Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - WESTLAKE CHEMICAL CORPexhibit321_20160930.htm
EX-31.2 - EXHIBIT 31.2 - WESTLAKE CHEMICAL CORPexhibit312_20160930.htm
EX-31.1 - EXHIBIT 31.1 - WESTLAKE CHEMICAL CORPexhibit311_20160930.htm
EX-10.3 - EXHIBIT 10.3 - WESTLAKE CHEMICAL CORPexhibit103_20160930.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, 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 November 2, 2016 was 128,903,141.



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)
 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
380,519

 
$
662,525

Marketable securities
 

 
520,144

Accounts receivable, net
 
1,070,501

 
508,532

Inventories
 
744,536

 
434,060

Prepaid expenses and other current assets
 
54,868

 
14,489

Restricted cash
 
169,320

 

Deferred income taxes
 

 
35,439

Total current assets
 
2,419,744

 
2,175,189

Property, plant and equipment, net
 
6,450,947

 
3,004,067

Other assets, net
 
 
 
 
Goodwill
 
925,700

 
62,016

Customer relationships
 
604,551

 
52,677

Other intangible assets, net
 
185,651

 
98,711

Deferred charges and other assets, net
 
310,456

 
176,625

Total other assets, net
 
2,026,358

 
390,029

Total assets
 
$
10,897,049

 
$
5,569,285

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts and notes payable
 
$
503,388

 
$
235,329

Accrued liabilities
 
552,581

 
287,313

Term loan
 
148,681

 

Total current liabilities
 
1,204,650

 
522,642

Long-term debt, net
 
3,680,585

 
758,148

Deferred income taxes
 
1,607,084

 
575,603

Pension and other post-retirement benefits
 
434,067

 
122,821

Other liabilities
 
146,526

 
28,140

Total liabilities
 
7,072,912

 
2,007,354

Commitments and contingencies (Notes 10 and 20)
 


 


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 September 30, 2016 and
December 31, 2015, respectively
 
1,347

 
1,347

Common stock, held in treasury, at cost; 5,752,377 and 4,444,898 shares
at September 30, 2016 and December 31, 2015, respectively
 
(319,980
)
 
(258,312
)
Additional paid-in capital
 
546,519

 
542,148

Retained earnings
 
3,337,968

 
3,109,987

Accumulated other comprehensive loss
 
(108,126
)
 
(129,292
)
Total Westlake Chemical Corporation stockholders' equity
 
3,457,728

 
3,265,878

Noncontrolling interests
 
366,409

 
296,053

Total equity
 
3,824,137

 
3,561,931

Total liabilities and equity
 
$
10,897,049

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
1,279,028

 
$
1,188,037

 
$
3,340,276

 
$
3,476,570

Cost of sales
 
1,076,895

 
876,761

 
2,641,192

 
2,527,567

Gross profit
 
202,133

 
311,276

 
699,084

 
949,003

Selling, general and administrative expenses
 
72,729

 
57,248

 
179,757

 
170,321

Transaction and integration-related costs
 
82,841

 

 
90,550

 

Income from operations
 
46,563

 
254,028

 
428,777

 
778,682

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(24,366
)
 
(8,211
)
 
(36,966
)
 
(26,760
)
Other income, net
 
41,265

 
2,636

 
52,091

 
33,790

Income before income taxes
 
63,462

 
248,453

 
443,902

 
785,712

(Benefit from) provision for income taxes
 
(6,552
)
 
60,033

 
129,332

 
236,824

Net income
 
70,014

 
188,420

 
314,570

 
548,888

Net income attributable to noncontrolling interests
 
4,352

 
4,816

 
14,656

 
13,847

Net income attributable to
   Westlake Chemical Corporation
 
$
65,662

 
$
183,604

 
$
299,914

 
$
535,041

Earnings per common share attributable to
   Westlake Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
0.51

 
$
1.39

 
$
2.31

 
$
4.04

Diluted
 
$
0.51

 
$
1.39

 
$
2.29

 
$
4.02

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
128,793,661

 
131,664,296

 
129,519,577

 
132,301,814

Diluted
 
129,379,956

 
132,121,235

 
130,103,897

 
132,786,534

Dividends per common share
 
$
0.1906

 
$
0.1815

 
$
0.5536

 
$
0.5115

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 September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016

2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income
 
$
70,014

 
$
188,420

 
$
314,570

 
$
548,888

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
)
 
(22
)
 
(412
)
 
(208
)
Amortization of benefits liability
 
369

 
692

 
1,072

 
2,019

Income tax provision on pension and other
   post-retirement benefits liability
 
(60
)
 
(232
)
 
(251
)
 
(621
)
Foreign currency translation adjustments
 
6,453

 
(1,920
)
 
15,758

 
(43,746
)
Available-for-sale investments
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on
   investments
 
1,550

 
(716
)
 
61,524

 
3,987

Reclassification of net realized gains
   to net income
 
(52,401
)
 

 
(53,720
)
 
(3,795
)
Income tax benefit (provision) on
   available-for-sale investments
 
18,270

 
257

 
(2,805
)
 
(68
)
Other comprehensive (loss) income
 
(26,025
)
 
(1,941
)
 
21,166

 
(42,432
)
Comprehensive income
 
43,989

 
186,479

 
335,736

 
506,456

Comprehensive income attributable to
   noncontrolling interests, net of tax of $0
   for each of the respective periods presented
 
4,352

 
4,816

 
14,656

 
13,847

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
39,637

 
$
181,663

 
$
321,080

 
$
492,609

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

3


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
314,570

 
$
548,888

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
227,193

 
180,229

Provision for doubtful accounts
 
1,176

 
778

Amortization of debt issuance costs
 
1,018

 
1,504

Stock-based compensation expense
 
6,588

 
7,544

Loss from disposition of property, plant and equipment
 
6,541

 
2,590

Gains realized on previously held shares of Axiall common stock and from
   sales of securities
 
(53,720
)
 
(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
 
105,910

 
7,585

Windfall tax benefits from share-based payment arrangements
 
(1,190
)
 
(2,452
)
Income from equity method investments, net of dividends
 
(61
)
 
(1,016
)
Other losses, net
 
833

 
3,584

Changes in operating assets and liabilities, net of effect of business acquisitions
 
 
 
 
Accounts receivable
 
(92,311
)
 
54,937

Inventories
 
(6,124
)
 
105,899

Prepaid expenses and other current assets
 
1,631

 
(5,496
)
Accounts payable
 
34,109

 
(30,511
)
Accrued liabilities
 
73,157

 
(10,893
)
Other, net
 
(75,160
)
 
(1,955
)
Net cash provided by operating activities
 
544,160

 
841,300

Cash flows from investing activities
 
 
 
 
Acquisition of business, net of cash acquired
 
(2,437,829
)
 
15,782

Additions to cost method investment
 
(4,000
)
 

Additions to property, plant and equipment
 
(467,330
)
 
(329,236
)
Proceeds from disposition of assets
 
213

 
17

Proceeds from disposition of equity method investment
 

 
27,865

Proceeds from sales and maturities of securities
 
662,938

 
16,056

Purchase of securities
 
(138,422
)
 
(282,542
)
Settlements of derivative instruments
 
(4,655
)
 
(1,535
)
Net cash used for investing activities
 
(2,389,085
)
 
(553,593
)
Cash flows from financing activities
 
 
 
 
Debt issuance costs
 
(35,207
)
 

Dividends paid
 
(71,933
)
 
(67,852
)
Distributions to noncontrolling interests
 
(12,300
)
 
(10,982
)
Proceeds from debt issuance
 
1,428,512

 

Proceeds from exercise of stock options
 
1,650

 
984

Proceeds from issuance of notes payable
 
5,597

 
19,483

Proceeds from term loan and drawdown of revolver
 
600,000

 

Restricted cash associated with term loan
 
(154,000
)
 

Repayment of notes payable
 
(10,602
)
 
(32,954
)
Repayment of revolver
 
(125,000
)
 

Repurchase of common stock for treasury
 
(67,406
)
 
(114,254
)
Windfall tax benefits from share-based payment arrangements
 
1,190

 
2,452

Net cash provided by (used for) financing activities
 
1,560,501

 
(203,123
)
Effect of exchange rate changes on cash and cash equivalents
 
2,418

 
(3,260
)
Net (decrease) increase in cash and cash equivalents
 
(282,006
)
 
81,324

Cash and cash equivalents at beginning of period
 
662,525

 
880,601

Cash and cash equivalents at end of period
 
$
380,519

 
$
961,925

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 September 30, 2016, its results of operations for the three and nine months ended September 30, 2016 and 2015 and the changes in its cash position for the nine months ended September 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.
Certain prior period amounts have been reclassified in the consolidated balance sheet and consolidated statements of operations to conform to current presentation.
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

5


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

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.
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.
Investments-Equity Method and Joint Ventures (ASU No. 2016-07)
In March 2016, the FASB issued an accounting standards update providing new guidance for the accounting for equity method investments. The new guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. In addition, the guidance requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The accounting standard will be effective for reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
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.
Cash Flows (ASU No. 2016-16)
In August 2016, the FASB issued an accounting standards update providing new guidance on the classification of certain cash receipts and payments including debt extinguishment costs, debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments, proceeds from the settlement of insurance claims and life insurance policies and distributions received from equity method investees in the statement of cash flows. This update is required to be applied using the retrospective transition method to each period presented unless it is impracticable to be applied retrospectively. In such situation, this guidance is to be applied prospectively. The accounting standard will be effective for reporting periods

6


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

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.
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 $176,625 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. 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.

7


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

2. Acquisition
On August 31, 2016, the Company completed its previously announced acquisition of, and acquired all the remaining equity interest in, Axiall Corporation ("Axiall"), a Delaware corporation. Prior to the acquisition, the Company held 3.1 million shares in Axiall. Pursuant to the terms of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of June 10, 2016, by and among Westlake, Axiall and Lagoon Merger Sub, Inc., a Delaware corporation that is a wholly-owned subsidiary of Westlake ("Merger Sub"), the Company acquired all of the issued and outstanding shares of common stock of Axiall for $33.00 per share in cash. Pursuant to the Merger Agreement, Merger Sub was merged with and into Axiall (the "Merger"), and Axiall survived the Merger as a wholly-owned subsidiary of the Company. The combined company is the third-largest global chlor-alkali producer and the third-largest global polyvinyl chloride ("PVC") producer. The Company's management believes that this strategic acquisition will enhance its strategy of integration and will further strengthen its role in the North American markets.
Axiall produces a highly integrated chain of chlor-alkali and derivative products, including chlorine, caustic soda, vinyl chloride monomer ("VCM"), vinyl resins, ethylene dichloride (OR 1, 2 dichloroethane), chlorinated solvents, calcium hypochlorite and hydrochloric acid, and compound products. Axiall also manufactures and sells building products, including interior and exterior trim and mouldings products, deck products, siding, pipe and pipe fittings. Substantially all of the vinyl resin used to manufacture Axiall's building products is sourced internally.
Total consideration transferred for the Axiall Merger was $2,526,080. The Merger is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of the acquired business are included in the Company's Vinyls segment.
The acquired business contributed net sales and net loss of $257,407 and ($47,164), respectively, to the Company for the period from August 31, 2016 to September 30, 2016. The net loss for the period from August 31, 2016 to September 30, 2016 included integration-related costs and the negative impact of selling higher cost Axiall inventory recorded at fair value. The following unaudited consolidated pro forma information presents consolidated information as if the Merger had occurred on January 1, 2015:
 
 
Pro Forma
Nine Months Ended September 30,
 
 
2016
 
2015
Net sales
 
$
5,345,365

 
$
6,053,330

Net income (1)
 
$
284,324

 
$
595,442

Net income (loss) attributable to noncontrolling interest
 
16,404

 
(5,953
)
Net income attributable to Westlake Chemical Corporation (1)
 
$
267,920

 
$
601,395

Earnings per common share attributable to Westlake Chemical Corporation
 
 
 
 
Basic
 
$
2.06

 
$
4.54

Diluted
 
$
2.05

 
$
4.52

_____________
(1)
The 2016 pro forma net income amounts include Axiall's historical charges recorded during the eight-month period prior to the closing of the Merger for (1) divestitures; (2) restructuring; and (3) legal and settlement claims, net, of $26,666, $22,881 and $23,376, respectively. These amounts have not been eliminated for pro forma purposes because they do not relate to nonrecurring transaction specific costs related to the Merger.
The pro forma amounts above have been calculated after applying the Company's accounting policies and adjusting the Axiall results to reflect (1) the increase to depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2015; (2) the elimination of net sales and cost of sales between the Company and Axiall; (3) additional pension service costs; (4) amortization of debt premium and accretion of asset retirement obligations and environmental liabilities as part of the Company's adjustments to fair value; (5) incremental interest expense that would have been incurred assuming the financing arrangements entered by the Company and repayment of a portion of Axiall's outstanding debt had occurred on January 1, 2015; (6) the elimination of transaction-related costs; (7) the elimination of Axiall's goodwill impairment charges for the nine months ended September 30, 2015 and (8) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory

8


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

income tax rate of the jurisdictions to which the above adjustments relate. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Merger, are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the Merger had occurred as of January 1, 2015 or of future operating performance.
For the nine months ended September 30, 2016, the Company recognized $90,550 of transaction and integration-related costs. This included acquisition-related costs of $43,895 for advisory, consulting and professional fees and other expenses. Transaction and integration-related costs for the nine months ended September 30, 2016 also included $46,655 related to settlement of Axiall share-based awards, retention agreement costs and severance benefits provided to former Axiall executives in connection with the Merger.
The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition. The preliminary allocation of the consideration transferred is based on management's estimates, judgments and assumptions. When determining the fair values of assets acquired, liabilities assumed and noncontrolling interests of the acquiree, management made significant estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $863,144 was recorded. The goodwill recognized is primarily attributable to synergies related to the Company's vinyls integration strategy that are expected to arise from the Merger. All of the goodwill is assigned to the Company's Vinyls segment. As a portion of the goodwill arising from the Merger is attributable to foreign operations, there will be a continuing foreign currency impact to goodwill on the financial statements.
Closing stock purchase:
 
 
Offer per share
 
$
33.00

Multiplied by number of shares outstanding at acquisition
 
67,277

Fair value of Axiall shares outstanding purchased by the Company
 
$
2,220,141

 
 
 
Axiall debt repaid at acquisition
 
247,135

Seller's transaction costs paid by the Company (1)
 
47,458

Fair value of Axiall share-based awards attributed to pre-combination service (2)
 
11,346

Purchase consideration transferred
 
$
2,526,080

 
 
 
Fair value of previously held equity interest in Axiall (3)
 
102,300

Total fair value allocated to net assets acquired
 
$
2,628,380

_____________
(1)
Transactions costs incurred by the seller include legal and advisory costs incurred for the benefit of Axiall's former shareholders and board of directors to evaluate the Company's initial Merger proposals, explore strategic alternatives and negotiate the purchase price.
(2)
The fair value of share-based awards attributable to pre-combination service includes the ratio of the pre-combination service performed to the original service period of the Axiall restricted share units and options, including related dividend equivalent rights.
(3)
Prior to the Merger, the Company owned 3.1 million shares in Axiall. The investment in Axiall was carried at estimated fair value with unrealized gains recorded as a component of accumulated other comprehensive loss on the consolidated balance sheet. The Company recognized a $49,080 gain for the investment in other income, net in the consolidated statement of operations upon gaining control.
The final allocation of purchase consideration, based on final valuations, could include changes in the estimated fair value of (1) inventories; (2) property, plant and equipment; (3) equity investments; (4) customer relationships, trade names, developed technologies and other intangibles; (5) deferred income taxes; (6) all contingencies; (7) asset retirement obligations; and (8) noncontrolling interests. The assumed contingencies relate to environmental liabilities, legal liabilities, asset retirement obligations and warranty reserves that are provisionally recorded based on estimated fair value.

9


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

The information below represents the preliminary purchase price allocation:
Cash
 
$
88,251

Accounts receivable
 
422,023

Income tax receivable
 
48,398

Inventories
 
302,868

Prepaid expenses and other current assets
 
48,435

Property, plant and equipment
 
3,189,582

Customer relationships (weighted average life of 10.7 years)
 
560,000

Other intangible assets:
 
 
Trade name (weighted average life of 6.8 years)
 
50,000

Technology (weighted average life of 5.4 years)
 
41,500

Supply contracts and leases (weighted average life of 6.0 years)
 
26,710

Other assets
 
105,214

Total assets acquired
 
4,882,981

Accounts and notes payable
 
253,967

Interest payable
 
8,154

Income tax payable
 
1,921

Accrued compensation
 
30,057

Accrued liabilities
 
165,793

Deferred income taxes
 
973,799

Tax reserve non-current
 
3,130

Pension and other post retirement obligations
 
311,106

Other liabilities
 
114,528

Long-term debt
 
1,187,290

Total liabilities assumed
 
3,049,745

Total identifiable net assets acquired
 
1,833,236

Noncontrolling interest
 
(68,000
)
Goodwill
 
863,144

Total purchase consideration
 
$
2,628,380

3. Financial Instruments
Cash Equivalents
The Company had $1,942 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 September 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.
Restricted Cash
The Company had restricted cash and cash equivalents of $195,705 at September 30, 2016, which are primarily related to the balances deposited with and held as security by the lender under the Company's current term loan facility and for distributions to certain of Axiall's current and former employees. The current and non-current restricted cash and cash equivalents of $169,320 and $26,385, respectively, is reflected under current assets and as a component of other assets, net—Deferred charges and other assets, net, respectively, on the consolidated balance sheet. The Company had no restricted cash balances at December 31, 2015.

10


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

Available-for-Sale Marketable Securities
The Company had no available-for-sale securities at September 30, 2016. Investments in available-for-sale securities at December 31, 2015 were classified as follows:
 
 
December 31,
2015
Current
 
$
520,144

Non-current
 
48,081

Total available-for-sale securities
 
$
568,225

The cost, gross unrealized gains, gross unrealized losses and fair value of the Company's available-for-sale securities were as follows:
 
 
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 December 31, 2015, net unrealized losses on the Company's available-for-sale securities of $4,995, net of income tax benefit of $2,801, were recorded in accumulated other comprehensive loss.
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 September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Proceeds from sales and maturities of securities
 
$
360,506

 
$
1,019

 
$
662,938

 
$
16,056

Gross realized gains
 
52,414

 

 
53,755

 
3,795

Gross realized losses
 
13

 

 
35

 

4. Accounts Receivable
Accounts receivable consist of the following:
 
 
September 30,
2016
 
December 31,
2015
Trade customers
 
$
923,499

 
$
438,538

Allowance for doubtful accounts
 
(15,322
)
 
(14,095
)
 
 
908,177

 
424,443

Federal and state taxes
 
134,733

 
60,748

Other
 
27,591

 
23,341

Accounts receivable, net
 
$
1,070,501

 
$
508,532


11


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

5. Inventories
Inventories consist of the following:
 
 
September 30,
2016
 
December 31,
2015
Finished products
 
$
466,165

 
$
253,338

Feedstock, additives and chemicals
 
199,827

 
106,435

Materials and supplies
 
78,544

 
74,287

Inventories
 
$
744,536

 
$
434,060

6. Property, Plant and Equipment
As of September 30, 2016, the Company had property, plant and equipment, net totaling $6,450,947. 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 $75,143 and $52,208 is primarily included in cost of sales in the consolidated statements of operations for the three months ended September 30, 2016 and 2015, respectively. Depreciation expense on property, plant and equipment of $189,114 and $153,129 is primarily included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2016 and 2015, respectively.
7. Other Assets
Amortization expense on intangible and other assets of $19,175 and $9,419 is included in the consolidated statements of operations for the three months ended September 30, 2016 and 2015, respectively. Amortization expense on intangible and other assets of $38,340 and $28,235 is included in the consolidated statements of operations for the nine months ended September 30, 2016 and 2015, respectively.
Goodwill
The gross carrying amounts of goodwill and the changes in the carrying amount of goodwill for the nine months ended September 30, 2016 were as follows:
 
 
Olefins Segment
 
Vinyls Segment
 
Total
Balance at December 31, 2015
 
$
29,990

 
$
32,026

 
$
62,016

Goodwill acquired during the period
 

 
863,144

 
863,144

Effects of changes in foreign exchange rates
 

 
540

 
540

Balance at September 30, 2016
 
$
29,990

 
$
895,710

 
$
925,700

8. Accounts and Notes Payable
Accounts and notes payable consist of the following:
 
 
September 30,
2016
 
December 31,
2015
Accounts payable
 
$
502,378

 
$
229,219

Notes payable to banks
 
1,010

 
6,110

Accounts and notes payable
 
$
503,388

 
$
235,329


12


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

9. Term Loan
On August 10, 2016, an indirect subsidiary of the Company, Westlake International Holdings II C.V., a limited partnership organized under the laws of the Netherlands (the "CV Borrower"), entered into a credit agreement with Bank of America, N.A., as agent and lender, providing the CV Borrower with a $150,000 term loan facility. The term loan facility matures on March 31, 2017. The loans thereunder bear interest at a floating interest rate equal to LIBOR plus 2.0% per annum, payable in arrears on the last day of each three-month period following the date of funding and at maturity. The CV Borrower may elect to convert the interest rate to a base rate with a 1.0% spread. The interest rate on the outstanding term loan was 2.82% at September 30, 2016.
The facility contains customary covenants and events of default that impose certain operating and financial restrictions on the CV Borrower and certain of its subsidiaries. These restrictions, among other things, provide limitations on the incurrence of additional indebtedness and liens and the ability to engage in certain transactions with affiliates.
Pursuant to the credit agreement, all of the non-U.S. subsidiaries of the Company are to remain owned, directly or indirectly, by the CV Borrower and its wholly owned subsidiary, Westlake International II LLC, a Delaware limited liability company ("WII LLC"). The CV Borrower is also required, together with its subsidiaries, to maintain at all times unencumbered cash and cash equivalents in a U.S. dollar equivalent of not less than $150,000, which amount shall be increased by 5% to the extent maintained in non-U.S. currencies. In connection therewith, an amount of cash and cash equivalents for the period (a) from the closing date until the date 30 days thereafter, not less than $50,000, and (b) thereafter, not less than $75,000, shall be maintained by the CV Borrower and its subsidiaries in accounts at Bank of America, N.A., in accordance with existing cash management agreements.
Obligations under the term loan facility are secured by a pledge of 65% of the membership interests of WII LLC as well as rights under the partnership agreement of Westlake International Holdings C.V., a limited partnership organized under the laws of the Netherlands, held by WII LLC and the CV Borrower.
10. 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 $176,625 and $758,148, respectively, from the originally reported $173,384 and $764,115, respectively, to reflect the retrospective application of the new accounting guidance.

13


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

Long-term debt consists of the following:
 
 
September 30, 2016
 
December 31, 2015
 
 
Principal
Amount
 
Unamortized
Premium,
Discount
and Debt
Issuance
Costs
(1)
 
Net
Long-term
Debt
 
Principal
Amount
 
Unamortized
Discount
and Debt
Issuance
Costs
 (1)
 
Net
Long-term
Debt
Revolving credit facility
 
$
325,000

 
$

 
$
325,000

 
$

 
$

 
$

4.625% senior notes due 2021 (the
   "4.625% Westlake 2021 Senior Notes")
 
624,793

 
28,463

 
653,256

 

 

 

4.625% senior notes due 2021
   (the "4.625% Subsidiary 2021 Senior
   Notes")
 
63,207

 
3,036

 
66,243

 

 

 

3.60% senior notes due 2022
 
250,000

 
(1,976
)
 
248,024

 
250,000

 
(2,232
)
 
247,768

4.875% senior notes due 2023 (the
   "4.875% Westlake 2023 Senior Notes")
 
433,793

 
13,958

 
447,751

 

 

 

4.875% senior notes due 2023
   (the "4.875% Subsidiary 2023 Senior
   Notes")
 
16,207

 
562

 
16,769

 

 

 

3.60% senior notes due 2026
   (the "3.60% 2026 Senior Notes")
 
750,000

 
(10,918
)
 
739,082

 

 

 

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

 

 
10,889

 
10,889

 

 
10,889

6 ½% senior notes due 2029
 
100,000

 
(934
)
 
99,066

 
100,000

 
(989
)
 
99,011

6 ¾% senior notes due 2032
 
250,000

 
(1,913
)
 
248,087

 
250,000

 
(2,002
)
 
247,998

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

 
(851
)
 
88,149

 
89,000

 
(884
)
 
88,116

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

 
(610
)
 
64,390

 
65,000

 
(634
)
 
64,366

5.0% senior notes due 2046 (the "5.0%
   2046 Senior Notes")
 
700,000

 
(26,121
)
 
673,879

 

 

 

Long-term debt, net
 
$
3,677,889

 
$
2,696

 
$
3,680,585

 
$
764,889

 
$
(6,741
)
 
$
758,148

_____________
(1)
Includes unamortized debt issuance costs of $21,286 and $5,967 at September 30, 2016 and December 31, 2015, respectively.
Credit Agreement
On August 23, 2016, the Company and certain of its subsidiaries entered into an unsecured revolving credit facility (the "Credit Agreement"), by and among the Company, the other borrowers and guarantors referred to therein, the lenders from time to time party thereto (collectively, the "Lenders"), the issuing banks party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent. Under the Credit Agreement, the Lenders have committed to provide an unsecured five-year revolving credit facility in an aggregate principal amount of up to $1,000,000. The Credit Agreement replaced the Company's existing $400,000 senior secured third amended and restated credit facility, dated as of July 17, 2014, by and among the Company, the financial institutions party thereto, as lenders, Bank of America, N.A., as agent, and the Company and certain of its subsidiaries, as borrowers. The Credit Agreement includes a $150,000 sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50,000 commitment for swing line loans to be provided on a same-day basis. The Company may also increase the size of the facility, in increments of at least $25,000, up to a maximum of $500,000, subject to certain conditions and if certain Lenders agree to commit to such an increase.
At September 30, 2016, the Company had $325,000 of borrowings outstanding under the Credit Agreement. Borrowings under the Credit Agreement will bear interest, at the Company's option, at either (a) LIBOR plus a spread ranging from 1.0% to

14


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

1.75% that will vary depending on the credit rating of the Company or (b) Alternate Base Rate plus a spread ranging from 0.0% to 0.75% that will vary depending on the credit rating of the Company. The Credit Agreement also requires an undrawn commitment fee ranging from 0.10% to 0.25% that will vary depending on the credit rating of the Company. The interest rate on the outstanding revolving credit facility was 2.05% at September 30, 2016. The Credit Agreement matures on August 23, 2021. As of September 30, 2016, the Company had outstanding letters of credit totaling $76,581 and borrowing availability of $598,419 under the Credit Agreement.
The obligations of the Company under the Credit Agreement are guaranteed by current and future material domestic subsidiaries of the Company, subject to customary exceptions. The Credit Agreement contains customary affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. The Credit Agreement also contains customary events of default and if and for so long as an event of default has occurred and is continuing, any amounts outstanding under the Credit Agreement will accrue interest at an increased rate, the Lenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the Lenders. As of September 30, 2016, the Company is in compliance with the total leverage ratio financial maintenance covenant.
3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
On August 10, 2016, the Company completed its private offering of $750,000 aggregate principal amount of 3.60% senior notes due 2026 (the "3.60% 2026 Senior Notes") and $700,000 aggregate principal amount of 5.0% senior notes due 2046 (the "5.0% 2046 Senior Notes"). The 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes are the Company's senior obligations and are guaranteed on a senior basis by certain of the Company's existing and future domestic subsidiaries. The 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes and guarantees are unsecured and rank equally with the Company's existing and future senior unsecured obligations and each guarantor's existing and future senior unsecured obligations. The Company has entered into a registration rights agreement in which it has agreed to file an exchange offer registration statement or, under specified circumstances, a shelf registration statement, with the SEC with respect to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes. The net proceeds from the offering were used to finance the Merger and to repay amounts under the term loan facility dated February 27, 2015 entered into by Axiall Holdco, Inc. (a wholly-owned subsidiary of Axiall), as the borrower, with the financial institutions party thereto. The indenture governing the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes contains customary events of default and covenants that will restrict the Company's and certain of its subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of the Company's or their assets.
Exchange Offers
On September 7, 2016, the Company completed offers to exchange (the "Axiall Exchange Offers") any and all of the $688,000 aggregate principal amount of the outstanding 4.625% senior notes due 2021 (the "4.625% Subsidiary 2021 Senior Notes") issued by Eagle Spinco Inc. ("Eagle Spinco"), a wholly-owned subsidiary of Axiall, and the $450,000 aggregate principal amount of the outstanding 4.875% senior notes due 2023 (the "4.875% Subsidiary 2023 Senior Notes" and, together with the 4.625% Subsidiary 2021 Senior Notes, the "Subsidiary Notes") issued by Axiall for new senior notes issued by the Company having the same maturity and interest rates as the Subsidiary Notes. The 4.625% Subsidiary 2021 Senior Notes and the 4.875% Subsidiary 2023 Senior Notes were assumed at fair value, which resulted in a premium on the Subsidiary Notes of $33,540 and $15,750, respectively. In the Axiall Exchange Offers, $624,793 aggregate principal amount of the 4.625% Subsidiary 2021 Senior Notes and $433,793 aggregate principal amount of the 4.875% Subsidiary 2023 Senior Notes were exchanged, respectively, for $624,793 aggregate principal amount of 4.625% senior notes due 2021 (the "4.625% Westlake 2021 Senior Notes") and $433,793 aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Westlake 2023 Senior Notes") issued by the Company, leaving outstanding $63,207 aggregate principal amount of the 4.625% Subsidiary 2021 Senior Notes and $16,207 aggregate principal amount of the 4.875% Subsidiary 2023 Senior Notes. The Subsidiary Notes are the senior unsecured obligations of Axiall and Eagle Spinco, respectively. The 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes are the Company's senior obligations and are guaranteed on a senior basis by certain of the Company's existing and future domestic subsidiaries. The 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes and guarantees are unsecured and rank equally with the Company's existing and future senior unsecured obligations and each guarantor's existing and future senior unsecured obligations. The Company has entered into a registration rights agreement in which it has agreed to file an exchange offer registration statement or, under specified circumstances, a shelf registration statement, with the SEC with respect to the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes. The indenture governing the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes contains customary events of default and covenants that will restrict the Company's and certain of its subsidiaries' ability

15


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

to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of the Company's or their assets.
Bridge Loan Agreement
In June 2016, in connection with the Axiall acquisition, the Company entered into a commitment letter with various lenders pursuant to which such lenders agreed to provide for a senior unsecured bridge loan facility of up to $1,765,000 in the aggregate. Also in June 2016, the Company paid structuring and other fees of approximately $9,700 in connection with the senior unsecured bridge loan facility. On August 26, 2016, the Company terminated the senior unsecured bridge loan facility and expensed the remaining $8,900 of structuring and other fees paid for the senior unsecured bridge loan facility. This amount is included in other income, net, in the consolidated statements of operations for the three and nine months ended September 30, 2016.
11. Pension and Post-Retirement Benefits
In connection with the Merger, the Company assumed certain U.S. and non-U.S. pension plans and other post-retirement benefit plans covering Axiall employees. The Axiall pension plans are closed to new participants and provide benefits to certain employees and retirees. The other post-retirement benefit plans are unfunded and provide medical and life insurance benefits for certain employees and their dependents. See Note 2 for the fair value of pension and other post-retirement obligations assumed in the Merger.
Defined Benefit Plans
Components of net periodic benefit cost for the Company's pension plans are as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 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
 
$
315

 
$
318

 
$

 
$
416

 
$
315

 
$
777

 
$
29

 
$
1,248

Expected administrative
   expenses
 
730

 

 

 

 
730

 

 

 

Interest cost
 
2,191

 
622

 
487

 
528

 
1,553

 
1,763

 
1,519

 
1,585

Expected return on plan assets
 
(3,800
)
 
(50
)
 
(712
)
 

 
(5,260
)
 
(50
)
 
(2,237
)
 

Amortization of net loss
 
338

 

 
333

 
263

 
978

 

 
942

 
789

Net periodic benefit (income)
   cost
 
$
(226
)
 
$
890

 
$
108

 
$
1,207

 
$
(1,684
)
 
$
2,490

 
$
253

 
$
3,622

The Company made no contribution to its U.S. pension plans in the first nine months of 2016. The Company contributed $349 to its U.S. pension plans in the first nine 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 its U.S. pension plans for the remainder of fiscal year ending December 31, 2016. The Company expects to make contributions of approximately $200 for its non-U.S. pension plans during the remainder of the fiscal year ending December 31, 2016.

16


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

Other Post-retirement Benefits
Components of net periodic benefit cost for the Company's other post-retirement benefits are as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
Service cost
 
$
72

 
$
1

 
$
6

 
$
81

 
$
1

 
$
17

Interest cost
 
250

 
3

 
149

 
540

 
3

 
448

Amortization of net loss
 
31

 

 
96

 
94

 

 
288

Net periodic benefit cost
 
$
353

 
$
4

 
$
251

 
$
715

 
$
4

 
$
753

12. Stockholders' Equity
Changes in stockholders' equity for the nine months ended September 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
 

 

 

 
299,914

 

 
14,656

 
314,570

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

 

 

 

 
409

 

 
409

Foreign currency
   translation adjustments
 

 

 

 

 
15,758

 

 
15,758

Net unrealized holding
   gains on investments
 

 

 

 

 
4,999

 

 
4,999

Common stock repurchased
 

 
(66,725
)
 

 

 

 

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

 
5,057

 
(3,407
)
 

 

 

 
1,650

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

 

 
7,778

 

 

 

 
7,778

Dividends paid
 

 

 

 
(71,933
)
 

 

 
(71,933
)
Distributions to noncontrolling
   interests
 

 

 

 

 

 
(12,300
)
 
(12,300
)
Noncontrolling interest in
   acquired business
 

 

 

 

 

 
68,000

 
68,000

Balances at September 30, 2016
 
$
1,347

 
$
(319,980
)
 
$
546,519

 
$
3,337,968

 
$
(108,126
)
 
$
366,409

 
$
3,824,137


17


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

 
 
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
 

 

 

 
535,041

 

 
13,847

 
548,888

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

 

 

 

 
1,190

 

 
1,190

Foreign currency
   translation adjustments
 

 

 

 

 
(43,746
)
 

 
(43,746
)
Net unrealized holding
   gains on investments
 

 

 

 

 
124

 

 
124

Common stock repurchased
 

 
(122,249
)
 

 

 

 

 
(122,249
)
Shares issued—stock-
   based compensation
 

 
1,079

 
(95
)
 

 

 

 
984

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

 

 
9,996

 

 

 

 
9,996

Dividends paid
 

 

 

 
(67,852
)
 

 

 
(67,852
)
Distributions to noncontrolling
   interests
 

 

 

 

 

 
(10,982
)
 
(10,982
)
Noncontrolling interest in
   acquired business
 

 

 

 

 

 
1,597

 
1,597

Balances at September 30, 2015
 
$
1,347

 
$
(217,542
)
 
$
540,342

 
$
3,022,717

 
$
(121,865
)
 
$
294,839

 
$
3,519,838

Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2016 and 2015 were as follows:
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange,
Net of Tax
 
Net Unrealized
Holding Gains
(Losses) on
Investments,
Net of Tax (1)
 
Total
Balances at December 31, 2015
 
$
(8,607
)
 
$
(115,690
)
 
$
(4,995
)
 
$
(129,292
)
Other comprehensive (loss) income before
   reclassifications
 
(252
)
 
15,758

 
57,550

 
73,056

Amounts reclassified from accumulated other
   comprehensive loss (income)
 
661

 

 
(52,551
)
 
(51,890
)
Net other comprehensive income for the period
 
409

 
15,758

 
4,999

 
21,166

Balances at September 30, 2016
 
$
(8,198
)
 
$
(99,932
)
 
$
4

 
$
(108,126
)
_____________
(1)
Includes other comprehensive income from equity method investment.


18


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

 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange,
Net of Tax
 
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
 
(128
)
 
(43,746
)
 
2,556

 
(41,318
)
Amounts reclassified from accumulated other
   comprehensive loss (income)
 
1,318

 

 
(2,432
)
 
(1,114
)
Net other comprehensive income (loss) for the period
 
1,190

 
(43,746
)
 
124

 
(42,432
)
Balances at September 30, 2015
 
$
(22,252
)
 
$
(99,970
)
 
$
357

 
$
(121,865
)
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 nine months ended September 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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Amortization of pension and
   other post-retirement items
 
 
 
 
 
 
 
 
 
 
Net loss
 
(1)
 
$
(369
)
 
$
(692
)
 
$
(1,072
)
 
$
(2,019
)
 
 
Provision for
   income taxes
 
141

 
241

 
411

 
701

 
 
 
 
(228
)
 
(451
)
 
(661
)
 
(1,318
)
Net unrealized gains on
   available-for-sale
   investments
 
 
 
 
 
 
 
 
 
 
Realized gain on
   available-for-sale
   investments
 
Other income, net
 
52,401

 

 
53,720

 
3,795

 
 
Provision for
   income taxes
 
(696
)
 

 
(1,169
)
 
(1,363
)
 
 
 
 
51,705

 

 
52,551

 
2,432

Total reclassifications for
   the period
 
 
 
$
51,477

 
$
(451
)
 
$
51,890

 
$
1,114

_____________
(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.
13. 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 $1,502 and $2,639 for the three months ended September 30, 2016 and 2015, respectively, and $6,588 and $7,544 for the nine months ended September 30, 2016 and 2015, respectively.
Under the Merger Agreement, all outstanding Axiall restricted stock units were assumed by the Company and converted into restricted stock units in respect of the Company's common stock, with the same terms and conditions except that upon

19


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

settlement the award holders will receive the greater of (1) the value of $33.00 per Axiall restricted stock unit that was converted into a restricted stock unit in respect of the Company's common stock and (2) the value of the Company's common stock. The awards are classified as liability awards for financial accounting purposes and are re-measured at each reporting date until they vest. The portion of the replacement award that is attributable to pre-combination service by the employee is included in the measure of consideration transferred to acquire Axiall. The remaining fair value of the replacement awards will be recognized as stock-based compensation expense over the remainder of the vesting period. Total stock-based compensation expense recognized related to the Merger Agreement for the three and nine months ended September 30, 2016 was $34,915, of which $32,644 is included in transaction and integration-related costs in the consolidated statements of operations.
14. 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 nine months ended September 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
 
 
September 30,
2016
 
December 31,
2015
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accounts receivable, net
 
$
2,221

 
$
3,465

Commodity forward contracts
 
Other assets, net
 
3,674

 
2,088

Total derivative assets
 
 
 
$
5,895

 
$
5,553

 
 
Derivative Liabilities
 
 
Balance Sheet Location
 
Fair Value as of
 
 
September 30,
2016
 
December 31,
2015
Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accrued liabilities
 
$
3,196

 
$
9,325

Commodity forward contracts
 
Other liabilities
 
6,811

 
12,437

Total derivative liabilities
 
 
 
$
10,007

 
$
21,762

 
 
 
 
 
 
 
 
 
 
 

20


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

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:
Derivatives Not Designated as
   Hedging Instruments
 
Location of Gain (Loss) Recognized
 in Income on Derivative
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2016
 
2015
 
2016
 
2015
Commodity forward contracts
 
Gross profit
 
$
(7,840
)
 
$
(9,314
)
 
$
7,784

 
$
(4,478
)
See Note 15 for the fair value of the Company's derivative instruments.
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
 
 
September 30,
2016
 
December 31,
2015
Derivative assets subject to enforceable master netting arrangements
 
$

 
$

Derivative assets not subject to enforceable master netting arrangements
 
3,560

 
462

Total derivative assets
 
$
3,560

 
$
462

 
 
September 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
 
$
2,335

 
$
(2,335
)
 
$

 
$
5,091

 
$
(5,091
)
 
$

 
 
Derivative Liabilities as of
 
 
September 30,
2016
 
December 31,
2015
Derivative liabilities subject to enforceable master netting arrangements
 
$
1,889

 
$
5,803

Derivative liabilities not subject to enforceable master netting arrangements
 
5,782

 
10,868

Total derivative liabilities
 
$
7,671

 
$
16,671