QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 001-32260
Westlake Chemical Corporation
(Exact name of Registrant as specified in its charter)
Delaware
76-0346924
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
2801 Post Oak Boulevard, Suite 600
Houston, Texas77056
(Address of principal executive offices, including zip code)
(713) 960-9111
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
WLK
The New York Stock Exchange
1.625% Senior Notes due 2029
WLK29
The New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesxNo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
¨
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes☐Nox
The number of shares outstanding of the registrant's sole class of common stock as of July 27, 2021 was 128,150,417.
(in millions of dollars, except par values and share amounts)
ASSETS
Current assets
Cash and cash equivalents
$
1,844
$
1,313
Accounts receivable, net
1,549
1,214
Inventories
965
918
Prepaid expenses and other current assets
87
32
Total current assets
4,445
3,477
Property, plant and equipment, net
6,919
6,920
Operating lease right-of-use assets
452
461
Goodwill
1,085
1,083
Customer relationships, net
399
444
Other intangible assets, net
154
168
Equity method investments
1,009
1,059
Other assets, net
256
223
Total assets
$
14,719
$
13,835
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
$
667
$
536
Accrued and other liabilities
818
821
Total current liabilities
1,485
1,357
Long-term debt, net
3,555
3,566
Deferred income taxes
1,396
1,368
Pension and other post-retirement benefits
373
391
Operating lease liabilities
369
376
Other liabilities
202
199
Total liabilities
7,380
7,257
Commitments and contingencies (Note 13)
Stockholders' equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding
—
—
Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and 134,651,380 shares issued at June 30, 2021 and December 31, 2020, respectively
1
1
Common stock, held in treasury, at cost; 6,501,665 and 6,821,174 shares at June 30, 2021 and December 31, 2020, respectively
(378)
(401)
Additional paid-in capital
571
569
Retained earnings
6,633
5,938
Accumulated other comprehensive loss
(56)
(64)
Total Westlake Chemical Corporation stockholders' equity
6,771
6,043
Noncontrolling interests
568
535
Total equity
7,339
6,578
Total liabilities and equity
$
14,719
$
13,835
The accompanying notes are an integral part of these consolidated financial statements.
Other comprehensive income (loss), net of income taxes
Foreign currency translation adjustments
Foreign currency translation
12
15
15
(10)
Income tax benefit (provision) on foreign currency translation
3
5
(7)
(2)
Other comprehensive income (loss), net of income taxes
15
20
8
(12)
Comprehensive income
551
44
797
169
Comprehensive income attributable to noncontrolling interests, net of tax of $1 and $0 for the three months ended June 30, 2021 and 2020; and net of tax of $1 and $1 for the six months ended June 30, 2021 and 2020, respectively
15
10
25
22
Comprehensive income attributable to Westlake Chemical Corporation
$
536
$
34
$
772
$
147
The accompanying notes are an integral part of these consolidated financial statements.
(in millions of dollars, except share amounts and per share data)
1. Basis of Financial Statements
The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Westlake Chemical Corporation (the "Company") included in the annual report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), filed with the SEC on February 24, 2021. These consolidated financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2020.
In the opinion of the Company's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company's financial position as of June 30, 2021, its results of operations for the three and six months ended June 30, 2021 and 2020, and the changes in its cash position for the six months ended June 30, 2021 and 2020.
Results of operations and changes in cash position for the interim periods presented are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2021 or any other interim period. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
The coronavirus ("COVID-19") pandemic resulted in widespread adverse impacts on the global economy in 2020. As the COVID-19 pandemic and its impacts on the global economy continue, the Company may experience impacts on its business operations. However, the impact that COVID-19 will have on the financial condition, results of operations and cash flows of the Company cannot be estimated with certainty at this time as it will depend on future developments, including, among others, the timing and logistics with respect to the distribution of vaccines globally and the efficacy of the available vaccines (including with respect to the more recent variants of COVID-19) and other treatments, the ultimate duration of the pandemic, geographic spread and severity of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, actions taken by customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.
The Company holds a 50% interest in RS Cogen, LLC ("RS Cogen") with Entergy Power RS, LLC ("Entergy") holding the remaining interest. Effective January 2021, the Company consolidated RS Cogen into its consolidated financial statements and classified Entergy's 50% interest in RS Cogen as a component of noncontrolling interest on the consolidated balance sheet.
Recent Accounting Pronouncements
Reference Rate Reform (ASU No. 2020-04)
In March 2020, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments in this update are effective for all entities from March 12, 2020 through December 31, 2022, and the adoption is not expected to have a material impact on our consolidated financial statements. Certain exceptions provided under this guidance may be applicable to future reference rate reform related transitions.
Recently Adopted Accounting Standards
Income Taxes (ASU No. 2019-12)
In December 2019, the FASB issued an accounting standards update removing certain exceptions for investments, intraperiod allocations and interim calculations and adding guidance to reduce complexity in accounting for income taxes. The accounting standard became effective for reporting periods beginning after December 15, 2020. The Company adopted this accounting standard effective January 1, 2021, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
2. Financial Instruments
Restricted Cash and Cash Equivalents
The Company had restricted cash and cash equivalents of $35 and $24 at June 30, 2021 and December 31, 2020, respectively. The Company's restricted cash and cash equivalents are primarily related to balances that are restricted for payment of distributions to certain of the Company's current and former employees. In addition, the Company's restricted cash and cash equivalents include RS Cogen's cash that is restricted under its senior credit facility. Restricted cash and cash equivalents are reflected primarily in other assets, net in the consolidated balance sheets.
3. Accounts Receivable
Accounts receivable consist of the following:
June 30, 2021
December 31, 2020
Trade customers
$
1,496
$
1,086
Related parties
2
9
Allowance for credit losses
(22)
(17)
1,476
1,078
Federal and state taxes
28
92
Other
45
44
Accounts receivable, net
$
1,549
$
1,214
4. Inventories
Inventories consist of the following:
June 30, 2021
December 31, 2020
Finished products
$
514
$
524
Feedstock, additives, chemicals and other raw materials
280
227
Materials and supplies
171
167
Inventories
$
965
$
918
5. Goodwill
The gross carrying amounts and changes in the carrying amount of goodwill for the six months ended June 30, 2021 were as follows:
Vinyls Segment
Olefins Segment
Total
Balances at December 31, 2020
$
1,053
$
30
$
1,083
Effects of changes in foreign exchange rates
2
—
2
Balances at June 30, 2021
$
1,055
$
30
$
1,085
Vinyls Segment Goodwill
The Company performed its annual impairment analysis for the Vinyls reporting units during the second quarter of 2021. The Company elected to perform a qualitative assessment (commonly known as "step zero") for the purposes of its annual goodwill impairment analysis for the Vinyls reporting units. Based upon this assessment, the Company determined that it is more likely than not that the fair value of each of the Vinyls reporting units exceeds its carrying value. Factors considered in the qualitative assessment included macroeconomic conditions, industry and market considerations, cost factors, current and projected financial performance, changes in management or strategy and market capitalization.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
Credit Agreement
The Company has a $1,000 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. At June 30, 2021, the Company had no borrowings outstanding under the Credit Agreement. As of June 30, 2021, the Company had no outstanding letters of credit and had $1,000 of borrowing availability under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of June 30, 2021, the Company was in compliance with the total leverage ratio financial maintenance covenant. The Credit Agreement also contains certain events of default and if and for so long as 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.
The Credit Agreement includes a $150 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 commitment for swingline loans to be provided on a same-day basis. The Company may also increase the size of the facility, in increments of at least $25, up to a maximum of $500, subject to certain conditions and if certain lenders agree to commit to such an increase.
8.73% 2022 RS Cogen Debt
In July 2000, RS Cogen, our 50%-owned joint venture, entered into a $75 aggregate principal amount senior credit facility institutional loan at an interest rate of 8.73%. All of the assets of RS Cogen are pledged as collateral under its senior credit facility. Borrowings under this senior credit facility are repayable quarterly by September 2022. 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.
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. The interest rate on these loans at June 30, 2021 was 0.2%. The unsecured loans include a government rate subsidy and have a 5-year maturity.
As of June 30, 2021, the Company was in compliance with all of its long-term debt covenants.
Unamortized debt issuance costs on long-term debt were $26 and $28 at June 30, 2021 and December 31, 2020, respectively.
8. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2021 and 2020 were as follows:
Pension and Other Post-Retirement Benefits Liability, Net of Tax
Cumulative Foreign Currency Exchange, Net of Tax
Total
Balances at December 31, 2020
$
(24)
$
(40)
$
(64)
Net other comprehensive income attributable to Westlake Chemical Corporation
—
8
8
Balances at June 30, 2021
$
(24)
$
(32)
$
(56)
Balances at December 31, 2019
$
3
$
(77)
$
(74)
Net other comprehensive loss attributable to Westlake Chemical Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
9. Fair Value Measurements
The Company reports certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Company has financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts payable and long-term debt, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, net and accounts payable approximate their fair value due to the short maturities of these instruments.
The majority of the Company's long-term debt instruments are publicly-traded. A market approach, based upon quotes from financial reporting services, is used to measure the fair value of the Company's long-term debt. Because the Company's long-term debt instruments may not be actively traded, the inputs used to measure the fair value of the Company's long-term debt are classified as Level 2 inputs within the fair value hierarchy.
The carrying and fair values of the Company's long-term debt are summarized in the table below.
June 30, 2021
December 31, 2020
Carrying Value
Fair Value
Carrying Value
Fair Value
3.60% 2022 Senior Notes
$
250
$
256
$
249
$
259
3.60% 2026 Senior Notes
744
818
744
846
Loan related to tax-exempt waste disposal revenue bonds due 2027
11
11
11
11
1.625% 2029 Senior Notes
822
872
849
897
3.375% 2030 Senior Notes
296
324
296
332
3.50% 2032 GO Zone Refunding Senior Notes
249
273
249
276
5.0% 2046 Senior Notes
678
881
677
905
4.375% 2047 Senior Notes
491
585
491
597
8.73% 2022 RS Cogen Debt
30
30
—
—
2026 Term Loans
4
4
—
—
10. Income Taxes
The effective income tax rate was an expense of 22.8% for the three months ended June 30, 2021 as compared to a benefit of 380.0% for the three months ended June 30, 2020. The effective income tax rate for the three months ended June 30, 2021 was above the statutory rate of 21.0% primarily due to state and foreign taxes. The effective income tax rate for the three months ended June 30, 2020 was a benefit and below the statutory rate of 21.0% primarily due to the income tax rate benefit resulting from the carryback of additional federal net operating loss ("NOL") to taxable years that were taxed at the U.S. corporate tax rate of 35.0% as permitted under the Coronavirus Aid, Relief, and Economic Security Act (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 NOL carryback, the depletion deduction, the foreign earnings rate differential and the state income tax benefit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
The effective income tax rate was an expense of 22.6% for the six months ended June 30, 2021 as compared to a benefit of 49.6% for the six months ended June 30, 2020. The effective income tax rate for the six months ended June 30, 2021 was above the statutory rate of 21.0% primarily due to state and foreign taxes. The effective income tax rate for the six months ended June 30, 2020 was a benefit and below the statutory rate of 21.0% primarily due to the income tax rate benefit resulting from the carryback of federal NOL 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 NOL carryback, the depletion deduction, the foreign earnings rate differential and the state income tax benefit.
11. Earnings and Dividends per Share
Earnings per Share
The Company has unvested restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share include the effects of certain stock options and performance stock units.
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Net income attributable to Westlake Chemical Corporation
$
522
$
15
$
764
$
160
Less:
Net income attributable to participating securities
(2)
(1)
(4)
(1)
Net income attributable to common shareholders
$
520
$
14
$
760
$
159
The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Weighted average common shares—basic
128,142,997
127,680,478
128,049,852
127,958,921
Plus incremental shares from:
Assumed exercise of options and vesting of performance stock units
734,863
143,151
631,924
174,379
Weighted average common shares—diluted
128,877,860
127,823,629
128,681,776
128,133,300
Earnings per common share attributable to Westlake Chemical Corporation:
Basic
$
4.06
$
0.11
$
5.94
$
1.24
Diluted
$
4.04
$
0.11
$
5.91
$
1.24
Excluded from the computation of diluted earnings per share are options to purchase 427,473 and 1,303,372 shares of common stock for the three months ended June 30, 2021 and 2020, respectively; and 501,192 and 1,201,505 shares of common stock for the six months ended June 30, 2021 and 2020, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.
Dividends per Share
Dividends per common share for the three and six months ended June 30, 2021 and 2020 were as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
12. Supplemental Information
Equity Method Investments
LACC, LLC
The Company's investment in LACC, LLC ("LACC"), a related party, was $946 and $961 at June 30, 2021 and December 31, 2020, respectively. The Company made capital contributions to LACC of $0 and $7 during the three and six months ended June 30, 2021, respectively.
Accrued and Other Liabilities
Accrued and other liabilities were $818 and $821 at June 30, 2021 and December 31, 2020, respectively. Accrued rebates and operating lease liability, which are components of accrued and other liabilities, were $126 and $89 at June 30, 2021, respectively; and $128 and $89 at December 31, 2020, respectively. No other component of accrued and other liabilities was more than five percent of total current liabilities. Accrued liabilities with related parties were $48 and $61 at June 30, 2021 and December 31, 2020, respectively.
Non-cash Investing Activity
The change in capital expenditure accruals increasing additions to property, plant and equipment was $29 and $29 for the six months ended June 30, 2021 and 2020, respectively.
13. Commitments and Contingencies
The Company is involved in a number of legal and regulatory matters, principally environmental in nature, that are incidental to the normal conduct of its business, including lawsuits, investigations and claims. The outcome of these matters are inherently unpredictable. The Company believes that, in the aggregate, the outcome of all known legal and regulatory matters will not have a material adverse effect on its consolidated financial statements; however, under certain circumstances, if required to recognize costs in a specific period, when combined with other factors, outcomes with respect to such matters may be material to the Company's consolidated statements of operations in 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.
The Company 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 Petroleum Corporation, Occidental Chemical Corporation d/b/a OxyChem, Shin-Etsu Chemical Co., Ltd., Shintech Incorporated, Formosa Plastics Corporation, 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 seek an unspecified amount of damages 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. At this time, the Company is not able to estimate the impact, if any, that these lawsuits could have on the Company's consolidated financial statements either in the current period or in future periods.
Environmental. As of June 30, 2021 and December 31, 2020, the Company had reserves for environmental contingencies totaling approximately $53 and $53, respectively, most of which was classified as noncurrent liabilities. The Company's assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
Calvert City Proceedings. For several years, the Environmental Protection Agency (the "EPA") has been conducting remedial investigation and feasibility studies at the Company's Calvert City, Kentucky facility pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"). As the current owner of the Calvert City facility, the Company was named by the EPA as a potentially responsible party ("PRP") along with Goodrich Corporation ("Goodrich") and its successor-in-interest, Avient Corporation (formerly known as PolyOne Corporation, "Avient"). On November 30, 2017, the EPA published a draft Proposed Plan, incorporating by reference an August 2015 draft Remedial Investigation ("RI") report, an October 2017 draft Feasibility Study ("FS") report and a Technical Impracticability Waiver document dated December 19, 2017. On June 18, 2018, the EPA published an amendment to its Proposed Plan. The amended Proposed Plan describes a final remedy for the onshore portion of the site comprised of a containment wall, targeted treatment and supplemental hydraulic containment. The amended Proposed Plan also describes an interim approach to address the contamination under the river that would include recovery of any mobile contaminants by an extraction well along with further study of the extent of the contamination and potential treatment options. The EPA's estimated cost of implementation is $107, with an estimated $1 to $3 in annual operation and maintenance ("O&M") costs. In September 2018, the EPA published the Record of Decision ("ROD") for the site, formally selecting the preferred final and interim remedies outlined in the amended Proposed Plan. In October 2018, the EPA issued Special Notice letters to the PRPs for the remedial design phase of work under the ROD. In April 2019, the PRPs and the EPA entered into an administrative settlement agreement and order on consent for remedial design. In October 2019, the PRPs received special notice letters for the remedial action phase of work at the site. The Company, jointly with the other PRPs, submitted a good faith offer response in December 2019. On September 17, 2020, the EPA and the Department of Justice filed a proposed consent decree for the remedial action with the U.S. District Court for the Western District of Kentucky. On November 16, 2020, the Department of Justice filed a motion to approve and enter the consent decree. On January 28, 2021, the Court granted the unopposed motion to enter the consent decree, which became effective the same day. The Company's allocation of liability for remedial and O&M costs at the Calvert City site, if any, is governed by a series of agreements between the Company, Goodrich and Avient. These agreements and the associated litigation are described below.
In connection with the 1990 and 1997 acquisitions of the Goodrich chemical manufacturing complex in Calvert City, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated by Goodrich's operations. In 1993, Goodrich spun off the predecessor of Avient, and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination. In 2003, litigation arose among the Company, Goodrich and Avient with respect to the allocation of the cost of remediating contamination at the site. The parties settled this litigation in December 2007 and the case was dismissed. In the settlement, the parties agreed that, among other things: (1) Avient would pay 100% of the costs (with specified exceptions), net of recoveries or credits from third parties, incurred with respect to environmental issues at the Calvert City site from August 1, 2007 forward; and (2) either the Company or Avient might, from time to time in the future (but not more than once every five years), institute an arbitration proceeding to adjust that percentage. In May 2017, Avient filed a demand for arbitration. In this proceeding, Avient sought to readjust the percentage allocation of future costs and to recover approximately $11 from the Company in reimbursement of previously paid remediation costs. The Company's cross demand for arbitration seeking unreimbursed remediation costs incurred during the relevant period was dismissed from the proceedings when Avient paid such costs in full at the beginning of the arbitration hearing.
On July 10, 2018, Avient sued the Company in the U.S. District Court for the Western District of Kentucky, and sought to invalidate the arbitration provisions in the parties' 2007 settlement agreement and enjoin the arbitration it had initiated in 2017. On July 30, 2018, the district court refused to enjoin the arbitration and, on January 15, 2019, the court granted the Company's motion to dismiss Avient's suit. On February 13, 2019, Avient appealed those decisions to the U.S. Court of Appeals for the Sixth Circuit. The court of appeals issued an opinion and final order on September 6, 2019, affirming the district court.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
The arbitration hearing began in August 2018 and concluded in December 2018. On May 22, 2019, the arbitration panel issued its final award. It determined that Avient was responsible for 100% of the allocable costs at issue in the proceeding and that Avient would remain responsible for 100% of the costs to operate the existing groundwater remedy at the Calvert City site. In August 2019, Avient filed a motion to vacate before the U.S. District Court for the Western District of Kentucky, seeking to invalidate the final award under the Federal Arbitration Act. On February 11, 2020, the U.S. District Court for the Western District of Kentucky denied Avient's motion to vacate and affirmed the arbitration final award. Avient did not file a notice of appeal before the March 10, 2020 deadline to contest the court's decision. Accordingly, the final award was affirmed and the arbitration proceeding is fully and finally resolved. At this time, the Company is not able to estimate the impact, if any, that any subsequent arbitration or judicial proceeding could have on the Company's consolidated financial statements either in the current period or in later periods. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the Calvert City complex would likely be spread out over an extended period. As a result, the Company believes it is unlikely that any remediation costs allocable to it will be material in terms of expenditures made in any individual reporting period.
Environmental Remediation: Reasonably Possible Matters. The Company's assessment of the potential impact of environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, the Company may be subject to reasonably possible loss contingencies related to environmental matters in the range of $65 to $130.
Pending Acquisition of Boral Target Companies in North America. On June 20, 2021, Royal Building Products (USA) Inc. ("RBP"), a wholly owned subsidiary of Westlake, entered into an Equity Purchase Agreement (the "Boral Purchase Agreement") by and among Boral Building Products Inc., a Michigan corporation, Boral Stone Products LLC, a Delaware limited liability company, Boral Lifetile Inc., a California corporation, Boral Windows LLC, a Utah limited liability company, Boral Industries Inc., a California corporation ("Boral Industries"), 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 has 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 $2,150 in cash (the "Boral Acquisition"). The Boral Purchase Agreement also includes a potential earn-out payment from RBP to Boral Industries of up to $65 if Boral's windows business generates EBITDA in excess of a specified target in its fiscal year ending June 30, 2024. The purchase price is subject to certain closing date adjustments as set forth in the Boral Purchase Agreement. The Boral Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions.
Pending Acquisition of LASCO. On July 4, 2021, North American Pipe Corporation ("NAPCO"), a wholly owned subsidiary of Westlake, entered into that certain Equity Purchase Agreement (the "LASCO Purchase Agreement") with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts") and wholly owned subsidiary of Aalberts N.V., pursuant to which NAPCO has agreed to acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts for a purchase price of approximately $253 in cash (the "LASCO Acquisition"). The purchase price is subject to certain closing date adjustments as set forth in the LASCO Purchase Agreement. The LASCO Purchase Agreement contains customary representations and warranties made by the parties, and also contains customary covenants and agreements. The LASCO Purchase Agreement contains certain termination rights for both Aalberts and NAPCO. The LASCO Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions.
Pending Acquisition of Dimex. On August 2, 2021, Rome Delaware Corp. ("Rome"), a wholly owned subsidiary of Westlake, 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 has agreed to acquire Dimex for a purchase price of $170 in cash (the "Dimex Acquisition"). The purchase price is subject to certain closing date adjustments as set forth in the Dimex Purchase Agreement. The Dimex Purchase Agreement contains customary representations and warranties made by the parties, and also contains customary covenants and agreements. The Dimex Purchase Agreement contains certain termination rights for both Dimex's stockholders and Rome. The Dimex Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
14. Segment Information
The Company operates in two principal operating segments: Vinyls and Olefins. These segments are strategic business units that offer a variety of different products. The Company manages each segment separately as each business requires different technology and marketing strategies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in millions of dollars, except share amounts and per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Capital expenditures
Vinyls
$
104
$
108
$
222
$
244
Olefins
24
17
47
44
Corporate and other
1
2
1
3
$
129
$
127
$
270
$
291
A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Income from operations
$
720
$
36
$
1,066
$
172
Interest expense
(36)
(40)
(69)
(71)
Other income, net
10
9
22
20
Income before income taxes
$
694
$
5
$
1,019
$
121
June 30, 2021
December 31, 2020
Total assets
Vinyls
$
11,039
$
10,680
Olefins
2,050
1,923
Corporate and other
1,630
1,232
$
14,719
$
13,835
15. Westlake Chemical Partners LP
In 2014, the Company formed Westlake Chemical Partners LP ("WLK Partners") to operate, acquire and develop ethylene production facilities and related assets. Also in 2014, WLK Partners completed its initial public offering of 12,937,500 common units.
At June 30, 2021, WLK Partners had a 22.8% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), and the Company retained a 77.2% limited partner interest in OpCo and a significant interest in WLK Partners through the Company's ownership of WLK 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, WLK Partners and Westlake Partners GP, the general partner of WLK 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. This Equity Distribution Agreement was amended on February 28, 2020 to reference a new shelf registration for utilization under this agreement. No common units were issued under this program as of June 30, 2021.
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 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. Since the end of 2018, the uncertainties surrounding international trade have impacted both domestic and export prices for our products. Global demand for most of our vinyls products started strengthening in the second half of 2020 and remained strong in the first half of 2021, and we expect global demand for most of our vinyls products to remain robust through the remainder of 2021. 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. Further, our Olefins segment has experienced lower profitability in recent periods due to several new ethylene and polyethylene capacity additions in North America and Asia that have led to additional supply of ethylene and polyethylene. In the past year, we have seen volatility in ethane and ethylene prices, primarily due to changes in demand resulting from the coronavirus ("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 the first quarter of 2021 due to the severe winter storm in February 2021 that resulted in shutdowns of many industry production facilities in the southern United States. Global demand for most of our olefins products started strengthening in the second half of 2020 and remained strong in the first half of 2021, and we expect global demand for most of our olefins products to remain robust through the remainder of 2021. However, new ethylene and polyethylene capacity additions in North America, Asia and the Middle East will add additional supply and may continue to contribute to periods of lower profitability in our Olefins segment.
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 severe winter storm discussed under "February Winter Storm," 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 second 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.
February Winter Storm
In February 2021, large parts of the southern United States, including Texas, Louisiana, Kentucky, and Mississippi, experienced a severe winter storm. Due to the severe winter storm, several of our facilities in the region experienced disruption to their operations, resulting in lost production and sales, and additional maintenance costs of approximately $14 million in the quarter ended March 31, 2021. Our facilities that were impacted by this storm have since resumed production.
Pending 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 has 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 (the "Boral Acquisition"). The purchase price is subject to certain closing date adjustments as set forth in the Boral Purchase Agreement. The Boral Purchase Agreement contains customary representations and warranties made by the parties, and also contains customary covenants and agreements. The Boral Purchase Agreement contains certain termination rights for both Boral Industries and RBP.
The Boral Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions. The consummation of the Boral Acquisition is not subject to a financing condition.
On July 4, 2021, North American Pipe Corporation ("NAPCO"), one of our wholly owned subsidiaries, entered into that certain Equity Purchase Agreement (the "LASCO Purchase Agreement") with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts") and wholly owned subsidiary of Aalberts N.V., pursuant to which NAPCO has agreed to acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts for a purchase price of $252.5 million in cash (the "LASCO Acquisition"). The purchase price is subject to certain closing date adjustments as set forth in the LASCO Purchase Agreement. The LASCO Purchase Agreement contains customary representations and warranties made by the parties, and also contains customary covenants and agreements. The LASCO Purchase Agreement contains certain termination rights for both Aalberts and NAPCO.
The LASCO Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions. The consummation of the LASCO Acquisition is not subject to a financing condition.
Pending Acquisition of Dimex
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" and, together with the Boral Purchase Agreement and the LASCO Purchase Agreement, the "Purchase Agreements") 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 has agreed to acquire Dimex for a purchase price of $170 million in cash (the "Dimex Acquisition" and, together with the Boral Acquisition and the LASCO Acquisition, the "Acquisitions"). The purchase price is subject to certain closing date adjustments as set forth in the Dimex Purchase Agreement. The Dimex Purchase Agreement contains customary representations and warranties made by the parties, and also contains customary covenants and agreements. The Dimex Purchase Agreement contains certain termination rights for both Dimex's stockholders and Rome.
The Dimex Acquisition is currently expected to close in the second half of 2021, subject to the receipt of certain regulatory approvals and other customary closing conditions. The consummation of the Dimex Acquisition is not subject to a financing condition.
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.
Product sales price and volume percentage change from prior-year period
Vinyls
+53.5
%
+9.0
%
+35.2
%
+5.3
%
Olefins
+99.9
%
-13.9
%
+64.3
%
-10.9
%
Company
+63.3
%
+4.1
%
+41.5
%
+1.8
%
Average Industry Prices (1)
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Average domestic prices
Natural gas ($/MMBtu) (2)
2.9
1.8
2.8
1.9
Ethane (cents/lb) (3)
8.7
6.4
8.4
5.6
Propane (cents/lb) (4)
20.7
9.6
21.0
9.2
Ethylene (cents/lb) (5)
43.0
11.0
44.0
13.4
Polyethylene (cents/lb) (6)
99.0
49.0
88.5
50.7
Styrene (cents/lb) (7)
90.5
48.3
83.5
55.3
Caustic soda ($/short ton) (8)
755
698
702
673
Chlorine ($/short ton) (9)
309
175
271
175
PVC (cents/lb) (10)
105.0
66.5
98.9
69.2
Average export prices
Polyethylene (cents/lb) (11)
89.7
38.5
83.0
39.0
Caustic soda ($/short ton) (12)
333
319
291
261
PVC (cents/lb) (13)
77.8
27.5
72.8
32.2
_____________
(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.
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 June 30,
Six Months Ended June 30,
2021
2020
2021
2020
(dollars in millions)
Net cash provided by operating activities
$
617
$
448
$
882
$
509
Changes in operating assets and liabilities and other
For the quarter ended June 30, 2021, net income attributable to Westlake was $522 million, or $4.04 per diluted share, on net sales of $2,859 million. This represents an increase in net income attributable to Westlake of $507 million, or $3.93 per diluted share, compared to the quarter ended June 30, 2020 net income attributable to Westlake of $15 million, or $0.11 per diluted share, on net sales of $1,709 million. Income from operations for the quarter ended June 30, 2021 was $720 million, a $684 million increase from income from operations of $36 million for the quarter ended June 30, 2020. The increase in net income and income from operations was primarily due to higher global sales prices and integrated margins for most of our major products including polyethylene, PVC resin, downstream building products and PVC compounds and higher sales volumes for PVC resin, downstream building products and PVC Compounds, in each case due to the strengthening of demand for our products resulting from the improved 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 second 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, natural gas costs and selling, general and administrative expense. Net sales for the quarter ended June 30, 2021 increased by $1,150 million compared to net sales for the quarter ended June 30, 2020, mainly due to higher sales prices for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, as well as higher sales volumes for PVC resin, downstream building products and PVC compounds, partially offset by lower polyethylene sales volumes.
For the six months ended June 30, 2021, net income attributable to Westlake was $764 million, or $5.91 per diluted share, on net sales of $5,216 million. This represents an increase in net income attributable to Westlake of $604 million, or $4.67 per diluted share, compared to the six months ended June 30, 2020 net income attributable to Westlake of $160 million, or $1.24 per diluted share, on net sales of $3,641 million. Income from operations for the six months ended June 30, 2021 was $1,066 million, a $894 million increase from income from operations of $172 million for the six months ended June 30, 2020. The increase in net income and income from operations was primarily due to higher global sales prices and integrated margins for most of our major products including polyethylene, PVC resin and downstream building products and higher sales volumes for downstream building products and PVC compounds, in each case due to the strengthening of demand for our products resulting from the improved global economic activity, strong residential construction and repair and remodeling markets in North America, strong demand from the packaging and other consumer markets. Net income and income from operations for the six months ended June 30, 2021 were positively impacted by higher margin contribution on ethylene produced by LACC. Net income and income from operations for the six months ended June 30, 2021 was negatively impacted by the shutdown of our production facilities in the southern United States due to the severe winter storm in February 2021, which resulted in lower plant operating rates, higher maintenance expense and lower production for many of our major products. In addition, net income and income from operations for the six months ended June 30, 2021 was negatively impacted by higher feedstock costs, natural gas costs and selling, general and administrative expense. The six months ended June 30, 2020 net income included an income tax rate benefit of $68 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 six months ended June 30, 2021 increased by $1,575 million compared to net sales for the six months ended June 30, 2020, mainly due to higher sales prices for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, as well as higher sales volumes for downstream building products and PVC compounds, partially offset by lower sales volumes for polyethylene.
RESULTS OF OPERATIONS
Second Quarter 2021 Compared with Second Quarter 2020
Net Sales. Net sales increased by $1,150 million, or 67%, to $2,859 million in the second quarter of 2021 from $1,709 million in the second quarter of 2020, primarily attributable to higher sales prices for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, as well as higher sales volumes for PVC resin, downstream building products and PVC compounds. These increases were partially offset by lower sales volumes for polyethylene due to lower production and lower product availability resulting from the winter storm and continuing polyethylene inventory shortages from hurricanes in the second half of the prior year. Average sales prices for the second quarter of 2021 increased by 63% as compared to the second quarter of 2020 due to the strengthening of demand for our products resulting from the improved global economic activity and strong residential construction and repair and remodeling markets in North America and higher crude oil prices. Sales volumes increased by 4% in the second quarter of 2021 as compared to the second quarter of 2020.
Gross Profit. Gross profit margin percentage was 31% in the second quarter of 2021 as compared to 10% in the second quarter of 2020. The increase in gross profit margin was primarily due to higher sales prices and margins for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, as well as the higher sales volumes for PVC resin, downstream building products and PVC compounds. Gross profit margin for the second quarter of 2021 was positively impacted by higher margin contribution on ethylene produced by LACC and was negatively impacted by higher feedstock and natural gas costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $21 million to $125 million in the second quarter of 2021 as compared to $104 million in the second quarter of 2020. This increase was mainly due to higher employee compensation expenses and selling expenses.
Amortization of Intangibles. Amortization expense was $27 million in the second quarter of 2021, which was comparable to the second quarter of 2020.
Interest Expense. Interest expense decreased by $4 million to $36 million in the second quarter of 2021 from $40 million in the second quarter of 2020, primarily as a result of lower average debt outstanding in the second quarter of 2021 as compared to the second quarter of 2020.
Other Income, Net. Other income, net of $10 million in the second quarter of 2021 was comparable to the other income, net in the second quarter of 2020.
Income Taxes. The effective income tax rate was an expense of 22.8% for the second quarter of 2021 as compared to a benefit of 380.0% for the second quarter of 2020. The effective tax rate in the second quarter of 2021 was higher as compared to the second quarter of 2020 primarily due to the income tax rate benefit in the second 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, the depletion deduction, the foreign earnings rate differential and the state income tax benefit.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $840 million, or 62%, to $2,188 million in the second quarter of 2021 from $1,348 million in the second quarter of 2020. The increase was mainly due to higher sales prices and volumes for PVC resin, downstream building products and PVC compounds, as compared to the prior-year period. Average sales prices for the Vinyls segment increased by 54% in the second quarter of 2021, as compared to the second quarter of 2020, primarily due to improved global economic activity and strong residential construction and repair and remodeling industry performance. Sales volumes for the Vinyls segment increased by 9% in the second quarter of 2021 as compared to the second quarter of 2020, primarily due to the higher demand for PVC resin, downstream building products and PVC compounds.
Income from Operations. Income from operations for the Vinyls segment increased by $415 million to $435 million in the second quarter of 2021 from $20 million in the second quarter of 2020. This increase in income from operations was due to higher sales prices and volumes for PVC resin, downstream building products and PVC compounds, resulting from improved global economic activity and strong residential construction and repair and remodeling industry performance. The second quarter of 2021 was also positively impacted by higher margin contribution on ethylene produced by LACC, partially offset by higher feedstock and natural gas costs.
Net Sales. Net sales for the Olefins segment increased by $310 million, or 86%, to $671 million in the second quarter of 2021 from $361 million in the second quarter of 2020. Average sales prices for the Olefins segment increased by 100% in the second quarter of 2021 as compared to the second quarter of 2020 primarily due to higher sales prices for our major products. The higher prices were driven by a shortage of ethylene in February 2021 resulting from shutdowns of many plants in the industry due to the severe winter storm, higher crude oil prices and improved global economic activity. Sales volumes for the Olefins segment decreased by 14% in the second quarter of 2021 as compared to the second quarter of 2020 primarily as a result of the lower polyethylene inventory levels, lower production and lower product availability resulting from the February freeze and continuing inventory shortages from hurricanes in the second half of the prior year.
Income from Operations. Income from operations for the Olefins segment increased by $252 million to $277 million in the second quarter of 2021 from $25 million in the second quarter of 2020. This increase in income from operations was due to higher sales prices for our major products, mainly resulting from the ethylene shortage in February 2021, improved global economic activity and higher crude oil prices. The increase in income from operations versus the prior-year period was partially offset by the lower polyethylene sales volumes, lower production and lower product availability resulting from the February freeze and by higher feedstock and natural gas costs. Trading activity for the second quarter of 2021 resulted in a gain of approximately $12 million primarily due to favorable trading positions as compared to a gain of $3 million for the second quarter of 2020.
Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
Net Sales. Net sales increased by $1,575 million, or 43%, to $5,216 million in the six months ended June 30, 2021 from $3,641 million in the six months ended June 30, 2020, primarily attributable to higher sales prices for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, 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 six months ended June 30, 2021 increased by 42% as compared to the six months ended June 30, 2020 due to the strengthening of demand for our products resulting from the improved global economic activity and strong residential construction and repair and remodeling markets in North America and higher crude oil prices. Sales volumes increased by 2% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.
Gross Profit. Gross profit margin percentage was 26% in the six months ended June 30, 2021 as compared to 12% in the six months ended June 30, 2020. The increase in gross profit margin was primarily due to higher sales prices and margins for most of our major products including PVC resin, polyethylene, downstream building products and PVC compounds, as well as the higher sales volumes for downstream building products and PVC compounds. Gross profit margin for the six months ended June 30, 2021 was also positively impacted by the margin contributed from LACC's produced ethylene. Gross profit margin for the six months ended June 30, 2021 was negatively impacted by the severe winter storm in February 2021 in the southern United States, which resulted in lower plant operating rates, higher maintenance expense and lower production for polyethylene, as well as higher feedstock and natural gas costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $37 million to $261 million in the six months ended June 30, 2021 as compared to $224 million in the six months ended June 30, 2020. This increase was mainly due to higher employee compensation and selling expenses.
Amortization of Intangibles. Amortization expense was $54 million in the six months ended June 30, 2021, which was comparable to the six months ended June 30, 2020.
Interest Expense. Interest expense decreased by $2 million to $69 million in the six months ended June 30, 2021 from $71 million in the six months ended June 30, 2020.
Other Income, Net. Other income, net of $22 million in the six months ended June 30, 2021 was comparable to other income, net in the six months ended June 30, 2020.
Income Taxes. The effective income tax rate was an expense of 22.6% for the six months ended June 30, 2021 as compared to a benefit of 49.6% for the six months ended June 30, 2020. The change in effective tax rate in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was primarily due to the income tax rate benefit in the six months ended June 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, the depletion deduction, the foreign earnings rate differential and the state income tax benefit.
Net Sales. Net sales for the Vinyls segment increased by $1,155 million, or 40%, to $4,008 million in the six months ended June 30, 2021 from $2,853 million in the six months ended June 30, 2020. The increase was mainly due to higher sales prices and volumes for PVC resin, downstream building products and PVC compounds, as compared to the prior-year period primarily due to improved global economic activity and strong residential construction and repair and remodeling industry performance. Average sales prices for the Vinyls segment increased by 35% in the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. Sales volumes for the Vinyls segment increased by 5% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.
Income from Operations. Income from operations for the Vinyls segment increased by $542 million to $635 million in the six months ended June 30, 2021 from $93 million in the six months ended June 30, 2020. This increase in income from operations was primarily due to higher sales prices and volumes for PVC resin, downstream building products and PVC compounds, resulting from improved global economic activity and strong residential construction and repair and remodeling industry performance, higher margin contribution from ethylene produced by LACC, partially offset by lower production volumes and increased maintenance expenses resulting from the severe winter storm in February 2021 and by higher ethylene feedstock and natural gas costs.
Olefins Segment
Net Sales. Net sales for the Olefins segment increased by $420 million, or 53%, to $1,208 million in the six months ended June 30, 2021 from $788 million in the six months ended June 30, 2020. The increase was mainly due to higher sales prices for our major products. Average sales prices for the Olefins segment increased by 64% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The higher prices were driven by a shortage of ethylene in February 2021 resulting from shutdowns of many plants in the industry due to the severe winter storm, higher crude oil prices and improved global economic activity. Sales volumes for the Olefins segment decreased by 11% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily as a result of the lower polyethylene inventory levels, lower production and lower product availability resulting from the February freeze and continuing inventory shortages from hurricanes in the second half of the prior year.
Income from Operations. Income from operations for the Olefins segment increased by $370 million to $457 million in the six months ended June 30, 2021 from $87 million in the six months ended June 30, 2020. This increase in income from operations was due to higher sales prices for our major products, mainly resulting from the ethylene shortage in February 2021, improved global economic activity and higher crude oil prices. The increase in income from operations versus the prior-year period was partially offset by the lower polyethylene sales volumes, lower product availability due to the severe winter storm in February 2021 and by higher feedstock and natural gas costs. Trading activity for the six months ended June 30, 2021 resulted in a gain of approximately $16 million as compared to a gain of $1 million for the six months ended June 30, 2020.
CASH FLOW DISCUSSION FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
Cash Flows
Operating Activities
Operating activities provided cash of $882 million in the first six months of 2021 compared to cash provided by operating activities of $509 million in the first six months of 2020. The $373 million increase in cash flows from operating activities was mainly due to an increase in income from operations that was partially offset by the 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 $303 million in the first six months of 2021, compared to $124 million of cash used in the first six months of 2020, an unfavorable change of $179 million. The majority of the unfavorable changes in the first six months of 2021 were driven by the 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 six months of 2021 were primarily driven by higher inventory cost and an increase in operating activities, as compared to the six months ended June 30, 2020.
Net cash used for investing activities in the first six months of 2021 was $264 million as compared to net cash used for investing activities of $260 million in the first six months of 2020. Capital expenditures were $270 million in the first six months of 2021, which was lower by $21 million as compared to $291 million in the first six months of 2020. Capital expenditures in the first six 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 six months of 2021, we contributed $7 million to LACC and $2 million to an unconsolidated investee compared to return of investment of $39 million from LACC in the first six months of 2020.
Financing Activities
Net cash used for financing activities during the first six months of 2021 was $72 million as compared to net cash provided by financing activities of $131 million in the first six months of 2020. The activities during the first six months of 2021 were primarily related to the $69 million payment of cash dividends and the $22 million payment of cash distributions to noncontrolling interests. In the first six 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 six months of 2020 were primarily related to the $68 million payment of cash dividends, the $29 million payment of cash distributions to noncontrolling interests, repurchases of our common stock of $54 million and $14 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 June 30, 2021, we had repurchased 7,075,720 shares of our common stock for an aggregate purchase price of approximately $419 million under the 2014 Program. During the six months ended June 30, 2021, we did not repurchase any shares of our common stock 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, WLK Partners and Westlake Partners GP, the general partner of WLK 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 June 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 turnaround of OpCo's Petro 2 ethylene unit in Lake Charles during the second half of 2021.) Funding of any potential large expansions or potential acquisitions (such as the pending 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.
Cash and Cash Equivalents
As of June 30, 2021, our cash and cash equivalents totaled $1,844 million.
As of June 30, 2021, our indebtedness totaled $3.6 billion. See Note 7 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 7 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 new $1 billion revolving credit facility that is scheduled to mature on July 24, 2023 (the "Credit Agreement"). The Credit Agreement bears interest at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75% in each case depending on the credit rating of the Company. As of June 30, 2021, we had no borrowings outstanding under the Credit Agreement. As of June 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 June 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).
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.
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 June 30, 2021 was 0.08% 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).
3.50% 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.
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).
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).
The indenture governing the 3.60% 2022 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 5.0% 2046 Senior Notes, and the 4.375% 2047 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.
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 $30 million at June 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 June 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 $4 million at June 30, 2021.
As of June 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 Chemical Partners LP ("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 June 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 June 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.
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:
•our proposed acquisition of the Boral Target Companies and the expected timing of the closing of the Boral Acquisition;
•our proposed acquisition of LASCO and the expected timing of the closing of the LASCO Acquisition;
•our proposed acquisition of Dimex and the expected timing of the closing of the Dimex Acquisition;
•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 timing and deferral of the planned turnaround at our Petro 2 ethylene unit;
•production capacities;
•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 Acquisitions;
•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.
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 timing to consummate the Acquisitions; the conditions to the closing of the Acquisitions may not be satisfied or the closing of the Acquisitions otherwise does not occur; the risk that HSR approval is not obtained or is obtained subject to conditions that are not anticipated; the diversion of management time on transaction-related issues; 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;
•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.
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 vinyls products where pricing is more stable. We use derivative instruments in certain instances to reduce price volatility risk on feedstocks and products. Based on our open derivative positions at June 30, 2021, a hypothetical $0.10 increase in the price of a gallon of ethane would have increased our income before income taxes by $36 million and a hypothetical $0.10 increase in the price of a MMBtu of natural gas would have decreased our income before income taxes by $2 million.
Interest Rate Risk
We are exposed to interest rate risk with respect to fixed and variable rate debt. At June 30, 2021, we had $3,615 million aggregate principal amount of fixed rate debt. We are subject to the risk of higher interest cost if and when this debt is refinanced. If interest rates were 1.0% higher at the time of refinancing, our annual interest expense would increase by approximately $36 million. Also, at June 30, 2021, we had $11 million principal amount of variable rate debt outstanding, which represents the tax-exempt waste disposal revenue bonds. We do not currently hedge our variable interest rate debt, but we may do so in the future. The average variable interest rate for our variable rate debt of $11 million as of June 30, 2021 was 0.08%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would not result in a material change in our annual interest expense. During June 2021, in order to manage the interest rate risk associated with the potential borrowings, we entered into treasury lock agreements to fix the treasury yield component of the interest cost.
LIBOR is used as a reference rate for borrowings under our revolving line of credit. The phase-out of LIBOR is set to commence at the end of 2021 and conclude by June 30, 2023. We do not expect the impact of the LIBOR phase out to be material as we do not have any external LIBOR-based borrowings outstanding at June 30, 2021.
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 to reduce the volatility in stockholders' equity from changes in currency exchange rates associated with our net investments in foreign operations. The notional value of the net investment hedges was €150 million at June 30, 2021. 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% Senior Notes due 2029. 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.
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 June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The 2020 Form 10-K, filed on February 24, 2021, contained a description of various legal proceedings in which we are involved. See below and Note 13 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for 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 Petroleum Corporation, Occidental Chemical Corporation d/b/a OxyChem, Shin-Etsu Chemical Co., Ltd., Shintech Incorporated, Formosa Plastics Corporation, 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 seek an unspecified amount of damages 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. 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 June 30, 2021):
•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. The EPA has indicated that it is seeking a consent decree that would obligate us to take corrective actions relating to the alleged noncompliance. We believe the resolution of these matters may require the payment of a monetary sanction in excess of $1 million.
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.
For a discussion of risk factors, please read Item 1A, "Risk Factors" in the 2020 Form 10-K. The information below includes additional risks relating to the Acquisitions. The risks described below and in other documents that we file from time to time with the Securities and Exchange Commission could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition.
We and Boral, Aalberts and Dimex must obtain certain approvals and governmental and regulatory consents to consummate the Acquisitions, which, if delayed, not granted or granted with unacceptable conditions, may jeopardize or delay the consummation of the Acquisitions, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the transactions.
The obligations of the parties to consummate the Acquisitions are subject to various customary closing conditions, including, among other things, (i) the absence of an order, judgment, injunction or law prohibiting the transactions contemplated by the Purchase Agreements, (ii) the expiration or termination of the waiting period under the HSR Act, (iii) the accuracy of each party's representations and warranties contained in the Purchase Agreements and (iv) each party's compliance with or performance of its covenants and obligations contained in the Purchase Agreements in all material respects. The waiting period under the HSR Act with respect to each of the Acquisitions has not yet expired.
No assurance can be given that the required closing conditions will be satisfied, and, if all required consents and approvals are obtained and the closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals. Even if the required approvals and governmental and regulatory consents are obtained under acceptable conditions, RBP or Boral Industries may elect to terminate the Boral Purchase Agreement in certain circumstances as described in the Boral Purchase Agreement, NAPCO or Aalberts may elect to terminate the LASCO Purchase Agreement in certain circumstances as described in the LASCO Purchase Agreement, Rome or Dimex's stockholders may elect to terminate the Dimex Purchase Agreement in certain circumstances as described in the Dimex Purchase Agreement and the parties may mutually decide to terminate any of the Purchase Agreements at any time prior to the closing.
Failure to consummate the Acquisitions could negatively impact our share price and our future business and financial results.
If the Acquisitions are not consummated, our ongoing business may be adversely affected and, without realizing any of the potential benefits of having consummated the transactions, we will be subject to a number of risks, including the following:
•we will be required to pay certain costs and expenses relating to the proposed transactions;
•matters relating to the proposed transactions (including integration planning) may have required substantial commitments of time and resources by our management, which could otherwise have been devoted to other opportunities that may have been beneficial to us; and
•we also could be subject to litigation related to a failure to consummate the proposed transactions or related to any enforcement proceeding commenced against us to perform our obligations under the Purchase Agreements.
If the Acquisitions are not consummated, these risks may materialize and may adversely affect our business, financial results and share price.
While the Acquisitions are pending, each of the Boral Target Companies, LASCO and Dimex will be subject to business uncertainties that could adversely affect our businesses.
Uncertainty about the effect of the Acquisitions on employees, customers and suppliers may have an adverse effect on the Boral Target Companies, LASCO or Dimex. These uncertainties may impair each of the Boral Target Companies', LASCO's, and Dimex's ability to attract, retain and motivate key personnel until the Acquisitions are consummated and for a period of time thereafter, and could cause customers, suppliers and others who deal with the Boral Target Companies, LASCO or Dimex to seek to change or terminate existing business relationships with the Boral Target Companies, LASCO or Dimex, respectively. Employee retention may be particularly challenging during the pendency of the Acquisitions because employees may experience uncertainty about their future roles with us. If, despite our and the Boral Target Companies', LASCO's and Dimex's retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, our business could be seriously harmed.
We may not realize all of the anticipated benefits of the Acquisitions or those benefits may take longer to realize than expected. We may also encounter significant unexpected difficulties in integrating our business with the businesses of the Boral Target Companies, LASCO and Dimex.
Our ability to realize the anticipated benefits of the Acquisitions will depend, to a large extent, on our ability to integrate our business with the businesses of the Boral Target Companies, LASCO and Dimex. The combination of such independent businesses is a complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and resources to integrating each of the Boral Target Companies', LASCO's and Dimex's business practices and operations with our existing business practices and operations. The integration process may disrupt the businesses and, if implemented ineffectively or if impacted by unforeseen negative economic or market conditions or other factors, we may not realize the full anticipated benefits of the Acquisitions. Our failure to meet the challenges involved in integrating such businesses to realize the anticipated benefits of the Acquisitions could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management's attention. The difficulties of combining the operations of the companies include, among others:
•the diversion of management's attention to integration matters;
•difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining the businesses of the Boral Target Companies, LASCO and Dimex with our business;
•difficulties entering new markets or manufacturing in new geographies where we have no or limited direct prior experience;
•difficulties in entering into new business lines, such as our entry into recycling in connection with the Dimex Acquisition;
•difficulties in the integration of operations and systems;
•difficulties in the assimilation of employees;
•difficulties in managing the expanded operations of a larger and more complex company;
•successfully managing relationships with our strategic partners and our supplier and customer base;
•challenges in maintaining existing, and establishing new, business relationships; and
•challenges in attracting and retaining key personnel.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if the operations of our businesses and the businesses of the Boral Target Companies, LASCO and Dimex are integrated successfully, we may not realize the full benefits of the Acquisitions, including the synergies, cost savings or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Furthermore, additional unanticipated costs may be incurred in the integration of the businesses. All of these factors could decrease or delay the expected benefits of the Acquisitions and negatively impact us. As a result, we cannot be certain that the combination of our business with the businesses of the Boral Target Companies, LASCO and Dimex will result in the realization of the full benefits anticipated from the Acquisitions.
The Acquisitions may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.
The financial results of the combined company may be adversely affected by cash expenses and non-cash charges incurred in connection with our integration of the businesses and operations of the Boral Target Companies, LASCO and Dimex with our existing business and operations. The amount and timing of these possible charges are not yet known. Further, our failure to identify or accurately assess the magnitude of certain liabilities that we are assuming in the Acquisitions could result in unexpected litigation or regulatory exposure, unfavorable charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition. The price of our common stock following the Acquisitions could decline to the extent the combined company's financial results are materially affected by any of these events.
Our level of debt, including that incurred in connection with the Acquisitions, could adversely affect our ability to operate our business.
As of June 30, 2021, our indebtedness, including the current portion, totaled $3.6 billion, and our debt represented approximately 33% of our total capitalization. Our annual interest expense for 2020 was $142 million, net of interest capitalized of $4 million. We expect to incur up to $1.7 billion of additional debt to complete the Acquisitions. Our level of debt and the limitations imposed on us by our existing or future debt agreements could have significant consequences on our business and future prospects, including the following:
•a portion of our cash flows from operations will be dedicated to the payment of interest and principal on our debt and will not be available for other purposes;
•we may not be able to obtain necessary financing in the future for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
•our less leveraged competitors could have a competitive advantage because they have greater flexibility to utilize their cash flows to improve their operations;
•we may be exposed to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of interest, which would result in higher interest expense in the event of increases in interest rates;
•we could be vulnerable in the event of a downturn in our business that would leave us less able to take advantage of significant business opportunities and to react to changes in our business and in market or industry conditions; and
•should we pursue additional expansions of existing assets or acquisition of third-party assets, we may not be able to obtain additional liquidity at cost effective interest rates.
These factors could be magnified or accelerated to the extent we were to finance future acquisitions, including the Acquisitions, with significant amounts of debt.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information on our purchase of equity securities during the quarter ended June 30, 2021.
Period
Total Number
of Shares
Purchased (1)
Average Price Paid Per Share
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs (2)
Maximum Number
(or Approximate
Dollar Value) of
Shares that
May Yet Be
Purchased Under the
Plans or Programs (2)
April 2021
485
$
95.50
—
$
131,155,000
May 2021
217
99.54
—
131,155,000
June 2021
92
105.75
—
131,155,000
794
$
97.79
—
_____________
(1) Represents 485, 217 and 92 shares withheld in April 2021, May 2021 and June 2021, respectively, in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to our employees under the 2013 Plan.
(2) In November 2014, our Board of Directors authorized a $250 million stock repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150 million. In August 2018, our Board of Directors approved the further expansion of the existing 2014 Program by an additional $150 million. As of June 30, 2021, 7,075,720 shares of our common stock had been acquired at an aggregate purchase price of approximately $419 million under the 2014 Program. Transaction fees and commissions are not reported in the average price paid per share in the table above. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flows from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document and contained in Exhibit 101
______________________________
† Filed herewith.
# Furnished herewith.
* Schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K.A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WESTLAKE CHEMICAL CORPORATION
Date:
August 3, 2021
By:
/S/ ALBERT CHAO
Albert Chao
President and Chief Executive Officer (Principal Executive Officer)
Date:
August 3, 2021
By:
/S/ M. STEVEN BENDER
M. Steven Bender
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
