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EX-32.1 - EXHIBIT 32.1 - WESTLAKE CHEMICAL CORPexhibit321_20170930.htm
EX-31.2 - EXHIBIT 31.2 - WESTLAKE CHEMICAL CORPexhibit312_20170930.htm
EX-31.1 - EXHIBIT 31.1 - WESTLAKE CHEMICAL CORPexhibit311_20170930.htm
EX-10.1 - EXHIBIT 10.1 - WESTLAKE CHEMICAL CORPexhibit101_20170930.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, 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 October 31, 2017 was 129,107,447.



INDEX






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2017
 
December 31,
2016
 
 
 
 
 
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
678,233

 
$
459,453

Accounts receivable, net
 
1,142,979

 
938,743

Inventories
 
834,835

 
801,100

Prepaid expenses and other current assets
 
34,860

 
48,493

Restricted cash
 
8,626

 
160,527

Total current assets
 
2,699,533

 
2,408,316

Property, plant and equipment, net
 
6,343,637

 
6,420,062

Other assets, net
 
 
 
 
Goodwill
 
1,011,342

 
946,553

Customer relationships, net
 
635,884

 
611,615

Other intangible assets, net
 
166,166

 
175,839

Deferred charges and other assets, net
 
387,563

 
327,868

Total other assets, net
 
2,200,955

 
2,061,875

Total assets
 
$
11,244,125

 
$
10,890,253

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
560,804

 
$
496,259

Accrued liabilities
 
609,472

 
537,483

Term loan
 

 
149,341

Total current liabilities
 
1,170,276

 
1,183,083

Long-term debt, net
 
3,349,402

 
3,678,654

Deferred income taxes
 
1,660,914

 
1,650,575

Pension and other post-retirement benefits
 
367,705

 
364,819

Other liabilities
 
144,329

 
121,077

Total liabilities
 
6,692,626

 
6,998,208

Commitments and contingencies (Note 18)
 


 


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

 

Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and
134,651,380 shares issued at September 30, 2017 and December 31, 2016,
respectively
 
1,347

 
1,347

Common stock, held in treasury, at cost; 5,551,693 and 5,726,377 shares at
September 30, 2017 and December 31, 2016, respectively
 
(314,694
)
 
(319,339
)
Additional paid-in capital
 
558,423

 
550,641

Retained earnings
 
3,837,644

 
3,412,286

Accumulated other comprehensive loss
 
(13,946
)
 
(121,306
)
Total Westlake Chemical Corporation stockholders' equity
 
4,068,774

 
3,523,629

Noncontrolling interests
 
482,725

 
368,416

Total equity
 
4,551,499

 
3,892,045

Total liabilities and equity
 
$
11,244,125

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
2,108,889

 
$
1,279,028

 
$
6,030,666

 
$
3,340,276

Cost of sales
 
1,610,837

 
1,076,895

 
4,759,637

 
2,641,192

Gross profit
 
498,052

 
202,133

 
1,271,029

 
699,084

Selling, general and administrative expenses
 
125,642

 
72,729

 
379,919

 
179,757

Transaction and integration-related costs
 
6,663

 
82,841

 
22,949

 
90,550

Income from operations
 
365,747

 
46,563

 
868,161

 
428,777

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(40,036
)
 
(24,366
)
 
(118,784
)
 
(36,966
)
Other income, net
 
2,058

 
41,265

 
6,591

 
52,091

Income before income taxes
 
327,769

 
63,462

 
755,968

 
443,902

Provision for (benefit from) income taxes
 
108,619

 
(6,552
)
 
232,690

 
129,332

Net income
 
219,150

 
70,014

 
523,278

 
314,570

Net income attributable to noncontrolling interests
 
8,318

 
4,352

 
21,429

 
14,656

Net income attributable to Westlake Chemical
   Corporation
 
$
210,832

 
$
65,662

 
$
501,849

 
$
299,914

Earnings per common share attributable to Westlake
   Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
1.62

 
$
0.51

 
$
3.87

 
$
2.31

Diluted
 
$
1.61

 
$
0.51

 
$
3.85

 
$
2.29

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
129,069,186

 
128,793,661

 
129,033,597

 
129,519,577

Diluted
 
129,888,968

 
129,379,956

 
129,789,965

 
130,103,897

Dividends per common share
 
$
0.2100

 
$
0.1906

 
$
0.5912

 
$
0.5536

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,
 
 
2017
 
2016
 
2017

2016
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars)
Net income
 
$
219,150

 
$
70,014

 
$
523,278

 
$
314,570

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
)
 

 
(412
)
Amortization of benefits liability
 
529

 
369

 
1,600

 
1,072

Income tax provision on pension and other post-
   retirement benefits liability
 
(193
)
 
(60
)
 
(543
)
 
(251
)
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
Foreign currency translation
 
39,714

 
6,453

 
108,166

 
15,758

Income tax provision on foreign currency
   translation
 
(76
)
 

 
(1,603
)
 

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

 
1,550

 

 
61,524

Reclassification of net realized gains to net
   income
 

 
(52,401
)
 

 
(53,720
)
Income tax provision on available-for-sale
   investments
 

 
18,270

 

 
(2,805
)
Other
 
(96
)
 

 
(260
)
 

Other comprehensive income (loss), net of income taxes
 
39,878

 
(26,025
)
 
107,360

 
21,166

Comprehensive income
 
259,028

 
43,989

 
630,638

 
335,736

Comprehensive income attributable to
   noncontrolling interests, net of tax of $846 and
   $0 for the three months ended September 30, 2017
   and 2016, respectively; and $2,467 and $0 for
   the nine months ended September 30, 2017 and
   2016, respectively.
 
4,628

 
4,352

 
17,288

 
14,656

Comprehensive income attributable to Westlake
   Chemical Corporation
 
$
254,400

 
$
39,637

 
$
613,350

 
$
321,080

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,
 
 
2017
 
2016
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
523,278

 
$
314,570

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
448,533

 
227,193

Provision for doubtful accounts
 
3,771

 
1,176

Amortization of debt issuance costs
 
3,471

 
1,018

Stock-based compensation expense
 
16,740

 
6,588

Loss from disposition of property, plant and equipment
 
14,319

 
6,541

Gains realized on previously held shares of Axiall common stock and from sales of securities
 

 
(53,720
)
Write-off of debt issuance costs
 
659

 

Deferred income taxes
 
23,294

 
105,910

Windfall tax benefits from share-based payment arrangements
 

 
(1,190
)
Dividends in excess of income from equity method investments
 
(2,132
)
 
(61
)
Gain on involuntary conversion of assets
 
(1,672
)
 

Other losses (gains), net
 
(6,659
)
 
833

Changes in operating assets and liabilities, net of effect of business acquisitions
 
 
 
 
Accounts receivable
 
(185,153
)
 
(92,311
)
Inventories
 
23,945

 
(6,124
)
Prepaid expenses and other current assets
 
16,788

 
1,631

Accounts payable
 
60,899

 
34,109

Accrued liabilities
 
57,419

 
73,157

Other, net
 
(34,836
)
 
(75,160
)
Net cash provided by operating activities
 
962,664

 
544,160

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

 
(2,437,829
)
Additions to property, plant and equipment
 
(414,271
)
 
(467,330
)
Additions to cost method investment
 
(47,000
)
 
(4,000
)
Proceeds from disposition of assets
 
171

 
213

Proceeds from involuntary conversion of assets
 
1,672

 

Proceeds from sales and maturities of securities
 

 
662,938

Purchase of securities
 

 
(138,422
)
Settlements of derivative instruments
 
(7
)
 
(4,655
)
Net cash used for investing activities
 
(459,435
)
 
(2,389,085
)
Cash flows from financing activities
 
 
 
 
Debt issuance costs
 
(376
)
 
(35,207
)
Dividends paid
 
(76,491
)
 
(71,933
)
Distributions to noncontrolling interests
 
(20,767
)
 
(12,300
)
Net proceeds from issuance of Westlake Chemical Partners LP common units
 
110,739

 

Proceeds from debt issuance
 

 
1,428,512

Proceeds from issuance of notes payable
 
5,946

 
5,597

Proceeds from term loan and drawdown of revolver
 
225,000

 
600,000

Restricted cash associated with term loan
 
154,000

 
(154,000
)
Repayment of term loan
 
(150,000
)
 

Repayment of notes payable
 
(6,695
)
 
(10,602
)
Repayment of revolver
 
(550,000
)
 
(125,000
)
Repurchase of common stock for treasury
 

 
(67,406
)
Other
 
2,204

 
2,840

Net cash provided by (used for) financing activities
 
(306,440
)
 
1,560,501

Effect of exchange rate changes on cash and cash equivalents
 
21,991

 
2,418

Net increase (decrease) in cash and cash equivalents
 
218,780

 
(282,006
)
Cash and cash equivalents at beginning of period
 
459,453

 
662,525

Cash and cash equivalents at end of period
 
$
678,233

 
$
380,519

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 consolidated 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 consolidated 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 September 30, 2017, its results of operations for the three and nine months ended September 30, 2017 and 2016 and the changes in its cash position for the nine months ended September 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 consolidated 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 materially impact timing or amounts of revenue recognized for the majority of its sales. The Company intends to elect the modified retrospective method of adoption.

5


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

Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01)
In January 2016, the FASB issued an accounting standards update making certain changes principally to the current guidance for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Among other things, the guidance (1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (2) provide entities with a policy election to record equity investments without readily determinable fair values at cost, less impairment, and subsequent adjustments for observable price changes (changes in the basis of these equity investments to be reported in net income); (3) requires an entity that has elected the fair value option for financial liabilities to recognize changes in fair value due to instrument-specific credit risk separately in other comprehensive income; (4) clarified current guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities; and (5) requires specific disclosure pertaining to financial assets and financial liabilities in the financial statements. The accounting standard will be effective for reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
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 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 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.

6


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

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.
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)

Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (ASU No. 2017-12)
In August 2017, the FASB issued an accounting standards update to improve financial reporting of hedging relationships, to better portray the economic results of an entity's risk management activities in the financial statements and to simplify application of hedge accounting guidance. The accounting standard eliminates certain hedge effectiveness measurement and reporting requirements and expands the types of permissible hedging strategies. The accounting standard will be effective for reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance, to be applied retrospectively to the beginning of the fiscal year. 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
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.

8


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 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 "Merger"). 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.
Total consideration transferred for the Merger was $2,539,360. The Merger was 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.
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 during the nine months ended September 30, 2016. Transaction and integration-related costs also included $46,655 during the nine months ended September 30, 2016 related to the settlement of Axiall share-based awards, retention agreement costs and severance benefits provided to former Axiall employees 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 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. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $942,096 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 consolidated financial statements.

9


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

 
 
Final Purchase Consideration as of August 31, 2016
Closing stock purchase:
 
 
Offer per share
 
$
33.00

Multiplied by number of shares outstanding at acquisition (in thousands of shares)
 
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.

10


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

The following table summarizes the 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)
 
2,942,162

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
 
93,875

Total assets acquired
 
4,790,997

Accounts and notes payable
 
254,041

Interest payable
 
8,154

Income tax payable
 
1,607

Accrued compensation
 
44,186

Accrued liabilities
 
154,290

Deferred income taxes (4)
 
958,304

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
 
3,023,433

Total identifiable net assets acquired
 
1,767,564

Noncontrolling interest
 
(68,000
)
Goodwill
 
942,096

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

______________________________
(1)
The fair value of accounts receivable acquired was $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 $192,579 and a corresponding increase in goodwill of $149,532 compared to the estimated fair values included in the 2016 Form 10-K.
(3)
The Company obtained additional information related to its customer relationship balances which led to an increase in customer relationships of $80,000 and a corresponding decrease in goodwill compared to the estimated fair values included in the 2016 Form 10-K.
(4)
Decreases in the estimated fair values of identified assets acquired led to a decrease in deferred income taxes of $26,824 compared to the estimated fair values included in the 2016 Form 10-K.

11


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

The pro forma information for the nine months ended September 30, 2016 was as follows:
 
 
Pro Forma Nine Months Ended September 30, 2016
Net sales
 
$
5,345,365

Net income (1)
 
$
277,567

Net income attributable to noncontrolling interest
 
16,404

Net income attributable to Westlake Chemical Corporation (1)
 
$
261,163

Earnings per common share attributable to Westlake Chemical Corporation
 
 
Basic
 
$
2.01

Diluted
 
$
2.00

_____________
(1)
The 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, 2016; (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, 2016; (6) the elimination of transaction-related costs; and (7) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments 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, 2016 or of future operating performance.
3. Financial Instruments
Restricted Cash and Cash Equivalents
The Company had restricted cash and cash equivalents of $31,682 at September 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 $8,626 and $160,527 at September 30, 2017 and December 31, 2016, respectively. The noncurrent portion of restricted cash and cash equivalents was $23,056 and $25,689 at September 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 September 30, 2017 or at December 31, 2016.
There were no sales or maturities of available-for-sale securities during the three and nine months ended September 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 nine months ended September 30, 2016 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
 
2016
Proceeds from sales and maturities of securities
 
$
360,506

 
$
662,938

Gross realized gains
 
52,414

 
53,755

Gross realized losses
 
(13
)
 
(35
)
4. Accounts Receivable
Accounts receivable consist of the following:
 
 
September 30,
2017
 
December 31,
2016
Trade customers
 
$
1,111,563

 
$
819,739

Affiliates
 
7,601

 
7,982

Allowance for doubtful accounts
 
(21,961
)
 
(17,991
)
 
 
1,097,203

 
809,730

Federal and state taxes
 
16,657

 
90,414

Other
 
29,119

 
38,599

Accounts receivable, net
 
$
1,142,979

 
$
938,743

5. Inventories
Inventories consist of the following:
 
 
September 30,
2017
 
December 31,
2016
Finished products
 
$
488,061

 
$
500,861

Feedstock, additives and chemicals
 
213,144

 
216,877

Materials and supplies
 
133,630

 
83,362

Inventories
 
$
834,835

 
$
801,100

6. Property, Plant and Equipment
As of September 30, 2017, the Company had property, plant and equipment, net totaling $6,343,637. 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.

12


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

Depreciation expense on property, plant and equipment of $116,160 and $75,143 is primarily included in cost of sales in the consolidated statements of operations for the three months ended September 30, 2017 and 2016, respectively. Depreciation expense on property, plant and equipment of $334,545 and $189,114 is primarily included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2017 and 2016, respectively.
7. Other Assets
Amortization expense on intangible and other assets included in cost of sales and selling, general and administrative expenses in the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Cost of sales
 
$
10,834

 
$
10,061

 
$
33,121

 
$
24,452

Selling, general and administrative
 
26,792

 
9,114

 
81,323

 
13,888

Total amortization expense
 
$
37,626

 
$
19,175

 
$
114,444

 
$
38,340

Goodwill
The gross carrying amounts of goodwill and the changes in the carrying amount of goodwill for the nine months ended September 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
 

 
54,605

 
54,605

Effects of changes in foreign exchange rates
 

 
10,184

 
10,184

Balance at September 30, 2017
 
$
29,990

 
$
981,352

 
$
1,011,342

The Company performed its annual impairment tests for the Vinyls reporting units in the second quarter of 2017 and did not identify any impairment.
8. 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)

9. Long-Term Debt
Long-term debt consists of the following:
 
 
September 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
 
$

 
$

 
$

 
$
325,000

 
$

 
$
325,000

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

 
21,881

 
646,674

 
624,793

 
26,837

 
651,630

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

 
2,343

 
65,550

 
63,207

 
2,862

 
66,069

3.60% senior notes due 2022
 
250,000

 
(1,635
)
 
248,365

 
250,000

 
(1,891
)
 
248,109

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

 
11,791

 
445,584

 
433,793

 
13,431

 
447,224

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

 
477

 
16,684

 
16,207

 
540

 
16,747

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

 
(10,031
)
 
739,969

 
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

 
(861
)
 
99,139

 
100,000

 
(916
)
 
99,084

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

 
(605
)
 
249,395

 
250,000

 
(1,883
)
 
248,117

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

 
(806
)
 
88,194

 
89,000

 
(839
)
 
88,161

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

 
(578
)
 
64,422

 
65,000

 
(602
)
 
64,398

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

 
(25,463
)
 
674,537

 
700,000

 
(26,017
)
 
673,983

Long-term debt, net
 
$
3,352,889

 
$
(3,487
)
 
$
3,349,402

 
$
3,677,889

 
$
765

 
$
3,678,654

Credit Agreement
The Company has a $1,000,000 revolving credit facility that matures on August 23, 2021 (the "Credit Agreement"). The Credit Agreement bears interest at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75% depending on the credit rating of the Company. At September 30, 2017, the Company had no borrowings outstanding under the Credit Agreement. As of September 30, 2017, the Company had outstanding letters of credit totaling $45,414 and borrowing availability of $954,586 under the Credit Agreement. As of September 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.
GO Zone Bonds
During September 2017, the Company directed the Louisiana Local Government Authority Environmental Facilities and Community Development Authority (the “Authority”) to optionally redeem in full $250,000 aggregate principal amount of the 2007 Series revenue bonds (the “GO Zone Bonds”) on November 1, 2017. The GO Zone Bonds were issued by the Authority in December 2007 under the Gulf Opportunity Zone Act of 2005 (GO Zone Act) for the benefit of the Company and were subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2017 for 100% of the principal plus accrued interest. In connection with the redemption of the Go Zone Bonds, the Authority is required to cause the GO Zone Bonds trustee to surrender the 6 ¾% tax exempt senior notes due November 2032 to the Senior Notes trustee for cancellation. The Company used cash on hand to fund the redemption of the GO Zone Bonds.
As of September 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 $21,547 and $24,113 at September 30, 2017 and December 31, 2016, respectively.
10. 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 September 30,
 
Nine Months Ended September 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
 
$
1,336

 
$
528

 
$
315

 
$
318

 
$
4,007

 
$
1,509

 
$
315

 
$
777

Expected administrative
   expenses
 

 

 
730

 

 

 

 
730

 

Interest cost
 
6,198

 
615

 
2,191

 
622

 
18,594

 
1,754

 
1,553

 
1,763

Expected return on plan assets
 
(9,976
)
 
(162
)
 
(3,800
)
 
(50
)
 
(29,928
)
 
(466
)
 
(5,260
)
 
(50
)
Amortization of net loss
 
297

 
217

 
338

 

 
892

 
663

 
978

 

Net periodic benefit cost
   (income)
 
$
(2,145
)
 
$
1,198

 
$
(226
)
 
$
890

 
$
(6,435
)
 
$
3,460

 
$
(1,684
)
 
$
2,490

The Company made $8,108 of contributions to its U.S. pension plans and $659 of contributions to its non-U.S. pension plans during the first nine months of 2017. The Company made no contributions to its U.S. and non-U.S. pension plans during the first nine 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 $2,569 to its U.S. pension plans and approximately $143 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 September 30,
 
Nine Months Ended September 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

 
$
14

 
$
72

 
$
1

 
$
489

 
$
41

 
$
81

 
$
1

Interest cost
 
500

 
35

 
250

 
3

 
1,499

 
100

 
540

 
3

Amortization of net loss
 
15

 

 
31

 

 
45

 

 
94

 

Net periodic benefit cost
 
$
678

 
$
49

 
$
353

 
$
4

 
$
2,033

 
$
141

 
$
715

 
$
4


16


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

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

 

 

 
501,849

 

 
21,429

 
523,278

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

 

 

 

 
1,057

 
(44
)
 
1,013

Foreign currency
   translation adjustments
 

 

 

 

 
106,563

 
2,952

 
109,515

Other
 

 

 

 

 
(260
)
 

 
(260
)
Shares issued—stock-
   based compensation
 

 
4,645

 
(2,441
)
 

 

 

 
2,204

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

 

 
10,223

 

 

 

 
10,223

Dividends declared
 

 

 

 
(76,491
)
 

 

 
(76,491
)
Distributions to
   noncontrolling interests
 

 

 

 

 

 
(20,767
)
 
(20,767
)
Issuance of Westlake
   Chemical Partners LP
   common units
 

 

 

 

 

 
110,739

 
110,739

Balances at September 30,
   2017
 
$
1,347

 
$
(314,694
)
 
$
558,423

 
$
3,837,644

 
$
(13,946
)
 
$
482,725

 
$
4,551,499


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,
   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
   (loss), 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 declared
 

 

 

 
(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

Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the nine months ended September 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
 

 
106,563

 
(260
)
 
106,303

Amounts reclassified from accumulated other
   comprehensive loss
 
1,057

 

 

 
1,057

Net other comprehensive income (loss) for the period
 
1,057

 
106,563

 
(260
)
 
107,360

Balances at September 30, 2017
 
$
30,002

 
$
(43,639
)
 
$
(309
)
 
$
(13,946
)

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
(Losses) on
Investments,
Net of Tax
 
Total
Balances at December 31, 2015
 
$
(8,607
)
 
$
(115,690
)
 
$
(4,995
)
 
$
(129,292
)
Other comprehensive income (loss) 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
)
The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016:
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,
 
2017
 
2016
 
2017
 
2016
Amortization of pension and
   other post-retirement items
 
 
 
 
 
 
 
 
 
 
Net loss
 
(1)
 
$
(529
)
 
$
(369
)
 
$
(1,600
)
 
$
(1,072
)
 
 
Benefit from
   income taxes
 
193

 
141

 
543

 
411

 
 
 
 
(336
)
 
(228
)
 
(1,057
)
 
(661
)
Net unrealized gains on
   available-for-sale
   investments
 
 
 
 
 
 
 
 
 
 
Realized gain on available-for-sale investments
 
Other income, net
 

 
52,401

 

 
53,720

 
 
Provision for
   income taxes
 

 
(696
)
 

 
(1,169
)
 
 
 
 

 
51,705

 

 
52,551

Total reclassifications for the
   period
 
 
 
$
(336
)
 
$
51,477

 
$
(1,057
)
 
$
51,890

_____________
(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 consolidated financial statements included in the 2016 Form 10-K.
12. 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 $5,972 and $1,502 for the three months ended September 30, 2017 and 2016, respectively, and $16,740 and $6,588 for the nine months ended September 30, 2017 and 2016, respectively.

19


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.
13. 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 nine months ended September 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 138,600,000 gallons and 12,500,000 MMBtu as of September 30, 2017 and for approximately 257,000,000 gallons and 8,500,000 MMBtu as of December 31, 2016.

20


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.
 
 
September 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
 
$
793

 
$
2,778

 
$
(1,985
)
Derivative positions not subject to enforceable master netting
   arrangements
 
4,557

 
4,557

 

 
 
5,350

 
7,335

 
(1,985
)
Deferred charges and other assets, net
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 

 

 

Derivative positions not subject to enforceable master netting
arrangements
 
4,336

 
4,336

 

 
 
4,336

 
4,336

 

Accrued liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 

 

 

Derivative positions not subject to enforceable master netting
arrangements
 
(704
)
 

 
(704
)
 
 
(704
)
 

 
(704
)
Other liabilities
 
 
 
 
 
 
Derivative positions subject to enforceable master netting
arrangements
 
(1,410
)
 
745

 
(2,155
)
Derivative positions not subject to enforceable master netting
arrangements
 
(2,774
)
 

 
(2,774
)
 
 
(4,184
)
 
745

 
(4,929
)
Risk management assets (liabilities)—Commodity forward
   contracts
 
 
 
$
12,416

 
$
(7,618
)

21


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 impacts 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,
2017
 
2016
 
2017
 
2016
Commodity forward contracts
 
Cost of sales
 
$
6,846

 
$
(7,840</