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EX-99.1 - EXHIBIT 99.1 - WESTLAKE CHEMICAL CORPexhibit99120160630.htm
EX-32.1 - EXHIBIT 32.1 - WESTLAKE CHEMICAL CORPexhibit321_20160630.htm
EX-31.2 - EXHIBIT 31.2 - WESTLAKE CHEMICAL CORPexhibit312_20160630.htm
EX-31.1 - EXHIBIT 31.1 - WESTLAKE CHEMICAL CORPexhibit311_20160630.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 June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                    to                    
Commission File No. 001-32260
 
 
 
 
 
Westlake Chemical Corporation
(Exact name of Registrant as specified in its charter)
 
 
 
 
 

Delaware
 
76-0346924
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
2801 Post Oak Boulevard, Suite 600
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 960-9111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes   ¨     No   x
The number of shares outstanding of the registrant's sole class of common stock as of August 2, 2016 was 128,783,338.



INDEX





NON-GAAP FINANCIAL MEASURES
The body of accounting principles generally accepted in the United States is commonly referred to as "U.S. GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. In this report, we disclose so-called non-GAAP financial measures, primarily earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. The non-GAAP financial measures described in this Form 10-Q are not substitutes for the GAAP measures of earnings and cash flow.
EBITDA is included in this Form 10-Q because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization, and income taxes.




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
June 30,
2016
 
December 31,
2015
 
 
 
 
 
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
770,997

 
$
662,525

Marketable securities
 
352,021

 
520,144

Accounts receivable, net
 
582,855

 
508,532

Inventories
 
448,526

 
434,060

Prepaid expenses and other current assets
 
35,642

 
14,489

Deferred income taxes
 

 
35,439

Total current assets
 
2,190,041

 
2,175,189

Property, plant and equipment, net
 
3,230,523

 
3,004,067

Equity investments
 
8,929

 
9,208

Other assets, net
 
 
 
 
Intangible assets, net
 
208,376

 
213,404

Deferred charges and other assets, net
 
282,695

 
167,417

Total other assets, net
 
491,071

 
380,821

Total assets
 
$
5,920,564

 
$
5,569,285

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts and notes payable
 
$
307,116

 
$
235,329

Accrued liabilities
 
312,985

 
287,313

Total current liabilities
 
620,101

 
522,642

Long-term debt, net
 
758,453

 
758,148

Deferred income taxes
 
664,987

 
575,603

Other liabilities
 
139,587

 
150,961

Total liabilities
 
2,183,128

 
2,007,354

Commitments and contingencies (Notes 8 and 18)
 


 


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

 

Common stock, $0.01 par value, 300,000,000 shares authorized;
   134,651,380 and 134,663,244 shares issued at June 30, 2016 and
   December 31, 2015, respectively
 
1,347

 
1,347

Common stock, held in treasury, at cost; 5,867,617 and 4,444,898 shares
   at June 30, 2016 and December 31, 2015, respectively
 
(322,802
)
 
(258,312
)
Additional paid-in capital
 
545,797

 
542,148

Retained earnings
 
3,296,922

 
3,109,987

Accumulated other comprehensive loss
 
(82,101
)
 
(129,292
)
Total Westlake Chemical Corporation stockholders' equity
 
3,439,163

 
3,265,878

Noncontrolling interests
 
298,273

 
296,053

Total equity
 
3,737,436

 
3,561,931

Total liabilities and equity
 
$
5,920,564

 
$
5,569,285

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

1


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
1,086,061

 
$
1,185,002

 
$
2,061,248

 
$
2,288,533

Cost of sales
 
844,695

 
831,821

 
1,564,297

 
1,650,806

Gross profit
 
241,366

 
353,181

 
496,951

 
637,727

Selling, general and administrative expenses
 
61,428

 
57,807

 
114,737

 
113,073

Income from operations
 
179,938

 
295,374

 
382,214

 
524,654

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(5,915
)
 
(8,958
)
 
(12,600
)
 
(18,549
)
Other income, net
 
8,181

 
22,058

 
10,826

 
31,154

Income before income taxes
 
182,204

 
308,474

 
380,440

 
537,259

Provision for income taxes
 
66,584

 
98,413

 
135,884

 
176,791

Net income
 
115,620

 
210,061

 
244,556

 
360,468

Net income attributable to noncontrolling interests
 
4,496

 
4,966

 
10,304

 
9,031

Net income attributable to
   Westlake Chemical Corporation
 
$
111,124

 
$
205,095

 
$
234,252

 
$
351,437

Earnings per common share attributable to
   Westlake Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
0.85

 
$
1.55

 
$
1.80

 
$
2.65

Diluted
 
$
0.85

 
$
1.54

 
$
1.79

 
$
2.64

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
129,583,224

 
132,538,123

 
129,886,594

 
132,625,857

Diluted
 
129,980,527

 
133,044,975

 
130,290,521

 
133,124,697

Dividends per common share
 
$
0.1815

 
$
0.1650

 
$
0.3630

 
$
0.3300

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

2


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016

2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income
 
$
115,620

 
$
210,061

 
$
244,556

 
$
360,468

Other comprehensive (loss) income, net of income taxes
 
 
 
 
 
 
 
 
Pension and other post-retirement benefits liability
 
 
 
 
 
 
 
 
Pension and other post-retirement reserves
   adjustment (excluding amortization)
 
(206
)
 
(186
)
 
(206
)
 
(186
)
Amortization of benefits liability
 
369

 
675

 
703

 
1,327

Income tax provision on pension and other
   post-retirement benefits liability
 
(63
)
 
(164
)
 
(191
)
 
(389
)
Foreign currency translation adjustments
 
(13,500
)
 
17,872

 
9,305

 
(41,826
)
Available-for-sale investments
 
 
 
 
 
 
 
 
Unrealized holding gains on investments
 
35,545

 
3,077

 
59,973

 
4,703

Reclassification of net realized gains
   to net income
 
(1,267
)
 
(3,795
)
 
(1,319
)
 
(3,795
)
Income tax (provision) benefit on
   available-for-sale investments
 
(12,316
)
 
259

 
(21,074
)
 
(325
)
Other comprehensive income (loss)
 
8,562

 
17,738

 
47,191

 
(40,491
)
Comprehensive income
 
124,182

 
227,799

 
291,747

 
319,977

Comprehensive income attributable to
   noncontrolling interests, net of tax
 
4,496

 
4,966

 
10,304

 
9,031

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
119,686

 
$
222,833

 
$
281,443

 
$
310,946

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

3


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
244,556

 
$
360,468

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
132,964

 
118,981

Provision for doubtful accounts
 
403

 
228

Amortization of debt issuance costs
 
417

 
1,002

Stock-based compensation expense
 
5,084

 
4,905

Loss from disposition of property, plant and equipment
 
3,331

 
890

Gains from sales of securities
 
(1,319
)
 
(3,795
)
Gain on acquisition, net of loss on the fair value remeasurement
   of preexisting equity interest
 

 
(21,045
)
Impairment of equity method investment
 

 
4,925

Deferred income taxes
 
102,990

 
3,088

Windfall tax benefits from share-based payment arrangements
 
(319
)
 
(1,895
)
Loss (income) from equity method investments, net of dividends
 
279

 
(1,760
)
Other losses, net
 
1,210

 
423

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(72,996
)
 
(22,380
)
Inventories
 
(12,719
)
 
50,115

Prepaid expenses and other current assets
 
(12,586
)
 
(10,844
)
Accounts payable
 
54,394

 
(2,327
)
Accrued liabilities
 
(1,617
)
 
(40,526
)
Other, net
 
(74,180
)
 
(5,098
)
Net cash provided by operating activities
 
369,892

 
435,355

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

 
15,782

Additions to property, plant and equipment
 
(287,160
)
 
(203,933
)
Proceeds from disposition of assets
 
105

 

Proceeds from sales and maturities of securities
 
302,432

 
15,037

Purchase of securities
 
(138,422
)
 

Settlements of derivative instruments
 
(3,372
)
 
(1,174
)
Net cash used for investing activities
 
(126,417
)
 
(174,288
)
Cash flows from financing activities
 
 
 
 
Debt issuance costs
 
(9,700
)
 

Dividends paid
 
(47,317
)
 
(43,896
)
Distributions to noncontrolling interests
 
(8,084
)
 
(7,218
)
Proceeds from exercise of stock options
 
481

 
831

Proceeds from issuance of notes payable
 
3,842

 
2,392

Repayment of notes payable
 
(8,626
)
 
(4,299
)
Repurchase of common stock for treasury
 
(67,404
)
 
(62,804
)
Windfall tax benefits from share-based payment arrangements
 
319

 
1,895

Net cash used for financing activities
 
(136,489
)
 
(113,099
)
Effect of exchange rate changes on cash and cash equivalents
 
1,486

 
(2,000
)
Net increase in cash and cash equivalents
 
108,472

 
145,968

Cash and cash equivalents at beginning of period
 
662,525

 
880,601

Cash and cash equivalents at end of period
 
$
770,997

 
$
1,026,569

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

4

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


1. Basis of Financial Statements
The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the December 31, 2015 financial statements and notes thereto of Westlake Chemical Corporation (the "Company") included in the annual report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Form 10-K"), filed with the SEC on February 24, 2016. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2015.
In the opinion of the Company's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company's financial position as of June 30, 2016, its results of operations for the three and six months ended June 30, 2016 and 2015 and the changes in its cash position for the six months ended June 30, 2016 and 2015.
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, 2016 or any other interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Revenue from Contracts with Customers (ASU No. 2014-09)
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 2016, the FASB issued various additional authoritative guidance for the new revenue recognition standard. The accounting standard will be effective for reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the impact that the new accounting standard will have on its consolidated financial position, results of operations and cash flows.
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01)
In January 2016, the FASB issued an accounting standards update making certain changes principally to the current guidance for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Among other things, the guidance (1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (2) provide entities with a policy election to record equity investments without readily determinable fair values at cost, less impairment, and subsequent adjustments for observable price changes (changes in the basis of these equity investments to be reported in net income); (3) requires an entity that has elected the fair value option for financial liabilities to recognize changes in fair value due to instrument-specific credit risk separately in other comprehensive income; (4) clarified current guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities; and (5) requires specific disclosure pertaining to financial assets and financial liabilities in the financial statements. The accounting standard will be effective for reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.

5

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

Leases (ASU No. 2016-02)
In February 2016, the FASB issued an accounting standards update on a new lease standard that will supersede the existing lease guidance. The standard requires a lessee to recognize assets and liabilities related to long-term leases that are classified as operating leases under current guidance on its balance sheet. An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures related to leases. The accounting standard will be effective for reporting periods beginning after December 15, 2018. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Stock Compensation (ASU No. 2016-09)
In March 2016, the FASB issued an accounting standards update to simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, classifications of awards as either equity or liabilities and certain related classifications on the statement of cash flows. In addition, the new guidance permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. The accounting standard will be effective for reporting periods beginning after December 15, 2016 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Credit Losses (ASU No. 2016-13)
In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard will be effective for reporting periods beginning after December 15, 2019. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
Amendments to the Consolidation Analysis (ASU No. 2015-02)
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 eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. The accounting standard is effective for annual periods beginning after December 15, 2015. The Company adopted this accounting standard effective January 1, 2016 and the adoption did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
Simplifying the Presentation of Debt Issuance Costs (ASU No. 2015-03)
In April 2015, the FASB issued an accounting standards update on simplifying the presentation of debt issuance costs, which requires all costs incurred to issue debt to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The accounting standard is effective for reporting periods beginning after December 15, 2015. The Company adopted this accounting standard effective January 1, 2016. As a result, Other assets, net—Deferred charges and other assets, net and Long-term debt on the consolidated balance sheet as of December 31, 2015 have been adjusted to $167,417 and $758,148, respectively, from the originally reported $173,384 and $764,115, respectively, to reflect the retrospective application of the new accounting guidance. The adoption of this accounting standard did not have an impact on the Company's results of operations and cash flows.
Intangibles—Goodwill and Other—Internal use software (ASU No. 2015-05)
In April 2015, the FASB issued an accounting standards update to provide clarification on accounting for cloud computing arrangements which include a software license. The accounting standard is effective for annual periods beginning after December 15, 2015. The Company adopted this accounting standard, to be applied prospectively, effective January 1, 2016. Consistent with the prospective application of this accounting standard, prior period comparative information was not adjusted.

6

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

The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Simplifying the Accounting for Measurement-Period Adjustments (ASU No. 2015-16)
In September 2015, the FASB issued an accounting standards update that requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The new guidance further requires specific disclosure pertaining to the measurement period adjustments. The accounting standard is effective for reporting periods beginning after December 15, 2015. The Company adopted this accounting standard effective January 1, 2016 and the adoption did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
Balance Sheet Classification of Deferred Taxes (ASU No. 2015-17)
In November 2015, the FASB issued an accounting standards update that requires all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting within a jurisdiction. The accounting standard is required to be adopted for reporting periods beginning after December 15, 2016; however, early adoption of this standard is permitted. The Company elected to early adopt this accounting standard, to be applied prospectively, effective January 1, 2016. Consistent with the prospective application of this accounting standard, prior period comparative information was not adjusted. The early adoption of this accounting standard did not have an impact on the Company's results of operations and cash flows.
2. Financial Instruments
Cash Equivalents
The Company had $376,901 and $221,918 of held-to-maturity securities with original maturities of three months or less, primarily consisting of corporate debt securities, classified as cash equivalents at June 30, 2016 and December 31, 2015, respectively. The Company's investments in held-to-maturity securities are held at amortized cost, which approximates fair value.
Available-for-Sale Marketable Securities
Investments in available-for-sale securities were classified as follows:
 
June 30,
2016
 
December 31,
2015
Current
$
352,021

 
$
520,144

Non-current
109,337

 
48,081

Total available-for-sale securities
$
461,358

 
$
568,225

The cost, gross unrealized gains, gross unrealized losses and fair value of the Company's available-for-sale securities were as follows:
 
 
June 30, 2016
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
(1)
 
Fair Value
Debt securities
 
 
 
 
 
 
 
 
Corporate bonds
 
$
219,971

 
$
1,162

 
$
(16
)
 
$
221,117

U.S. government debt (2)
 
72,702

 
462

 

 
73,164

Asset-backed securities
 
57,546

 
197

 
(3
)
 
57,740

Equity securities
 
60,281

 
49,194

 
(138
)
 
109,337

Total available-for-sale securities
 
$
410,500

 
$
51,015

 
$
(157
)
 
$
461,358


7

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

 
 
December 31, 2015
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
(1)
 
Fair Value
Debt securities
 
 
 
 
 
 
 
 
Corporate bonds
 
$
336,665

 
$
55

 
$
(1,076
)
 
$
335,644

U.S. government debt (2)
 
135,226

 
2

 
(374
)
 
134,854

Asset-backed securities
 
49,759

 
2

 
(115
)
 
49,646

Equity securities
 
54,371

 
466

 
(6,756
)
 
48,081

Total available-for-sale securities
 
$
576,021

 
$
525

 
$
(8,321
)
 
$
568,225

_____________
(1)
All unrealized loss positions were held at a loss for less than 12 months.
(2)
U.S. Treasury obligations, U.S. government agency obligations and U.S government agency mortgage-backed securities.

As of June 30, 2016 and December 31, 2015, net unrealized gains (losses) on the Company's available-for-sale securities of $32,585 and $(4,995), respectively, net of income tax expense (benefit) of $18,273 and $(2,801), respectively, were recorded in accumulated other comprehensive loss. See Note 13 for the fair value hierarchy of the Company's available-for-sale securities.
As of June 30, 2016, the corporate bond securities held by the Company had maturities ranging between one month to five years; the U.S. government debt securities held by the Company, excluding U.S. government agency mortgage-backed securities, had maturities ranging between one to three years; the U.S. government agency mortgage-backed securities held by the Company had maturities of approximately five years; and the asset-backed securities held by the Company had maturities ranging between one to five years.
The proceeds from sales and maturities of available-for-sale securities included in the consolidated statements of cash flows and the gross realized gains and losses included in the consolidated statements of operations are reflected in the table below. The cost of securities sold was determined using the specific identification method.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Proceeds from sales and maturities of securities
 
$
275,573

 
$
15,037

 
$
302,432

 
$
15,037

Gross realized gains
 
1,280

 
3,795

 
1,341

 
3,795

Gross realized losses
 
(13
)
 

 
(22
)
 

3. Accounts Receivable
Accounts receivable consist of the following:
 
 
June 30,
2016
 
December 31,
2015
Trade customers
 
$
507,690

 
$
438,538

Allowance for doubtful accounts
 
(14,534
)
 
(14,095
)
 
 
493,156

 
424,443

Federal and state taxes
 
69,183

 
60,748

Other
 
20,516

 
23,341

Accounts receivable, net
 
$
582,855

 
$
508,532


8

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

4. Inventories
Inventories consist of the following:
 
 
June 30,
2016
 
December 31,
2015
Finished products
 
$
253,828

 
$
253,338

Feedstock, additives and chemicals
 
118,262

 
106,435

Materials and supplies
 
76,436

 
74,287

Inventories
 
$
448,526

 
$
434,060

5. Property, Plant and Equipment
As of June 30, 2016, the Company had property, plant and equipment, net totaling $3,230,523. The Company assesses these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Other factors considered by the Company when determining if an impairment assessment is necessary include, but are not limited to, significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the U.S. and world economies and uncertainties associated with governmental actions. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Depreciation expense on property, plant and equipment of $57,930 and $51,263 is included in cost of sales in the consolidated statements of operations for the three months ended June 30, 2016 and 2015, respectively. Depreciation expense on property, plant and equipment of $113,971 and $100,921 is included in cost of sales in the consolidated statements of operations for the six months ended June 30, 2016 and 2015, respectively.
6. Other Assets
Amortization expense on intangible and other assets of $9,394 and $9,455 is included in the consolidated statements of operations for the three months ended June 30, 2016 and 2015, respectively. Amortization expense on intangible and other assets of $19,164 and $18,816 is included in the consolidated statements of operations for the six months ended June 30, 2016 and 2015, respectively.
Goodwill
Goodwill for the Olefins segment was $29,990 at June 30, 2016 and December 31, 2015. Goodwill for the Vinyls segment was $32,026 at June 30, 2016 and December 31, 2015. There were no changes in the carrying amount of goodwill for either operating segment for the six months ended June 30, 2016.
7. Accounts and Notes Payable
Accounts and notes payable consist of the following:
 
 
June 30,
2016
 
December 31,
2015
Accounts payable
 
$
305,853

 
$
229,219

Notes payable to banks
 
1,263

 
6,110

Accounts and notes payable
 
$
307,116

 
$
235,329


9

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

8. Long-Term Debt
The Company adopted an accounting standards update to simplify the presentation of debt issuance costs effective January 1, 2016. The standard requires, on a retrospective basis, all costs incurred to issue debt, excluding line-of-credit arrangements, to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. As a result, Other assets, net—Deferred charges and other assets, net and Long-term debt on the consolidated balance sheet as of December 31, 2015 have been adjusted to $167,417 and $758,148, respectively, from the originally reported $173,384 and $764,115, respectively, to reflect the retrospective application of the new accounting guidance.
Long-term debt consists of the following:
 
 
June 30, 2016
 
December 31, 2015
 
 
Principal
Amount
 
Unamortized
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
 
Principal
Amount
 
Unamortized
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
3.60% senior notes due 2022
 
$
250,000

 
$
(2,061
)
 
$
247,939

 
$
250,000

 
$
(2,232
)
 
$
247,768

6 ½% senior notes due 2029
 
100,000

 
(952
)
 
99,048

 
100,000

 
(989
)
 
99,011

6 ¾% senior notes due 2032
 
250,000

 
(1,943
)
 
248,057

 
250,000

 
(2,002
)
 
247,998

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

 
(862
)
 
88,138

 
89,000

 
(884
)
 
88,116

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

 
(618
)
 
64,382

 
65,000

 
(634
)
 
64,366

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

 

 
10,889

 
10,889

 

 
10,889

Long-term debt, net
 
$
764,889

 
$
(6,436
)
 
$
758,453

 
$
764,889

 
$
(6,741
)
 
$
758,148

Revolving Credit Facility
The Company has a $400,000 senior secured revolving credit facility. The facility includes a provision permitting the Company to increase the size of the facility, up to four times, in increments of at least $25,000 each (up to a maximum of $200,000) under certain circumstances if the lenders agree to commit to such an increase. At June 30, 2016, the Company had no borrowings outstanding under the revolving credit facility. Any borrowings under the facility will bear interest at either LIBOR plus a spread ranging from 1.25% to 1.75%, provided that so long as the Company is rated investment grade, the margin for LIBOR loans will not exceed 1.50%, or a base rate plus a spread ranging from 0.00% to 0.50%. The revolving credit facility also requires an unused commitment fee of 0.25% per annum. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on July 17, 2019. As of June 30, 2016, the Company had outstanding letters of credit totaling $18,545 and borrowing availability of $369,832 under the revolving credit facility.
Bridge Financing of Pending Acquisition
In connection with the recent announcement of the definitive agreement under which the Company will acquire all of the issued and outstanding shares of common stock of Axiall Corporation, the Company has entered into a commitment letter, dated June 10, 2016, with various lenders pursuant to which such lenders have agreed to provide for a senior unsecured bridge loan facility of up to $1,765,000 in the aggregate. Any amounts borrowed under the senior unsecured bridge loan facility would mature 364 days following the closing of the transaction. The Company paid structuring and other fees of approximately $9,700 during the three months ended June 30, 2016 in connection with the senior unsecured bridge loan facility, which were deferred in prepaid expenses and other current assets on the consolidated balance sheet and are being amortized over the term of the facility to other income, net in the consolidated statement of operations. As of June 30, 2016, there were no outstanding borrowings on the senior unsecured bridge loan facility. See Note 20 for further details regarding the pending acquisition.

10

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

9. Stockholders' Equity
Changes in stockholders' equity for the six months ended June 30, 2016 and 2015 were as follows:
 
 
Common
Stock
 
Common
Stock,
Held in
Treasury
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive 
Income (Loss)
 
Noncontrolling
Interests
 
Total
Balances at December 31, 2015
 
$
1,347

 
$
(258,312
)
 
$
542,148

 
$
3,109,987

 
$
(129,292
)
 
$
296,053

 
$
3,561,931

Net income
 

 

 

 
234,252

 

 
10,304

 
244,556

Other comprehensive income,
   net of income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension and other post-
   retirement benefits
   liability
 

 

 

 

 
306

 

 
306

Foreign currency
   translation adjustments
 

 

 

 

 
9,305

 

 
9,305

Net unrealized holding
   gains on investments
 

 

 

 

 
37,580

 

 
37,580

Common stock repurchased
 

 
(66,725
)
 

 

 

 

 
(66,725
)
Shares issued—stock-
   based compensation
 

 
2,235

 
(1,754
)
 

 

 

 
481

Stock-based compensation,
   net of tax on stock options
   exercised
 

 

 
5,403

 

 

 

 
5,403

Dividends paid
 

 

 

 
(47,317
)
 

 

 
(47,317
)
Distributions to noncontrolling
   interests
 

 

 

 

 

 
(8,084
)
 
(8,084
)
Balances at June 30, 2016
 
$
1,347

 
$
(322,802
)
 
$
545,797

 
$
3,296,922

 
$
(82,101
)
 
$
298,273

 
$
3,737,436

 
 
Common
Stock
 
Common
Stock,
Held in
Treasury
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive 
Income (Loss)
 
Noncontrolling
Interests
 
Total
Balances at December 31, 2014
 
$
1,347

 
$
(96,372
)
 
$
530,441

 
$
2,555,528

 
$
(79,433
)
 
$
290,377

 
$
3,201,888

Net income
 

 

 

 
351,437

 

 
9,031

 
360,468

Other comprehensive income
   (loss), net of income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension and other post-
   retirement benefits
   liability
 

 

 

 

 
752

 

 
752

Foreign currency
   translation adjustments
 

 

 

 

 
(41,826
)
 

 
(41,826
)
Net unrealized holding
   gains on investments
 

 

 

 

 
583

 

 
583

Common stock repurchased
 

 
(62,804
)
 

 

 

 

 
(62,804
)
Shares issued—stock-
   based compensation
 

 
704

 
127

 

 

 

 
831

Stock-based compensation,
   net of tax on stock options
   exercised
 

 

 
6,800

 

 

 

 
6,800

Dividends paid
 

 

 

 
(43,896
)
 

 

 
(43,896
)
Distributions to noncontrolling
   interests
 

 

 

 

 

 
(7,218
)
 
(7,218
)
Noncontrolling interest in
   acquired business
 

 

 

 

 

 
1,597

 
1,597

Balances at June 30, 2015
 
$
1,347

 
$
(158,472
)
 
$
537,368

 
$
2,863,069

 
$
(119,924
)
 
$
293,787

 
$
3,417,175


11

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

Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2016 and 2015 were as follows:
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Net Unrealized
Holding Gains
(Losses) on
Investments,
Net of Tax
 
Total
Balances at December 31, 2015
 
$
(8,607
)
 
$
(115,690
)
 
$
(4,995
)
 
$
(129,292
)
Other comprehensive (loss) income before
   reclassifications
 
(127
)
 
9,305

 
38,425

 
47,603

Amounts reclassified from accumulated other
   comprehensive loss (income)
 
433

 

 
(845
)
 
(412
)
Net other comprehensive income for the period
 
306

 
9,305

 
37,580

 
47,191

Balances at June 30, 2016
 
$
(8,301
)
 
$
(106,385
)
 
$
32,585

 
$
(82,101
)
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Net Unrealized
Holding Gains
on Investments,
Net of Tax
 
Total
Balances at December 31, 2014
 
$
(23,442
)
 
$
(56,224
)
 
$
233

 
$
(79,433
)
Other comprehensive (loss) income before
   reclassifications
 
(115
)
 
(41,826
)
 
3,015

 
(38,926
)
Amounts reclassified from accumulated other
   comprehensive loss (income)
 
867

 

 
(2,432
)
 
(1,565
)
Net other comprehensive income (loss) for the period
 
752

 
(41,826
)
 
583

 
(40,491
)
Balances at June 30, 2015
 
$
(22,690
)
 
$
(98,050
)
 
$
816

 
$
(119,924
)
The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the six months ended June 30, 2016 and 2015:
Details about Accumulated
   Other Comprehensive
   Income (Loss) Components
 
Location of Reclassification
(Income (Expense)) in
Consolidated Statements
of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Amortization of pension and
   other post-retirement items
 
 
 
 
 
 
 
 
 
 
Net loss
 
(1)
 
$
(369
)
 
$
(675
)
 
$
(703
)
 
$
(1,327
)
 
 
Provision for
   income taxes
 
142

 
235

 
270

 
460

 
 
 
 
(227
)
 
(440
)
 
(433
)
 
(867
)
Net unrealized gains on
   available-for-sale
   investments
 
 
 
 
 
 
 
 
 
 
Realized gain on
   available-for-sale
   investments
 
Other income, net
 
1,267

 
3,795

 
1,319

 
3,795

 
 
Provision for
   income taxes
 
(455
)
 
(1,363
)
 
(474
)
 
(1,363
)
 
 
 
 
812

 
2,432

 
845

 
2,432

Total reclassifications for
   the period
 
 
 
$
585

 
$
1,992

 
$
412

 
$
1,565


12

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

_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 11 (Employee Benefits) to the financial statements included in the 2015 Form 10-K.
10. Pension and Post-Retirement Benefit Costs
Defined Benefit Plans
Components of net periodic benefit cost for the Company's pension plans are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
Service cost
 
$

 
$
137

 
$
1

 
$
414

 
$

 
$
462

 
$
29

 
$
835

Interest cost
 
493

 
582

 
489

 
525

 
1,060

 
1,149

 
1,032

 
1,061

Expected return on plan assets
 
(658
)
 

 
(705
)
 

 
(1,460
)
 

 
(1,524
)
 

Amortization of net loss
 
337

 

 
318

 
261

 
640

 

 
609

 
526

Net periodic benefit cost
 
$
172

 
$
719

 
$
103

 
$
1,200

 
$
240

 
$
1,611

 
$
146

 
$
2,422

The Company made no contribution to the U.S. salaried pension plan in the first six months of 2016 and 2015. The Company made no contribution to the U.S. wage pension plan in the first six months of 2016. The Company contributed $349 to the U.S. wage pension plan in the first six months of 2015. The Company's funding policy for its U.S. plans is consistent with the minimum funding requirements of federal law and regulations, and based on preliminary estimates, the Company does not expect to make contributions to either the salaried or wage pension plans for the fiscal year ending December 31, 2016.
Other Post-retirement Benefits
Components of net periodic benefit cost for the Company's other post-retirement benefits are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
U.S. Plans
 
U.S. Plans
 
U.S. Plans
 
U.S. Plans
Service cost
 
$
5

 
$
6

 
$
10

 
$
11

Interest cost
 
145

 
149

 
290

 
299

Amortization of net loss
 
32

 
96

 
63

 
192

Net periodic benefit cost
 
$
182

 
$
251

 
$
363

 
$
502

11. Stock-Based Compensation
Under the Westlake Chemical Corporation 2013 Omnibus Incentive Plan (as amended and restated, the "2013 Plan"), all employees and non-employee directors of the Company, as well as certain individuals who have agreed to become the Company's employees, are eligible for awards. Shares of common stock may be issued as authorized in the 2013 Plan. At the discretion of the administrator of the 2013 Plan, employees and non-employee directors may be granted awards in the form of stock options, stock appreciation rights, stock awards, restricted stock units or cash awards (any of which may be a performance award). Total stock-based compensation expense related to the 2013 Plan was $2,781 and $2,565 for the three months ended June 30, 2016 and 2015, respectively, and $5,084 and $4,905 for the six months ended June 30, 2016 and 2015, respectively.

13

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

12. Derivative Instruments
Commodity Risk Management
The Company uses derivative instruments to reduce price volatility risk on raw materials and products as a substantial portion of its raw materials and products are commodities whose prices fluctuate as market supply and demand fundamentals change. Business strategies to protect against such instability include ethylene product feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. The Company does not use derivative instruments to engage in speculative activities.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in gross profit in the consolidated statements of operations for the three and six months ended June 30, 2016 and 2015.
The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Company would continue to receive the market price on the actual volume hedged. The Company also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty).
The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:
 
 
Derivative Assets
 
 
Balance Sheet Location
 
Fair Value as of
 
 
June 30,
2016
 
December 31,
2015
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accounts receivable, net
 
$
4,491

 
$
3,465

Commodity forward contracts

 
Deferred charges and
   other assets, net
 
5,517

 
2,088

Total derivative assets
 
 
 
$
10,008

 
$
5,553

 
 
Derivative Liabilities
 
 
Balance Sheet Location
 
Fair Value as of
 
 
June 30,
2016
 
December 31,
2015
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accrued liabilities
 
$
2,215

 
$
9,325

Commodity forward contracts
 
Other liabilities
 
5,506

 
12,437

Total derivative liabilities
 
 
 
$
7,721

 
$
21,762

 
 
 
 
 
 
 
 
 
 
 
The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:
Derivatives Not Designated as
   Hedging Instruments
 
Location of Gain (Loss) Recognized
   in Income on Derivative
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2016
 
2015
 
2016
 
2015
Commodity forward contracts
 
Gross profit
 
$
11,567

 
$
595

 
$
15,624

 
$
4,836

See Note 13 for the fair value of the Company's derivative instruments.

14

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

Disclosure about Offsetting Asset and Liability Derivatives
Certain of the Company's derivative instruments are executed under an International Swaps and Derivatives Association ("ISDA") Master Agreement, which permits the Company and a counterparty to aggregate the amounts owed by each party under multiple transactions and replace them with a single net amount payable by one party to the other. The following tables present the Company's derivative assets and derivative liabilities reported on the consolidated balance sheets and derivative assets and derivative liabilities subject to enforceable master netting arrangements.
 
 
Derivative Assets as of
 
 
June 30,
2016
 
December 31,
2015
Derivative assets subject to enforceable master netting arrangements
 
$
504

 
$

Derivative assets not subject to enforceable master netting arrangements
 
5,773

 
462

Total derivative assets
 
$
6,277

 
$
462

 
 
June 30, 2016
 
December 31, 2015
Offsetting of Derivative Assets
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in the
Consolidated Balance Sheet
 
Net Amounts of Assets Presented
in the Consolidated Balance Sheet
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in the
Consolidated Balance Sheet
 
Net Amounts of Assets Presented
in the Consolidated Balance Sheet
Commodity forward contracts
 
$
4,235

 
$
(3,731
)
 
$
504

 
$
5,091

 
$
(5,091
)
 
$

 
 
June 30, 2016
 
December 31, 2015
Derivative Assets by Counterparty
 
Net Amounts of Assets Presented
in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the
Consolidated Balance Sheet
 
Net
Amount
 
Net Amounts of Assets Presented
in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the
Consolidated Balance Sheet
 
Net
Amount
Counterparty A
 
$
414

 
$

 
$
414

 
$

 
$

 
$

Counterparty B
 
90

 

 
90

 

 

 

Total
 
$
504

 
$

 
$
504

 
$

 
$

 
$

 
 
Derivative Liabilities as of
 
 
June 30,
2016
 
December 31,
2015
Derivative liabilities subject to enforceable master netting arrangements
 
$
290

 
$
5,803

Derivative liabilities not subject to enforceable master netting arrangements
 
3,700

 
10,868

Total derivative liabilities
 
$
3,990

 
$
16,671

 
 
June 30, 2016
 
December 31, 2015
Offsetting of Derivative Liabilities
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in the
Consolidated Balance Sheet
 
Net Amounts of Liabilities Presented
in the Consolidated Balance Sheet
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in the
Consolidated Balance Sheet
 
Net Amounts of Liabilities Presented
in the Consolidated Balance Sheet
Commodity forward contracts
 
$
4,021

 
$
(3,731
)
 
$
290

 
$
10,894

 
$
(5,091
)
 
$
5,803


15

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

 
 
June 30, 2016
 
December 31, 2015
Derivative Liabilities by Counterparty
 
Net Amounts of Liabilities Presented
in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the
Consolidated Balance Sheet
 
Net
Amount
 
Net Amounts of Liabilities Presented
in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the
Consolidated Balance Sheet
 
Net
Amount
Counterparty A
 
$
290

 
$

 
$
290

 
$
5,564

 
$

 
$
5,564

Counterparty B
 

 

 

 
239

 

 
239

Total
 
$
290

 
$

 
$
290

 
$
5,803

 
$

 
$
5,803

13. Fair Value Measurements
The Company reports certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following tables summarize, by level within the fair value hierarchy, the Company's assets and liabilities that were accounted for at fair value on a recurring basis:
 
 
June 30, 2016
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets—Commodity forward contracts
 
$
1,607

 
$
8,401

 
$
10,008

Risk management liabilities—Commodity forward contracts
 
(7,348
)
 
(373
)
 
(7,721
)
Marketable securities
 
 
 
 
 
 
Available-for-sale securities
 
109,337

 
352,021

 
461,358

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets—Commodity forward contracts
 
$
5,553

 
$

 
$
5,553

Risk management liabilities—Commodity forward contracts
 
(11,648
)
 
(10,114
)
 
(21,762
)
Marketable securities
 
 
 
 
 
 
Available-for-sale securities
 
48,081

 
520,144

 
568,225

The Level 2 measurements for the Company's commodity contracts are derived using forward curves supplied by industry-recognized and unrelated third-party services. The Level 2 measurements for the Company's available-for-sale securities are derived using market-based pricing provided by unrelated third-party services.
There were no transfers in or out of Levels 1 and 2 of the fair value hierarchy for the six months ended June 30, 2016 and 2015.

16

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

In addition to the financial assets and liabilities above, the Company has other financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts and notes payable and long-term debt, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, net and accounts and notes payable approximate their fair value due to the short maturities of these instruments. The carrying and fair values of the Company's long-term debt are summarized in the table below. The Company's long-term debt instruments are publicly-traded. A market approach, based upon quotes from financial reporting services, is used to measure the fair value of the Company's long-term debt. Because the Company's long-term debt instruments may not be actively traded, the inputs used to measure the fair value of the Company's long-term debt are classified as Level 2 inputs within the fair value hierarchy.
 
 
June 30, 2016
 
December 31, 2015
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
3.60% senior notes due 2022
 
$
247,939

 
$
251,523

 
$
247,768

 
$
244,828

6 ½% senior notes due 2029
 
99,048

 
120,125

 
99,011

 
117,153

6 ¾% senior notes due 2032
 
248,057

 
268,790

 
247,998

 
268,490

6 ½% GO Zone Senior Notes Due 2035
 
88,138

 
107,025

 
88,116

 
106,491

6 ½% IKE Zone Senior Notes Due 2035
 
64,382

 
78,127

 
64,366

 
76,741

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

 
10,889

 
10,889

 
10,889

The carrying values of the Company's long-term debt as of December 31, 2015 have been adjusted to reflect the retrospective application of the accounting standards update on simplifying the presentation of debt issuance costs discussed in Note 8.
14. Income Taxes
The Company elected to early adopt an accounting standards update requiring the noncurrent classification of all deferred tax assets and liabilities, along with any related valuation allowance, effective January 1, 2016. As a result, the Company's deferred tax assets and liabilities have been classified, by jurisdiction, as a net noncurrent deferred tax asset or liability on the consolidated balance sheet. Consistent with the prospective application of this accounting standard, prior period comparative information was not adjusted.
The effective income tax rate was 36.5% for the three months ended June 30, 2016. The effective tax rate for the 2016 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction and income attributable to noncontrolling interests. The effective income tax rate was 31.9% for the three months ended June 30, 2015. The effective income tax rate for the 2015 period was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, income attributable to noncontrolling interests, the non-recognition of tax related to the bargain purchase of a controlling interest in Suzhou Huasu Plastics Co., Ltd. ("Huasu") and the foreign earnings rate differential, partially offset by state income taxes.
The effective income tax rate was 35.7% for the six months ended June 30, 2016. The effective tax rate for the 2016 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction, income attributable to noncontrolling interests and the foreign earnings rate differential. The effective income tax rate was 32.9% for the six months ended June 30, 2015. The effective income tax rate for the 2015 period was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, income attributable to noncontrolling interests, the non-recognition of tax related to the bargain purchase of a controlling interest in Huasu and the foreign earnings rate differential, partially offset by state income taxes.
There were no unrecognized tax benefits for the six months ended June 30, 2016. The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense. As of June 30, 2016, the Company had no accrued interest and penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is no longer subject to examinations by tax authorities before the year 2010.

17

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

For the six months ended June 30, 2016, the Company is in a deferred tax asset position related to outside basis differences in its foreign subsidiaries. The Company will assess whether it will permanently reinvest its foreign subsidiaries' undistributed earnings in connection with the recent announcement of the definitive agreement under which the Company will acquire all of the issued and outstanding shares of common stock of Axiall Corporation. See Note 20 for further details regarding the pending acquisition.
15. Earnings per Share
The Company has unvested shares of restricted stock and restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share include the effect of certain stock options.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income attributable to
   Westlake Chemical Corporation
 
$
111,124

 
$
205,095

 
$
234,252

 
$
351,437

Less:
 
 
 
 
 
 
 
 
Net income attributable to participating securities
 
(504
)
 
(253
)
 
(1,054
)
 
(457
)
Net income attributable to common shareholders
 
$
110,620

 
$
204,842

 
$
233,198

 
$
350,980

The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Weighted average common shares—basic
 
129,583,224

 
132,538,123

 
129,886,594

 
132,625,857

Plus incremental shares from:
 
 
 
 
 
 
 
 
Assumed exercise of options
 
397,303

 
506,852

 
403,927