Westlake Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report; quarterly-specific results are not summarized in the supplied filing text. Westlake changed its name from Westlake Chemical Corporation on February 18, 2022.
Business context
Westlake is a vertically integrated global producer of chemicals, performance materials, and housing and infrastructure products. In the fourth quarter, it reorganized reporting into Performance and Essential Materials and Housing and Infrastructure Products; prior-period segment results were recast. The 2021 results include the Boral, LASCO, and Dimex acquisitions from their respective close dates.
Key financial metrics
| Metric (US$ millions, except per-share data) | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | 11,778 | 7,504 | +57% |
| Gross profit | 3,495 | 1,023 | +2,472 |
| Gross margin | 30% | 14% | +16 percentage points |
| Income from operations | 2,800 | 429 | +2,371 |
| Net income attributable to Westlake | 2,015 | 330 | +1,685 |
| Diluted EPS | $15.58 | $2.56 | +$13.02 |
| Operating cash flow | 2,394 | 1,297 | +1,097 |
| Capital expenditures | 658 | 525 | +133 |
EBITDA, a non-GAAP measure, was $3,693 million versus $1,246 million. Interest expense was $176 million, up from $142 million. The effective tax rate was 23%, compared with a 13% tax benefit in 2020, which included a $95 million CARES Act carryback benefit.
Segment results: Performance and Essential Materials sales were $8,670 million, with operating income of $2,549 million (2020: $5,465 million and $231 million). Housing and Infrastructure Products sales were $3,108 million and operating income was $356 million (2020: $2,039 million and $256 million). The filing attributes much of the Housing segment sales increase to acquisitions and higher prices.
Liquidity and debt: Cash and cash equivalents were $1,908 million at year-end, versus $1,313 million. Total debt was $5,180 million, compared with $3,566 million; current debt was $269 million. The $1 billion revolving credit facility was undrawn, with $1 billion available, and Westlake reported covenant compliance. Long-term debt maturities included $269 million in 2022, $300 million in 2024, and $759 million in 2026. Dividends paid were $145 million.
Material changes and drivers
- Sales rose 57%, reflecting a 51% increase in average selling prices and a 6% increase in volume. The filing cites recovering global demand, strong North American housing and remodeling activity, and packaging and consumer demand.
- Performance and Essential Materials operating income improved substantially on stronger prices and margins for polyethylene, PVC resin, and caustic soda, partly offset by higher feedstock and fuel costs.
- Housing and Infrastructure Products benefited from higher prices, robust demand, and acquired businesses; higher energy costs and storm effects were offsets.
- Operating cash flow increased, but working capital used $383 million, mainly as receivables and inventory increased. Investing cash use rose to $3,213 million, including $2,554 million for acquisitions, net of cash acquired.
Outlook, risks, contingencies, and unusual items
- Management expected demand for most products to remain robust in 2022 and cited a favorable potential effect from the Infrastructure Investment and Jobs Act. The filing does not provide quantified earnings or revenue guidance.
- The 2021 Boral acquisition closed for $2,132 million, with a potential earn-out of up to $65 million. LASCO and Dimex closed for $277 million and $172 million. The Hexion global epoxy acquisition closed on February 1, 2022, for approximately $1.2 billion; it is a subsequent event, not part of 2021 operating results.
- Winter Storm Uri and Hurricane Ida disrupted production and increased costs. A September 2021 flash fire at OpCo’s Petro 2 facility injured contractors and extended the turnaround through December; related lawsuits were pending.
- Key risks include commodity and energy price volatility, industry cyclicality and capacity additions, supply-chain and workforce constraints, COVID-19 uncertainty, housing-market exposure, acquisition integration, environmental regulation, operational disruptions, and debt and refinancing needs.
- Westlake reported $56 million of environmental contingency reserves and additional reasonably possible environmental losses of $65 million to $130 million. Caustic soda antitrust class actions in the US and Canada remained unresolved, and the Company could not estimate their impact. The EPA flare matter could involve a monetary sanction above $1 million; management did not expect a material adverse effect.
- Environmental compliance capital expenditures were $33 million in 2021; management estimated $56 million for 2022 and $83 million for 2023. The 2022–2023 estimates include EPA-related work and corrective actions associated with the flare matter.
- Auditors issued unqualified opinions on the financial statements and internal controls. The Boral businesses, representing 4.7% of year-end assets and 2.3% of 2021 sales, were excluded from the 2021 internal-control assessment while integration proceeded.
Important facts for investors to verify
- Whether exceptional 2021 pricing and margins are sustainable as commodity markets, feedstock costs, and new industry capacity change.
- Acquisition integration progress, purchase-accounting estimates, expected synergies, and the Hexion acquisition’s financing and contribution to results.
- Near-term debt maturities, liquidity needs, and the effect of working-capital requirements and planned capital spending.
- Developments and potential exposure in the caustic soda litigation, environmental matters, and Petro 2 incident-related lawsuits.
- Whether management’s 2022 demand outlook and housing assumptions hold amid economic, interest-rate, and supply-chain uncertainty.