WESTLAKE CHEMICAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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This discussion and analysis should be read in conjunction with information
contained in the accompanying unaudited consolidated interim financial
statements of Westlake Chemical Corporation 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, 2020 (the "2020 Form 10-K"). Unless
otherwise indicated, references in this report to "we," "our," "us" or like
terms refer to Westlake Chemical 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.
We are a vertically-integrated global manufacturer and marketer of basic
chemicals, vinyls, polymers and building products. Our two principal operating
segments are Vinyls and Olefins. We use the majority of our internally-produced
basic chemicals to produce higher value-added chemicals, polymers and building
products.
Consumption of the basic chemicals that we manufacture in the commodity portions
of our vinyls and olefins processes has increased significantly since we began
operations in 1986. Our vinyls and olefins products are some of the most widely
used chemicals in the world and are upgraded into a wide variety of higher
value-added chemical products used in many end-markets. Chlor-alkali and
petrochemicals are typically manufactured in large volume by a number of
different producers using widely available technologies. The chlor-alkali and
petrochemical 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.
Westlake is the second-largest chlor-alkali producer and the second-largest PVC
producer in the world. Demand for vinyl products in the first half of 2020 was
negatively impacted by the onset of the coronavirus ("COVID-19") pandemic.
Global demand for most of our vinyls products started strengthening in the
second half of 2020 and remained strong through the third quarter of 2021, and
we expect global demand for most of our vinyls products to remain robust through
the remainder of 2021 and well into 2022. Depending on the performance of the
global economy, potential changes in international trade and tariffs policies,
the trend of crude oil prices, the timing of the new capacity additions in 2021
and beyond, and the sustainability of the current, strong demand for most of our
products, our financial condition, results of operations or cash flows could be
negatively or positively impacted.
Ethane-based ethylene producers have in the recent past experienced a cost
advantage over naphtha-based ethylene producers during periods of higher crude
oil prices. This cost advantage has resulted in a strong export market for
polyethylene and other ethylene derivatives and has benefited operating margins
and cash flows for our Olefins segment during such periods. However, we have
seen a significant reduction in the cost advantage enjoyed by North American
ethane-based ethylene producers during periods of lower crude oil prices. In the
past year, we have seen volatility in ethane and ethylene prices, primarily due
to changes in demand resulting from the COVID-19 pandemic, anticipated timing
for certain new ethylene capacity additions and availability of natural gas
liquids, as well as fluctuation in the price of crude oil. Additionally, we have
seen volatility in ethane and ethylene prices in 2021 due to winter storm Uri
and Hurricane Ida that resulted in shutdowns of many industry production
facilities on the Gulf Coast and delayed or extended the timing of planned
turnarounds of various ethylene crackers. Global demand for most of our olefins
products started strengthening in the second half of 2020 and remained strong
through the third quarter of 2021, and we expect global demand for most of our
olefins products to remain robust through the remainder of 2021 and the first
half of 2022. However, new ethylene and polyethylene capacity additions in North
America, Asia and the Middle East will add additional supply and may contribute
to periods of lower profitability in our Olefins segment.
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Significant Developments
COVID-19, Industry Conditions and Our Business
On March 11, 2020, the World Health Organization declared the ongoing COVID-19
outbreak a pandemic and recommended containment and mitigation measures
worldwide. The pandemic has resulted in widespread adverse impacts on the global
economy. We experienced significant disruptions in the second quarter of 2020 as
the pandemic and its impact on the global economy spread through most of our
markets. We were designated as an essential industry by many governments based
on the nature of the products we manufacture. While demand for some of our
products used in cleaning, packaging and medical applications and manufacturing
continued to be firm, we expected lower demand for certain of our other products
that led us to proactively temporarily idle production at several of our smaller
non-integrated plants and reduce operating rates at others in the beginning of
the second quarter of 2020. Since the middle of the second quarter of 2020, a
general ease in government restrictions in many jurisdictions across the world
has resulted in a gradual increase in demand for our products. As a result, all
of our idled plants recommenced production. Except for the impact of the winter
storm Uri and Hurricane Ida, operating rates have improved for most of our
plants since the second half of 2020 due to continuing increase in demand for
our products. Though the government restrictions across the world generally
eased through the third quarter of 2021, there is considerable uncertainty
regarding the extent to which COVID-19 will continue to spread and the extent
and duration of governmental and other measures implemented to try to slow the
spread of the virus. Factors that could impact the spread of COVID-19 include
timing and logistics with respect to the distribution of vaccines globally and
the efficacy of the available vaccines (including with respect to the more
recent variants of COVID-19) and other treatments. We continue to monitor the
volatile environment and may reduce operating rates or idle production if the
pandemic and its financial impacts persist or worsen. Considering the uncertain
and volatile environment, we could continue to experience significant
disruptions to our business operations in the near future.
For additional discussion regarding our operations and COVID-19, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Part II of the 2020 Form 10-K. For additional discussion regarding
risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors in Part I
of the 2020 Form 10-K.
Acquisitions
Acquisition of Boral Target Companies
On June 20, 2021, Royal Building Products (USA) Inc. ("RBP"), one of our
wholly-owned subsidiaries, entered into that certain Equity Purchase Agreement
(the "Boral Purchase Agreement") by and among Boral Building Products Inc., a
Michigan corporation, Boral Stone Products LLC, a Delaware limited liability
company, Boral Lifetile Inc., a California corporation, Boral Windows LLC, a
Utah limited liability company, Boral Industries Inc., a California corporation
("Boral Industries"), RBP and, solely for the limited purposes set forth
therein, Westlake and Boral Limited, an Australian corporation ("Boral").
Pursuant to the terms of the Boral Purchase Agreement, RBP agreed to acquire
from Boral Industries 100% of the issued and outstanding equity interests of
certain subsidiaries of Boral Industries engaged in Boral's North American
building products businesses in roofing, siding, trim and shutters, decorative
stone and windows (the "Boral Target Companies") for a purchase price of $2.15
billion in cash, subject to working capital post-closing adjustment, as well as
a potential earn-out payment from RBP to Boral Industries of up to $65 million
if Boral's windows business generates EBITDA in excess of a specified target in
its fiscal year ending June 30, 2024 (the "Boral Acquisition").
On October 1, 2021, we completed the acquisition of, and acquired all of the
equity interests in, the Boral Target Companies.
Other Acquisitions
LASCO Fittings, Inc. On July 4, 2021, North American Pipe Corporation ("NAPCO"),
one of our wholly-owned subsidiaries, entered into that certain Equity Purchase
Agreement with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts")
and wholly-owned subsidiary of Aalberts N.V., pursuant to which NAPCO agreed to
acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts.
On August 19, 2021, we completed the acquisition of, and acquired all of the
equity interests in, LASCO. The total closing purchase consideration was $277
million (the "LASCO Acquisition"). The assets acquired and liabilities assumed
and the results of operations of LASCO are included in the Vinyls segment. LASCO
is a manufacturer of injected-molded PVC fittings that serve the plumbing, pool
and spa, industrial, irrigation and retail markets in the United States.
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Dimex Inc. On August 2, 2021, Rome Delaware Corp. ("Rome"), one of our
wholly-owned subsidiaries, entered into that certain Stock Purchase Agreement
(the "Dimex Purchase Agreement") with DX Acquisition Corp., a Delaware
corporation ("Dimex"), each of Dimex's stockholders, and for limited purposes,
Westlake and Grey Mountain Partners Fund III Holdings, L.P., pursuant to which
Rome agreed to acquire Dimex. On September 10, 2021, we completed the
acquisition of, and acquired all of the equity interests in, Dimex. The total
closing purchase consideration was $172 million, subject to working capital
post-closing adjustments (the "Dimex Acquisition" and, together with the Boral
Acquisition and the LASCO Acquisition, the "Acquisitions"). The assets acquired
and liabilities assumed and the results of operations of Dimex are included in
the Vinyls segment. Dimex is a producer of various consumer products made from
post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic
elastomer materials, including, landscape edging; industrial, home and office
matting; marine dock edging; and masonry joint controls.
Senior Notes Offering
On August 19, 2021, we completed the registered public offering of $300 million
aggregate principal amount of 0.875% senior notes due 2024 (the "0.875% 2024
Senior Notes"), $350 million aggregate principal amount of 2.875% senior notes
due 2041 (the "2.875% 2041 Senior Notes"), $600 million aggregate principal
amount of 3.125% senior notes due 2051 (the "3.125% 2051 Senior Notes") and $450
million aggregate principal amount of 3.375% senior unsecured notes due 2061
(the "3.375% 2061 Senior Notes" and, together with the 0.875% 2024 Senior Notes,
the 2.875% 2041 Senior Notes and the 3.125% 2051 Senior Notes, the "Notes"). The
net proceeds from the offering of the Notes were used to fund a portion of the
purchase prices of the Acquisitions. See "Liquidity and Capital Resources-Debt"
below and Note 8 to the consolidated financial statements included in this Form
10-Q for more information.
Hurricane Ida
On August 29, 2021, Hurricane Ida made a landfall in Louisiana as a category 4
storm. Due to Hurricane Ida, several of our facilities in the region experienced
disruption to their operations, resulting in lost production and sales and
higher maintenance expense in the three months ended September 30, 2021. Our
facilities impacted by Hurricane Ida have since resumed production.
Petro 2 Facility Flash Fire
In September 2021, Westlake Chemical OpCo LP's Petro 2 ethylene unit commenced
turnaround activities. On September 27, 2021, shortly after the turnaround
commenced, there was a flash fire at the quench tower of the Petro 2 facility.
Several contractors working on the quench tower were injured. Although there was
no sustained fire or offsite impact resulting from the incident and the quench
tower did not sustain significant damage, due to the subsequent investigation by
the Occupational Safety and Health Administration, the duration of the
turnaround has been extended and is now expected to conclude in December. There
are five lawsuits pending in connection with the flash fire at the quench tower
during the Petro 2 turnaround.
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Non-GAAP Financial Measures
The body of accounting principles generally accepted in the United States is
commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure
is generally defined by the Securities and Exchange Commission ("SEC") as one
that purports to measure historical or future financial performance, financial
position or cash flows that (1) excludes amounts, or is subject to adjustments
that have the effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in accordance with GAAP in
the statement of income, balance sheet or statement of cash flows (or equivalent
statements) of the registrant; or (2) includes amounts, or is subject to
adjustments that have the effect of including amounts, that are excluded from
the most directly comparable measure so calculated and presented. In this
report, we disclose non-GAAP financial measures, primarily earnings before
interest, taxes, depreciation and amortization ("EBITDA"). We define EBITDA as
net income before interest expense, income taxes, depreciation and amortization.
The non-GAAP financial measures described in this Form 10-Q are not substitutes
for the GAAP measures of earnings and cash 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. EBITDA is not
a substitute for the GAAP measures of net income, income from operations and net
cash provided by operating activities and is not necessarily a measure of our
ability to fund our cash needs. In addition, it should be noted that companies
calculate EBITDA differently and, therefore, EBITDA as presented for us may not
be comparable to EBITDA reported by other companies. EBITDA has material
limitations as a performance measure because it excludes interest expense,
depreciation and amortization and income taxes.
A reconciliation of EBITDA to net income, income from operations and net cash
provided by operating activities is included in the "Results of Operations"
section below.
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Results of operations

                                                 Three Months Ended September 30,         Nine Months Ended September 30,
                                                      2021                2020                2021                2020

                                                               (dollars in millions, except per share data)
Net external sales
Vinyls
PVC, caustic soda and other                      $     1,834          $   1,116          $     4,950          $   3,333
Building products                                        514                413                1,406              1,049
Total Vinyls                                           2,348              1,529                6,356              4,382
Olefins
Polyethylene                                             559                302                1,488                914
Styrene, feedstock and other                             148                 67                  427                243
Total Olefins                                            707                369                1,915              1,157
Total                                            $     3,055          $   1,898          $     8,271          $   5,539

Income (loss) from operations
Vinyls                                           $       601          $      42          $     1,236          $     135
Olefins                                                  281                 51                  738                138
Corporate and other                                      (21)               (14)                 (47)               (22)
Total income from operations                             861                 79                1,927                251
Interest expense                                         (61)               (37)                (130)              (108)
Other income, net                                         13                 12                   35                 32
Provision for (benefit from) income taxes                193                (15)                 423                (75)
Net income                                               620                 69                1,409                250
Net income attributable to noncontrolling
interests                                                 13                 12                   38                 33
Net income attributable to Westlake
Chemical Corporation                             $       607          $      57          $     1,371          $     217
Diluted earnings per share                       $      4.69          $    0.45          $     10.60          $    1.69
EBITDA (1)                                       $     1,077          $     287          $     2,562          $     860


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(1) See “Reconciliation of EBITDA to net income, operating income and net cash provided by operating activities” below.

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  Table of Contents

                                                   Three Months Ended September 30, 2021               Nine Months Ended September 30, 2021
                                                       Average                                            Average
                                                     Sales Price                 Volume                 Sales Price                 Volume
Product sales price and volume percentage
change from prior-year period
Vinyls                                                       +53.0  %                +0.5  %                    +41.5  %                +3.5  %
Olefins                                                      +88.1  %                +3.6  %                    +71.8  %                -6.2  %
Company                                                      +59.8  %                +1.1  %                    +47.8  %                +1.5  %

                                                          Average Industry Prices (1)
                                                      Three Months Ended September 30,                   Nine Months Ended September 30,
                                                        2021                      2020                     2021                      2020

Average domestic prices
Natural gas ($/MMBtu) (2)                                      4.0                    2.0                         3.2                    1.9
Ethane (cents/lb) (3)                                         11.7                    7.4                         9.5                    6.2
Propane (cents/lb) (4)                                        27.6                   11.9                        23.2                   10.1
Ethylene (cents/lb) (5)                                       48.0                   19.3                        45.3                   15.4
Polyethylene (cents/lb) (6)                                  109.0                   61.0                        95.3                   54.1
Styrene (cents/lb) (7)                                        82.0                   53.8                        83.0                   54.8
Caustic soda ($/short ton) (8)                                 825                    697                         743                    681
Chlorine ($/short ton) (9)                                     443                    176                         328                    176
PVC (cents/lb) (10)                                          109.0                   73.3                       102.3                   70.6

Average export prices
Polyethylene (cents/lb) (11)                                  86.0                   45.7                        84.0                   41.2
Caustic soda ($/short ton) (12)                                364                    260                         315                    261
PVC (cents/lb) (13)                                           74.1                   38.5                        73.2                   34.3


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(1)Industry pricing data was obtained through IHS Markit ("IHS"). We have not
independently verified the data.
(2)Average Burner Tip contract prices of natural gas over the period.
(3)Average Mont Belvieu spot prices of purity ethane over the period.
(4)Average Mont Belvieu spot prices of non-TET propane over the period.
(5)Average North American spot prices of ethylene over the period.
(6)Average North American Net Transaction prices of polyethylene low density
GP-Film grade over the period.
(7)Average North American contract prices of styrene over the period.
(8)Average USGC-CSLi index values for caustic soda over the period. As stated by
IHS, "the caustic soda price listing represents the USGC-CSLi values. USGC-CSLi
does not reflect contract price discounts, implementation lags, caps or other
adjustments factors. Additionally, it is not intended to represent a simple
arithmetic average of all market transactions occurring during the month.
Rather, the USGC-CSLi is most representative of the month-to-month caustic soda
price movement for contract volumes of liquid 50% caustic soda rather than the
absolute value of contract prices at a particular point in time. It is intended
to serve only as a benchmark."
(9)Average North American contract prices of chlorine over the period.
(10)Average North American contract prices of pipe grade polyvinyl chloride
("PVC") over the period. As stated by IHS, "the contract resin prices posted
reflect an "index" or "market" for prices before discounts, rebates, incentives,
etc."
(11)Average North American export price for low density polyethylene GP-Film
grade over the period.
(12)Average North American low spot export prices of caustic soda over the
period.
(13)Average North American spot export prices of PVC over the period.
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Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash
Provided by Operating Activities
The following table presents the reconciliation of EBITDA to net income, income
from operations and net cash provided by operating activities, the most directly
comparable GAAP financial measures, for each of the periods indicated.
                                                Three Months Ended September 30,         Nine Months Ended September 30,
                                                     2021                2020                2021                2020

                                                                          (dollars in millions)
Net cash provided by operating activities       $       755          $     357          $     1,637          $     866
Changes in operating assets and
liabilities and other                                  (109)              (230)                (178)              (462)
Deferred income taxes                                   (26)               (58)                 (50)              (154)
Net income                                              620                 69                1,409                250
Less:
Other income, net                                        13                 12                   35                 32
Interest expense                                        (61)               (37)                (130)              (108)
Benefit from (provision for) income taxes              (193)                15                 (423)                75
Income from operations                                  861                 79                1,927                251
Add:
Depreciation and amortization                           203                196                  600                577
Other income, net                                        13                 12                   35                 32
EBITDA                                          $     1,077          $     287          $     2,562          $     860


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Summary

For the quarter ended September 30, 2021, net income attributable to Westlake
was $607 million, or $4.69 per diluted share, on net sales of $3,055 million.
This represents an increase in net income attributable to Westlake of $550
million, or $4.24 per diluted share, compared to the quarter ended September 30,
2020 net income attributable to Westlake of $57 million, or $0.45 per diluted
share, on net sales of $1,898 million. Income from operations for the quarter
ended September 30, 2021 was $861 million, a $782 million increase from income
from operations of $79 million for the quarter ended September 30, 2020. 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 resulting from
continued improvement in global economic activity, strong residential
construction and repair and remodeling markets in North America, and strong
demand from the packaging and other consumer markets. In addition, the third
quarter of 2021 net income and operating income were positively impacted by
higher margin contribution on ethylene produced by our joint venture LACC, LLC
("LACC") and were negatively impacted by higher feedstock costs, fuel costs,
selling, general and administrative expense. Net sales for the quarter ended
September 30, 2021 increased by $1,157 million compared to net sales for the
quarter ended September 30, 2020, mainly due to higher sales prices for our
major products, partially offset by lower sales volumes for downstream building
products.
For the nine months ended September 30, 2021, net income attributable to
Westlake was $1,371 million, or $10.60 per diluted share, on net sales of $8,271
million. This represents an increase in net income attributable to Westlake of
$1,154 million, or $8.91 per diluted share, compared to the nine months ended
September 30, 2020 net income attributable to Westlake of $217 million, or $1.69
per diluted share, on net sales of $5,539 million. Income from operations for
the nine months ended September 30, 2021 was $1,927 million, a $1,676 million
increase from income from operations of $251 million for the nine months ended
September 30, 2020. 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 and higher sales volumes for downstream building
products and PVC compounds, due to the strengthening of demand for our products
resulting from continued improvement in global economic activity from the impact
of COVID-19 in 2020, strong residential construction and repair and remodeling
markets in North America, and strong demand from the packaging and other
consumer markets. Net income and income from operations for the nine months
ended September 30, 2021 were positively impacted by higher margin contribution
on ethylene produced by LACC. Net income and income from operations for the nine
months ended September 30, 2021 was negatively impacted by the shutdown of our
production facilities in the southern United States due to weather-related
events in the nine months ended September 30, 2021, which resulted in lower
production for many of our major products including polyethylene. In addition,
net income and income from operations for the nine months ended September 30,
2021 was negatively impacted by higher feedstock costs, fuel costs and selling,
general and administrative expense. The nine months ended September 30, 2020 net
income included an income tax rate benefit of $95 million resulting from the
carryback of federal net operating losses permitted by the Coronavirus Aid,
Relief, and Economic Security Act ("the CARES Act"). Net sales for the nine
months ended September 30, 2021 increased by $2,732 million compared to net
sales for the nine months ended September 30, 2020, mainly due to higher sales
prices for our major products, as well as higher sales volumes for downstream
building products and PVC compounds, partially offset by lower sales volumes for
polyethylene.
RESULTS OF OPERATIONS
Third Quarter 2021 Compared with Third Quarter 2020
Net Sales. Net sales increased by $1,157 million, or 61%, to $3,055 million in
the third quarter of 2021 from $1,898 million in the third quarter of 2020,
primarily attributable to higher sales prices for our major products, partially
offset by lower sales volumes for downstream building products. Average sales
prices for the third quarter of 2021 increased by 60% as compared to the third
quarter of 2020 due to the strong demand for our products resulting from the
continued improvement of global economic activity, strong residential
construction and repair and remodeling markets in North America, and strong
demand from the packaging and other consumer markets. Sales volumes increased by
1% in the third quarter of 2021 as compared to the third quarter of 2020.
Gross Profit. Gross profit margin percentage was 33% in the third quarter of
2021 as compared to 13% in the third quarter of 2020. The increase in gross
profit margin was primarily due to higher sales prices and margins for our major
products. Gross profit margin for the third quarter of 2021 was also positively
impacted by higher margin contribution on ethylene produced by LACC and was
negatively impacted by higher feedstock and fuel costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $14 million to $122 million in the third
quarter of 2021 as compared to $108 million in the third quarter of 2020. This
increase was mainly due to higher employee compensation, selling and consulting
expenses.
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Amortization of Intangibles. Amortization expense was $29 million in the third
quarter of 2021, which was comparable to the third quarter of 2020.
Restructuring, Transaction and Integration-Related Costs. The restructuring,
transaction and integration-related costs of $6 million in the third quarter of
2021 primarily consisted of costs associated with our recent acquisitions.
Restructuring, transaction and integration-related costs of $34 million in the
third quarter of 2020 primarily related to the closure of a non-integrated PVC
plant located in Germany.
Interest Expense. Interest expense increased by $24 million to $61 million in
the third quarter of 2021 from $37 million in the third quarter of 2020,
primarily as a result of higher average debt outstanding in the third quarter of
2021 as compared to the third quarter of 2020 and the settlement of interest
rate lock arrangements associated with the issuance of the Notes.
Other Income, Net. Other income, net of $13 million in the third quarter of 2021
was comparable to the other income, net in the third quarter of 2020.
Income Taxes. The effective income tax rate was an expense of 23.7% for the
third quarter of 2021 as compared to a benefit of 27.8% for the third quarter of
2020. The change in effective tax rate in the third quarter of 2021 as compared
to the third quarter of 2020 was primarily due to the income tax rate benefit in
the third quarter of 2020 resulting from the carryback of federal net operating
loss to taxable years that were taxed at the U.S. corporate tax rate of 35.0% as
permitted under the CARES Act, partially offset by the reduction in the Internal
Revenue Code Section 199 ("Section 199") domestic manufacturing deduction as a
result of the net operating loss carryback.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $819 million, or 54%,
to $2,348 million in the third quarter of 2021 from $1,529 million in the third
quarter of 2020. The increase was mainly due to higher sales prices for our
major products, partially offset by lower downstream building products sales
volumes, as compared to the prior-year period. Average sales prices for the
Vinyls segment increased by 53% in the third quarter of 2021, as compared to the
third quarter of 2020, primarily due to continued improvement in global economic
activity and strong residential construction and repair and remodeling industry
performance. Sales volumes for the Vinyls segment increased by 1% in the third
quarter of 2021 as compared to the third quarter of 2020.
Income from Operations. Income from operations for the Vinyls segment increased
by $559 million to $601 million in the third quarter of 2021 from $42 million in
the third quarter of 2020. This increase in income from operations was primarily
due to significantly higher sales prices and margins for our major products,
including PVC resin, resulting from continued improvement in global economic
activity and strong residential construction and repair and remodeling industry
performance. The third quarter of 2021 was also positively impacted by higher
margin contribution on ethylene produced by LACC, partially offset by higher
feedstock and fuel costs.
Olefins Segment
Net Sales. Net sales for the Olefins segment increased by $338 million, or 92%,
to $707 million in the third quarter of 2021 from $369 million in the third
quarter of 2020. Average sales prices for the Olefins segment increased by 88%
in the third quarter of 2021 as compared to the third quarter of 2020 primarily
due to higher sales prices for our major products. The higher prices were driven
by a shortage of ethylene from unplanned shutdowns of many plants in the
industry due to the severe winter storm in the first quarter of 2021, and
hurricanes in 2020 and 2021, and planned turnarounds compounded by continued
improvement in global economic activity. Sales volumes for the Olefins segment
increased by 4% in the third quarter of 2021 as compared to the third quarter of
2020.
Income from Operations. Income from operations for the Olefins segment increased
by $230 million to $281 million in the third quarter of 2021 from $51 million in
the third quarter of 2020. This increase in income from operations was due to
significantly higher sales prices and margins for our major products, mainly
resulting from the ethylene shortage and continued improvement in global
economic activity. The increase in income from operations versus the prior-year
period was partially offset by higher feedstock and fuel costs. Trading activity
for the third quarter of 2021 resulted in a gain of approximately $10 million
primarily due to favorable derivative positions as compared to no net gain or
loss for the third quarter of 2020.
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Nine Months Ended September 30, 2021 Compared with Nine Months Ended September
30, 2020
Net Sales. Net sales increased by $2,732 million, or 49%, to $8,271 million in
the nine months ended September 30, 2021 from $5,539 million in the nine months
ended September 30, 2020, primarily attributable to higher sales prices for our
major products as well as higher sales volumes for downstream building products
and PVC compounds, partially offset by lower sales volumes for polyethylene.
Average sales prices for the nine months ended September 30, 2021 increased by
48% as compared to the nine months ended September 30, 2020 due to the
strengthening of demand for our products resulting from continued improvement in
global economic activity, strong residential construction and repair and
remodeling markets in North America, and strong demand from the packaging and
other consumer markets. Sales volumes increased by 2% for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020.
Gross Profit. Gross profit margin percentage was 29% in the nine months ended
September 30, 2021 as compared to 13% in the nine months ended September 30,
2020. The increase in gross profit margin was primarily due to higher sales
prices and margins for our major products, as well as the higher sales volumes
for downstream building products and PVC compounds. Gross profit margin for the
nine months ended September 30, 2021 was also positively impacted by the margin
contributed from LACC's produced ethylene. Gross profit margin for the nine
months ended September 30, 2021 was negatively impacted by the lost production
due to weather-related events in the nine months ended September 30, 2021, which
resulted in lower plant operating rates, higher maintenance expense and lower
production for polyethylene, as well as higher feedstock and fuel costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $51 million to $383 million in the nine
months ended September 30, 2021 as compared to $332 million in the nine months
ended September 30, 2020. This increase was mainly due to higher employee
compensation, selling and consulting expenses.
Amortization of Intangibles. Amortization expense was $83 million in the nine
months ended September 30, 2021, which was comparable to the nine months ended
September 30, 2020.
Restructuring, Transaction and Integration-Related Costs. The restructuring,
transaction and integration-related costs of $6 million for the nine months
ended September 30, 2021 primarily consisted of costs associated with our recent
acquisitions. Restructuring, transaction and integration-related costs of $36
million in the nine months ended September 30, 2020 primarily related to the
closure of a non-integrated PVC plant located in Germany.
Interest Expense. Interest expense increased by $22 million to $130 million in
the nine months ended September 30, 2021 from $108 million in the nine months
ended September 30, 2020 as a result of higher average debt outstanding in the
third quarter of 2021 as compared to the third quarter of 2020 and the
settlement of interest rate lock arrangements associated with the issuance of
the Notes.
Other Income, Net. Other income, net of $35 million in the nine months ended
September 30, 2021 was comparable to other income, net in the nine months ended
September 30, 2020.
Income Taxes. The effective income tax rate was an expense of 23.1% for the nine
months ended September 30, 2021 as compared to a benefit of 42.9% for the nine
months ended September 30, 2020. The change in effective tax rate in the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020 was primarily due to the income tax rate benefit in the nine months
ended September 30, 2020 resulting from the carryback of federal net operating
loss to taxable years that were taxed at the U.S. corporate tax rate of 35.0% as
permitted under the CARES Act, partially offset by the reduction in the Section
199 domestic manufacturing deduction as a result of the net operating loss
carryback.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $1,974 million, or 45%,
to $6,356 million in the nine months ended September 30, 2021 from $4,382
million in the nine months ended September 30, 2020. The increase was mainly due
to higher sales prices for our major products and higher sales volumes for
downstream building products and PVC compounds, as compared to the prior-year
period. The increase in prices were primarily due to continued improvement in
global economic activity and strong residential construction and repair and
remodeling industry performance. Average sales prices for the Vinyls segment
increased by 42% in the nine months ended September 30, 2021, as compared to the
nine months ended September 30, 2020. Sales volumes for the Vinyls segment
increased by 4% in the nine months ended September 30, 2021 as compared to the
nine months ended September 30, 2020.
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Income from Operations. Income from operations for the Vinyls segment increased
by $1,101 million to $1,236 million in the nine months ended September 30, 2021
from $135 million in the nine months ended September 30, 2020. This increase in
income from operations was primarily due to significantly higher sales prices
for our major products, including PVC resin, and higher volumes for downstream
building products and PVC compounds, resulting from continued improvement in
global economic activity and strong residential construction and repair and
remodeling industry performance, higher margin contribution from ethylene
produced by LACC, partially offset by higher ethylene feedstock and fuel costs
as well as the impacts of the weather related events in the nine months ended
September 30, 2021.
Olefins Segment
Net Sales. Net sales for the Olefins segment increased by $758 million, or 66%,
to $1,915 million in the nine months ended September 30, 2021 from $1,157
million in the nine months ended September 30, 2020. The increase was mainly due
to higher sales prices for our major products. Average sales prices for the
Olefins segment increased by 72% in the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020. The higher prices were
driven by a shortage of ethylene resulting from shutdowns of many plants in the
in the southern United States due to the severe winter storm in the first
quarter of 2021 and hurricanes in 2020 and in 2021 compounded by continued
improvement in global economic activity. The higher feedstock cost also
contributed to higher prices in the Olefins segment. Sales volumes for the
Olefins segment decreased by 6% in the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020, primarily as a result of
the lower polyethylene inventory levels, lower production and lower product
availability resulting from the continuing inventory shortages.
Income from Operations. Income from operations for the Olefins segment increased
by $600 million to $738 million in the nine months ended September 30, 2021 from
$138 million in the nine months ended September 30, 2020. This increase in
income from operations was primarily due to significantly higher sales prices
for our major products, mainly resulting from the ethylene shortage and
continued improvement in global economic activity. The increase in income from
operations versus the prior-year period was partially offset by the lower
polyethylene sales volumes, lower product availability and by higher feedstock
and fuel costs. Trading activity for the nine months ended September 30, 2021
resulted in a gain of approximately $26 million as compared to a gain of $1
million for the nine months ended September 30, 2020.
CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Cash Flows
Operating Activities
Operating activities provided cash of $1,637 million in the first nine months of
2021 compared to cash provided by operating activities of $866 million in the
first nine months of 2020. The $771 million increase in cash flows from
operating activities was mainly due to an increase in income from operations
that was partially offset by working capital changes. Changes in components of
working capital, which we define for purposes of this cash flow discussion as
accounts receivable, inventories, prepaid expenses and other current assets,
less accounts payable and accrued and other liabilities, used cash of $381
million in the first nine months of 2021, compared to $120 million of cash used
in the first nine months of 2020, an unfavorable change of $261 million. The
majority of the unfavorable changes in the first nine months of 2021 were driven
by higher accounts receivable and higher inventories, partially offset by higher
accounts payable. The unfavorable change in accounts receivable was primarily
driven by higher sales prices resulting in higher trade customer balances. The
higher inventories and accounts payable in the first nine months of 2021 were
primarily driven by higher inventory cost and an increase in operating
activities, as compared to the nine months ended September 30, 2020.
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Investing Activities
Net cash used for investing activities in the first nine months of 2021 was $842
million as compared to net cash used for investing activities of $366 million in
the first nine months of 2020. The increase in investing activities in the first
nine months of 2021 was primarily due to the acquisitions of LASCO and Dimex for
$428 million, net of cash acquired. Capital expenditures were $414 million in
the first nine months of 2021, which was higher by $11 million as compared to
$403 million in the first nine months of 2020. Capital expenditures in the first
nine months of 2021 and 2020 were primarily related to projects to improve
production capacity or reduce costs, maintenance and safety projects and
environmental projects at our various facilities. In the first nine months of
2021, we contributed $17 million to LACC and $2 million to an unconsolidated
investee compared to return of investment of $44 million from LACC in the first
nine months of 2020.
Financing Activities
Net cash provided for financing activities during the first nine months of 2021
was $1,487 million as compared to net cash used by financing activities of $14
million in the first nine months of 2020. The activities during the first nine
months of 2021 were primarily related to the registered public offering of $300
million aggregate principal amount of 0.875% 2024 Senior Notes, $350 million
aggregate principal amount of 2.875% 2041 Senior Notes, $600 million aggregate
principal amount of 3.125% 2051 Senior Notes and $450 million aggregate
principal amount of 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 repurchase of shares of our common stock for an aggregate
purchase price of $30 million. In the first nine months of 2020, out of an
abundance of caution due to the COVID-19 pandemic, we borrowed $1,000 million
under our revolving credit facility, which we subsequently repaid in June 2020.
We also completed a registered public offering of $300 million aggregate
principal amount of the 3.375% 2030 Senior Notes in June 2020. The remaining
activities in the first nine months of 2020 were primarily related to the $102
million payment of cash dividends, the $39 million payment of cash distributions
to noncontrolling interests, repurchases of our common stock of $54 million and
$17 million representing repayment of short-term notes payable.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash from
operations, short-term borrowings under the Credit Agreement and our long-term
financing.
In November 2014, our Board of Directors authorized a $250 million stock
repurchase program (the "2014 Program"). In November 2015, our Board of
Directors approved the expansion of the 2014 Program by an additional $150
million. In August 2018, our Board of Directors approved the further expansion
of the existing 2014 Program by an additional $150 million. As of September 30,
2021, we had repurchased 7,431,520 shares of our common stock for an aggregate
purchase price of approximately $449 million under the 2014 Program. During the
nine months ended September 30, 2021, we repurchased shares of our common stock
for an aggregate purchase price of $30 million under the 2014 Program. Purchases
under the 2014 Program may be made either through the open market or in
privately negotiated transactions. Decisions regarding the amount and the timing
of purchases under the 2014 Program will be influenced by our cash on hand, our
cash flow from operations, general market conditions and other factors. The 2014
Program may be discontinued by our Board of Directors at any time.
On 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 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 WLK Partners' common units, from time to time,
up to an aggregate offering amount of $50 million. This Equity Distribution
Agreement was amended on February 28, 2020 to reference a new shelf registration
for utilization under this agreement. No common units have been issued under
this program as of September 30, 2021.
We believe that our sources of liquidity as described above are adequate to fund
our normal operations and ongoing capital expenditures and turnaround activities
(such as the planned ongoing turnaround of OpCo's Petro 2 ethylene unit in Lake
Charles). Funding of any potential large expansions or potential acquisitions
would likely necessitate, and therefore depend on, our ability to obtain
additional financing in the future. We may not be able to access additional
liquidity at cost effective interest rates due to the volatility of the
commercial credit markets.
On August 19, 2021, we completed the registered public offering of the Notes.
See "Liquidity and Capital Resources-Debt" below for more information.
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Cash and Cash Equivalents
As of September 30, 2021, our cash and cash equivalents totaled $3,571 million.
Debt
As of September 30, 2021, our indebtedness totaled $5.2 billion. See Note 8 to
the consolidated financial statements appearing elsewhere in this Form 10-Q for
a discussion of our long-term indebtedness. Defined terms used in this section
have the definitions assigned to such terms in Note 8 to the consolidated
financial statements included in Item 1 of 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 flows from operations, available cash and available
borrowings under the Credit Agreement will be adequate to meet our normal
operating needs for the foreseeable future.
Credit Agreement
On July 24, 2018, we entered into a $1 billion revolving credit facility that is
scheduled to mature on July 24, 2023 (the "Credit Agreement"). The Credit
Agreement bears interest at either (a) LIBOR plus a spread ranging
from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging
from 0.00% to 0.75% in each case depending on the credit rating of the Company.
As of September 30, 2021, we had no borrowings outstanding under the Credit
Agreement. As of September 30, 2021, we had no outstanding letters of credit and
had borrowing availability of $1 billion under the Credit Agreement. The Credit
Agreement contains certain affirmative and negative covenants, including a
quarterly total leverage ratio financial maintenance covenant. As of
September 30, 2021, we were in compliance with the total leverage ratio
financial maintenance covenant.
The Credit Agreement also contains certain events of default and if and for so
long as certain events of default have occurred and are continuing, any overdue
amounts outstanding under the Credit Agreement will accrue interest at an
increased rate, the lenders can terminate their commitments thereunder and
payments of any outstanding amounts could be accelerated by the lenders. None of
our subsidiaries are required to guarantee our obligations under the Credit
Agreement.
The Credit Agreement includes a $150 million sub-limit for letters of credit,
and any outstanding letters of credit will be deducted from availability under
the facility. The Credit Agreement also provides for a discretionary $50 million
commitment for swingline loans to be provided on a same-day basis. We may also
increase the size of the facility, in increments of at least $25 million, up to
a maximum of $500 million, subject to certain conditions and if certain lenders
agree to commit to such an increase.
3.60% Senior Notes due 2022
In July 2012, we issued $250 million aggregate principal amount of the 3.60%
2022 Senior Notes. We may optionally redeem the 3.60% 2022 Senior Notes at any
time and from time to time prior to April 15, 2022 (three months prior to the
maturity date) for 100% of the principal plus accrued interest and a discounted
"make whole" payment. On or after April 15, 2022, we may optionally redeem the
3.60% 2022 Senior Notes for 100% of the principal plus accrued interest. The
holders of the 3.60% 2022 Senior Notes may require us to repurchase the 3.60%
2022 Senior Notes at a price of 101% of their principal amount, plus accrued and
unpaid interest to the date of repurchase, upon the occurrence of both a "change
of control" and, within 60 days of such change of control, a "below investment
grade rating event" (as such terms are defined in the indenture governing the
3.60% 2022 Senior Notes).
0.875% Senior Notes due 2024
In August 2021, we completed the registered public offering of $300 million
aggregate principal amount of 0.875% 2024 Senior Notes. We may optionally redeem
the 0.875% 2024 Senior Notes at any time and from time to time on or after
August 15, 2022 for 100% of the principal amount plus accrued and unpaid
interest. The holders of the 0.875% 2024 Senior Notes may require us to
repurchase the 0.875% 2024 Senior Notes at a price of 101% of their principal
amount, plus accrued and unpaid interest to, but not including, the date of
repurchase, upon the occurrence of both a "change of control" and, within 60
days of such change of control, a "below investment grade rating event" (as such
terms are defined in the indenture governing the 0.875% 2024 Senior Notes).
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3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, we completed the private offering of $750 million aggregate
principal amount of our 3.60% 2026 Senior Notes and $700 million aggregate
principal amount of our 5.0% 2046 Senior Notes. In March 2017, the Company
commenced registered exchange offers to exchange the 3.60% 2026 Senior Notes and
the 5.0% 2046 Senior Notes for new notes that are identical in all material
respects to the 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 of
1933, as amended (the "Securities Act"). The exchange offers expired on April
24, 2017, and approximately 99.97% of the 3.60% 2026 Senior Notes and 100% of
the 5.0% 2046 Senior Notes were exchanged. The notes that were not exchanged in
the exchange offers have not been registered under the Securities Act or any
state securities laws and may not be offered or sold in the U.S. absent
registration or an applicable exemption from registration requirements or a
transaction not subject to the registration requirements of the Securities Act
or any state securities law.
Revenue Bonds
In December 1997, we entered into a loan agreement with a public trust
established for public purposes for the benefit of the Parish of Calcasieu,
Louisiana. The public trust issued $11 million principal amount of tax-exempt
waste disposal revenue bonds in order to finance our construction of waste
disposal facilities for an ethylene plant. The waste disposal revenue bonds
expire in December 2027 and are subject to redemption and mandatory tender for
purchase prior to maturity under certain conditions. Interest on the waste
disposal revenue bonds accrues at a rate determined by a remarketing agent and
is payable quarterly. The interest rate on the waste disposal revenue bonds at
September 30, 2021 was 0.07% and at December 31, 2020 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 due July 17,
2029. The Company received approximately $779 million of net proceeds from the
offering. We may optionally redeem the 1.625% 2029 Senior Notes at any time and
from time to time prior to April 17, 2029 (three months prior to the maturity
date) for 100% of the principal plus accrued interest and a discounted "make
whole" payment. On or after April 17, 2029, we may optionally redeem the 1.625%
2029 Senior Notes for 100% of the principal amount plus accrued interest. The
holders of the 1.625% 2029 Senior Notes may require us to repurchase the 1.625%
2029 Senior Notes at a price of 101% of their principal amount, plus accrued and
unpaid interest to the date of repurchase, upon the occurrence of both a "change
of control" and, within 60 days of such change of control, a "below investment
grade rating event" (as such terms are defined in the indenture governing the
1.625% 2029 Senior Notes).
3.375% Senior Notes due 2030
In June 2020, we completed the registered public offering of $300 million
aggregate principal amount of the 3.375% 2030 Senior Notes due June 15, 2030. 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.
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2.875% Senior Notes due 2041
In August 2021, we completed the registered public offering of $350 million
aggregate principal amount of 2.875% 2041 Senior Notes. We may optionally redeem
the 2.875% 2041 Senior Notes at any time and from time to time prior to February
15, 2041 (six months prior to the maturity date) for a redemption price equal to
the greater of (i) 100% of the principal amount plus accrued and unpaid interest
and (ii) the sum of the present values of the remaining scheduled payments on
the 2.875% 2041 Senior Notes being redeemed that would be due if the 2.875% 2041
Senior Notes matured on February 15, 2041, discounted to the redemption date on
a semi-annual basis, plus 20 basis points, and plus accrued and unpaid interest.
In addition, we may optionally redeem the 2.875% 2041 Senior Notes at any time
on or after February 15, 2041 for 100% of the principal amount plus accrued and
unpaid interest. The holders of the 2.875% 2041 Senior Notes may require us to
repurchase the 2.875% 2041 Senior Notes at a price of 101% of their principal
amount, plus accrued and unpaid interest to, but not including, the date of
repurchase, upon the occurrence of both a "change of control" and, within 60
days of such change of control, a "below investment grade rating event" (as such
terms are defined in the indenture governing the 2.875% 2041 Senior Notes).
4.375% Senior Notes due 2047
In November 2017, we completed the registered public offering of $500 million
aggregate principal amount of 4.375% Senior Notes due November 15, 2047. We may
optionally redeem the 4.375% 2047 Senior Notes at any time and from time to time
prior to May 15, 2047 (six months prior to the maturity date) for 100% of the
principal plus accrued interest and a discounted "make whole" payment. On or
after May 15, 2047, we may optionally redeem the 4.375% 2047 Senior Notes for
100% of the principal amount plus accrued interest. The holders of the 4.375%
2047 Senior Notes may require us to repurchase the 4.375% 2047 Senior Notes at a
price of 101% of their principal amount, plus accrued and unpaid interest to,
but not including, the date of repurchase, upon the occurrence of both a "change
of control" and, within 60 days of such change of control, a "below investment
grade rating event" (as such terms are defined in the indenture governing the
4.375% 2047 Senior Notes).
3.125% Senior Notes due 2051
In August 2021, we completed the registered public offering of $600 million
aggregate principal amount of 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 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).
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The indenture governing the 3.60% 2022 Senior Notes, the 0.875% 2024 Senior
Notes, the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375%
2030 Senior Notes, the 3.50% 2032 GO Zone Refunding Senior Notes, the 2.875%
2041 Senior Notes, the 5.0% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the
3.125% 2051 Senior Notes, and the 3.375% 2061 Senior Notes 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.
8.73% 2022 RS Cogen Debt
In July 2000, RS Cogen, our 50%-owned joint venture, entered into a $75 million
aggregate principal amount senior credit facility institutional loan at an
interest rate of 8.73%. All of the assets of RS Cogen are pledged as collateral
under its senior credit facility. Borrowings under this senior credit facility
are repayable quarterly over the remaining term. The Company does not guarantee
RS Cogen's debt commitments and RS Cogen is not a guarantor for any of the
Company's other long-term debt obligations. The balance outstanding under this
loan was $24 million at September 30, 2021.
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 $23 million. The interest rate on these loans at September 30,
2021 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 $6
million at September 30, 2021.
As of September 30, 2021, we were in compliance with all of our long-term debt
covenants.
Westlake Chemical Partners LP Credit Arrangements
Our subsidiary, Westlake Chemical Finance Corporation, is the lender party to a
$600 million revolving credit facility with Westlake Partners, originally
entered into on April 29, 2015 and amended in August and December 2017. In
addition, on March 19, 2020, Westlake Partners and Westlake Chemical Finance
Corporation entered into an amendment to the revolving credit facility, to
extend the maturity date to March 19, 2023 and add a phase-out provision for
LIBOR, which is to be replaced by an alternate benchmark rate. Borrowings under
the revolving credit facility bear interest at LIBOR plus a spread ranging from
2.0% to 3.0% (depending on Westlake Partners' consolidated leverage ratio),
payable quarterly. Westlake Partners may pay all or a portion of the interest on
any borrowings in kind, in which case any such amounts would be added to the
principal amount of the loan. As of September 30, 2021, outstanding borrowings
under the credit facility totaled $377 million and bore interest at the LIBOR
rate plus 2.0%.
Our subsidiary, Westlake Polymers LLC, is the administrative agent to a $600
million revolving credit facility with Westlake Chemical OpCo LP ("OpCo"). The
revolving credit facility is scheduled to mature in September 2023. As of
September 30, 2021, outstanding borrowings under the credit facility totaled $23
million and bore interest at the LIBOR rate plus 2.0%, which is accrued in
arrears quarterly.
We consolidate Westlake Partners and OpCo for financial reporting purposes as we
have a controlling financial interest. As such, the revolving credit facilities
described above between our subsidiaries and Westlake Partners and OpCo are
eliminated upon consolidation.
Off-Balance Sheet Arrangements
None.
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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;
•industry market outlook, including the price of crude oil;
•widespread outbreak of an illness or any other communicable disease, or any
other public health crisis, including the COVID-19 pandemic, and efforts to
contain its transmission;
•our plans to respond to the challenges presented by the COVID-19 pandemic,
including planned reductions of costs and increases of operating efficiencies,
as well as the duration of the planned ongoing turnaround at our Petro 2
ethylene unit;
•production capacities;
•the impact of ongoing supply chain constraints and workforce availability
(including any impacts as a result of vaccination requirements) caused by the
COVID-19 pandemic;
•currency devaluation;
•our ability to borrow additional funds under 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 industries in which we compete;
•results of acquisitions, including the results, effects and benefits of the of
the Boral Target Companies, LASCO and Dimex;
•timing, funding and results of capital projects;
•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 gas emissions or to address other issues of climate change;
•effects of pending legal proceedings; and
•timing of and amount of capital expenditures.
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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 2020 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 and Dimex and the ultimate outcome of our
operating efficiencies applied to the products and services of the Boral Target
Companies, LASCO and Dimex; 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;
•the cyclical nature of the chemical 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;
•uncertainties associated with pandemic infectious diseases, particularly
COVID-19;
•current and potential governmental regulatory actions in the United States and
other 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, including trade policies;
•technological developments;
•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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