Westlake Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. Dollar amounts are in millions unless stated otherwise.
Business context
Westlake is a vertically integrated global producer of chemicals, plastics, building products and infrastructure products. Its two segments are Performance and Essential Materials (PEM) and Housing and Infrastructure Products (HIP). The company completed its acquisition of Hexion’s global epoxy business on February 1, 2022, for approximately $1.207 billion; results are included in PEM from that date.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $15,794 | $11,778 |
| Gross profit / gross margin | $4,073 / 25.8% | $3,495 / 29.7% |
| Income from operations / operating margin | $3,050 / 19.3% | $2,800 / 23.8% |
| Net income attributable to Westlake | $2,247 | $2,015 |
| Diluted earnings per share | $17.34 | $15.58 |
| Operating cash flow | $3,395 | $2,394 |
| Capital expenditures | $1,108 | $658 |
| Free cash flow (non-GAAP) | $2,287 | $1,736 |
Sales rose 34%, reflecting higher prices for caustic soda, chlorine and many HIP products, plus acquired-business contributions. Profit increased, but gross and operating margins declined: higher energy, feedstock and raw-material costs and lower polyethylene prices weighed on results. Management also cited softening PVC resin demand in the second half. FY2022 included a $70 million pre-tax litigation charge.
PEM sales were $11,008, up 27%, while operating income fell to $2,416 from $2,549. HIP sales rose 54% to $4,786 and operating income increased to $675 from $356, driven chiefly by strong first-half pricing and acquired businesses; higher input and production costs partly offset gains.
At year-end, cash and cash equivalents were $2,228, total current assets were $5,973 and current liabilities were $2,298. Long-term debt, net, was $4,879; stated debt principal was $4,976. The company reported $1.5 billion of availability under its revolving credit facility, with no borrowings or letters of credit outstanding under it. It reported compliance with debt covenants. Cash dividends paid were $169, and common-stock repurchases were approximately $101.
Changes, outlook and material items
- Operating cash flow increased by $1,001, helped by higher operating income and favorable working-capital changes. Investing cash outflow was $2,479, including the epoxy acquisition and higher capital spending; financing activities used $587, including debt redemption, dividends and buybacks.
- Westlake acquired an additional 3.2% of LACC for $89 million and held a 50% interest at year-end. The epoxy business contributed $1,446 of sales and $42 of net income from acquisition through year-end.
- Management gave no specific company earnings or financial guidance in the supplied filing text. It said near-term higher energy costs, interest rates, inflation and other macroeconomic conditions could reduce margins and demand. It also noted weakening housing activity from the end of the second quarter and expected near-term pressure on housing-related demand.
- The filing cites NAHB outlook housing starts of 1.135 million in 2023 and 1.299 million in 2024, versus 1.553 million in 2022. These are industry outlook figures, not Westlake guidance.
- Environmental compliance capital spending was $46 million in 2022; management estimated approximately $62 million in 2023 and $78 million in 2024. A consent decree on flare emissions requires roughly $110 million of implementation spending, with work incurred in 2021–2022 or planned for 2023–2024; the $1 million civil penalty was paid.
- A jury awarded approximately $70 million in a Natrium-related trespass and negligence case in October 2022. Westlake recorded a reserve for the award; no final judgment had been entered, and the company said it would appeal any damages judgment. The filing separately identifies environmental reserves of $55 million and reasonably possible additional environmental losses of $75–$135 million.
- Key risks include petrochemical cyclicality and price competition, volatile feedstock and energy costs, housing-market weakness, new capacity, supply-chain and operating interruptions, regulatory and climate-related costs, acquisition integration, foreign exchange, and debt-service requirements. The company set a target to reduce Scope 1 and Scope 2 CO2-equivalent emissions per ton of production 20% by 2030 from a 2016 baseline.
Investor verification priorities
- Review the basis and durability of 2022 pricing, margins and cash generation, especially given second-half demand weakness and elevated input costs.
- Track the Natrium litigation outcome, potential appeal, and whether the recorded reserve changes; distinguish this from the separate $70 million litigation charge reported in operating results.
- Assess acquisition integration and returns from Westlake Epoxy, including its contribution to PEM and the final purchase-price allocation.
- Check environmental spending against estimates and monitor the $75–$135 million reasonably possible environmental-loss range and consent-decree compliance.
- Monitor debt maturities, interest-rate exposure, pension obligations and the company’s use of cash for capital spending, dividends and repurchases.
- Note that management and the auditor excluded Westlake Epoxy from the 2022 internal-control assessment; the acquired businesses represented 6.6% of assets and 9.2% of sales. The auditor reported effective internal control for the assessed scope.