $ | 755 | | | $ | 2,560 | | | $ | 1,637 | |
Changes in operating assets and liabilities and other | | (572) | | | (109) | | | (467) | | | (178) | |
Deferred income taxes | | 37 | | | (26) | | | (44) | | | (50) | |
Net income | | 412 | | | 620 | | | 2,049 | | | 1,409 | |
Less: | | | | | | | | |
Other income, net | | 24 | | | 13 | | | 52 | | | 35 | |
Interest expense | | (44) | | | (61) | | | (134) | | | (130) | |
Provision for income taxes | | (84) | | | (193) | | | (592) | | | (423) | |
Income from operations | | 516 | | | 861 | | | 2,723 | | | 1,927 | |
Add: | | | | | | | | |
Depreciation and amortization | | 264 | | | 203 | | | 785 | | | 600 | |
Other income, net | | 24 | | | 13 | | | 52 | | | 35 | |
EBITDA | | $ | 804 | | | $ | 1,077 | | | $ | 3,560 | | | $ | 2,562 | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (dollars in thousands) |
Net cash provided by operating activities | | $ | 482,950 |
| | $ | 174,268 |
| | $ | 962,664 |
| | $ | 544,160 |
|
Changes in operating assets and liabilities and other | | (255,468 | ) | | (101,334 | ) | | (416,092 | ) | | (123,680 | ) |
Deferred income taxes | | (8,332 | ) | | (2,920 | ) | | (23,294 | ) | | (105,910 | ) |
Net income | | 219,150 |
| | 70,014 |
| | 523,278 |
| | 314,570 |
|
Add: | | | | | | | | |
Depreciation and amortization | | 153,634 |
| | 94,229 |
| | 448,533 |
| | 227,193 |
|
Interest expense | | 40,036 |
| | 24,366 |
| | 118,784 |
| | 36,966 |
|
Provision for (benefit from) income taxes | | 108,619 |
| | (6,552 | ) | | 232,690 |
| | 129,332 |
|
EBITDA | | $ | 521,439 |
| | $ | 182,057 |
| | $ | 1,323,285 |
| | $ | 708,061 |
|
Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities
The following table presents the reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, for each of the periods indicated.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (dollars in millions) |
Net cash provided by operating activities | | $ | 947 | | | $ | 755 | | | $ | 2,560 | | | $ | 1,637 | |
Less: | | | | | | | | |
Additions to property, plant and equipment | | (318) | | | (144) | | | (811) | | | (414) | |
Free Cash Flow | | $ | 629 | | | $ | 611 | | | $ | 1,749 | | | $ | 1,223 | |
Summary
For the quarter ended September 30, 2017,2022, net income attributable to Westlake Chemical Corporation was $210.8$401 million, or $1.61$3.10 per diluted share, on net sales of $2,108.9$3,956 million. This represents a decrease in net income attributable to Westlake of $206 million, or $1.59 per diluted share, compared to the quarter ended September 30, 2021 net income attributable to Westlake of $607 million, or $4.69 per diluted share, on net sales of $3,055 million. Income from operations for the quarter ended September 30, 2022 was $516 million, a $345 million decrease from income from operations of $861 million for the quarter ended September 30, 2021. The decrease in net income and income from operations was primarily due to significant volatility in the global economic environment resulting in higher natural gas, power and feedstock costs, lower polyethylene and PVC resin sales prices and margins, lower demand for certain of our products and a litigation charge for $70 million, or $0.42 per diluted share, after tax. The decrease in net income and income from operations in the third quarter of 2022 was partially offset by higher prices for caustic soda and higher polyethylene sales volumes. Selling, general and administrative expenses were also higher in the third quarter of 2022 primarily due to the businesses acquired in the fourth quarter of 2021 and in the first quarter of 2022. Net sales increased by $901 million to $3,956 million in the quarter ended September 30, 2022 from $3,055 million in the quarter ended September 30, 2021. The increase in net sales was due to higher sales prices for caustic soda, chlorine and derivative products in addition to many of our products in the Housing and Infrastructure Products segment, contributions from the businesses acquired in the second half of 2021 and in the first quarter of 2022 and higher polyethylene sales volumes, partially offset by lower prices for polyethylene and PVC resin and lower sales volumes for PVC resin and caustic soda.
For the nine months ended September 30, 2022, net income attributable to Westlake was $2,015 million, or $15.54 per diluted share, on net sales of $12,495 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $145.1$644 million, or $1.10 per diluted share, compared to the third quarter of 2016 net income attributable to Westlake Chemical Corporation of $65.7 million, or $0.51 per diluted share, on net sales of $1,279.0 million. Net income for the third quarter of 2017 increased versus the prior-year period primarily due to (1) earnings contributed by Axiall, which was acquired on August 31, 2016; (2) lower transaction and integration-related costs associated with the acquisition; and (3) higher sales prices for major products resulting in improved margins. These increases, as compared to the third quarter of 2016, were partially offset by (1) higher interest expense due to the increased debt balance as a result of the Axiall acquisition; (2) a third quarter 2016 realized gain of $49.1 million from the previously held common stock of Axiall; and (3) a higher effective tax rate. Net sales for the third quarter of 2017 increased by $829.9 million compared to net sales for the third quarter of 2016, mainly due to higher sales contributed by Axiall and higher sales prices for our major products. Income from operations was $365.7 million for the third quarter of 2017 as compared to $46.6 million for the third quarter of 2016. The increase in income from operations for the third quarter of 2017 was mainly a result of earnings contributed by Axiall, lower transaction and integration-related costs and higher sales prices as compared to the third quarter of 2016. Transaction and integration-related costs in the third quarter of 2017 were $6.7 million, or $0.03 per diluted share.
For the nine months ended September 30, 2017, net income attributable to Westlake Chemical Corporation was $501.8 million, or $3.85 per diluted share, on net sales of $6,030.7 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $201.9 million, or $1.56$4.94 per diluted share, compared to the nine months ended September 30, 20162021 net income attributable to Westlake Chemical Corporation of $299.9$1,371 million, or $2.29$10.60 per diluted share, on net sales of $3,340.3$8,271 million. Net incomeIncome from operations for the nine months ended September 30, 2017 increased versus the prior-year period primarily due to (1) earnings contributed by Axiall; (2) higher sales prices for our major products, resulting in improved margins; and (3) lower transaction and integration-related costs associated with the integration of Axiall. These increases versus the prior-year period were partially offset by higher interest expense due to the increased debt balance and the realized gain in the nine months ended September 30, 2016 of $49.12022 was $2,723 million, a $796 million increase from the previously held common stock of Axiall. Net sales for the nine months ended September 30, 2017 increased by $2,690.4 million compared to net sales for the nine months ended September 30, 2016, mainly due to higher sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices for our major products. Incomeincome from operations was $868.2of $1,927 million for the nine months ended September 30, 20172021. The increase in net income and income from operations was primarily due to significantly higher global sales prices and integrated margins for most of our major products, caused by the strong demand for our products primarily during the first half of 2022, as compared to $428.8 millionwell as the contributions from the businesses acquired in the second half of 2021 and in the first quarter of 2022. The nine months ended September 30, 2022 net income and operating income were negatively impacted by higher natural gas, power and feedstock costs. Selling, general and administrative expenses were also higher for the nine months ended September 30, 2016. The increase2022 primarily due to the businesses acquired in income from operations was mainly a resultthe second half of earnings contributed2021 and in the first quarter of 2022. Net sales increased by Axiall, higher sales prices for our major products and lower transaction and integration-related costs. Transaction and integration-related costs$4,224 million to $12,495 million in the nine months ended September 30, 20172022 from $8,271 million in the nine months ended September 30, 2021, due to higher sales prices for most of our products in both of our segments. Sales volumes in the nine months ended September 30, 2022 were $22.9 million, or $0.12 per diluted share.also higher in both segments as compared to the nine months ended September 30, 2021, due to the contributions from the acquired businesses in the second half of 2021 and in the first quarter of 2022 and higher polyethylene sales volumes, partially offset by lower PVC resin, caustic soda and PVC compounds sales volumes.
RESULTS OF OPERATIONS
Third Quarter 20172022 Compared with Third Quarter 20162021
Net Sales. Net sales increased by $829.9$901 million, or 64.9%29%, to $2,108.9$3,956 million in the third quarter of 20172022 from $1,279.0$3,055 million in the third quarter of 2016,2021, primarily attributable to sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices.prices for caustic soda, chlorine and derivative products in the Performance and Essential Materials segment in addition to many of our products in the Housing and Infrastructure Products segment and from the businesses acquired in the second half of 2021 and in the first quarter of 2022. Average sales prices for the third quarter of 20172022 increased by 12.1%13% as compared to the third quarter of 2016. Overall2021 due to strong demand for caustic soda and many of our products that serve the residential construction, repair and remodeling markets in North America, partially offset by lower polyethylene and PVC resin sales prices. Sales volumes increased by 52.8%17% in the third quarter of 2022 as compared to the third quarter of 2016, primarily attributable to sales contributed by Axiall, as compared2021, substantially due to the prior-year period.businesses acquired in the second half of 2021 and in the first quarter of 2022 and higher polyethylene sales volumes, partially offset by lower caustic soda and PVC resin sales volume.
Gross Profit. Gross profit margin percentage increased to 23.6%was 20% in the third quarter of 2017 from 15.8%2022 as compared to 33% in the third quarter of 2016.2021. The third quarter of 2017decrease in gross profit margin was higher primarily due to higher sales volumesnatural gas, power and feedstock costs, and lower prices and margins for caustic sodapolyethylene and PVC resin, contributed by Axiall and an increase in sales prices for our major products as compared to the third quarter of 2016. The increasewhich was partially offset by higher feedstock costsprices and margins for caustic soda and higher energy prices, as compared to the third quarter of 2016.margins on our housing and infrastructure products.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $52.9$93 million to $125.6$215 million in the third quarter of 20172022 as compared to $72.7$122 million in the third quarter of 2016.2021. This increase was mainly due to selling, general, and administrative expenses of Axiall which were primarily comprisedthe businesses acquired in the fourth quarter of 2021 and in the amortizationfirst quarter of intangible assets acquired on acquisition.
2022 as well as higher compensation expenses.
Transaction and Integration-related Costs. The transactions and integration-related costs were $6.7Amortization of Intangibles. Amortization expense increased by $10 million to $39 million in the third quarter of 2017 as compared to $82.82022, from $29 million in the third quarter of 2016.2021, primarily due to the amortization of intangibles associated with the businesses acquired in the fourth quarter of 2021 and in the first quarter of 2022.
Restructuring, Transaction and Integration-Related Costs. The restructuring, transaction and integration-related costs were lower by $76.1of $6 million in the third quarter of 20172022 was consistent with the third quarter of 2021 and primarily consisted of costs associated with our businesses acquired in the second half of 2021 and in the first quarter of 2022.
Interest Expense. Interest expense decreased by $17 million to $44 million in the third quarter of 2022 from $61 million in the third quarter of 2021, primarily due to realization of losses in the third quarter of 2021 on the settlement of interest rate lock arrangements associated with the issuance of $1,700 million aggregate principal amount of senior notes in August 2021 ("Notes"), partially offset by higher average debt outstanding in the third quarter of 2022 as compared to the third quarter of 2016 predominantly because significant transaction and integration-related costs were incurred at the time of the Merger in the third quarter of 2016. The transaction and integration costs for the third quarter of 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-related costs for the third quarter of 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.2021.
Interest ExpenseOther Income, Net. Interest expenseOther income, net increased by $15.6$11 million to $40.0$24 million in the third quarter of 20172022 from $24.4$13 million in the third quarter of 20162021, primarily as a result ofdue to higher average debt outstandinginterest income.
Income Taxes. The effective income tax rate was 16.9% for the periodthird quarter of 2022 as well as decreased capitalized interest on major capital projectscompared to 23.7% for the third quarter of 2021. The effective tax rate in the third quarter of 20172022 was lower compared to the third quarter of 2021 primarily due to an increase in U.S. federal research and development credits available to the Company.
Performance and Essential Materials Segment
Net Sales. Net sales for the Performance and Essential Materials segment increased by $389 million, or 17%, to $2,711 million in the third quarter of 2022 from $2,322 million in the third quarter of 2021. Average sales prices for the Performance and Essential Materials segment increased by 7% in the third quarter of 2022 as compared to the third quarter of 2016. The debt balance2021. Higher Essential Materials sales prices were primarily driven by higher prices for caustic soda, chlorine and derivative products. These increases were offset by lower polyethylene and PVC resin sales prices in the Performance Materials businesses. Sales volumes for the Performance and Essential Materials segment increased in August 2016 to finance the Merger. See "Liquidity and Capital Resources—Debt" below for further discussion on our indebtedness.
Other Income (Expense), Net. Other income, net decreased by $39.2 million to income of $2.1 million10% in the third quarter of 2017 from income of $41.3 million in the third quarter of 2016. The decrease was primarily attributable to the realized gain in the third quarter of 2016 of $49.1 million from the previously held common stock of Axiall.
Income Taxes. The effective income tax rate was 33.1% for the third quarter of 2017. The effective income tax rate for the third quarter of 2017 was below the U.S. federal statutory rate of 35.0% primarily due to a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective tax rate, which was a benefit, was (10.3)% for the three months ended September 30, 2016. The effective income tax rate for the third quarter of 2016 was below the U.S. federal statutory rate of 35.0% 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, adjustments related to prior years' tax returns as filed 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 for the Olefins segment increased by $4.8 million, or 1.0%, to $502.2 million in the third quarter of 2017 from $497.4 million in the third quarter of 2016, primarily due to higher sales prices. Average sales volumes for the Olefins segment decreased by 0.8% in the third quarter of 20172022 as compared to the third quarter of 2016. Average sales prices for2021, primarily resulting from contributions from the Olefins segment increased by 1.8%acquisition of Westlake Epoxy in the thirdfirst quarter of 2017 as compared to the third quarter of 2016.2022 and higher polyethylene sales volumes, partially offset by lower caustic soda and PVC resin sales volumes.
Income from Operations. Income from operations for the OlefinsPerformance and Essential Materials segment increaseddecreased by $46.9$416 million to $165.4$353 million in the third quarter of 20172022 from $118.5$769 million in the third quarter of 2016.2021. This increasedecrease in income from operations was mainly attributabledue to higherlower polyethylene and PVC resin sales prices, lower caustic soda and PVC resin sales volumes, higher overall operating rates. These increases werenatural gas, power and feedstock costs and a litigation charge. The decrease in income from operations was partially offset by higher feedstockcaustic soda sales prices and energy costs.margins and higher polyethylene sales volumes. Trading activity infor the third quarter of 20172022 resulted in a gainloss of $6.8approximately $24 million as compared to a lossgain of $7.8$10 million for the third quarter of 2021.
Housing and Infrastructure Products Segment
Net Sales. Net sales for the Housing and Infrastructure Products segment increased by $512 million, or 70%, to $1,245 million in the third quarter of 2016.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $824.9 million, or 105.5%, to $1,606.62022 from $733 million in the third quarter of 20172021. In addition to the net sales from $781.7 millionthe businesses we acquired in the second half of 2021, the increase in the third quarter of 2016. This increase2022 was mainly attributabledue to higher sales contributed by Axiall and higher sales prices foracross our major products. Net sales for the three months ended September 30, 2017 were higherbusinesses as compared to the prior-year period primarily because a full three months of Axiall's operations were included as compared to only one month of Axiall's operations included in the prior-year period. Average sales prices for the VinylsHousing and Infrastructure Products segment increased by 18.7%31% in the third quarter of 20172022 as compared to the third quarter of 2016. Average sales2021, primarily due to continued demand for residential construction and repair and remodeling products as well as increased prices to account for higher raw material costs. Sales volumes for the VinylsHousing and Infrastructure Products segment increased by 86.8%39% in the third quarter of 20172022 as compared to the third quarter of 2016,2021 primarily attributabledue to sales contributed by Axiall, as compared tocontributions from the prior-year period.businesses acquired in the second half of 2021.
Income from Operations. Income from operations for the VinylsHousing and Infrastructure Products segment increased by $194.3$83 million to $216.5$186 million in the third quarter of 20172022 from $22.2$103 million in the third quarter of 2016.2021. This increase in income from operations was mainly attributableprimarily due to earnings contributed by Axiall and higher sales prices driven by continuing higher demand for our major products. These increases werehousing construction and remodeling products and contributions from the businesses acquired in the second half of 2021. The higher income from operations in the third quarter of 2022 as compared to the third quarter of 2021 was partially offset by higher energy prices during the quarter ended September 30, 2017, as compared to the prior-year period.
raw material and production costs.
Nine Months Ended September 30, 20172022 Compared with Nine Months Ended September 30, 20162021
Net Sales. Net sales increased by $2,690.4$4,224 million, or 80.5%51%, to $6,030.7$12,495 million forin the nine months ended September 30, 20172022 from $3,340.3$8,271 million forin the nine months ended September 30, 2016,2021, primarily attributable to higher sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices for our majorPVC resin, caustic soda and for many of our products in the Housing and Infrastructure Products segment as compared towell as higher sales volumes for polyethylene and contributions from the nine months ended September 30, 2016.businesses acquired in 2021 and 2022. Average sales prices for the nine months ended September 30, 20172022 increased by 14.1%29% as compared to the nine months ended September 30, 2016. Overall sales2021 due to strong demand for our chlorovinyl products and strong residential construction, repair and remodeling markets in North America during the first half of 2022. Sales volumes increased by 66.4%22% for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2016,2021, primarily attributable to sales contributed by Axiall, as compareddue to the prior-year period.businesses acquired in the second half of 2021 and in the first quarter of 2022, partially offset by lower PVC resin, caustic soda and PVC compounds sales volume.
Gross Profit. Gross profit margin percentage was 28% in the nine months ended September 30, 2022 which was comparable to 29% in the nine months ended September 30, 2021. Higher sales prices and margins for PVC resin, caustic soda, pipes and fittings and PVC compounds were offset by higher natural gas, power and feedstock costs and lower volumes for PVC resin, caustic soda and PVC compounds during the nine months ended September 30, 2022.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $252 million to 21.1%$635 million in the nine months ended September 30, 2022 as compared to $383 million in the nine months ended September 30, 2021. This increase was mainly due to the inclusion of expenses related to the businesses acquired in the second half of 2021 and in the first quarter of 2022 and higher compensation expenses.
Amortization of Intangibles. Amortization expense increased by $41 million to $124 million in the nine months ended September 30, 2022, as compared to $83 million in the nine months ended September 30, 2021, primarily due to the amortization of intangibles associated with the businesses acquired in the second half of 2021 and in the first quarter of 2022.
Restructuring, Transaction and Integration-Related Costs. The restructuring, transaction and integration-related costs of $24 million in the nine months ended September 30, 2022 primarily consisted of costs associated with the businesses acquired in the second half of 2021 and in the first quarter of 2022.
Interest Expense. Interest expense increased by $4 million to $134 million in the nine months ended September 30, 2022 from $130 million in the nine months ended September 30, 2021, due to the higher average debt outstanding in the nine months ended September 30 2022 due to the issuance of senior notes in August 2021.
Other Income, Net. Other income, net increased by $17 million to $52 million in the nine months ended September 30, 2022 from $35 million in the nine months ended September 30, 2021, primarily due to higher interest income.
Income Taxes. The effective income tax rate was 22.4% for the nine months ended September 30, 2017 from 20.9%2022 as compared to 23.1% for the nine months ended September 30, 2016.2021. The gross profit margin foreffective tax rate in the nine months ended September 30, 20172022 was slightly higherlower compared to the nine months ended September 30, 2021, primarily due to higheran increase in U.S. federal research and development credits available to the Company.
Performance and Essential Materials Segment
Net Sales. Net sales volumes for caustic sodathe Performance and PVC resin contributedEssential Materials segment increased by Axiall and higher$2,437 million, or 39%, to $8,647 million in the nine months ended September 30, 2022 from $6,210 million in the nine months ended September 30, 2021. Average sales prices for our major products,the Performance and Essential Materials segment increased by 24% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2016. These increases2021. Higher Performance Materials sales prices were substantially offsetdue to higher PVC resin sales prices. Higher Essential Materials sales prices were primarily driven by a proportionately larger sales volumehigher prices for caustic soda, chlorine and derivative products. Sales volumes for the VinylsPerformance and Essential Materials segment as compared to the Olefins segment, Vinyls segment industry margins were lower as compared to those of the Olefins segment industry for the nine months ended September 30, 2017 and the nine months ended September 30, 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $200.1 million to $379.9 million for the nine months ended September 30, 2017 as compared to $179.8 million15% in the nine months ended September 30, 2016. This increase was mainly due to selling, general and administrative expenses of Axiall which were primarily comprised of the amortization of intangible assets acquired on acquisition.
Transaction and Integration-related Costs. Transaction and integration-related costs were $22.9 million for the nine months ended September 30, 2017 as compared to $90.6 million for the nine months ended September 30, 2016. Transaction and integration-related costs were $67.7 million lower in the nine months ended September 30, 20172022 as compared to the nine months ended September 30, 2016 predominantly because significant transaction2021, primarily due to higher sales volumes for polyethylene and integration-costscontributions from the acquisition of Westlake Epoxy, which were incurred atpartially offset by lower PVC resin sales volumes.
Income from Operations. Income from operations for the timePerformance and Essential Materials segment increased by $469 million to $2,197 million in the nine months ended September 30, 2022 from $1,728 million in the nine months ended September 30, 2021. This increase in income from operations was due to higher sales prices for PVC resin and caustic soda and higher margins for polyethylene. Income from operations was also higher due to contributions from the acquisition of Westlake Epoxy in the Mergerfirst quarter of 2022. The increase in 2016. The transactionincome from operations versus the prior-year period was partially offset by higher natural gas, power and integrationfeedstock costs and a litigation charge. Trading activity for the nine months ended September 30, 2017 primarily consisted2022 resulted in a loss of severance benefits providedapproximately $23 million as compared to former Axiall employees in conjunction with the Merger and integration costs and consulting fees related to the Merger. The transaction and integration costs for the nine months ended September 30, 2016 primarily consisteda gain 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 $81.8 million to $118.8$26 million for the nine months ended September 30, 2017 from $37.0 million2021.
Housing and Infrastructure Products Segment
Net Sales. Net sales for the nine months ended September 30, 2016 primarily as a result of higher average debt outstanding for the period as well as decreased capitalized interest on major capital projectsHousing and Infrastructure Products segment increased by $1,787 million, or 87%, to $3,848 million in the nine months ended September 30, 20172022 from $2,061 million in the nine months ended September 30, 2021. In addition to the net sales from the businesses acquired in the second half of 2021, the increase in the nine months ended September 30, 2022 was also due to generally higher sales prices across our businesses as compared to the prior-year period. Average sales prices for the Housing and Infrastructure Products segment increased by 45% in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2016. The debt balance2021, primarily due to strong residential construction and repair and remodeling industry activity during the first half of 2022. Sales volumes for the Housing and Infrastructure Products segment increased in August 2016 to finance the Merger. See "Liquidity and Capital Resources—Debt" below for further discussion on our indebtedness.
Other Income, Net. Other income, net decreased by $45.5 million to $6.6 million42% in the nine months ended September 30, 2017 from $52.1 million in the nine months ended September 30, 2016. The decrease was mainly attributable to the realized gain in the 2016 period of $49.1 million from the previously held common stock of Axiall.
Income Taxes. The effective income tax rate was 30.8% for the nine months ended September 30, 2017. The effective income tax rate for the nine months ended September 30, 2017 was below the U.S. federal statutory rate of 35.0% primarily due to certain discrete adjustments, a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective income tax rate was 29.1% for the nine months ended September 30, 2016. The effective income tax rate for the nine months ended September 30, 2016 was below the U.S. federal statutory rate of 35.0% 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, adjustments related to prior years' tax returns as filed 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 for the Olefins segment increased by $111.6 million, or 7.8%, to $1,534.5 million in the nine months ended September 30, 2017 from $1,422.9 million in the nine months ended September 30, 2016, primarily due to higher sales prices for our major products. Average sales prices for the Olefins segment increased by 9.2% in the nine months ended September 30, 20172022 as compared to the nine months ended September 30, 2016. Average sales volumes2021, primarily due to contributions from the businesses acquired in the second half of 2021.
Income from Operations. Income from operations for the OlefinsHousing and Infrastructure Products segment decreasedincreased by 1.3%$337 million to $607 million in the nine months ended September 30, 20172022 from $270 million in the nine months ended September 30, 2021. This increase in income from operations was primarily due to higher sales prices driven by higher housing construction and remodeling activity during the first half of 2022. Income from operations was also higher due to contributions from the businesses acquired in the second half of 2021. The higher income from operations in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2016.
Income from Operations. Income from operations for the Olefins segment increased by $80.2 million to $488.5 million in the nine months ended September 30, 2017 from $408.3 million in the nine months ended September 30, 2016. This increase2021 was mainly attributable to higher olefins integrated product margins, primarily due to higher sales prices for our major products, higher operating rates and lower costs associated with turnarounds and outages as compared to the prior-year period. These increases were partially offset by higher energy prices. The nine months ended September 30, 2016 were negatively impacted by the planned turnaroundraw material, power and expansion of the Lake Charles Petro 1 ethylene unit along with other unplanned outages. Trading activity in the nine months ended September 30, 2017 resulted in a loss of $2.8 million as compared to a gain of $7.8 million in the nine months ended September 30, 2016.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $2,578.8 million, or 134.5%, to $4,496.2 million in the nine months ended September 30, 2017 from $1,917.4 million in the nine months ended September 30, 2016. This increase was mainly attributable to sales contributed by Axiall and higher sales prices and volumes for our major products. The net sales for the nine months ended September 30, 2017 was higher as compared to the prior-year period primarily because nine months of Axiall's operations were included in the current period as compared to one month of Axiall operations included in the prior-year period. Average sales prices for the Vinyls segment increased by 17.8% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Average sales volumes for the Vinyls segment increased by 116.7% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily attributable to sales contributed by Axiall, as compared to the prior-year period.
Income from Operations. Income from operations for the Vinyls segment increased by $294.7 million to $431.3 million in the nine months ended September 30, 2017 from $136.6 million in the nine months ended September 30, 2016. This increase was mainly attributable to earnings contributed by Axiall and higher sales prices and volumes for our major products. These increases were partially offset by unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion at the Calvert City facility and other planned and unplanned turnarounds as well as higher energy prices during the nine months ended September 30, 2017, as compared to the prior-year period.production costs.
CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 20172022 AND 20162021
Cash Flows
Operating Activities
Operating activities provided cash of $962.7$2,560 million in the first nine months of 20172022 compared to cash provided by operating activities of $544.2$1,637 million in the first nine months of 2016.2021. The $418.5$923 million increase in cash flows from operating activities was mainly due to an increase in income from operations and lower turnaround related expenditures during the nine months ended September 30, 2017 as compared to the first nine months of 2016, partially offset by an increasefavorable changes in working capital requirements. The increase in net income from operations for the first nine months of 2017 was mainly as a result of higher sales prices and volumes, resulting in a higher margin, and earnings contributed by Axiall, which was acquired on August 31, 2016.capital. 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, used cash of $26.2$248 million in the first nine months of 2017,2022, compared to $10.5$381 million of cash providedused in the first nine months of 2016, an unfavorable2021, a favorable change of $36.7$133 million. The change was mainly driven by an unfavorablefavorable change in accounts receivable, partially offsetthe first nine months of 2022 was driven by favorable changes in inventory, prepaidaccounts receivable and accrued and other current assetsliabilities, which were partially offset by unfavorable changes in inventories and accounts payable.
Investing Activities
Net cash used for investing activities duringin the first nine months of 20172022 was $459.4$2,148 million as compared to net cash used for investing activities of $2,389.1$842 million in the first nine months of 2016. In2021. The increase in investing activities in the first nine months of 2016 we used $2,437.82022 was primarily due to the acquisition of Westlake Epoxy in February 2022 for $1,171 million, net of cash acquired, the purchase of an additional 3.2% interest in LACC for the acquisition$89 million and additional contributions of Axiall.$87 million in LACC. Capital expenditures were $414.3$811 million in the first nine months of 20172022, an increase of $397 million as compared to $467.3$414 million in the first nine months of 2016.2021. Capital expenditures in the first nine months of 20172022 and 2021 were primarily incurred on the upgrade and expansion of OpCo's Calvert City ethylene plant at our Calvert City site. Capital expenditures in the first nine months of 2016 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 the first nine months of 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, we spent $47.0 million in the nine months of 2017 related to our contribution to Lotte Chemical USA Corporation to fund the construction costs of the ethylene plant. Please see "Liquidity and Capital Resources—Liquidity and Financing Arrangements" below for further discussion. Investing activities in the first nine months of 2016 included purchases of securities totaling $138.4 million. We also received aggregate proceeds of $662.9 million from the sales and maturities of our investments in the first nine months of 2016.
Financing Activities
Net cash used for financing activities during the first nine months of 20172022 was $306.4$480 million as compared to net cash provided by financing activities of $1,560.5$1,487 million in the first nine months of 2016. We used $150.0 million and $550.0 million, respectively, for the full repayment of our term loan and the partial repayment of the Credit Agreement in the first nine months of 2017. These uses were partially offset by a drawdown under the Credit Agreement of $225.0 million in the first nine months of 2017 and net proceeds of $110.7 million from the issuance of WLKP common units as a result of its secondary offering in September 2017. During the first nine months of 2017, the restriction on $154.0 million of cash was also removed as a result of the repayment of our term loan.2021. The remaining activities during the first nine months of 20172022 were primarily related to the $76.5$123 million payment of cash dividends, the $20.8$34 million payment of cash distributions to noncontrolling interests, the redemption of $250 million aggregate principal amount of the 3.60% 2022 Senior Notes and repurchases of shares of our common stock for an aggregate amount of $68 million. The activities in the first nine months of 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 such notes. The remaining activities during the nine months ended September 30, 2021 related to the $107 million payment of cash dividends, the $32 million payment of cash distributions to noncontrolling interests and the $0.4 million payment of debt issuance costs. In addition, we repaid $6.7 million of Huasu's short-term notes payable to banks in connection with the payment of suppliers through letters of credit, partially offset by $5.9 million of proceeds from the issuance of such notes payable. The financing activities during the first nine months of 2016 were mainly related to the net proceeds from the issuance of our senior notes and the proceeds from our term loan of $1,428.5 in the aggregate and the drawdown under the Credit Agreement of $600.0 million, partially offset by the $125.0 million partial repayment of the Credit Agreement in the first nine months of 2016. The remaining activity during the first nine months of 2016 was primarily related to the $71.9 million payment of cash dividends, the $12.3 million payment of cash distributions to noncontrolling interests, the $35.2 million payment of debt issuance costs and the $67.4 million of cash used for repurchasesrepurchase of shares of our common stock. In addition, we repaid $10.6 millionstock for an aggregate purchase price of Huasu's short-term notes payable to banks in connection with the payment$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 New Credit Agreement and our long-term financing.
In November 2014, our Board of Directors authorized a $250.0$250 million sharestock repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150.0$150 million. In August 2018, our Board of Directors approved the further expansion of the existing 2014 Program by an additional $150 million. In August 2022, our Board of Directors approved the further expansion of the existing 2014 Program by an additional $500 million. During the third quarter of 2022, we repurchased 372,430 shares of our common stock and in the nine months ended September 30, 2022, we repurchased 784,920 shares of our common stock under the 2014 Program. As of September 30, 2017,2022, we had repurchased 4,193,5988,216,440 shares of our common stock for an aggregate purchase price of approximately $228.7$522 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 flowflows from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
In connectionOn October 4, 2018, Westlake Chemical Partners LP ("Westlake Partners") and Westlake Partners GP, the general partner of Westlake Partners, entered into an Equity Distribution Agreement with the Merger, we became partyUBS 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 Corporationoffer and sell WLK 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 $225.0 millionan aggregate offering amount of $50 million. This Equity Distribution Agreement was amended on February 28, 2020 to fund the construction costs of the ethylene plant, which represents approximately 10.0% of the interests in LACC. The construction of the ethylene plant commenced in January 2016, with an anticipated start-up in 2019. Asreference a new shelf registration for utilization under this agreement. No common units have been issued under this program as of September 30, 2017, we had funded approximately $106.4 million of our portion of the construction costs of the ethylene plant.
2022.
We believe that our sources of liquidity as described above will beare adequate to fund our normal operations and ongoing capital expenditures.expenditures and turnaround activities. Funding of any potential large expansions or any potential acquisitions wouldor the redemption 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 effectivefavorable interest rates due to the volatility of the commercial credit markets.
Cash and Cash Equivalents
As of September 30, 2017,2022, our cash and cash equivalents totaled $678.2$1,778 million. In addition we have theto our cash and cash equivalents, our New Credit Agreement is available to supplement cash ifas needed, as described under "Debt" below.
Debt
As of September 30, 2017,2022, our indebtedness including current maturities, totaled $3.3 billion, consisting of $100.0 million of 6 ½% senior notes due 2029, $250.0 million of 6 ¾% senior notes due 2032, $89.0 million of 6 ½% senior notes due 2035 (the "6 ½% 2035 GO Zone Senior Notes"), $65.0 million of 6 ½% senior notes due 2035 (the "6 ½% 2035 IKE Zone Senior Notes") (collectively, the "Senior Notes"), $624.8 million aggregate principal amount of 4.625% senior notes due 2021 (the "4.625% 2021 Senior Notes"), $63.2 million aggregate principal amount of the 4.625% senior notes due 2021 (the "4.625% Subsidiary 2021 Senior Notes"), $250.0 million principal amount of 3.60% senior notes due 2022 (the "3.6% senior notes due 2022"), $433.8 million aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% 2023 Senior Notes"), $16.2 million aggregate principal amount of the 4.875% senior notes due 2023 (the "4.875% Subsidiary 2023 Senior Notes"), $750.0 million aggregate principal amount of 3.60% senior notes due 2026 (the "3.60% 2026 Senior Notes"), $700.0 million aggregate principal amount of 5.0% senior notes due 2046 (the "5.0% 2046 Senior Notes") and a $10.9 million loan from the proceeds of tax-exempt waste disposal revenue bonds (supported by an $11.3 million letter of credit), plus unamortized premium net of unamortized discount and debt issuance costs of $3.5 million. The 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes evidence and secure our obligations$4.8 billion. See Note 8 to the Louisiana Local Government Environmental Facility and Development Authority (the "Authority"),consolidated financial statements appearing elsewhere in this Form 10-Q for a political subdivisiondiscussion of our long-term indebtedness. Defined terms used in this section have the State of Louisiana, under four loan agreements relatingdefinitions assigned to such terms in Note 8 to the issuanceconsolidated financial statements included in Item 1 of $100.0 million, $250.0 million, $89.0 million and $65.0 million aggregate principal amount of the Authority's tax-exempt revenue bonds, respectively. As of September 30, 2017, debt outstanding under the tax-exempt waste disposal revenue bonds bore interest at a variable rate. As of September 30, 2017, we were in compliance with all of the covenants with respect to the Senior Notes, the 4,625% 2021 Senior Notes, the 4.625% Subsidiary 2021 Senior Notes, the 3.60% senior notes due 2022, the 4.875% 2023 Senior Notes, the 4.875% Subsidiary 2023 Senior Notes, the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, the Credit Agreement and our waste disposal revenue bonds.this Form 10-Q.
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 flowflows from operations, available cash and available borrowings under the New Credit Agreement will be adequate to meet our normal operating needs for the foreseeable future.
New Credit Agreement
On August 10, 2016, our indirect subsidiary, Westlake International Holdings II C.V., a limited partnership organized underJune 9, 2022, the laws of the Netherlands (the "CV Borrower"),Company entered into a credit agreement with Bank of America, N.A., as agent and lender, providing the CV Borrower with a $150.0 million term loan facility. The term loan facility had a 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 2.0% per annum, payable in arrears on the last day of each three-month period following the date of funding and at maturity.
Credit Agreement
On August 23, 2016, we and certain of our subsidiaries entered into an unsecurednew $1.5 billion revolving credit facility that is scheduled to mature on June 9, 2027 (the "Credit"New Credit Agreement"), by and, among us,in connection therewith, terminated the other borrowersCompany's existing revolving credit agreement. The New Credit Agreement bears interest at either (a) Adjusted Term SOFR (as defined in the New Credit Agreement) plus a margin ranging from 1.000% to 1.625% per annum or (b) Alternate Base Rate (as defined in the New Credit Agreement) plus a margin ranging from 0.000% to 0.625% per annum, in each case depending on the credit rating of the Company. The New Credit Agreement contains certain affirmative and guarantors referred to therein,negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of September 30, 2022, the Company was in compliance with the total leverage ratio financial maintenance covenant. The New 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 New Credit Agreement will accrue interest at an increased rate, the lenders from timecan terminate their commitments to time party thereto (collectively,lend thereunder and payments of any outstanding amounts thereunder could be accelerated by the "Lenders"),lenders. None of the issuing banks party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent. UnderCompany's subsidiaries are required to guarantee the obligations of the Company under the New Credit Agreement, the Lenders have committed to provide an unsecured five-year revolving credit facility in an aggregate principal amount of up to $1.0 billion. Agreement.
The Credit Agreement replaced our $400.0 million senior secured third amended and restated credit facility, dated as of July 17, 2014 (the "Prior ABL Credit Agreement"), by and among us, the financial institutions party thereto, as lenders, Bank of America, N.A., as agent, and us and certain of our subsidiaries, as borrowers. TheNew Credit Agreement includes a $150.0$150 million sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The New Credit Agreement also provides for a discretionary $50.0$50 million commitment for swing-lineswingline loans to be provided on a same-day basis. WeThe Company may also increase the size of the facility, in increments of at least $25.0$25 million, up to a maximum of $500.0$500 million, subject to certain conditions and if certain Lenderslenders agree to commit to such an increase. On October 14, 2016, certain domestic subsidiaries
0.875% Senior Notes due 2024
In August 2021, we completed the registered public offering of Axiall and Lagoon LLC were added as subsidiary guarantors to the Credit Agreement.
At September 30, 2017, we had no borrowings outstanding under the Credit Agreement. Borrowings under the Credit Agreement will bear interest, at our option, at either (a) LIBOR plus a spread ranging from 1.0% to 1.75% that will vary depending on our credit rating or (b) Alternate Base Rate plus a spread ranging from 0.0% 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. The Credit Agreement matures on August 23, 2021. As of September 30, 2017, we had outstanding letters of credit totaling $45.4$300 million and borrowing availability of $954.6 million under the Credit Agreement.
Our obligations under the Credit Agreement are guaranteed by our current and future material domestic subsidiaries, subject to customary exceptions. The Credit Agreement contains customary affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. The Credit Agreement also contains customary 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 September 30, 2017, we were in compliance with the total leverage ratio financial maintenance covenant.
GO Zone and IKE Zone Bonds
As of September 30, 2017, we had drawn all the proceeds from the issuanceaggregate principal amount of the 6 ½% senior notes due 2029, 6 ¾% senior notes due 2032, 6 ½% 2035 GO Zone0.875% 2024 Senior Notes. We may optionally redeem the 0.875% 2024 Senior Notes and 6 ½% 2035 IKE Zone Senior Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 2016 Form 10-K and below for more information on the 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes. All domestic restricted subsidiaries that guarantee other debt of ours or of another guarantor of the Senior Notes in excess of $5.0 million are guarantors of these notes.
The $250.0 million of 6 ¾% senior notes due November 1, 2032 under the GO Zone Act was issued by the Authority in December 2007. The bonds were subject to optional redemption by the Authority upon the direction of the Company at any time and from time to time on or after November 1, 2017August 15, 2022 for 100.0%100% of the principal amount plus accrued and unpaid interest. During September 2017, we directedThe holders of the Authority0.875% 2024 Senior Notes may require us to optionally redeem in full $250.0 million 6 ¾% senior notes on November 1, 2017repurchase the 0.875% 2024 Senior Notes at a redemption price of par,101% of their principal amount, plus accrued and unpaid interest if any, to, but not including, the redemption date. The Authority is required to causedate of repurchase, upon the GO Zone Bonds trustee to surrender the 6 ¾% senior notes due November 2032occurrence of $250.0 million, to the Senior Notes trustee for cancellation. We used cash on hand to fund the redemptionboth a "change of the GO Zone Bonds.
The indentures governing the Senior Notes contain customary covenants and eventssuch change of default. Accordingly, these agreements generally impose significant operating and financial restrictions on us. 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 Senior Notes are currently ratedcontrol, a "below investment grade by at least two nationally recognized credit rating agencies. The most significant of these provisions, if it were currently effective, would restrict us from incurring additional debt, except specified permitted debt (including borrowings under our credit facility), when our fixed charge coverage ratio is below 2.0:1. These limitationsevent" (as such terms are subject to a number of important qualifications and exceptions, including, without limitation, an exception for the payment of our regular quarterly dividend of up to $0.10 per share. If the restrictions were currently effective, distributions in excess of $100.0 million would not be allowed unless, after giving pro forma effect to the distribution, our 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 50.0% of our consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which consolidated financial statements have been filed, plus 100.0% of net cash proceeds received after October 1, 2003 as a contribution to our common equity capital or from the issuance or sale of certain securities, plus several other adjustments.
3.60% Senior Notes due 2022
The 3.60% senior notes due 2022 are unsecured and were issued with an original issue discount of $1.2 million. There is no sinking fund and no scheduled amortization of the 3.60% senior notes due 2022 prior to maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt"defined in the2016 Form 10-K for more information on the 3.60% senior notes due 2022. All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% senior notes due 2022 in excess of $5.0 million are guarantors of the 3.60% senior notes due 2022.
The indenture governing the 3.60% senior notes due 2022 contains customary events of default and covenants that will restrict our and certain of our 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 our or their assets.0.875% 2024 Senior Notes).
3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, we issued $750.0completed the private offering of $750 million aggregate principal amount of the 3.60% 2026 Senior Notes and $700.0$700 million aggregate principal amount of the 5.0% 2046 Senior Notes. In connection withMarch 2017, the private offering and issuance of the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes, we entered into a registration rights agreement pursuant to which, among other things, we agreed to file with the SEC a registration statement relating to an offer to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for the 2026 and 2046 Exchange Notes containing terms substantially identical to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes (except that the transfer restrictions on the 2026 and 2046 Exchange Notes will be modified or eliminated and there will be no registration rights). On March 27, 2017, weCompany 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-registered notes have been registered under the Securities Act.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 100.00%100% of the 5.0% 2046 Senior Notes were exchanged. The 3.60% 2026 Senior Notesnotes that were not exchanged pursuant toin 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 United StatesU.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.
All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% 2026 Senior Notes or the 5.0% 2046 Senior Notes in excess of $40.0 million are guarantors of the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes. The indenture governing the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes contains customary events of default and covenants that will restrict our and certain of our 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 our or their assets. References to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes in this paragraph refer to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes that were exchanged in the exchange offers described in the preceding paragraph as well as the 3.60% 2026 Senior Notes that were not exchanged in such exchange offers.
4.625% Senior Notes due 2021 and 4.875% Senior Notes due 2023
In September 2016, we issued $624.8 million aggregate principal amount of the 4.625% 2021 Senior Notes and $433.8 million aggregate principal amount of the 4.875% 2023 Senior Notes upon the closing of our offers to exchange any and all of the $688.0 million aggregate principal amount of the outstanding 4.625% senior notes due 2021 issued by Eagle Spinco Inc., a wholly owned subsidiary of Axiall, and the $450.0 million aggregate principal amount of the outstanding 4.875% senior notes due 2023 issued by Axiall. In connection with the private offering and issuance of the 4.625% 2021 Senior Notes and the 4.875% Senior Notes, we entered into a registration rights agreement pursuant to which, among other things, we agreed to file with the SEC a registration statement relating to an offer to exchange the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes for new SEC registered notes (the "2021 and 2023 Exchange Notes") containing terms substantially identical to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes except that the transfer restrictions on the 2021 and 2023 Exchange Notes will be modified or eliminated and there will be no registration rights). On March 27, 2017, we commenced registered exchange offers to exchange the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes for new notes that are identical in all material respects to the 4.625% 2021 Senior Notes and the 4.875% 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 100.0% of the 4.625% 2021 Senior Notes and 100.0% of the 4.875% 2023 Senior Notes were exchanged.
All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 4.625% 2021 Senior Notes or the 4.875% 2023 Senior Notes in excess of $40.0 million are guarantors of the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes. The indenture governing the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes contains customary events of default and covenants that will restrict our and certain of our 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 our or their assets. References to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes in this paragraph refer to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes that were exchanged in the exchange offers described in the preceding paragraph.
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 $10.9$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 September 30, 2022 was 2.45% and at December 31, 2021 was 0.14%.
1.625% Senior Notes due 2029
In July 2019, we completed the registered public offering of €700 million aggregate principal amount of the 1.625% 2029 Senior Notes. 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. 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 the 4.375% 2047 Senior Notes. 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, L.L.C. ("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 $6 million at September 30, 2022.
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 approximately $21 million. The interest rate on these loans as of September 30, 2022 was 0.2%. The unsecured loans include a government rate subsidy and have a 5-year maturity. The balance outstanding under these loans was approximately $13 million as of September 30, 2022.
The indenture governing 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 contains customary events of default and covenants that, among other things and subject to certain exceptions, restrict us and certain of our 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 September 30, 2022, 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 $300.0$600 million revolving credit facility with Westlake Chemical Partners LP ("WLKP"Westlake Partners"). On August 1, 2017, the revolving credit facility was amended (the "MLP Revolver") that is scheduled to extend the maturity from 2018 to 2021. Borrowings under the revolver bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (dependingmature on WLKP's consolidated leverage ratio), payable quarterly. WLKP 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.July 12, 2027. As of September 30, 2017,2022, outstanding borrowings under the credit facility totaled $253.5$377 million and bore interest at SOFR plus the Applicable Margin plus a 0.10% credit spread adjustment. On July 12, 2022, Westlake Partners entered into the Fourth Amendment (the "MLP Revolver Amendment") to the MLP Revolver. The MLP Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of LIBOR with Secured Overnight Financing Rate, as administered by the Federal Reserve Bank of New York ("SOFR"). Borrowings under the MLP Revolver now bear interest at a variable rate of either (a) SOFR plus 2.0%the Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the MLP Revolver varies between 1.75% and 2.75%, depending on the Partnership's Consolidated Leverage Ratio.
Our subsidiary, Westlake Development Corporation,Polymers LLC, is the lender partyadministrative agent to a $600.0$600 million revolving credit facility with OpCo. The revolving credit facility matures in 2019. Westlake Chemical OpCo LP ("OpCo") (the "OpCo Revolver") that is scheduled to mature on July 12, 2027. As of September 30, 2017,2022, outstanding borrowings under the credit facility totaled $223.6$23 million and bore interest at SOFR plus the Applicable Margin of 1.75% plus a 0.10% credit spread adjustment. On July 12, 2022, OpCo entered into the Second Amendment (the "OpCo Revolver Amendment") to the OpCo Revolver. The OpCo Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of LIBOR with SOFR. Borrowings under the OpCo Revolver now bear interest at a variable rate of either (a) SOFR plus 3.0%, whichthe Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is accrued in arrears quarterly.no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the OpCo Revolver is 1.75%.
We consolidate WLKPWestlake 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 WLKPWestlake Partners and OpCo are eliminated upon consolidation.
Off-Balance Sheet Arrangements
None.
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 report are forward-looking statements. All statements, other than statements of historical facts, included in this report 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 (including any changes as a result of economic growth or North American producers' competitive position);products;
•industry market outlook, including the price of crude oil;oil, natural gas, housing starts and repair and remodeling activity;
•macroeconomic outlook, including rising interest rates, inflation and possible recession;
•widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the COVID-19 pandemic, and efforts to contain its transmission;
•our plans to respond to the challenges presented by the COVID-19 pandemic;
•production capacities;
•the impact of ongoing supply chain constraints and workforce availability caused by the COVID-19 pandemic and the conflict between Russia and Ukraine;
•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 Westlake Epoxy;
•timing, funding and results of capital projects, such as the construction of the LACC plant and associated facilities;projects;
results of acquisitions, including our acquisition of Axiall (including the benefits, results and effects thereof);
•pension plan obligations, funding requirements and investment policies;
•compliance with present and future environmental regulations and costs associated with environmentally 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 greenhouse gasesgas 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" in the 20162021 Form 10-K 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 Westlake Epoxy and the ultimate outcome of our operating efficiencies applied to the products and services of the Boral Target Companies, LASCO, Dimex and Westlake Epoxy; the effects of the acquisitions, 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;conditions, including inflation, interest rates and recession;
•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 and elsewhere including the Commonwealth of Independent States (including Ukraine)conflict between Russia and elsewhere;Ukraine;
•uncertainties associated with pandemic infectious diseases, particularly COVID-19;
•uncertainties associated with global warming;
•the potential impact on demand for ethylene due to initiatives such as recycling and customers seeking alternatives to polymers;
•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;
our ability to realize anticipated benefits•information systems failures and cyberattacks;
charges or other liabilities relating to the Merger;
the significant indebtedness that we have incurred in connection with the Merger;
our ability to integrate acquired businesses other than Axiall;
•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.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
A substantial portion of our products and raw materials (such as ethane, natural gas and propane) 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 (including commodity swaps and options) in certain instances to reduce price volatility risk on feedstocks and products. Based on our open derivative positions at September 30, 2017,2022, a hypothetical $0.10 increase in the price of a gallon of ethane would have increased our income before income taxes by $6.9$27 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 $3.8$1 million. Additional information concerning derivative commodity instruments appears in Notes 13 and 14 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q.
Interest Rate Risk
We are exposed to interest rate risk with respect to fixed and variable rate debt. At September 30, 2017,2022, we had $10.9$4,892 million principal amount of variable rate debt outstanding. The debt outstanding under the tax-exempt waste disposal revenue bonds is at a variable rate. 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 $10.9 million as of September 30, 2017 was 1.0%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would increase our annual interest expense by approximately $0.1 million. Also, at September 30, 2017, we had $3.3 billion 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 1.0% higher at the time of refinancing, our annual interest expense would increase by approximately $33.4$49 million. Also, at September 30, 2022, we had $24 million principal amount of variable rate debt outstanding, which represents the term loans due 2026 and the tax-exempt waste disposal revenue bonds due 2027. We do not currently hedge our variable interest rate debt, but we may do so in the future. The weighted average variable interest rate for our variable rate debt of $24 million as of September 30, 2022 was 1.21%. 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.
Secured Overnight Financing Rate ("SOFR") is used as a reference rate for borrowings under our revolving line of credit. We did not have any SOFR-based borrowings outstanding at September 30, 2022.
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 September 30, 2022. The arrangement is scheduled to mature 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.
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Item 4. | Controls and Procedures |
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures are effective with respect to (i) the accumulation and communication to our management, including our Chief Executive Officer and our Chief Financial Officer, of information required to be disclosed by us in the reports that we submit under the Exchange Act, and (ii) the recording, processing, summarizing and reporting of such information within the time periods specified in the SEC's rules and forms.
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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Item 1. | Item 1. Legal Proceedings |
The 20162021 Form 10-K, filed on February 22, 2017,23, 2022, contained a description of various legal proceedings in which we are involved. See below and Note 1814 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for a description of certain of those proceedings, which information is incorporated by reference herein.
We and other caustic soda producers were named as defendants in multiple purported class action civil lawsuits filed since March 2019 in the U.S. District Court for the Western District of New York. The lawsuits allege the defendants conspired to fix, raise, maintain and stabilize the price of caustic soda, restrict domestic (U.S.) supply of caustic soda and allocate caustic soda customers. The other defendants named in the lawsuits are Olin Corporation, K.A. Steel Chemicals (a wholly owned subsidiary of Olin), Occidental Chemical Corporation d/b/a OxyChem, Shintech Incorporated, and Formosa Plastics Corporation, U.S.A. Each of the lawsuits is filed on behalf of the respective named plaintiff or plaintiffs and a putative class comprised of either direct purchasers or indirect purchasers of caustic soda in the U.S. The plaintiffs in the putative class for such direct purchasers seek $861 million in single damages from the defendants, in addition to treble damages and attorney's fees. The plaintiffs in the putative class for such indirect purchasers seek an approximately $500 million in single damages from the defendants, in addition to treble damages (if permitted under applicable state law) and injunctive relief. The defendants' joint motion to dismiss the direct purchaser lawsuits was denied and the cases have proceeded to discovery. Beginning in October 2020, similar class action proceedings were also filed in Canada before the Superior Court of Quebec as well as before the Federal Court. These proceedings seek the certification or authorization of a class action on behalf of all residents of Canada who purchased caustic soda (including, in one of the cases, those who merely purchased products containing caustic soda) from October 1, 2015 through the present or such date deemed appropriate by the court. On December 10, 2021, the Superior Court of Quebec stayed its proceedings until after a final certification decision is released in the Federal Court proceedings. At this time, we are not able to estimate the impact, if any, that these lawsuits could have on our consolidated financial statements either in the current period or in future periods.
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, the following environmental matters involve a governmental authority as a party to the proceedings and potential monetary sanctions that we believe could exceed $1 million (which is less than one percent of our current assets on a consolidated basis as of September 30, 2022):
•For several years, the Environmental Protection Agency (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 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. In June 2022, the Department of Justice announced that the Company, EPA and state environmental agencies had reached agreement on a consent decree resolving this matter. The consent decree requires the Company to install flare gas recovery units, implement fence line monitoring, install and operate flare monitoring and control equipment to meet certain performance standards, and pay a penalty of $1 million. Implementation of the requirements under the decree is estimated to cost approximately $110 million, which includes capital expenditures associated with installation of the flare gas recovery units we are required to install at our Calvert City and Lake Charles facilities. The capital expenditures and other costs required to comply with the consent decree have either been incurred in 2021 or will be incurred over the course of 2022 and 2023. The 30-day federal public comment period for the consent decree has concluded, as well as the public comment period for the states. When the court enters the consent decree, it will become effective. We do not believe that the resolution of these flare matters will have a material adverse effect on our financial condition, results of operations or cash flows.
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Item 1A. | Item 1A. Risk Factors |