# WESTLAKE CORP (WLK) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from WESTLAKE CORP's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1262823/000126282322000014/wlk-20211231.htm Accession: 0001262823-22-000014 Filing date: 2022-02-23 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/WLK/ All MD&A years: /company/WLK/mda/ Next year: /company/WLK/mda/fy2022/ (FY 2022) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a vertically integrated global manufacturer and marketer of performance and essential materials and housing and infrastructure products. We have historically operated in two principal operating segments, Vinyls and Olefins. As a result of recent acquisitions, we reorganized our business into two principal operating segments, Performance and Essentials Materials and Housing and Infrastructure Products in the fourth quarter of 2021. Performance and Essential Materials segment includes Westlake North American Vinyls, Westlake North American Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake Olefins and Westlake Polyethylene. Housing and Infrastructure Products segment includes Westlake Royal Building Products, Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. The change has been retrospectively reflected in the periods presented in this Form 10-K. We are highly integrated along our materials chain with significant downstream integration from ethylene and chlor-alkali (chlorine and caustic soda) into vinyls, polyethylene and styrene monomer. We also have substantial downstream integration from PVC into our building products, PVC pipes and fittings and PVC compounds in our Housing and Infrastructure Products segment. Performance and Essentials Materials Ethane-based ethylene producers have 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 Performance and Essential Materials segment during such periods. However, we have seen a significant reduction in the cost advantage enjoyed by North American ethane-based ethylene producers during periods of lower crude oil prices. In the past year, we have seen volatility in ethane and ethylene prices, primarily due to changes in demand resulting from the COVID-19 pandemic, anticipated timing for certain new ethylene capacity additions and availability of natural gas liquids. Additionally, we have seen volatility in ethane and ethylene prices in 2021 due to winter storm Uri and Hurricane Ida that resulted in shutdowns of many industry production facilities on the Gulf Coast and delayed or extended the timing of planned turnarounds of various ethylene crackers. Our performance and essential materials such as ethylene, PVC, polyethylene and chlor-alkali are some of the most widely used materials in the world and are upgraded into a wide variety of higher value-added products used in many end-markets. Our performance and essential materials are used by customers in food and specialty packaging; industrial and consumer packaging; medical health applications; PVC pipe applications; consumer durables; mobility and transportation; and infrastructure products. Chlor-alkali and petrochemicals are typically manufactured in large volume by a number of different producers using widely available technologies. The chlor-alkali and petrochemical industries exhibit cyclical commodity characteristics, and margins are influenced by changes in the balance between supply and demand and the resulting operating rates, the level of general economic activity and the price of raw materials. Due to the significant size of new plants, capacity additions are built in large increments and typically require several years of demand growth to be absorbed. The cycle is generally characterized by periods of tight supply, leading to high operating rates and margins, followed by a decline in operating rates and margins primarily as a result of excess new capacity additions. Westlake is the second-largest chlor-alkali producer and the second-largest PVC producer in the world. Demand for our products in the first half of 2020 was negatively impacted by the onset of the COVID-19 pandemic. Global demand for most of our products started strengthening in the second half of 2020 and remained strong throughout 2021, and we expect global demand for most of our products to remain robust in 2022. Depending on the performance of the global economy, potential changes in international trade and tariffs policies, the trend of crude oil prices, the timing of the new capacity additions in North America, Asia and the Middle East in 2022 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. We purchase significant amounts of ethane feedstock, natural gas, ethylene and salt from external suppliers for use in production of performance and essential materials. We also purchase significant amounts of electricity to supply the energy required in our production processes. While we have agreements providing for the supply of ethane feedstock, natural gas, ethylene, salt and electricity, the contractual prices for these raw materials and energy vary with market conditions and may be highly volatile. Factors that have caused volatility in our raw material prices in the past, and which may do so in the future include: •the availability of feedstock from shale gas and oil drilling; •supply and demand for crude oil; •shortages of raw materials due to increasing demand; •ethane and liquefied natural gas exports; 31 Table of Contents •capacity constraints due to higher construction costs for investments, construction delays, strike action or involuntary shutdowns; •the general level of business and economic activity; and •the direct or indirect effect of governmental regulation. Significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases. Conversely, when raw material costs decrease, customers may seek immediate relief in the form of lower sales prices. We currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs. Normally, there is a pricing relationship between a commodity that we process and the feedstock from which it is derived. When this pricing relationship deviates from historical norms, we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship. Our historical results have been significantly affected by our plant production capacity, our efficient use of that capacity and our ability to increase capacity. Since our inception, we have followed a disciplined growth strategy that focuses on plant acquisitions, new plant construction and internal expansion. We evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs. We also regularly look at acquisition opportunities that would be consistent with, or complimentary to, our overall business strategies. Depending on the size of the acquisition, any such acquisitions could require external financing. As noted above in Item 1A, "Risk Factors," we are subject to extensive environmental regulations, which may impose significant additional costs on our operations in the future. Further, concerns about GHG emissions and their possible effects on climate change has led to the enactment of regulations, and to proposed legislation and additional regulations, that could affect us in the form of increased cost of feedstocks and fuel, other increased costs of production and decreased demand for our products. While we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term, we cannot predict the longer-term effect of any of these regulations or proposals on our future financial condition, results of operations or cash flows. Housing and Infrastructure Products Our Housing and Infrastructure Products segment is primarily comprised of building products, PVC pipes and fittings and PVC compound products. Our sales are affected by the individual decisions of distributors and dealers on the levels of inventory they carry, their views on product demand, their financial condition and the manner in which they choose to manage inventory risk. A significant portion of our performance in this segment is driven by the activities in the residential construction and repair and remodeling markets in North America. Performance of our housing and infrastructure products businesses over time are generally reflective of the trends of building permits and housing starts in the New Residential Construction Survey by the U.S. Census Bureau and Repair and Remodeling Index (RRI) provided by the National Association of Home Builders ("NAHB") among others. Looking ahead, we expect that the approval of the Infrastructure Investment and Jobs Act in November 2021 will have a favorable impact on certain industries related to our Housing and Infrastructure Products segment in the future. The following table presents annual historical housing starts per the U.S. Census Bureau and the 2022 outlook per the NAHB: [[GREPCENT_TABLE]] [["Period","","Single and Multi-family Housing Starts (in thousands of units)","","% Change"],["2019","","1,290","","3%"],["2020","","1,380","","7%"],["2021","","1,597","","16%"],["2022","","1,605"]] [[/GREPCENT_TABLE]] North American PVC facilities within the Performance and Essential Materials segment supply most of the PVC required for our building products and PVC pipes and fittings plants. Our raw materials for stone, roofing and accessories, windows, shutters and specialty tool products are externally purchased. PVC required for the PVC compounds plants is either internally sourced from our North American and Asian facilities within the Performance and Essential Materials segment or externally purchased based on the location of the plants. The remaining feedstocks required, including pigments, fillers, stabilizers and other ingredients, are purchased under short-term contracts based on prevailing market prices. 32 Table of Contents Factors that have caused volatility in our raw material prices and production processes in the past, and which may do so in the future include significant fluctuation in prices of these raw materials in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials. Increasing raw material prices directly impact our cost of sales and our ability to maintain margins depends on implementing price increases in response to increasing raw material costs. The market for our products may or may not accept price increases, and as such, our future financial condition, results of operations or cash flows could be materially impacted. 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 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-K are not substitutes for the GAAP measures of earnings and cash flows. EBITDA is included in this Form 10-K 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. Reconciliations for EBITDA are included in the "Results of Operations" section below. Significant Developments COVID-19, Industry Conditions and Our Business On March 11, 2020, the World Health Organization declared the ongoing COVID-19 outbreak a pandemic and recommended containment and mitigation measures worldwide. The pandemic has resulted in widespread adverse impacts on the global economy. We experienced significant disruptions in the second quarter of 2020 as the pandemic and its impact on the global economy spread through most of our markets. We were designated as an essential industry by many governments based on the nature of the products we manufacture. While demand for some of our products used in cleaning, packaging and medical applications and manufacturing continued to be firm, we expected lower demand for certain of our other products that led us to proactively temporarily idle production at several of our smaller non-integrated plants and reduce operating rates at others in the beginning of the second quarter of 2020. Since the middle of the second quarter of 2020, a general ease in government restrictions in many jurisdictions across the world has resulted in a gradual increase in demand for our products. As a result, all of our idled plants recommenced production. Except for the impact of the winter storm Uri and Hurricane Ida, operating rates have improved for most of our plants since the second half of 2020 due to continuing increase in demand for our products. Though the government restrictions across the world generally eased through the fourth 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, the efficacy of the available vaccines (including with respect to the more recent variants of COVID-19), vaccine hesitancy and the availability of 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. 33 Table of Contents Acquisitions Hexion Global Epoxy Business On November 24, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into a Stock Purchase Agreement (the "Hexion Purchase Agreement") by and among Hexion Inc. ("Hexion"), an Ohio corporation, and, solely for the limited purposes set forth therein, Westlake. Pursuant to the terms of the Hexion Purchase Agreement, Westlake agreed to acquire Hexion's global epoxy business for a purchase price of approximately $1,200 million in cash, subject to certain closing date adjustments as set forth in the Hexion Purchase Agreement. On February 1, 2022, we completed the acquisition of Hexion's global epoxy business (the "Hexion Acquisition"). The assets acquired and liabilities assumed and the results of operations of Hexion's epoxy business will be included in the Performance and Essential Materials segment. This acquisition represents a significant strategic expansion of Westlake's Performance and Essential Materials businesses into additional high-growth, innovative and sustainable-oriented applications – such as wind turbine blades and light-weight automotive structural components. Because epoxies are produced from chlorine and caustic soda, the transaction also provides vertical integration with our global chlor-alkali businesses. Boral Target Companies On June 20, 2021, Westlake, through one of its wholly-owned subsidiaries, 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"), 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, Westlake agreed to acquire from Boral Industries all 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"). On October 1, 2021, we completed the acquisition of the Boral Target Companies (the "Boral Acquisition"). The total closing purchase consideration was $2,132 million subject to working capital post-closing adjustments as well as a potential earn-out payment of up to $65 million if the windows division of the Boral Target Companies generates EBITDA in excess of a specified target in its fiscal year ending June 30, 2024. The assets acquired and liabilities assumed and the results of operations of this business are included in the Housing and Infrastructure Products segment. Westlake Dimex Inc. On August 2, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into that certain Stock Purchase Agreement (the "Dimex Purchase Agreement") with DX Acquisition Corp., a Delaware corporation ("Dimex"), each of Dimex's stockholders, and for limited purposes, Westlake and Grey Mountain Partners Fund III Holdings, L.P., pursuant to which Westlake agreed to acquire Dimex. On September 10, 2021, we completed the acquisition of, and acquired all of the equity interests in, Dimex (the "Dimex Acquisition") and subsequently renamed the acquired company Westlake Dimex Inc. ("Westlake Dimex"). The total closing purchase consideration was $172 million, subject to working capital post-closing adjustments. The assets acquired and liabilities assumed and the results of operations of Westlake Dimex are included in the Housing and Infrastructure Products segment. Westlake Dimex is a producer of various consumer products made from post-industrial-recycled polyvinyl chloride, polyethylene and thermoplastic elastomer materials, including, landscape edging; home, office and industrial matting; marine dock edging; and masonry joint controls. LASCO Fittings, Inc. On July 4, 2021, Westlake, through one of its wholly-owned subsidiaries, entered into that certain Equity Purchase Agreement with Aalberts U.S. Holding Corp., a Delaware corporation ("Aalberts") and wholly-owned subsidiary of Aalberts N.V., pursuant to which Westlake agreed to acquire LASCO Fittings, Inc., a Delaware corporation ("LASCO"), from Aalberts. On August 19, 2021, we completed the acquisition of, and acquired all of the equity interests in, LASCO (the "LASCO Acquisition"). The total closing purchase consideration was $277 million. The assets acquired and liabilities assumed and the results of operations of LASCO are included in the Housing and Infrastructure Products segment. LASCO is a manufacturer of injected-molded PVC fittings that serve the plumbing, pool and spa, industrial, irrigation and retail markets in the United States. 34 Table of Contents Senior Notes Offering On August 19, 2021, we completed the registered public offering for $1,700 million aggregate principal amount of senior notes, comprised of $300 million aggregate principal amount of 0.875% senior notes due 2024 (the "0.875% 2024 Senior Notes"), $350 million aggregate principal amount of 2.875% senior notes due 2041 (the "2.875% 2041 Senior Notes"), $600 million aggregate principal amount of 3.125% senior notes due 2051 (the "3.125% 2051 Senior Notes") and $450 million aggregate principal amount of 3.375% senior unsecured notes due 2061 (the "3.375% 2061 Senior Notes" and, together with the 0.875% 2024 Senior Notes, the 2.875% 2041 Senior Notes and the 3.125% 2051 Senior Notes, the "Notes"). The net proceeds from the offering of the Notes were used to fund a portion of the purchase prices of the 2021 Acquisitions. See "Liquidity and Capital Resources—Debt" below and Note 11 to the consolidated financial statements included in this Form 10-K for more information. Hurricane Ida On August 29, 2021, Hurricane Ida made a landfall in Louisiana as a category 4 storm. Due to Hurricane Ida, several of our facilities in the region experienced disruption to their operations, resulting in lost production and sales and higher maintenance expense. Our facilities impacted by Hurricane Ida have resumed production. Petro 2 Facility Flash Fire In September 2021, OpCo's Petro 2 ethylene unit commenced turnaround activities. On September 27, 2021, shortly after the turnaround commenced, there was a flash fire at the quench tower of the Petro 2 facility. Several contractors working on the quench tower were injured. Although there was no sustained fire or offsite impact resulting from the incident and the quench tower did not sustain significant damage, due to the subsequent investigation by the Occupational Safety and Health Administration, the duration of the turnaround was extended and concluded in December 2021. There are lawsuits pending in connection with the flash fire at the quench tower. 35 Table of Contents Results of Operations Segment Data The table below and descriptions that follow represent the consolidated results of operations of the Company for the years ended December 31, 2021, 2020 and 2019. Net External Sales The table below presents net external sales on a disaggregated basis for our two principal operating segments. Performance materials net external sales primarily consists of sales of PVC and polyethylene. Essential materials net external sales primarily consist of sales of caustic soda, styrene, and related derivative materials. Housing products net external sales primarily consist of sales of housing exterior and interior products, residential pipes and fittings and residential PVC compounds. Infrastructure products net external sales primarily consist of sales of non-residential pipes and fittings and non-residential PVC compounds. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","2020","","2019"],["","","(dollars in millions, except per share data)"],["Net external sales"],["Performance and Essential Materials"],["Performance materials","","$","5,997","","","$","3,428","","","$","3,574"],["Essential materials","","2,673","","","2,037","","","2,610"],["Total performance and essential materials","","8,670","","","5,465","","","6,184"],["Housing and Infrastructure Products"],["Housing products","","2,334","","","1,497","","","1,390"],["Infrastructure products","","774","","","542","","","544"],["Total housing and infrastructure products","","3,108","","","2,039","","","1,934"],["Total","","$","11,778","","","$","7,504","","","$","8,118"],["Income (loss) from operations"],["Performance and Essential Materials","","$","2,549","","","$","231","","","$","569"],["Housing and Infrastructure Products","","356","","","256","","","136"],["Corporate and other","","(105)","","","(58)","","","(49)"],["Total income from operations","","2,800","","","429","","","656"],["Interest expense","","(176)","","","(142)","","","(124)"],["Other income, net","","53","","","44","","","38"],["Provision for (benefit from) income taxes","","607","","","(42)","","","108"],["Net income","","2,070","","","373","","","462"],["Net income attributable to noncontrolling interests","","55","","","43","","","41"],["Net income attributable to Westlake Corporation","","$","2,015","","","$","330","","","$","421"],["Diluted earnings per share","","$","15.58","","","$","2.56","","","$","3.25"],["EBITDA (1)","","$","3,693","","","$","1,246","","","$","1,407"]] [[/GREPCENT_TABLE]] _____________ (1)See above for discussions on non-GAAP financial measures. See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below. 36 Table of Contents [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","2020"],["","","Average Sales Price","","Volume","","Average Sales Price","","Volume"],["Product sales price and volume percentage change from prior year"],["Performance and Essential Materials","","+58","%","","+1","%","","-6","%","","-6","%"],["Housing and Infrastructure Products","","+33","%","","+19","%","","\u2014","%","","+5","%"],["Company average","","+51","%","","+6","%","","-4","%","","-3","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Average Industry Prices (1)"],["","","Year Ended December 31,"],["","","2021","","2020","","2019"],["Average domestic prices"],["Natural Gas ($/MMBtu) (2)","","3.9","","","2.1","","","2.7"],["Ethane (cents/lb) (3)","","10.4","","","6.4","","","7.3"],["Propane (cents/lb) (4)","","24.7","","","11.0","","","12.7"],["Ethylene (cents/lb) (5)","","42.9","","","17.5","","","18.5"],["Polyethylene (cents/lb) (6)","","94.5","","","57.5","","","59.0"],["Styrene (cents/lb) (7)","","83.5","","","56.0","","","79.1"],["Caustic soda ($/short ton) (8)","","787","","","674","","","692"],["Chlorine ($/short ton) (9)","","387","","","180","","","175"],["PVC (cents/lb) (10)","","105.3","","","74.0","","","68.4"],["Average export prices"],["Polyethylene (cents/lb) (11)","","81.2","","","44.2","","","41.0"],["Caustic soda ($/short ton) (12)","","380","","","250","","","273"],["PVC (cents/lb) (13)","","77.4","","","39.6","","","34.9"]] [[/GREPCENT_TABLE]] Housing Starts Data (14) [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","2021","","2020","","2019"],["","","(in thousands of units)"],["Single and Multi-family Housing Starts","","1,597","","1,380","","1,290"]] [[/GREPCENT_TABLE]] ______________________________ (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 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. 37 Table of Contents (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. (14)Housing starts data per the U.S. Census Bureau. 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. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2021","","2020","","2019"],["","","(dollars in millions)"],["Net cash provided by operating activities","","$","2,394","","","$","1,297","","","$","1,301"],["Changes in operating assets and liabilities and other","","(301)","","","(778)","","","(785)"],["Deferred income taxes","","(23)","","","(146)","","","(54)"],["Net income","","2,070","","","373","","","462"],["Less:"],["Other income, net","","53","","","44","","","38"],["Interest expense","","(176)","","","(142)","","","(124)"],["Benefit from (provision for) income taxes","","(607)","","","42","","","(108)"],["Income from operations","","2,800","","","429","","","656"],["Add:"],["Depreciation and amortization","","840","","","773","","","713"],["Other income, net","","53","","","44","","","38"],["EBITDA","","$","3,693","","","$","1,246","","","$","1,407"]] [[/GREPCENT_TABLE]] 2021 Compared with 2020 Summary For the year ended December 31, 2021, net income attributable to Westlake Corporation was $2,015 million, or $15.58 per diluted share, on net sales of $11,778 million. This represents an increase in net income attributable to Westlake Corporation of $1,685 million, or $13.02 per diluted share, compared to 2020 net income attributable to Westlake Corporation of $330 million, or $2.56 per diluted share, on net sales of $7,504 million. Income from operations was $2,800 million for the year ended December 31, 2021 as compared to $429 million for the year ended December 31, 2020, an increase of $2,371 million. The increase in net income and income from operations was primarily due to significantly higher global sales prices and integrated margins for our major products due to the strengthening of demand for our products resulting from continued improvement in global economic activity from the severe impact of the COVID-19 pandemic in 2020, strong residential construction and repair and remodeling markets in North America and strong demand from the packaging and other consumer markets. Net income and income from operations for the year ended December 31, 2021 were positively impacted by higher margin contribution on ethylene produced by LACC. Net income and income from operations for the year ended December 31, 2021 was negatively impacted by higher feedstock costs, fuel costs and selling, general and administrative expense. The year ended December 31, 2020 net income included an income tax rate benefit of $95 million resulting from the carryback of federal net operating losses permitted by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Net sales increased by $4,274 million to $11,778 million in 2021 from $7,504 million in 2020, mainly due to higher sales prices for our major products as well as higher sales volumes for Housing and Infrastructure Products due to our acquisitions in 2021. Net Sales. Net sales increased by $4,274 million, or 57%, to $11,778 million in 2021 from $7,504 million in 2020, primarily attributable to higher sales prices for our major products as well as higher sales volumes for Housing and Infrastructure Products due to our acquisitions in 2021. Average sales prices for 2021 increased by 51% as compared to 2020 due to the strong demand for our products resulting from continued improvement in global economic activity, strong residential construction, repair and remodeling markets in North America, and strong demand from the packaging and other consumer markets. Sales volumes increased by 6% in 2021 as compared to 2020, primarily due to the 2021 Acquisitions. Gross Profit. Gross profit margin percentage increased to 30% in 2021 from 14% in 2020. The increase in gross profit margin was primarily due to higher sales prices and margins for our major products. Gross profit margin for the year ended December 31, 2021 was also positively impacted by the margin contributed from LACC's produced ethylene. Gross profit margin for the year ended December 31, 2021 was negatively impacted by higher feedstock and fuel costs. 38 Table of Contents Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $102 million to $551 million in 2021 from $449 million in 2020. This increase was mainly due to higher employee compensation, selling and consulting expenses and the inclusion of expenses related to the 2021 Acquisitions. Amortization of Intangibles. Amortization expense increased by $14 million to $123 million in 2021 from $109 million for 2020, primarily due to the amortization of intangibles associated with the 2021 Acquisitions. Restructuring, Transaction and Integration-related Costs. Restructuring, transaction and integration-related costs were $21 million in 2021 as compared to $36 million in 2020. The restructuring, transaction and integration-related costs of $21 million for the year ended December 31, 2021 primarily consisted of costs associated with the 2021 Acquisitions. Restructuring, transaction and integration-related costs of $36 million in the year ended December 31, 2020 was primarily related to the closure of a non-integrated PVC plant located in Germany and included the $8 million write-off of certain assets and other expenses associated with the plant closure. Interest Expense. Interest expense increased by $34 million to $176 million in 2021 from $142 million in 2020, primarily as a result of higher average debt outstanding in 2021 as compared to the year ended December 31, 2020 and the settlement of interest rate lock arrangements associated with the issuance of the Notes. See "Liquidity and Capital Resources—Debt" below and Note 11 to the consolidated financial statements included in this Form 10-K for further discussion of our indebtedness. Other Income, Net. Other income, net of $53 million in 2021 was higher as compared to other income, net of $44 million in 2020. This increase was primarily due to higher expected return on pension plan assets. Income Taxes. The effective income tax rate was an expense of 23% in 2021 as compared to a benefit of 13% in 2020. The change in effective tax rate in 2021 as compared to 2020 was primarily due to the income tax rate benefit in the year ended December 31, 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% 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. Performance and Essential Materials Segment Net Sales. Net sales for the Performance and Essential Materials segment increased by $3,205 million, or 59%, to $8,670 million in 2021 from $5,465 million in 2020. Average sales prices for the Performance and Essential Materials segment increased by 58% in 2021 as compared to 2020. The higher performance materials sales prices were due to higher polyethylene and PVC resin sales prices. The higher essential materials sales prices were primarily driven by the higher prices for caustic due to improved global economic activity. Sales volumes for the Performance and Essential Materials segment remained relatively consistent in 2021 as compared to 2020. Income from Operations. Income from operations for the Performance and Essential Materials segment increased by $2,318 million to $2,549 million in 2021 from $231 million in 2020. This increase in income from operations was primarily due to higher sales prices and margins for polyethylene, PVC resin and caustic soda, mainly resulting from the continued improvement in global economic activity from the severe impact of the COVID-19 pandemic in 2020. The increase in income from operations as compared to the prior year was negatively impacted by higher feedstock and fuel costs. Income from operations for the year ended December 31, 2021 was also impacted by Winter Storm Uri and Hurricane Ida, while income from operations for the year ended December 31, 2020 was negatively impacted by the onset of the COVID-19 pandemic and Hurricanes Laura and Delta. Housing and Infrastructure Products Segment Net Sales. Net sales for the Housing and Infrastructure Products segment increased by $1,069 million, or 52%, to $3,108 million in 2021 from $2,039 million in 2020. In addition to the net sales from the businesses we acquired in the second half of 2021, the increase in net sales was also driven by higher sales prices for our major products in the housing and infrastructure businesses. Average sales prices increased by 33% from 2020 to due to strong demand for our major products in the residential construction and repair and remodeling markets. Sales volumes for the Housing and Infrastructure Products segment increased by 19% in 2021 as compared to 2020 due to strong demand as well as the businesses we acquired in the second half of 2021. Income from Operations. Income from operations for the Housing and Infrastructure Products segment increased by $100 million to $356 million in 2021 from $256 million in 2020. The increase in income from operations was primarily due to significantly higher sales prices and margins driven by robust housing construction and remodeling activity resulting from the continued economic recovery from the COVID-19 pandemic. Additionally, 2021 experienced higher energy costs as well as the impacts from Winter Storm Uri and Hurricane Ida, while income from operations for the year ended December 31, 2020 was negatively impacted by the onset of the COVID-19 pandemic and Hurricanes Laura and Delta. 39 Table of Contents 2020 Compared with 2019 Summary For the year ended December 31, 2020, net income attributable to Westlake Corporation was $330 million, or $2.56 per diluted share, on net sales of $7,504 million. This represents a decrease in net income attributable to Westlake Corporation of $91 million, or $0.69 per diluted share, compared to 2019 net income attributable to Westlake Corporation of $421 million, or $3.25 per diluted share, on net sales of $8,118 million. Net income for the year ended December 31, 2020 decreased as compared to the prior year primarily due to lower global sales prices for several of our major products, including caustic soda, and lower sales volumes for caustic soda resulting from the impact of the COVID-19 pandemic and lower crude oil prices. Net income for 2020 was also impacted by the shutdowns of our Lake Charles facilities in the second half of 2020 due to Hurricanes Laura and Delta, which resulted in lower plant operating rates, higher maintenance expense and lower production for many of our major products. In addition, in 2020 we had a higher interest expense related to higher average borrowings. These decreases were partially offset by the income tax rate benefit of $95 million, or $0.74 per diluted share, resulting from the carryback of federal net operating losses permitted by the CARES Act, higher sales volumes for housing and infrastructure products, higher contributions from our ethylene joint venture LACC, LLC ("LACC") and lower fuel costs and selling, general and administrative expenses. Income from operations was $429 million for the year ended December 31, 2020 as compared to $656 million for the year ended December 31, 2019, a decrease of $227 million. The decrease in income from operations was primarily due to lower global sales prices for our major products, lower sales volume for caustic soda, lower operating rates and higher maintenance expense due to Hurricanes Laura and Delta. The decreases were partially offset by higher sales volumes for housing and infrastructure products and higher contributions from LACC, lower fuel costs and selling, general and administrative costs. Net sales decreased by $614 million to $7,504 million in 2020 from $8,118 million in 2019, mainly due to lower sales prices and volumes for several of our major products, including caustic soda, partially offset by higher sales volumes for housing and infrastructure products in the second half of the year ended December 31, 2020. Net Sales. Net sales decreased by $614 million, or 8%, to $7,504 million in 2020 from $8,118 million in 2019, primarily attributable to lower sales prices and volumes for several of our major products, including caustic soda, partially offset by higher sales volumes for housing and infrastructure products. Average sales prices for 2020 decreased by 4% as compared to 2019 due to slower global economic activity as a result of the COVID-19 pandemic and lower crude oil prices. Sales volumes decreased by 3% in 2020 as compared to 2019. Gross Profit. Gross profit margin percentage decreased to 14% in 2020 from 16% in 2019. The gross profit margin decreased primarily due to lower global sales prices for several of our major products and lower sales volumes for caustic soda resulting from the impact of the COVID-19 pandemic and lower crude oil prices. Gross profit margin was also impacted by the shutdown of our Lake Charles facilities in the second half of 2020 due to Hurricanes Laura and Delta, which resulted in lower plant operating rates, higher maintenance expense and lower production for many of our major products. These decreases were partially offset by higher sales volumes for housing and infrastructure products and lower fuel costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $9 million to $449 million in 2020 from $458 million in 2019. This decrease was mainly due to lower employee compensation and selling expenses. Amortization of Intangibles. Amortization expense for 2020 was $109 million, which was comparable to $109 million for 2019. Restructuring, Transaction and Integration-related Costs. Restructuring, transaction and integration-related costs were $36 million in 2020 as compared to $37 million in 2019. The restructuring, transaction and integration-related costs for 2020 primarily related to the closure of a non-integrated PVC plant located in Germany and included the $8 million write-off of certain assets and other expenses associated with the plant closure. The restructuring, transaction and integration-related costs for 2019 primarily consisted of restructuring expenses of $26 million and acquisition costs. Interest Expense. Interest expense increased by $18 million to $142 million in 2020 from $124 million in 2019, primarily as a result of higher average debt outstanding in 2020 as compared to 2019. The higher average debt balance in 2020 was primarily due to the borrowing of $1 billion under our revolving credit facility in March 2020 out of an abundance of caution (which we fully repaid in June 2020), the issuance of the €700 million aggregate principal amount of 1.625% 2029 Senior Notes in July 2019, which were outstanding for the full calendar year in 2020 (as compared to less than half a year in 2019), and the issuance of the $300 million aggregate principal amount of 3.375% 2030 Senior Notes in June 2020 and lower interest capitalization due to lower activity with respect to capital expenditure projects during 2020 as compared to the prior year, partially offset by the purchase in lieu of redemption of the 6 ½% 2029 GO Zone Bonds, the 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Bonds. See "Liquidity and Capital Resources—Debt" below and Note 11 to the consolidated financial statements included in this Form 10-K for further discussion of our indebtedness. 40 Table of Contents Other Income, Net. Other income, net of $44 million in 2020 was higher as compared to other income, net of $38 million in 2019. This increase was primarily due to higher expected return on pension plan assets. Income Taxes. The effective income tax rate was a benefit of 13% in 2020 as compared to an expense of 19% in 2019. The change in effective tax rate in 2020 as compared to the prior year was primarily due to the income tax rate benefit resulting from the carryback of federal net operating loss to taxable years that were taxed at the U.S. corporate tax rate of 35% 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. Performance and Essential Materials Segment Net Sales. Net sales for the Performance and Essential Materials segment decreased by $719 million, or 12%, to $5,465 million in 2020 from $6,184 million in 2019. Average sales prices for the Performance and Essential Materials segment decreased by 6% in 2020, as compared to 2019. The lower performance materials sales prices were due to lower polyethylene prices as a result of increased production from new industry capacity and lower PVC resin sales prices due to slower global economic activity as a result of the COVID-19 pandemic. The lower essential materials sales prices were driven by lower caustic soda prices. Average sales volumes decreased by 6% in 2020 as compared to 2019 due to the slower global economic activity as a result of the COVID-19 pandemic. Lower performance materials global sales volumes were due to lower polyethylene and PVC resin sales volumes and lower essential materials sales volumes were driven by lower caustic soda sales volume. Income from Operations. Income from operations for the Performance and Essential Materials segment decreased by $338 million to $231 million in 2020 from $569 million in 2019. This decrease in income from operations was primarily due to lower caustic soda and PVC resin sales prices and lower PVC resin and polyethylene sales volumes, partially offset by lower purchased ethylene, ethane feedstock and fuel costs. Trading activity in 2020 resulted in a gain of approximately $4 million as compared to a loss of $26 million in 2019. Housing and Infrastructure Products Segment Net Sales. Net sales for the Housing and Infrastructure Products segment increased by $105 million, or 5%, to $2,039 million in 2020 from $1,934 million in 2019. Sales volumes for the Housing and Infrastructure Products segment increased by 5% in 2020 as compared to 2019, primarily due to higher demand for our major products in the residential construction and repair and remodeling markets, partially offset by lower infrastructure products sales due to the impact of the COVID-19 pandemic. Income from Operations. Income from operations for the Housing and Infrastructure Products segment increased by $120 million to $256 million in 2020 from $136 million in 2019. The increase in income from operations was primarily due to higher sales volumes and prices for our major housing products and lower feedstock costs partially offset by lower sales for infrastructure products. The income from operations for the year ended December 31, 2020 was also negatively impacted by the onset of the COVID-19 pandemic and Hurricanes Laura and Delta. Cash Flows Operating Activities Operating activities provided cash of $2,394 million in 2021, as compared to cash provided by operating activities of $1,297 million in 2020. The $1,097 million increase in cash flows from operating activities was mainly due to the increase in income from operations, which was partially offset by working capital changes and an unfavorable change related to the turnaround at OpCo's Petro 2 facility and other turnaround activities. 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 $383 million in 2021, as compared to $17 million of cash used in 2020, an unfavorable change of $366 million. The majority of the unfavorable changes in 2021 were driven by higher accounts receivable and higher inventories, partially offset by higher accounts payable and accrued and other liabilities. The unfavorable change in accounts receivable was primarily driven by higher sales prices resulting in higher trade customer balances. The higher inventories, accounts payable and accrued and other liabilities in 2021 were primarily driven by higher inventory cost and an increase in operating activities, as compared to 2020. 41 Table of Contents Operating activities provided cash of $1,297 million in 2020 as compared to cash provided by operating activities of $1,301 million in 2019. The changes in cash flows from operating activities in 2020, as compared to 2019, were mainly driven by the decrease in income from operations, the income tax refund of $188 million under the CARES Act and 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 $17 million in 2020, as compared to $68 million of cash provided in 2019, an unfavorable change of $85 million. Unfavorable changes in working capital were due to a change in accounts receivable, which was driven by higher sales in the fourth quarter of 2020 and the expected additional income tax refund resulting from the CARES Act, as discussed previously. Favorable changes in working capital were due to lower inventories and higher accounts payable and accrued liabilities, primarily driven by the changes in inventory levels and operating activities. Investing Activities Net cash used for investing activities during 2021 was $3,213 million as compared to net cash used of $509 million in 2020. The increase in investing activities in 2021 was primarily due to the acquisitions of Boral, LASCO and Dimex for $2,554 million in the aggregate, net of cash acquired. Capital expenditures were $658 million in 2021 compared to $525 million in 2020. The higher capital expenditures in 2021 were primarily associated with the turnaround at OpCo's Petro 2 facility. Capital expenditures in 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. During 2021, we contributed $22 million to LACC and $2 million to an unconsolidated investee compared to a net return of investment of $40 million from LACC in 2020. Net cash used for investing activities during 2020 was $509 million as compared to net cash used of $1,954 million in 2019. Capital expenditures were $525 million in 2020 compared to $787 million in 2019. The decrease in capital expenditures was primarily due to fewer expansion projects in 2020, as compared to 2019. Capital expenditures in 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 2020, we received $44 million from our joint venture, LACC, representing a return of investment and we contributed $4 million. The Company's contribution to unconsolidated subsidiaries in 2020 was primarily comprised of $14 million towards our investment in RS Cogen. Investing activities in 2019 were primarily due to acquisitions for $314 million, net of cash acquired, the purchase of the additional 34.8% interest in LACC for $817 million in November 2019 and payment of $45 million to fund the construction costs of LACC. Capital expenditures in 2019 included certain announced expansion projects as well as projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at our various facilities. Financing Activities Net cash provided by financing activities during 2021 was $1,437 million as compared to net cash used of $216 million in 2020. The activities during 2021 were primarily related to the registered public offering of $300 million aggregate principal amount of the 0.875% 2024 Senior Notes, $350 million aggregate principal amount of the 2.875% 2041 Senior Notes, $600 million aggregate principal amount of the 3.125% 2051 Senior Notes and $450 million aggregate principal amount of the 3.375% 2061 Senior Notes and the payment of debt issuance costs of $18 million related to the Notes. The remaining activities in 2021 were primarily related to the $145 million payment of cash dividends, the $48 million payment of cash distributions to noncontrolling interests and repurchases of our common stock for an aggregate purchase price of $30 million. Net cash used for financing activities during 2020 was $216 million as compared to net cash provided of $630 million in 2019. In 2020, out of abundance of caution, we borrowed $1,000 million under our revolving credit facility, which we subsequently fully repaid in June 2020. In 2020, we completed the registered public offering of $300 million aggregate principal amount of the 3.375% 2030 Senior Notes and we purchased in lieu of optional redemption the $100 million 6 ½% 2029 GO Zone Senior Notes, the $89 million 6 ½% 2035 GO Zone Senior Notes and the $65 million 6 ½% 2035 IKE Zone Senior Notes. The remaining activities in 2020 were primarily related to the $137 million payment of cash dividends, the $55 million payment of cash distributions to noncontrolling interests, repurchases of common stock of $54 million and repayment of short-term notes payable of $17 million. In 2019, we received proceeds of $784 million from the issuance of the 1.625% 2029 Senior Notes and $63 million from the issuance of Westlake Partners common units. The remaining activities in 2019 were primarily related to the $132 million payment of cash dividends, the $50 million payment of cash distributions to noncontrolling interests and repurchases of common stock for an aggregate purchase price of $30 million. 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. 42 Table of Contents 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 December 31, 2021, we had repurchased 7,431,520 shares of our common stock for an aggregate purchase price of approximately $449 million under the 2014 Program. During the year ended December 31, 2021, 355,800 shares of our common stock were repurchased for an aggregate purchase price of $30 million under the 2014 Program. Purchases under the 2014 Program may be made either through the open market or in privately negotiated transactions. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time. On October 4, 2018, Westlake Partners and Westlake Partners GP, the general partner of Westlake Partners, entered into an Equity Distribution Agreement with UBS Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC to offer and sell Westlake 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 in 2019, 2020 or 2021. We believe that our sources of liquidity as described above are adequate to fund our normal operations and ongoing capital expenditures. Funding of any potential large expansions such as our recent Acquisitions or potential future acquisitions or the repayment of debt may likely necessitate, and therefore depend on our ability to obtain, additional financing in the future. We may not be able to access additional liquidity at cost effective interest rates due to the volatility of the commercial credit markets. On August 19, 2021, we completed the registered public offering of the Notes. See "Liquidity and Capital Resources—Debt" below for more information. Cash and Cash Equivalents As of December 31, 2021, our cash and cash equivalents totaled $1,908 million. In addition, we have the Credit Agreement available to supplement cash if needed, as described under "Debt" below. Debt As of December 31, 2021, our indebtedness totaled $5,180 million. See Note 11 to the consolidated financial statements appearing elsewhere in this Form 10-K for a discussion of our long-term indebtedness. Defined terms used in this section have the definitions assigned to such terms in Note 11 to the consolidated financial statements included in Item 8 of this Form 10-K. 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 December 31, 2021, we had no borrowings outstanding under the Credit Agreement. As of December 31, 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 December 31, 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. 43 Table of Contents The Credit Agreement includes a $150 million sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50 million commitment for swingline loans to be provided on a same-day basis. We may also increase the size of the facility, in increments of at least $25 million, up to a maximum of $500 million, subject to certain conditions and if certain lenders agree to commit to such an increase. 3.60% Senior Notes due 2022 In July 2012, we issued $250 million aggregate principal amount of the 3.60% 2022 Senior Notes. We may optionally redeem the 3.60% 2022 Senior Notes at any time and from time to time prior to April 15, 2022 (three months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after April 15, 2022, we may optionally redeem the 3.60% 2022 Senior Notes for 100% of the principal plus accrued interest. The holders of the 3.60% 2022 Senior Notes may require us to repurchase the 3.60% 2022 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.60% 2022 Senior Notes). 0.875% Senior Notes due 2024 In August 2021, we completed the registered public offering of $300 million aggregate principal amount of the 0.875% 2024 Senior Notes. We may optionally redeem the 0.875% 2024 Senior Notes at any time and from time to time on or after August 15, 2022 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 0.875% 2024 Senior Notes may require us to repurchase the 0.875% 2024 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 0.875% 2024 Senior Notes). 3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046 In August 2016, we completed the private offering of $750 million aggregate principal amount of our 3.60% 2026 Senior Notes and $700 million aggregate principal amount of our 5.0% 2046 Senior Notes. In March 2017, the Company commenced registered exchange offers to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for new notes that are identical in all material respects to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes, except that the offer and issuance of the new Securities and Exchange Commission-registered notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The exchange offers expired on April 24, 2017, and approximately 99.97% of the 3.60% 2026 Senior Notes and 100% of the 5.0% 2046 Senior Notes were exchanged. The notes that were not exchanged in the exchange offers have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities law. Revenue Bonds In December 1997, we entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $11 million principal amount of tax-exempt waste disposal revenue bonds in order to finance our construction of waste disposal facilities for an ethylene plant. The waste disposal revenue bonds expire in December 2027 and are subject to redemption and mandatory tender for purchase prior to maturity under certain conditions. Interest on the waste disposal revenue bonds accrues at a rate determined by a remarketing agent and is payable quarterly. The interest rate on the waste disposal revenue bonds at December 31, 2021 and 2020 was 0.14% and 0.14%, respectively. 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). 44 Table of Contents 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. The Company received approximately $297 million of net proceeds from the offering, and used a portion of the net proceeds to fund the purchase in lieu of optional redemption of the 6 ½% 2029 GO Zone Bonds, the 6 ½% 2035 GO Zone Bonds and the 6 ½% 2035 IKE Zone Bonds. We may optionally redeem the 3.375% 2030 Senior Notes at any time and from time to time prior to March 15, 2030 (three months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after March 15, 2030, we may optionally redeem the 3.375% 2030 Senior Notes for 100% of the principal amount plus accrued interest. The holders of the 3.375% 2030 Senior Notes may require us to repurchase the 3.375% 2030 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.375% 2030 Senior Notes). 3.50% 2032 GO Zone Refunding Bonds In November 2017, the Louisiana Local Government Environmental Facility and Development Authority (the "Authority") completed the offering of $250 million aggregate principal amount of 3.50% tax-exempt revenue refunding bonds due November 1, 2032 (the "Refunding Bonds"), the net proceeds of which were used to redeem $250 million aggregate principal amount of the Authority's 6 ¾% tax-exempt revenue bonds due November 1, 2032 issued by the Authority under the GO Zone Act in December 2007. In connection with the issuance of the Refunding Bonds, we issued $250 million of the 3.50% 2032 GO Zone Refunding Senior Notes. The Refunding Bonds are subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2027, for 100% of the principal plus accrued interest. 2.875% Senior Notes due 2041 In August 2021, we completed the registered public offering of $350 million aggregate principal amount of the 2.875% 2041 Senior Notes. We may optionally redeem the 2.875% 2041 Senior Notes at any time and from time to time prior to February 15, 2041 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 2.875% 2041 Senior Notes being redeemed that would be due if the 2.875% 2041 Senior Notes matured on February 15, 2041, discounted to the redemption date on a semi-annual basis, plus 20 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 2.875% 2041 Senior Notes at any time on or after February 15, 2041 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 2.875% 2041 Senior Notes may require us to repurchase the 2.875% 2041 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 2.875% 2041 Senior Notes). 4.375% Senior Notes due 2047 In November 2017, we completed the registered public offering of $500 million aggregate principal amount of 4.375% Senior Notes due November 15, 2047. We may optionally redeem the 4.375% 2047 Senior Notes at any time and from time to time prior to May 15, 2047 (six months prior to the maturity date) for 100% of the principal plus accrued interest and a discounted "make whole" payment. On or after May 15, 2047, we may optionally redeem the 4.375% 2047 Senior Notes for 100% of the principal amount plus accrued interest. The holders of the 4.375% 2047 Senior Notes may require us to repurchase the 4.375% 2047 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 4.375% 2047 Senior Notes). 45 Table of Contents 3.125% Senior Notes due 2051 In August 2021, we completed the registered public offering of $600 million aggregate principal amount of the 3.125% 2051 Senior Notes. We may optionally redeem the 3.125% 2051 Senior Notes at any time and from time to time prior to February 15, 2051 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.125% 2051 Senior Notes being redeemed that would be due if the 3.125% 2051 Senior Notes matured on February 15, 2051, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 3.125% 2051 Senior Notes at any time on or after February 15, 2051 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.125% 2051 Senior Notes may require us to repurchase the 3.125% 2051 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.125% 2051 Senior Notes). 3.375% Senior Notes due 2061 In August 2021, we completed the registered public offering of $450 million aggregate principal amount of the 3.375% 2061 Senior Notes. We may optionally redeem the 3.375% 2061 Senior Notes at any time and from time to time prior to February 15, 2061 (six months prior to the maturity date) for a redemption price equal to the greater of (i) 100% of the principal amount plus accrued and unpaid interest and (ii) the sum of the present values of the remaining scheduled payments on the 3.375% 2061 Senior Notes being redeemed that would be due if the 3.375% 2061 Senior Notes matured on February 15, 2061, discounted to the redemption date on a semi-annual basis, plus 25 basis points, and plus accrued and unpaid interest. In addition, we may optionally redeem the 3.375% 2061 Senior Notes at any time on or after February 15, 2061 for 100% of the principal amount plus accrued and unpaid interest. The holders of the 3.375% 2061 Senior Notes may require us to repurchase the 3.375% 2061 Senior Notes at a price of 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase, upon the occurrence of both a "change of control" and, within 60 days of such change of control, a "below investment grade rating event" (as such terms are defined in the indenture governing the 3.375% 2061 Senior Notes). 8.73% 2022 RS Cogen Debt In July 2000, RS Cogen, our 50%-owned joint venture, entered into a $75 million aggregate principal amount senior credit facility institutional loan at an interest rate of 8.73%. All of the assets of RS Cogen are pledged as collateral under its senior credit facility. Borrowings under this senior credit facility are repayable quarterly over the remaining term. The Company does not guarantee RS Cogen's debt commitments and RS Cogen is not a guarantor for any of the Company's other long-term debt obligations. The balance outstanding under this loan was $19 million at December 31, 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 $22 million. The interest rate on these loans at December 31, 2021 was 0.20%. The unsecured loans include a government rate subsidy and have a 5-year maturity. The balance outstanding under these loans was approximately $9 million at December 31, 2021. The indenture governing the 3.60% 2022 Senior Notes, the 0.875% 2024 Senior Notes, the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375% 2030 Senior Notes, the 3.50% 2032 GO Zone Refunding Senior Notes, the 2.875% 2041 Senior Notes, the 5.0% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the 3.125% 2051 Senior Notes, and the 3.375% 2061 Senior Notes contains customary events of default and covenants that, among other things and subject to certain exceptions, restrict us and certain of our subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale and leaseback transactions and (3) consolidate, merge or transfer all or substantially all of its assets. As of December 31, 2021, we were in compliance with all of our long-term debt covenants. 46 Table of Contents 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 December 31, 2021, outstanding borrowings under the revolving 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 OpCo. The revolving credit facility is scheduled to mature in September 2023. As of December 31, 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. Contractual and Other Obligations The Company's material cash requirements for contractual and other obligations in the near term (next 12 months) and the long term period (2023 and thereafter) include long-term debt, interest payments, operating leases, pension benefits funding, post-retirement healthcare benefits, purchase obligations and asset retirement obligations. Debt Obligations and Interest Payments. As of December 31, 2021, we had debt obligations of $269 million and related interest expense of $165 million due within the near term, and debt obligations of $5,014 million and related interest expense of $3,001 million due over the long-term period, respectively. Maturities of our debt consist of $269 million in 2022, $300 million in 2024, and $759 million in 2026. There are no other scheduled maturities of debt in 2022 through 2026. See Note 11, "Long-Term Debt," in the Notes to Consolidated Financial Statements in Item 8 for further information on our debt obligations and the expected timing of future principal and interest payments. Operating leases. As of December 31, 2021, there was $119 million in operating lease obligations due within the near term, and $553 million due over the long-term period, respectively. See Note 7, "Leases," in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the timing of expected future payments. Pension Benefits Funding and Post-retirement Healthcare Benefits. Pension benefits funding obligations due within the near term were $6 million while post-retirement healthcare benefit payment obligations due within the near term were $8 million as of December 31, 2021. As of December 31, 2021, we had $77 million and $53 million of pension benefit funding and post-retirement healthcare benefit obligations due over the long-term period, respectively. The estimate of the timing of future payments under our defined benefit pension plans which cover certain eligible employees in the United States and non-U.S. countries and our post-retirement healthcare benefits to the employees of certain subsidiaries who meet certain minimum age and service requirements involves the use of certain assumptions, including retirement ages and payout periods. See Note 14, "Employee Benefits," in the Notes to Consolidated Financial Statements in Item 8 for further information on our obligations and the timing of expected future payments. Purchase Obligations. Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including a minimum quantity and price. We are party to various obligations to purchase goods and services, including commitments to purchase various feedstock, utilities, nitrogen, oxygen, product storage, pipeline usage and logistic support, in each case in the ordinary course of our business, as well as various purchase commitments for our capital projects. As of December 31, 2021, we had $1,890 million of enforceable and legally binding purchase commitments due within the near term, and $5,220 million due over the long-term period. Asset Retirement Obligations. As of December 31, 2021, we had an immaterial amount of asset retirement obligations due within the near term, and $61 million due over the long-term period. Asset retirement obligations includes the estimated costs and timing of payments to satisfy our recognized asset retirement obligations. We recognize asset retirement obligations in the period in which the liability becomes probable and reasonably estimable. Initially, the asset retirement obligation is recorded at fair value and capitalized as a component of the carrying value of the long-lived asset to which the obligation relates. See Note 1, "Description of Business and Significant Accounting Policies," in the Notes to Consolidated Financial Statements in Item 8 for further detail of our asset retirement obligations. 47 Table of Contents Critical Accounting Policies and Estimates Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. We have evaluated the accounting policies used in the preparation of the accompanying consolidated financial statements and related notes and believe those policies are reasonable and appropriate. Our significant accounting policies are summarized in Note 1 to the consolidated financial statements appearing elsewhere in this Form 10-K. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation. Our more critical accounting estimates include those related to long-lived assets, fair value estimates, accruals for long-term employee benefits, accounts receivable, income taxes and environmental and legal obligations. Inherent in such estimates are certain key assumptions. We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment. We believe the following to be our most critical accounting estimates required for the preparation of our financial statements. Long-Lived Assets. Key estimates related to long-lived assets include useful lives, recoverability of carrying values and existence of any retirement obligations. Such estimates could be significantly modified. The carrying values of long-lived assets could be impaired by significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the United States and world economies, the cyclical nature of the chemical and refining industries and uncertainties associated with governmental actions. We evaluate long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and the operational performance of our businesses. Actual impairment losses incurred could vary significantly from amounts estimated. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Additionally, future events could cause us to conclude that impairment indicators exist and that associated long-lived assets of our businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. The estimated useful lives of long-lived assets range from one to 40 years. Depreciation and amortization of these assets, including amortization of deferred turnaround costs, under the straight-line method over their estimated useful lives totaled $840 million, $773 million and $713 million in 2021, 2020 and 2019, respectively. If the useful lives of the assets were found to be shorter than originally estimated, depreciation or amortization charges would be accelerated. We defer the costs of planned major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected unit. Total costs deferred on turnarounds were $215 million, $24 million and $40 million in 2021, 2020 and 2019, respectively. As of December 31, 2021, deferred turnaround costs, net of accumulated amortization, totaled $261 million. Amortization in 2021, 2020 and 2019 of deferred turnaround costs was $56 million, $48 million and $55 million, respectively. Expensing turnaround costs as incurred would likely result in greater variability of our quarterly operating results and would adversely affect our financial position and results of operations. Additional information concerning long-lived assets and related depreciation and amortization appears in Notes 6 and 8 to the consolidated financial statements appearing elsewhere in this Form 10-K. Fair Value Estimates. We develop estimates of fair value to allocate the purchase price paid to acquire a business to the assets acquired and liabilities assumed in an acquisition, to assess impairment of long-lived assets, goodwill and intangible assets and to record marketable securities and pension plan assets. We use all available information to make these fair value determinations, including the engagement of third-party consultants. At December 31, 2021, our recorded goodwill was $2,024 million. In addition, we record all pension plan assets and certain marketable securities at fair value. The fair value of these items is determined by quoted market prices or from observable market-based inputs. See Note 16 to the consolidated financial statements appearing elsewhere in this Form 10-K for more information. 48 Table of Contents Business Combinations and Intangible Assets Including Goodwill. We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will be adjusted in the same period's financial statements, including the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Separately recognized transactions associated with business combinations are generally expensed subsequent to the acquisition date. The application of business combination accounting requires the use of significant estimates and assumptions. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. The fair value of the customer relationships acquired are estimated by management through a discounted cash flow model using the multi-period excess earnings methodology, which involves the use of significant estimates and assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates, among other items. The fair value of the technology and trade names acquired is estimated by management through a discounted cash flow model using the relief from royalty methodology, which involves the use of significant estimates and assumptions related to revenue growth rates, and discount rates. Goodwill is evaluated for impairment when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below its carrying value, and otherwise at least annually. We have historically operated in two principal operating segments, Vinyls and Olefins. In the fourth quarter of 2021, we reorganized our business into two principal operating segments, Performance and Essential Materials and Housing and Infrastructure Products. As part of the reorganization, we assessed and re-defined reporting units effective as of the beginning of the fourth quarter of 2021, including reallocation of goodwill on a relative fair value basis as applicable to affected reporting units. Goodwill impairment analyses were performed as of the effective reorganization date both before and after the reorganization. We will perform our annual impairment assessment for both the Performance and Essential Materials and Housing and Infrastructure Products reporting units in October each year. We may elect to perform an optional qualitative assessment to determine whether a quantitative impairment analysis is required. The qualitative assessment considers factors such as macroeconomic conditions, industry and market considerations, cost factors related to raw materials and labor, current and projected financial performance, changes in management or strategy, and market capitalization. Alternatively, we may unconditionally elect to bypass the qualitative assessment and perform a quantitative goodwill impairment assessment in any period. We elected to perform the quantitative assessment for both of our segments' reporting units during 2021. The quantitative analysis compares a reporting unit's fair value to its carrying amount to determine whether goodwill is impaired. The fair values of the reporting units are calculated using both a discounted cash flow methodology and a market value methodology. The discounted cash flow projections are based on a forecast to reflect the cyclicality of the business. The forecast is based on historical results and estimates by management, including its strategic and operational plans, and financial performance of the market. The future cash flows are discounted to present value using an applicable discount rate. The significant assumptions used in determining the fair value of the reporting unit using the market value methodology include the determination of appropriate market comparables and the estimated multiples of EBITDA a willing buyer is likely to pay. Even if the fair values of the reporting units decreased by 10% from the fair values determined in the most recent quantitative tests performed during 2021, the carrying values of the reporting units would not have exceeded their fair values. See Item 1A, "Risk Factors—If our goodwill, indefinite-lived intangible assets or other intangible assets become impaired in the future, we may be required to record non-cash charges to earnings, which could be significant." The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date. Long-Term Employee Benefit Costs. Our costs for long-term employee benefits, particularly pension and postretirement medical and life benefits, are incurred over long periods of time and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties and is sensitive to changes in those assumptions. It is our responsibility, often with the assistance of independent experts, to select assumptions that represent the best estimates of those uncertainties. It is also our responsibility to review those assumptions periodically and, if necessary, adjust the assumptions to reflect changes in economic or other factors. 49 Table of Contents Accounting for employee retirement plans involves estimating the cost of benefits that are to be provided in the future and attempting to match, for each employee, that estimated cost to the period worked. To accomplish this, we rely extensively on advice from actuaries, and we make assumptions about inflation, investment returns, mortality, employee turnover and discount rates that ultimately impact amounts recorded. Changes in these assumptions may result in different expense and liability amounts. One of the more significant assumptions relates to the discount rate for measuring benefit obligations. At December 31, 2021, the projected pension benefit obligations for U.S. and non-U.S. plans were calculated using assumed weighted average discount rates of 2.6% and 1.4%, respectively. The discount rates were determined using a benchmark pension discount curve and applying spot rates from the curve to each year of expected benefit payments to determine the appropriate discount rate. As a result of the funding relief provided by the enactment of the Bipartisan Budget Act of 2015, no minimum funding requirements are expected during 2022 for the U.S. pension plans. Additional information on the 2022 funding requirements and key assumptions underlying these benefit costs appear in Note 14 to the consolidated financial statements appearing elsewhere in this Form 10-K. The following table reflects the sensitivity of the benefit obligation of our pension plans to changes in the actuarial assumptions: [[GREPCENT_TABLE]] [["","","2021"],["","","U.S. Plans","","Non-U.S. Plans"],["","","(dollars in millions)"],["Projected benefit obligation, end of year","","$","673","","","$","152"],["Discount rate increases by 100 basis points","","(72)","","","(21)"],["Discount rate decreases by 100 basis points","","87","","","26"]] [[/GREPCENT_TABLE]] A one-percentage point increase or decrease in assumed healthcare trend rates would not have a significant effect on the amounts reported for the healthcare plans. While we believe that the amounts recorded in the consolidated financial statements appearing elsewhere in this Form 10-K related to these retirement plans are based on the best estimates and judgments available, the actual outcomes could differ from these estimates. Income Taxes. We utilize the liability method of accounting for income taxes. Under the liability method, deferred tax assets or liabilities are recorded based upon temporary differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities during the period. Valuation allowances are recorded against deferred tax assets when it is considered more likely than not that the deferred tax assets will not be realized. Additional information on income taxes appears in Note 17 to the consolidated financial statements appearing elsewhere in this Form 10-K. Environmental and Legal Obligations. We consult with various professionals to assist us in making estimates relating to environmental costs and legal proceedings. We accrue an expense when we determine that it is probable that a liability has been incurred and the amount is reasonably estimable. While we believe that the amounts recorded in the accompanying consolidated financial statements related to these contingencies are based on the best estimates and judgments available, the actual outcomes could differ from our estimates. Additional information about certain legal proceedings and environmental matters appears in Note 22 to the consolidated financial statements appearing elsewhere in this Form 10-K. Asset Retirement Obligations. We recognize asset retirement obligations in the period in which the liability becomes probable and reasonably estimable. Initially, the asset retirement obligation is recorded at fair value and capitalized as a component of the carrying value of the long-lived asset to which the obligation relates. The liability is recorded at its future value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, a gain or loss is recorded. We have conditional asset retirement obligations for the removal and disposal of hazardous materials from certain of our manufacturing facilities. Additional information on asset retirement obligations appears in Note 1, under Asset Retirement Obligations, to the consolidated financial statements appearing elsewhere in this Form 10-K. We also have conditional asset retirement obligations that have not been recognized because the fair values of the conditional legal obligations cannot be measured due to the indeterminate settlement date of the obligations. Settlements of the unrecognized conditional asset retirement obligations are not expected to have a material adverse effect on our financial condition, results of operations or cash flows in any individual reporting period. 50 Table of Contents Recent Accounting Pronouncements See Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K for a full description of recent accounting pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition.