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EX-32.1 - EXHIBIT 32.1 - WESTLAKE CHEMICAL CORPexhibit321_20170630.htm
EX-31.2 - EXHIBIT 31.2 - WESTLAKE CHEMICAL CORPexhibit312_20170630.htm
EX-31.1 - EXHIBIT 31.1 - WESTLAKE CHEMICAL CORPexhibit311_20170630.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, 2017
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, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth 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
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨   
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 July 27, 2017 was 129,055,381.



INDEX






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
June 30,
2017
 
December 31,
2016
 
 
 
 
 
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
395,776

 
$
459,453

Accounts receivable, net
 
1,095,808

 
938,743

Inventories
 
831,700

 
801,100

Prepaid expenses and other current assets
 
45,744

 
48,493

Restricted cash
 
8,607

 
160,527

Total current assets
 
2,377,635

 
2,408,316

Property, plant and equipment, net
 
6,316,731

 
6,420,062

Other assets, net
 
 
 
 
Goodwill
 
999,614

 
946,553

Customer relationships, net
 
654,092

 
611,615

Other intangible assets, net
 
169,991

 
175,839

Deferred charges and other assets, net
 
367,644

 
327,868

Total other assets, net
 
2,191,341

 
2,061,875

Total assets
 
$
10,885,707

 
$
10,890,253

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
583,509

 
$
496,259

Accrued liabilities
 
447,412

 
537,483

Term loan
 

 
149,341

Total current liabilities
 
1,030,921

 
1,183,083

Long-term debt, net
 
3,489,900

 
3,678,654

Deferred income taxes
 
1,648,529

 
1,650,575

Pension and other post-retirement benefits
 
366,916

 
364,819

Other liabilities
 
140,398

 
121,077

Total liabilities
 
6,676,664

 
6,998,208

Commitments and contingencies (Note 19)
 


 


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
134,651,380 shares issued at June 30, 2017 and December 31, 2016, respectively
 
1,347

 
1,347

Common stock, held in treasury, at cost; 5,598,476 and 5,726,377 shares at
June 30, 2017 and December 31, 2016, respectively
 
(316,152
)
 
(319,339
)
Additional paid-in capital
 
555,478

 
550,641

Retained earnings
 
3,653,988

 
3,412,286

Accumulated other comprehensive loss
 
(53,824
)
 
(121,306
)
Total Westlake Chemical Corporation stockholders' equity
 
3,840,837

 
3,523,629

Noncontrolling interests
 
368,206

 
368,416

Total equity
 
4,209,043

 
3,892,045

Total liabilities and equity
 
$
10,885,707

 
$
10,890,253

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,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
1,979,161

 
$
1,086,061

 
$
3,921,777

 
$
2,061,248

Cost of sales
 
1,573,327

 
844,695

 
3,148,800

 
1,564,297

Gross profit
 
405,834

 
241,366

 
772,977

 
496,951

Selling, general and administrative expenses
 
130,626

 
53,719

 
254,277

 
107,028

Transaction and integration-related costs
 
8,092

 
7,709

 
16,286

 
7,709

Income from operations
 
267,116

 
179,938

 
502,414

 
382,214

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(38,972
)
 
(5,915
)
 
(78,748
)
 
(12,600
)
Other income (expense), net
 
(538
)
 
8,181

 
4,533

 
10,826

Income before income taxes
 
227,606

 
182,204

 
428,199

 
380,440

Provision for income taxes
 
68,188

 
66,584

 
124,071

 
135,884

Net income
 
159,418

 
115,620

 
304,128

 
244,556

Net income attributable to noncontrolling interests
 
6,591

 
4,496

 
13,111

 
10,304

Net income attributable to Westlake Chemical
   Corporation
 
$
152,827

 
$
111,124

 
$
291,017

 
$
234,252

Earnings per common share attributable to Westlake
   Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
1.18

 
$
0.85

 
$
2.24

 
$
1.80

Diluted
 
$
1.17

 
$
0.85

 
$
2.23

 
$
1.79

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
129,051,227

 
129,583,224

 
129,015,507

 
129,886,594

Diluted
 
129,786,714

 
129,980,527

 
129,739,643

 
130,290,521

Dividends per common share
 
$
0.1906

 
$
0.1815

 
$
0.3812

 
$
0.3630

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,
 
 
2017
 
2016
 
2017

2016
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income
 
$
159,418

 
$
115,620

 
$
304,128

 
$
244,556

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

 
(206
)
 

 
(206
)
Amortization of benefits liability
 
499

 
369

 
1,071

 
703

Income tax provision on pension and other post-
   retirement benefits liability
 
(179
)
 
(63
)
 
(350
)
 
(191
)
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
Foreign currency translation
 
49,326

 
(13,500
)
 
68,452

 
9,305

Income tax provision on foreign currency
   translation
 
255

 

 
(1,527
)
 

Net unrealized holding gains (losses) on investments
 
 
 
 
 
 
 
 
Unrealized holding gains on investments
 

 
35,545

 

 
59,973

Reclassification of net realized gains to net
   income
 

 
(1,267
)
 

 
(1,319
)
Income tax provision on available-for-sale
   investments
 

 
(12,316
)
 

 
(21,074
)
Other
 
(89
)
 

 
(164
)
 

Other comprehensive income, net of income taxes
 
49,812

 
8,562

 
67,482

 
47,191

Comprehensive income
 
209,230

 
124,182

 
371,610

 
291,747

Comprehensive income attributable to
   noncontrolling interests, net of tax of $808 and
   $0 for the three months ended June 30, 2017
   and 2016, respectively; and $1,621 and $0 for the
   six months ended June 30, 2017 and 2016,
   respectively.
 
6,140

 
4,496

 
15,823

 
10,304

Comprehensive income attributable to Westlake
   Chemical Corporation
 
$
203,090

 
$
119,686

 
$
355,787

 
$
281,443

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,
 
 
2017
 
2016
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
304,128

 
$
244,556

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
294,899

 
132,964

Provision for doubtful accounts
 
930

 
403

Amortization of debt issuance costs
 
1,078

 
417

Stock-based compensation expense
 
10,768

 
5,084

Loss from disposition of property, plant and equipment
 
7,210

 
3,331

Gains realized from sales of securities
 

 
(1,319
)
Write-off of debt issuance costs
 
659

 

Deferred income taxes
 
14,962

 
102,990

Windfall tax benefits from share-based payment arrangements
 

 
(319
)
Dividends in excess of income from equity method investments
 
152

 
279

Gain on involuntary conversion of assets
 
(1,672
)
 

Other losses (gains), net
 
(1,959
)
 
1,210

Changes in operating assets and liabilities, net of effect of business acquisitions
 
 
 
 
Accounts receivable
 
(142,029
)
 
(72,996
)
Inventories
 
21,207

 
(12,719
)
Prepaid expenses and other current assets
 
5,210

 
(12,586
)
Accounts payable
 
82,030

 
54,394

Accrued liabilities
 
(87,277
)
 
(1,617
)
Other, net
 
(30,582
)
 
(74,180
)
Net cash provided by operating activities
 
479,714

 
369,892

Cash flows from investing activities
 
 
 
 
Additions to property, plant and equipment
 
(280,902
)
 
(287,160
)
Additions to cost method investment
 
(31,000
)
 

Proceeds from disposition of assets
 
133

 
105

Proceeds from involuntary conversion of assets
 
1,672

 

Proceeds from sales and maturities of securities
 

 
302,432

Purchase of securities
 

 
(138,422
)
Settlements of derivative instruments
 
(376
)
 
(3,372
)
Net cash used for investing activities
 
(310,473
)
 
(126,417
)
Cash flows from financing activities
 
 
 
 
Debt issuance costs
 
(376
)
 
(9,700
)
Dividends paid
 
(49,315
)
 
(47,317
)
Distributions to noncontrolling interests
 
(16,033
)
 
(8,084
)
Proceeds from issuance of notes payable
 
3,544

 
3,842

Proceeds from drawdown of revolver
 
175,000

 

Restricted cash associated with term loan
 
154,000

 

Repayment of term loan
 
(150,000
)
 

Repayment of notes payable
 
(4,901
)
 
(8,626
)
Repayment of revolver
 
(360,000
)
 

Repurchase of common stock for treasury
 

 
(67,404
)
Other
 
1,477

 
800

Net cash used for financing activities
 
(246,604
)
 
(136,489
)
Effect of exchange rate changes on cash and cash equivalents
 
13,686

 
1,486

Net increase (decrease) in cash and cash equivalents
 
(63,677
)
 
108,472

Cash and cash equivalents at beginning of period
 
459,453

 
662,525

Cash and cash equivalents at end of period
 
$
395,776

 
$
770,997

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, 2016 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, 2016 (the "2016 Form 10-K"), filed with the SEC on February 22, 2017. 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, 2016.
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, 2017, its results of operations for the three and six months ended June 30, 2017 and 2016 and the changes in its cash position for the six months ended June 30, 2017 and 2016.
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, 2017 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. The Company has completed a preliminary assessment including detailed review of a representative sample of contracts with customers. The Company does not believe that adoption of the new accounting standard will significantly impact timing or amounts of revenue recognized for the majority of its sales. The Company intends to elect the modified retrospective method of adoption.
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.
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 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Cash Flows (ASU No. 2016-15)
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 beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Cash Flows (ASU No. 2016-18)
In November 2016, the FASB issued an accounting standards update to clarify certain existing principles in Accounting Standards Codification ("ASC") 230, Cash flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. The accounting standard will be effective for reporting periods beginning after December 15, 2017. Upon adoption of the accounting standards update, the Company will retrospectively adjust its financial statements to reflect restricted cash in the beginning and ending cash and restricted cash balances within the statements of cash flows. Transfers between cash and restricted cash will be excluded from net changes in cash and cash equivalents within the statements of cash flows.
Business Combinations (ASU No. 2017-01)
In January 2017, the FASB issued an accounting standards update to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the ASC 606, Revenue from contracts with customers. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.


6


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

Intangibles - Goodwill and Other (ASU No. 2017-04)
In January 2017, the FASB issued an accounting standards update to simplify the subsequent measurement of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (ASU No. 2017-05)
In February 2017, the FASB issued an accounting standards update to clarify the scope of guidance related to other incomegains and losses from the derecognition of nonfinancial assets, and to add guidance for partial sales of nonfinancial assets. The new guidance clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. The guidance also outlines that when an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling interest, it will measure the retained interest at fair value resulting in full gain or loss recognition upon sale of the controlling interest. The accounting standard will be effective for reporting periods beginning after December 15, 2017 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Compensation - Retirement Benefits (ASU No. 2017-07)
In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires employers to disaggregate the service cost component from the other components of net periodic benefit cost and report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments also allow only the service cost component to be eligible for capitalization when applicable. 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.
Compensation - Stock Compensation (ASU No. 2017-09)
In May 2017, the FASB issued the accounting standards update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting in Topic 718. Essentially, an entity will not have to account for the effects of a modification if: (1) the fair value of the modified award is the same immediately before and after the modification; (2) the vesting conditions of the modified award are the same immediately before and after the modification; and (3) the classification of the modified award as either an equity instrument or liability instrument is the same immediately before and after the modification. This update is to be applied prospectively to an award modified on or after the adoption date. The accounting standard will be effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. 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.

7


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

Recently Adopted Accounting Standards
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 became effective for reporting periods beginning after December 15, 2016. The Company adopted this accounting standard effective January 1, 2017 and the adoption did not have a material impact on the Company's 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 prior to adoption of the accounting standards update, or recognized when they occur. The accounting standard became effective for reporting periods beginning after December 15, 2016. The Company adopted this accounting standard effective January 1, 2017 and elected to continue estimating forfeitures as required prior to adoption of the accounting standards update. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Amendments to the Consolidation Analysis (ASU No. 2016-17)
In October 2016, the FASB issued an accounting standards update making certain changes to the current consolidation guidance. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The amendments became effective for annual periods beginning after December 15, 2016. The Company adopted this accounting standard, to be applied prospectively, effective January 1, 2017, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
2. Acquisition
On August 31, 2016, the Company completed its 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, 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 remaining 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 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"), PVC resin, PVC compounds and chlorinated derivative products. Axiall also manufactures and sells building products, including siding, trim, mouldings, pipe and pipe fittings.

8


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

Total consideration transferred for the Merger was $2,539,360. 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 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 $934,715 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 in the financial statements.
 
 
Final Purchase Consideration as of August 31, 2016
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

Plus:
 
 
Axiall debt repaid at acquisition
 
247,135

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

Total fair value of consideration transferred
 
2,514,734

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

Additional settlement value of shares acquired
 
13,280

Purchase consideration
 
2,539,360

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

Total fair value allocated to net assets acquired
 
$
2,641,660

_____________
(1)
Transaction costs incurred by the seller included 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 in the consolidated balance sheet. The Company recognized a $49,080 gain for the investment in other income, net in the consolidated statements of operations upon gaining control.
The Company is currently finalizing the estimates of the fair values of identified assets acquired and liabilities assumed. The final allocation of purchase consideration, based on final valuations, could include changes in the estimated fair value of inventories, property, plant and equipment, equity investments, customer relationships, trade names, developed technologies and other intangibles, deferred income taxes, assumed contingencies, asset retirement obligations and noncontrolling interests. The assumed contingencies relate to environmental liabilities, legal liabilities, asset retirement obligations and warranty reserves.

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:
 
 
Net Assets Acquired as of August 31, 2016
Cash
 
$
88,251

Accounts receivable (1)
 
422,274

Income tax receivable
 
50,980

Inventories (2)
 
349,205

Prepaid expenses and other current assets
 
55,462

Property, plant and equipment (2)
 
2,946,442

Customer relationships (weighted average lives of 9.8 years) (3)
 
670,000

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

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

Supply contracts and leases (weighted average lives of 6.3 years)
 
27,288

Other assets
 
95,872

Total assets acquired
 
4,797,274

Accounts and notes payable
 
254,041

Interest payable
 
8,154

Income tax payable
 
1,607

Accrued compensation
 
44,186

Accrued liabilities
 
151,608

Deferred income taxes (4)
 
959,882

Tax reserve non-current
 
3,130

Pension and other post-retirement obligations
 
311,106

Other liabilities
 
101,325

Long-term debt
 
1,187,290

Total liabilities assumed
 
3,022,329

Total identifiable net assets acquired
 
1,774,945

Noncontrolling interest
 
(68,000
)
Goodwill
 
934,715

Total fair value allocated to net assets acquired
 
$
2,641,660

______________________________
(1)
The fair value of accounts receivable acquired is $422,274, with the gross contractual amount being $434,834. The Company expects $12,560 to be uncollectible.
(2)
The Company obtained additional information related to its inventories and property, plant and equipment which led to an increase in inventories of $43,047, a decrease in property, plant and equipment of $188,299 and a corresponding increase in goodwill of $145,252.
(3)
The Company obtained additional information related to its customer relationships balances which led to an increase in customer relationships of $80,000 and a corresponding decrease in goodwill.
(4)
Decreases in the estimated fair values of identified assets acquired led to a decrease in deferred income taxes of $25,246.

10


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

3. Financial Instruments
Cash Equivalents
The Company had $9,996 of held-to-maturity securities with original maturity of three months or less, primarily consisting of corporate debt securities, classified as cash equivalents at June 30, 2017. The Company had no held-to-maturity securities classified as cash equivalents at December 31, 2016. The Company's investment in held-to-maturity securities is held at amortized cost, which approximates fair value.
Restricted Cash and Cash Equivalents
The Company had restricted cash and cash equivalents of $31,538 at June 30, 2017, which was primarily related to balances that are restricted for payment of distributions to certain of the Company's current and former employees. The Company had restricted cash and cash equivalents of $186,216 at December 31, 2016, which was primarily related to balances deposited with and held as security by the lender under the Company's term loan facility and for distributions to certain of the Company's current and former employees. The current portion of restricted cash and cash equivalents was $8,607 and $160,527 at June 30, 2017 and December 31, 2016, respectively. The noncurrent portion of restricted cash and cash equivalents was $22,931 and $25,689 at June 30, 2017 and December 31, 2016, respectively, and is reflected in deferred charges and other assets, net in the consolidated balance sheets.
Available-for-Sale Marketable Securities
The Company had no available-for-sale securities at June 30, 2017 or at December 31, 2016.
There were no sales or maturities of available-for-sale securities during the three and six months ended June 30, 2017. The proceeds from sales and maturities of available-for-sale securities included in the consolidated statement of cash flows and the gross realized gains and losses included in the consolidated statement of operations for the three and six months ended June 30, 2016 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
 
2016
Proceeds from sales and maturities of securities
 
$
275,573

 
$
302,432

Gross realized gains
 
1,280

 
1,341

Gross realized losses
 
(13
)
 
(22
)
4. Accounts Receivable
Accounts receivable consist of the following:
 
 
June 30,
2017
 
December 31,
2016
Trade customers
 
$
1,031,060

 
$
819,739

Affiliates
 
9,105

 
7,982

Allowance for doubtful accounts
 
(19,602
)
 
(17,991
)
 
 
1,020,563

 
809,730

Federal and state taxes
 
51,462

 
90,414

Other
 
23,783

 
38,599

Accounts receivable, net
 
$
1,095,808

 
$
938,743


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:
 
 
June 30,
2017
 
December 31,
2016
Finished products
 
$
473,011

 
$
500,861

Feedstock, additives and chemicals
 
226,562

 
216,877

Materials and supplies
 
132,127

 
83,362

Inventories
 
$
831,700

 
$
801,100

6. Property, Plant and Equipment
As of June 30, 2017, the Company had property, plant and equipment, net totaling $6,316,731. 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 $104,294 and $57,930 is primarily included in cost of sales in the consolidated statements of operations for the three months ended June 30, 2017 and 2016, respectively. Depreciation expense on property, plant and equipment of $218,385 and $113,971 is included in cost of sales in the consolidated statements of operations for the six months ended June 30, 2017 and 2016, respectively.
7. Other Assets
Amortization expense on intangible and other assets of $40,488 and $76,818 is primarily included in selling, general and administrative expenses in the consolidated statements of operations for the three and six months ended June 30, 2017, respectively. Amortization expense on intangible and other assets of $9,269 and $19,163 is primarily included in cost of sales in the consolidated statements of operations for the three and six months ended June 30, 2016, respectively.
Goodwill
The gross carrying amounts of goodwill and the changes in the carrying amount of goodwill for the six months ended June 30, 2017 were as follows:
 
 
Olefins Segment
 
Vinyls Segment
 
Total
Balance at December 31, 2016
 
$
29,990

 
$
916,563

 
$
946,553

Goodwill acquired during the period
 

 

 

Measurement period adjustment
 

 
47,224

 
47,224

Effects of changes in foreign exchange rates
 

 
5,837

 
5,837

Balance at June 30, 2017
 
$
29,990

 
$
969,624

 
$
999,614

The Company performed its annual impairment tests for the Vinyls reporting units in the second quarter of 2017 and did not identify any impairment.

12


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

8. Accounts Payable
Accounts payable consist of the following:
 
 
June 30,
2017
 
December 31,
2016
Accounts payable—third parties
 
$
561,190

 
$
474,017

Accounts payable to affiliates
 
21,615

 
20,726

Notes payable to banks
 
704

 
1,516

Accounts payable
 
$
583,509

 
$
496,259

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 had a maturity date of March 31, 2017. The term loan was fully repaid in January 2017. The loans thereunder bore interest at a floating interest rate equal to LIBOR plus 2% per annum, payable in arrears on the last day of each three-month period following the date of funding and at maturity.

13


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

10. Long-Term Debt
Long-term debt consists of the following:
 
 
June 30, 2017
 
December 31, 2016
 
 
Principal
Amount
 
Unamortized
Premium,
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
 
Principal
Amount
 
Unamortized
Premium,
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
Revolving credit facility
 
$
140,000

 
$

 
$
140,000

 
$
325,000

 
$

 
$
325,000

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

 
23,502

 
648,295

 
624,793

 
26,837

 
651,630

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

 
2,518

 
65,725

 
63,207

 
2,862

 
66,069

3.60% senior notes due 2022
 
250,000

 
(1,720
)
 
248,280

 
250,000

 
(1,891
)
 
248,109

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

 
12,316

 
446,109

 
433,793

 
13,431

 
447,224

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

 
498

 
16,705

 
16,207

 
540

 
16,747

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

 
(10,312
)
 
739,688

 
750,000

 
(10,757
)
 
739,243

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

 

 
10,889

 
10,889

 

 
10,889

6 ½% tax-exempt senior notes due 2029
 
100,000

 
(880
)
 
99,120

 
100,000

 
(916
)
 
99,084

6 ¾% tax-exempt senior notes due 2032
 
250,000

 
(1,824
)
 
248,176

 
250,000

 
(1,883
)
 
248,117

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

 
(817
)
 
88,183

 
89,000

 
(839
)
 
88,161

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

 
(586
)
 
64,414

 
65,000

 
(602
)
 
64,398

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

 
(25,684
)
 
674,316

 
700,000

 
(26,017
)
 
673,983

Long-term debt, net
 
$
3,492,889

 
$
(2,989
)
 
$
3,489,900

 
$
3,677,889

 
$
765

 
$
3,678,654

Credit Agreement
At June 30, 2017, the Company had $140,000 of borrowings outstanding under the Credit Agreement. The interest rate on the borrowings outstanding under the revolving credit facility was 2.51% at June 30, 2017. The Credit Agreement matures on August 23, 2021. As of June 30, 2017, the Company had outstanding letters of credit totaling $76,525 and borrowing availability of $783,475 under the Credit Agreement. As of June 30, 2017, the Company was in compliance with the total leverage ratio financial maintenance covenant.

14


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

3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, the Company issued $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"). On March 27, 2017, the Company commenced registered exchange offers to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for new notes that are identical in all material respects to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes, except that the offer and issuance of the new SEC-registered notes have been registered under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offers expired on April 24, 2017, and approximately 99.97% of the 3.60% 2026 Senior Notes and 100.00% of the 5.0% 2046 Senior Notes were exchanged. The 3.60% 2026 Senior Notes that were not exchanged pursuant to the exchange offers have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities law.
4.625% Senior Notes due 2021 and 4.875% Senior Notes due 2023
In September 2016, the Company issued $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”) upon the closing of the Company's offers to exchange any and all of the $688,000 aggregate principal amount of the outstanding 4.625% senior notes due 2021 issued by Eagle Spinco Inc., a wholly-owned subsidiary of Axiall (“Eagle Spinco”), and the $450,000 aggregate principal amount of the outstanding 4.875% senior notes due 2023 issued by Axiall. In the exchange offers, $624,793 aggregate principal amount of 4.625% Westlake 2021 Senior Notes and $433,793 aggregate principal amount of 4.875% Westlake 2023 Senior Notes were issued by the Company, leaving outstanding $63,207 aggregate principal amount of the 4.625% 2021 senior notes (the "4.625% Subsidiary 2021 Senior Notes") and $16,207 aggregate principal amount of the 4.875% 2023 senior notes (the " 4.875% Subsidiary 2023 Senior Notes"). On March 27, 2017, the Company commenced registered exchange offers to exchange the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes for new SEC-registered notes that are identical in all material respects to the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes, except that the offer and issuance of the new notes have been registered under the Securities Act. The exchange offers expired on April 24, 2017, and 100.00% of both the 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes were exchanged.
As of June 30, 2017, the Company was in compliance with all of the covenants with respect to the Credit Agreement, 3.60% 2026 Senior Notes5.0% 2046 Senior Notes4.625% Westlake 2021 Senior Notes4.875% Westlake 2023 Senior Notes, 3.60% Senior Notes Due 2022, 6 ½% tax-exempt senior notes due 2029, the 6 ¾% tax-exempt senior notes due 2032, the 6 ½% 2035 GO Zone Senior Notes, the 6 ½% 2035 IKE Zone Senior Notes and the waste disposal revenue bonds.
Unamortized debt issuance costs on Long-term debt were $23,281 and $24,113 at June 30, 2017 and December 31, 2016, respectively.
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.

15


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

Defined Benefit Plans
Components of net periodic benefit cost (income) for the Company's pension plans are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
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
 
$
1,335

 
$
496

 
$

 
$
137

 
$
2,671

 
$
981

 
$

 
$
462

Interest cost
 
6,198

 
576

 
493

 
582

 
12,396

 
1,139

 
1,060

 
1,149

Expected return on plan assets
 
(9,976
)
 
(151
)
 
(658
)
 

 
(19,952
)
 
(304
)
 
(1,460
)
 

Amortization of net loss
 
298

 
153

 
337

 

 
595

 
304

 
640

 

Net periodic benefit cost (income)
 
$
(2,145
)
 
$
1,074

 
$
172

 
$
719

 
$
(4,290
)
 
$
2,120

 
$
240

 
$
1,611

The Company made $5,139 of contributions to its U.S. pension plans and $514 of contributions to its non-U.S. pension plans during the first six months of 2017. The Company made no contributions to its U.S. and non-U.S. pension plans during the first six months of 2016.
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 expects to make contributions of approximately $5,139 to its U.S. pension plans and approximately $273 to its non-U.S. pension plans during the remainder of the fiscal year ending December 31, 2017.
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,
 
 
2017
 
2016
 
2017
 
2016
 
 
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
 
$
163

 
$
13

 
$
5

 
$

 
$
326

 
$
27

 
$
10

 
$

Interest cost
 
499

 
32

 
145

 

 
999

 
65

 
290

 

Amortization of net loss
 
15

 

 
32

 

 
30

 

 
63

 

Net periodic benefit cost
 
$
677

 
$
45

 
$
182

 
$

 
$
1,355

 
$
92

 
$
363

 
$

12. Stockholders' Equity
Changes in stockholders' equity for the six months ended June 30, 2017 and 2016 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, 2016
 
$
1,347

 
$
(319,339
)
 
$
550,641

 
$
3,412,286

 
$
(121,306
)
 
$
368,416

 
$
3,892,045

Net income
 

 

 

 
291,017

 

 
13,111

 
304,128

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

 

 

 

 
721

 
(44
)
 
677

Foreign currency
   translation adjustments
 

 

 

 

 
66,925

 
2,756

 
69,681

Other
 

 

 

 

 
(164
)
 

 
(164
)
Shares issued—stock-
   based compensation
 

 
3,187

 
(1,710
)
 

 

 

 
1,477

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

 

 
6,547

 

 

 

 
6,547

Dividends declared
 

 

 

 
(49,315
)
 

 

 
(49,315
)
Distributions to noncontrolling
   interests
 

 

 

 

 

 
(16,033
)
 
(16,033
)
Balances at June 30, 2017
 
$
1,347

 
$
(316,152
)
 
$
555,478

 
$
3,653,988

 
$
(53,824
)
 
$
368,206

 
$
4,209,043


16


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, 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
   (loss), 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 declared
 

 

 

 
(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

Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2017 and 2016 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
 
Total
Balances at December 31, 2016
 
$
28,945

 
$
(150,202
)
 
$
(49
)
 
$
(121,306
)
Other comprehensive income (loss) before
   reclassifications
 
95

 
66,925

 
(164
)
 
66,856

Amounts reclassified from accumulated other
   comprehensive loss
 
626

 

 

 
626

Net other comprehensive income (loss) for the period
 
721

 
66,925

 
(164
)
 
67,482

Balances at June 30, 2017
 
$
29,666

 
$
(83,277
)
 
$
(213
)
 
$
(53,824
)

17


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
(Losses) on
Investments,
Net of Tax
 
Total
Balances at December 31, 2015
 
$
(8,607
)
 
$
(115,690
)
 
$
(4,995
)
 
$
(129,292
)
Other comprehensive 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
)
The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the three and six months ended June 30, 2017 and 2016:
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,
 
2017
 
2016
 
2017
 
2016
Amortization of pension and
   other post-retirement items
 
 
 
 
 
 
 
 
 
 
Net loss
 
(1)
 
$
(466
)
 
$
(369
)
 
$
(929
)
 
$
(703
)
 
 
Benefit from
   income taxes
 
140

 
142

 
303

 
270

 
 
 
 
(326
)
 
(227
)
 
(626
)
 
(433
)
Net unrealized gains on available-for-sale investments
 
 
 
 
 
 
 
 
 
 
Realized gain on available-for-sale investments
 
Other income, net
 

 
1,267

 

 
1,319

 
 
Provision for
   income taxes
 

 
(455
)
 

 
(474
)
 
 
 
 

 
812

 

 
845

Total reclassifications for the period
 
 
 
$
(326
)
 
$
585

 
$
(626
)
 
$
412

_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 13 (Employee Benefits) to the financial statements included in the 2016 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 $4,465 and $2,781 for the three months ended June 30, 2017 and 2016, respectively, and $10,768 and $5,084 for the six months ended June 30, 2017 and 2016, respectively.

18


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

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 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.
14. Derivative Instruments
Commodity Risk Management
The Company uses derivative instruments to reduce price volatility risk on commodities, primarily ethane and natural gas. The Company does not use derivative instruments to engage in speculative activities. The Company had no derivative instruments that were designated as fair value hedges during the three and six months ended June 30, 2017 and 2016.
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 Company had non-hedge designated feedstock forward contracts for approximately 173,900,000 gallons and 9,100,000 MMBtu as of June 30, 2017 and for approximately 257,000,000 gallons and 8,500,000 MMBtu as of December 31, 2016.

19


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

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 in the consolidated balance sheets and derivative assets and derivative liabilities subject to enforceable master netting arrangements.
 
 
June 30, 2017
 
 
Net Presentation
 
Gross Presentation
 
 
Net Assets (Liabilities) Presented in the Consolidated Balance Sheets
Risk management assets—Commodity forward contracts
 
Risk management liabilities—Commodity forward contracts
Accounts receivable, net
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
   arrangements
 
$

 
$

 
$

Derivative positions not subject to enforceable master netting
   arrangements
 
2,245

 
2,245

 

 
 
2,245

 
2,245

 

Deferred charges and other assets, net
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 

 

 

Derivative positions not subject to enforceable master netting
arrangements
 
2,273

 
2,273

 

 
 
2,273

 
2,273

 

Accrued liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 
(203
)
 
1,062

 
(1,265
)
Derivative positions not subject to enforceable master netting
arrangements
 
(940
)
 

 
(940
)
 
 
(1,143
)
 
1,062

 
(2,205
)
Other liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 
(1,545
)
 
771

 
(2,316
)
Derivative positions not subject to enforceable master netting
arrangements
 
(3,109
)
 

 
(3,109
)
 
 
(4,654
)
 
771

 
(5,425
)
Risk management assets (liabilities)—Commodity forward
   contracts
 
 
 
$
6,351

 
$
(7,630
)

20


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

 
 
December 31, 2016
 
 
Net Presentation
 
Gross Presentation
 
 
Net Assets (Liabilities) Presented in the Consolidated Balance Sheets
Risk management assets—Commodity forward contracts
 
Risk management liabilities—Commodity forward contracts
Accounts receivable, net
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 
$
1,498

 
$
1,636

 
$
(138
)
Derivative positions not subject to enforceable master netting
arrangements
 
6,091

 
6,091

 

 
 
7,589

 
7,727

 
(138
)
Deferred charges and other assets, net
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 

 

 

Derivative positions not subject to enforceable master netting
arrangements
 
5,249

 
5,249

 

 
 
5,249

 
5,249

 

Accrued liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 

 

 

Derivative positions not subject to enforceable master netting
arrangements
 
(1,349
)
 

 
(1,349
)
 
 
(1,349
)
 

 
(1,349
)
Other liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 
(436
)
 
2,010

 
(2,446
)
Derivative positions not subject to enforceable master netting
arrangements
 
(3,288
)
 

 
(3,288
)
 
 
(3,724
)
 
2,010

 
(5,734
)
Risk management assets (liabilities)—Commodity forward
   contracts
 
 
 
$
14,986

 
$
(7,221
)
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,
2017
 
2016
 
2017
 
2016
Commodity forward contracts
 
Cost of sales
 
$
(435
)
 
$
11,567

 
$
(9,602
)
 
$
15,624

See Note 15 for the fair value of the Company's derivative instruments.
15. 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.

21


WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share 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, 2017
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets—Commodity forward contracts
 
$
567

 
$
5,784

 
$
6,351

Risk management liabilities—Commodity forward contracts
 
(6,692
)
 
(938
)
 
(7,630
)
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets—Commodity forward contracts
 
$
878

 
$
14,108

 
$
14,986

Risk management liabilities—Commodity forward contracts
 
(6,854
)
 
(367
)
 
(7,221
)
The Level 2 measurements for the Company's commodity contracts are derived using forward curves supplied by industry-recognized and 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, 2017 and 2016.
In addition to the financial assets and liabilities above, the Company has other financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts payable and current 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, accounts payable and current term loan approximate their fair values 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 fair value of the Company's long-term debt instruments is determined using a market approach, based upon quotes from financial reporting services. 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, 2017
 
December 31, 2016
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Revolving credit facility
 
$
140,000

 
$
140,000

 
$
325,000

 
$
325,000

4.625% Westlake 2021 Senior Notes
 
648,295

 
649,054

 
651,630

 
650,847

4.625% Subsidiary 2021 Senior Notes
 
65,725

 
65,930

 
66,069

 
65,775

3.60% senior notes due 2022
 
248,280

 
255,255

 
248,109