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EX-32.1 - EXHIBIT 32.1 - Westlake Chemical Partners LPexhibit321_20150930.htm
EX-31.1 - EXHIBIT 31.1 - Westlake Chemical Partners LPexhibit311_20150930.htm
EX-31.2 - EXHIBIT 31.2 - Westlake Chemical Partners LPexhibit312_20150930.htm

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, 2015
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. 001-36567
 
 
 
 
 
Westlake Chemical Partners LP
(Exact name of Registrant as specified in its charter)
 
 
 
 
 

Delaware
 
32-0436529
(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) 585-2900
(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
 
¨
 
Accelerated filer
 
¨
Non-accelerated filer
 
x  (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 registrant had 14,373,615 common units and 12,686,115 subordinated units outstanding as of October 28, 2015.



INDEX




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2015
 
December 31,
2014
 
 
 
 
 
 
 
(in thousands of dollars,
except unit amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
154,257

 
$
133,750

Accounts receivable, net—Westlake Chemical Corporation ("Westlake")
 
44,035

 
18,529

Accounts receivable, net—third parties
 
14,479

 
37,520

Inventories
 
3,272

 
6,634

Prepaid expenses and other current assets
 
382

 
212

Total current assets
 
216,425

 
196,645

Property, plant and equipment, net
 
962,221

 
842,057

Other assets, net
 
 
 
 
Goodwill
 
5,814

 
5,814

Deferred charges and other assets, net
 
40,728

 
51,919

Total other assets, net
 
46,542

 
57,733

Total assets
 
$
1,225,188

 
$
1,096,435

LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable—Westlake
 
$
9,288

 
$
7,470

Accounts payable—third parties
 
24,871

 
12,614

Accrued liabilities
 
22,352

 
11,900

Total current liabilities
 
56,511

 
31,984

Long-term debt payable to Westlake
 
330,495

 
227,638

Deferred income taxes
 
1,489

 
1,848

Other liabilities
 
219

 
15

Total liabilities
 
388,714

 
261,485

Commitments and contingencies (Notes 9 and 16)
 


 


EQUITY
 
 
 
 
Common unitholders—public (12,937,500 units issued and outstanding)
 
293,282

 
290,377

Common unitholder—Westlake (1,436,115 units issued and outstanding)
 
4,360

 
4,038

Subordinated unitholder—Westlake (12,686,115 units issued and outstanding)
 
38,528

 
35,681

General partner—Westlake
 
(242,572
)
 
(242,572
)
Accumulated other comprehensive loss
 
(173
)
 

Total Westlake Chemical Partners LP partners' capital
 
93,425

 
87,524

Noncontrolling interest in Westlake Chemical OpCo LP ("OpCo")
 
743,049

 
747,426

Total equity
 
836,474

 
834,950

Total liabilities and equity
 
$
1,225,188

 
$
1,096,435

The accompanying notes are an integral part of the combined and consolidated financial statements.

1


WESTLAKE CHEMICAL PARTNERS LP
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except unit amounts and per unit data)
Revenue
 
 
 
 
 
 
 
 
Net sales—Westlake
 
$
207,856

 
$
289,601

 
$
621,438

 
$
1,088,561

Net co-product, ethylene and feedstock sales—third
  parties
 
40,763

 
102,407

 
137,277

 
387,596

Total net sales
 
248,619

 
392,008

 
758,715

 
1,476,157

Cost of sales
 
154,474

 
227,015

 
473,815

 
832,304

Gross profit
 
94,145

 
164,993

 
284,900

 
643,853

Selling, general and administrative expenses
 
5,831

 
8,860

 
17,826

 
22,803

Income from operations
 
88,314

 
156,133

 
267,074

 
621,050

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense—Westlake
 
(1,054
)
 
(2,137
)
 
(3,794
)
 
(9,833
)
Other (expense) income, net
 
(73
)
 
486

 
(35
)
 
3,135

Income before income taxes
 
87,187

 
154,482

 
263,245

 
614,352

Provision for income taxes
 
141

 
36,309

 
567

 
198,461

Net income
 
87,046

 
118,173

 
262,678

 
415,891

Less: Predecessor net income prior to initial public
  offering on August 4, 2014
 

 
63,616

 

 
361,334

Net income subsequent to initial public offering
 
87,046

 
54,557

 
262,678

 
54,557

Less: Net income attributable to noncontrolling
  interest in OpCo
 
76,943

 
49,542

 
233,632

 
49,542

Net income attributable to Westlake Chemical
  Partners LP subsequent to initial public offering
 
$
10,103

 
$
5,015

 
$
29,046

 
$
5,015

Net income attributable to Westlake Chemical Partners
  LP per limited partner unit (basic and diluted)
 
 
 
 
 
 
 
 
Common units
 
$
0.37

 
$
0.19

 
$
1.07

 
$
0.19

Subordinated units
 
$
0.37

 
$
0.19

 
$
1.07

 
$
0.19

Weighted average limited partner units outstanding
  (basic and diluted)
 
 
 
 
 
 
 
 
Common units—public
 
12,937,500

 
12,937,500

 
12,937,500

 
12,937,500

Common units—Westlake
 
1,436,115

 
1,436,115

 
1,436,115

 
1,436,115

Subordinated units—Westlake
 
12,686,115

 
12,686,115

 
12,686,115

 
12,686,115

The accompanying notes are an integral part of the combined and consolidated financial statements.

2


WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income subsequent to initial public offering
$
87,046

 
$
54,557

 
$
262,678

 
$
54,557

Other comprehensive loss:
 
 
 
 
 
 
 
Cash flow hedge:
 
 
 
 
 
 
 
Interest rate contract:
 
 
 
 
 
 
 
Change in fair value of cash flow hedge
(223
)
 

 
(223
)
 

Reclassification of loss to net income
50

 

 
50

 

Total other comprehensive loss
(173
)
 

 
(173
)
 

Comprehensive income
86,873

 
54,557

 
262,505

 
54,557

Comprehensive income attributable to noncontrolling
  interest in OpCo
76,943

 
49,542

 
233,632

 
49,542

Comprehensive income attributable to Westlake
  Chemical Partners LP subsequent to initial public
  offering
$
9,930

 
$
5,015

 
$
28,873

 
$
5,015

The accompanying notes are an integral part of the combined and consolidated financial statements.

3


WESTLAKE CHEMICAL PARTNERS LP
COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
 
Predecessor
 
Partnership
 
 
 
 
 
 
Net
Investment
 
Common Unitholders
Public
 
Common Unitholder
Westlake
 
Subordinated Unitholder
Westlake
 
General
Partner
Westlake
 
Accumulated
Other
Comprehensive 
Loss
 
Noncontrolling
Interests
in OpCo
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Balances at December 31, 2013
 
$
455,432

 
$

 
$

 
$

 
$

 
$

 
$

 
$
455,432

Net income from January 1, 2014 through
  August 3, 2014
 
361,334

 

 

 

 

 

 

 
361,334

Net distributions to Westlake prior to
  initial public offering
 
(448,101
)
 

 

 

 

 

 

 
(448,101
)
Predecessor net liabilities not assumed by
  OpCo
 
239,706

 

 

 

 

 

 

 
239,706

Balance as of August 4, 2014 (prior to
  initial public offering)
 
608,371

 

 

 

 

 

 

 
608,371

Allocation of net investment to unitholders
 
(608,371
)
 

 
3,563

 
31,479

 

 

 
573,329

 

Proceeds from initial public offering, net
  of finance and other offering costs
 

 
286,088

 

 

 

 

 

 
286,088

Distribution to the noncontrolling interest
  in OpCo
 

 

 

 

 

 

 
(151,729
)
 
(151,729
)
Purchase of additional interest in OpCo
 

 

 

 

 
(242,572
)
 

 
242,572

 

Net income from August 4, 2014 through
  September 30, 2014
 

 
2,399

 
265

 
2,351

 

 

 
49,542

 
54,557

Balances at September 30, 2014
 
$

 
$
288,487

 
$
3,828

 
$
33,830

 
$
(242,572
)
 
$

 
$
713,714

 
$
797,287

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2014
 
$

 
$
290,377

 
$
4,038

 
$
35,681

 
$
(242,572
)
 
$

 
$
747,426

 
$
834,950

Net income
 

 
13,887

 
1,542

 
13,617

 

 

 
233,632

 
262,678

Net effect of cash flow hedge
 

 

 

 

 
 
 
(173
)
 

 
(173
)
Quarterly distributions to unitholders
 

 
(10,982
)
 
(1,220
)
 
(10,770
)
 

 

 

 
(22,972
)
Quarterly distributions to noncontrolling
  interest retained in OpCo by Westlake
 

 

 

 

 

 

 
(238,009
)
 
(238,009
)
Balances at September 30, 2015
 
$

 
$
293,282

 
$
4,360

 
$
38,528

 
$
(242,572
)
 
$
(173
)
 
$
743,049

 
$
836,474

The accompanying notes are an integral part of the combined and consolidated financial statements.

4


WESTLAKE CHEMICAL PARTNERS LP
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
262,678

 
$
415,891

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
60,637

 
58,501

Provision for doubtful accounts
 
170

 
65

Loss from disposition of fixed assets
 
278

 
1,244

Deferred income taxes
 
(359
)
 
8,267

Income from equity method investment, net of dividends
 

 
1,073

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable—third parties
 
22,871

 
(23,637
)
Net accounts receivable—Westlake
 
(23,688
)
 
(10,373
)
Inventories
 
3,362

 
25,769

Prepaid expenses and other current assets
 
(170
)
 
(715
)
Accounts payable
 
4,851

 
(8,226
)
Accrued and other liabilities
 
2,039

 
7,633

Other, net
 
(1,466
)
 
10,498

Net cash provided by operating activities
 
331,203

 
485,990

Cash flows from investing activities
 
 
 
 
Additions to property, plant and equipment
 
(152,572
)
 
(144,348
)
Settlements of derivative instruments
 

 
(133
)
Net cash used for investing activities
 
(152,572
)
 
(144,481
)
Cash flows from financing activities
 
 
 
 
Proceeds from debt payable to Westlake
 
238,198

 
141,161

Repayment of debt payable to Westlake
 
(135,341
)
 

Repayment of debt payable to Westlake with proceeds from the initial public offering
 

 
(78,940
)
Net proceeds from issuance of common units
 

 
286,088

Proceeds from initial public offering distributed to Westlake
 

 
(151,729
)
Net distributions to Westlake prior to initial public offering
 

 
(448,101
)
Quarterly distributions to noncontrolling interest retained in OpCo by Westlake
 
(238,009
)
 

Quarterly distributions to unitholders
 
(22,972
)
 

Net cash used for financing activities
 
(158,124
)
 
(251,521
)
Net increase in cash and cash equivalents
 
20,507

 
89,988

Cash and cash equivalents at beginning of period
 
133,750

 

Cash and cash equivalents at end of period
 
$
154,257

 
$
89,988

The accompanying notes are an integral part of the combined and consolidated financial statements.

5

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)


1. Description of Business and Basis of Presentation
Description of Business
Westlake Chemical Partners LP (the "Partnership") is a Delaware limited partnership formed in March 2014 to operate, acquire and develop facilities and related assets for the processing of natural gas liquids. On August 4, 2014, the Partnership completed its initial public offering (the "IPO") of 12,937,500 common units representing limited partner interests. In connection with the IPO, the Partnership acquired a 10.6% interest in Westlake Chemical OpCo LP ("OpCo") and a 100% interest in Westlake Chemical OpCo GP LLC ("OpCo GP"), which is the general partner of OpCo. On April 29, 2015, the Partnership purchased an additional 2.7% newly-issued limited partner interest in OpCo for approximately $135,341, resulting in an aggregate 13.3% limited partner interest in OpCo effective April 1, 2015. OpCo owns three natural gas liquids processing facilities and a common carrier ethylene pipeline.
Basis of Presentation
The accompanying unaudited combined and 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 combined and consolidated financial statements should be read in conjunction with the December 31, 2014 combined and consolidated financial statements and notes thereto of the Partnership included in the annual report on Form 10-K for the fiscal year ended December 31, 2014 (the "2014 Form 10-K"), filed with the SEC on March 9, 2015. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the combined and consolidated financial statements of the Partnership for the fiscal year ended December 31, 2014.
Unless the context otherwise requires, references in this report to the "Predecessor" refer to Westlake Chemical Partners LP Predecessor, the Partnership's predecessor for accounting purposes and refer to the time periods prior to the IPO. References in this report to the Partnership used in the present tense or prospectively refer to Westlake Chemical Partners LP and refer to the periods subsequent to the IPO. References to "Westlake" refer collectively to Westlake Chemical Corporation and its subsidiaries, other than the Partnership, OpCo and OpCo GP.
The Partnership holds a 13.3% limited partner interest and the entire non-economic general partner interest in OpCo. The remaining 86.7% limited partner interest in OpCo is owned by Westlake, which has no rights to direct the activities that most significantly impact the economic performance of OpCo. As a result of the fact that substantially all of OpCo's activities are conducted on behalf of Westlake, and the fact that OpCo exhibits disproportionality of voting rights to economic interest, OpCo was deemed to be a variable interest entity. The Partnership, through its ownership of OpCo's general partner, has the power to direct the activities that most significantly impact the economic performance of OpCo, and it also has the obligation or right to absorb losses or receive benefits from OpCo that could potentially be significant to OpCo. As such, the Partnership was determined to be OpCo's primary beneficiary and therefore consolidates OpCo's results of operations and financial position. Westlake's retained interest of 86.7% is recorded as noncontrolling interest in the Partnership's consolidated financial statements.
Financial information of the Predecessor is derived from the financial statements and accounting records of Westlake. Subsequent to the IPO, the Partnership's financial position, results of operations, changes in equity and cash flows consist of the consolidated activities and balances of the Partnership. The Partnership's consolidated financial statements include the accounts of the Partnership and its consolidated subsidiary, OpCo. The combined and consolidated financial statements for the three and nine months ended September 30, 2014 were prepared as follows:
The combined and consolidated statement of operations for the three months ended September 30, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period from July 1, 2014 through August 3, 2014. The combined and consolidated statement of operations for the nine months ended September 30, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014.

6

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

The consolidated statement of other comprehensive income for the three and nine months ended September 30, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014.
The combined and consolidated statement of changes in equity for the nine months ended September 30, 2014 consists of the combined activity for the Predecessor prior to August 4, 2014, and the consolidated activity for the Partnership completed at and subsequent to the IPO on August 4, 2014.
The combined and consolidated statement of cash flows for the nine months ended September 30, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014.
In the opinion of the Partnership's management, the accompanying unaudited combined and consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Partnership's financial position as of September 30, 2015, its results of operations for the three and nine months ended September 30, 2015 and 2014 and the changes in its cash position for the nine months ended September 30, 2015 and 2014.
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, 2015 or any other 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 materially from those estimates.
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. In July 2015, the FASB deferred the effective date for the revenue recognition standard. The accounting standard will now be effective for reporting periods beginning after December 15, 2017. The Partnership 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.
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
In January 2015, the FASB issued an accounting standards update to simplify income statement classification by removing the concept of extraordinary items from U.S. GAAP. Under the new standard, an unusual and infrequent event or transaction is no longer allowed to be separately disclosed as "extraordinary." The standard retains the existing requirement to separately present items that are of an unusual nature or occur infrequently on a pre-tax basis within income from continuing operations. The new guidance also requires similar separate presentation of items that are both unusual and infrequent on a pre-tax basis within income from continuing operations. The standard allows for either prospective or retrospective application. If adopted prospectively, both the nature and amount of any subsequent adjustments to previously reported extraordinary items must be disclosed. The accounting standard will be effective for reporting periods beginning after December 15, 2015 and is not expected to have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
Amendments to the Consolidation Analysis
In February 2015, the FASB issued an accounting standards update making certain changes to the current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models. The new standard changes the consideration of substantive rights, related party interests and fees paid to the decision maker when applying the variable interest entity consolidation model and eliminate certain guidance for limited partnerships and similar

7

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

entities under the voting interest consolidation model. The accounting standard will be effective for reporting periods beginning after December 15, 2015 and is not expected to have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions
In April 2015, the FASB issued an accounting standard update requiring that the earnings of transferred net assets from a general partner prior to the dropdown date of the net assets to a master limited partnership be allocated entirely to the general partner when calculating earnings per unit under the two class method. As a result, previously reported earnings per unit of the limited partners will not change as a result of a dropdown transaction. The accounting standard will be effective for reporting periods and interim periods within those reporting periods beginning after December 15, 2015.
Simplifying the Measurement of Inventory
In July 2015, the FASB issued an accounting standards update that requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under the new standard, entities will no longer need to calculate other measures of "market." The new accounting guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The accounting standard will be effective for reporting periods beginning after December 15, 2016 and is not expected to have a significant impact on the Partnership's consolidated financial position, results of operations and cash flows.
2. Financial Instruments
Cash Equivalents
The Partnership had $75,025 and $40,003 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, 2015 and December 31, 2014, respectively. The Partnership's investments in held-to-maturity securities are held at amortized cost, which approximates fair value.
3. Accounts Receivable—Third Parties
Accounts receivable—third parties consist of the following:
 
 
September 30,
2015
 
December 31,
2014
Trade customers
 
$
14,649

 
$
37,514

Allowance for doubtful accounts
 
(170
)
 

 
 
14,479

 
37,514

Other
 

 
6

Accounts receivable, net—third parties
 
$
14,479

 
$
37,520

4. Inventories
Inventories consist of the following:


September 30,
2015

December 31,
2014
Finished products

$
2,895


$
6,257

Feedstock, additives and chemicals

377


377

Inventories

$
3,272


$
6,634

5. Property, Plant and Equipment
As of September 30, 2015, the Partnership had property, plant and equipment, net totaling $962,221. The Partnership assesses these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

8

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Other factors considered by the Partnership 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 $16,231 and $14,900 is included in cost of sales in the combined and consolidated statements of operations for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense on property, plant and equipment of $48,006 and $45,104 is included in cost of sales in the combined and consolidated statements of operations for the nine months ended September 30, 2015 and 2014, respectively.
6. Other Assets
Amortization expense on other assets of $4,211 and $4,319 is included in the combined and consolidated statements of operations for the three months ended September 30, 2015 and 2014, respectively. Amortization expense on other assets of $12,631 and $13,397 is included in the combined and consolidated statements of operations for the nine months ended September 30, 2015 and 2014, respectively.
7. Net Income Per Limited Partner Unit
Net income per unit applicable to common limited partner units and to subordinated limited partner units is computed by dividing the respective limited partners' interest in net income for the period by the weighted-average number of common units and subordinated units outstanding for the period. Because the Partnership has more than one class of participating securities, it uses the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units and incentive distribution rights. Basic and diluted net income per unit are the same because the Partnership does not have any potentially dilutive units outstanding for the periods presented.
On October 28, 2015, the board of directors of Westlake Chemical Partners GP LLC ("Westlake GP"), the Partnership's general partner, declared a quarterly cash distribution for the period from July 1, 2015 through September 30, 2015 of $0.2994 per unit, or $8,102 in total. This distribution is payable on November 27, 2015 to unitholders of record as of November 9, 2015.
On July 29, 2015, the board of directors of Westlake GP declared a quarterly cash distribution for the period from April 1, 2015 through June 30, 2015 of $0.2910 per unit, or $7,874 in total. This distribution was paid on August 27, 2015 to unitholders of record as of August 13, 2015. On April 29, 2015, the board of directors of Westlake GP declared a quarterly cash distribution for the period from January 1, 2015 through March 31, 2015 of $0.2829 per unit, or $7,655 in total. This distribution was paid on May 27, 2015 to unitholders of record as of May 12, 2015.


Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income attributable to the Partnership

$
10,103

 
$
5,015

 
$
29,046

 
$
5,015

Less:
 
 
 
 
 
 
 
 
Limited partners' distribution declared on common
  units

4,304

 
2,449

 
12,552

 
2,449

Limited partners' distribution declared on
  subordinated units

3,798

 
2,162

 
11,079

 
2,162

Net income in excess of distribution

$
2,001

 
$
404

 
$
5,415

 
$
404


9

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

 
 
Three Months Ended September 30, 2015
 
 
Limited Partners' Common Units
 
Limited Partners' Subordinated Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:
 
 
 
 
 
 
 
 
Distribution declared
 
$
4,304

 
$
3,798

 
$

 
$
8,102

Net income in excess of distribution
 
1,061

 
940

 

 
2,001

Net income
 
$
5,365

 
$
4,738

 
$

 
$
10,103

Weighted average units outstanding:
 
 
 
 
 
 
 
 
Basic and diluted
 
14,373,615

 
12,686,115

 
 
 
27,059,730

Net income per limited partner unit:
 
 
 
 
 
 
 
 
Basic and diluted
 
$
0.37

 
$
0.37

 
 
 
$
0.37

 
 
Nine Months Ended September 30, 2015


Limited Partners' Common Units
 
Limited Partners' Subordinated Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:

 
 
 
 
 
 
 
Distribution declared

$
12,552

 
$
11,079

 
$

 
$
23,631

Net income in excess of distribution

2,877

 
2,538

 

 
5,415

Net income

$
15,429

 
$
13,617

 
$

 
$
29,046

Weighted average units outstanding:
 
 
 
 
 
 
 
 
Basic and diluted
 
14,373,615

 
12,686,115

 
 
 
27,059,730

Net income per limited partner unit:
 
 
 
 
 
 
 
 
Basic and diluted
 
$
1.07

 
$
1.07

 
 
 
$
1.07

8. Related Party Transactions
The Partnership and OpCo regularly enter into related party transactions with Westlake. See below for a description of transactions with related parties.
Sales to Related Parties
OpCo sells ethylene to Westlake under the Ethylene Sales Agreement. Additionally, each of the Partnership and OpCo from time to time provide other services or products for which it charges Westlake a fee. Prior to the IPO, the Predecessor sold the majority of its ethylene to Westlake for use in Westlake's downstream operations.
Sales to related parties were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales—Westlake
 
$
207,856

 
$
289,601

 
$
621,438

 
$
1,088,561

Cost of Sales from Related Parties
Charges for goods and services purchased by the Partnership and OpCo from Westlake and included in cost of sales relate primarily to feedstock purchased under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement. Prior to the IPO, services provided by Westlake and included in cost of sales related primarily to services provided by employees of Westlake Management Services, Inc., a subsidiary of Westlake. The cost of services provided by employees of Westlake Management Services, Inc. was allocated to the Predecessor's operations primarily on the basis of direct usage.

10

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

Charges from related parties in cost of sales were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Feedstock purchased from Westlake and included in cost
  of sales
 
$
75,752

 
$
63,108

 
$
232,584

 
$
63,108

Other charges from Westlake and included in cost of
  sales
 
20,457

 
13,879

 
53,948

 
47,000

Total
 
$
96,209

 
$
76,987

 
$
286,532

 
$
110,108

Services from Related Parties Included in Selling, General and Administrative Expenses
Charges for services purchased by the Partnership from Westlake and included in selling, general and administrative expenses primarily relate to services Westlake performs on behalf of the Partnership under the Omnibus Agreement, including the Partnership's finance, legal, information technology, human resources, communication, ethics and compliance, and other administrative functions. Prior to the IPO, the Predecessor was allocated costs incurred by Westlake on its behalf for similar functions. These allocations were based primarily on the basis of direct usage when identifiable, with the remainder allocated on the basis of fixed assets, headcount or other measure. Management believes the allocations of expenses incurred by Westlake on the Predecessor's behalf are reasonable and reflect all costs related to the operations of the Predecessor. Nevertheless, the financial information of the Predecessor may not have included all of the expenses that would have been incurred had the Predecessor been a stand-alone company during the periods prior to the IPO.
Charges from related parties included within selling, general and administrative expenses were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Services received from Westlake and included in selling,
  general and administrative expenses
 
$
4,772

 
$
4,283

 
$
14,891

 
$
15,901

Goods and Services from Related Parties Capitalized as Assets
Charges for goods and services purchased by the Partnership and OpCo from Westlake which were capitalized as assets relate primarily to the services of Westlake employees under the Services and Secondment Agreement. Prior to the IPO, salaries and benefits of Westlake Management Services, Inc. were allocated to the Predecessor primarily on the basis of direct usage.
Charges from related parties for goods and services capitalized as assets were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Goods and services purchased from Westlake and
  capitalized as assets
 
$
1,304

 
$
830

 
$
3,241

 
$
2,074

Accounts Receivable from and Accounts Payable to Related Parties
The Partnership's accounts receivable from Westlake result primarily from ethylene sales to Westlake under the Ethylene Sales Agreement. The Partnership's accounts payable to Westlake result primarily from feedstock purchases under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement and the Omnibus Agreement.
The related party accounts receivable and accounts payable balances were as follows:


September 30,
2015

December 31,
2014
Accounts receivable, net—Westlake

$
44,035

 
$
18,529

Accounts payable—Westlake

(9,288
)
 
(7,470
)

11

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

Debt Payable to Related Parties
OpCo assumed promissory notes payable to Westlake and entered into a senior unsecured revolving credit facility with Westlake in connection with the IPO. Prior to the IPO, the Predecessor funded certain capital expenditures through promissory notes payable to Westlake, a portion of which were assumed by the Partnership in connection with the IPO. See Note 9 for description of related party debt payable balances. Interest on related party debt payable balances for the three months ended September 30, 2015 and 2014 were $1,054 and $2,137, respectively, and for the nine months ended September 30, 2015 and 2014 were $3,794 and $9,833, respectively, and are reflected as a component of other income (expense) in the combined and consolidated statements of operations. Interest capitalized as a component of property, plant and equipment on related party debt was $1,284 for the three months ended September 30, 2015 and $3,394 for the nine months ended September 30, 2015. At September 30, 2015 and December 31, 2014, accrued interest on related party debt was $2,284 and $2,403, respectively, and is reflected as a component of accrued liabilities in the consolidated balance sheets.
Debt payable to related parties was as follows:
 
 
September 30,
2015
 
December 31,
2014
Long-term debt payable to Westlake
 
$
330,495

 
$
227,638

General
OpCo, together with other subsidiaries of Westlake not included in these combined and consolidated financial statements, is a guarantor under Westlake's revolving credit facility and the indentures governing its senior notes. As of September 30, 2015 and December 31, 2014, Westlake had outstanding letters of credit totaling $29,953 and $31,392 under its revolving credit facility and $754,000 and $754,000 outstanding under its senior notes (less the unamortized discount of $803 and $892), respectively.
The indentures governing Westlake's senior notes prevent OpCo from making distributions to the Partnership if any default or event of default (as defined in the indentures) exists. However, Westlake's credit facility does not prevent OpCo from making distributions to the Partnership.
During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the MLP Revolver balance. See note 11 for additional information on the interest rate contract.
OpCo has entered into two site lease agreements with Westlake in connection with the IPO, and each has a term of 50 years. Pursuant to the site lease agreements, OpCo pays Westlake one dollar per site per year.
9. Long-term Debt Payable to Westlake
Long-term debt payable to Westlake consists of the following:
 
 
September 30,
2015
 
December 31,
2014
August 2013 Promissory Notes (variable interest rate of prime plus 1.5%, original
  scheduled maturity of August 1, 2023)
 
$
31,775

 
$
167,116

OpCo Revolver (variable interest rate of London Interbank Offered Rate ("LIBOR") plus
  3.0%, original scheduled maturity of August 4, 2019)

163,379

 
60,522

MLP Revolver (variable interest rate of LIBOR plus 2.0%, original scheduled maturity of
  April 29, 2018)
 
135,341

 

 
 
$
330,495

 
$
227,638

In 2013, three intercompany promissory notes were issued for capital expenditures incurred by Westlake on behalf of the Predecessor's operations (together, the "August 2013 Promissory Notes"). In connection with the IPO, OpCo assumed a portion of the August 2013 Promissory Notes. Proceeds drawn under the August 2013 Promissory Notes during the nine months ended September 30, 2014 were used to fund capital expenditures at the Predecessor's ethylene plants.
In connection with the IPO on August 4, 2014, OpCo entered into a $600,000 senior unsecured revolving credit facility agreement with Westlake (the "OpCo Revolver"). The OpCo Revolver accrues interest quarterly at a rate of LIBOR plus 3.0%,

12

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

which may be paid-in-kind as an addition to the principal at OpCo's option. Proceeds drawn under the OpCo Revolver during the nine months ended September 30, 2015 were used to fund capital expenditures at the Partnership's ethylene plants.
On April 29, 2015, the Partnership entered into a $300,000 revolving credit facility agreement with Westlake (the "MLP Revolver") to fund the Partnership's purchase of an additional 2.7% newly-issued, limited partner interest in OpCo for $135,341. Borrowings under the MLP Revolver bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (depending on the Partnership's consolidated leverage ratio), payable quarterly. The MLP Revolver provides that the Partnership may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that the Partnership maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.00 or less, or (2) during any other period, 4.50:1.00 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the MLP Revolver balance. See note 11 for additional information on the interest rate contract.
As of September 30, 2015, the Partnership was in compliance with all of the covenants under the August 2013 Promissory Notes, the OpCo Revolver and the MLP Revolver.
10. Accumulated Other Comprehensive Loss
Accumulated other comprehensive income or loss primarily reflects the effective portion of the gain or loss on derivative instrument designated and qualified as a cash flow hedge. Gain or loss amounts related to a cash flow hedge recorded in accumulated other comprehensive income or loss are reclassified to income in the same period in which the underlying hedged forecasted transaction affects income. If it becomes probable that a forecasted transaction will not occur, the related net gain or loss in accumulated other comprehensive income or loss is immediately reclassified into income.
The following sets forth the amounts included in accumulated other comprehensive loss for the nine months ended September 30, 2015:
 
 
Nine Months Ended September 30, 2015
Interest rate contract—Loss recognized on cash flow hedge
 
$
(223
)
Interest rate contract—Loss reclassified to net income on cash flow hedge
 
50

Net effect of cash flow hedge
 
$
(173
)
11. Derivative Instruments
The accounting guidance for derivative instruments and hedging activities requires that the Partnership and the Predecessor recognize all derivative instruments on the balance sheet at fair value, and changes in the derivative's fair value must be currently recognized in earnings or comprehensive income, depending on the designation of the derivative. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in comprehensive income and is recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings currently.
There were no derivative instruments that were designated as fair value hedges for the nine months ended September 30, 2015 and 2014.
Commodity Risk Management
The Predecessor utilized commodity derivative instruments to reduce price risks by purchasing or selling futures on established exchanges. The Predecessor took both fixed and variable positions, depending upon anticipated future physical purchases and sales of these commodities. The fair value of derivative financial instruments was estimated using quoted market prices in active markets and observable market-based inputs or unobservable inputs that were corroborated by market data

13

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

when active markets were not available. The Predecessor assessed both counterparty as well as its own nonperformance risk when measuring the fair value of derivative liabilities. The Predecessor did not consider its nonperformance risk to be significant. The Partnership has not entered into any commodity derivative instruments since the date of the IPO, August 4, 2014.
The Partnership had no non-designated hedging instruments for the nine months ended September 30, 2015. 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 combined and consolidated statements of operations for the three and nine months ended September 30, 2014 as follows:
 
Derivatives Not Designated as Hedging Instruments
 
Location of Gain (Loss)
Recognized in 
Income on Derivative
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
 
 
Commodity forward contracts
 
Gross profit
 
$
(8,873
)
 
$
(9,244
)
Interest Rate Risk Management
During August 2015, the Partnership entered into an interest rate contract with Westlake to reduce the risks of variability of the interest rates under the MLP Revolver. The interest rate contract fixed the LIBOR component of the interest rate for a portion of the MLP Revolver balance. This contract was designated as a cash flow hedge. With the exception of this interest rate contract, the Partnership did not have any other derivative financial instruments during the three and nine months ended September 30, 2015. As of and for the three and nine months ended September 30, 2014, neither the Partnership nor the Predecessor had any interest rate contracts.
There were no open derivatives as of December 31, 2014. The fair value of the derivative instrument on the Partnership's consolidated balance sheet as of September 30, 2015 was as follows:
 
 
Derivative Liabilities
Derivative in Cash Flow Hedging Relationship
 
Balance Sheet Location
 
Fair Value as of
September 30,
2015
 
Interest rate contract
 
Other liabilities
 
$
173

The following tables present the effect of derivative instrument designated as cash flow hedge on the combined and consolidated statements of operations and the consolidated statements of comprehensive income for the three and nine months ended September 30, 2015:
 
Derivative in Cash Flow Hedging Relationship
 
Location of Gain (Loss)
Recognized in 
Statement of Operations
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
 
Interest rate contract—Loss reclassified from
  accumulated other comprehensive loss
 
Interest expense
 
$
(50
)
 
$
(50
)
 
Derivative in Cash Flow Hedging Relationship
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
 
Interest rate contract—Change in value recognized in other comprehensive loss
 
$
223

 
$
223

There was no ineffective portion of a derivative instrument during the three and nine months ended September 30, 2015.
See Note 12 for the fair value of derivative instruments.

14

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

12. Fair Value Measurements
The Partnership 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.
There were no assets or liabilities accounted for at fair value on a recurring basis as of December 31, 2014. The following table summarizes, by level within the fair value hierarchy, the Partnership's liability under the interest rate contract that was accounted for at fair value on a recurring basis at September 30, 2015:
 
 
September 30, 2015
 
 
Level 2
 
Total
Derivative instruments
 
 
 
 
Liability—Interest rate contract
 
$
(173
)
 
$
(173
)
The fair value of the level 2 interest rate contract is determined using standard valuation methodologies which incorporate relevant contract terms along with readily available market data (i.e. the 3 month LIBOR forward curve). There were no transfers in or out of Levels 1 and 2 of the fair value hierarchy for the nine months ended September 30, 2015 and 2014.
The Partnership has other financial assets and liabilities subject to fair value measures. These financial assets and liabilities include accounts receivable, net, accounts payable and long-term debt payable to Westlake, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for 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 Partnership's long-term debt at September 30, 2015 and December 31, 2014 are summarized in the table below. The Partnership's long-term debt includes the August 2013 Promissory Notes, the OpCo Revolver and the MLP Revolver. The fair value of debt is determined based on the present value of expected future cash flows using a discounted cash flow methodology. Because the Partnership's valuation methodology used for long-term debt requires the use of significant unobservable inputs, the inputs used to measure the fair value of the Partnership's long-term debt are classified as Level 3 within the fair value hierarchy. Inputs used to estimate the fair values of the Partnership's long-term debt include the selection of an appropriate discount rate.
 
 
September 30, 2015
 
December 31, 2014
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
August 2013 Promissory Notes
 
$
31,775

 
$
31,775

 
$
167,116

 
$
167,116

OpCo Revolver
 
163,379

 
170,613

 
60,522

 
60,522

MLP Revolver
 
135,341

 
134,514

 

 

13. Income Taxes
The Partnership is a limited partnership and is treated as a partnership for U.S. federal income tax purposes and, therefore, is not liable for entity-level federal income taxes. The Partnership is, however, subject to state and local income taxes. The Predecessor's operating results were included in Westlake's consolidated U.S. federal and state income tax returns. Amounts presented in the combined financial statements pertaining to the period prior to the IPO relate to income taxes that have been determined on a separate tax return basis and the Predecessor's contribution to Westlake Chemical Corporation's net operating losses and tax credits have been included in the Predecessor's combined financial statements.
The effective income tax rates were 0.2% and 0.2% for the three and nine months ended September 30, 2015, respectively. The effective income tax rates for the three and nine months ended September 30, 2015 are not comparable to the effective income tax rate for the prior-year comparative periods as the Partnership is not subject to federal income taxes subsequent to the IPO. The effective income tax rate of the Predecessor was 35.4% for the period from January 1, 2014 through August 3, 2014. The effective income tax rate for the 2014 period prior to the IPO was above the U.S. federal statutory rate of 35.0% primarily due to state

15

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

income taxes, mostly offset by the domestic manufacturing deduction and state income tax credits. The Partnership's effective tax rate was less than one percent for the 2014 period subsequent to the IPO.
14. Supplemental Information
Accrued Liabilities
Accrued liabilities were $22,352 and $11,900 at September 30, 2015 and December 31, 2014, respectively. The accrual related to capital expenditures, which is a component of accrued liabilities, was $14,452 at September 30, 2015. Accrued taxes, interest on long-term debt and the accrual related to capital expenditures, which are components of accrued liabilities, were $1,622, $2,403, and $5,026 at December 31, 2014, respectively. No other component of accrued liabilities was more than five percent of total current liabilities.
Non-cash Operating Activity
The Predecessor settled $2,089 and $9,530 of its total interest expense incurred on long-term debt payable to Westlake as an addition to principal on debt outstanding for the three and nine months ended September 30, 2014, respectively.
Non-cash Investing Activity
The change in capital expenditure accrual reducing additions to property, plant and equipment was $15,850 for the nine months ended September 30, 2015. The change in capital expenditure accrual reducing additions to property, plant and equipment was $8,564 for the nine months ended September 30, 2014.
15. Major Customer and Concentration of Credit Risk
During the three months ended September 30, 2015 and 2014, Westlake accounted for approximately 83.6% and 73.9%, respectively, of the Partnership's and the Predecessor's net sales. During the nine months ended September 30, 2015 and 2014, Westlake accounted for approximately 81.9% and 73.7%, respectively, of the Partnership's and the Predecessor's net sales.
16. Commitments and Contingencies
The Partnership 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. Because several of the Partnership's processing sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Partnership. Westlake has agreed to indemnify the Partnership for liabilities that occurred or existed prior to August 4, 2014.
Contract Disputes with Goodrich and PolyOne. In connection with the 1990 and 1997 acquisitions of the Goodrich Corporation ("Goodrich") chemical manufacturing facility in Calvert City, Kentucky, which is a portion of the B.F. Goodrich superfund site, Goodrich agreed to indemnify Westlake for any liabilities related to preexisting contamination at the site. Westlake agreed to indemnify Goodrich for post-closing contamination caused by Westlake's operations. The soil and groundwater at the site 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 Westlake, 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 100.0% 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 Westlake 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) Westlake and PolyOne would negotiate a new environmental remediation utilities and services agreement to cover Westlake's provision to or on behalf of PolyOne of certain environmental remediation services at the site. The current environmental remediation activities at the Calvert City site do not have a specified termination date but are expected to last for the foreseeable future. The costs incurred by Westlake that have been invoiced to PolyOne to provide the environmental remediation services were $2,805 in 2014. By letter dated March 16, 2010, PolyOne notified Westlake 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 Westlake in

16

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

reimbursement of previously paid remediation costs. The arbitration is currently stayed pending the outcome of discussions between other parties and their insurance carriers.
State Administrative Proceedings. There are several administrative proceedings in Kentucky involving Westlake, Goodrich and PolyOne related to the same manufacturing site in Calvert City, which includes OpCo's processing facility 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 site. Both Goodrich and PolyOne challenged various terms of the permit in an attempt to shift Goodrich's clean-up obligations under the permit to Westlake. Westlake 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. 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 the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). In its response to the Cabinet, 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 Partnership's plant which had been operated by Goodrich and which was being remediated pursuant to CERCLA. The EPA has directed Goodrich and PolyOne to conduct additional investigation activities at the landfill and at the Calvert City site. In June 2009, the EPA notified Westlake that Westlake 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. Westlake negotiated, in conjunction with the other potentially responsible parties, an AOC and an order to conduct an RIFS. Due to the Partnership's ownership and current operation of the property, the Partnership may be subject to additional requirements and liabilities under CERCLA.
Potential Flare Modifications. For several years, the EPA has been conducting an enforcement initiative against petroleum refineries and petrochemical plants with respect to emissions from flares. A number of companies have entered into consent agreements with the EPA requiring both modifications to reduce flare emissions and the installation of additional equipment to better track flare operations and emissions. On April 21, 2014, Westlake received a Clean Air Act Section 114 Information Request from the EPA which sought information regarding flares at the Calvert City and Lake Charles facilities. Westlake submitted information pursuant to such request, including information regarding three flares that the Partnership owns. The EPA has informed Westlake that the information provided leads the EPA to believe that some of the flares are out of compliance with applicable standards. The EPA has demanded that Westlake conduct additional flare sampling and provide supplemental information. Westlake is currently in negotiations with the EPA regarding these demands, some of which are applicable to the Partnership's flares. The EPA has indicated that it is seeking a consent decree with that would obligate Westlake to take corrective actions relating to the alleged noncompliance. Westlake has not agreed that any flares are out of compliance or that any corrective actions are warranted. Depending on the outcome of Westlake's negotiations with the EPA, additional controls on emissions from the Partnership's flares may be required and these could result in increased capital and operating costs.
Louisiana Notice of Violations. The Louisiana Department of Environmental Quality ("LDEQ") has issued notices of violations regarding the Partnership's assets, and those of Westlake, for various air compliance issues. The Partnership and Westlake are working with LDEQ to settle these claims, and a global settlement of all claims is being discussed. While settlement may result in a total civil penalty of approximately $200, such a settlement will likely cover assets owned by the Partnership and Westlake, and to the extent it covers the Partnership's assets, Westlake has agreed to indemnify the Partnership for liabilities to the extent such liabilities occurred or existed prior to August 4, 2014.
In addition to the matters described above, the Partnership is involved in various routine legal proceedings incidental to the conduct of its business. The Partnership 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.

17

WESTLAKE CHEMICAL PARTNERS LP
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

17. Subsequent Events
On October 28, 2015, the board of directors of Westlake GP declared a quarterly distribution for the period from July 1, 2015 through September 30, 2015 of $0.2994 per unit or $8,102 in total. This distribution is payable on November 27, 2015 to unitholders of record as of November 9, 2015.
Subsequent events were evaluated through the date on which the financial statements were issued.

18


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, references in this report to the "Predecessor" refer to Westlake Chemical Partners LP Predecessor, our predecessor for accounting purposes, and refer to the time periods prior to the completion of our initial public offering on August 4, 2014 (the "IPO"). Unless otherwise indicated, references in this report to "we," "our," "us" or like terms used in the present tense or prospectively, or in reference to the period subsequent to the IPO, refer to Westlake Chemical Partners LP (the "Partnership"), Westlake Chemical OpCo LP ("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake" refer to Westlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo.
This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the accompanying combined and consolidated financial statements and the notes thereto and the combined and consolidated financial statements and notes thereto included in Westlake Chemical Partners LP's annual report on Form 10-K for the fiscal year ended December 31, 2014 (the "2014 Form 10-K"), as filed with the SEC on March 9, 2015.
The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.
The Initial Public Offering
On August 4, 2014, the Partnership closed its IPO of 12,937,500 common units.
Purchase of Additional Interests in OpCo
On April 29, 2015, we purchased an additional 2.7% newly-issued limited partner interest in OpCo for approximately $135.3 million, resulting in an aggregate 13.3% limited partner interest in OpCo effective April 1, 2015. In order to fund this purchase, we entered into a revolving credit facility (the "MLP Revolver") with a subsidiary of Westlake, which has a total borrowing capacity of $300.0 million. We intend to rely on the MLP Revolver in making any additional purchases of limited partner interests in OpCo in the future. For more information on the MLP Revolver, please see "—Liquidity and Capital Resources—Indebtedness—MLP Revolver."
Partnership Overview
We are a Delaware limited partnership formed by Westlake to operate, acquire and develop facilities and related assets for the processing of natural gas liquids. Currently, our sole revenue generating asset is our 13.3% limited partner interest in OpCo, a limited partnership formed by Westlake and us in anticipation of the IPO to own and operate a natural gas liquids processing business. We control OpCo through our ownership of its general partner. Westlake retains the remaining 86.7% limited partner interest in OpCo as well as significant interest in us through its ownership of our general partner, 52.2% of our limited partner units (consisting of 1,436,115 common units and all of the subordinated units) and our incentive distribution rights. OpCo's assets include (1) two natural gas liquids processing facilities ("Petro 1" and "Petro 2" and, collectively, "Lake Charles Olefins") at Westlake's Lake Charles, Louisiana site; (2) one natural gas liquids processing facility ("Calvert City Olefins") at Westlake's Calvert City, Kentucky site; and (3) a 200-mile common carrier ethylene pipeline (the "Longview Pipeline") that runs from Mont Belvieu, Texas to the chemical facility in Longview, Texas.
How We Generate Revenue
We generate revenue primarily by selling ethylene and the resulting co-products we produce. In connection with the IPO, OpCo and Westlake entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which we generate a substantial majority of our revenue. This agreement is a long-term, fee-based agreement with a minimum purchase commitment and includes variable pricing based on OpCo's actual feedstock and natural gas costs and estimated other costs of producing ethylene, plus a fixed margin per pound of $0.10 less revenue from co-products sales. We expect Westlake will take volumes in excess of the minimum commitment under the Ethylene Sales Agreement if we produce more than our planned production.
We sell ethylene production in excess of volumes sold to Westlake, as well as associated co-products resulting from the ethylene production, directly to third parties on either a spot or contract basis. Net proceeds (after transportation and other costs) from the sales of associated co-products that result from the production of ethylene purchased by Westlake are netted against the ethylene price charged to Westlake under the Ethylene Sales Agreement, thereby substantially reducing our exposure to fluctuations in the market prices of these co-products. Historically, the third-party ethylene and associated co-products sales have generated greater than 25% of our total revenues. The significant drop in crude oil prices towards the end of 2014 and continuing through the third quarter of 2015 may create volatility in the North American and global markets, which may result in reduced prices and margins for third-party ethylene and associated co-products sales in 2015 and 2016.

19


How We Source Feedstock
In connection with the IPO, OpCo entered into a 12-year feedstock supply agreement (the "Feedstock Supply Agreement") with Westlake Petrochemicals LLC, a wholly owned subsidiary of Westlake, under which Westlake Petrochemicals LLC supplies OpCo with ethane and other feedstocks that OpCo uses to produce ethylene under the Ethylene Sales Agreement. We expect that OpCo will also purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from Westlake Petrochemicals LLC.
How We Evaluate Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (1) production volumes, (2) operating and maintenance expenses, including turnaround costs, and (3) MLP distributable cash flow and EBITDA.
Production Volumes
The amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at Calvert City Olefins and Lake Charles Olefins. Although Westlake has committed to purchasing minimum volumes from us under the Ethylene Sales Agreement, our results of operations are impacted by our ability to:
produce sufficient volumes of ethylene to meet our commitments under the Ethylene Sales Agreement or recover our estimated costs through the pricing provisions of the Ethylene Sales Agreement;
contract with third parties for the remaining uncommitted processing capacity;
add or increase capacity at our existing processing facilities, or add additional processing capacity via organic expansion projects and acquisitions; and
achieve or exceed the specified yield factors for natural gas, ethane and other feedstock under the Ethylene Sales Agreement.
Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs
Our management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs. Our operating expenses are comprised primarily of feedstock costs and natural gas, labor expenses (including contractor services), utility costs (other than natural gas) and repair and maintenance expenses. With the exception of feedstock, including natural gas, and utilities-related expenses, operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances, particularly maintenance and turnaround activities. Our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our processing facilities and the amortization of capitalized turnaround costs. These capital expenditures relate to the maintenance and integrity of our facilities. We capitalize the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected unit.
Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement. Because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the Ethylene Sales Agreement for any given 12-month period, our ability to manage operating expenses, maintenance expenditures and turnaround costs directly affects our profitability and cash flows. We seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows, without compromising our commitment to safety and environmental stewardship. In addition, we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence.
MLP Distributable Cash Flow and EBITDA
We use each of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation and amortization, less contributions for turnaround reserves and maintenance capital expenditures. We define MLP distributable cash flow as distributable cash flow attributable to periods subsequent to the date of the IPO less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

20


our operating performance as compared to other publicly traded partnerships;
our ability to incur and service debt and fund capital expenditures;
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
We believe that the presentation of MLP distributable cash flow and EBITDA provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to MLP distributable cash flow are net income and net cash provided by operating activities. MLP distributable cash flow should not be considered as an alternative to GAAP net income or net cash provided by operating activities. MLP distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. The GAAP measures most directly comparable to EBITDA are net income and cash flow from operating activities, but EBITDA should not be considered an alternative to such GAAP measures. EBITDA has important limitations as an analytical tool because it excludes (1) interest expense, which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations, (2) depreciation, which is a necessary element of our costs and ability to generate revenues because we use capital assets and (3) income taxes, which was a necessary element of Predecessor's operations. MLP distributable cash flow and EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See reconciliations for each of MLP distributable cash flow and EBITDA under "Results of Operations" below.
Factors Affecting the Comparability of Our Financial Results
The consolidated results of operations for the three months ended September 30, 2014 consist of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period from July 1, 2014 through August 3, 2014. The consolidated results of operations for the nine months ended September 30, 2014 consist of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014. Our results of operations subsequent to the IPO are not comparable to the Predecessor's historical results of operations for the reasons described below:
Revenue
Ethylene, Co-products and Excess Feedstock Sales
There are differences in the way the Predecessor generated and recorded revenue and the way we generate and record revenue from ethylene sales to Westlake. The Predecessor generally recognized revenue for ethylene sold internally based on a transfer pricing formula intended to approximate the fair market value of the commodity. Subsequent to the IPO, a substantial majority of our revenue from ethylene sales is generated from sales of ethylene to Westlake under the Ethylene Sales Agreement. The Ethylene Sales Agreement contains minimum purchase commitments and pricing that is expected to generate a fixed margin of $0.10 per pound. The price per pound of ethylene sold under the Ethylene Sales Agreement is lower than historical prices charged by the Predecessor for ethylene sold internally. As such, there will be a significant decrease in revenue from ethylene sales to Westlake for periods after the IPO compared with the Predecessor's historical revenue.
The Predecessor's third-party sales consisted of ethylene, feedstock and associated co-products sales. With respect to third-party ethylene sales, the Predecessor also resold externally procured ethylene to third parties. Subsequent to the IPO, the ethylene procurement and reselling activities of the Predecessor remained with Westlake. In addition, the Predecessor's net sales included revenue from sales to third parties of excess feedstock not used in the ethylene production process. Following the closing of the IPO, we do not generate revenues from the sale of excess feedstock to third parties as all of the Predecessor's feedstock risk-management activities remained with Westlake. However, we sell all of our co-products volume to third parties in a manner consistent with the Predecessor. As such, there are no significant changes to revenue related to the sale of co-products, as compared to the Predecessor's historical revenue from co-products sales.
Expenses
Selling, General and Administrative Expenses
The Predecessor's selling, general and administrative expenses included direct and indirect charges for the management and operation of our ethylene and other transportation assets allocated by Westlake for general corporate services such as treasury, information technology, legal, corporate tax, human resources, executive compensation, and other financial and administrative services. These expenses were charged or allocated to the Predecessor based on the nature of the expense and the Predecessor's proportionate share of fixed assets, headcount or other measure, as deemed appropriate. Following the closing of the IPO, under the Services and Secondment Agreement and Omnibus Agreement, Westlake continues to charge us a

21


combination of direct and allocated charges for similar general corporate services as those charged to the Predecessor historically. We also incur certain annual general and administrative expenses as a result of being a separate publicly traded partnership which were not reflected in the periods prior to the IPO.
Income Taxes
The Partnership is a limited partnership and is treated as a partnership for U.S. federal income tax purposes and, therefore, is not liable for entity-level federal income taxes. The Partnership is, however, subject to state and local income taxes. The Predecessor's tax provision was determined on a separate return basis. Accordingly, we expect our tax provision to be significantly reduced as compared to that of the Predecessor.
Noncontrolling Interest
At the closing of the IPO, Westlake contributed a 5.8% limited partner interest and the general partner interest in OpCo to us. Immediately following the IPO, we used the IPO net proceeds to acquire an additional 4.8% limited partner interest in OpCo directly from OpCo and Westlake retained the remaining 89.4% limited partner interest in OpCo, which is recorded as noncontrolling interest in our consolidated financial statements. In April 2015, we purchased an additional 2.7% newly-issued limited partner interest in OpCo, resulting in an aggregate 13.3% limited partner interest in OpCo effective April 1, 2015. Westlake owns the remaining 86.7% limited partner interest in OpCo. See "Purchase of Additional Interests in OpCo" above.
Factors Affecting Our Business
Supply and Demand for Ethylene and Resulting Co-products
We generate a substantial majority of our revenue from the Ethylene Sales Agreement. This contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways: (1) the cost-plus pricing structure of the Ethylene Sales Agreement is expected to generate a fixed margin of $0.10 per pound, adjusting automatically for changes in feedstock costs; and (2) Westlake is committed to purchase 95% of the annual planned production, subject to a maximum commitment of 3.8 billion pounds of ethylene per year, with an option to purchase an additional 95% of actual monthly production in excess of the planned production. As a result, our direct exposure to commodity price risk is limited to approximately 5% of our total ethylene production, which is that portion sold to third parties, assuming Westlake exercises its option to purchase 95% of the over production, as well as to our co-products sales.
We also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers. Demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand, the resulting operating rates and general economic activity. While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations during the term of the Ethylene Sales Agreement through the minimum commitment and the cost-plus based pricing, our ability to execute our growth strategy in our areas of operation will depend, in part, on the demand for ethylene derivatives in the geographical areas served by our processing facilities.

22


Results of Operations
The table below and descriptions that follow represent the consolidated results of operations of the Partnership for the three and nine months ended September 30, 2015. The combined and consolidated results of operations for the three and nine months ended September 30, 2014 consist of the consolidated results of the Partnership for the period from August 4, 2014 through September 30, 2014 and the combined results of the Predecessor for the period prior to the IPO. Our consolidated results of operations subsequent to the IPO are not comparable to the Predecessor's historical combined results of operations for the reasons discussed under "Factors Affecting the Comparability of Our Financial Results."
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Revenue
 
 
 
 
 
 
 
 
Net sales—Westlake
 
$
207,856

 
$
289,601

 
$
621,438

 
$
1,088,561

Net co-product, ethylene and feedstock sales—third
  parties
 
40,763

 
102,407

 
137,277

 
387,596

Total net sales
 
248,619

 
392,008

 
758,715

 
1,476,157

Cost of sales
 
154,474

 
227,015

 
473,815

 
832,304

Gross profit
 
94,145

 
164,993

 
284,900

 
643,853

Selling, general and administrative expenses
 
5,831

 
8,860

 
17,826

 
22,803

Income from operations
 
88,314

 
156,133

 
267,074

 
621,050

Other income (expense)
 

 

 

 

Interest expense—Westlake
 
(1,054
)
 
(2,137
)
 
(3,794
)
 
(9,833
)
Other income, net (1)
 
(73
)
 
486

 
(35
)
 
3,135

Income before income taxes
 
87,187

 
154,482

 
263,245

 
614,352

Provision for income taxes
 
141

 
36,309

 
567

 
198,461

Net income
 
87,046

 
118,173

 
262,678

 
415,891

Less: Predecessor net income prior to initial public
  offering on August 4, 2014
 

 
63,616

 

 
361,334

Net income subsequent to initial public offering
 
87,046

 
54,557

 
262,678

 
54,557

Less: Net income attributable to noncontrolling
  interest in OpCo
 
76,943

 
49,542

 
233,632

 
49,542

Net income attributable to Westlake Chemical
  Partners LP subsequent to initial public offering
 
$
10,103

 
$
5,015

 
$
29,046

 
$
5,015

MLP distributable cash flow (2)
 
$
9,475

 
$
5,265

 
$
27,671

 
$
5,265

EBITDA (3)
 
$
108,683

 
$
175,838

 
$
327,676

 
$
682,686

____________
 
 
 
 
 
 
 
 
(1) Includes income from the Predecessor's equity stake in a pipeline joint venture that was not contributed to the Partnership in connection with the IPO.
(2) Non GAAP financial measure. See the "Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities."
(3) Non GAAP financial measure. See the "Reconciliation of EBITDA to Net Income and Net Cash Provided by Operating Activities."

23


 
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
 
Average
Sales Price
 
Volume
 
Average
Sales Price
 
Volume
Product sales prices and volume percentage change
  from prior year period
 
-31.3
 %
 
-5.2
 %
 
-40.7
 %
 
-7.9
 %
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Average industry prices (1)
 
 
 
 
 
 
 
 
Ethane (cents/lb)
 
6.4

 
7.9

 
6.3

 
9.7

Propane (cents/lb)
 
9.6

 
24.6

 
11.0

 
26.9

Ethylene (cents/lb) (2)
 
28.2

 
66.6

 
33.6

 
59.1

_____________
(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.
Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities
The following table presents reconciliations of MLP distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
MLP distributable cash flow (1)
 
$
9,475

 
$
5,265

 
$
27,671

 
$
5,265

Add:
 
 
 
 
 
 
 
 
Distributable cash flow attributable to
  noncontrolling interest in OpCo (1)
 
72,833

 
51,652

 
225,565

 
51,652

Net income attributable to the Predecessor
 

 
63,616

 

 
361,334

Maintenance capital expenditures (1)
 
18,145

 
5,839

 
48,946

 
5,839

Contribution to turnaround reserves (1)
 
7,035

 
4,484

 
21,133

 
4,484

Less:
 
 
 
 
 
 
 
 
Depreciation and amortization (1)
 
(20,442
)
 
(12,683
)
 
(60,637
)
 
(12,683
)
Net income
 
87,046

 
118,173

 
262,678

 
415,891

Changes in operating assets and liabilities and other
 
14,229

 
(13,422
)
 
68,436

 
59,450

Equity in income of joint venture, net of dividends
 

 
858

 

 
1,073

Deferred income taxes
 
(125
)
 
1,454

 
(359
)
 
8,267

Loss from disposition of fixed assets
 
154

 
6

 
278

 
1,244

Provision for doubtful accounts
 

 

 
170

 
65

Net cash provided by operating activities
 
$
101,304

 
$
107,069

 
$
331,203

 
$
485,990

____________
 
 
 
 
 
 
 
 
(1) Westlake Partners' initial public offering was on August 4, 2014. The 2014 balances include amounts for the period from August 4, 2014 through September 30, 2014 only.

24


Reconciliation of EBITDA to Net Income and Net Cash Provided by Operating Activities
The following table presents reconciliations of EBITDA to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
EBITDA
 
$
108,683

 
$
175,838

 
$
327,676

 
$
682,686

Less:
 

 

 

 

Provision for income taxes
 
(141
)
 
(36,309
)
 
(567
)
 
(198,461
)
Interest expense
 
(1,054
)
 
(2,137
)
 
(3,794
)
 
(9,833
)
Depreciation and amortization
 
(20,442
)
 
(19,219
)
 
(60,637
)
 
(58,501
)
Net income
 
87,046

 
118,173

 
262,678

 
415,891

Changes in operating assets and liabilities and other
 
14,229

 
(13,422
)
 
68,436

 
59,450

Income from equity method investment, net of dividends
 

 
858

 

 
1,073

Deferred income taxes
 
(125
)
 
1,454

 
(359
)
 
8,267

Loss from disposition of fixed assets
 
154

 
6

 
278

 
1,244

Provision for doubtful accounts
 

 

 
170

 
65

Net cash provided by operating activities
 
$
101,304

 
$
107,069

 
$
331,203

 
$
485,990

Summary
For the quarter ended September 30, 2015, net income was $87.0 million on net sales of $248.6 million. This represents a decrease in net income of $31.2 million as compared to the quarter ended September 30, 2014 net income of $118.2 million on net sales of $392.0 million. Net sales for the third quarter of 2015 decreased by $143.4 million as compared to net sales for the third quarter of 2014 due to a lower average sales price of ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement in connection with the IPO. Ethylene co-products average sales prices were also lower for the third quarter of 2015 as compared to the prior-year period, primarily due to the decline in the market price of the co-products. Income from operations was $88.3 million for the third quarter of 2015 as compared to $156.1 million for the third quarter of 2014. Income from operations for the third quarter of 2015 as compared to the prior-year period decreased mainly as result of the execution of the Ethylene Sales Agreement and the decline in the market price of co-products, partially offset by lower feedstock and energy costs during the third quarter of 2015.
For the nine months ended September 30, 2015, net income was $262.7 million on net sales of $758.7 million. This represents a decrease in net income of $153.2 million as compared to the nine months ended September 30, 2014 net income of $415.9 million on net sales of $1,476.2 million. Net sales for the nine months ended September 30, 2015 decreased by $717.5 million as compared to net sales for the nine months ended September 30, 2014 due to a lower average sales price of ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement. Ethylene co-products average sales prices were also lower for the first nine months of 2015 as compared to the prior-year period, primarily due to the decline in market price of the co-products. Income from operations was $267.1 million for the nine months ended September 30, 2015 as compared to $621.1 million for the nine months ended September 30, 2014. Income from operations for the nine months ended September 30, 2015 decreased as compared to the prior-year period mainly as result of the execution of the Ethylene Sales Agreement and the decline in the market prices of co-products, partially offset by lower feedstock and energy costs and increased ethylene production as a result of the completion of the feedstock conversion and ethylene expansion project at Calvert City Olefins in April 2014.
RESULTS OF OPERATIONS
Third Quarter 2015 Compared with Third Quarter 2014
Net Sales. Net sales decreased by $143.4 million, or 36.6%, to $248.6 million in the third quarter of 2015 from $392.0 million in the third quarter of 2014, primarily due to a lower average sales price of ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement and lower volume of ethylene sold to third parties primarily due to retention by Westlake of the Predecessor's ethylene procurement and reselling activities in connection with the IPO, partially offset by increased volume of ethylene sold to Westlake for the three months ended September 30, 2015 as compared to the prior-year period. Further, ethylene co-products sales prices were also significantly lower for the third quarter of 2015 as compared to the prior-year period, primarily due to the decline in market prices of the co-products, which resulted in a decrease in sales to third parties. Overall average sales price for the third quarter of 2015 decreased by 31.3% as compared to the third quarter of 2014. Overall sales volumes decreased by 5.2% as compared to the third quarter of 2014.

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Gross Profit. Gross profit margin percentage decreased to 37.9% for the third quarter of 2015 from 42.1% for the third quarter of 2014, primarily due to a reduction in margin for ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement. The decrease was largely offset by a significant drop in feedstock prices and a decrease in energy costs. Overall, sales prices decreased an average of 31.3% for the third quarter of 2015 as compared to the third quarter of 2014.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $3.1 million, or 34.8%, to $5.8 million in the third quarter of 2015 as compared to $8.9 million in the third quarter of 2014. The decrease was mainly attributable to a decrease in the allocation from Westlake of labor costs mainly attributable to the Predecessor's operations retained by Westlake after the closing of the IPO, partially offset by incremental selling, general and administrative expenses incurred by the Partnership subsequent to the IPO as a result of being a separate publicly-traded partnership.
Interest Expense. Interest expense decreased by $1.0 million to $1.1 million in the third quarter of 2015 from $2.1 million in the third quarter of 2014, due to the lower average debt balance as well as lower average interest rate in the third quarter of 2015 as compared to the prior-year period. The lower average interest rate in the third quarter of 2015 as compared to the prior-year period was due to the repayment in 2015 of a significant portion of the August 2013 Promissory Notes, which bear a higher interest rate as compared to our other outstanding debt.
Other Income, Net. Other income, net decreased by $0.6 million in the third quarter of 2015 from $0.5 million in the third quarter of 2014, primarily due to the absence of income attributable to the Predecessor's equity stake in a natural gas liquids pipeline joint venture that was not contributed to us in connection with the IPO.
Income Taxes. The effective income tax rate was 0.2% for the third quarter of 2015 as compared to 23.5% for the third quarter of 2014. The effective income tax rate for the third quarter of 2015 is not comparable to the effective income tax rate for the prior-year period as the Partnership is not subject to federal income taxes subsequent to the IPO.
Nine Months Ended September 30, 2015 Compared with Nine Months Ended September 30, 2014
Net Sales. Net sales decreased by $717.5 million, or 48.6%, to $758.7 million in the nine months ended September 30, 2015 from $1,476.2 million in the nine months ended September 30, 2014, primarily due to a lower average sales price of ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement and lower volume of ethylene sold to third parties primarily due to retention by Westlake of the Predecessor's ethylene procurement and reselling activities in connection with the IPO, partially offset by increased volume of ethylene sold to Westlake for the nine months ended September 30, 2015 as compared to the prior-year period. Further, ethylene co-products sales prices were also significantly lower for the nine months ended September 30, 2015 as compared to the prior-year period, primarily due to the decline in market prices of the co-products, which resulted in a decrease in sales to third parties. This decrease was partially offset by increased volume of co-product sales to third parties. Overall average sales price for the nine months ended September 30, 2015 decreased by 40.7% as compared to the nine months ended September 30, 2014. Overall sales volumes decreased by 7.9% as compared to the nine months ended September 30, 2014.
Gross Profit. Gross profit margin percentage decreased to 37.6% for the nine months ended September 30, 2015 from 43.6% for the nine months ended September 30, 2014, primarily due to a reduction in margin for ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement. The decrease was largely offset by a significant drop in feedstock prices, a decrease in energy costs and the completion of the Calvert City Olefins conversion and expansion project in April 2014. Overall, sales prices decreased an average of 40.7% for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.0 million, or 21.9%, to $17.8 million in the nine months ended September 30, 2015 as compared to $22.8 million in the nine months ended September 30, 2014. The decrease was mainly attributable to a decrease in the allocation from Westlake of labor costs mainly attributable to the Predecessor's operations retained by Westlake after the closing of the IPO, partially offset by incremental selling, general and administrative expenses incurred by the Partnership subsequent to the IPO as a result of being a separate publicly-traded partnership.
Interest Expense. Interest expense decreased by $6.0 million to $3.8 million in the nine months ended September 30, 2015 from $9.8 million in the nine months ended September 30, 2014, due to the lower average debt balance as well as lower average interest rate in the nine months ended September 30, 2015 as compared to the prior-year period. The lower average interest rate in the nine months ended September 30, 2015 as compared to the prior-year period was due to the repayment in 2015 of a significant portion of the August 2013 Promissory Notes, which bear a higher interest rate as compared to our other outstanding debt.

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Other Income, Net. Other income, net decreased by $3.1 million in the nine months ended September 30, 2015 from $3.1 million in the nine months ended September 30, 2014, primarily due to the absence of income attributable to the Predecessor's equity stake in a natural gas liquids pipeline joint venture that was not contributed to us in connection with the IPO.
Income Taxes. The effective income tax rate was 0.2% for the nine months ended September 30, 2015 as compared to 32.3% for the nine months ended September 30, 2014. The effective income tax rate for the nine months ended September 30, 2015 is not comparable to the effective income tax rate for the prior-year period as the Partnership is not subject to federal income taxes subsequent to the IPO.
CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
Operating Activities
Operating activities provided cash of $331.2 million in the first nine months of 2015 compared to cash provided by operating activities of $486.0 million in the first nine months of 2014. The $154.8 million decrease in cash flows from operating activities was mainly due to a decrease in income from operations and a decrease in the use of cash for working capital purposes.
Investing Activities
Net cash used for investing activities during the first nine months of 2015 was $152.6 million as compared to net cash used for investing activities of $144.5 million in the first nine months of 2014. Capital expenditures were $152.6 million in the first nine months of 2015 compared to $144.3 million in the first nine months of 2014. Capital expenditures in the first nine months of 2015 were primarily incurred on the Petro 1 facility to increase ethylene production capacity as further discussed under "Liquidity and Capital Resources - Capital Expenditures" below. Capital expenditures in the first nine months of 2014 were mainly incurred on the feedstock conversion and ethylene expansion project at Calvert City Olefins.
Financing Activities
Net cash used for financing activities during the first nine months of 2015 was $158.1 million as compared to net cash used for financing activities of $251.5 million in the first nine months of 2014. The activity during the first nine months of 2015 was primarily related to the repayment of $135.3 million of the August 2013 Promissory Notes and the total distributions of $261.0 million to the unitholders and Westlake by the Partnership and OpCo for the quarters ended December 31, 2014, March 31, 2015 and June 30, 2015. The repayment and distributions were partially offset by the borrowing under the MLP Revolver to fund the purchase of an additional 2.7% limited partner interest in OpCo for $135.3 million and borrowings under the OpCo Revolver of $102.9 million. The activity during the period from January 1, 2014 through August 3, 2014 was primarily related to the Predecessor’s $448.1 million distribution to Westlake, partially offset by borrowings of $119.8 million under the Predecessor’s unsecured promissory note agreements with Westlake. The activity during the period from August 4, 2014 through September 30, 2014 was primarily related to the Partnership's receipt of net proceeds from the IPO, as well as borrowings of $21.4 million under our intercompany credit facility with Westlake, partially offset by a $151.7 million distribution to Westlake for pre-formation capital expenditures and a $78.9 million repayment of borrowings outstanding under the unsecured promissory note agreements assumed by OpCo at the closing of the IPO.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Historically, the Predecessor's principal sources of liquidity were cash from operations and funding from Westlake. As a participant in Westlake's centralized cash management system, the Predecessor's cash receipts were deposited in Westlake's or its affiliates' bank accounts and cash disbursements were made from those accounts. In addition to the cash generated by its operations, the Predecessor also entered into certain financing arrangements with Westlake to satisfy its capital and operating expenditure requirements. The Predecessor separately recorded costs associated with financing its operations resulting from financing arrangements entered into with Westlake.
Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations. To the extent we do not generate sufficient cash flow to fund capital expenditures; we expect to fund them primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity and debt interests.
In connection with the IPO, we established separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Services and Secondment Agreement. Our sources of liquidity include cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary, the issuance of additional equity interests or debt. We believe that

27


cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. Westlake may also provide other direct and indirect financing to us from time to time.
In order to fund non-annual turnaround expenditures, we caused OpCo to use $55.4 million from the net proceeds of the IPO to fund its initial balance for turnaround activities. We intend to cause OpCo to reserve approximately $29.3 million during each twelve-month period for turnaround activities. Each of OpCo's processing facilities requires turnaround maintenance approximately every five years. By creating an initial balance and reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. The initial balance of turnaround reserve will account for the period that the processing facilities were under Westlake's ownership following the last major turnaround and prior to the entry into the Ethylene Sales Agreement. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.
Our cash is generated from cash distributions from OpCo. OpCo is a restricted subsidiary and guarantor under Westlake's credit facility and the indentures governing its senior notes. The indentures governing Westlake's senior notes prevent OpCo from making distributions to us if any default or event of default (as defined in the indentures) exists. Westlake's credit facility does not prevent OpCo from making distributions to us.
On October 28, 2015, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.2994 per unit payable on November 27, 2015 to unitholders of record on November 9, 2015, which equates to approximately $8.1 million per quarter, or approximately $32.4 million per year in aggregate, based on the number of common and subordinated units outstanding on September 30, 2015. We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate.
Capital Expenditures
In April 2011, Westlake announced an expansion program to increase the ethylene production capacity of both Petro 1 and Petro 2 ethylene facilities in Lake Charles. The expansion of Petro 2 was completed in the first quarter of 2013 and increased ethylene production capacity by approximately 240 million pounds annually. We currently plan to begin the upgrade and capacity expansion of Petro 1 during the second quarter of 2016. This project is currently estimated to cost in the range of $275.0 million to $335.0 million and is expected to add approximately 250 million pounds of ethylene capacity annually. As of September 30, 2015, we had incurred a total cost of approximately $150.8 million on this capital project.
In April 2014, the Predecessor completed the feedstock conversion and ethylene expansion project at Calvert City Olefins that resulted in approximately 180 million pounds of additional annual capacity and also provided OpCo with 100% ethane feedstock capability at the facility.
Westlake has historically funded capital expenditures related to Lake Charles Olefins and Calvert City Olefins. During the period from January 1, 2014 through August 3, 2014, Westlake loaned the Predecessor a principal amount of approximately $121.1 million, all of which was used for capital expenditures. During the period from August 4, 2014 through December 31, 2014 and during the nine months ended September 30, 2015, Westlake loaned OpCo $60.5 million and $102.9 million, respectively, all of which was used for capital expenditures. Capital expenditures for 2015 are expected to be approximately $233.0 million, of which $152.6 million was spent during the nine months ended September 30, 2015. We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.
Indebtedness
OpCo assumed $246.1 million of indebtedness under three intercompany promissory notes incurred by Westlake on behalf of the Predecessor (the "August 2013 Promissory Notes") in connection with the closing of the IPO. Using proceeds from the IPO, OpCo repaid $78.9 million of the outstanding principal amount of the August 2013 Promissory Notes during 2014. During the nine months ended September 30, 2015, OpCo repaid $135.3 million of the outstanding principal amount of the remaining August 2013 Promissory Notes. As of September 30, 2015, $31.8 million of the principal amount of the August 2013 Promissory Notes was still outstanding. The August 2013 Promissory Notes have a ten-year term and bear interest at the prime rate plus a 1.5% margin, which is accrued in arrears quarterly. OpCo has the right at any time to prepay the August 2013 Promissory Notes, in whole or in part, without any premium or penalty. The August 2013 Promissory Notes mature in August 2023.

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OpCo Revolver
In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with Westlake (OpCo Revolver") that may be used to fund growth projects and working capital needs. As of September 30, 2015, outstanding borrowings under the OpCo Revolver totaled $163.4 million and bore interest at the LIBOR rate plus 3.0%, which is accrued in arrears quarterly. The OpCo Revolver matures in 2019.
MLP Revolver
In April 2015 we entered into a $300.0 million senior, unsecured revolving credit agreement with Westlake Chemical Finance Corporation, an affiliate of Westlake ("MLP Revolver"). The MLP Revolver is scheduled to mature on April 29, 2018. Borrowings under the MLP Revolver bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (depending on our consolidated leverage ratio), payable quarterly. The MLP Revolver provides that we may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that we maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.00 or less, or (2) during any other period, 4.50:1.00 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. As of September 30, 2015, there were $135.3 million principal amount of borrowings outstanding under the MLP Revolver. We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us.
Off-Balance Sheet Arrangements
None.
FORWARD-LOOKING STATEMENTS
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," "expects," "will" 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:
the amount of ethane that we are able to process, which could be adversely affected by, among other things, operating difficulties;
the volume of ethylene that we are able to sell;
the price at which we are able to sell ethylene;
our relationship with Westlake, including our expectations regarding any additional volumes of ethylene Westlake may take in excess of its minimum commitment under the Ethylene Sales Agreement and the possibility of obtaining additional financing from Westlake;
sources of feedstock purchases;
changes in the price and availability of electricity;
changes in prevailing economic conditions;
unanticipated ground, grade or water conditions;
inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;
environmental hazards;
industrial accidents;
changes in laws and regulations (or the interpretation thereof);
inability to acquire or maintain necessary permits;
inability to obtain necessary production equipment or replacement parts;
technical difficulties or failures;
labor disputes;

29


late delivery of raw materials;
difficulty collecting receivables;
inability of our customers to take delivery;
changes in the price and availability of transportation;
fires, explosions or other accidents;
our ability to borrow funds and access capital markets;
certain factors discussed elsewhere in this report; and
the impact of proposed regulations by the U.S. Treasury Department and the IRS on our status as a partnership for U.S. federal income tax purposes.
We have based these statements on assumptions and analysis 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 2014 Form 10-K and as discussed in Part II "Other Information", Item 1A "Risk Factors" within this Quarterly Report on Form 10-Q.
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 the Predecessor's and the Partnership's products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, the Predecessor's and our product margins and level of profitability tend to fluctuate with changes in the business cycle. The Predecessor tried to protect against such instability through various business strategies. These strategies included ethylene feedstock flexibility and the use of derivative instruments in certain instances to reduce price volatility risk on feedstocks. In connection with the IPO, Westlake retained the Predecessor's open derivative positions. Since the IPO, the Partnership has not entered into any commodities derivative transaction. As such, as of September 30, 2015, we had no open derivative positions.
Interest Rate Risk
We are exposed to interest rate risk with respect to our variable rate debt. At September 30, 2015, we had variable rate debt of $330.5 million outstanding, all of which was owed to wholly owned subsidiaries of Westlake, $31.8 million of which accrues interest at a variable rate of prime plus 150 basis points, $163.4 million of which accrues interest at a variable rate of LIBOR plus 300 basis points and the remaining $135.3 million of which accrues interest at a variable rate of LIBOR plus 200 basis points. Historically, neither the Partnership nor the Predecessor engaged in hedging of variable rate debt. During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the debt. The weighted average variable interest rate of our variable rate debt (excluding the effectively fixed rate debt through the interest rate contract) as of September 30, 2015 was 3.20%. We will continue to be subject to interest rate risk with respect to our variable rate debt as well as the risk of higher interest cost if and when these debts are refinanced. An increase in our average interest rate on variable rate debt (excluding the effectively fixed rate debt portion through the interest rate contract) by 1% would increase our annual interest expense by approximately $2.6 million, based on the September 30, 2015 debt balance.
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 and Chief Financial Officer, 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 amended (the

30


"Exchange Act"), 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 and Chief Financial Officer 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.
Internal Control Over Financial Reporting and Changes in Internal Control Over Financial Reporting
The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules that generally require every registrant that files reports with the SEC to include a management report on such registrant's internal control over financial reporting in its annual report. In addition, our independent registered public accounting firm must attest to our internal control over financial reporting. Our first annual report on Form 10-K did not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by SEC rules applicable to new public companies. We are required to provide an assessment of the effectiveness of our internal control over financial reporting and comply with the auditor attestation requirement of Section 404 of the Sarbanes Oxley-Act as of December 31, 2015. There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2015 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 2014 Form 10-K, filed on March 9, 2015, contained a description of various legal proceedings in which we are involved, including environmental proceedings. See Note 16 to the unaudited combined and 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. In addition, under the Omnibus Agreement, Westlake has agreed to indemnify the Partnership for certain environmental and other liabilities relating to OpCo's processing facilities and related assets.
Item 1A. Risk Factors
For a discussion of risk factors, please read Item IA, "Risk Factors" in the 2014 Form 10-K and in our Quarterly Report for the quarter ended June 30, 2015. There have been no material changes from those risk factors.
Item 6. Exhibits
Exhibit No.
 
Description
 
 
 
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)
 
 
 
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
_____________
Filed herewith.
#
Furnished herewith.

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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.
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