Financial Data and Key Metrics Changes - For Q1 2023, the company achieved sales of $3.4 billion, net income of $394 million, and EBITDA of $825 million, reflecting significant improvement from Q4 2022 due to improved volumes, margins, and earnings as customer destocking moderated and end market demand improved [7][8] - Net income decreased by $362 million compared to Q1 2022, primarily due to lower average selling prices and integrated margins, particularly for PVC and polyethylene [13] - Compared to Q4 2022, net income increased by $162 million due to higher production and sales volume and lower feedstock fuel and power costs [14] Business Segment Performance Changes - The Housing and Infrastructure Products (HIP) segment maintained an EBITDA margin of 20% despite a 21% decline in volume compared to the prior year, driven by lower home building activity due to higher mortgage rates [9][10] - The Performance and Essential Materials (PEM) segment saw an EBITDA of $615 million, a decrease of $456 million from Q1 2022, largely due to lower average selling prices for PVC resin and lower sales volumes [16] - The HIP segment's EBITDA of $205 million decreased by $53 million compared to Q1 2022, with sales declines in both Housing and Infrastructure Products driven by lower housing starts [19][20] Market Data and Key Metrics Changes - The company shifted sales volumes from exports to domestic markets, contributing to a better sales mix and higher integrated margins [8] - The overall housing market continues to be impacted by affordability concerns due to higher mortgage rates, but long-term fundamentals remain positive due to a deficit in new housing construction since 2008 [10][28] - The company expects demand from China to improve, which would spur demand for many products and improve integrated margins [27] Company Strategy and Industry Competition - The company is focused on achieving $55 million to $105 million in annualized cost savings for 2023, with approximately $25 million already achieved in Q1 [24] - The company continues to look for opportunities to strategically deploy its balance sheet in a shareholder-friendly manner, including potential acquisitions and returning cash to shareholders [31] - The company maintains a positive long-term outlook for the U.S. housing market, driven by demographic demand and a structural undersupply of housing [28] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about demand trends as the economy stabilizes, with expectations for improved demand in the U.S. and China [27] - The company noted that while the economic environment has improved, mixed signals remain, and the impact of interest rate changes could affect future demand [26] - Management highlighted the importance of sustainability and progress towards reducing carbon intensity by 20% by 2030 [29] Other Important Information - As of March 31, 2023, cash and cash equivalents were $2.4 billion, and total debt was $4.9 billion, with net cash provided by operating activities at $512 million [23] - The company expects total capital expenditures for 2023 to be approximately $1 billion, unchanged from earlier guidance [25] Q&A Session Summary Question: How does the company view demand and integrated margins for the year? - Management believes that customer destocking has finished and that demand is stabilizing, leading to cautious optimism for improvements in the economy and demand [34][35] Question: What is the outlook for PVC and polyethylene in China? - Management noted that China's economy is slowly improving, which should enhance demand for PVC and polyethylene [36] Question: Can you elaborate on the epoxy market demand? - Demand for epoxy is improving in North America, although it remains weak in Europe and Asia [38] Question: Are there opportunities for acquisitions in the construction-related portfolio? - Management indicated interest in adding to the construction-related portfolio where demand exists and opportunities arise [40][41] Question: What is the current cost base and how does it reflect lower energy feedstock? - The company is well-positioned with lower energy costs, which will positively impact its cost structure moving forward [44][45] Question: How does the company view the competitive landscape for PVC and caustic? - Management discussed the dynamics of the PVC market and the impact of integrated production on pricing and margins [56][57] Question: What is the expected trend for caustic prices throughout the year? - Management anticipates a gradual decline in caustic prices, stabilizing by the end of the year, influenced by broader economic conditions [65] Question: How does the company view its epoxy business in light of ongoing imports? - Management sees a strengthening domestic market for epoxy, with expectations for recovery as demand for wind energy increases [86]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 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 Corporation (Exact name of Registrant as specified in its charter) Delaware 76-0346924 (State or other jurisdiction of incorpor ...

4Q 2022 Earnings Presentation Westlake Fourth Quarter 2022 Highlights ▪ Compared to the prior-year period, fourth quarter financial results were impacted by lower sales volume1 and selling prices due to customer destocking, China lockdowns, lackluster European demand and rising interest rates: ▪ Net sales of $3.3 billion, a decrease of 6% vs. fourth quarter 2021 net sales ▪ Net income of $232 million, a decrease of 64% vs. fourth quarter 2021 net income ▪ EBITDA of $619 million, a decrease of 45% vs. fourth ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (I.R.S. Employer Identification No.) 2801 Post Oak Boulevard, Suite 600 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2022 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 Corporation (Exact name of registrant as s ...

Westlake Corporation (NYSE:WLK) Q4 2022 Results Conference Call February 21, 2023 11:00 AM ET Company Participants Jeff Holy - Vice President & Treasurer Albert Chao - President and Chief Executive Officer Steven Bender - Executive Vice President and Chief Financial Officer Roger Kearns - Chief Operating Officer and Executive Vice President, Performance and Essential Materials Conference Call Participants Kevin McCarthy - Vertical Research Michael Leithead - Barclays David Begleiter - Deutsche Bank Michael ...

Financial Performance and Balance Sheet - Westlake's sales reached $16 billion, with an EBITDA of $4.7 billion and a net income of $2.7 billion [5] - The company boasts a strong balance sheet with a net debt to EBITDA ratio of 0.6x and operating cash flows of $3.3 billion [5] - Westlake's EBITDA margin is 29%, and its cash flow conversion rate is 71% [5] Strategic Acquisitions and Growth - Westlake has made four catalytic and capability-enhancing acquisitions in the past year, valued at $3.8 billion [11] - These acquisitions enhance the company's value-added portfolio and create new growth opportunities across both segments [8] - The company leverages a globally advantaged low-cost position, particularly in North America, due to abundant ethane from shale, electricity from natural gas, and ample salt [12] Performance & Essential Materials (PEM) Segment - PEM segment sales were approximately $11.1 billion, with an EBITDA of $3.8 billion [13] - The company is the 1 specialty epoxy producer for wind energy and a leading producer of chlorovinyls [13, 14] - Westlake aims to reduce Scope 1 and 2 emissions by 20% by 2030 [55] Housing & Infrastructure Products (HIP) Segment - HIP segment sales were approximately $4.9 billion, with an EBITDA of $1.0 billion [31] - The company holds leading market positions in North American building products, including premium PVC & poly-ash trim, non-wood shutters, and clay & concrete tile roofing [31] - 80% of HIP sales go through 1-step distributors, enhancing margins [46] Market Dynamics and Opportunities - Long-term housing trends, including underbuilding and favorable demographics, support Westlake's building products and PVC businesses [33, 49] - The company is well-positioned to benefit from secular demand for formulated, differentiated, and specialty products in various end markets [18, 66] - Global PVC and caustic soda capacity additions are expected to be exceeded by demand growth [22] Capital Allocation and Investment - Westlake maintains a strong balance sheet with significant available liquidity of approximately $3.278 billion [59] - The company has a history of successful M&A, focusing on adjacent applications, vertical integration, and buying below replacement costs [63] - Westlake is committed to sustainability and ESG, incorporating recycled materials and establishing carbon emission reduction goals [66]

Financial Data and Key Metrics Changes - Westlake Corporation reported net income of $401 million or $3.10 per share on sales of $4 billion for Q3 2022, which represents a decrease of $206 million from Q3 2021 and $457 million from Q2 2022 [10][16] - The company faced pressures from high energy costs, particularly in Europe, and a $70 million legal charge impacting profitability [12][16] - EBITDA margin was maintained at 20% despite the challenging economic environment [19] Business Segment Performance Changes - The Performance and Essential Materials (PEM) segment's EBITDA decreased by $385 million year-over-year to $561 million on sales of $2.7 billion, with performance materials sales increasing by $101 million due to an acquisition [20][21] - The Housing and Infrastructure Products (HIP) segment's EBITDA increased by $117 million to $254 million compared to Q3 2021, driven by higher sales prices and contributions from acquired businesses [25][26] - HIP segment sales increased by $482 million year-over-year, while sales decreased from Q2 2022 due to lower production and sales volumes [27] Market Data and Key Metrics Changes - The company noted a slowdown in demand for PVC and building products, which tightened markets for chlor-alkali, improving caustic soda pricing [14] - The North American market continues to benefit from a structural cost advantage in feedstocks, fuel, and power, while European markets faced significant challenges due to high energy prices [13][34] Company Strategy and Industry Competition - Westlake is focused on navigating inflation and high energy costs while leveraging its North American production capacity [34] - The company aims to benefit from government spending on infrastructure projects and the integration of recently acquired businesses to enhance product offerings [37][38] - The company is committed to sustainability and innovation, introducing lower carbon products and expanding its market presence [40][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of rising interest rates and high energy prices on housing starts and construction activity, but noted potential demand for repair and remodeling products [35][36] - The company expects to see a release of working capital in Q4 2022 and plans to deploy that capital in a shareholder-friendly manner, including share repurchases [42] - The management remains optimistic about long-term demand fundamentals despite short-term fluctuations [82] Other Important Information - As of September 30, 2022, cash and cash equivalents were $1.8 billion, with total debt at $4.8 billion, indicating a strong balance sheet [28][29] - The company reaffirmed its guidance for HIP revenue in 2022 to increase by 50% to 60% from 2021 [30] Q&A Session Summary Question: Chlorine and caustic pricing momentum heading into 2023 - Management indicated that momentum in chlor-alkali pricing is expected to continue, despite potential production drops due to reduced demand in PVC and other derivatives [47] Question: EBIT margin expectations for HIP segment in 2023 - Management believes the HIP segment can maintain strong performance despite headwinds in housing, with scalability allowing for continued profitability [48] Question: Inventory levels and destocking impact - Management noted destocking at both company and customer levels due to seasonal slowdowns and headwinds in housing [55] Question: PVC price stabilization - Management discussed the significant price declines in PVC and the factors influencing future pricing, including demand from China and seasonal trends [56][60] Question: European energy market impact on profitability - Management expressed optimism for improved profitability in Europe if energy prices stabilize, following a challenging Q3 [64] Question: Managing company differently in a slowing market - Management plans to adjust operating rates and accelerate maintenance activities in response to market conditions [66] Question: Trough EBITDA levels - Management indicated that the current environment is challenging but believes the company can maintain strong EBITDA levels even in downturns [93] Question: Epoxy profitability trends - Management noted mixed performance in epoxy, with the U.S. market showing strength while Europe faces challenges due to high energy prices [101] Question: Buyback activity and cash management - Management confirmed a strong cash position and plans for increased buyback activity in Q4 [102] Question: Breakdown of HIP revenue guidance - Management expects strength in the repair and remodeling side of the business, despite a seasonal slowdown in new construction [106]

Q3 2022 Earnings Presentation Westlake Third Quarter 2022 Highlights Westlake delivers differentiated, specialty and branded products and solutions | --- | --- | --- | --- | --- | |-------|-------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Westlake Corporation's unaudited consolidated interim financial statements as of September 30, 2022, detail balance sheets, operations, cash flows, and notes on acquisitions, financial instruments, and segment information [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets increased to $20.4 billion, liabilities to $10.2 billion, and equity to $10.2 billion, primarily due to acquisitions and retained earnings growth Consolidated Balance Sheet Highlights | Account | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :--- | :--- | :--- | | **Total Assets** | **$20,425** | **$18,459** | | Total Current Assets | $6,101 | $5,263 | | Property, plant and equipment, net | $8,301 | $7,606 | | Goodwill | $2,143 | $2,024 | | **Total Liabilities** | **$10,237** | **$9,931** | | Long-term debt, net | $4,813 | $4,911 | | **Total Equity** | **$10,188** | **$8,528** | | Retained Earnings | $9,700 | $7,808 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Q3 2022 net sales rose to $3.96 billion, but net income decreased to $401 million; nine-month net sales grew to $12.5 billion, with net income increasing to $2.02 billion Q3 2022 vs Q3 2021 Performance | Metric | Q3 2022 (in millions) | Q3 2021 (in millions) | | :--- | :--- | :--- | | Net sales | $3,956 | $3,055 | | Gross profit | $776 | $1,018 | | Income from operations | $516 | $861 | | Net income attributable to Westlake | $401 | $607 | | Diluted EPS | $3.10 | $4.69 | Nine Months 2022 vs 2021 Performance | Metric | Nine Months 2022 (in millions) | Nine Months 2021 (in millions) | | :--- | :--- | :--- | | Net sales | $12,495 | $8,271 | | Gross profit | $3,506 | $2,399 | | Income from operations | $2,723 | $1,927 | | Net income attributable to Westlake | $2,015 | $1,371 | | Diluted EPS | $15.54 | $10.60 | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, operating cash flow increased to $2.56 billion, investing activities used $2.15 billion due to acquisitions, and financing activities used $480 million for debt repayment and share repurchases Cash Flow Summary for Nine Months Ended Sep 30 | Cash Flow Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,560 | $1,637 | | Net cash used for investing activities | $(2,148) | $(842) | | Net cash provided by (used for) financing activities | $(480) | $1,487 | | **Net increase (decrease) in cash** | **$(135)** | **$2,273** | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail financial statement preparation, Q4 2021 segment reorganization, the $1.2 billion Westlake Epoxy acquisition, debt instruments, fair value measurements, income tax, segment performance, and ongoing legal contingencies - In Q4 2021, the company reorganized into two principal operating segments: **Performance and Essential Materials**, and **Housing and Infrastructure Products**, applied retrospectively[28](index=28&type=chunk)[102](index=102&type=chunk) - On February 1, 2022, the company acquired Westlake Epoxy for **$1,207 million**, with results included in the Performance and Essential Materials segment[34](index=34&type=chunk) - The company is involved in multiple class-action lawsuits alleging price-fixing of caustic soda, with the potential financial impact currently unestimable[88](index=88&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2022 net income decrease due to higher costs and a $70 million litigation charge, while nine-month net income increased significantly due to strong pricing and acquisitions, noting slowing demand and strong liquidity - Q3 2022 net income decreased to **$401 million** from **$607 million** in Q3 2021, primarily due to higher costs, lower prices, and a **$70 million** litigation charge[138](index=138&type=chunk) - For the first nine months of 2022, net income increased to **$2,015 million** from **$1,371 million**, driven by higher sales prices, strong H1 2022 margins, and acquisitions[139](index=139&type=chunk) - The company anticipates near-term margin and demand reduction due to higher energy costs, inflation, and rising interest rates, impacting European operations and the North American housing market[114](index=114&type=chunk)[119](index=119&type=chunk) - In August 2022, the Board authorized an additional **$500 million** for the existing share repurchase program[124](index=124&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Q3 2022 net sales rose 29% to $3.96 billion, but gross margin fell to 20%; nine-month sales grew 51% to $12.5 billion with stable gross margin, and SG&A expenses increased due to acquisitions Q3 2022 vs Q3 2021 Comparison | Metric | Q3 2022 (in millions) | Q3 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,956 | $3,055 | +29% | | Gross Profit Margin | 20% | 33% | -13 p.p. | | Income from Operations | $516 | $861 | -40% | | SG&A Expenses | $215 | $122 | +76% | Nine Months 2022 vs 2021 Comparison | Metric | Nine Months 2022 (in millions) | Nine Months 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $12,495 | $8,271 | +51% | | Gross Profit Margin | 28% | 29% | -1 p.p. | | Income from Operations | $2,723 | $1,927 | +41% | | SG&A Expenses | $635 | $383 | +66% | [Cash Flow Discussion](index=39&type=section&id=CASH%20FLOW%20DISCUSSION) For the first nine months of 2022, operating cash flow increased to $2.56 billion, investing activities used $2.15 billion primarily for acquisitions and capital expenditures, and financing activities used $480 million for debt repayment and share repurchases - Operating cash flow for the first nine months of 2022 increased by **$923 million** year-over-year, primarily due to higher income from operations[164](index=164&type=chunk) - Investing cash outflow increased significantly due to the **$1.17 billion** acquisition of Westlake Epoxy and a **$397 million** increase in capital expenditures[165](index=165&type=chunk) - Financing activities in the first nine months of 2022 used **$480 million**, mainly for **$250 million** in senior notes redemption, **$123 million** in dividends, and **$68 million** in share repurchases[166](index=166&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of September 30, 2022, Westlake maintained strong liquidity with $1.78 billion in cash, $4.8 billion in debt, a new $1.5 billion credit facility, and an expanded $500 million share repurchase program - The company's cash and cash equivalents totaled **$1,778 million** as of September 30, 2022[171](index=171&type=chunk) - In June 2022, the company established a new **$1.5 billion** revolving credit facility maturing in 2027, with no outstanding borrowings as of September 30, 2022[175](index=175&type=chunk) - The Board expanded the share repurchase program by an additional **$500 million** in August 2022, with **$68 million** of common stock repurchased in the first nine months of 2022[168](index=168&type=chunk)[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages commodity price risk for raw materials, interest rate risk on its $4.9 billion debt, and foreign currency risk from international operations using derivative instruments and net investment hedges - The company faces commodity price risk from raw materials like ethane and natural gas; a hypothetical **$0.10** increase per gallon of ethane would increase pre-tax income by **$27 million**[201](index=201&type=chunk) - As of September 30, 2022, the company had **$4.89 billion** in fixed-rate debt and **$24 million** in variable-rate debt, exposing it to interest rate risk[202](index=202&type=chunk) - To mitigate foreign currency risk, the company uses hedging contracts and designated its **€700 million** senior notes due 2029 as a non-derivative net investment hedge for euro-denominated subsidiaries[204](index=204&type=chunk)[205](index=205&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during Q3 2022 - The President and CEO, along with the Executive VP and CFO, concluded that the company's disclosure controls and procedures were effective as of the report period end[206](index=206&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2022[207](index=207&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company faces class-action lawsuits for caustic soda price-fixing with unestimable impact, and an EPA consent decree for flares requiring $110 million in compliance costs and a $1 million penalty - Westlake is a defendant in class-action lawsuits in the U.S. and Canada alleging caustic soda price-fixing, with the potential financial impact currently unestimable[209](index=209&type=chunk) - The company reached an EPA consent decree for flares, requiring approximately **$110 million** in compliance costs and a **$1 million** penalty[211](index=211&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors emphasize external factors like inflation, rising interest rates, and potential recession impacting demand and margins, alongside dependency on cyclical markets like the softening U.S. housing market - External factors including inflation, interest rates, potential recession, supply chain constraints, and geopolitical events can cause demand and margin fluctuations[213](index=213&type=chunk)[214](index=214&type=chunk) - The U.S. housing market softened in Q2 and Q3 2022 due to inflationary pricing and rising mortgage rates, potentially adversely affecting the Housing and Infrastructure Products segment[218](index=218&type=chunk)[219](index=219&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2022, the company repurchased 372,430 shares at an average price of $87.27, and in August 2022, the Board authorized an additional $500 million for the repurchase program, with $528 million remaining Share Repurchases for Q3 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 51,330 | $97.37 | | August 2022 | — | — | | September 2022 | 321,100 | $85.64 | | **Total Q3** | **372,430** | **$87.27** | - In August 2022, the Board approved a **$500 million** expansion of the stock repurchase program, with **$528 million** available as of September 30, 2022[222](index=222&type=chunk) [Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including corporate governance documents and certifications from the Principal Executive Officer and Principal Financial Officer - The exhibits filed include corporate governance documents and required certifications from the CEO and CFO under Rule 13a-14(a) and Section 1350[225](index=225&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Consolidated financial statements for H1 2022 show significant growth, with total assets reaching **$20.4 billion** and net income more than doubling to **$1.6 billion**, reflecting strong market conditions and acquisitions | Financial Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net Sales** | $8,539 million | $5,216 million | | **Gross Profit** | $2,730 million | $1,381 million | | **Income from Operations** | $2,207 million | $1,066 million | | **Net Income Attributable to Westlake** | $1,614 million | $764 million | | **Diluted EPS** | $12.43 | $5.91 | | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $6,013 million | $5,263 million | | **Total Assets** | $20,372 million | $18,459 million | | **Total Current Liabilities** | $2,513 million | $2,344 million | | **Total Liabilities** | $10,398 million | $9,931 million | | **Total Equity** | $9,974 million | $8,528 million | | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $1,613 million | $882 million | | **Net Cash used for Investing Activities** | ($1,803) million | ($264) million | | **Net Cash used for Financing Activities** | ($377) million | ($72) million | - On February 1, 2022, the Company completed its acquisition of Westlake Epoxy for a total purchase consideration of **$1,207 million**, with the acquired business included in the Performance and Essential Materials segment[29](index=29&type=chunk) - The company reorganized its business segments in Q4 2021 from Vinyls and Olefins to two new principal operating segments: Performance and Essential Materials, and Housing and Infrastructure Products, with this change retrospectively applied to all periods presented[26](index=26&type=chunk)[94](index=94&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2022 performance to higher sales prices and integrated margins, despite rising costs and interest rates, with robust cash flow supporting acquisitions and shareholder returns [Overview](index=28&type=section&id=Overview) Westlake operates as a vertically integrated manufacturer in two segments, benefiting from ethane-based cost advantages and strong demand, but faces raw material cost volatility and potential economic headwinds - The company operates under two principal segments: Performance and Essential Materials (including vinyls, chlor-alkali, olefins, and epoxy) and Housing and Infrastructure Products (including building products, pipes, and compounds)[104](index=104&type=chunk) - The acquisition of Westlake Epoxy represents a strategic expansion into high-growth applications like wind turbine blades and lightweight automotive components, providing vertical integration with the company's chlor-alkali business[109](index=109&type=chunk) - While global demand for most products remained strong through Q2 2022, management warns that inflation, rising interest rates, and the possibility of a recession are expected to have an unfavorable impact on demand for housing and other products[107](index=107&type=chunk)[115](index=115&type=chunk) [Recent Developments](index=31&type=section&id=Recent%20Developments) In H1 2022, Westlake completed key strategic actions including the **$1.2 billion** acquisition of Hexion's epoxy business, increased its LACC joint venture stake, redeemed senior notes, and secured a new **$1.5 billion** revolving credit facility - On February 1, 2022, the company completed the acquisition of Hexion's global epoxy business (Westlake Epoxy) for a purchase consideration of **$1,207 million**[119](index=119&type=chunk) - In March 2022, the company acquired an additional **3.2%** interest in LACC, LLC from Lotte Chemical Corporation for **$89 million**[121](index=121&type=chunk) - In May 2022, the company redeemed all outstanding **3.60%** Senior Notes due 2022[122](index=122&type=chunk) - On June 9, 2022, the company entered into a new **$1.5 billion** revolving credit facility scheduled to mature in June 2027, terminating its existing agreement[123](index=123&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) For Q2 2022, net sales surged **57%** to **$4.5 billion** and net income rose to **$858 million**, driven by increased sales prices and volumes, largely from acquisitions, with both segments reporting significant growth | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $4,483M | $2,859M | +57% | | **Income from Operations** | $1,175M | $720M | +63% | | **Net Income Attributable to Westlake** | $858M | $522M | +64% | | **Diluted EPS** | $6.60 | $4.04 | +63% | | **EBITDA** | $1,456M | $932M | +56% | | Segment | Q2 2022 vs Q2 2021 Change | | :--- | :--- | | **Performance and Essential Materials** | | | Average Sales Price | +27.1% | | Volume | +17.5% | | **Housing and Infrastructure Products** | | | Average Sales Price | +46.1% | | Volume | +47.3% | - Performance and Essential Materials segment income from operations increased by **$294 million** to **$965 million** in Q2 2022, driven by higher sales prices for PVC resin, caustic soda, and styrene, and contributions from the Westlake Epoxy acquisition[142](index=142&type=chunk) - Housing and Infrastructure Products segment income from operations increased by **$140 million** to **$236 million** in Q2 2022, driven by higher sales prices from strong housing construction and remodeling activity, plus contributions from 2021 acquisitions[144](index=144&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains strong, with cash from operations increasing to **$1.6 billion** for H1 2022, supporting the **$1.2 billion** Westlake Epoxy acquisition and capital expenditures, while maintaining a new **$1.5 billion** credit facility and active stock repurchase program | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $1,613 million | $882 million | | **Net Cash used for Investing Activities** | ($1,803) million | ($264) million | | **Net Cash used for Financing Activities** | ($377) million | ($72) million | - As of June 30, 2022, cash and cash equivalents totaled **$1,317 million** and total indebtedness was **$4.9 billion**[165](index=165&type=chunk)[166](index=166&type=chunk) - During Q2 2022, the company repurchased **412,490** shares of its common stock for approximately **$41 million** under its authorized stock repurchase program[162](index=162&type=chunk)[209](index=209&type=chunk) - On June 9, 2022, the company entered into a new **$1.5 billion** revolving credit facility maturing in 2027, which was undrawn as of June 30, 2022[168](index=168&type=chunk)[55](index=55&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Westlake is exposed to commodity price risk for products and raw materials, interest rate risk on its **$4.9 billion** fixed-rate debt, and foreign currency exchange risk, which it partially mitigates through derivatives and hedging instruments - A substantial portion of the company's products and raw materials are commodities, exposing it to price fluctuations, where a hypothetical **$0.10** increase in the price of a gallon of ethane would have increased pre-tax income by **$30 million** as of June 30, 2022[196](index=196&type=chunk) - As of June 30, 2022, the company had **$4.9 billion** in fixed-rate debt and **$26 million** in variable-rate debt, exposing it to interest rate risk upon refinancing or rate changes[197](index=197&type=chunk) - The company is exposed to foreign currency risk and uses hedges to mitigate it, having designated its **€700 million** senior notes due 2029 as a non-derivative net investment hedge for its euro-denominated subsidiaries[199](index=199&type=chunk)[200](index=200&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The President and CEO and the Executive VP and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[201](index=201&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[202](index=202&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) Westlake is involved in several legal matters, including a class-action antitrust lawsuit concerning caustic soda pricing with an unestimable financial impact, and an EPA agreement for flare emissions estimated to cost **$110 million** plus a **$1 million** penalty - The company is a defendant in multiple class-action lawsuits alleging a conspiracy to fix the price of caustic soda, with plaintiffs for direct purchasers seeking **$861 million** in single damages, though the company cannot estimate the potential impact at this time[204](index=204&type=chunk)[81](index=81&type=chunk) - The company reached an agreement on a consent decree with the EPA and state agencies regarding flare emissions, with compliance estimated to cost approximately **$110 million** in capital expenditures and other costs, plus a **$1 million** penalty[206](index=206&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section directs investors to the detailed discussion of risk factors in the company's 2021 Form 10-K, with no new or updated risk factors presented in this quarterly report - The report refers readers to Item 1A, "Risk Factors" in the 2021 Form 10-K for a comprehensive discussion of potential risks[207](index=207&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, Westlake repurchased **414,910** shares of common stock, with **412,490** shares purchased for approximately **$41 million** under its stock repurchase program, leaving about **$61 million** available for future repurchases | Period (2022) | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | **April** | 611 | $119.41 | — | $101,151,083 | | **May** | 1,621 | $141.19 | — | $101,151,083 | | **June** | 412,678 | $98.19 | 412,490 | $60,652,803 | | **Total** | **414,910** | **$98.39** | **412,490** | **$60,652,803** | - The majority of shares repurchased were under the company's publicly announced 2014 Program, which has been expanded multiple times, and the program may be discontinued by the Board at any time[209](index=209&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, the new **$1.5 billion** Credit Agreement dated June 9, 2022, and certifications by the Principal Executive and Financial Officers - A key exhibit filed is the Credit Agreement dated June 9, 2022, relating to a **$1.5 billion** senior unsecured revolving credit facility[211](index=211&type=chunk)