Westlake Corporation

02/26/2026 | Press release | Distributed by Public on 02/26/2026 12:40

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is management's perspective of our current financial condition and results of operations and should be read in conjunction with "Items 1A. "Risk Factors" and "Item 8. Financial Statements and Supplementary Data" included in this report. This discussion and analysis includes the years ended December 31, 2025 and 2024 and comparison between such years. The discussion for the year ended December 31, 2023 and comparison between the years ended December 31, 2024 and 2023 have been omitted from this Annual Report on Form 10-K for the year ended December 31, 2025, as such information can be found in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024 which was filed with the Securities and Exchange Commission on February 25, 2025. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements" included within this report.
Overview
We are a vertically integrated global manufacturer and marketer of both housing and infrastructure products and performance and essential materials. We operate in two principal operating segments, Housing and Infrastructure Products (HIP) and Performance and Essential Materials (PEM). The HIP segment includes Westlake Royal Building Products, Westlake Pipe & Fittings and Westlake Global Compounds. The PEM segment includes Westlake North American Chlorovinyls, Westlake European & Asian Chlorovinyls, Westlake Olefins and Polyethylene and Westlake Epoxy. We are highly integrated along our materials chain with significant downstream integration from ethylene and chlor-alkali (chlorine and caustic soda) into vinyls, polyethylene (PE) and epoxy. We also have substantial downstream integration from polyvinyl chloride (PVC) into our HIP segment for our residential building products, PVC pipe and fittings, and PVC compounds.
Recent Developments
Acquisition of ACI/Perplastic Group
On January 5, 2026, we completed the acquisition of the ACI/Perplastic Group (collectively, "ACI"), a global compounding solutions businesses, for a preliminary purchase price of approximately €92.4 million, subject to certain adjustments. ACI is a Portugal-based international manufacturer of specialty compound materials serving primarily the wire and cable sectors with manufacturing locations in Portugal, Mexico, Tunisia and Romania.
Closures of Certain North American Chlorovinyls Facilities and Styrene Plant Facility
In the fourth quarter of 2025, under our asset optimization initiative, we ceased operation of certain of our North American chlorovinyl production facilities, including (i) our PVC plant at the Aberdeen, Mississippi site (ii) our vinyl chloride monomer ("VCM") plant at the Lake Charles, Louisiana North site, and (iii) one of our diaphragm chlor-alkali units at the Lake Charles, Louisiana South site, as well as (iv) our styrene production plant located at the Lake Charles, Louisiana site. We plan to continue supplying customers with PVC, VCM and chlor-alkali products from our seven other North American chlorovinyl facilities. The total costs recognized in the fourth quarter of 2025 and reflected in the PEM segment operating results as a result of these closures was $393 million, of which $386 million was included in restructuring, transaction and integration-related costs and $7 million related to write-downs of inventory that was included in costs of sales in the Company's consolidated statements of operations. The total cost of $393 million included a non-cash charge of $317 million representing accelerated depreciation, accelerated amortization and assets write-offs, asset retirement obligation costs of $52 million, employee severance and separation costs of $17 million and other plant shutdown related costs of $7 million. We expect to incur additional costs of approximately $25 million in the future in connection with the shutdown, which we expect to complete in 2027. Asset retirement obligations and plant shutdown costs recorded represent management's best estimate based on information currently available and are subject to change as additional information becomes available.
Senior Notes Issuance and Tender Offer
In November 2025, we completed the registered public offering of $600 million aggregate principal amount of 5.550% senior notes due 2035 and $600 million aggregate principal amount of 6.375% senior notes due 2055. We used a portion of the net proceeds from the offering to fund the repurchase of a portion of our outstanding 3.60% 2026 Senior Notes pursuant to a concurrent tender offer for any and all of such notes and to fund the purchase price of the ACI acquisition. See "Liquidity and Capital Resources-Debt" below.
Goodwill Impairment
In the third quarter of 2025, as part of the Company's continuous assessment of changes in the macroeconomic environment of our PEM business and associated industry and recent operating performance and updated forecasts in the third quarter of 2025, we identified triggering factors associated with the North American Chlorovinyls reporting unit which comprises PVC, VCM, caustic soda, chlorine and related derivatives assets in North America. Due to the recent operating losses and downward revision of forecasts for the North American Chlorovinyls reporting unit along with negative chlorovinyls industry trends, we performed a quantitative assessment to determine if the fair value of this reporting unit had been reduced below its carrying value. Based on the quantitative tests performed during the third quarter of 2025, we determined that the fair value of the North American Chlorovinyls reporting unit did not exceed its carrying amount. This resulted in a non-cash goodwill impairment charge of $727 million taken in the third quarter of 2025, representing all the goodwill associated with the North American Chlorovinyls reporting unit and recognized within the PEM segment.
One Big Beautiful Bill Act
In July 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions affecting corporations. Among other changes, the OBBBA permanently reinstates the "bonus" depreciation provisions that allow for the immediate expensing of 100% of the cost of certain qualified property, permanently reinstates the elective immediate expensing of domestic research and experimental expenditures paid or incurred, and permanently relaxes the limitation on the deductibility of business interest. The OBBBA also modifies certain international tax provisions. We evaluated the impact of these tax law changes and recognized the associated income tax effects in the consolidated financial statements beginning in the third quarter of 2025. At this time, we expect these tax law changes to reduce our cash tax without materially impacting our effective income tax rate.
Closure of Pernis Facilities
In the second and third quarter of 2025, due to the sustained deterioration of Westlake Epoxy sales volumes and prices in recent years, we permanently ceased operations of the allyl chloride (AC), epichlorohydrin (ECH), bisphenol A (BPA), liquid epoxy resin (LER) and solid epoxy resin (SER) units at our site in Pernis, the Netherlands. We continue to operate our epoxy units in the U.S., other European locations, and in Asia in order to serve our customers globally. The total costs recognized in 2025 of $247 million consisted of charges for asset retirement obligations of $98 million, contract termination and other plant closure costs of $111 million and employee severance and separation costs of $23 million, which are included in the restructuring, transaction and integration-related costs, and the write-down of inventory of $15 million, which is included as a component of cost of sales in our consolidated statement of operations. These expenses are reflected in the PEM segment operating results. We expect to incur additional costs of approximately $10 million in the future in connection with the shutdown, which we expect to complete in 2030. Asset retirement obligations and plant shutdown costs recorded represent management's best estimate based on information currently available and are subject to change as additional information becomes available.
Suzhou Huasu Plastics PVC Resin Unit Cessation of Operations
In October 2025, our 95% owned joint venture Suzhou Huasu Plastics approved the shutdown of its PVC resin unit located at its plant in Suzhou, Jiangsu, China. The decision was driven by the unit's lack of long-term economic viability. We continue to operate the PVC calendar products unit at Suzhou Huasu Plastics facility. We recognized expenses of $9 million in 2025 relating to the closure, which is included in restructuring, transaction and integration-related costs.
Tariffs and Trading Relationships
In 2025, the U.S. government announced new and expanded tariffs on products imported from other countries, with an emphasis on the countries with which the United States has the largest trade deficits, including China. Increased tariffs by the United States have led and may continue to lead to the imposition of retaliatory tariffs by other countries. Additionally, the U.S. government has threatened, announced and modified, delayed or rescinded multiple tariffs on several foreign jurisdictions, which has increased uncertainty regarding the ultimate effect of the tariffs on economic conditions. Current uncertainties about tariffs and their effects on trading relationships may affect the costs for and availability of raw materials or contribute to inflation in the markets in which we operate. Although we continue to monitor the economic effects of such announcements, as well as opportunities to mitigate their related impacts, costs and other effects associated with the tariffs remain uncertain.
Antidumping and Countervailing Duty Investigations
In April 2024, the U.S. Epoxy Resin Producers Ad Hoc Coalition (the "Coalition"), of which we are a member, filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission requesting the initiation of antidumping investigations regarding imports of certain epoxy resins from China, India, South Korea, Taiwan, and Thailand and countervailing duty investigations regarding imports of the same products from China, India, South Korea, and Taiwan. In May 2025, the U.S. Department of Commerce imposed antidumping and countervailing duty orders on imports of epoxy resins from South Korea and Taiwan and an antidumping order on imports of epoxy resins from Thailand. In June 2024, the Coalition confidentially lodged an antidumping complaint with the European Commission requesting the initiation of an antidumping investigation concerning imports of epoxy resins into the European Union market originating in China, South Korea, Taiwan and Thailand. The European Commission imposed definitive duties in late July 2025 on imports of epoxy resins from China, Taiwan, and Thailand.
Outlook
Housing and Infrastructure Products
Our HIP segment is primarily comprised of residential building products, PVC pipe and fittings, and compound products made from PVC and other polymers. Our sales are affected by the level of new home construction and home repair and remodeling activity, particularly in North America, as well as the 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. Since the beginning of 2024, with the stabilization of interest rates, recent interest rate cuts and the possibility of further interest rate cuts by the U.S. Federal Reserve, we expect improvement in the demand for housing products in North America. Performance of our HIP businesses generally reflects trends of building permits and housing starts in the New Residential Construction Survey by the U.S. Census Bureau and the Repair and Remodeling Index (RRI) provided by the National Association of Home Builders (the "NAHB") among others. Although we ultimately expect that the Infrastructure Investment and Jobs Act of 2021 and the preceding historically low level of residential housing construction that has resulted in an undersupply of existing housing may favorably impact our HIP segment in the long-term, the current inflationary environment impacting consumer spending and priorities and decade-high level of mortgage interest rates impacting consumer affordability are expected to have an unfavorable impact on the demand for housing construction in the near term and, as a result, our products produced by this segment. The following table presents annual historical housing starts per the U.S. Census Bureau and the 2026 and 2027 outlook per the NAHB:
Period Single and Multi-family Housing Starts
(in thousands of units)
% Change From Prior Year
2023 1,420 (9)%
2024 1,367 (4)%
2025 1,359 (1)%
2026 Outlook
1,333
2027 Outlook
1,351
Performance and Essential Materials
Our PEM segment manufactures products such as ethylene, PE, chlor-alkali, chlorinated derivative products, ethylene dichloride, VCM and PVC, many of which are used in our integrated vinyls production chain. The chlor-alkali and petrochemical industries exhibit cyclical commodity characteristics, and margins are influenced by changes in the balance between global supply and demand and the resulting operating rates, the level of general economic activity, turnaround activities and the price of raw materials. Since the second half of 2022, we have continued to experience lower prices, increased supply and weaker demand for most of our performance and essential materials products globally. The ongoing conflict between Russia and Ukraine, the conflict in the Middle East, slow economic growth in China and Europe, increases in base epoxy resin exports out of Asia into European and North American markets, lower margins in Europe due to increases in conversion costs, disruption of trade flows due to enactment of duties and tariffs and related uncertainties, overcapacity of PVC resin, polyethylene, chlor-alkali and epoxy, and volatility in natural gas, electricity and crude oil prices could have a continuing negative impact on the performance of PEM businesses.
Non-GAAP Financial Measures
The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as one that purports to measure historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of operations, 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") and Free Cash Flow. We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. We define Free Cash Flow as net cash provided by operating activities less additions to property, plant and equipment. 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 and satisfy capital expenditure and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness.
Free Cash Flow 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 Free Cash Flow 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 Free Cash Flow. Management also believes that Free Cash Flow is useful to investors and securities analysts to evaluate our liquidity, evaluate strategic investment, evaluate our stock buyback plan and measure our ability to meet our future debt service.
EBITDA and Free Cash Flow are not substitutes for the GAAP measures of net income (loss), income (loss) from operations and net cash provided by operating activities and are not necessarily measures of our ability to fund our cash needs. In addition, companies calculate EBITDA and Free Cash Flow differently and, therefore, EBITDA and Free Cash Flow as presented for us may not be comparable to EBITDA and Free Cash Flow reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization and income taxes. Free Cash Flow has material limitations as a performance measure because it only considers net cash provided by operating activities, and not net income (loss) or income (loss) from operations. For instance, it applies the entire cost of capital expenditure in the period in which the property or equipment is acquired, rather than spreading it over several periods as is the case with net income (loss) and income from operations.
Reconciliations of EBITDA to net income (loss), income (loss) from operations and net cash provided by operating activities, and Free Cash Flow to net cash provided by operating activities, are included in the "Results of Operations" section below.
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, 2025 and 2024.
The table below presents net external sales on a disaggregated basis for our two principal operating segments. Housing Products net external sales primarily consist of sales of housing exterior and interior products, residential pipe and fittings and residential products utilizing compounds. Infrastructure Products net external sales primarily consist of sales of infrastructure related pipe and fittings and infrastructure products utilizing compounds. Performance Materials net external sales primarily consist of sales of PVC, PE and epoxy. Essential Materials net external sales primarily consist of sales of caustic soda, chlorine, styrene, and related derivative materials.
Year Ended December 31,
2025 2024
(In millions of dollars, except per share data)
Net external sales
Housing and Infrastructure Products
Housing Products $ 3,513 $ 3,644
Infrastructure Products 635 673
Total Housing and Infrastructure Products 4,148 4,317
Performance and Essential Materials
Performance Materials 4,018 4,626
Essential Materials 3,004 3,199
Total Performance and Essential Materials 7,022 7,825
Total net external sales
$ 11,170 $ 12,142
Income (loss) from operations
Housing and Infrastructure Products
$ 587 $ 807
Performance and Essential Materials (2,100) 129
Corporate and other (65) (61)
Total income (loss) from operations
(1,578) 875
Interest expense (171) (159)
Other income, net 152 222
Income tax provision (benefit)
(126) 291
Net income (loss)
(1,471) 647
Net income attributable to noncontrolling interests 37 45
Net income (loss) attributable to Westlake Corporation
$ (1,508) $ 602
Diluted earnings (loss) per share
$ (11.70) $ 4.64
EBITDA (1)
$ (248) $ 2,211
Free Cash Flow (2)
$ (530) $ 306
______________________________
(1)See above for discussions on non-GAAP financial measures. See "Reconciliation of EBITDA to Net Income (Loss), Income (Loss) from Operations and Net Cash Provided by Operating Activities" below.
(2)See above for discussions on non-GAAP financial measures. See "Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities" below.
Year Ended December 31,
2025 2024
Average Sales
Price 		Volume Average Sales
Price 		Volume
Net sales percentage change from prior-year due to average sales price and volume
Housing and Infrastructure Products
-1 % -3 % -6 % +8 %
Performance and Essential Materials -4 % -6 % -12 % +5 %
Company average -3 % -5 % -10 % +6 %
Year Ended December 31,
2025 2024
Domestic US prices percentage change from prior-year period for fuel cost and feedstock
Fuel cost (Natural Gas) +51 % -17 %
Feedstock (Ethane) +33 % -23 %
Reconciliation of EBITDA to Net Income (Loss), Income (Loss) from Operations and Net Cash Provided by Operating Activities
The following table presents the reconciliation of EBITDA to net income (loss), income (loss) from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
Year Ended December 31,
2025 2024
(In millions of dollars)
Net cash provided by operating activities $ 465 $ 1,314
Changes in operating assets and liabilities and other
(2,113) (702)
Deferred income taxes 177 35
Net income (loss)
(1,471) 647
Less:
Other income, net 152 222
Interest expense (171) (159)
Income tax provision (benefit)
126 (291)
Income (loss) from operations
(1,578) 875
Add:
Depreciation and amortization 1,178 1,114
Other income, net 152 222
EBITDA $ (248) $ 2,211
Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities
The following table presents the reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, for each of the periods indicated.
Year Ended December 31,
2025 2024
(In millions of dollars)
Net cash provided by operating activities $ 465 $ 1,314
Less:
Additions to property, plant and equipment 995 1,008
Free Cash Flow
$ (530) $ 306
2025 Compared with 2024
Summary
For the year ended December 31, 2025, net loss attributable to Westlake Corporation was $1,508 million, or $11.70 per diluted share, on net sales of $11,170 million. These results represent a decrease in net income attributable to Westlake Corporation of $2,110 million, or $16.34 per diluted share, compared to 2024 net income attributable to Westlake Corporation of $602 million, or $4.64 per diluted share, on net sales of $12,142 million. Loss from operations was $1,578 million for the year ended December 31, 2025, as compared to income from operations of $875 million for the year ended December 31, 2024, a decrease of $2,453 million. The decrease in net income and income from operations was primarily due to lower sales prices for many of our products across both segments, including PVC resin, polyethylene, chlorine and pipe and fittings, lower sales volumes for PVC resin, epoxy resin, polyethylene, caustic soda, chlorine, compounds and building products and higher energy and feedstock costs in the year ended December 31, 2025. The decrease in net income and income from operations in the year ended December 31, 2025 was also due to the recognition of a non-cash impairment charge of $727 million related to North American Chlorovinyls goodwill, the recognition of closure costs of $393 million related to the chlor-alkali and VCM plants at our Lake Charles facilities, the PVC plant at our Aberdeen facility and the styrene plant at our Lake Charles facility, the recognition of closure costs of $247 million related to the base epoxy resins and intermediate resin units at our Pernis facility located in the Netherlands and closure costs of $9 million related to the PVC unit at the Suzhou Huasu Plastics plant located in China, all under the PEM segment. These decreases were slightly offset by higher compounds sales prices and higher pipe and fittings sales volumes. Net sales decreased by $972 million to $11,170 million in 2025 from $12,142 million in 2024, primarily due to lower sales prices for PVC resin, polyethylene, chlorine and pipe and fittings, and lower sales volumes for PVC resin, epoxy resin, polyethylene, caustic soda, chlorine, compounds and building products, which were partially offset by higher compounds sales prices and pipe and fittings sales volumes.
Year Ended December 31,
Change
2025 2024
$
%
Net sales $ 11,170 $ 12,142 $ (972) (8) %
Sales volumes decreased by 5% in 2025 as compared to 2024, primarily due to lower sales volumes for PVC resin, epoxy resin, polyethylene, caustic soda, chlorine, compounds and building products, which were partially offset by higher pipe and fittings sales volumes. Average sales prices for 2025 decreased by 3% as compared to 2024, primarily as a result of lower sales prices for PVC resin, polyethylene, chlorine and pipe and fittings, which were partially offset by higher compounds sales prices.
Year Ended December 31,
Change
2025 2024 $ %
Gross profit $ 813 $ 1,957 $ (1,144) (58) %
Gross profit margin
7 % 16 %
Gross Profit.The decrease in gross margin for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily due to lower sales volumes and prices for most of our products across both segments and higher energy and feedstock costs for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
Year Ended December 31,
Change
2025 2024 $ %
Selling, general and administrative expenses $ 900 $ 874 $ 26 3 %
Selling, General and Administrative Expenses.The increase in selling, general and administrative expenses in 2025 as compared to 2024 was primarily due to higher legal and other consulting costs and higher technology-related expenses, partially offset by lower payroll and related benefits costs.
Year Ended December 31,
Change
2025 2024 $ %
Impairment of goodwill and long-lived assets
$ 727 $ - $ 727 - %
Impairment of Goodwill and Long-Lived Assets.The impairment of $727 million in 2025 represents the North American Chlorovinyls goodwill impairment charge recognized within the PEM segment. No similar impairment charge was recognized in 2024.
Year Ended December 31,
Change
2025 2024 $ %
Amortization of intangibles $ 124 $ 117 $ 7 6 %
Amortization of Intangibles.Amortization expense was slightly higher in 2025 as compared to 2024 due to an increase in technology related capitalized costs.
Year Ended December 31,
Change
2025 2024 $ %
Restructuring, transaction and integration-related costs $ 640 $ 91 $ 549 603 %
Restructuring, Transaction and Integration-related Costs. Restructuring, transaction and integration-related costs in 2025 primarily comprised of closure costs of $386 million related to our chlor-alkali and VCM plants at our Lake Charles, Louisiana facilities, our PVC plant at our Aberdeen, Mississippi facility and our styrene plant at our Lake Charles facility, closure costs of $232 million related to the Pernis, Netherlands facility and closure costs of $9 million related to the PVC resin unit at the Suzhou Huasu Plastics plant located in China, all under the PEM segment, as well as certain other restructuring costs under the HIP segment. The 2024 restructuring, transaction and integration-related costs primarily consisted of $75 million related to the temporary idling ("mothballing") of the Pernis facility, which was closed in 2025.
Year Ended December 31,
Change
2025 2024 $ %
Interest expense $ (171) $ (159) $ 12 8 %
Interest Expense.Interest expense in 2025 was higher compared to 2024, primarily due to the issuance of $600 million aggregate principal amount of 5.550% senior notes due 2035 and $600 million aggregate principal amount of 6.375% senior notes due 2055 in November 2025.
Year Ended December 31,
Change
2025 2024 $ %
Other income, net $ 152 $ 222 $ (70) (32) %
Other Income, Net.Other income, net decreased in 2025 as compared to 2024 primarily due to a reduction of $53 million of interest income resulting from the Company's lower average cash and cash equivalent balances as well as lower interest rates in 2025 as compared to 2024 and the recognition of higher insurance recoveries in 2024 as compared to 2025, partially offset by a gain of $32 million recognized in 2025, resulting from settlement of a portion of the Company's pension benefits liability.
Year Ended December 31,
2025 2024
Provision for income taxes
Income tax expense (benefit)
$ (126) $ 291
Effective Income Tax Rate
7.9 % 31.0 %
Income Taxes.The effective tax rate in 2025 was lower compared to 2024 primarily due to the non-deductible goodwill impairment charge associated with the North American Chlorovinyls reporting unit, a valuation allowance recorded against Westlake Epoxy Netherlands's net operating loss, and the impact of earnings mix across jurisdictions associated with the pre-tax losses in 2025. Income taxes were a benefit in 2025 due to the loss in the year as compared to the tax expense associated with the income in 2024.
Housing and Infrastructure Products Segment
Year Ended December 31,
Change
2025 2024 $ %
Housing and Infrastructure Products
Housing Products
$ 3,513 $ 3,644 $ (131) (4) %
Infrastructure Products
635 673 (38) (6) %
Total Housing and Infrastructure Products
$ 4,148 $ 4,317 $ (169) (4) %
Net Sales.Average sales prices for the HIP segment decreased by 1% in 2025 as compared to 2024, primarily due to lower sales prices for pipe and fittings, partially offset by higher compounds sales prices. Sales volumes for the HIP segment decreased by 3% in 2025 as compared to 2024, primarily due to lower compounds and building products sales volumes, partially offset by higher pipe and fittings sales volumes.
Year Ended December 31,
Change
2025 2024 $ %
Income from operations
$ 587 $ 807 $ (220) (27) %
Income from Operations.The decrease in income from operations in 2025, as compared to 2024, was primarily due to lower sales prices for pipe and fittings and lower sales volumes for compounds and building products, as well as restructuring costs of $16 million incurred under our asset optimization initiatives, partially offset by higher pipe and fittings sales volumes and higher compounds sales prices.
Performance and Essential Materials Segment
Year Ended December 31,
Change
2025 2024 $ %
Performance and Essential Materials
Performance Materials $ 4,018 $ 4,626 $ (608) (13) %
Essential Materials 3,004 3,199 (195) (6) %
Total Performance and Essential Materials $ 7,022 $ 7,825 $ (803) (10) %
Net Sales.Average sales prices for the PEM segment decreased by 4% in 2025 as compared to 2024. Sales volumes for the PEM segment decreased by 6% in 2025 as compared to 2024, primarily due to lower PVC resin, epoxy resin, polyethylene, caustic soda and chlorine sales volumes. Lower Performance Materials sales prices were primarily due to lower PVC resin and polyethylene sales prices. Lower Essential Materials sales prices were primarily due to lower chlorine sales prices.
Year Ended December 31,
Change
2025 2024 $ %
Income (loss) from operations
$ (2,100) $ 129 $ (2,229) (1728) %
Income (loss) from Operations. Income from operations for the PEM segment decreased by $2,229 million to a loss of $2,100 million in 2025 from income from operations of $129 million in 2024. This decrease in income from operations was due to lower sales prices for most of our major products in this segment, particularly PVC resin, polyethylene and chlorine, lower sales volumes for PVC resin, epoxy resin, polyethylene, caustic soda and chlorine, and the impact of the Petro 1 and other planned turnaround activities, offset by the impact of fewer unplanned plant outages in 2025 and higher natural gas and feedstock costs in 2025. The decrease in income from operations was also due to the recognition of a North American Chlorovinyls non-cash goodwill impairment charge of $727 million in the third quarter of 2025, the recognition of closure costs of $393 million relating to the chlor-alkali and VCM plants at our Lake Charles facilities, the PVC plant at our Aberdeen facility and the styrene plant at our Lake Charles facility, and the recognition of closure costs of $247 million related to our Pernis facility located in the Netherlands and the PVC unit at the Suzhou Huasu Plastics plant located in China.
Cash Flows
Operating Activities
Operating activities provided cash of $465 million in 2025 compared to cash provided by operating activities of $1,314 million in 2024. The $849 million decrease in cash flow from operating activities was mainly due to lower prices and demand for most of our products and cash used in connection with the turnaround of the Petro 1 ethylene facility in Lake Charles, partially offset by a favorable change in working capital in 2025. The favorable change in working capital in 2025 was substantially driven by the higher accrued and other liabilities which were due to the accrual of North American Chlorovinyls and Styrene facilities closure costs and Pernis facility closure costs in 2025 and lower inventory levels in 2025 as compared to 2024, partially offset by the cash outflows related to a payment to Triad Hunter, LLC, which was accrued in 2023, to resolve litigation in the third quarter of 2025.
Investing Activities
Net cash used for investing activities during 2025 was $1,223 million compared to net cash used of $1,001 million in 2024. The increase in cash used for investing activities in 2025 as compared to 2024 was primarily related to the purchase of $272 million of investments comprising corporate bonds and U.S. government debt securities, offset by redemptions and paydowns of $68 million, among others. Capital expenditures were $995 million in 2025 as compared to $1,008 million in 2024.
Financing Activities
Net cash provided by financing activities during 2025 was $530 million as compared to net cash used by financing activities of $650 million in 2024. The increase in cash provided by financing activities was due to registered public offering of $600 million aggregate principal amount of 5.550% senior notes due 2035 and $600 million aggregate principal amount of 6.375% senior notes due 2055 in November 2025. We used a portion of the net proceeds from the offering to fund the repurchase of $254 million aggregate principal amount of our outstanding 3.60% 2026 Senior Notes pursuant to a cash tender offer. The financing activities in 2025 also included the payment of $272 million of cash dividends, the repurchase of $63 million of our outstanding common stock for treasury and $51 million of cash distributions to noncontrolling interests. The financing activities in 2024 included the redemption of $300 million aggregate principal amount of the 0.875% senior notes due 2024, $264 million payment of cash dividends and $49 million of cash distributions to noncontrolling interests and the repurchase of $60 million of our outstanding common stock for treasury.
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 financings.
In November 2014, our Board of Directors authorized a $250 million stock repurchase program (as expanded from time to time, the "2014 Program"). Subsequently, the Board approved three expansions of the 2014 Program in November 2015, August 2018 and August 2022, by an additional $150 million, $150 million and $500 million, respectively. During the year ended December 31, 2025, 725,652 shares of our common stock were repurchased for an aggregate purchase price of $63 million under the 2014 Program. As of December 31, 2025, we had repurchased 9,928,283 shares of our common stock for an aggregate purchase price of approximately $697 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 flows 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 Chemical Partners LP ("Westlake Partners") and Westlake Chemical Partners GP LLC, 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 and subsequent renewals thereof for utilization under this agreement. No common units were issued under this program in 2025, 2024 or 2023.
We believe that our sources of liquidity as described above are adequate to fund normal operations and ongoing capital expenditures, turnaround activities and the upcoming repayment of the 3.60% 2026 Senior Notes in 2026. Funding of any potential large expansions such as our recent acquisitions or potential future acquisitions or the redemption 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 favorable interest rates due to volatility of the commercial credit markets.
Cash and Cash Equivalents
As of December 31, 2025, our cash and cash equivalents totaled $2,724 million.
As of December 31, 2025, our available-for-sale securities totaled $204 million. See Note 2 "Financial Instruments" to Consolidated Financial Statements appearing elsewhere in this Form 10-K for a discussion of our available-for-sale securities.
In addition to our cash and cash equivalents, our credit agreement is available to provide liquidity as needed, as described under "Debt" below.
Debt
As of December 31, 2025, the carrying value of our indebtedness totaled $5,584 million. See Note 10 "Long-Term Debt" to 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 10 "Long-Term Debt" to Consolidated Financial Statements appearing elsewhere in 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 our credit agreement will be adequate to meet our normal operating needs for the foreseeable future. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we or our affiliates may from time to time seek to redeem, repurchase or otherwise acquire our outstanding debt securities through open market purchases, privately negotiated transactions, tender offers or pursuant to the terms of such securities. Such acquisitions, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.
November 2025 Notes Offering and Concurrent Tender Offer
In November 2025, we completed the registered public offering of $600 million aggregate principal amount of 5.550% senior notes due 2035 and $600 million aggregate principal amount of 6.375% senior notes due 2055. We used a portion of the net proceeds from the offering to fund the repurchase of a portion of our outstanding 3.60% 2026 Senior Notes pursuant to a concurrent cash tender offer for any and all of such notes and to fund the purchase price of the ACI acquisition. See "Recent Developments" above.
Senior Notes
The holders of the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375% 2030 Senior Notes, the 3.50% 2032 tax-exempt GO Zone Refunding Senior Notes, the 5.550% 2035 Senior Notes, the 2.875% 2041 Senior Notes, the 5.00% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the 3.125% 2051 Senior Notes, the 6.375%2055 Senior Notesand the 3.375% 2061 Senior Notes may require us to repurchase the notes at a price equal to 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 respective indentures governing these notes).
The indenture governing the 3.60% 2026 Senior Notes, the 1.625% 2029 Senior Notes, the 3.375% 2030 Senior Notes, the 3.50% 2032 tax-exempt GO Zone Refunding Senior Notes, the 5.550% 2035 Senior Notes, the 2.875% 2041 Senior Notes, the 5.00% 2046 Senior Notes, the 4.375% 2047 Senior Notes, the 3.125%2051 Senior Notes, the 6.375%2055 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 our assets.
As of December 31, 2025, we were in compliance with all of our long-term debt covenants.
Credit Agreement
On June 9, 2022, we entered into a $1.5 billion revolving credit facility that is scheduled to mature on June 9, 2027 (the "Credit Agreement") and, in connection therewith, terminated our then existing revolving credit agreement. The Credit Agreement bears interest at either (a) Adjusted Term SOFR (as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.625% per annum or (b) Alternate Base Rate (as defined in the Credit Agreement) plus a margin ranging from 0.00% to 0.625% per annum, in each case depending on the credit rating of the Company. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of December 31, 2025, 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 to lend thereunder and payments of any outstanding amounts thereunder could be accelerated by the lenders. None of our subsidiaries are required to guarantee our obligations under the Credit Agreement.
The Credit Agreement includes a $150 million sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50 million commitment for swingline loans to be provided on a same-day basis. We may also increase the size of the facility, in increments of at least $25 million, up to a maximum of $500 million, subject to certain conditions and if certain lenders agree to commit to such an increase.
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") (the "MLP Revolver") that is scheduled to mature on July 12, 2027. As of December 31, 2025, outstanding borrowings under the credit facility totaled $377 million and bore interest at Secured Overnight Financing Rate, as administered by the Federal Reserve Bank of New York ("SOFR") plus the Applicable Margin plus a 0.10% credit spread adjustment. On July 12, 2022, Westlake Partners entered into the Fourth Amendment (the "MLP Revolver Amendment") to the MLP Revolver. The MLP Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of LIBOR with SOFR. Borrowings under the MLP Revolver now bear interest at a variable rate of either (a) SOFR plus the Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the MLP Revolver varies between 1.75% and 2.75%, depending on the Partnership's Consolidated Leverage Ratio.
Our subsidiary, Westlake Polymers LLC, is the administrative agent to a $600 million revolving credit facility with Westlake Chemical OpCo LP ("OpCo") (the "OpCo Revolver") that is scheduled to mature on July 12, 2027. As ofDecember 31, 2025, outstanding borrowings under the credit facility totaled $23 million and bore interest at SOFR plus the Applicable Margin of 1.75% plus a 0.10% credit spread adjustment. On July 12, 2022, OpCo entered into the Second Amendment (the "OpCo Revolver Amendment") to the OpCo Revolver. The OpCo Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of LIBOR with SOFR. Borrowings under the OpCo Revolver now bear interest at a variable rate of either (a) SOFR plus the Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the OpCo Revolver is 1.75%.
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 from the financial statements 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 (beyond the next 12 months) include long-term debt, interest payments, operating leases, pension benefits funding, post-retirement healthcare benefits, purchase obligations, asset retirement obligations and letters of credit.
Debt Obligations and Interest Payments. As of December 31, 2025, we had $497 million of debt obligations due within the near term, and debt obligations of $5,183 million due over the long-term period. At December 31, 2025, long-term debt related interest expense of $222 million was due within the near term, and related interest expense of $3,796 million was due over the long-term period. Maturities of our debt consist of $497 million in 2026, $11 million in 2027, $822 million in 2029 and $300 million in 2030. There are no other scheduled maturities of debt in 2026 through 2030. See Note 10, "Long-Term Debt," in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for further information on our debt obligations and the expected timing of future principal and interest payments.
Operating Leases. As of December 31, 2025, there was $166 million in operating lease obligations due within the near term, and $847 million due over the long-term period. See Note 6, "Leases," in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K 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 $18 million while post-retirement healthcare benefit payment obligations due within the near term were $5 million as of December 31, 2025. As of December 31, 2025, we had $118 million and $49 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 13, "Employee Benefits," in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K 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, 2025, we had $2,668 million of enforceable and legally binding purchase commitments due within the near term, and $4,499 million due over the long-term period.
Asset Retirement Obligations. Asset retirement obligations include 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 18 "Supplemental Information" to Consolidated Financial Statements appearing elsewhere in this Form 10-K, under Asset Retirement Obligations, for further details of our asset retirement obligation, and under Restructuring, Transaction and Integration-related Costs, for details on asset retirement obligation recognized in 2025.
Letters of Credit.As of December 31, 2025, we had $45 million standby letters of credit, made in the ordinary course of business, maturing within the near term, and no standby letters of credit maturing over the long-term period. We had no letters of credit outstanding under our Credit Agreement.
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 preparing 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 "Description of Business and Significant Accounting Policies" to Consolidated Financial Statements appearing elsewhere in this Form 10-K.
Critical accounting estimates are those estimates made in accordance with the accounting principles generally accepted in the United States ("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 business combinations, fair values, long-lived assets, goodwill, accruals for long-term employee benefits, income taxes and environmental and legal obligations. Inherent in such estimates are certain key assumptions. We periodically update the estimates used in preparing 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 preparing our financial statements.
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. 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. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.
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 and goodwill 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. 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 15 "Fair Value Measurements" to Consolidated Financial Statements appearing elsewhere in this Form 10-K for more information.
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 could 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 global 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 are assessed for impairment by asset group, the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of 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 forty years. Depreciation and amortization of these assets, including amortization of deferred turnaround costs, under the straight-line method over their estimated useful lives totaled $1,178 million, $1,114 million and $1,097 million in 2025, 2024 and 2023, 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 $246 million, $114 million and $179 million in 2025, 2024 and 2023, respectively. As of December 31, 2025, deferred turnaround costs, net of accumulated amortization, totaled $433 million. Amortization in 2025, 2024 and 2023 of deferred turnaround costs was $165 million, $153 million and $137 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. We commenced the next planned maintenance turnaround at our Petro 1 ethylene facility in the first quarter of 2025.
Additional information concerning long-lived assets and related depreciation and amortization appears in Note 5 "Property, Plant and Equipment" and Note 7 "Goodwill and Other Intangible Assets" to Consolidated Financial Statements appearing elsewhere in this Form 10-K.
Goodwill. At December 31, 2025, our recorded goodwill was $1,314 million. 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 amount, and otherwise at least annually. We perform our annual impairment assessment for both the PEM and HIP reporting units in the fourth quarter 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.
As part of our continuous assessment of changes in the macroeconomic environment in the performance and essential materials industry and recent operating performance and updated forecasts, we identified triggering events associated with the North American Chlorovinyls reporting unit in the third quarter of 2025. Due to the recent operating losses and downward revision in the third quarter 2025 of forecasts for the North American Chlorovinyls reporting unit along with negative chlorovinyls industry trends, the Company performed a quantitative assessment in the third quarter of 2025 to determine if the fair value of this reporting unit had reduced below its carrying amount. We also performed a quantitative impairment assessment in the third quarter of 2025 for all other reporting units within the Performance and Essential Materials and the HIP segments to assess the overall fair value of the Company as compared to our market capitalization.
The fair values of the reporting units were determined using a weighting of both a discounted cash flow methodology and a market value methodology. The fair values of the reporting units were classified as Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information. Both of these methodologies require estimates, assumptions, and judgments about future results. Our analysis is based on our internally developed long-range plan, which is developed from historical results, estimates by management of future market conditions, current and future strategic and operational plans and future financial performance. Significant assumptions used in the discounted cash flow methodology include projected sales volumes based on production capacities and operating rates, product selling prices, capital expenditures, depreciation expense, working capital investment, discount rates, tax rates, terminal growth rates and earnings before interest expense, income taxes, depreciation and amortization expense (EBITDA) margins, inclusive of feedstock, energy and power costs. Significant assumptions used in the market value methodology include EBITDA, weighting of periods, market participant acquisition premium and the estimated multiples of EBITDA buyers are willing to pay in the marketplace.
Based on the quantitative tests performed during the third quarter of 2025, we determined that the fair value of the North American Chlorovinyls reporting unit did not exceed its carrying amount resulting in a non-cash goodwill impairment charge of $727 million taken in the third quarter of 2025, representing all the goodwill associated with the North American Chlorovinyls reporting unit recognized.
We performed a qualitative assessment for the purposes of 2025 annual goodwill impairment analysis for each of the reporting units within the HIP and PEM segments during the fourth quarter of 2025. As part of the qualitative assessment performed in the fourth quarter of 2025, no triggering events were identified that would require the performance of quantitative assessment.
Based on the quantitative tests performed during the third quarter of 2024, the fair value of each of the reporting units with goodwill, except for the North American Chlorovinyls reporting unit, were in excess of the carrying amounts. See Note 1 "Description of Business and Significant Accounting Policies" and Note 7 "Goodwill and Other Intangible Assets" in Notes to Consolidated Financial Statements for further details. Based on the quantitative tests performed during the third quarter of 2025, for all reporting units with goodwill, except for the North American Chlorovinyls reporting unit, even if the fair values of the reporting units decreased by 10% from the fair values determined for the quantitative tests, the carrying amounts of the reporting units would not have exceeded their fair values. See Item 1A, "Risk Factors-If our goodwill or other long-lived assets become impaired in the future, we may be required to record non-cash charges to earnings, which could be significant."
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.
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, 2025, the projected pension benefit obligations for U.S. and non-U.S. plans were calculated using assumed weighted average discount rates of 5.2% and 4.2%, 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 2026 for the U.S. pension plans. Additional information on the 2026 funding requirements and key assumptions underlying these benefit costs appear in Note 13 "Employee Benefits" to 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:
2025
U.S. Plans Non-U.S. Plans
(In millions of dollars)
Projected benefit obligation, end of year $ 307 $ 561
Discount rate increases by 100 basis points (24) (67)
Discount rate decreases by 100 basis points 29 83
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 balance sheet method of accounting for deferred income taxes. Under this 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 16 "Income Taxes" to Consolidated Financial Statements appearing elsewhere in this Form 10-K.
Environmental and Legal Obligations.We consult with various professionals for assistance in estimating 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 21 "Commitments and Contingencies" to 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 "Description of Business and Significant Accounting Policies" and Note 18 "Supplemental Informations" to 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.
Recent Accounting Pronouncements
See Note 1 "Description of Business and Significant Accounting Policies" to Consolidated Financial Statements included in Item 8 of this Form 10-K for a full description of recent accounting pronouncements, including expected date of adoption and estimated effect on results of operations and financial condition.
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