Westlake (WLK) 10-Q2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Exact name of Registrant as specified in its charter)

INDEX

WESTLAKE CHEMICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

WESTLAKE CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

WESTLAKE CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

WESTLAKE CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

1. Basis of Financial Statements

Events surrounding the ongoing coronavirus ("COVID-19") pandemic resulted in widespread adverse impacts on the global economy. The Company experienced significant disruptions in the second quarter of 2020 as the pandemic and its impact on the global economy spread through most of its markets. Since the middle of the second quarter of 2020, a general ease in government restrictions in many jurisdictions across the world has resulted in improved economic conditions and a gradual increase in demand for the Company's products. As the pandemic and its impacts on the global economy continue, the Company expects to experience further near-term impacts on its business operations. However, the impact that COVID-19 will have on the financial condition, results of operations and cash flows of the Company cannot be estimated with certainty at this time as it will depend on future developments, including, among others, the ultimate duration, geographic spread and severity of the virus, the actions to contain the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, actions taken by customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

Recent Accounting Pronouncements

Income Taxes (ASU No. 2019-12)

In December 2019, the Financial Accounting Standards Board ("FASB") issued an accounting standards update removing certain exceptions for investments, intraperiod allocations and interim calculations and adding guidance to reduce complexity in accounting for income taxes. The accounting standard will be effective for reporting periods beginning after December 15, 2020. Early adoption of this guidance is permitted. The Company is in the process of evaluating the impact that the new accounting guidance will have on the Company's consolidated financial position, results of operations and cash flows.

In March 2020, the FASB issued an accounting standards update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact that the new accounting guidance will have on the Company's consolidated financial position, results of operations and cash flows.

Credit Losses (ASU No. 2016-13)

In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on trade receivables, debt securities and certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In November 2019, the FASB issued an additional authoritative guidance related to credit losses. The accounting standard became effective for reporting periods beginning after December 15, 2019. The Company adopted this accounting standard effective January 1, 2020 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.

3. Accounts Receivable

Accounts receivable consist of the following:

4. Inventories

Inventories consist of the following:

5. Goodwill

The gross carrying amounts and changes in the carrying amount of goodwill for the nine months ended September 30, 2020 were as follows:

6. Accounts Payable

Accounts payable consist of the following:

7. Long-Term Debt

Long-term debt consists of the following:

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Credit Agreement

The Company has a $1,000 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. At September 30, 2020, the Company had 0 borrowings outstanding under the Credit Agreement. As of September 30, 2020, the Company had 0 outstanding letters of credit and had $1,000 of borrowing availability under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of September 30, 2020, the Company was 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.

The Credit Agreement includes a $150 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 commitment for swingline loans to be provided on a same-day basis. The Company may also increase the size of the facility, in increments of at least $25, up to a maximum of $500, subject to certain conditions and if certain lenders agree to commit to such an increase.

3.375% Senior Notes due 2030

On June 12, 2020, the Company completed the registered public offering of $300 aggregate principal amount of its 3.375% Senior Notes due June 15, 2030 (the "3.375% 2030 Senior Notes"). There is no sinking fund and no scheduled amortization of the 3.375% 2030 Senior Notes prior to maturity. The 3.375% 2030 Senior Notes accrue interest from June 12, 2020 at a rate of 3.375% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2020. The indenture and supplemental indenture governing the 3.375% 2030 Senior Notes contain customary events of default and covenants that restrict the Company and certain of its subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of its assets. The Company may optionally redeem the 3.375% 2030 Senior Notes in accordance with the terms of the 3.375% 2030 Senior Notes.

6 ½% Senior Notes due 2029

During June 2020, the Company directed the Louisiana Local Government Environmental Facilities and Community Development Authority (the "Authority") to optionally redeem in full $100 aggregate principal amount of the Authority's outstanding Revenue Bonds (Westlake Chemical Corporation Projects) Series 2009A due August 1, 2029 (the "2029 GO Zone Bonds") on August 1, 2020 at a redemption price equal to 100% of the principal amount of the 2029 GO Zone Bonds plus accrued and unpaid interest to the redemption date. The 2029 GO Zone Bonds were offered by the Authority in July 2010 under the Gulf Opportunity Zone Act of 2005 for the benefit of the Company and bore interest at a rate of 6.50% per annum. In connection with the offering of the 2029 GO Zone Bonds in July 2010, the Company issued $100 aggregate principal amount of its 6 ½% senior notes due 2029 (the "6 ½% 2029 GO Zone Senior Notes") to evidence and secure the Company's obligations under the Amended and Restated Loan Agreement relating to the 2029 GO Zone Bonds. On August 1, 2020, the Company purchased the 2029 GO Zone Bonds in lieu of optional redemption. A portion of the net proceeds from the issuance of the 3.375% 2030 Senior Notes was used to fund the purchase in lieu of optional redemption of the 2029 GO Zone Bonds. In connection with the purchase of the 2029 GO Zone Bonds by the Company in lieu of optional redemption, the 2029 GO Zone Bonds trustee surrendered the 6 ½% 2029 GO Zone Senior Notes for cancellation.

During September 2020, the Company directed the Authority to optionally redeem in full (1) $89 aggregate principal amount of the Authority's outstanding Revenue Bonds (Westlake Chemical Corporation Projects) Series 2010A-1 (GO Zone) due November 1, 2035 (the "2035 GO Zone Bonds"), and (2) $65 aggregate principal amount of the Authority's outstanding Revenue Bonds (Westlake Chemical Corporation Projects) Series 2010A-2 (IKE Zone) due November 1, 2035 (the "2035 IKE Zone Bonds," and together with the 2035 GO Zone Bonds, the "2035 Revenue Bonds"), in each case, on November 1, 2020 at a redemption price equal to 100% of the principal amount of the 2035 Revenue Bonds plus accrued and unpaid interest to the redemption date. The 2035 GO Zone Bonds were issued by the Authority in December 2010 under the Gulf Opportunity Zone Act of 2005 for the benefit of the Company and bore interest at a rate of 6.50% per annum. The 2035 IKE Zone Bonds were issued by the Authority in December 2010 under Section 704 of the Emergency Economic Stabilization Act of 2008 for the benefit of the Company and bore interest at a rate of 6.50% per annum. In connection with the offering of the 2035 Revenue Bonds in December 2010, the Company issued $89 aggregate principal amount of its 6 ½% senior notes due 2035 (the "6 ½% 2035 GO Zone Senior Notes") and $65 aggregate principal amount of its 6 ½% senior notes due 2035 (the "6 ½% 2035 IKE Zone Senior Notes") to evidence and secure the Company's obligations under the Loan Agreements relating to the 2035 Revenue Bonds. On November 1, 2020, the Company purchased the 2035 Revenue Bonds in lieu of optional redemption. A portion of the net proceeds from the issuance of the 3.375% 2030 Senior Notes was used to fund the purchase in lieu of optional redemption of the 2035 Revenue Bonds. In connection with the purchase of the 2035 Revenue Bonds by the Company in lieu of optional redemption, the Authority is required to cause the 2035 Revenue Bonds trustee to surrender the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes to the Senior Notes trustee for cancellation.

As of September 30, 2020, the Company was in compliance with all of its long-term debt covenants.

Unamortized debt issuance costs on long-term debt were $29 and $30 at September 30, 2020 and December 31, 2019, respectively.

8. Accumulated Other Comprehensive Income (Loss)

9. Fair Value Measurements

The Company reports certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Company has financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts payable and long-term debt, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, net and accounts payable approximate their fair value due to the short maturities of these instruments.

The Company's long-term debt instruments, except for the revolving credit facility, are publicly-traded. A market approach, based upon quotes from financial reporting services, is used to measure the fair value of the Company's long-term debt. Because the Company's long-term debt instruments may not be actively traded, the inputs used to measure the fair value of the Company's long-term debt are classified as Level 2 inputs within the fair value hierarchy. The carrying and fair values of the Company's long-term debt are summarized in the table below.

10. Income Taxes

On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act, among other things, permits any federal NOL generated in 2018, 2019 and 2020 to be carried back to each of the five tax years preceding the tax year of the federal NOL to fully offset taxable income to generate a refund of previously paid income taxes. However, any such federal NOL not carried back can be carried forward to fully offset taxable income, but only for the taxable years beginning before January 1, 2021, after which, the federal NOL deduction limitation not to exceed 80.0% of taxable income under the U.S. Tax Cuts and Jobs Act (the "Tax Act") will be reinstated. Federal NOLs generated in 2018, 2019 and 2020 measured at the current U.S. corporate tax rate of 21.0% that are carried back to taxable years prior to the Tax Act to fully offset taxable income taxed at the U.S. corporate tax rate of 35.0% result in an income tax rate benefit. At the end of 2019, the Company generated a federal NOL primarily due to bonus tax depreciation from the Company's investment in LACC, LLC ("LACC"), which is accounted for as an equity method investment. This federal NOL was increased to account for the disallowed interest deduction which originated in 2019 that is no longer disallowed due to the increase in the business interest expense deduction limitation from 30.0% to 50.0% of adjusted taxable income for tax years 2019 and 2020 as permitted under the CARES Act. For the three and nine months ended September 30, 2020, the carryback of the federal NOL resulted in a net tax benefit of $27 and $95, respectively, for the Company, primarily from the tax rate difference, partially offset by the reduction in the Section 199 domestic manufacturing deduction.

11. Earnings and Dividends per Share

The Company has unvested restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share include the effects of certain stock options and performance stock units.

The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:

Excluded from the computation of diluted earnings per share are options to purchase 1,298,659 and 805,878 shares of common stock for the three months ended September 30, 2020 and 2019, respectively; and 1,234,126 and 564,676 shares of common stock for the nine months ended September 30, 2020 and 2019, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.

12. Supplemental Information

Equity Method Investments

The Company's investment in LACC, a related party, was $966 and $1,038 at September 30, 2020 and December 31, 2019, respectively. The Company received $5 and $44 during the three months ended September 30, 2020 and nine months ended September 30, 2020, respectively, from LACC representing return of investment.

Accrued and Other Liabilities

Accrued and other liabilities were $771 and $768 at September 30, 2020 and December 31, 2019, respectively. Accrued rebates and operating lease liability, which are components of accrued and other liabilities, were $114 and $93 at September 30, 2020, respectively; and $115 and $93 at December 31, 2019, respectively. No other component of accrued and other liabilities was more than five percent of total current liabilities. Accrued liabilities with related parties were $37 and $41 at September 30, 2020 and December 31, 2019, respectively.

Restructuring, Transaction and Integration-related Costs

For the three months ended September 30, 2020, the restructuring, transaction and integration-related costs of $34 related to the decision to close a non-integrated plant located in Germany that was part of the Vinyls segment. The expenses primarily consisted of the write-off of certain assets of $8 and other costs associated with the plant closure. For the three months ended September 30, 2019, the restructuring, transaction and integration-related costs of $8 consisted of restructuring expenses of $3 related to certain Vinyls segment operations and integration-related consulting fees and costs associated with acquisitions of $5.

For the nine months ended September 30, 2020, the restructuring, transaction and integration-related costs of $36 primarily consisted of restructuring expenses of $34 related to the decision to close the non-integrated plant located in Germany. The expenses primarily consisted of the write-off of certain assets of $8 and other costs associated with the plant closure. For the nine months ended September 30, 2019, the restructuring, transaction and integration-related costs of $32 consisted of restructuring expenses of $22 related to charges associated with the write-off of certain Vinyls segment assets and integration-related consulting fees and costs associated with acquisitions of $10.

Non-cash Investing Activity

13. Commitments and Contingencies

The Company is involved in a number of legal and regulatory matters, principally environmental in nature, that are incidental to the normal conduct of its business, including lawsuits, investigations and claims. The outcome of these matters are inherently unpredictable. The Company believes that, in the aggregate, the outcome of all known legal and regulatory matters will not have a material adverse effect on its consolidated financial statements; however, under certain circumstances, if required to recognize costs in a specific period, when combined with other factors, outcomes with respect to such matters may be material to the Company's consolidated statements of operations in such period. The Company's assessment of the potential impact of environmental matters, in particular, is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental matters, and the potential for technological and regulatory developments. In addition, the impact of evolving claims and programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these matters. The Company anticipates that the resolution of many legal and regulatory matters, and in particular environmental matters, will occur over an extended period of time.

The Company and other caustic soda producers were named as defendants in multiple purported class action civil lawsuits filed since March 2019 in the U.S. District Court for the Western District of New York. The lawsuits allege the defendants conspired to fix, raise, maintain and stabilize the price of caustic soda, restrict domestic (U.S.) supply of caustic soda and allocate caustic soda customers. The other defendants named in the lawsuits are Olin Corporation, K.A. Steel Chemicals (a wholly-owned subsidiary of Olin), Occidental Petroleum Corporation, Occidental Chemical Corporation d/b/a OxyChem, Shin-Etsu Chemical Co., Ltd., Shintech Incorporated, Formosa Plastics Corporation, and Formosa Plastics Corporation, U.S.A. Each of the lawsuits is filed on behalf of the respective named plaintiff or plaintiffs and a putative class comprised of either direct purchasers or indirect purchasers of caustic soda in the U.S. The plaintiffs seek an unspecified amount of damages and injunctive relief. The defendants' joint motion to dismiss the direct purchaser lawsuits was denied, so those cases will proceed with discovery. In October 2020, a similar class action proceeding was filed in Canada before the Superior Court of Quebec. This case seeks authorization of a class action on behalf of all residents of Canada who purchased caustic soda or products containing caustic soda from October 1, 2015 through the date of the authorization of such class action or such other date deemed appropriate by the court. At this time, the Company is not able to estimate the impact, if any, that these lawsuits could have on the Company's consolidated financial statements either in the current period or in future periods.

In connection with the 1990 and 1997 acquisitions of the Goodrich chemical manufacturing complex in Calvert City, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated by Goodrich's operations. In 1993, Goodrich spun off the predecessor of Avient, and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination. In 2003, litigation arose among the Company, Goodrich and Avient with respect to the allocation of the cost of remediating contamination at the site. The parties settled this litigation in December 2007 and the case was dismissed. In the settlement, the parties agreed that, among other things: (1) Avient would pay 100% of the costs (with specified exceptions), net of recoveries or credits from third parties, incurred with respect to environmental issues at the Calvert City site from August 1, 2007 forward; and (2) either the Company or Avient might, from time to time in the future (but not more than once every five years), institute an arbitration proceeding to adjust that percentage. In May 2017, Avient filed a demand for arbitration. In this proceeding, Avient sought to readjust the percentage allocation of future costs and to recover approximately $11 from the Company in reimbursement of previously paid remediation costs. The Company's cross demand for arbitration seeking unreimbursed remediation costs incurred during the relevant period was dismissed from the proceedings when Avient paid such costs in full at the beginning of the arbitration hearing.

On July 10, 2018, Avient sued the Company in the U.S. District Court for the Western District of Kentucky, and sought to invalidate the arbitration provisions in the parties' 2007 settlement agreement and enjoin the arbitration it had initiated in 2017. On July 30, 2018, the district court refused to enjoin the arbitration and, on January 15, 2019, the court granted the Company's motion to dismiss Avient's suit. On February 13, 2019, Avient appealed those decisions to the U.S. Court of Appeals for the Sixth Circuit. The court of appeals issued an opinion and final order on September 6, 2019, affirming the district court.

The arbitration hearing began in August 2018 and concluded in December 2018. On May 22, 2019, the arbitration panel issued its final award. It determined that Avient was responsible for 100% of the allocable costs at issue in the proceeding and that Avient would remain responsible for 100% of the costs to operate the existing groundwater remedy at the Calvert City site. In August 2019, Avient filed a motion to vacate before the U.S. District Court for the Western District of Kentucky, seeking to invalidate the final award under the Federal Arbitration Act. On February 11, 2020, the U.S. District Court for the Western District of Kentucky denied Avient's motion to vacate and affirmed the arbitration final award. Avient did not file a notice of appeal before the March 10, 2020 deadline to contest the court's decision. Accordingly, the final award was affirmed and the arbitration proceeding is fully and finally resolved. At this time, the Company is not able to estimate the impact, if any, that any subsequent arbitration or judicial proceeding could have on the Company's consolidated financial statements either in the current period or in later periods. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the Calvert City complex would likely be spread out over an extended period. As a result, the Company believes it is unlikely that any remediation costs allocable to it will be material in terms of expenditures made in any individual reporting period.

A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:

15. Westlake Chemical Partners LP

We are a vertically integrated global manufacturer and marketer of basic chemicals, vinyls, polymers and building products. Our two principal operating segments are Olefins and Vinyls. We use the majority of our internally-produced basic chemicals to produce higher value-added chemicals, polymers and building products.

Consumption of the basic chemicals that we manufacture in the commodity portions of our olefins and vinyls processes has increased significantly since we began operations in 1986. Our olefins and vinyls products are some of the most widely used chemicals in the world and are upgraded into a wide variety of higher value-added chemical products used in many end-markets. 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.

Ethane-based ethylene producers have in the recent past 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 Olefins segment during such periods. However, we have seen a significant reduction in the cost advantage enjoyed by North American ethane-based ethylene producers due to lower crude oil prices from the third quarter of 2014 through the third quarter of 2020, which has resulted in reduced prices and lower margins for our Olefins segment. Further, our Olefins segment has experienced lower profitability in recent periods due to several new ethylene and polyethylene capacity additions in North America and Asia that have led to additional supply of ethylene and polyethylene. In recent months, we have seen volatility in ethane and ethylene prices, primarily due to changes in demand resulting from the coronavirus ("COVID-19") pandemic, anticipated timing for certain new ethylene capacity additions and availability of natural gas liquids, as well as fluctuation in the price of crude oil. Looking forward, new ethylene and polyethylene capacity additions in North America, Asia and the Middle East will add additional supply and may continue to contribute to periods of lower profitability in our Olefins segment.

We have taken proactive actions to respond to the challenges presented by the conditions described above and minimize the impact to our business. We have implemented strategies to reduce costs, increase operational efficiencies, maintain strong liquidity and lower our capital spending. We expect to reduce our capital spending in 2020 to be in the range of $500 million to $550 million. Additionally, we deferred the planned turnaround at our Petro 2 ethylene unit and associated maintenance cost into the second half of 2021. The turnaround is expected to last approximately 60 days.

During June 2020, the Company directed the Louisiana Local Government Environmental Facilities and Community Development Authority (the "Authority") to optionally redeem in full $100 million aggregate principal amount of the 2029 GO Zone Bonds on August 1, 2020 at a redemption price equal to 100% of the principal amount of the 2029 GO Zone Bonds plus accrued and unpaid interest to the redemption date. The 2029 GO Zone Bonds were offered by the Authority in July 2010 under the Gulf Opportunity Zone Act of 2005 (the "GO Zone Act") for the benefit of the Company and bore interest at a rate of 6.50% per annum. In connection with the offering of the 2029 GO Zone Bonds in July 2010, the Company issued $100 million aggregate principal amount of the 6 ½% 2029 GO Zone Senior Notes to evidence and secure the Company's obligations under the Amended and Restated Loan Agreement relating to the 2029 GO Zone Bonds. On August 1, 2020, the Company purchased the 2029 GO Zone Bonds in lieu of optional redemption. In connection therewith, the 2029 GO Zone Bonds trustee surrendered the 6 ½% 2029 GO Zone Senior Notes for cancellation. A portion of the net proceeds from the issuance of the 3.375% 2030 Senior Notes was used to fund the purchase in lieu of optional redemption of the 2029 GO Zone Bonds.

During September 2020, the Company directed the Authority to optionally redeem in full (1) $89 million aggregate principal amount of the 2035 GO Zone Bonds, and (2) $65 million aggregate principal amount of the 2035 IKE Zone Bonds, in each case, on November 1, 2020 at a redemption price equal to 100% of the principal amount of the 2035 Revenue Bonds plus accrued and unpaid interest to the redemption date. The 2035 GO Zone Bonds were issued by the Authority in December 2010 under the GO Zone Act for the benefit of the Company and bore interest at a rate of 6.50% per annum. The 2035 IKE Zone Bonds were issued by the Authority in December 2010 under Section 704 of the Emergency Economic Stabilization Act of 2008 for the benefit of the Company and bore interest at a rate of 6.50% per annum. In connection with the offering of the 2035 Revenue Bonds in December 2010, the Company issued $89 million aggregate principal amount of the 6 ½% 2035 GO Zone Senior Notes and $65 million aggregate principal amount of the 6 ½% 2035 IKE Zone Senior Notes to evidence and secure the Company's obligations under the Loan Agreements relating to the 2035 Revenue Bonds. On November 1, 2020, the Company purchased the 2035 Revenue Bonds in lieu of optional redemption. In connection with the purchase of the 2035 Revenue Bonds by the Company in lieu of optional redemption, the Authority is required to cause the 2035 Revenue Bonds trustee to surrender the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes to the Senior Notes trustee for cancellation. A portion of the net proceeds from the issuance of the 3.375% 2030 Senior Notes was used to fund the purchase in lieu of optional redemption of the 2035 Revenue Bonds.

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 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-Q are not substitutes for the GAAP measures of earnings and cash flows.

EBITDA is included in this Form 10-Q 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.

Results of Operations

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