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WESTLAKE CORP - Quarter Report: 2014 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
Form 10-Q
 
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                    to                    
Commission File No. 001-32260
 
 
 
 
 
Westlake Chemical Corporation
(Exact name of Registrant as specified in its charter)
 
 
 
 
 

Delaware
 
76-0346924
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
2801 Post Oak Boulevard, Suite 600
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 960-9111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes   ¨     No   x
The number of shares outstanding of the registrant's sole class of common stock as of October 31, 2014 was 133,082,630 (on a post-split basis).


INDEX

 
 
Item
Page
 
 
 
 

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2014
 
December 31,
2013
 
 
 
 
 
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
813,468

 
$
461,301

Marketable securities
 
—

 
239,388

Accounts receivable, net
 
592,964

 
428,457

Inventories
 
500,552

 
471,879

Prepaid expenses and other current assets
 
18,884

 
13,888

Deferred income taxes
 
26,080

 
34,169

Total current assets
 
1,951,948

 
1,649,082

Property, plant and equipment, net
 
2,710,475

 
2,088,014

Equity investments
 
70,828

 
66,875

Other assets, net
 
 
 
 
Intangible assets, net
 
222,728

 
159,046

Deferred charges and other assets, net
 
170,304

 
97,892

Total other assets, net
 
393,032

 
256,938

Total assets
 
$
5,126,283

 
$
4,060,909

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
263,365

 
$
249,613

Accrued liabilities
 
309,671

 
155,245

Total current liabilities
 
573,036

 
404,858

Long-term debt
 
763,968

 
763,879

Deferred income taxes
 
513,773

 
437,976

Other liabilities
 
153,158

 
35,593

Total liabilities
 
2,003,935

 
1,642,306

Commitments and contingencies (Notes 7 and 15)
 


 


Stockholders' equity
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized;
   no shares issued and outstanding
 
—

 
—

Common stock, $0.01 par value, 300,000,000 shares authorized;
   134,680,164 and 134,580,208 shares issued at September 30, 2014
   and December 31, 2013, respectively (Note 1)
 
1,347

 
1,346

Common stock, held in treasury, at cost; 1,220,544 and 1,252,922 shares
   at September 30, 2014 and December 31, 2013, respectively (Note 1)
 
(53,248
)
 
(46,220
)
Additional paid-in capital
 
527,992

 
511,432

Retained earnings
 
2,394,203

 
1,954,661

Accumulated other comprehensive loss
 
(36,433
)
 
(2,616
)
Total Westlake Chemical Corporation stockholders' equity
 
2,833,861

 
2,418,603

Noncontrolling interests
 
288,487

 
—

Total equity
 
3,122,348

 
2,418,603

Total liabilities and equity
 
$
5,126,283

 
$
4,060,909

The accompanying notes are an integral part of these consolidated financial statements.

1
Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
1,253,227

 
$
1,004,165

 
$
3,279,479

 
$
2,807,859

Cost of sales
 
891,707

 
699,694

 
2,324,978

 
2,002,092

Gross profit
 
361,520

 
304,471

 
954,501

 
805,767

Selling, general and administrative expenses
 
54,759

 
37,869

 
132,897

 
109,883

Income from operations
 
306,761

 
266,602

 
821,604

 
695,884

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(9,486
)
 
(3,297
)
 
(28,182
)
 
(14,921
)
Other (expense) income, net
 
(2,670
)
 
(287
)
 
4,440

 
3,137

Income before income taxes
 
294,605

 
263,018

 
797,862

 
684,100

Provision for income taxes
 
124,449

 
92,728

 
300,231

 
244,647

Net income
 
170,156

 
170,290

 
497,631

 
439,453

Net income attributable to noncontrolling
   interests
 
2,399

 
—

 
2,399

 
—

Net income attributable to Westlake Chemical
   Corporation
 
$
167,757

 
$
170,290

 
$
495,232

 
$
439,453

Earnings per common share attributable to
   Westlake Chemical Corporation (Note 1):
 
 
 
 
 
 
 
 
Basic
 
$
1.26

 
$
1.28

 
$
3.71

 
$
3.29

Diluted
 
$
1.25

 
$
1.27

 
$
3.69

 
$
3.27

Weighted average common shares outstanding (Note 1):
 
 
 
 
 
 
 
 
Basic
 
133,299,458

 
133,257,494

 
133,199,304

 
133,256,054

Diluted
 
133,846,059

 
133,811,108

 
133,743,145

 
133,806,758

Dividends per common share (Note 1)
 
$
0.1650

 
$
0.1125

 
$
0.4170

 
$
0.3000

The accompanying notes are an integral part of these consolidated financial statements.

2
Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income
 
$
170,156

 
$
170,290

 
$
497,631

 
$
439,453

Other comprehensive income (loss), net of income taxes
 
 
 
 
 
 
 
 
Pension and other post-retirement benefits liability
 
 
 
 
 
 
 
 
Pension and other post-retirement reserves
   adjustment (excluding amortization)
 
(31
)
 
(489
)
 
(62
)
 
(978
)
Amortization of benefits liability
 
240

 
695

 
685

 
2,004

Income tax provision on pension and other
   post-retirement benefits liability
 
(81
)
 
(78
)
 
(240
)
 
(394
)
Foreign currency translation adjustments
 
(37,792
)
 
546

 
(37,882
)
 
(844
)
Available-for-sale investments
 
 
 
 
 
 
 
 
Unrealized holding gains on investments
 
2,129

 
205

 
6,960

 
205

Reclassification of net realized gains to
   net income
 
—

 
—

 
(1,212
)
 
—

Income tax provision on available-for-sale
   investments
 
(766
)
 
(74
)
 
(2,066
)
 
(74
)
Other comprehensive (loss) income
 
(36,301
)
 
805

 
(33,817
)
 
(81
)
Comprehensive income
 
133,855

 
171,095

 
463,814

 
439,372

Comprehensive income attributable to
   noncontrolling interests, net of tax
 
2,399

 
—

 
2,399

 
—

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
131,456

 
$
171,095

 
$
461,415

 
$
439,372

The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
Common Stock
 
Common Stock,
Held in Treasury
 
 
 
 
 
Accumulated Other Comprehensive 
Income (Loss)
 
 
 
 
 
 
Number of
Shares
 
Amount
 
Number of
Shares
 
At Cost
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Benefits
Liability, 
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Net
Unrealized
Holding
Gains on
Investments,
Net of Tax
 
Noncontrolling Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except share amounts)
Balances at December 31, 2012
 
134,374,448

 
$
1,345

 
568,986

 
$
(13,302
)
 
$
495,581

 
$
1,399,472

 
$
(16,351
)
 
$
5,511

 
$
—

 
$
—

 
$
1,872,256

Net income
 
—

 
—

 
—

 
—

 
—

 
610,425

 
—

 
—

 
—

 
—

 
610,425

Other comprehensive
   (loss) income
 
—

 
—

 
—

 
—

 
—

 
—

 
9,655

 
(1,607
)
 
176

 
—

 
8,224

Common stock
   repurchased
 
—

 
—

 
683,936

 
(32,918
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(32,918
)
Shares issued - stock-
   based compensation
 
225,924

 
1

 
—

 
—

 
3,436

 
—

 
—

 
—

 
—

 
—

 
3,437

Stock-based
   compensation, net of
   tax on stock options
   exercised
 
(20,164
)
 
—

 
—

 
—

 
12,415

 
—

 
—

 
—

 
—

 
—

 
12,415

Dividends paid
 
—

 
—

 
—

 
—

 
—

 
(55,236
)
 
—

 
—

 
—

 
—

 
(55,236
)
Balances at December 31, 2013
 
134,580,208

 
1,346

 
1,252,922

 
(46,220
)
 
511,432

 
1,954,661

 
(6,696
)
 
3,904

 
176

 
—

 
2,418,603

Net income
 
—

 
—

 
—

 
—

 
—

 
495,232

 
—

 
—

 
—

 
2,399

 
497,631

Other comprehensive
   income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
383

 
(37,882
)
 
3,682

 
—

 
(33,817
)
Common stock
   repurchased
 
—

 
—

 
104,163

 
(9,495
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(9,495
)
Shares issued - stock-
   based compensation
 
124,566

 
1

 
(136,541
)
 
2,467

 
3,034

 
—

 
—

 
—

 
—

 
—

 
5,502

Stock-based
   compensation, net of
   tax on stock options
   exercised
 
(24,610
)
 
—

 
—

 
—

 
13,526

 
—

 
—

 
—

 
—

 
—

 
13,526

Dividends paid
 
—

 
—

 
—

 
—

 
 
 
(55,690
)
 
—

 
—

 
—

 
—

 
(55,690
)
Issuance of Westlake
   Chemical Partners LP
   common units
 
—

 
—

 
—

 
—

 
 
 
—

 
—

 
—

 
—

 
286,088

 
286,088

Balances at September 30, 2014
 
134,680,164

 
$
1,347

 
1,220,544

 
$
(53,248
)
 
$
527,992

 
$
2,394,203

 
$
(6,313
)
 
$
(33,978
)
 
$
3,858

 
$
288,487

 
$
3,122,348

The accompanying notes are an integral part of these consolidated financial statements.

4
Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
497,631

 
$
439,453

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
148,394

 
116,294

Provision for doubtful accounts
 
295

 
3,600

Amortization of debt issuance costs
 
1,172

 
1,093

Stock-based compensation expense
 
6,856

 
4,804

Loss from disposition of fixed assets
 
2,635

 
4,679

Deferred income taxes
 
34,459

 
83,443

Windfall tax benefits from share-based payment arrangements
 
(6,670
)
 
(5,056
)
(Income) loss from equity method investments, net of dividends
 
(3,199
)
 
1,586

Other gains, net
 
(495
)
 
—

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
6,055

 
(18,874
)
Inventories
 
80,492

 
(26,325
)
Prepaid expenses and other current assets
 
458

 
(5,038
)
Accounts payable
 
(98,769
)
 
19,518

Accrued liabilities
 
111,965

 
(15,755
)
Other, net
 
(5,155
)
 
(55,922
)
Net cash provided by operating activities
 
776,124

 
547,500

Cash flows from investing activities
 
 
 
 
Acquisition of business, net of cash acquired
 
(611,087
)
 
(178,309
)
Additions to equity investments
 
—

 
(23,338
)
Additions to property, plant and equipment
 
(311,183
)
 
(498,290
)
Construction of assets pending sale-leaseback
 
—

 
(136
)
Proceeds from disposition of assets
 
145

 
78

Proceeds from repayment of loan acquired
 
45,923

 
—

Proceeds from repayment of loan to affiliate
 
—

 
167

Proceeds from sales and maturities of securities
 
342,045

 
239,764

Purchase of securities
 
(117,332
)
 
(232,286
)
Settlements of derivative instruments
 
(689
)
 
(2,297
)
Net cash used for investing activities
 
(652,178
)
 
(694,647
)
Cash flows from financing activities
 
 
 
 
Capitalized debt issuance costs
 
(1,167
)
 
—

Dividends paid
 
(55,690
)
 
(40,204
)
Net proceeds from issuance of Westlake Chemical Partners LP common units
 
286,088

 
—

Proceeds from exercise of stock options
 
5,502

 
3,182

Repurchase of common stock for treasury
 
(9,495
)
 
(19,409
)
Windfall tax benefits from share-based payment arrangements
 
6,670

 
5,056

Net cash provided by (used for) financing activities
 
231,908

 
(51,375
)
Effect of exchange rate changes on cash and cash equivalents
 
(3,687
)
 
—

Net increase (decrease) in cash and cash equivalents
 
352,167

 
(198,522
)
Cash and cash equivalents at beginning of period
 
461,301

 
790,078

Cash and cash equivalents at end of period
 
$
813,468

 
$
591,556

The accompanying notes are an integral part of these consolidated financial statements.

5
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars, except share amounts and per share data)


1. Basis of Financial Statements
The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the December 31, 2013 financial statements and notes thereto of Westlake Chemical Corporation (the "Company") included in the annual report on Form 10-K for the fiscal year ended December 31, 2013 (the "2013 Form 10-K"), filed with the SEC on February 21, 2014. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2013.
In the opinion of the Company's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company's financial position as of September 30, 2014, its results of operations for the three and nine months ended September 30, 2014 and 2013 and the changes in its cash position for the nine months ended September 30, 2014 and 2013.
Results of operations and changes in cash position for the interim periods presented are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2014 or any other interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On February 14, 2014, the Company's Board of Directors authorized a two-for-one split of the Company's common stock. Stockholders of record as of February 28, 2014 were entitled to one additional share for every share outstanding, which was distributed on March 18, 2014. The total number of authorized common stock shares and associated par value were unchanged by this stock split. All share amounts and per share data included in the accompanying consolidated financial statements and related notes have been restated to reflect the effect of the stock split.
In March 2014, the Company formed Westlake Chemical Partners LP ("WLKP") to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, WLKP closed its initial public offering of 12,937,500 common units. See Note 19 for additional information. The Company consolidates WLKP and records a noncontrolling interest for the interest in WLKP not owned by the Company.
Recent Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on a comprehensive new revenue recognition standard that will supersede the existing revenue recognition guidance. The new accounting guidance creates a framework by which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either "full retrospective" adoption, meaning that the standard is applied to all of the periods presented with a cumulative catch-up as of the earliest period presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch-up as of the current period. The accounting standard will be effective for reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the FASB issued an accounting standards update on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. The new accounting guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if "conditions or events raise substantial doubt about the entity's ability to continue as a going concern." The accounting standard will be effective for reporting periods

6
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

ending after December 15, 2016 and is not expected to have an impact on the Company's consolidated financial position, results of operations and cash flows.
2. Financial Instruments
Cash Equivalents
The Company had $747,008 and $263,967 of held-to-maturity securities with original maturities of three months or less, primarily consisting of corporate debt securities, classified as cash equivalents at September 30, 2014 and December 31, 2013, respectively. The Company's investments in held-to-maturity securities are held at amortized cost, which approximates fair value.
Available-for-Sale Marketable Securities
Investments in available-for-sale securities were classified as follows:
 
September 30,
2014
 
December 31,
2013
Current
$
—

 
$
239,388

Non-current
21,066

 
—

Total available-for-sale securities
$
21,066

 
$
239,388

The cost, gross unrealized gains, gross unrealized losses and fair value of the Company’s available-for-sale securities were as follows:
 
 
September 30, 2014
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Equity securities
 
$
15,044

 
$
6,022

 
$
—

 
$
21,066

Total available-for-sale securities
 
$
15,044

 
$
6,022

 
$
—

 
$
21,066

 
 
December 31, 2013
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses (1)
 
Fair Value
Debt securities
 
 
 
 
 
 
 
 
Corporate bonds
 
$
108,300

 
$
340

 
$
(69
)
 
$
108,571

U.S. government debt (2)
 
106,335

 
60

 
(79
)
 
106,316

Asset-backed securities
 
24,478

 
34

 
(11
)
 
24,501

Total available-for-sale securities
 
$
239,113

 
$
434

 
$
(159
)
 
$
239,388

_____________
(1)
All unrealized loss positions were held at a loss for less than 12 months.
(2)
U.S. Treasury obligations, U.S. government agency obligations and U.S government agency mortgage-backed securities.
As of September 30, 2014 and December 31, 2013, net unrealized gains on the Company's available-for-sale securities of $3,858 and $176, respectively, net of income tax expense of $2,164 and $99, respectively, were recorded in accumulated other comprehensive income. See Note 10 for the fair value hierarchy of the Company’s available-for-sale securities.

7
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

The proceeds from sales and maturities of available-for-sale securities and the gross realized gains and losses included in the consolidated statement of operations are reflected in the table below. The cost of securities sold was determined using the specific identification method. There were no sales or maturities of available-for-sale securities during the three and nine months ended September 30, 2013.
 
 
Nine Months Ended September 30,
 
 
2014
Proceeds from sales and maturities of securities
 
$
342,045

Gross realized gains
 
$
1,311

Gross realized losses
 
$
(99
)
3. Accounts Receivable
Accounts receivable consist of the following:
 
 
September 30,
2014
 
December 31,
2013
Trade customers
 
$
576,735

 
$
410,302

Affiliates
 
631

 
315

Allowance for doubtful accounts
 
(13,772
)
 
(11,741
)
 
 
563,594

 
398,876

Federal and state taxes
 
5,374

 
20,820

Other
 
23,996

 
8,761

Accounts receivable, net
 
$
592,964

 
$
428,457

4. Inventories
Inventories consist of the following:
 
 
September 30,
2014
 
December 31,
2013
Finished products
 
$
268,969

 
$
232,658

Feedstock, additives and chemicals
 
166,268

 
180,646

Materials and supplies
 
65,315

 
58,575

Inventories
 
$
500,552

 
$
471,879

5. Property, Plant and Equipment
As of September 30, 2014, the Company had property, plant and equipment, net totaling $2,710,475. The Company assesses these assets for impairment 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. Other factors considered by the Company when determining if an impairment assessment is necessary include, but are not limited to, significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the U.S. and world economies and uncertainties associated with governmental actions. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Depreciation expense on property, plant and equipment of $45,080 and $32,460 is included in cost of sales in the consolidated statements of operations for the three months ended September 30, 2014 and 2013, respectively. Depreciation expense on property, plant and equipment of $123,000 and $95,995 is included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2014 and 2013, respectively.

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

6. Other Assets
Amortization expense on intangible and other assets of $9,283 and $8,634 is included in the consolidated statements of operations for the three months ended September 30, 2014 and 2013, respectively. Amortization expense on intangible and other assets of $26,566 and $21,392 is included in the consolidated statements of operations for the nine months ended September 30, 2014 and 2013, respectively.
Goodwill
Goodwill for the Olefins segment was $29,990 at September 30, 2014 and December 31, 2013. Goodwill for the Vinyls segment was $32,026 at September 30, 2014 and December 31, 2013. There were no changes in the carrying amount of goodwill by operating segments for the nine months ended September 30, 2014.
7. Long-Term Debt
Long-term debt consists of the following:
 
 
September 30,
2014
 
December 31,
2013
3.60% senior notes due 2022
 
$
249,079

 
$
248,990

6 ½% senior notes due 2029
 
100,000

 
100,000

6 ¾% senior notes due 2032
 
250,000

 
250,000

6 ½% senior notes due 2035 (the "6 ½% GO Zone Senior Notes Due 2035")
 
89,000

 
89,000

6 ½% senior notes due 2035 (the "6 ½% IKE Zone Senior Notes Due 2035")
 
65,000

 
65,000

Loan related to tax-exempt waste disposal revenue bonds due 2027
 
10,889

 
10,889

Long-term debt, net
 
$
763,968

 
$
763,879

Revolving Credit Facility
The Company has a $400,000 senior secured revolving credit facility. In July 2014, the Company entered into a third amendment and restatement to the revolving credit facility. The amendment and restatement extended the scheduled maturity date of the facility from September 16, 2016 to July 17, 2019, reduced the interest rate and facility fee payable under the facility and amended the covenants restricting the Company’s ability to make distributions and acquisitions and make investments, among other things. The facility includes a provision permitting the Company to increase the size of the facility, up to four times, in increments of at least $25,000 each (up to a maximum of $200,000) under certain circumstances if lenders agree to commit to such an increase.
At September 30, 2014, the Company had no borrowings outstanding under the revolving credit facility. Any borrowings under the facility will bear interest at either LIBOR plus a spread ranging from 1.75% to 1.25%, provided that so long as the Company is rated investment grade, the margin for LIBOR loans will not exceed 1.50%, or a base rate plus a spread ranging from 0.50% to 0.00%. The revolving credit facility also requires an unused commitment fee of 0.25% per annum. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on July 17, 2019. As of September 30, 2014, the Company had outstanding letters of credit totaling $32,399 and borrowing availability of $367,601 under the revolving credit facility. 
The Company's revolving credit facility generally restricts the Company's ability to make distributions unless, on a pro forma basis after giving effect to the distribution, the borrowing availability under the facility equals or exceeds the greater of (1) 20% of the commitments under the facility and (2) $80,000; or the borrowing availability under the facility equals or exceeds the greater of (1) 15% of the commitments under the facility and (2) $60,000, and the Company's fixed charge coverage ratio is at least 1.0:1. However, the Company may make specified distributions up to an aggregate of $75,000, to be increased by 5% in 2015, and in each fiscal year thereafter, on an aggregate basis, for each fiscal year.
In order to make acquisitions or investments, the Company's revolving credit facility generally provides that (1) the Company must maintain a minimum borrowing availability of at least the greater of $60,000 or 15% of the total bank commitments under its revolving credit facility or (2) the Company must maintain a minimum borrowing availability of at least the greater of $50,000 or 12.5% of the total bank commitments under its revolving credit facility and meet a minimum fixed charge coverage ratio of 1.0:1 under its revolving credit facility. Notwithstanding the foregoing, the Company may make investments in the aggregate up to the greater of $50,000 and 1.25% of tangible assets and acquisitions in the aggregate up to

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

the greater of $100,000 and 2.5% of tangible assets, if, on a pro forma basis after giving effect to the acquisition or investment, either (X) the borrowing availability under the facility equals or exceeds the greater of (A) 12.5% of the total bank commitments under the facility and (B) $50,000, but is less than the greater of (A) 15% of the total bank commitments and (B) $60,000, or (Y) the Company's fixed charge coverage ratio is at least 1.0:1.
The revolving credit facility contains other customary covenants and events of default that impose significant operating and financial restrictions on the Company. These restrictions, among other things, limit the occurrence of additional indebtedness and the Company's ability to create liens, to engage in certain affiliate transactions and to engage in sale-leaseback transactions.
8. Stock-Based Compensation
Under the Westlake Chemical Corporation 2013 Omnibus Incentive Plan (as amended and restated, the "2013 Plan"), all employees and nonemployee directors of the Company, as well as certain individuals who have agreed to become the Company's employees, are eligible for awards. Shares of common stock may be issued as authorized in the 2013 Plan. At the discretion of the administrator of the 2013 Plan, employees and nonemployee directors may be granted awards in the form of stock options, stock appreciation rights, stock awards, restricted stock units or cash awards (any of which may be a performance award). Total stock-based compensation expense related to the 2013 Plan was $2,346 and $1,680 for the three months ended September 30, 2014 and 2013, respectively, and $6,856 and $4,804 for the nine months ended September 30, 2014 and 2013, respectively.
9. Derivative Instruments
Commodity Risk Management
The Company uses derivative instruments to reduce price volatility risk on raw materials and products as a substantial portion of its raw materials and products are commodities whose prices fluctuate as market supply and demand fundamentals change. Business strategies to protect against such instability include ethylene product feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. The Company does not use derivative instruments to engage in speculative activities.
For derivative instruments that are designated and qualify as fair value hedges, the gains or losses on the derivative instruments, as well as the offsetting losses or gains on the hedged items attributable to the hedged risk, were included in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2013. The Company had no derivative instruments that were designated as fair value hedges for the three and nine months ended September 30, 2014.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in gross profit in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013.
The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Company would continue to receive the market price on the actual volume hedged. The Company also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty).
Disclosures related to the Company's derivative assets and derivative liabilities subject to enforceable master netting arrangements have not been presented as they are not material to the Company's consolidated balance sheets at September 30, 2014 and December 31, 2013.

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:
 
 
Derivative Assets
 
 
Balance Sheet Location
 
Fair Value as of
 
 
September 30,
2014
 
December 31,
2013
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accounts receivable, net
 
$
451

 
$
296

Total derivative assets
 
 
 
$
451

 
$
296

 
 
Derivative Liabilities
 
 
Balance Sheet Location
 
Fair Value as of
 
 
September 30,
2014
 
December 31,
2013
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accrued liabilities
 
$
6,477

 
$
176

Total derivative liabilities
 
 
 
$
6,477

 
$
176

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statements of operations. For the three and nine months ended September 30, 2013, there was no material ineffectiveness with regard to the Company's qualifying fair value hedges.
Derivatives in Fair Value
   Hedging Relationships
 
Location of Gain (Loss)
Recognized in 
Income on Derivative
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2014
 
2013
 
2014
 
2013
Commodity forward contracts
 
Cost of sales
 
$
—

 
$
(232
)
 
$
—

 
$
(342
)
 
 
 
 
 
 
 
 
 
 
 
Hedged Items in Fair Value
   Hedging Relationships
 
Location of Gain (Loss)
Recognized in 
Income on Hedged Items
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2014
 
2013
 
2014
 
2013
Firm commitment designated
   as the hedged item
 
Cost of sales
 
$
—

 
$
236

 
$
—

 
$
15

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:
Derivatives Not Designated as
   Hedging Instruments
 
Location of Gain (Loss)
Recognized in 
Income on Derivative
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2014
 
2013
 
2014
 
2013
Commodity forward contracts
 
Gross profit
 
$
(6,937
)
 
$
4,854

 
$
(7,308
)
 
$
9,897

See Note 10 for the fair value of the Company's derivative instruments.
10. 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.

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

The following tables summarize, by level within the fair value hierarchy, the Company's assets and liabilities that were accounted for at fair value on a recurring basis:
 
 
September 30, 2014
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets - Commodity forward contracts
 
$
428

 
$
23

 
$
451

Risk management liabilities - Commodity forward contracts
 
(119
)
 
(6,358
)
 
(6,477
)
Available-for-sale marketable securities
 
21,066

 
—

 
21,066

 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets - Commodity forward contracts
 
$
48

 
$
248

 
$
296

Risk management liabilities - Commodity forward contracts
 
—

 
(176
)
 
(176
)
Available-for-sale marketable securities
 
91,595

 
147,793

 
239,388

The Level 2 measurements for the Company's commodity contracts are derived using forward curves supplied by industry-recognized and unrelated third-party services. The Level 2 measurements for the Company's available-for-sale securities are derived using market-based pricing provided by unrelated third-party services.
There were no transfers in or out of Levels 1 and 2 of the fair value hierarchy for the nine months ended September 30, 2014 and 2013.
In addition to the financial assets and liabilities above, the Company has other 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 carrying and fair values of the Company's long-term debt are summarized in the table below. The Company's long-term debt instruments 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.
 
 
September 30, 2014
 
December 31, 2013
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
3.60% senior notes due 2022
 
$
249,079

 
$
247,633

 
$
248,990

 
$
236,905

6 ½% senior notes due 2029
 
100,000

 
114,624

 
100,000

 
109,490

6 ¾% senior notes due 2032
 
250,000

 
275,313

 
250,000

 
265,148

6 ½% GO Zone Senior Notes Due 2035
 
89,000

 
101,855

 
89,000

 
94,606

6 ½% IKE Zone Senior Notes Due 2035
 
65,000

 
74,389

 
65,000

 
69,094

Loan related to tax-exempt waste disposal revenue
   bonds due 2027
 
10,889

 
10,889

 
10,889

 
10,889

11. Income Taxes
The effective income tax rate was 37.6% for the nine months ended September 30, 2014. The effective income tax rate for the 2014 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction. The effective income tax rate was 35.8% for the nine months ended September 30, 2013. The effective income tax rate for the 2013 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction.
There was no material change to the total gross unrecognized tax benefits for the nine months ended September 30, 2014. Management anticipates that all of the gross unrecognized tax benefits of $2,501 will be recognized within the next twelve

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

months due to expiring statutes of limitations. The impact from the recognition of these tax benefits on the Company's effective tax rate is expected to be immaterial.
The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense. As of September 30, 2014, the Company had no material accrued interest and penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is no longer subject to examinations by tax authorities before the year 2007.
12. Earnings per Share
The Company has unvested shares of restricted stock and 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 the periods. Diluted earnings per share include the effect of certain stock options.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net income attributable to Westlake Chemical
   Corporation
 
$
167,757

 
$
170,290

 
$
495,232

 
$
439,453

Less:
 
 
 
 
 
 
 
 
Net income attributable to participating securities
 
(353
)
 
(587
)
 
(1,099
)
 
(1,691
)
Net income attributable to common shareholders
 
$
167,404

 
$
169,703

 
$
494,133

 
$
437,762

The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Weighted average common shares—basic (1)
 
133,299,458

 
133,257,494

 
133,199,304

 
133,256,054

Plus incremental shares from:
 
 
 
 
 
 
 
 
Assumed exercise of options (1)
 
546,601

 
553,614

 
543,841

 
550,704

Weighted average common shares—diluted (1)
 
133,846,059

 
133,811,108

 
133,743,145

 
133,806,758

 
 
 
 
 
 
 
 
 
Earnings per common share attributable to
   Westlake Chemical Corporation : (1)
 
 
 
 
 
 
 
 
Basic
 
$
1.26

 
$
1.28

 
$
3.71

 
$
3.29

Diluted
 
$
1.25

 
$
1.27

 
$
3.69

 
$
3.27

_____________
(1)
Share amounts and per share data for the three and nine months ended September 30, 2013 have been restated to reflect the effect of a two-for-one stock split on March 18, 2014. See Note 1 for additional information.
There were no options excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2014. Excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2013 are options to purchase 137,324 and 115,518 shares of common stock, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

13. Pension and Post-Retirement Benefit Costs
Components of net periodic benefit cost are as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Pension
 
Post-retirement
Healthcare
 
Pension
 
Post-retirement
Healthcare
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Service cost
 
$
331

 
$
275

 
$
6

 
$
2

 
$
498

 
$
815

 
$
16

 
$
7

Interest cost
 
1,138

 
515

 
185

 
147

 
2,309

 
1,531

 
548

 
442

Expected return on
   plan assets
 
(777
)
 
(713
)
 
—

 
—

 
(2,363
)
 
(2,140
)
 
—

 
—

Amortization of prior
   service cost
 
74

 
74

 
13

 
21

 
223

 
223

 
38

 
63

Amortization of net loss
 
71

 
510

 
82

 
90

 
204

 
1,449

 
220

 
269

Net periodic benefit cost
 
$
837

 
$
661

 
$
286

 
$
260

 
$
871

 
$
1,878

 
$
822

 
$
781

The Company contributed $2,447 and $776 to the Salaried pension plan in the first nine months of 2014 and 2013, respectively, and contributed $916 and $640 to the Wage pension plan in the first nine months of 2014 and 2013, respectively. The Company expects to make additional contributions of $330 to the Salaried pension plan and $290 to the Wage pension plan during the fiscal year ending December 31, 2014.
14. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2014 and 2013 were as follows:
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Net Unrealized
Holding Gains
on Investments,
Net of Tax
 
Total
Balances at December 31, 2013
 
$
(6,696
)
 
$
3,904

 
$
176

 
$
(2,616
)
Other comprehensive (loss) income before
   reclassifications
 
(39
)
 
(37,882
)
 
4,459

 
(33,462
)
Amounts reclassified from accumulated other
   comprehensive loss
 
422

 
—

 
(777
)
 
(355
)
Net other comprehensive income (loss) for the period
 
383

 
(37,882
)
 
3,682

 
(33,817
)
Balances at September 30, 2014
 
$
(6,313
)
 
$
(33,978
)
 
$
3,858

 
$
(36,433
)
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Net Unrealized
Holding Gains
on Investments,
Net of Tax
 
Total
Balances at December 31, 2012
 
$
(16,351
)
 
$
5,511

 
$
—

 
$
(10,840
)
Other comprehensive (loss) income before
   reclassifications
 
(601
)
 
(844
)
 
131

 
(1,314
)
Amounts reclassified from accumulated other
   comprehensive loss
 
1,233

 
—

 
—

 
1,233

Net other comprehensive income (loss) for the period
 
632

 
(844
)
 
131

 
(81
)
Balances at September 30, 2013
 
$
(15,719
)
 
$
4,667

 
$
131

 
$
(10,921
)

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013:
Details about Accumulated Other Comprehensive
   Income (Loss) Components
 
Location of Reclassification
(Income (Expense)) in
Consolidated Statements
of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Amortization of pension and
   other post-retirement items
 
 
 
 
 
 
 
 
 
 
Prior service costs
 
(1)
 
$
(87
)
 
$
(95
)
 
$
(261
)
 
$
(286
)
Net loss
 
(1)
 
(153
)
 
(600
)
 
(424
)
 
(1,718
)
 
 
 
 
(240
)
 
(695
)
 
(685
)
 
(2,004
)
 
 
Provision for income
   taxes
 
92

 
267

 
263

 
771

 
 
 
 
(148
)
 
(428
)
 
(422
)
 
(1,233
)
Net unrealized gains on
   available-for-sale
   investments
 
 
 
 
 
 
 
 
 
 
Realized gain on
   available-for-sale
   investments
 
Other income, net
 
—

 
—

 
1,212

 
—

 
 
Provision for income
   taxes
 
—

 
—

 
(435
)
 
—

 
 
 
 
—

 
—

 
$
777

 
$
—

Total reclassifications for
   the period
 
 
 
$
(148
)
 
$
(428
)
 
$
355

 
$
(1,233
)
_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 10 (Employee Benefits) to the financial statements included in the 2013 Form 10-K.
15. Commitments and Contingencies
The Company is subject to environmental laws and regulations that can impose civil and criminal sanctions and that may require it to mitigate the effects of contamination caused by the release or disposal of hazardous substances into the environment. Under one law, the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), an owner or operator of property may be held strictly liable for remediating contamination without regard to whether that person caused the contamination, and without regard to whether the practices that resulted in the contamination were legal at the time they occurred. Because several of the Company's production sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Company.
Contract Disputes with Goodrich and PolyOne. In connection with the 1990 and 1997 acquisitions of the Goodrich Corporation ("Goodrich") chemical manufacturing complex in Calvert City, Kentucky, 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 polyvinyl chloride ("PVC") facility, had been extensively contaminated under Goodrich's operations. In 1993, Goodrich spun off the predecessor of PolyOne Corporation ("PolyOne"), and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination.
In 2003, litigation arose among the Company, Goodrich and PolyOne 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) PolyOne 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; (2) either the Company or PolyOne might, from time to time in the future (but not more than once every five years), institute an arbitration proceeding to adjust that percentage; and (3) the Company and PolyOne would negotiate a new environmental remediation utilities and services agreement to cover the Company's provision to, or on behalf of, PolyOne of certain environmental remediation services at the site. The current environmental remediation activities at the

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Calvert City complex do not have a specified termination date but are expected to last for the foreseeable future. The costs incurred by the Company that have been invoiced to PolyOne to provide the environmental remediation services were $3,284 in 2013. By letter dated March 16, 2010, PolyOne notified the Company that it was initiating an arbitration proceeding under the settlement agreement. In this proceeding, PolyOne seeks to readjust the percentage allocation of costs and to recover approximately $1,400 from the Company in reimbursement of previously paid remediation costs. The arbitration is currently stayed.
State Administrative Proceedings. There are several administrative proceedings in Kentucky involving the Company, Goodrich and PolyOne related to the same manufacturing complex in Calvert City. In 2003, the Kentucky Environmental and Public Protection Cabinet (the "Cabinet") re-issued Goodrich's Resource Conservation and Recovery Act ("RCRA") permit which requires Goodrich to remediate contamination at the Calvert City manufacturing complex. Both Goodrich and PolyOne challenged various terms of the permit in an attempt to shift Goodrich's clean-up obligations under the permit to the Company. The Company intervened in the proceedings. The Cabinet has suspended all corrective action under the RCRA permit in deference to a remedial investigation and feasibility study ("RIFS") being conducted, under the auspices of the U.S. Environmental Protection Agency ("EPA"), pursuant to an Administrative Settlement Agreement ("AOC"), which became effective on December 9, 2009. See "Federal Administrative Proceedings" below. The proceedings have been postponed. Periodic status conferences will be held to evaluate whether additional proceedings will be required.
Federal Administrative Proceedings. In May 2009, the Cabinet sent a letter to the EPA requesting the EPA's assistance in addressing contamination at the Calvert City site under CERCLA. In its response to the Cabinet also in May 2009, the EPA stated that it concurred with the Cabinet's request and would incorporate work previously conducted under the Cabinet's RCRA authority into the EPA's cleanup efforts under CERCLA. Since 1983, the EPA has been addressing contamination at an abandoned landfill adjacent to the Company's plant which had been operated by Goodrich and which was being remediated pursuant to CERCLA. During the past three years, the EPA has directed Goodrich and PolyOne to conduct additional investigation activities at the landfill and at the Company's plant. In June 2009, the EPA notified the Company that the Company may have potential liability under section 107(a) of CERCLA at its plant site. Liability under section 107(a) of CERCLA is strict and joint and several. The EPA also identified Goodrich and PolyOne, among others, as potentially responsible parties at the plant site. The Company negotiated, in conjunction with the other potentially responsible parties, the AOC and an order to conduct the RIFS. On July 12, 2013, the parties submitted separate draft RIFS reports to the EPA. The EPA has hired a contractor to complete the remedial investigation report.
Monetary Relief. Except as noted above with respect to the settlement of the contract litigation among the Company, Goodrich and PolyOne, none of the court, the Cabinet nor the EPA has established any allocation of the costs of remediation among the various parties that are involved in the judicial and administrative proceedings discussed above. At this time, the Company is not able to estimate the loss or reasonable possible loss, if any, on the Company's financial statements that could result from the resolution of these proceedings. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the 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.
In addition to the matters described above, the Company is involved in various routine legal proceedings incidental to the conduct of its business. The Company does not believe that any of these routine legal proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.
16. Share Capital
Common Stock
On May 16, 2014, the stockholders of the Company approved an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the Company's authorized shares of common stock from 150,000,000 shares to 300,000,000 shares, par value $0.01 per share. The Company is now authorized to issue 300,000,000 shares of common stock, par value $0.01 per share, of which 134,680,164 and 134,580,208 shares (on a post-split basis) were issued as of September 30, 2014 and December 31, 2013, respectively. Each share of common stock entitles the holder to one vote on all matters on which holders are permitted to vote, including the election of directors.

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Stock Repurchase Program
In August 2011, the Company's Board of Directors authorized a stock repurchase program of the Company’s common stock totaling $100,000 (the "2011 Program"). Purchases under the 2011 Program began in September 2011. As of September 30, 2014 and December 31, 2013, the Company had repurchased 1,357,085 and 1,252,922 shares, respectively, of its common stock (on a post-split basis) under this program. Shares repurchased under the 2011 Program are held by the Company as treasury stock and may be used for general corporate purposes, including for the 2013 Omnibus Incentive Plan. Beginning in May 2014, the Company began issuing treasury shares to employees and nonemployee directors for options exercised and for the settlement of restricted stock units. The cost of treasury shares issued was determined using the specific identification method.
17. Supplemental Information
Other Liabilities
Other liabilities were $153,158 and $35,593 at September 30, 2014 and December 31, 2013, respectively. Non-current pension obligation, which is a component of other liabilities, was $117,293 and $8,710 at September 30, 2014 and December 31, 2013, respectively. No other component of other liabilities was more than five percent of total liabilities.
18. Segment Information
The Company operates in two principal operating segments: Olefins and Vinyls. These segments are strategic business units that offer a variety of different products. The Company manages each segment separately as each business requires different technology and marketing strategies.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
498,450

 
$
460,105

 
$
1,461,097

 
$
1,294,566

Styrene, feedstock and other
 
204,647

 
219,234

 
663,851

 
590,959

Total Olefins
 
703,097

 
679,339

 
2,124,948

 
1,885,525

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
416,771

 
212,041

 
776,060

 
612,391

Building products
 
133,359

 
112,785

 
378,471

 
309,943

Total Vinyls
 
550,130

 
324,826

 
1,154,531

 
922,334

 
 
$
1,253,227

 
$
1,004,165

 
$
3,279,479

 
$
2,807,859

 
 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
 
Olefins
 
$
26,518

 
$
85,454

 
$
118,153

 
$
230,607

Vinyls
 
355

 
403

 
1,029

 
1,111

 
 
$
26,873

 
$
85,857

 
$
119,182

 
$
231,718

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
259,277

 
$
237,239

 
$
770,267

 
$
585,958

Vinyls
 
59,445

 
39,554

 
76,460

 
136,123

Corporate and other
 
(11,961
)
 
(10,191
)
 
(25,123
)
 
(26,197
)
 
 
$
306,761

 
$
266,602

 
$
821,604

 
$
695,884

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Olefins
 
$
26,443

 
$
26,515

 
$
79,811

 
$
76,415

Vinyls
 
27,336

 
14,089

 
68,127

 
39,507

Corporate and other
 
141

 
124

 
456

 
372

 
 
$
53,920

 
$
40,728

 
$
148,394

 
$
116,294

 
 
 
 
 
 
 
 
 
Other income (expense), net
 
 
 
 
 
 
 
 
Olefins
 
$
1,609

 
$
728

 
$
4,262

 
$
5,889

Vinyls
 
1,189

 
(742
)
 
942

 
(1,687
)
Corporate and other
 
(5,468
)
 
(273
)
 
(764
)
 
(1,065
)
 
 
$
(2,670
)
 
$
(287
)
 
$
4,440

 
$
3,137

 
 
 
 
 
 
 
 
 
Provision for (benefit from) income taxes
 
 
 
 
 
 
 
 
Olefins
 
$
105,030

 
$
82,553

 
$
282,082

 
$
208,170

Vinyls
 
21,761

 
10,710

 
22,121

 
44,120

Corporate and other
 
(2,342
)
 
(535
)
 
(3,972
)
 
(7,643
)
 
 
$
124,449

 
$
92,728

 
$
300,231

 
$
244,647

 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
 
 
 
 
Olefins
 
$
48,519

 
$
27,577

 
$
121,041

 
$
105,656

Vinyls
 
44,067

 
172,565

 
187,449

 
391,864

Corporate and other
 
1,685

 
276

 
2,693

 
770

 
 
$
94,271

 
$
200,418

 
$
311,183

 
$
498,290

A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Income from operations
 
$
306,761

 
$
266,602

 
$
821,604

 
$
695,884

Interest expense
 
(9,486
)
 
(3,297
)
 
(28,182
)
 
(14,921
)
Other (expense) income, net
 
(2,670
)
 
(287
)
 
4,440

 
3,137

Income before income taxes
 
$
294,605

 
$
263,018

 
$
797,862

 
$
684,100

 
 
September 30,
2014
 
December 31,
2013
Total assets
 
 
 
 
Olefins
 
$
1,740,878

 
$
1,557,510

Vinyls
 
2,898,250

 
1,740,595

Corporate and other
 
487,155

 
762,804

 
 
$
5,126,283

 
$
4,060,909

19. Westlake Chemical Partners LP
Westlake Chemical Partners LP ("WLKP") is a publicly traded master limited partnership that was formed by the Company to operate, acquire and develop ethylene production facilities and related assets.
Initial Public Offering of WLKP
On August 4, 2014, WLKP completed its initial public offering of 12,937,500 common units at a price of $24.00 per unit, which included 1,687,500 units purchased by the underwriters pursuant to the exercise in full of their over-allotment option. Net proceeds to WLKP from the sale of the units was approximately $286,088, net of underwriting discounts, structuring fees and offering expenses (the "Offering Costs") of approximately $24,412. At the consummation of the offering, WLKP's assets consist of a 10.6% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), as well as the general partner interest in

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

OpCo. The Company retained an 89.4% limited partner interest in OpCo and a significant interest in WLKP. The Company consolidates WLKP for financial reporting purposes as the Company has a controlling financial interest. The initial public offering represented the sale of 47.8% of the common and subordinated units in WLKP. OpCo used the net proceeds from the purchase of its limited partner interest to establish a cash reserve of approximately $55,419 for turnaround expenditures, to reimburse approximately $151,729 for capital expenditures incurred by the Company with respect to certain of the assets contributed to OpCo and to repay intercompany debt to the Company of approximately $78,940.
The following table is a reconciliation of proceeds from the initial public offering:
Total proceeds from the initial public offering
 
$
310,500

Less: Offering Costs
 
(24,412
)
Net proceeds from the initial public offering
 
286,088

Less: Cash retained by OpCo
 
(55,419
)
Net proceeds distributed to the Company from the initial public offering
 
$
230,669

20. Acquisition
On July 31, 2014, the Company acquired all the equity interests in German-based Vinnolit Holdings GmbH and its subsidiary companies ("Vinnolit") from several entities associated with Advent International Corporation (the "Sellers"). Vinnolit is headquartered in Ismaning, Germany and is an integrated global leader in specialty PVC resins, with a combined annual capacity of 1.7 billion pounds of PVC, including specialty paste and suspension grades, 1.5 billion pounds of vinyl chloride monomer ("VCM") and 1.0 billion pounds of caustic soda. The Vinnolit acquisition comprised six production facilities located in Burghausen, Gendorf, Cologne, Knapsack and Schkopau in Germany and Hillhouse in the United Kingdom. The Company also acquired Vinnolit's technical centers, including a research and development facility in Gendorf and an applications laboratory in Burghausen. The Company’s management believes that this strategic acquisition will enhance its strategy of integration and expansion into new markets and specialty products, in addition to growing the Company's global presence with a footprint in Europe and surrounding markets.
The purchase price of $736,224 was paid with available cash on hand. The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of this acquired business are included in the Vinyls segment.
The acquired business contributed net sales and net loss of $195,477 and $2,992, respectively, to the Company for the period from July 31, 2014 to September 30, 2014. The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2013:
 
 
Pro Forma
Nine Months Ended
September 30,
 
 
2014
 
2013
Net sales
 
$
4,016,935

 
$
3,747,619

Net income
 
$
550,667

 
$
480,964

Net income attributable to noncontrolling interests
 
2,399

 
—

Net income attributable to Westlake Chemical Corporation
 
$
548,268

 
$
480,964

Earnings per common share attributable to Westlake Chemical Corporation:
 
 
 
 
Basic
 
$
4.11

 
$
3.59

Diluted
 
$
4.09

 
$
3.58

The pro forma amounts above have been calculated after applying the Company’s accounting policies and adjusting the Vinnolit results to reflect (1) the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2013; (2) the elimination of interest expense assuming the long-term debt paid off on behalf of the Sellers as of the acquisition date had been retired as of January 1, 2013; (3) the elimination of transaction-related costs; and (4) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments

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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

relate. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Vinnolit acquisition, are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2013 or of future operating performance.
For the nine months ended September 30, 2014, the Company recognized $11,235 of transaction-related costs. These costs are included in general and administrative expenses and other income, net in the consolidated statement of operations for the nine months ended September 30, 2014. The transaction-related costs included in other income, net pertained to losses incurred on forward foreign exchange contracts for the purchase consideration of Vinnolit.
The following table summarizes the purchase consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition. The preliminary allocation of the purchase consideration is based on management’s estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Management estimated that the fair value of the net assets acquired equals consideration paid. Therefore, no goodwill was recorded. The final allocation of purchase consideration could include changes in the estimated fair value of (1) inventories; (2) property, plant and equipment; (3) equity investments; (4) trademark and trade name, developed technologies and customer relationships; (5) power purchase agreement liability; and (6) deferred income taxes.
Fair value of consideration transferred:
 
 
Cash paid to Sellers
 
$
309,619

Cash deposited in escrow (1)
 
13,390

Retirement of long-term debt as of July 31, 2014, on behalf of the Sellers (2)
 
413,215

Total purchase consideration
 
$
736,224

 
 
 
Preliminary allocation of consideration transferred to net assets acquired:
 
 
Cash
 
$
125,137

Working capital, excluding inventory and cash (3)
 
23,072

Inventories (4)
 
114,961

Property, plant and equipment
 
471,123

Investments
 
51,552

Other assets (5)
 
65,366

Intangible assets:
 
 
Trademarks and trade name (weighted average life of 20 years)
 
40,170

Developed technologies (weighted average life of 20 years)
 
31,600

Other intangibles (weighted average life of 9.4 years)
 
1,422

Deferred income tax asset - current
 
8,697

Deferred income tax asset - non-current
 
27,387

Pension obligation
 
(117,970
)
Other long-term liabilities
 
(10,723
)
Power purchase agreement liability (6)
 
(10,826
)
Deferred income tax liability - current
 
(6,845
)
Deferred income tax liability - non-current
 
(77,899
)
Total identifiable net assets
 
736,224

Goodwill (7)
 
—

Consideration transferred
 
$
736,224

_____________
(1)
None of the cash held in escrow is considered contingent consideration as it is expected to be released to the Sellers pending the Sellers’ satisfaction of general representations and warranties made in connection with the execution of the purchase agreement.

19
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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

(2)
Vinnolit’s long-term debt paid on behalf of the Sellers was not legally assumed by Westlake in the acquisition and was a condition of the consummation of the purchase agreement. Therefore, the retirement has been included in the total purchase consideration.
(3)
The fair value of accounts receivable acquired is $181,826, with the gross contractual amount being $183,769. The Company expects $1,943 to be uncollectible.
(4)
An adjustment of approximately $16,900 was recorded to reflect Vinnolit's inventories at fair value and increased cost of sales by the same amount for the three months ended September 30, 2014.
(5)
Included in other assets was a loan acquired that was repaid prior to September 30, 2014.
(6)
A liability arising from unfavorable forward purchase contracts for the purchase of power was recognized at fair value. This liability will be amortized over a period of approximately 3.0 years, being the weighted-average life of the forward purchase contracts.
(7)
Management estimated that the fair value of the net assets acquired equals consideration paid. Therefore, no goodwill was recorded.
21. Related Party and Affiliate Transactions
InfraServ Knapsack GmbH & Co. KG, an on-site chemical complex provider in which the Company owns a 15% equity stake, provides electricity and technical services to the Company's Knapsack, Germany production facility. For the period from July 31, 2014 to September 30, 2014, the Company incurred charges aggregating approximately $11,581.
InfraServ Gendorf GmbH & Co. KG, an on-site chemical complex provider in which the Company owns an 11% equity stake, provides electricity and technical services to the Company's Gendorf, Germany production facility. For the period from July 31, 2014 to September 30, 2014, the Company incurred charges aggregating approximately $10,489.
22. Subsequent Events
Subsequent events were evaluated through the date on which the financial statements were issued.
23. Guarantor Disclosures
The Company's payment obligations under the 3.60% senior notes due 2022 are fully and unconditionally guaranteed by each of its current and future domestic subsidiaries that guarantee other debt of the Company or of another guarantor of the 3.60% senior notes due 2022 in excess of $5,000 (the "Guarantor Subsidiaries"). Except for OpCo, which is less than 100% owned, each Guarantor Subsidiary is 100% owned by Westlake Chemical Corporation (the "100% Owned Guarantor Subsidiaries"). See Note 19 regarding WLKP’s 10.6% limited partnership interest in OpCo. The initial public offering of WLKP resulted in OpCo ceasing to be a 100% owned subsidiary of the Company. OpCo has been presented as a less than 100% owned guarantor subsidiary in each of the tables below, including for periods prior to the initial public offering of WLKP. These guarantees are the joint and several obligations of the Guarantor Subsidiaries. The following unaudited condensed consolidating financial information presents the financial condition, results of operations and cash flows of Westlake Chemical Corporation, the 100% owned Guarantor Subsidiaries, OpCo and the remaining subsidiaries that do not guarantee the 3.60% senior notes due 2022 (the "Non-Guarantor Subsidiaries"), together with consolidating eliminations necessary to present the Company's results on a consolidated basis.


20
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WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information as of September 30, 2014
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
652,709

 
$
1,644

 
$
89,144

 
$
69,971

 
$
—

 
$
813,468

Accounts receivable, net
 
15,064

 
1,377,250

 
58,106

 
170,833

 
(1,028,289
)
 
592,964

Inventories
 
—

 
385,826

 
5,551

 
109,175

 
—

 
500,552

Prepaid expenses and other current assets
 
137

 
14,737

 
303

 
3,707

 
—

 
18,884

Deferred income taxes
 
342

 
25,446

 
—

 
292

 
—

 
26,080

Total current assets
 
668,252

 
1,804,903

 
153,104

 
353,978

 
(1,028,289
)
 
1,951,948

Property, plant and equipment, net
 
—

 
1,451,807

 
806,648

 
452,020

 
—

 
2,710,475

Equity investments
 
3,878,703

 
1,207,569

 
—

 
356,286

 
(5,371,730
)
 
70,828

Other assets, net
 
34,847

 
351,271

 
61,679

 
137,990

 
(192,755
)
 
393,032

Total assets
 
$
4,581,802

 
$
4,815,550

 
$
1,021,431

 
$
1,300,274

 
$
(6,592,774
)
 
$
5,126,283

Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
979,414

 
$
157,562

 
$
29,856

 
$
100,129

 
$
(1,003,596
)
 
$
263,365

Accrued liabilities
 
15,448

 
238,225

 
3,412

 
77,279

 
(24,693
)
 
309,671

Total current liabilities
 
994,862

 
395,787

 
33,268

 
177,408

 
(1,028,289
)
 
573,036

Long-term debt
 
753,079

 
10,889

 
188,523

 
—

 
(188,523
)
 
763,968

Deferred income taxes
 
—

 
473,343

 
1,507

 
43,155

 
(4,232
)
 
513,773

Other liabilities
 
—

 
31,616

 
—

 
121,542

 
—

 
153,158

Total liabilities
 
1,747,941

 
911,635

 
223,298

 
342,105

 
(1,221,044
)
 
2,003,935

Total Westlake Chemical Corporation stockholders' equity
 
2,833,861

 
3,903,915

 
798,133

 
669,682

 
(5,371,730
)
 
2,833,861

Noncontrolling interests
 
—

 
—

 
—

 
288,487

 
—

 
288,487

Total equity
 
2,833,861

 
3,903,915

 
798,133

 
958,169

 
(5,371,730
)
 
3,122,348

Total liabilities and equity
 
$
4,581,802

 
$
4,815,550

 
$
1,021,431

 
$
1,300,274

 
$
(6,592,774
)
 
$
5,126,283


21
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information as of December 31, 2013
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
420,948

 
$
6,227

 
$
—

 
$
34,126

 
$
—

 
$
461,301

Marketable securities
 
239,388

 
—

 
—

 
—

 
—

 
239,388

Accounts receivable, net
 
3,879

 
666,344

 
71,812

 
2,755

 
(316,333
)
 
428,457

Inventories
 
—

 
339,929

 
116,377

 
15,573

 
—

 
471,879

Prepaid expenses and other current assets
 
778

 
11,055

 
257

 
1,798

 
—

 
13,888

Deferred income taxes
 
441

 
28,974

 
4,448

 
306

 
—

 
34,169

Total current assets
 
665,434

 
1,052,529

 
192,894

 
54,558

 
(316,333
)
 
1,649,082

Property, plant and equipment, net
 
—

 
1,318,119

 
762,972

 
6,923

 
—

 
2,088,014

Equity investments
 
2,815,752

 
636,461

 
10,411

 
31,518

 
(3,427,267
)
 
66,875

Other assets, net
 
15,393

 
423,901

 
75,197

 
1,199

 
(258,752
)
 
256,938

Total assets
 
$
3,496,579

 
$
3,431,010

 
$
1,041,474

 
$
94,198

 
$
(4,002,352
)
 
$
4,060,909

Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
316,652

 
$
100,570

 
$
122,564

 
$
10,649

 
$
(300,822
)
 
$
249,613

Accrued liabilities
 
8,334

 
134,452

 
26,688

 
1,282

 
(15,511
)
 
155,245

Total current liabilities
 
324,986

 
235,022

 
149,252

 
11,931

 
(316,333
)
 
404,858

Long-term debt
 
752,990

 
10,889

 
252,973

 
—

 
(252,973
)
 
763,879

Deferred income taxes
 
—

 
260,171

 
182,855

 
729

 
(5,779
)
 
437,976

Other liabilities
 
—

 
34,571

 
962

 
60

 
—

 
35,593

Total equity
 
2,418,603

 
2,890,357

 
455,432

 
81,478

 
(3,427,267
)
 
2,418,603

Total liabilities and equity
 
$
3,496,579

 
$
3,431,010

 
$
1,041,474

 
$
94,198

 
$
(4,002,352
)
 
$
4,060,909



22
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Three Months Ended September 30, 2014
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
1,026,282

 
$
392,008

 
$
208,313

 
$
(373,376
)
 
$
1,253,227

Cost of sales
 
—

 
831,675

 
227,015

 
202,110

 
(369,093
)
 
891,707

Gross profit
 
—

 
194,607

 
164,993

 
6,203

 
(4,283
)
 
361,520

Selling, general and administrative expenses
 
399

 
36,445

 
8,014

 
14,184

 
(4,283
)
 
54,759

(Loss) income from operations
 
(399
)
 
158,162

 
156,979

 
(7,981
)
 
—

 
306,761

Interest expense
 
(10,343
)
 
(2
)
 
(2,137
)
 
(39
)
 
3,035

 
(9,486
)
Other income (expense), net
 
2,138

 
(2,942
)
 
486

 
683

 
(3,035
)
 
(2,670
)
(Loss) income before income taxes
 
(8,604
)
 
155,218

 
155,328

 
(7,337
)
 
—

 
294,605

(Benefit from) provision for income taxes
 
(3,088
)
 
93,366

 
36,309

 
(2,138
)
 
—

 
124,449

Equity in net income of subsidiaries
 
173,273

 
113,157

 
—

 
5,862

 
(292,292
)
 
—

Net income (loss)
 
167,757

 
175,009

 
119,019

 
663

 
(292,292
)
 
170,156

Net income attributable to noncontrolling interests
 
—

 
—

 
—

 
2,399

 
—

 
2,399

Net income (loss) attributable to Westlake Chemical Corporation
 
$
167,757

 
$
175,009

 
$
119,019

 
$
(1,736
)
 
$
(292,292
)
 
$
167,757

Comprehensive income (loss) attributable to Westlake Chemical
   Corporation
 
$
131,456

 
$
175,137

 
$
119,019

 
$
(39,528
)
 
$
(254,628
)
 
$
131,456



23
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Three Months Ended September 30, 2013
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
844,081

 
$
540,133

 
$
13,337

 
$
(393,386
)
 
$
1,004,165

Cost of sales
 
—

 
754,037

 
327,152

 
11,891

 
(393,386
)
 
699,694

Gross profit
 
—

 
90,044

 
212,981

 
1,446

 
—

 
304,471

Selling, general and administrative expenses
 
514

 
29,323

 
6,391

 
1,641

 
—

 
37,869

(Loss) income from operations
 
(514
)
 
60,721

 
206,590

 
(195
)
 
—

 
266,602

Interest expense
 
(3,292
)
 
(5
)
 
(2,295
)
 
—

 
2,295

 
(3,297
)
Other income (expense), net
 
3,585

 
(2,688
)
 
1,162

 
(51
)
 
(2,295
)
 
(287
)
(Loss) income before income taxes
 
(221
)
 
58,028

 
205,457

 
(246
)
 
—

 
263,018

(Benefit from) provision for income taxes
 
(70
)
 
19,973

 
72,876

 
(51
)
 
—

 
92,728

Equity in net income of subsidiaries
 
170,441

 
132,581

 
—

 
—

 
(303,022
)
 
—

Net income (loss) attributable to Westlake Chemical Corporation
 
$
170,290

 
$
170,636

 
$
132,581

 
$
(195
)
 
$
(303,022
)
 
$
170,290

Comprehensive income attributable to Westlake Chemical
   Corporation
 
$
171,095

 
$
170,764

 
$
132,581

 
$
351

 
$
(303,696
)
 
$
171,095




24
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2014
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
2,809,844

 
$
1,476,157

 
$
229,183

 
$
(1,235,705
)
 
$
3,279,479

Cost of sales
 
—

 
2,476,608

 
832,304

 
221,233

 
(1,205,167
)
 
2,324,978

Gross profit
 
—

 
333,236

 
643,853

 
7,950

 
(30,538
)
 
954,501

Selling, general and administrative expenses
 
1,474

 
123,050

 
21,957

 
16,954

 
(30,538
)
 
132,897

(Loss) income from operations
 
(1,474
)
 
210,186

 
621,896

 
(9,004
)
 
—

 
821,604

Interest expense
 
(29,032
)
 
(8
)
 
(9,833
)
 
(39
)
 
10,730

 
(28,182
)
Other income (expense), net
 
14,488

 
(1,729
)
 
3,135

 
(724
)
 
(10,730
)
 
4,440

(Loss) income before income taxes
 
(16,018
)
 
208,449

 
615,198

 
(9,767
)
 
—

 
797,862

(Benefit from) provision for income taxes
 
(5,686
)
 
109,920

 
198,461

 
(2,464
)
 
—

 
300,231

Equity in net income of subsidiaries
 
505,564

 
410,875

 
—

 
5,862

 
(922,301
)
 
—

Net income (loss)
 
495,232

 
509,404

 
416,737

 
(1,441
)
 
(922,301
)
 
497,631

Net income attributable to noncontrolling interests
 
—

 
—

 
—

 
2,399

 
—

 
2,399

Net income (loss) attributable to Westlake Chemical Corporation
 
$
495,232

 
$
509,404

 
$
416,737

 
$
(3,840
)
 
$
(922,301
)
 
$
495,232

Comprehensive income (loss) attributable to Westlake Chemical
   Corporation
 
$
461,415

 
$
509,787

 
$
416,737

 
$
(41,722
)
 
$
(884,802
)
 
$
461,415



25
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2013
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
2,407,341

 
$
1,565,809

 
$
37,561

 
$
(1,202,852
)
 
$
2,807,859

Cost of sales
 
—

 
2,247,338

 
924,663

 
32,943

 
(1,202,852
)
 
2,002,092

Gross profit
 
—

 
160,003

 
641,146

 
4,618

 
—

 
805,767

Selling, general and administrative expenses
 
1,576

 
84,152

 
19,326

 
4,829

 
—

 
109,883

(Loss) income from operations
 
(1,576
)
 
75,851

 
621,820

 
(211
)
 
—

 
695,884

Interest expense
 
(14,882
)
 
(39
)
 
(4,893
)
 
—

 
4,893

 
(14,921
)
Other income (expense), net
 
7,490

 
(4,002
)
 
6,422

 
(1,880
)
 
(4,893
)
 
3,137

(Loss) income before income taxes
 
(8,968
)
 
71,810

 
623,349

 
(2,091
)
 
—

 
684,100

(Benefit from) provision for income taxes
 
(3,202
)
 
27,292

 
221,009

 
(452
)
 
—

 
244,647

Equity in net income of subsidiaries
 
445,219

 
402,340

 
—

 
—

 
(847,559
)
 
—

Net income (loss) attributable to Westlake Chemical Corporation
 
$
439,453

 
$
446,858

 
$
402,340

 
$
(1,639
)
 
$
(847,559
)
 
$
439,453

Comprehensive income (loss) attributable to Westlake Chemical
   Corporation
 
$
439,372

 
$
447,490

 
$
402,340

 
$
(2,483
)
 
$
(847,347
)
 
$
439,372


26
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2014
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
495,232

 
$
509,404

 
$
416,737

 
$
(1,441
)
 
$
(922,301
)
 
$
497,631

Adjustments to reconcile net income (loss) to net cash (used for)
   provided by operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
1,172

 
82,597

 
58,501

 
7,296

 
—

 
149,566

Deferred income taxes
 
(418
)
 
26,991

 
8,267

 
(381
)
 
—

 
34,459

Net changes in working capital and other
 
(509,862
)
 
(919,521
)
 
1,641

 
599,909

 
922,301

 
94,468

Net cash (used for) provided by operating activities
 
(13,876
)
 
(300,529
)
 
485,146

 
605,383

 
—

 
776,124

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of business, net of cash acquired
 
—

 
—

 
—

 
(611,087
)
 
—

 
(611,087
)
Additions to property, plant and equipment
 
—

 
(160,147
)
 
(144,348
)
 
(6,688
)
 
—

 
(311,183
)
Proceeds from disposition of assets
 
—

 
144

 
—

 
1

 
—

 
145

Proceeds from repayment of loan acquired
 
—

 
—

 
—

 
45,923

 
—

 
45,923

Proceeds from sales and maturities of securities
 
342,045

 
—

 
—

 
—

 
—

 
342,045

Purchase of securities
 
(117,332
)
 
—

 
—

 
—

 
—

 
(117,332
)
Settlements of derivative instruments
 
—

 
(556
)
 
(133
)
 
—

 
—

 
(689
)
Net cash provided by (used for) investing activities
 
224,713

 
(160,559
)
 
(144,481
)
 
(571,851
)
 
—

 
(652,178
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
 
Intercompany financing
 
75,104

 
(143,325
)
 
62,221

 
6,000

 
—

 
—

Net distributions prior to WLKP initial public offering
 
—

 
448,101

 
(448,101
)
 
—

 
—

 
—

Capitalized debt issuance costs
 
(1,167
)
 
—

 
—

 
—

 
—

 
(1,167
)
Dividends paid
 
(55,690
)
 
151,729

 
(151,729
)
 
—

 
—

 
(55,690
)
Net proceeds from issuance of WLKP common units
 
—

 
—

 
—

 
286,088

 
—

 
286,088

Purchase of limited partner interests
 
—

 
—

 
286,088

 
(286,088
)
 
—

 
—

Proceeds from exercise of stock options
 
5,502

 
—

 
—

 
—

 
—

 
5,502

Repurchase of common stock for treasury
 
(9,495
)
 
—

 
—

 
—

 
—

 
(9,495
)
Windfall tax benefits from share-based payment arrangements
 
6,670

 
—

 
—

 
—

 
—

 
6,670

Net cash provided by (used for) financing activities
 
20,924

 
456,505

 
(251,521
)
 
6,000

 
—

 
231,908


27
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
—

 
(3,687
)
 
—

 
(3,687
)
Net increase (decrease) in cash and cash equivalents
 
231,761

 
(4,583
)
 
89,144

 
35,845

 
—

 
352,167

Cash and cash equivalents at beginning of period
 
420,948

 
6,227

 
—

 
34,126

 
—

 
461,301

Cash and cash equivalents at end of period
 
$
652,709

 
$
1,644

 
$
89,144

 
$
69,971

 
$
—

 
$
813,468


28
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2013
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
439,453

 
$
446,858

 
$
402,340

 
$
(1,639
)
 
$
(847,559
)
 
$
439,453

Adjustments to reconcile net income (loss) to net cash (used for)
   provided by operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
1,094

 
59,893

 
54,539

 
1,861

 
—

 
117,387

Deferred income taxes
 
(1,102
)
 
57,279

 
27,253

 
13

 
—

 
83,443

Net changes in working capital and other
 
(458,336
)
 
(421,066
)
 
(68,604
)
 
7,664

 
847,559

 
(92,783
)
Net cash (used for) provided by operating activities
 
(18,891
)
 
142,964

 
415,528

 
7,899

 
—

 
547,500

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of business
 
—

 
(178,309
)
 
—

 
—

 
—

 
(178,309
)
Additions to equity investments
 
—

 
(23,338
)
 
—

 
—

 
—

 
(23,338
)
Additions to property, plant and equipment
 
—

 
(337,158
)
 
(158,869
)
 
(2,263
)
 
—

 
(498,290
)
Construction of assets pending sale-leaseback
 
—

 
(136
)
 
—

 
—

 
—

 
(136
)
Proceeds from disposition of assets
 
—

 
6

 
—

 
72

 
—

 
78

Proceeds from repayment of loan to affiliate
 
—

 
—

 
—

 
167

 
—

 
167

Proceeds from sales and maturities of securities
 
239,764

 
—

 
—

 
—

 
—

 
239,764

Purchase of securities
 
(232,286
)
 
—

 
—

 
—

 
—

 
(232,286
)
Settlements of derivative instruments
 
—

 
—

 
(2,297
)
 
—

 
—

 
(2,297
)
Net cash provided by (used for) investing activities
 
7,478

 
(538,935
)
 
(161,166
)
 
(2,024
)
 
—

 
(694,647
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
 
Intercompany financing
 
(130,832
)
 
(28,499
)
 
167,629

 
(8,298
)
 
—

 
—

Net distributions prior to WLKP initial public offering
 
—

 
421,991

 
(421,991
)
 
—

 
—

 
—

Dividends paid
 
(40,204
)
 
—

 
—

 
—

 
—

 
(40,204
)
Proceeds from exercise of stock options
 
3,182

 
—

 
—

 
—

 
—

 
3,182

Repurchase of common stock for treasury
 
(19,409
)
 
—

 
—

 
—

 
—

 
(19,409
)
Windfall tax benefits from share-based payment arrangements
 
5,056

 
—

 
—

 
—

 
—

 
5,056

Net cash (used for) provided by financing activities
 
(182,207
)
 
393,492

 
(254,362
)
 
(8,298
)
 
—

 
(51,375
)

29
Table of Contents
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
OpCo
(Less Than
100% Owned
Guarantor
Subsidiary)
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net decrease in cash and cash equivalents
 
(193,620
)
 
(2,479
)
 
—

 
(2,423
)
 
—

 
(198,522
)
Cash and cash equivalents at beginning of period
 
753,881

 
6,973

 
—

 
29,224

 
—

 
790,078

Cash and cash equivalents at end of period
 
$
560,261

 
$
4,494

 
$
—

 
$
26,801

 
$
—

 
$
591,556


30
Table of Contents


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with information contained in the accompanying unaudited consolidated interim financial statements of Westlake Chemical Corporation and the notes thereto and the consolidated financial statements and notes thereto of Westlake Chemical Corporation included in Westlake Chemical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the "2013 Form 10-K"). The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.
We are a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated 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 and building products.
Since 2009 and continuing through the third quarter of 2014, a cost advantage for ethane-based ethylene producers over naphtha-based ethylene producers has allowed a strong export market for ethylene derivatives and higher margins for North American chemical producers, including Westlake. Increased global demand for polyethylene in recent years in particular has resulted in improved operating margins and cash flow for our Olefins segment. Crude oil prices have fallen toward the end of the third quarter of 2014, narrowing such cost advantage.
Continued slow recovery in the U.S. construction markets and budgetary constraints in municipal spending have contributed to lower domestic demand for our vinyls products. However, since late 2010, the polyvinyl chloride ("PVC") industry has experienced an increase in PVC resin export demand, driven largely by more competitive feedstock and energy cost positions in North America. As a consequence, domestic PVC resin industry operating rates have improved since 2010, largely due to higher PVC resin export shipments. In the fourth quarter of 2013, we started up our new world scale Geismar, Louisiana chlor-alkali plant. In April 2014, we completed the ethane feedstock conversion and ethylene expansion project at our Calvert City, Kentucky ethylene plant. In July 2014, we closed the acquisition of German-based Vinnolit Holdings GmbH and its subsidiary companies ("Vinnolit") (see further discussion in "Recent Developments" below). The completion of these two projects, as well as the acquisition of Vinnolit, is expected to improve the profitability of our Vinyls segment.
The U.S. and global economic environment appears to be slowly improving, but depending on the performance of the global economy in the remainder of 2014 and beyond, could still have an impact on our financial condition, results of operations or cash flows.
Recent Developments
In March 2014, we formed Westlake Chemical Partners LP ("WLKP") to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, WLKP closed its initial public offering of 12,937,500 common units at a price of $24.00 per unit, which included 1,687,500 units purchased by the underwriters through an over-allotment option. Net proceeds to WLKP from the sale of the units was approximately $286.1 million, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $24.4 million. At the consummation of this offering, WLKP's assets consist of a 10.6% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), as well as the general partner interest in OpCo. We retained an 89.4% limited partner interest in OpCo and a significant interest in WLKP. OpCo used the net proceeds from the purchase of its limited partner interest to establish a cash reserve of approximately $55.4 million for turnaround expenditures, to reimburse us approximately $151.7 million for capital expenditures incurred with respect to certain of the assets contributed to OpCo and to repay intercompany debt of approximately $78.9 million. The initial public offering represented the sale of 47.8% of the common and subordinated units in WLKP.
On July 31, 2014, we acquired Vinnolit from several entities associated with Advent International Corporation. Vinnolit is headquartered in Ismaning, Germany and is an integrated global leader in specialty PVC resins, with a combined annual capacity of 1.7 billion pounds of PVC, including specialty paste and suspension grades, 1.5 billion pounds of vinyl chloride monomer ("VCM") and 1.0 billion pounds of caustic soda.

31
Table of Contents


Results of Operations
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per share data)
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
498,450

 
$
460,105

 
$
1,461,097

 
$
1,294,566

Styrene, feedstock and other
 
204,647

 
219,234

 
663,851

 
590,959

Total Olefins
 
703,097

 
679,339

 
2,124,948

 
1,885,525

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
416,771

 
212,041

 
776,060

 
612,391

Building products
 
133,359

 
112,785

 
378,471

 
309,943

Total Vinyls
 
550,130

 
324,826

 
1,154,531

 
922,334

Total
 
$
1,253,227

 
$
1,004,165

 
$
3,279,479

 
$
2,807,859

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
259,277

 
$
237,239

 
$
770,267

 
$
585,958

Vinyls
 
59,445

 
39,554

 
76,460

 
136,123

Corporate and other
 
(11,961
)
 
(10,191
)
 
(25,123
)
 
(26,197
)
Total income from operations
 
306,761

 
266,602

 
821,604

 
695,884

Interest expense
 
(9,486
)
 
(3,297
)
 
(28,182
)
 
(14,921
)
Other (expense) income, net
 
(2,670
)
 
(287
)
 
4,440

 
3,137

Provision for income taxes
 
124,449

 
92,728

 
300,231

 
244,647

Net income
 
170,156

 
170,290

 
497,631

 
439,453

Net income attributable to noncontrolling
   interests
 
2,399

 
—

 
2,399

 
—

Net income attributable to Westlake Chemical
   Corporation
 
$
167,757

 
$
170,290

 
$
495,232

 
$
439,453

Diluted earnings per share (1)
 
$
1.25

 
$
1.27

 
$
3.69

 
$
3.27

_____________
 
 
 
 
 
 
 
 
(1) Per share data for the three and nine months ended September 30, 2013 have been restated to reflect the effect of
          a two-for-one stock split on March 18, 2014. See Note 1 to the unaudited consolidated financial statements within
          this Quarterly Report on Form 10-Q for additional information.
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
 
 
Average
Sales Price
 
Volume
 
Average
Sales Price
 
Volume
Product sales price and volume percentage change
   from prior year period
 
 
 
 
 
 
 
 
Olefins
 
+10.7
%
 
-7.2
 %
 
+9.8
 %
 
+2.9
%
Vinyls
 
+1.6
%
 
+67.8
 %
 
-0.2
 %
 
+25.3
%
Company average
 
+7.8
%
 
+17.1
 %
 
+6.6
 %
 
+10.2
%
 
 
 
 
 
 
 
 
 

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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Average industry prices (1)
 
 
 
 
 
 
 
 
Ethane (cents/lb)
 
7.9

 
8.4

 
9.7

 
8.7

Propane (cents/lb)
 
24.6

 
24.4

 
26.9

 
22.2

Ethylene (cents/lb) (2)
 
66.6

 
54.3

 
59.1

 
58.7

Polyethylene (cents/lb) (3)
 
110.0

 
101.7

 
108.9

 
99.7

Styrene (cents/lb) (4)
 
85.8

 
83.2

 
85.0

 
83.6

Caustic soda ($/short ton) (5)
 
588.3

 
605.8

 
587.5

 
611.4

Chlorine ($/short ton) (6)
 
232.5

 
248.3

 
233.9

 
252.8

PVC (cents/lb) (7)
 
70.2

 
61.5

 
68.7

 
60.9

_____________
(1)
Industry pricing data was obtained from IHS Chemical. We have not independently verified the data.
(2)
Represents average North American spot prices of ethylene over the period as reported by IHS Chemical.
(3)
Represents average North American contract prices of polyethylene low density film over the period as reported by IHS Chemical.
(4)
Represents average North American contract prices of styrene over the period as reported by IHS Chemical.
(5)
Represents average North American undiscounted contract prices of caustic soda over the period as reported by IHS Chemical.
(6)
Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS Chemical.
(7)
Represents average North American contract prices of PVC over the period as reported by IHS Chemical.
Summary
For the quarter ended September 30, 2014, net income attributable to Westlake Chemical Corporation was $167.8 million, or $1.25 per diluted share, on net sales of $1,253.2 million. This represents a decrease in net income attributable to Westlake Chemical Corporation of $2.5 million, or $0.02 per diluted share, compared to the quarter ended September 30, 2013 net income attributable to Westlake Chemical Corporation of $170.3 million, or $1.27 per diluted share, on net sales of $1,004.2 million. Net income for the third quarter of 2014 was negatively impacted by (1) WLKP formation and initial public offering costs and Vinnolit acquisition and associated costs of approximately $21.6 million, after tax; (2) a third quarter 2014 elevated effective tax rate of 42.2% as a result of the recognition of the tax impact of current changes in state tax rates and other discrete tax items, which reduced net income by $16.2 million; and (3) unplanned outages at our Calvert City and Geismar facilities in the third quarter of 2014, which resulted in maintenance and other costs of $7.1 million, after tax. The increase in the effective tax rate was primarily attributable to discrete items totaling $16.2 million which increased the third quarter of 2014 tax provision, comprising $13.7 million related to state apportionment rate changes, $2.1 million related to goodwill on a pipeline contributed to WLKP and $0.4 million related to other miscellaneous items. We estimate the 2014 annual tax rate on ordinary income will be approximately 35.6%. Net sales for the third quarter of 2014 increased by $249.0 million compared to net sales for the third quarter of 2013, mainly attributable to sales contributed by Vinnolit, which we acquired in July 2014, higher sales prices for our major Olefins products and PVC resin and higher sales volumes for PVC resin, caustic soda and ethylene. The increase in net sales was partially offset by lower sales volumes for styrene and ethylene co-products. Income from operations was $306.8 million for the third quarter of 2014 as compared to $266.6 million for the third quarter of 2013. Income from operations for the third quarter of 2014 benefited primarily from improved olefins and vinyls integrated product margins, predominantly due to higher sales prices for most of our major products and lower overall feedstock costs as compared to the prior year period. Income from operations for the third quarter of 2014 was negatively impacted by lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the unplanned outages at our Calvert City and Geismar complexes, as well as the negative impact of WLKP formation and initial public offering costs and the Vinnolit acquisition-related costs, including the effect of selling higher cost inventory recorded at fair value.
For the nine months ended September 30, 2014, net income attributable to Westlake Chemical Corporation was $495.2 million, or $3.69 per diluted share, on net sales of $3,279.5 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $55.7 million, or $0.42 per diluted share, from the nine months ended September 30, 2013 net income attributable to Westlake Chemical Corporation of $439.5 million, or $3.27 per diluted share, on net sales of $2,807.9 million. Net income for the nine months ended September 30, 2014 was negatively impacted by WLKP formation and initial public offering costs and Vinnolit acquisition and associated costs of approximately $24.5 million, after tax, and the

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discrete tax items which increased the third quarter tax provision by approximately $16.2 million. Net sales for the nine months ended September 30, 2014 increased by $471.6 million compared to the prior year period primarily due to sales contributed by Vinnolit and our specialty PVC pipe business, which we acquired in July 2014 and May 2013, respectively, higher sales prices and sales volumes for most of our major Olefins products and higher PVC resin sales prices, partially offset by lower ethylene co-products and styrene sales volumes. Income from operations was $821.6 million for the nine months ended September 30, 2014 as compared to $695.9 million for the nine months ended September 30, 2013, an increase mainly attributable to improved olefins integrated product margins, primarily as a result of the increased ethylene production at our Lake Charles, Louisiana complex after the first quarter 2013 completion of the Petro 2 ethylene unit expansion and its conversion to 100% ethane feedstock capability. The increase in income from operations for the nine months ended September 30, 2014 was partially offset by lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with several planned and unplanned outages at our chemical complexes.
RESULTS OF OPERATIONS
Third Quarter 2014 Compared with Third Quarter 2013
Net Sales. Net sales increased by $249.0 million, or 24.8%, to $1,253.2 million in the third quarter of 2014 from $1,004.2 million in the third quarter of 2013, primarily attributable to sales contributed by Vinnolit, higher sales prices for our major Olefins products and PVC resin and higher sales volumes for PVC resin, caustic soda and ethylene, partially offset by lower sales volumes for styrene and ethylene co-products. Ethylene co-products sales volumes were lower for the third quarter of 2014 primarily due to the change to ethane feedstock currently utilized at our Calvert City ethylene plant following the completion of the feedstock conversion and ethylene expansion project. Average sales prices for the third quarter of 2014 increased by 7.8% as compared to the third quarter of 2013. Overall sales volumes increased by 17.1% as compared to the third quarter of 2013.
Gross Profit. Gross profit margin percentage decreased to 28.8% for the third quarter of 2014 from 30.3% for the third quarter of 2013. Our raw material cost in both segments normally tracks industry prices, which experienced a decrease of 6.0% for ethane as compared to the third quarter of 2013. In addition, our overall feedstock costs were also lower in the third quarter of 2014 due to the cost-advantaged ethane feedstock currently utilized at our Calvert City ethylene plant, as compared to the propane feedstock utilized during the prior year period. Sales prices increased an average of 7.8% for the third quarter of 2014 as compared to the third quarter of 2013. These benefits to gross profit margin for the third quarter of 2014 were more than offset by the negative impact of lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the unplanned outages at our Calvert City and Geismar complexes, the negative impact of selling higher cost Vinnolit inventory recorded at fair value and higher energy costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the third quarter of 2014 of $54.8 million increased by $16.9 million as compared to the third quarter of 2013, mainly due to general and administrative costs incurred by Vinnolit for the period from July 31, 2014 to September 30, 2014 and an increase in consulting and professional fees related to the formation and initial public offering of WLKP and the acquisition of Vinnolit.
Interest Expense. Interest expense increased by $6.2 million to $9.5 million in the third quarter of 2014 from $3.3 million in the third quarter of 2013 largely as a result of decreased capitalized interest on major capital projects as compared to the prior year period. Debt balances remained relatively unchanged from the prior year period.
Other Expense, Net. Other expense, net increased by $2.4 million to $2.7 million in the third quarter of 2014 from $0.3 million in the third quarter of 2013 mainly due to higher losses on foreign exchange, partially offset by higher income from our equity method investments.
Income Taxes. The effective income tax rate was 42.2% for the third quarter of 2014. The effective income tax rate for the third quarter of 2014 was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction. The effective income tax rate was 35.3% for the third quarter of 2013. The effective income tax rate for the third quarter of 2013 was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, mostly offset by the domestic manufacturing deduction.
Olefins Segment
Net Sales. Net sales increased by $23.8 million, or 3.5%, to $703.1 million in the third quarter of 2014 from $679.3 million in the third quarter of 2013, primarily due to higher sales prices for our major products and higher sales volumes for ethylene, partially offset by lower sales volumes for styrene, as compared to the prior year period. Average sales prices for the Olefins segment increased by 10.7% in the third quarter of 2014 as compared to the third quarter of 2013. Average sales volumes for the Olefins segment decreased by 7.2% in the third quarter of 2014 as compared to the third quarter of 2013.

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Income from Operations. Income from operations increased by $22.1 million, or 9.3%, to $259.3 million in the third quarter of 2014 from $237.2 million in the third quarter of 2013. This increase was mainly attributable to higher olefins integrated product margins in the third quarter of 2014 as compared to the prior year period, primarily as a result of higher sales prices and lower ethane costs. Trading activity in the third quarter of 2014 resulted in a loss of $6.9 million as compared to a gain of $4.9 million in the third quarter of 2013.
Vinyls Segment
Net Sales. Net sales increased by $225.3 million, or 69.4%, to $550.1 million in the third quarter of 2014 from $324.8 million in the third quarter of 2013. This increase was mainly attributable to sales contributed by Vinnolit, higher sales prices for PVC resin and higher sales volumes for PVC resin and caustic soda. The increase in net sales in the third quarter of 2014 was partially offset by the lower ethylene co-products volumes produced, and consequently sold, as a result of the change in feedstock utilized at our Calvert City ethylene plant from propane to ethane, following the completion of the feedstock conversion project. Average sales prices for the Vinyls segment increased by 1.6% in the third quarter of 2014 as compared to the third quarter of 2013. Average sales volumes for the Vinyls segment increased by 67.8% in the third quarter of 2014 as compared to the third quarter of 2013.
Income from Operations. Income from operations increased by $19.8 million, or 50.0%, to $59.4 million in the third quarter of 2014 from $39.6 million in the third quarter of 2013. This increase was mainly driven by higher vinyls integrated product margins in the third quarter of 2014 primarily as a result of the cost-advantaged ethane feedstock currently utilized at our Calvert City ethylene plant, as compared to the propane feedstock utilized during the prior year period. The third quarter 2014 income from operations was negatively impacted by lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the unplanned outages at our Calvert City and Geismar complexes and the effect of selling higher cost Vinnolit inventory recorded at fair value.
Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
Net Sales. Net sales increased by $471.6 million, or 16.8%, to $3,279.5 million for the nine months ended September 30, 2014 from $2,807.9 million for the nine months ended September 30, 2013, primarily attributable to sales contributed by Vinnolit and our specialty PVC pipe business, higher sales prices and sales volumes for most of our major Olefins products and higher PVC resin sales prices, partially offset by lower ethylene co-products and styrene sales volumes. Ethylene co-products sales volumes were lower for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, primarily due to the planned shut-down of our Calvert City ethylene plant as a result of the feedstock conversion and ethylene expansion project, and the change to ethane feedstock currently utilized at our Calvert City ethylene plant following the completion of such project. Average sales prices for the nine months ended September 30, 2014 increased by 6.6% as compared to the nine months ended September 30, 2013. Overall sales volumes for the nine months ended September 30, 2014 increased by 10.2% as compared to the nine months ended September 30, 2013.
Gross Profit. Gross profit margin percentage of 29.1% for the nine months ended September 30, 2014 increased from the 28.7% gross profit margin percentage for the nine months ended September 30, 2013. The improvement in gross profit margin percentage was mainly due to the improved olefins integrated product margins, primarily as a result of the increased ethylene production at our Lake Charles complex after the first quarter 2013 completion of the Petro 2 ethylene unit expansion and its conversion to 100% ethane feedstock capability. In addition, olefins integrated product margins for the nine months ended September 30, 2014 benefited from an increase in sales prices that outpaced increases in feedstock and energy costs as compared to the prior year period. Our raw material cost in both segments normally tracks industry prices, which experienced an increase of 11.5% for ethane and an increase of 21.2% for propane as compared to the nine months ended September 30, 2013. Sales prices increased an average of 6.6% for the nine months ended September 30, 2014 as compared to the prior year period. The gross profit margin for the nine months ended September 30, 2014 was negatively impacted by lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with several planned and unplanned outages at our chemical complexes.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2014 increased by $23.0 million as compared to the nine months ended September 30, 2013, mainly attributable to general and administrative costs incurred by Vinnolit for the period from July 31, 2014 to September 30, 2014, an increase in payroll and related labor costs, including incentive compensation, and an increase in consulting and professional fees, partially offset by a decrease in the provision for doubtful accounts.
Interest Expense. Interest expense increased by $13.3 million to $28.2 million for the nine months ended September 30, 2014, largely as a result of decreased capitalized interest on major capital projects as compared to the prior year period. Debt balances remained relatively unchanged from the prior year period.

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Other Income, Net. Other income, net increased by $1.3 million to $4.4 million for the nine months ended September 30, 2014 from $3.1 million for the nine months ended September 30, 2013. The increase from prior year period was principally due to higher income from our equity method investments and higher gain from sales of securities, partially offset by higher losses on foreign exchange.
Income Taxes. The effective income tax rate was 37.6% for the nine months ended September 30, 2014. The effective income tax rate for the 2014 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction. The effective income tax rate was 35.8% for the nine months ended September 30, 2013. The effective income tax rate for the 2013 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction.
Olefins Segment
Net Sales. Net sales increased by $239.4 million, or 12.7%, to $2,124.9 million for the nine months ended September 30, 2014 from $1,885.5 million for the nine months ended September 30, 2013, mainly driven by higher sales prices and sales volumes for most of our major products, partially offset by lower styrene sales volumes. Average sales prices for the Olefins segment increased by 9.8% for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013. Average sales volumes for the Olefins segment increased by 2.9% for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.
Income from Operations. Income from operations increased by $184.3 million, or 31.5%, to $770.3 million for the nine months ended September 30, 2014 from $586.0 million for the nine months ended September 30, 2013. This increase was mainly attributable to improved olefins integrated product margins, primarily as a result of the increased ethylene production at our Lake Charles complex after the first quarter 2013 completion of the Petro 2 ethylene unit expansion and its conversion to 100% ethane feedstock capability. In addition, olefins integrated product margins for the nine months ended September 30, 2014 benefited from an increase in sales prices that outpaced increases in feedstock and energy costs as compared to the prior year period. Trading activity for the nine months ended September 30, 2014 resulted in a loss of $7.3 million as compared to a gain of $9.9 million for the prior year period. Income from operations for the nine months ended September 30, 2013 was negatively impacted by the lost production, unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of the Lake Charles Petro 2 ethylene unit.
Vinyls Segment
Net Sales. Net sales increased by $232.2 million, or 25.2%, to $1,154.5 million for the nine months ended September 30, 2014 from $922.3 million for the nine months ended September 30, 2013. This increase was primarily attributable to sales contributed by Vinnolit and our specialty PVC pipe business and higher PVC resin sales prices, partially offset by lower ethylene co-products sales volumes. Ethylene co-products sales volumes were lower for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, primarily due to the planned shut down of our Calvert City ethylene plant as a result of the feedstock conversion and ethylene expansion project and the ethane feedstock currently utilized at our Calvert City ethylene plant following the completion of such project. Average sales prices for the Vinyls segment decreased marginally by 0.2% for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, while average sales volumes increased by 25.3% for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.
Income from Operations. Income from operations decreased by $59.6 million to $76.5 million for the nine months ended September 30, 2014 from $136.1 million for the nine months ended September 30, 2013. This decrease was primarily driven by lost sales, lower production rates and the expensing of $29.5 million related to unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our Calvert City complex, our Calvert City ethylene plant’s feedstock conversion and expansion project and the unplanned outages at our Calvert City and Geismar complexes. In addition, income from operations for the nine months ended September 30, 2014 was negatively impacted by lower caustic sales prices, the severe winter weather experienced in early 2014 and prior to the completion of the Calvert City ethylene plant’s feedstock conversion and ethylene expansion project, lower vinyls integrated product margins attributable to significantly higher propane costs, as average industry prices for propane increased by 50.2% in the first quarter of 2014 as compared to the prior year period.

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CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
Cash Flows
Operating Activities
Operating activities provided cash of $776.1 million in the first nine months of 2014 compared to cash provided of $547.5 million in the first nine months of 2013. The $228.6 million increase in cash flows from operating activities was mainly due to an increase in income from operations and a decrease in the use of cash for working capital purposes. Income from operations increased by $125.7 million in the first nine months of 2014 primarily as a result of higher olefins integrated product margins as compared to the prior year period, partially offset by lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with several planned and unplanned outages at our chemical complexes. Cash flows from operating activities for the first nine months of 2014 was also negatively impacted by WLKP formation and initial public offering costs and costs associated with the Vinnolit acquisition, including the effect of selling higher cost inventory recorded at fair value. Cash flows from operating activities for the first nine months of 2013 were negatively impacted by deferred turnaround costs from the turnaround of one of our Lake Charles ethylene units. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, net, inventories, prepaid expenses and other current assets, less accounts payable and accrued liabilities, provided cash of $100.3 million in the first nine months of 2014, compared to $46.5 million of cash used in the first nine months of 2013, a favorable change of $146.8 million. The change was mainly due to a decrease in inventory during the 2014 period as compared to the prior year period, primarily due to less higher-cost propane held in inventory at the end of the current year period, as raw materials or in finished goods, and lower styrene inventory on hand as of September 30, 2014. In addition, Vinnolit's inventory decreased during the period from July 31, 2014 to September 30, 2014 as higher cost inventory recorded at fair value were sold.
Investing Activities
Net cash used for investing activities during the first nine months of 2014 was $652.2 million as compared to net cash used for investing activities of $694.6 million in the first nine months of 2013. Capital expenditures were $311.2 million in the first nine months of 2014 compared to $498.3 million in the first nine months of 2013, a decrease mainly attributable to the completion of the new chlor-alkali plant at our Geismar facility in December 2013. Capital expenditures in the first nine months of 2014 were mainly incurred on the feedstock conversion and ethylene expansion project and PVC plant expansion project at our Calvert City complex and the planned upgrade and expansion of the second ethylene unit at our Lake Charles complex. Capital expenditures in the first nine months of 2013 were mainly incurred on the construction of the new Geismar chlor-alkali plant, the expansion of the first ethylene unit at our Lake Charles complex and the feedstock conversion and ethylene furnaces modernization projects at our Calvert City complex. The remaining capital expenditures in the first nine months of 2014 and 2013 primarily related to projects to improve production capacity or reduce costs, maintenance and safety projects and environmental projects at our various facilities. We used $611.1 million, net of cash acquired, for the acquisition of Vinnolit. Purchases of securities in the first nine months of 2014 totaled $117.3 million and were comprised of corporate and U.S. government debt securities and equity securities. We also received aggregate proceeds of $342.0 million from the sales and maturities of our investments in the first nine months of 2014. The activity during the first nine months of 2013 was primarily related to the acquisition of our specialty PVC pipe business and the purchases of, and the receipt of proceeds from the maturities of, short-term commercial paper.
Financing Activities
Net cash provided by financing activities during the first nine months of 2014 was $231.9 million as compared to net cash used of $51.4 million in the first nine months of 2013. Net proceeds from the issuance of WLKP common units was $286.1 million. The initial public offering represented the sale of 47.8% of common and subordinated units in WLKP. See Note 19 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for further discussion of WLKP and its initial public offering. The remaining activity during the first nine months of 2014 was primarily related to the $55.7 million payment of cash dividends, the $9.5 million of cash used for the repurchases of shares of our common stock and fees incurred in connection with the amendment and restatement of our revolving credit facility in July 2014, partially offset by proceeds of $5.5 million from the exercise of stock options. The activity during the first nine months of 2013 was mainly related to the $40.2 million payment of cash dividends and the $19.4 million of cash used for the repurchases of shares of our common stock, partially offset by proceeds from the exercise of stock options.

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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 our revolving credit facility and our long-term financing.
In April 2011, we announced an expansion program to increase the ethane-based ethylene capacity of both of the ethylene units at our Lake Charles complex. We completed the expansion of the first ethylene unit in the first quarter of 2013. We currently plan to upgrade and expand the capacity of the other ethylene unit at our Lake Charles complex in the late 2015 to early 2016 time frame. This project is currently estimated to cost in the range of $250.0 million to $310.0 million and will add approximately 250 million pounds of ethylene capacity. The additional capacity from this expansion is expected to provide ethylene for existing internal uses and may also be sold in the merchant market. This capital project is expected to be funded with cash on hand, cash flow from operations, and, if necessary, borrowings under our revolving credit facility and other external financing. As of September 30, 2014, we had incurred a total cost of approximately $40.4 million on this capital project.
In August 2011, our Board of Directors authorized a stock repurchase program totaling $100.0 million. As of September 30, 2014, we had repurchased 1,357,085 shares of our common stock (on a post-split basis) for an aggregate purchase price of approximately $55.7 million under this program. During the three months ended September 30, 2014, we repurchased 104,163 shares of our common stock for an aggregate purchase price of approximately $9.5 million under this program. Purchases under this 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 program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The program may be discontinued by our Board of Directors at any time.
We believe that our sources of liquidity as described above will be adequate to fund our normal operations and ongoing capital expenditures. Funding of any potential large expansions or any potential acquisitions may depend on our ability to obtain additional financing in the future. We may not be able to access additional liquidity at cost effective interest rates due to the volatility of the commercial credit markets.
Cash and Cash Equivalents
As of September 30, 2014, our cash and cash equivalents totaled $813.5 million. In addition, we have a revolving credit facility available to supplement cash if needed, as described under "Debt" below.
Debt
As of September 30, 2014, our long-term debt, including current maturities, totaled $764.0 million, consisting of $250.0 million principal amount of 3.60% senior notes due 2022 (less the unamortized discount of $0.9 million), $100.0 million of 6 ½% senior notes due 2029, $250.0 million of 6 ¾% senior notes due 2032, $89.0 million of 6 ½% senior notes due 2035 (the "6 ½% GO Zone Senior Notes Due 2035"), $65.0 million of 6 ½% senior notes due 2035 (the "6 ½% IKE Zone Senior Notes Due 2035") (collectively, but excluding the 3.60% senior notes due 2022, the "Senior Notes") and a $10.9 million loan from the proceeds of tax-exempt waste disposal revenue bonds (supported by an $11.3 million letter of credit). The 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% GO Zone Senior Notes Due 2035 and the 6 ½% IKE Zone Senior Notes Due 2035 evidence and secure our obligations to the Louisiana Local Government Environmental Facility and Development Authority (the "Authority"), a political subdivision of the State of Louisiana, under four loan agreements relating to the issuance of $100.0 million, $250.0 million, $89.0 million and $65.0 million aggregate principal amount of the Authority's tax-exempt revenue bonds, respectively. As of September 30, 2014, debt outstanding under the tax-exempt waste disposal revenue bonds bore interest at a variable rate. As of September 30, 2014, we were in compliance with all of the covenants with respect to the 3.60% senior notes due 2022, the Senior Notes, our waste disposal revenue bonds and our revolving credit facility.
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, we believe our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our normal operating needs for the foreseeable future.
Revolving Credit Facility
We have a $400.0 million senior secured revolving credit facility. At September 30, 2014, we had no borrowings outstanding under the revolving credit facility.

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In July 2014, we entered into a third amendment and restatement to the revolving credit facility. The third amendment and restatement extended the scheduled maturity date of the facility from September 16, 2016 to July 17, 2019, reduced the interest rate and facility fee payable under the facility and amended the covenants restricting our ability to make distributions and acquisitions and make investments, among other things.
The facility includes a provision permitting us to increase the size of the facility, up to four times, in increments of at least $25.0 million each (up to a maximum of $200.0 million) under certain circumstances if certain lenders agree to commit to such an increase.
Any borrowings under the facility will bear interest at either LIBOR plus a spread ranging from 1.75% to 1.25%, provided that so long as we are rated investment grade, the margin for LIBOR loans will not exceed 1.50%, or a base rate plus a spread ranging from 0.50% to 0.00%. The revolving credit facility also requires an unused commitment fee of 0.25% per annum. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on July 17, 2019. As of September 30, 2014, we had outstanding letters of credit totaling $32.4 million and borrowing availability of $367.6 million under the revolving credit facility.
Our revolving credit facility generally restricts our ability to make distributions unless, on a pro forma basis after giving effect to the distribution, the borrowing availability under the facility equals or exceeds the greater of (1) 20% of the commitments under the facility and (2) $80.0 million; or the borrowing availability under the facility equals or exceeds the greater of (1) 15% of the commitments under the facility and (2) $60.0 million, and our fixed charge coverage ratio is at least 1.0:1. However, we may make specified distributions up to an aggregate of $75.0 million, to be increased by 5% in 2015, and in each fiscal year thereafter, on an aggregate basis, for each fiscal year.
In order to make acquisitions or investments, our revolving credit facility generally provides that (1) we must maintain a minimum borrowing availability of at least the greater of $60.0 million or 15% of the total bank commitments under our revolving credit facility or (2) we must maintain a minimum borrowing availability of at least the greater of $50.0 million or 12.5% of the total bank commitments under our revolving credit facility and meet a minimum fixed charge coverage ratio of 1.0:1 under our revolving credit facility. Notwithstanding the foregoing, we may make investments in the aggregate up to the greater of $50.0 million and 1.25% of tangible assets and acquisitions in the aggregate up to the greater of $100.0 million and 2.5% of tangible assets, if, on a pro forma basis after giving effect to the acquisition or investment, either (X) the borrowing availability under the facility equals or exceeds the greater of (A) 12.5% of the total bank commitments under the facility and (B) $50.0 million, but is less than the greater of (A) 15% of the total bank commitments and (B) $60.0 million, or (Y) our fixed charge coverage ratio is at least 1.0:1.
The revolving credit facility contains other customary covenants and events of default that impose significant operating and financial restrictions on us. These restrictions, among other things, provide limitations on the occurrence of additional indebtedness and our ability to create liens, to engage in certain affiliate transactions and to engage in sale-leaseback transactions. See our Current Report on Form 8-K filed with the SEC on July 17, 2014 for more information on the third amendment and restatement of our revolving credit facility.
GO Zone and IKE Zone Bonds
As of September 30, 2014, we had drawn all the proceeds from the issuance of the 6 ½% senior notes due 2029, 6 ¾% senior notes due 2032, 6 ½% GO Zone Senior Notes Due 2035 and 6 ½% IKE Zone Senior Notes Due 2035. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 2013 Form 10-K for more information on the 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% GO Zone Senior Notes Due 2035 and the 6 ½% IKE Zone Senior Notes Due 2035. All domestic restricted subsidiaries that guarantee other debt of ours or of another guarantor of the Senior Notes in excess of $5.0 million are guarantors of these notes.
The indentures governing the Senior Notes contain customary covenants and events of default. Accordingly, these agreements generally impose significant operating and financial restrictions on us. These restrictions, among other things, provide limitations on incurrence of additional indebtedness, the payment of dividends, certain investments and acquisitions and sales of assets. However, the effectiveness of certain of these restrictions is currently suspended because the Senior Notes are currently rated investment grade by at least two nationally recognized credit rating agencies. The most significant of these provisions, if it were currently effective, would restrict us from incurring additional debt, except specified permitted debt (including borrowings under our credit facility), when our fixed charge coverage ratio is below 2.0:1. These limitations are subject to a number of important qualifications and exceptions, including, without limitation, an exception for the payment of our regular quarterly dividend of up to $0.10 per share. If the restrictions were currently effective, distributions in excess of $100.0 million would not be allowed unless, after giving pro forma effect to the distribution, our fixed charge coverage ratio is at least 2.0:1 and such payment, together with the aggregate amount of all other distributions after January 13, 2006, is less than

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the sum of 50% of our consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which financial statements have been filed, plus 100% of net cash proceeds received after October 1, 2003 as a contribution to our common equity capital or from the issuance or sale of certain securities, plus several other adjustments.
3.60% Senior Notes due 2022
The 3.60% senior notes due 2022 are unsecured and were issued with an original issue discount of $1.2 million. There is no sinking fund and no scheduled amortization of the 3.60% senior notes due 2022 prior to maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 2013 Form 10-K for more information on the 3.60% senior notes due 2022. All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% senior notes due 2022 in excess of $5.0 million are guarantors of the 3.60% senior notes due 2022.
The indenture governing the 3.60% senior notes due 2022 contains customary events of default and covenants that will restrict our and certain of our 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 our assets.
Revenue Bonds
In December 1997, we entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $10.9 million principal amount of tax-exempt waste disposal revenue bonds in order to finance our construction of waste disposal facilities for an ethylene plant. The waste disposal revenue bonds expire in December 2027 and are subject to redemption and mandatory tender for purchase prior to maturity under certain conditions. Interest on the waste disposal revenue bonds accrues at a rate determined by a remarketing agent and is payable quarterly.
Off-Balance Sheet Arrangements
None.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Certain of the statements contained in this report are forward-looking statements. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expected" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as:
•
future operating rates, margins, cash flow and demand for our products;
•
industry market outlook, including the price of crude oil;
•
production capacities;
•
our ability to borrow additional funds under our credit facility;
•
our ability to meet our liquidity needs;
•
our intended quarterly dividends;
•
future capacity additions and expansions in the industry;
•
timing, funding and results of the expansion program at our Lake Charles complex;
•
results of the new chlor-alkali plant in Geismar;
•
results of the feedstock conversion program at our Calvert City ethylene plant;
•
results of the Vinnolit acquisition;
•
estimated annual tax rate for the year 2014;
•
pension plan funding requirements and investment policies;
•
compliance with present and future environmental regulations and costs associated with environmentally related penalties, capital expenditures, remedial actions and proceedings, including any new laws, regulations or treaties

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that may come into force to limit or control carbon dioxide and other greenhouse gases emissions or to address other issues of climate change;
•
effects of pending legal proceedings; and
•
timing of and amount of capital expenditures.
We have based these statements on assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. These statements are subject to a number of assumptions, risks and uncertainties, including those described in "Risk Factors" in the 2013 Form 10-K and the following:
•
general economic and business conditions;
•
the cyclical nature of the chemical industry;
•
the availability, cost and volatility of raw materials and energy;
•
uncertainties associated with the United States and worldwide economies, including those due to political tensions in the Middle East and elsewhere;
•
current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries;
•
industry production capacity and operating rates;
•
the supply/demand balance for our products;
•
competitive products and pricing pressures;
•
instability in the credit and financial markets;
•
access to capital markets;
•
terrorist acts;
•
operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);
•
changes in laws or regulations;
•
technological developments;
•
our ability to integrate acquired businesses;
•
foreign currency exchange risks;
•
our ability to implement our business strategies; and
•
creditworthiness of our customers.
Many of these factors are beyond our ability to control or predict. Any of the factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with changes in the business cycle. We try to protect against such instability through various business strategies. Our strategies include ethylene feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. We use derivative instruments in certain instances to reduce price volatility risk on feedstocks and products. Based on our open derivative positions at September 30, 2014, a hypothetical $0.10 increase in the price of a gallon of ethane would have

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increased our income before taxes by $8.4 million and a hypothetical $0.10 increase in the price of a pound of ethylene would have decreased our income before taxes by $3.0 million. Additional information concerning derivative commodity instruments appears in Notes 9 and 10 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q.
Interest Rate Risk
We are exposed to interest rate risk with respect to fixed and variable rate debt. At September 30, 2014, we had variable rate debt of $10.9 million outstanding. All of the debt outstanding under our revolving credit facility (none was outstanding at September 30, 2014) and our loan relating to the tax-exempt waste disposal revenue bonds are at variable rates. We do not currently hedge our variable interest rate debt, but we may do so in the future. The average variable interest rate for our variable rate debt of $10.9 million as of September 30, 2014 was 0.06%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would increase our annual interest expense by approximately $0.1 million. Also, at September 30, 2014, we had $754.0 million aggregate principal amount of fixed rate debt. We are subject to the risk of higher interest cost if and when this debt is refinanced. If interest rates are 1% higher at the time of refinancing, our annual interest expense would increase by approximately $7.5 million.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk associated with our international operations. However, the effect of fluctuations in foreign currency exchange rates caused by our international operations has not had a material impact on our overall operating results. We may engage in activities to mitigate our exposure to foreign currency exchange risk in certain instances through the use of currency exchange derivative instruments, including forward exchange contracts, or spot purchases. A forward exchange contract obligates us to exchange predetermined amounts of specified currencies at a stated exchange rate on a stated date.

Item 4.
Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective with respect to (i) the accumulation and communication to our management, including our Chief Executive Officer and our Chief Financial Officer, of information required to be disclosed by us in the reports that we submit under the Exchange Act, and (ii) the recording, processing, summarizing and reporting of such information within the time periods specified in the SEC's rules and forms.
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
The 2013 Form 10-K, filed on February 21, 2014, contained a description of various legal proceedings in which we are involved, including environmental proceedings at our facilities in Calvert City. See Note 15 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for a description of certain of those proceedings, which information is incorporated by reference herein.
 
Item 1A.
Risk Factors
For a discussion of risk factors, please read Item 1A, "Risk Factors" in the 2013 Form 10-K and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. There have been no material changes from those risk factors.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information on our purchase of equity securities during the quarter ended September 30, 2014, on a post-split basis.
Period
 
Total Number
of Shares
Purchased (1)
 
Average Price
Paid Per
Share
 
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs (1)
 
Maximum Number
(or Approximate
Dollar Value) of
Shares that
May Yet Be
Purchased Under the
Plans or Programs (1)
July 2014
 
—

 
$
—

 
—

 
$
53,780,000

August 2014
 
—

 
$
—

 
—

 
$
53,780,000

September 2014
 
104,163

 
$
91.16

 
104,163

 
$
44,285,000

 
 
104,163

 
$
91.16

 
104,163

 
 
_____________
(1)
On August 22, 2011, we announced the authorization by our Board of Directors of a $100.0 million stock repurchase program. As of September 30, 2014, 1,357,085 shares of common stock (on a post-split basis) had been acquired at an aggregate purchase price of $55.7 million. Decisions regarding the amount and the timing of purchases under the program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The program may be discontinued by our Board of Directors at any time.


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Item 6.
Exhibits
Exhibit No.
 
 
 
 
 
4.1
 
Supplemental Indenture dated as of July 17, 2014 among Westlake Chemical OpCo LP, Westlake Chemical Corporation, the other Subsidiary Guarantors (as defined therein) and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Westlake Chemical Corporation’s Quarterly Report on Form 10-Q, filed on August 6, 2014, File No. 001-32260).
 
 
 
10.1
 
Third Amended and Restated Credit Agreement dated as of July 17, 2014 by and among the financial institutions party thereto, as lenders, Bank of America, N.A., as agent, and Westlake Chemical Corporation and certain of its domestic subsidiaries, as borrowers, relating to a $400.0 million senior secured revolving credit facility (incorporated by reference to Westlake Chemical Corporation’s Current Report on Form 8-K, filed on July 17, 2014, File No. 001-32260).
 
 
 
31.1
 
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Executive Officer)
 
 
 
31.2
 
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Financial Officer)
 
 
 
32.1
 
Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)
 
 
 
99.1
 
Unaudited Financial Statements of Non Wholly-Owned Subsidiary Guarantor (Westlake Chemical OpCo LP)
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
 
 
 
WESTLAKE CHEMICAL CORPORATION
 
 
 
 
Date:
November 7, 2014
 
 
By:
 
/S/    ALBERT CHAO        
 
 
 
 
 
 
Albert Chao
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
Date:
November 7, 2014
 
 
By:
 
/S/    M. STEVEN BENDER        
 
 
 
 
 
 
M. Steven Bender
 
 
 
 
 
 
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.
 
Exhibit
 
 
 
4.1
 
Supplemental Indenture dated as of July 17, 2014 among Westlake Chemical OpCo LP, Westlake Chemical Corporation, the other Subsidiary Guarantors (as defined therein) and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Westlake Chemical Corporation’s Quarterly Report on Form 10-Q, filed on August 6, 2014, File No. 001-32260).
 
 
 
10.1
 
Third Amended and Restated Credit Agreement dated as of July 17, 2014 by and among the financial institutions party thereto, as lenders, Bank of America, N.A., as agent, and Westlake Chemical Corporation and certain of its domestic subsidiaries, as borrowers, relating to a $400.0 million senior secured revolving credit facility (incorporated by reference to Westlake Chemical Corporation’s Current Report on Form 8-K, filed on July 17, 2014, File No. 001-32260).
 
 
 
31.1
 
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Executive Officer)
 
 
 
31.2
 
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Financial Officer)
 
 
 
32.1
 
Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)
 
 
 
99.1
 
Unaudited Financial Statements of Non Wholly-Owned Subsidiary Guarantor (Westlake Chemical OpCo LP)
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document



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