WESTLAKE CHEMICAL CORP - FORM 10-Q - November 7, 2017

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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 income—gains 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 Notes, 5.0% 2046 Senior Notes, 4.625% Westlake 2021 Senior Notes, 4.875% 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
)
 
$
(2,756
)
 
$
7,784

See Note 14 for the fair value of the Company's derivative instruments.
14. 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.

22

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:
 
 
September 30, 2017
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets—Commodity forward contracts
 
$
233

 
$
12,183

 
$
12,416

Risk management liabilities—Commodity forward contracts
 
(6,183
)
 
(1,435
)
 
(7,618
)
 
 
 
 
 
 
 
 
 
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 nine months ended September 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.
 
 
September 30, 2017
 
December 31, 2016
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Revolving credit facility
 
$
—

 
$
—

 
$
325,000

 
$
325,000

4.625% Westlake 2021 Senior Notes
 
646,674

 
646,486

 
651,630

 
650,847

4.625% Subsidiary 2021 Senior Notes
 
65,550

 
62,983

 
66,069

 
65,775

3.60% senior notes due 2022
 
248,365

 
255,733

 
248,109

 
251,725

4.875% Westlake 2023 Senior Notes
 
445,584

 
452,004

 
447,224

 
451,301

4.875% Subsidiary 2023 Senior Notes
 
16,684

 
16,842

 
16,747

 
16,501

3.60% 2026 Senior Notes
 
739,969

 
749,570

 
739,243

 
722,055

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
 
99,139

 
113,789

 
99,084

 
112,433

6 ¾% tax-exempt senior notes due 2032
 
249,395

 
251,250

 
248,117

 
258,818

6 ½% 2035 GO Zone Senior Notes
 
88,194

 
100,936

 
88,161

 
100,323

6 ½% 2035 IKE Zone Senior Notes
 
64,422

 
73,908

 
64,398

 
73,270

5.0% 2046 Senior Notes
 
674,537

 
760,739

 
673,983

 
691,712



23

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

15. Income Taxes
The effective income tax rate was 33.1% for the third quarter of 2017. The effective income tax rate for the third quarter of 2017 was below the U.S. federal statutory rate of 35.0% primarily due to a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective income tax rate, which was a benefit, was (10.3)% for three months ended September 30, 2016. The effective income tax rate for the third quarter of 2016 was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures and adjustments related to prior years' tax returns as filed and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger.
The effective income tax rate was 30.8% for the nine months ended September 30, 2017. The effective income tax rate for the nine months ended September 30, 2017 was below the U.S. federal statutory rate of 35.0% primarily due to certain discrete adjustments, a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective income tax rate was 29.1% for the nine months ended September 30, 2016. The effective income tax rate for the 2016 period was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures and adjustments related to prior years' tax returns as filed and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger.
The Company files income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. During the second quarter of 2017, the Internal Revenue Service began an audit of the Company for the tax years 2012 to 2014.
16. Earnings per Share
The Company has unvested restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share include the effect of certain stock options.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income attributable to Westlake Chemical
   Corporation
 
$
210,832

 
$
65,662

 
$
501,849

 
$
299,914

Less:
 
 
 
 
 
 
 
 
Net income attributable to participating securities
 
(1,117
)
 
(294
)
 
(2,630
)
 
(1,347
)
Net income attributable to common shareholders
 
$
209,715

 
$
65,368

 
$
499,219

 
$
298,567


24

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

The following table reconciles the denominator for the basic and diluted earnings per share computations shown in the consolidated statements of operations:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Weighted average common shares—basic
 
129,069,186

 
128,793,661

 
129,033,597

 
129,519,577

Plus incremental shares from:
 
 
 
 
 
 
 
 
Assumed exercise of options
 
819,782

 
586,295

 
756,368

 
584,320

Weighted average common shares—diluted
 
129,888,968

 
129,379,956

 
129,789,965

 
130,103,897

 
 
 
 
 
 
 
 
 
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

Excluded from the computation of diluted earnings per share are options to purchase 335,276 and 620,010 shares of common stock for the three months ended September 30, 2017 and 2016, respectively, and 291,888 and 577,254 shares of common stock for the nine months ended September 30, 2017 and 2016, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.
17. Supplemental Information
Accrued Liabilities
Accrued liabilities were $609,472 and $537,483 at September 30, 2017 and December 31, 2016, respectively. Accrued rebates and accrued income taxes, which are components of accrued liabilities, were $110,862 and $72,187, respectively, at September 30, 2017 and $77,985 and $10,891, respectively, at December 31, 2016. No other component of accrued liabilities was more than five percent of total current liabilities. Accrued liabilities with affiliates were $30,609 and $10,551 at September 30, 2017 and December 31, 2016, respectively.
Non-cash Investing Activity
The change in capital expenditure accrual increasing additions to property, plant and equipment was $8,082 for the nine months ended September 30, 2017. The change in capital expenditure accrual increasing additions to property, plant and equipment was $23,878 for the nine months ended September 30, 2016.
Other Income, Net
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income
 
$
644

 
$
537

 
$
1,578

 
$
6,900

Dividend income
 
127

 
574

 
250

 
1,499

Acquisition-related financing costs
 
—

 
(11,420
)
 
—

 
(12,220
)
Foreign exchange currency loss, net
 
(3,197
)
 
(1,281
)
 
(9,483
)
 
(2,435
)
Gain realized on previously held shares of Axiall
   common stock
 
—

 
49,080

 
—

 
49,080

Gains from sales of securities, net
 
—

 
3,321

 
—

 
4,640

Income from non-consolidated subsidiaries
 
3,855

 
1,475

 
11,066

 
7,213

Other
 
629

 
(1,021
)
 
3,180

 
(2,586
)
Other income, net
 
$
2,058

 
$
41,265

 
$
6,591

 
$
52,091



25

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

18. Commitments and Contingencies
The Company is involved in a number of legal and regulatory matters, principally environmental in nature, that are incidental to the normal conduct of its business, including lawsuits, investigations and claims. The outcomes of these matters are inherently unpredictable. The Company believes that, in the aggregate, the outcome of all known legal and regulatory matters will not have a material adverse effect on its consolidated financial statements; however, specific outcomes with respect to such matters may be material to the Company's consolidated statements of operations in any particular period in which costs, if any, are recognized. The Company's assessment of the potential impact of environmental matters, in particular, is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental matters, and the potential for technological and regulatory developments. In addition, the impact of evolving claims and programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these matters. The Company anticipates that the resolution of many legal and regulatory matters, and in particular environmental matters, will occur over an extended period of time.
Environmental. As of September 30, 2017 and December 31, 2016, the Company had reserves for environmental contingencies totaling approximately $47,409 and $48,817, respectively, most of which was classified as noncurrent liabilities. The Company's assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
From time to time the Company receives notices or inquiries from government entities regarding alleged violations of environmental laws and regulations pertaining to, among other things, the disposal, emission and storage of chemical substances, including hazardous wastes. Item 103 of the SEC's Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions, unless the Company reasonably believes such sanctions would not exceed $100.
•
In May 2013, an amendment to an existing consent order agreed to by the West Virginia Department of Environmental Protection and a predecessor of Axiall required that it, among other things, pay a penalty in the amount of $449 and continue certain corrective action associated with discharges of hexachlorocyclohexane (commonly referred to as BHC) from the Natrium, West Virginia facility's effluent discharge outfalls. The penalty was paid and corrective actions required are on-going per a December 2016 agreement to extend the compliance date under the amended consent order.
•
In May 2013 and September 2013, the Environmental Protection Agency (the "EPA") conducted inspections at the Company's Plaquemine, Louisiana facility pursuant to requirements of the federal Clean Air Act Section 112(r) Risk Management Program and Title V. As a result of the inspections, the EPA identified areas of concern and the Company subsequently engaged in negotiations to resolve alleged violations. A Consent Agreement and Final Order (“CAFO”) was filed in October 2016, pursuant to which the Company paid civil penalties in the amount of $167.
•
The LDEQ has issued notices of violations ("NOVs") regarding the Company's olefins facilities in Lake Charles, Louisiana for various air and water compliance issues. The Company has reached an agreement with the LDEQ to settle certain of the NOVs along with other alleged violations not made the subject of any specific NOV in two separate settlement agreements, pursuant to which the Company paid $192 in civil penalties.
•
During September 2010, the Company's vinyls facilities in north Lake Charles and Plaquemine each received a Consolidated Compliance Order and Notice of Potential Penalty, alleging violations of various requirements of those facilities' air permits, based largely on self-reported permit deviations related to record-keeping violations. The Company has been negotiating a possible global settlement of these and several other matters with the LDEQ. The Company believes the resolution of these matters may require the payment of a monetary sanction in excess of $100.
•
In April 2015, Axiall received a communication from the EPA related to, among other things, the EPA's investigation of the 2012 and 2013 fires that occurred at its VCM plant in Lake Charles. In late 2015, Axiall settled this matter with the EPA, with such settlement including on-going supplemental environmental projects and a penalty payment of $878.

26

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

•
For several years, the EPA has been conducting an enforcement initiative against petroleum refineries and petrochemical plants with respect to emissions from flares. On April 21, 2014, the Company received a Clean Air Act Section 114 Information Request from the EPA which sought information regarding flares at the Calvert City, Kentucky and certain Lake Charles facilities. The EPA has informed the Company that the information provided leads the EPA to believe that some of the flares are out of compliance with applicable standards. The EPA has indicated that it is seeking a consent decree that would obligate the Company to take corrective actions relating to the alleged noncompliance. The Company believes the resolution of these matters may require the payment of a monetary sanction in excess of $100.
The Company does not believe that resolutions of any or all of these matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Environmental Remediation: Reasonably Possible Matters. The Company's assessment of the potential impact of environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, the Company may be subject to reasonably possible loss contingencies related to environmental matters in the range of $40,000 to $80,000.
Commitments. In connection with the Merger, the Company became a party to a joint venture investment with Lotte Chemical USA Corporation to build an ethylene facility, LACC, LLC ("LACC"). The ethylene facility is located adjacent to the Company's vinyls facility in Lake Charles. Pursuant to the contribution and subscription agreement, the Company agreed to make a maximum capital commitment to LACC of up to $225,000 to fund the construction costs of the ethylene plant, which represents approximately 10.0% of the interests in LACC. The construction of the ethylene plant commenced in January 2016, with an anticipated start-up in 2019. As of September 30, 2017, the Company had funded approximately $106,405 of the Company's portion of the construction costs of the ethylene plant.
19. Segment Information
The Company operates in two principal operating segments: Olefins and Vinyls. These segments are strategic business units that offer a variety of different products. The Company manages each segment separately as each business requires different technology and marketing strategies.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
377,269

 
$
380,810

 
$
1,121,603

 
$
1,098,500

Styrene, feedstock and other
 
124,974

 
116,555

 
412,869

 
324,369

Total Olefins
 
502,243

 
497,365

 
1,534,472

 
1,422,869

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
1,252,963

 
599,276

 
3,541,409

 
1,492,650

Building products
 
353,683

 
182,387

 
954,785

 
424,757

Total Vinyls
 
1,606,646

 
781,663

 
4,496,194

 
1,917,407

 
 
$
2,108,889

 
$
1,279,028

 
$
6,030,666

 
$
3,340,276

 
 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
 
Olefins
 
$
106,722

 
$
30,614

 
$
290,658

 
$
85,856

Vinyls
 
260

 
2,130

 
871

 
2,719

 
 
$
106,982

 
$
32,744

 
$
291,529

 
$
88,575

 
 
 
 
 
 
 
 
 

27

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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
165,438

 
$
118,475

 
$
488,532

 
$
408,274

Vinyls
 
216,515

 
22,235

 
431,276

 
136,559

Corporate and other
 
(16,206
)
 
(94,147
)
 
(51,647
)
 
(116,056
)
 
 
$
365,747

 
$
46,563

 
$
868,161

 
$
428,777

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Olefins
 
$
35,029

 
$
36,649

 
$
111,244

 
$
95,582

Vinyls
 
117,490

 
56,136

 
331,585

 
128,691

Corporate and other
 
1,115

 
1,444

 
5,704

 
2,920

 
 
$
153,634

 
$
94,229

 
$
448,533

 
$
227,193

 
 
 
 
 
 
 
 
 
Other income (expense), net
 
 
 
 
 
 
 
 
Olefins
 
$
(184
)
 
$
1,101

 
$
1,555

 
$
3,706

Vinyls
 
(970
)
 
(1,226
)
 
1,087

 
1,722

Corporate and other
 
3,212

 
41,390

 
3,949

 
46,663

 
 
$
2,058

 
$
41,265

 
$
6,591

 
$
52,091

 
 
 
 
 
 
 
 
 
Provision for (benefit from) income taxes
 
 
 
 
 
 
 
 
Olefins
 
$
58,218

 
$
31,956

 
$
152,482

 
$
136,429

Vinyls
 
60,784

 
(3,912
)
 
114,979

 
29,655

Corporate and other
 
(10,383
)
 
(34,596
)
 
(34,771
)
 
(36,752
)
 
 
$
108,619

 
$
(6,552
)
 
$
232,690

 
$
129,332

 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
 
 
 
 
Olefins
 
$
20,960

 
$
96,469

 
$
70,043

 
$
285,359

Vinyls
 
107,515

 
83,523

 
329,968

 
180,392

Corporate and other
 
4,894

 
178

 
14,260

 
1,579

 
 
$
133,369

 
$
180,170

 
$
414,271

 
$
467,330

A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Income from operations
 
$
365,747

 
$
46,563

 
$
868,161

 
$
428,777

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

 
41,265

 
6,591

 
52,091

Income before income taxes
 
$
327,769

 
$
63,462

 
$
755,968

 
$
443,902



28

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

 
 
September 30,
2017
 
December 31,
2016
Total assets
 
 
 
 
Olefins
 
$
2,015,888

 
$
2,092,617

Vinyls
 
8,695,509

 
8,287,204

Corporate and other
 
532,728

 
510,432

 
 
$
11,244,125

 
$
10,890,253

20. Westlake Chemical Partners LP Offerings
In March 2014, we formed Westlake Chemical Partners LP ("WLKP") to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, WLKP completed its initial public offering (the "IPO") of 12,937,500 common units at a price of $24.00 per unit. Net proceeds to WLKP from the sale of the units was approximately $286,100, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $24,400. At the consummation of the IPO, WLKP's assets consisted of a 10.6% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), as well as the general partner interest in OpCo. Immediately after the IPO, the Company retained an 89.4% limited partner interest in OpCo and a significant interest in WLKP. The initial public offering represented the sale of 47.8% of the common units in WLKP.
On April 29, 2015, WLKP purchased an additional 2.7% newly-issued limited partner interest in OpCo. On September 29, 2017, WLKP purchased an additional 5.0% newly-issued limited partner interest in OpCo.
On September 29, 2017, WLKP completed a secondary offering of 5,175,000 common units at a price of $22.00 per unit. Net proceeds to WLKP from the sale of the units was $110,739, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $3,111. At September 30, 2017, WLKP had a 18.3% limited partner interest in OpCo, and the Company retained a 81.7% limited partner interest in OpCo and a significant interest in WLKP.
21. Subsequent Events
Subsequent events were evaluated through the date on which the consolidated financial statements were issued.
22. Guarantor Disclosures
The Company's payment obligations under the 3.60% senior notes due 2022, the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes are fully and unconditionally guaranteed by each of its current and future domestic subsidiaries that guarantee other debt of the Company or of another guarantor of those notes in excess of $5,000 (the "Guarantor Subsidiaries"). Each Guarantor Subsidiary is 100% owned by Westlake Chemical Corporation (the "100% Owned Guarantor Subsidiaries"). In October 2016, the Company executed a Joinder Agreement with the Administrative Agent of the Credit Agreement, whereby certain subsidiaries of the Company were added as Guarantor Subsidiaries. These guarantees are the joint and several obligations of the Guarantor Subsidiaries. The following unaudited condensed consolidating financial information presents the financial condition, results of operations and cash flows of Westlake Chemical Corporation, the 100% owned Guarantor Subsidiaries, and the remaining subsidiaries that do not guarantee the 3.60% senior notes due 2022 , the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, 4.625% Westlake 2021 Senior Notes and the 4.875% Westlake 2023 Senior Notes (the "Non-Guarantor Subsidiaries"), together with consolidating eliminations necessary to present the Company's results on a consolidated basis.
In August 2016, certain of the Company's subsidiary guarantors were released from their guarantees of the Company's 3.60% senior notes due 2022 in connection with the replacement of the Company's revolving credit facility. Westlake Chemical OpCo LP, which was previously separately presented as a less than 100% owned guarantor, and certain of the Company's other 100% owned subsidiaries that were previously presented as guarantors, are now reflected as Non-Guarantor Subsidiaries in the condensed consolidating guarantor financial information. Prior periods were retrospectively adjusted to conform to the current presentation of Guarantor Subsidiaries and Non-Guarantor Subsidiaries.

29

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

Condensed Consolidating Financial Information as of September 30, 2017
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
334,111

 
$
33,089

 
$
311,033

 
$
—

 
$
678,233

Accounts receivable, net
 
3,060,591

 
4,048,824

 
432,238

 
(6,398,674
)
 
1,142,979

Inventories
 
—

 
631,322

 
203,513

 
—

 
834,835

Prepaid expenses and other current assets
 
16,616

 
31,785

 
22,365

 
(35,906
)
 
34,860

Restricted cash
 
—

 
1,275

 
7,351

 
—

 
8,626

Total current assets
 
3,411,318

 
4,746,295

 
976,500

 
(6,434,580
)
 
2,699,533

Property, plant and equipment, net
 
—

 
4,330,104

 
2,013,533

 
—

 
6,343,637

Other assets, net
 
 
 
 
 
 
 
 
 
 
Goodwill
 
—

 
854,896

 
156,446

 
—

 
1,011,342

Customer relationships, net
 
—

 
493,960

 
141,924

 
—

 
635,884

Other intangible assets, net
 
—

 
92,155

 
74,011

 
—

 
166,166

Deferred charges and other assets, net
 
9,890,164

 
551,732

 
1,372,070

 
(11,426,403
)
 
387,563

Total other assets, net
 
9,890,164

 
1,992,743

 
1,744,451

 
(11,426,403
)
 
2,200,955

Total assets
 
$
13,301,482

 
$
11,069,142

 
$
4,734,484

 
$
(17,860,983
)
 
$
11,244,125

Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
5,821,323

 
$
830,824

 
$
128,673

 
$
(6,220,016
)
 
$
560,804

Accrued liabilities
 
155,106

 
436,816

 
232,114

 
(214,564
)
 
609,472

Total current liabilities
 
5,976,429

 
1,267,640

 
360,787

 
(6,434,580
)
 
1,170,276

Long-term debt, net
 
3,256,280

 
4,334,142

 
223,578

 
(4,464,598
)
 
3,349,402

Deferred income taxes
 
—

 
1,577,209

 
106,587

 
(22,882
)
 
1,660,914

Pension and other liabilities
 
—

 
364,011

 
148,023

 
—

 
512,034

Total liabilities
 
9,232,709

 
7,543,002

 
838,975

 
(10,922,060
)
 
6,692,626

Total Westlake Chemical Corporation
   stockholders' equity
 
4,068,773

 
3,526,140

 
3,412,784

 
(6,938,923
)
 
4,068,774

Noncontrolling interests
 
—

 
—

 
482,725

 
—

 
482,725

Total equity
 
4,068,773

 
3,526,140

 
3,895,509

 
(6,938,923
)
 
4,551,499

Total liabilities and equity
 
$
13,301,482

 
$
11,069,142

 
$
4,734,484

 
$
(17,860,983
)
 
$
11,244,125


30

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

Condensed Consolidating Financial Information as of December 31, 2016
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
146,990

 
$
53,006

 
$
259,457

 
$
—

 
$
459,453

Accounts receivable, net
 
2,117,540

 
3,329,871

 
323,931

 
(4,832,599
)
 
938,743

Inventories
 
—

 
597,819

 
203,281

 
—

 
801,100

Prepaid expenses and other current assets
 
30,748

 
41,755

 
12,494

 
(36,504
)
 
48,493

Restricted cash
 
—

 
—

 
160,527

 
—

 
160,527

Total current assets
 
2,295,278

 
4,022,451

 
959,690

 
(4,869,103
)
 
2,408,316

Property, plant and equipment, net
 
—

 
4,475,943

 
1,944,119

 
—

 
6,420,062

Other assets, net
 
 
 
 
 
 
 
 
 
 
Goodwill
 
—

 
791,706

 
154,847

 
—

 
946,553

Customer relationships, net
 
—

 
468,645

 
142,970

 
—

 
611,615

Other intangible assets, net
 
—

 
130,243

 
71,177

 
(25,581
)
 
175,839

Deferred charges and other assets, net
 
9,170,042

 
874,003

 
1,115,877

 
(10,832,054
)
 
327,868

Total other assets, net
 
9,170,042

 
2,264,597

 
1,484,871

 
(10,857,635
)
 
2,061,875

Total assets
 
$
11,465,320

 
$
10,762,991

 
$
4,388,680

 
$
(15,726,738
)
 
$
10,890,253

Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
4,330,375

 
$
748,364

 
$
225,300

 
$
(4,807,780
)
 
$
496,259

Accrued liabilities
 
26,367

 
389,216

 
183,223

 
(61,323
)
 
537,483

Term loan
 
—

 
—

 
149,341

 
—

 
149,341

Total current liabilities
 
4,356,742

 
1,137,580

 
557,864

 
(4,869,103
)
 
1,183,083

Long-term debt, net
 
3,584,949

 
4,090,775

 
—

 
(3,997,070
)
 
3,678,654

Deferred income taxes
 
—

 
1,581,260

 
91,809

 
(22,494
)
 
1,650,575

Pension and other liabilities
 
—

 
360,622

 
125,274

 
—

 
485,896

Total liabilities
 
7,941,691

 
7,170,237

 
774,947

 
(8,888,667
)
 
6,998,208

Total Westlake Chemical Corporation
   stockholders' equity
 
3,523,629

 
3,592,754

 
3,245,317

 
(6,838,071
)
 
3,523,629

Noncontrolling interests
 
—

 
—

 
368,416

 
—

 
368,416

Total equity
 
3,523,629

 
3,592,754

 
3,613,733

 
(6,838,071
)
 
3,892,045

Total liabilities and equity
 
$
11,465,320

 
$
10,762,991

 
$
4,388,680

 
$
(15,726,738
)
 
$
10,890,253


31

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

Condensed Consolidating Financial Information for the Three Months Ended September 30, 2017
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
1,704,086

 
$
837,536

 
$
(432,733
)
 
$
2,108,889

Cost of sales
 
—

 
1,371,813

 
665,124

 
(426,100
)
 
1,610,837

Gross profit
 
—

 
332,273

 
172,412

 
(6,633
)
 
498,052

Selling, general and administrative expenses
 
1,509

 
93,149

 
37,617

 
(6,633
)
 
125,642

Transaction and integration-related costs
 
—

 
6,387

 
276

 
—

 
6,663

Income (loss) from operations
 
(1,509
)
 
232,737

 
134,519

 
—

 
365,747

Other income (expense)
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(38,811
)
 
(44,381
)
 
(1,635
)
 
44,791

 
(40,036
)
Other income, net
 
37,563

 
2,517

 
6,769

 
(44,791
)
 
2,058

Income (loss) before income taxes
 
(2,757
)
 
190,873

 
139,653

 
—

 
327,769

Provision for (benefit from) income taxes
 
(599
)
 
92,597

 
16,621

 
—

 
108,619

Equity in net income of subsidiaries
 
212,989

 
—

 
—

 
(212,989
)
 
—

Net income
 
210,831

 
98,276

 
123,032

 
(212,989
)
 
219,150

Net income attributable to noncontrolling
   interests
 
—

 
—

 
8,318

 
—

 
8,318

Net income attributable to Westlake Chemical
   Corporation
 
$
210,831

 
$
98,276

 
$
114,714

 
$
(212,989
)
 
$
210,832

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
254,400

 
$
98,455

 
$
158,160

 
$
(256,615
)
 
$
254,400



32

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

Condensed Consolidating Financial Information for the Three Months Ended September 30, 2016
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
984,937

 
$
611,983

 
$
(317,892
)
 
$
1,279,028

Cost of sales
 
—

 
892,198

 
497,460

 
(312,763
)
 
1,076,895

Gross profit
 
—

 
92,739

 
114,523

 
(5,129
)
 
202,133

Selling, general and administrative expenses
 
2,092

 
47,952

 
27,814

 
(5,129
)
 
72,729

Transactions and integration-related costs
 
—

 
82,687

 
154

 
—

 
82,841

Income (loss) from operations
 
(2,092
)
 
(37,900
)
 
86,555

 
—

 
46,563

Other income (expense)
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(22,130
)
 
(22,207
)
 
(908
)
 
20,879

 
(24,366
)
Other income (expense), net
 
35,405

 
(15,189
)
 
41,928

 
(20,879
)
 
41,265

Income (loss) before income taxes
 
11,183

 
(75,296
)
 
127,575

 
—

 
63,462

Provision for (benefit from) income taxes
 
(2,088
)
 
(11,080
)
 
6,616

 
—

 
(6,552
)
Equity in net income of subsidiaries
 
52,391

 
—

 
—

 
(52,391
)
 
—

Net income
 
65,662

 
(64,216
)
 
120,959

 
(52,391
)
 
70,014

Net income attributable to noncontrolling
   interests
 
—

 
—

 
4,352

 
—

 
4,352

Net income attributable to Westlake Chemical
   Corporation
 
$
65,662

 
$
(64,216
)
 
$
116,607

 
$
(52,391
)
 
$
65,662

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
39,636

 
$
(64,113
)
 
$
104,129

 
$
(40,015
)
 
$
39,637


33

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

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2017
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
4,880,682

 
$
2,377,862

 
$
(1,227,878
)
 
$
6,030,666

Cost of sales
 
—

 
4,077,633

 
1,889,571

 
(1,207,567
)
 
4,759,637

Gross profit
 
—

 
803,049

 
488,291

 
(20,311
)
 
1,271,029

Selling, general and administrative expenses
 
2,429

 
281,412

 
116,389

 
(20,311
)
 
379,919

Transaction and integration-related costs
 
—

 
22,611

 
338

 
—

 
22,949

Income (loss) from operations
 
(2,429
)
 
499,026

 
371,564

 
—

 
868,161

Other income (expense)
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(115,156
)
 
(133,048
)
 
(5,623
)
 
135,043

 
(118,784
)
Other income, net
 
112,002

 
2,944

 
26,688

 
(135,043
)
 
6,591

Income (loss) before income taxes
 
(5,583
)
 
368,922

 
392,629

 
—

 
755,968

Provision for (benefit from) income taxes
 
(1,451
)
 
198,054

 
36,087

 
—

 
232,690

Equity in net income of subsidiaries
 
505,981

 
—

 
—

 
(505,981
)
 
—

Net income
 
501,849

 
170,868

 
356,542

 
(505,981
)
 
523,278

Net income attributable to noncontrolling
   interests
 
—

 
—

 
21,429

 
—

 
21,429

Net income attributable to Westlake Chemical
   Corporation
 
$
501,849

 
$
170,868

 
$
335,113

 
$
(505,981
)
 
$
501,849

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
613,350

 
$
171,413

 
$
233,030

 
$
(404,443
)
 
$
613,350


34

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

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2016
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
2,567,232

 
$
1,734,611

 
$
(961,567
)
 
$
3,340,276

Cost of sales
 
—

 
2,233,395

 
1,353,764

 
(945,967
)
 
2,641,192

Gross profit
 
—

 
333,837

 
380,847

 
(15,600
)
 
699,084

Selling, general and administrative expenses
 
3,648

 
121,261

 
70,448

 
(15,600
)
 
179,757

Transaction and integration-related costs
 
—

 
90,396

 
154

 
—

 
90,550

Income (loss) from operations
 
(3,648
)
 
122,180

 
310,245

 
—

 
428,777

Other income (expense)
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(43,228
)
 
(39,693
)
 
(1,054
)
 
47,009

 
(36,966
)
Other income (expense), net
 
40,807

 
(22,291
)
 
80,584

 
(47,009
)
 
52,091

Income (loss) before income taxes
 
(6,069
)
 
60,196

 
389,775

 
—

 
443,902

Provision for (benefit from) income taxes
 
(8,268
)
 
106,792

 
30,808

 
—

 
129,332

Equity in net income of subsidiaries
 
297,715

 
—

 
—

 
(297,715
)
 
—

Net income
 
299,914

 
(46,596
)
 
358,967

 
(297,715
)
 
314,570

Net income attributable to noncontrolling
   interests
 
—

 
—

 
14,656

 
—

 
14,656

Net income attributable to Westlake Chemical
   Corporation
 
$
299,914

 
$
(46,596
)
 
$
344,311

 
$
(297,715
)
 
$
299,914

Comprehensive income attributable to
   Westlake Chemical Corporation
 
$
321,079

 
$
(46,187
)
 
$
364,402

 
$
(318,214
)
 
$
321,080



35

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

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2017
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Cash Flows
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net income
 
$
501,849

 
$
170,868

 
$
356,542

 
$
(505,981
)
 
$
523,278

Adjustments to reconcile net income to net
   cash provided by (used for) operating
   activities
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
—

 
294,227

 
154,306

 
—

 
448,533

Deferred income taxes
 
(217
)
 
20,299

 
3,212

 
—

 
23,294

Net changes in working capital and other
 
(532,120
)
 
(129,330
)
 
123,028

 
505,981

 
(32,441
)
Net cash provided by (used for)
   operating activities
 
(30,488
)
 
356,064

 
637,088

 
—

 
962,664

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
—

 
(294,138
)
 
(120,133
)
 
—

 
(414,271
)
Additions to cost method investment
 
—

 
(47,000
)
 
—

 
—

 
(47,000
)
Proceeds from disposition of assets
 
—

 
25

 
146

 
—

 
171

Proceeds from involuntary conversion of
   assets
 
—

 
—

 
1,672

 
—

 
1,672

Receivable under the investment management
   agreement
 
—

 
—

 
(119,000
)
 
119,000

 
—

Settlements of derivative instruments
 
—

 
(7
)
 
—

 
—

 
(7
)
Net cash used for investing activities
 
—

 
(341,120
)
 
(237,315
)
 
119,000

 
(459,435
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Intercompany financing
 
498,272

 
(313,276
)
 
(184,996
)
 
—

 
—

Receivable under the investment management
   agreement
 
119,000

 
—

 
—

 
(119,000
)
 
—

Debt issuance costs
 
(376
)
 
—

 
—

 
—

 
(376
)
Dividends paid
 
(76,491
)
 
—

 
—

 
—

 
(76,491
)
Distributions to noncontrolling interests
 
—

 
279,203

 
(299,970
)
 
—

 
(20,767
)
Net proceeds from issuance of Westlake
   Chemical Partners LP common units
 
—

 
—

 
110,739

 
—

 
110,739

Proceeds from issuance of notes payable
 
—

 
—

 
5,946

 
—

 
5,946

Proceeds from drawdown of revolver
 
225,000

 
—

 
—

 
—

 
225,000

Restricted cash associated with term loan
 
—

 
—

 
154,000

 
—

 
154,000

Repayment of term loan
 
—

 
—

 
(150,000
)
 
—

 
(150,000
)
Repayment of notes payable
 
—

 
(788
)
 
(5,907
)
 
—

 
(6,695
)
Repayment of revolver
 
(550,000
)
 
—

 
—

 
—

 
(550,000
)
Other
 
2,204

 
—

 
—

 
—

 
2,204

Net cash provided by (used for)
   financing activities
 
217,609

 
(34,861
)
 
(370,188
)
 
(119,000
)
 
(306,440
)

36

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

 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Effect of exchange rate changes on cash and
   cash equivalents
 
—

 
—

 
21,991

 
—

 
21,991

Net increase (decrease) in cash and cash
   equivalents
 
187,121

 
(19,917
)
 
51,576

 
—

 
218,780

Cash and cash equivalents at beginning of
   period
 
146,990

 
53,006

 
259,457

 
—

 
459,453

Cash and cash equivalents at end of period
 
$
334,111

 
$
33,089

 
$
311,033

 
$
—

 
$
678,233


37

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

Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2016
 
 
Westlake
Chemical
Corporation
 
100% Owned
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Cash Flows
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net income
 
$
299,914

 
$
(46,596
)
 
$
358,967

 
$
(297,715
)
 
$
314,570

Adjustments to reconcile net income (loss) to
   net cash provided by (used for) operating
   activities
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
—

 
118,645

 
108,548

 
—

 
227,193

Deferred income taxes
 
(5,178
)
 
100,908

 
10,180

 
—

 
105,910

Net changes in working capital and other
 
(313,676
)
 
(39,859
)
 
(47,693
)
 
297,715

 
(103,513
)
Net cash provided by (used for)
   operating activities
 
(18,940
)
 
133,098

 
430,002

 
—

 
544,160

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

 
(2,437,829
)
 
—

 
—

 
(2,437,829
)
Additions to property, plant and equipment
 
—

 
(162,288
)
 
(305,042
)
 
—

 
(467,330
)
Additions to cost method investment
 
—

 
(4,000
)
 
—

 
—

 
(4,000
)
Proceeds from disposition of assets
 
—

 
48

 
165

 
—

 
213

Proceeds from sales and maturities of
   securities
 
658,338

 
—

 
4,600

 
—

 
662,938

Purchase of securities
 
(138,422
)
 
—

 
—

 
—

 
(138,422
)
Settlements of derivative instruments
 
—

 
(4,655
)
 
—

 
—

 
(4,655
)
Net cash provided by (used for)
   investing activities
 
519,916

 
(2,608,724
)
 
(300,277
)
 
—

 
(2,389,085
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Intercompany financing
 
(2,242,604
)
 
2,289,200

 
(46,596
)
 
—

 
—

Debt issuance costs
 
(33,617
)
 
—

 
(1,590
)
 
—

 
(35,207
)
Dividends paid
 
(71,933
)
 
—

 
—

 
—

 
(71,933
)
Distributions to noncontrolling interests
 
—

 
202,210

 
(214,510
)
 
—

 
(12,300
)
Proceeds from debt issuance
 
1,428,512

 
—

 
—

 
—

 
1,428,512

Proceeds from issuance of notes payable
 
—

 
—

 
5,597

 
—

 
5,597

Proceeds from term loan and drawdown of
   revolver
 
450,000

 
—

 
150,000

 
—

 
600,000

Restricted cash associated with term loan
 
—

 
—

 
(154,000
)
 
—

 
(154,000
)
Repayment of notes payable
 
—

 
—

 
(10,602
)
 
—

 
(10,602
)
Repayment of revolver
 
(125,000
)
 
—

 
—

 
—

 
(125,000
)
Repurchase of common stock for treasury
 
(67,406
)
 
—

 
—

 
—

 
(67,406
)
Other
 
2,840

 
—

 
—

 
—

 
2,840

Net cash provided by (used for)
   financing activities
 
(659,208
)
 
2,491,410

 
(271,701
)
 
—

 
1,560,501

Effect of exchange rate changes on cash and
   cash equivalents
 
—

 
—

 
2,418

 
—

 
2,418

Net increase (decrease) in cash and cash
   equivalents
 
(158,232
)
 
15,784

 
(139,558
)
 
—

 
(282,006
)
Cash and cash equivalents at beginning of
   period
 
303,131

 
6,818

 
352,576

 
—

 
662,525

Cash and cash equivalents at end of period
 
$
144,899

 
$
22,602

 
$
213,018

 
$
—

 
$
380,519


38

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with information contained in the accompanying unaudited consolidated interim financial statements of Westlake Chemical Corporation ("Westlake") and the notes thereto and the consolidated financial statements and notes thereto of Westlake Chemical Corporation included in Westlake Chemical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the "2016 Form 10-K"). The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.
We are a vertically integrated global manufacturer and marketer of petrochemicals, polymers and building products. Our two principal operating segments are Olefins and Vinyls. We use a majority of our internally-produced basic chemicals to produce higher value-added chemicals and building products.
Since 2009 and continuing through the third quarter of 2017, a cost advantage for ethane-based ethylene producers over naphtha-based ethylene producers has allowed a strong export market for polyethylene and ethylene derivatives and higher margins for North American chemical producers, including Westlake. However, the falling crude oil prices in recent years have resulted in reduced prices and margins. Continued strong global demand for polyethylene has resulted in improved operating margins and cash flows for our Olefins segment in recent years. However, we have seen a significant reduction in the cost advantage enjoyed by North American ethane-based ethylene producers due to lower crude oil prices, beginning in the third quarter of 2014 and continuing through the third quarter of 2017. Looking forward, new ethylene and polyethylene capacity additions in North America, Asia and the Middle East, and a number of new capacities announced in recent years, may lead to periods of over-supply and lower profitability. As a result, our Olefins segment operating margins may be negatively impacted.
Since the 2008 housing market collapse, continued slow recovery in the U.S. construction markets and budgetary constraints in municipal spending have contributed to lower North American demand for our vinyls products, which have negatively impacted our Vinyls segment operating rates and margins. However, since late 2010, the PVC industry in the U.S. has experienced an increase in PVC resin exports, driven largely by more competitive feedstock and energy cost positions in the U.S. As a consequence, the U.S. PVC resin industry operating rates have improved since 2010. In addition, our July 2014 acquisition of Vinnolit Holdings GmbH and its subsidiary companies ("Vinnolit"), an integrated global leader in specialty PVC resins, has contributed to improved operating margins and cash flows for our Vinyls segment. Globally, there were large chlor-alkali capacity additions between 2008 and 2015 resulting in excess capacity and lower industry operating rates which exerted downward pressure on caustic soda pricing. Announced capacity is now complete and increasing demand driven by the improving economic growth and U.S. producers' competitive export position is expected to result in improved operating rates and caustic soda pricing. On August 31, 2016, we completed the acquisition of Axiall Corporation ("Axiall") for $33.00 per share in an all-cash transaction (the "Merger"). The combined company is the third-largest global chlor-alkali producer and the third-largest PVC producer in the world. Westlake is the second-largest purchaser of ethylene in the U.S. and lower prices could positively impact our Vinyls segment.
The economic environment in the U. S. and globally appears to be improving. However, depending on the performance of the global economy in the remainder of 2017 and beyond, our financial condition, results of operations or cash flows could be negatively impacted.
Non-GAAP Financial Measures
The body of accounting principles generally accepted in the United States is commonly referred to as "U.S. GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. In this report, we disclose non-GAAP financial measures, primarily earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. The non-GAAP financial measures described in this Form 10-Q are not substitutes for the GAAP measures of earnings and cash flow.

39

EBITDA is included in this Form 10-Q because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization, and income taxes.
Recent Developments
On September 29, 2017, Westlake Chemical Partners, LP ("WLKP") completed a secondary offering of 5,175,000 common units at a price of $22.00 per unit and purchased an additional 5.0% newly-issued limited partner interest in Westlake Chemical OpCo LP ("OpCo") for approximately $229.2 million resulting in an aggregate 18.3% limited partner interest in OpCo effective July 1, 2017. Net proceeds to WLKP from the sale of the units was $110.7 million, net of underwriting discounts, structuring fees and estimated offering expenses of approximately $3.1 million. WLKP used the proceeds from the offering and the existing revolving credit facility with Westlake Chemical Finance Corporation, our subsidiary, to fund the purchase of the additional 5.0% interest in OpCo.
During September 2017, we directed the Louisiana Local Government Authority Environmental Facilities and Community Development Authority (the “Authority”) to optionally redeem in full $250.0 million aggregate principal amount of the 2007 Series revenue bonds (the “GO Zone Bonds”) on November 1, 2017 at a redemption price of par, plus accrued and unpaid interest, if any, to the redemption date. 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 at any time on or after November 1, 2017 for 100.0% of the principal plus accrued unpaid interest, if any. 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 of $250.0 million, to the Senior Notes trustee for cancellation. We used cash on hand to fund the redemption of the GO Zone Bonds.
On August 30, 2017, following WLKP's cash distribution for the second quarter of 2017, the requirement under WLKP's partnership agreement for the conversion of all subordinated units was satisfied. As a result, effective August 30, 2017, the 12,686,115 subordinated units owned by us were converted into common units on a one-for-one basis and thereafter participate on terms equal with all other common units in distributions of available cash.
On August 1, 2017, the Company, WLKP and OpCo executed an Investment Management Agreement (the "Investment Management Agreement") that authorized Westlake to invest the Partnership's and OpCo's excess cash.
On August 1, 2017, our wholly owned subsidiary, Westlake Chemical Finance Corporation, entered into an amendment to the revolving credit facility with WLKP, resulting in the extension of the credit facility's maturity date from April 29, 2018 to April 29, 2021.

40

Results of Operations
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per share data)
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
377,269

 
$
380,810

 
$
1,121,603

 
$
1,098,500

Styrene, feedstock and other
 
124,974

 
116,555

 
412,869

 
324,369

Total Olefins
 
502,243

 
497,365

 
1,534,472

 
1,422,869

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
1,252,963

 
599,276

 
3,541,409

 
1,492,650

Building products
 
353,683

 
182,387

 
954,785

 
424,757

Total Vinyls
 
1,606,646

 
781,663

 
4,496,194

 
1,917,407

Total
 
$
2,108,889

 
$
1,279,028

 
$
6,030,666

 
$
3,340,276

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
165,438

 
$
118,475

 
$
488,532

 
$
408,274

Vinyls
 
216,515

 
22,235

 
431,276

 
136,559

Corporate and other
 
(16,206
)
 
(94,147
)
 
(51,647
)
 
(116,056
)
Total income from operations
 
365,747

 
46,563

 
868,161

 
428,777

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

 
41,265

 
6,591

 
52,091

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

Diluted earnings per share
 
$
1.61

 
$
0.51

 
$
3.85

 
$
2.29

EBITDA (1)
 
$
521,439

 
$
182,057

 
$
1,323,285

 
$
708,061

_____________
(1)
See "Reconciliation of EBITDA to Net Income and to Net Cash Provided by Operating Activities" below.

41

 
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
 
 
Average
Sales Price
 
Volume
 
Average
Sales Price
 
Volume
Product sales price and volume percentage change
   from prior-year period
 
 
 
 
 
 
 
 
Olefins
 
+1.8
%
 
-0.8
 %
 
+9.2
%
 
-1.3
 %
Vinyls
 
+18.7
%
 
+86.8
 %
 
+17.8
%
 
+116.7
 %
Company average
 
+12.1
%
 
+52.8
 %
 
+14.1
%
 
+66.4
 %
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Average industry prices (1)
 
 
 
 
 
 
 
 
Ethane (cents/lb)
 
8.8

 
6.3

 
8.3

 
6.2

Propane (cents/lb)
 
18.2

 
11.2

 
16.6

 
10.7

Ethylene (cents/lb) (2)
 
24.7

 
32.5

 
27.8

 
26.5

Polyethylene (cents/lb) (3)
 
70.7

 
68.7

 
69.0

 
65.3

Styrene (cents/lb) (4)
 
85.1

 
66.8

 
85.0

 
63.3

Caustic soda ($/short ton) (5)
 
811.7

 
660.8

 
777.8

 
618.3

Chlorine ($/short ton) (6)
 
332.5

 
304.2

 
320.8

 
295.3

PVC (cents/lb) (7)
 
62.5

 
56.5

 
61.7

 
53.9

_____________
(1)
Industry pricing data was obtained from IHS Chemical. We have not independently verified the data.
(2)
Represents average North American spot prices of ethylene over the period as reported by IHS Chemical.
(3)
Represents average North American net transaction prices of polyethylene low density GP-Film grade over the period as reported by IHS Chemical.
(4)
Represents average North American contract prices of styrene over the period as reported by IHS Chemical.
(5)
Represents average North American undiscounted contract prices of caustic soda over the period as reported by IHS Chemical.
(6)
Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS Chemical.
(7)
Represents average North American contract prices of polyvinyl chloride (PVC) over the period as reported by IHS Chemical. Effective January 1, 2017, IHS Chemical made a non-market downward adjustment of 15 cents per pound to PVC prices. For comparability, we adjusted each prior-year period's PVC price downward by 15 cents per pound consistent with the IHS Chemical non-market adjustment.
Reconciliation of EBITDA to Net Income and to Net Cash Provided by Operating Activities
The following table presents the reconciliation of EBITDA to net income and to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Net cash provided by operating activities
 
$
482,950

 
$
174,268

 
$
962,664

 
$
544,160

Changes in operating assets and liabilities and other
 
(255,468
)
 
(101,334
)
 
(416,092
)
 
(123,680
)
Deferred income taxes
 
(8,332
)
 
(2,920
)
 
(23,294
)
 
(105,910
)
Net income
 
219,150

 
70,014

 
523,278

 
314,570

Add:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
153,634

 
94,229

 
448,533

 
227,193

Interest expense
 
40,036

 
24,366

 
118,784

 
36,966

Provision for (benefit from) income taxes
 
108,619

 
(6,552
)
 
232,690

 
129,332

EBITDA
 
$
521,439

 
$
182,057

 
$
1,323,285

 
$
708,061


42

Summary
For the quarter ended September 30, 2017, net income attributable to Westlake Chemical Corporation was $210.8 million, or $1.61 per diluted share, on net sales of $2,108.9 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $145.1 million, or $1.10 per diluted share, compared to the third quarter of 2016 net income attributable to Westlake Chemical Corporation of $65.7 million, or $0.51 per diluted share, on net sales of $1,279.0 million. Net income for the third quarter of 2017 increased versus the prior-year period primarily due to (1) earnings contributed by Axiall, which was acquired on August 31, 2016; (2) lower transaction and integration-related costs associated with the acquisition; and (3) higher sales prices for major products resulting in improved margins. These increases, as compared to the third quarter of 2016, were partially offset by (1) higher interest expense due to the increased debt balance as a result of the Axiall acquisition; (2) a third quarter 2016 realized gain of $49.1 million from the previously held common stock of Axiall; and (3) a higher effective tax rate. Net sales for the third quarter of 2017 increased by $829.9 million compared to net sales for the third quarter of 2016, mainly due to higher sales contributed by Axiall and higher sales prices for our major products. Income from operations was $365.7 million for the third quarter of 2017 as compared to $46.6 million for the third quarter of 2016. The increase in income from operations for the third quarter of 2017 was mainly a result of earnings contributed by Axiall, lower transaction and integration-related costs and higher sales prices as compared to the third quarter of 2016. Transaction and integration-related costs in the third quarter of 2017 were $6.7 million, or $0.03 per diluted share.
For the nine months ended September 30, 2017, net income attributable to Westlake Chemical Corporation was $501.8 million, or $3.85 per diluted share, on net sales of $6,030.7 million. This represents an increase in net income attributable to Westlake Chemical Corporation of $201.9 million, or $1.56 per diluted share, compared to the nine months ended September 30, 2016 net income attributable to Westlake Chemical Corporation of $299.9 million, or $2.29 per diluted share, on net sales of $3,340.3 million. Net income for the nine months ended September 30, 2017 increased versus the prior-year period primarily due to (1) earnings contributed by Axiall; (2) higher sales prices for our major products, resulting in improved margins; and (3) lower transaction and integration-related costs associated with the integration of Axiall. These increases versus the prior-year period were partially offset by higher interest expense due to the increased debt balance and the realized gain in the nine months ended September 30, 2016 of $49.1 million from the previously held common stock of Axiall. Net sales for the nine months ended September 30, 2017 increased by $2,690.4 million compared to net sales for the nine months ended September 30, 2016, mainly due to higher sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices for our major products. Income from operations was $868.2 million for the nine months ended September 30, 2017 as compared to $428.8 million for the nine months ended September 30, 2016. The increase in income from operations was mainly a result of earnings contributed by Axiall, higher sales prices for our major products and lower transaction and integration-related costs. Transaction and integration-related costs in the nine months ended September 30, 2017 were $22.9 million, or $0.12 per diluted share.
RESULTS OF OPERATIONS
Third Quarter 2017 Compared with Third Quarter 2016
Net Sales. Net sales increased by $829.9 million, or 64.9%, to $2,108.9 million in the third quarter of 2017 from $1,279.0 million in the third quarter of 2016, primarily attributable to sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices. Average sales prices for the third quarter of 2017 increased by 12.1% as compared to the third quarter of 2016. Overall sales volumes increased by 52.8% as compared to the third quarter of 2016, primarily attributable to sales contributed by Axiall, as compared to the prior-year period.
Gross Profit. Gross profit margin percentage increased to 23.6% in the third quarter of 2017 from 15.8% in the third quarter of 2016. The third quarter of 2017 gross profit margin was higher primarily due to higher sales volumes for caustic soda and PVC resin contributed by Axiall and an increase in sales prices for our major products as compared to the third quarter of 2016. The increase was partially offset by higher feedstock costs and higher energy prices, as compared to the third quarter of 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $52.9 million to $125.6 million in the third quarter of 2017 as compared to $72.7 million in the third quarter of 2016. This increase was mainly due to selling, general and administrative expenses of Axiall which were primarily comprised of the amortization of intangible assets acquired on acquisition.

43

Transaction and Integration-related Costs. The transactions and integration-related costs were $6.7 million in the third quarter of 2017 as compared to $82.8 million in the third quarter of 2016. Transaction and integration-related costs were lower by $76.1 million in the third quarter of 2017 as compared to the third quarter of 2016 predominantly because significant transaction and integration-related costs were incurred at the time of the Merger in the third quarter of 2016. The transaction and integration costs for the third quarter of 2017 primarily consisted of severance benefits provided to former Axiall employees in conjunction with the Merger and integration costs and consulting fees related to the Merger. The transaction and integration-related costs for the third quarter of 2016 primarily consisted of severance benefits provided to former Axiall executives in conjunction with the Merger, including the conversion of Axiall restricted stock units into our restricted stock units, transitional service expenses for certain former Axiall employees, retention agreement costs and consulting and professional fees related to the Merger.
Interest Expense. Interest expense increased by $15.6 million to $40.0 million in the third quarter of 2017 from $24.4 million in the third quarter of 2016 primarily as a result of higher average debt outstanding for the period as well as decreased capitalized interest on major capital projects in the third quarter of 2017 as compared to the third quarter of 2016. The debt balance increased in August 2016 to finance the Merger. See "Liquidity and Capital Resources—Debt" below for further discussion on our indebtedness.
Other Income (Expense), Net. Other income, net decreased by $39.2 million to income of $2.1 million in the third quarter of 2017 from income of $41.3 million in the third quarter of 2016. The decrease was primarily attributable to the realized gain in the third quarter of 2016 of $49.1 million from the previously held common stock of Axiall.
Income Taxes. The effective income tax rate was 33.1% for the third quarter of 2017. The effective income tax rate for the third quarter of 2017 was below the U.S. federal statutory rate of 35.0% primarily due to a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective tax rate, which was a benefit, was (10.3)% for the three months ended September 30, 2016. The effective income tax rate for the third quarter of 2016 was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures, adjustments related to prior years' tax returns as filed and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger.
Olefins Segment
Net Sales. Net sales for the Olefins segment increased by $4.8 million, or 1.0%, to $502.2 million in the third quarter of 2017 from $497.4 million in the third quarter of 2016, primarily due to higher sales prices. Average sales volumes for the Olefins segment decreased by 0.8% in the third quarter of 2017 as compared to the third quarter of 2016. Average sales prices for the Olefins segment increased by 1.8% in the third quarter of 2017 as compared to the third quarter of 2016.
Income from Operations. Income from operations for the Olefins segment increased by $46.9 million to $165.4 million in the third quarter of 2017 from $118.5 million in the third quarter of 2016. This increase was mainly attributable to higher sales prices and higher overall operating rates. These increases were partially offset by higher feedstock and energy costs. Trading activity in the third quarter of 2017 resulted in a gain of $6.8 million as compared to a loss of $7.8 million in the third quarter of 2016.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $824.9 million, or 105.5%, to $1,606.6 million in the third quarter of 2017 from $781.7 million in the third quarter of 2016. This increase was mainly attributable to higher sales contributed by Axiall and higher sales prices for our major products. Net sales for the three months ended September 30, 2017 were higher as compared to the prior-year period primarily because a full three months of Axiall's operations were included as compared to only one month of Axiall's operations included in the prior-year period. Average sales prices for the Vinyls segment increased by 18.7% in the third quarter of 2017 as compared to the third quarter of 2016. Average sales volumes for the Vinyls segment increased by 86.8% in the third quarter of 2017 as compared to the third quarter of 2016, primarily attributable to sales contributed by Axiall, as compared to the prior-year period.
Income from Operations. Income from operations for the Vinyls segment increased by $194.3 million to $216.5 million in the third quarter of 2017 from $22.2 million in the third quarter of 2016. This increase was mainly attributable to earnings contributed by Axiall and higher sales prices for our major products. These increases were partially offset by higher energy prices during the quarter ended September 30, 2017, as compared to the prior-year period.

44

Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
Net Sales. Net sales increased by $2,690.4 million, or 80.5%, to $6,030.7 million for the nine months ended September 30, 2017 from $3,340.3 million for the nine months ended September 30, 2016, primarily attributable to higher sales contributed by Axiall, which was acquired on August 31, 2016, and higher sales prices for our major products, as compared to the nine months ended September 30, 2016. Average sales prices for the nine months ended September 30, 2017 increased by 14.1% as compared to the nine months ended September 30, 2016. Overall sales volumes increased by 66.4% as compared to the nine months ended September 30, 2016, primarily attributable to sales contributed by Axiall, as compared to the prior-year period.
Gross Profit. Gross profit margin percentage increased to 21.1% for the nine months ended September 30, 2017 from 20.9% for the nine months ended September 30, 2016. The gross profit margin for the nine months ended September 30, 2017 was slightly higher primarily due to higher sales volumes for caustic soda and PVC resin contributed by Axiall and higher sales prices for our major products, as compared to the nine months ended September 30, 2016. These increases were substantially offset by a proportionately larger sales volume for the Vinyls segment as compared to the Olefins segment, Vinyls segment industry margins were lower as compared to those of the Olefins segment industry for the nine months ended September 30, 2017 and the nine months ended September 30, 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $200.1 million to $379.9 million for the nine months ended September 30, 2017 as compared to $179.8 million in the nine months ended September 30, 2016. This increase was mainly due to selling, general and administrative expenses of Axiall which were primarily comprised of the amortization of intangible assets acquired on acquisition.
Transaction and Integration-related Costs. Transaction and integration-related costs were $22.9 million for the nine months ended September 30, 2017 as compared to $90.6 million for the nine months ended September 30, 2016. Transaction and integration-related costs were $67.7 million lower in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 predominantly because significant transaction and integration-costs were incurred at the time of the Merger in 2016. The transaction and integration costs for the nine months ended September 30, 2017 primarily consisted of severance benefits provided to former Axiall employees in conjunction with the Merger and integration costs and consulting fees related to the Merger. The transaction and integration costs for the nine months ended September 30, 2016 primarily consisted of severance benefits provided to former Axiall executives in conjunction with the Merger, including the conversion of Axiall restricted stock units into our restricted stock units, transitional service expenses for certain former Axiall employees, retention agreement costs and consulting and professional fees related to the Merger.
Interest Expense. Interest expense increased by $81.8 million to $118.8 million for the nine months ended September 30, 2017 from $37.0 million for the nine months ended September 30, 2016 primarily as a result of higher average debt outstanding for the period as well as decreased capitalized interest on major capital projects in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The debt balance increased in August 2016 to finance the Merger. See "Liquidity and Capital Resources—Debt" below for further discussion on our indebtedness.
Other Income, Net. Other income, net decreased by $45.5 million to $6.6 million in the nine months ended September 30, 2017 from $52.1 million in the nine months ended September 30, 2016. The decrease was mainly attributable to the realized gain in the 2016 period of $49.1 million from the previously held common stock of Axiall.
Income Taxes. The effective income tax rate was 30.8% for the nine months ended September 30, 2017. The effective income tax rate for the nine months ended September 30, 2017 was below the U.S. federal statutory rate of 35.0% primarily due to certain discrete adjustments, a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes. The effective income tax rate was 29.1% for the nine months ended September 30, 2016. The effective income tax rate for the nine months ended September 30, 2016 was below the U.S. federal statutory rate of 35.0% primarily due to the benefit of state tax credits, the domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of Axiall, the benefit in prior years' and current-year tax credits for increased research and development expenditures, adjustments related to prior years' tax returns as filed and the foreign earnings rate differential, partially offset by state income taxes and nondeductible transaction costs related to the Merger.

45

Olefins Segment
Net Sales. Net sales for the Olefins segment increased by $111.6 million, or 7.8%, to $1,534.5 million in the nine months ended September 30, 2017 from $1,422.9 million in the nine months ended September 30, 2016, primarily due to higher sales prices for our major products. Average sales prices for the Olefins segment increased by 9.2% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Average sales volumes for the Olefins segment decreased by 1.3% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
Income from Operations. Income from operations for the Olefins segment increased by $80.2 million to $488.5 million in the nine months ended September 30, 2017 from $408.3 million in the nine months ended September 30, 2016. This increase was mainly attributable to higher olefins integrated product margins, primarily due to higher sales prices for our major products, higher operating rates and lower costs associated with turnarounds and outages as compared to the prior-year period. These increases were partially offset by higher energy prices. The nine months ended September 30, 2016 were negatively impacted by the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit along with other unplanned outages. Trading activity in the nine months ended September 30, 2017 resulted in a loss of $2.8 million as compared to a gain of $7.8 million in the nine months ended September 30, 2016.
Vinyls Segment
Net Sales. Net sales for the Vinyls segment increased by $2,578.8 million, or 134.5%, to $4,496.2 million in the nine months ended September 30, 2017 from $1,917.4 million in the nine months ended September 30, 2016. This increase was mainly attributable to sales contributed by Axiall and higher sales prices and volumes for our major products. The net sales for the nine months ended September 30, 2017 was higher as compared to the prior-year period primarily because nine months of Axiall's operations were included in the current period as compared to one month of Axiall operations included in the prior-year period. Average sales prices for the Vinyls segment increased by 17.8% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Average sales volumes for the Vinyls segment increased by 116.7% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily attributable to sales contributed by Axiall, as compared to the prior-year period.
Income from Operations. Income from operations for the Vinyls segment increased by $294.7 million to $431.3 million in the nine months ended September 30, 2017 from $136.6 million in the nine months ended September 30, 2016. This increase was mainly attributable to earnings contributed by Axiall and higher sales prices and volumes for our major products. These increases were partially offset by unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion at the Calvert City facility and other planned and unplanned turnarounds as well as higher energy prices during the nine months ended September 30, 2017, as compared to the prior-year period.
CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Cash Flows
Operating Activities
Operating activities provided cash of $962.7 million in the first nine months of 2017 compared to cash provided by operating activities of $544.2 million in the first nine months of 2016. The $418.5 million increase in cash flows from operating activities was mainly due to an increase in income from operations and lower turnaround related expenditures during the nine months ended September 30, 2017 as compared to the first nine months of 2016, partially offset by an increase in working capital requirements. The increase in net income from operations for the first nine months of 2017 was mainly as a result of higher sales prices and volumes, resulting in a higher margin, and earnings contributed by Axiall, which was acquired on August 31, 2016. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, net, inventories, prepaid expenses and other current assets, less accounts payable and accrued liabilities, used cash of $26.2 million in the first nine months of 2017, compared to $10.5 million of cash provided in the first nine months of 2016, an unfavorable change of $36.7 million. The change was mainly driven by an unfavorable change in accounts receivable, partially offset by favorable changes in inventory, prepaid and other current assets and accounts payable.

46

Investing Activities
Net cash used for investing activities during the first nine months of 2017 was $459.4 million as compared to net cash used for investing activities of $2,389.1 million in the first nine months of 2016. In the first nine months of 2016 we used $2,437.8 million, net of cash acquired, for the acquisition of Axiall. Capital expenditures were $414.3 million in the first nine months of 2017 compared to $467.3 million in the first nine months of 2016. Capital expenditures in the first nine months of 2017 were primarily incurred on the upgrade and expansion of OpCo's Calvert City ethylene plant at our Calvert City site. Capital expenditures in the first nine months of 2016 were primarily incurred on the upgrade and expansion of OpCo's Petro 1 ethylene unit at our Lake Charles site. The remaining capital expenditures in the first nine months of 2017 and 2016 primarily related to projects to improve production capacity or reduce costs, maintenance and safety projects and environmental projects at our various facilities. In addition, we spent $47.0 million in the nine months of 2017 related to our contribution to Lotte Chemical USA Corporation to fund the construction costs of the ethylene plant. Please see "Liquidity and Capital Resources—Liquidity and Financing Arrangements" below for further discussion. Investing activities in the first nine months of 2016 included purchases of securities totaling $138.4 million. We also received aggregate proceeds of $662.9 million from the sales and maturities of our investments in the first nine months of 2016.
Financing Activities
Net cash used for financing activities during the first nine months of 2017 was $306.4 million as compared to net cash provided by financing activities of $1,560.5 million in the first nine months of 2016. We used $150.0 million and $550.0 million, respectively, for the full repayment of our term loan and the partial repayment of the Credit Agreement in the first nine months of 2017. These uses were partially offset by a drawdown under the Credit Agreement of $225.0 million in the first nine months of 2017 and net proceeds of $110.7 million from the issuance of WLKP common units as a result of its secondary offering in September 2017. During the first nine months of 2017, the restriction on $154.0 million of cash was also removed as a result of the repayment of our term loan. The remaining activities during the first nine months of 2017 were primarily related to the $76.5 million payment of cash dividends, the $20.8 million payment of cash distributions to noncontrolling interests and the $0.4 million payment of debt issuance costs. In addition, we repaid $6.7 million of Huasu's short-term notes payable to banks in connection with the payment of suppliers through letters of credit, partially offset by $5.9 million of proceeds from the issuance of such notes payable. The financing activities during the first nine months of 2016 were mainly related to the net proceeds from the issuance of our senior notes and the proceeds from our term loan of $1,428.5 in the aggregate and the drawdown under the Credit Agreement of $600.0 million, partially offset by the $125.0 million partial repayment of the Credit Agreement in the first nine months of 2016. The remaining activity during the first nine months of 2016 was primarily related to the $71.9 million payment of cash dividends, the $12.3 million payment of cash distributions to noncontrolling interests, the $35.2 million payment of debt issuance costs and the $67.4 million of cash used for repurchases of shares of our common stock. In addition, we repaid $10.6 million of Huasu's short-term notes payable to banks in connection with the payment of suppliers through letters of credit, partially offset by $5.6 million of proceeds from the issuance of such notes payable in the first nine months of 2016.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, cash from operations, short-term borrowings under the Credit Agreement and our long-term financing.
In November 2014, our Board of Directors authorized a $250.0 million share repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150.0 million. As of September 30, 2017, we had repurchased 4,193,598 shares of our common stock for an aggregate purchase price of approximately $228.7 million under the 2014 Program. Purchases under the 2014 Program may be made either through the open market or in privately negotiated transactions. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
In connection with the Merger, we became party to a joint venture investment with Lotte Chemical USA Corporation to build an ethylene facility, LACC, LLC ("LACC"). The ethylene facility is located adjacent to our vinyls facility in Lake Charles. Pursuant to the contribution and subscription agreement, we agreed to make a maximum capital commitment to LACC of up to $225.0 million to fund the construction costs of the ethylene plant, which represents approximately 10.0% of the interests in LACC. The construction of the ethylene plant commenced in January 2016, with an anticipated start-up in 2019. As of September 30, 2017, we had funded approximately $106.4 million of our portion of the construction costs of the ethylene plant.

47

We believe that our sources of liquidity as described above will be adequate to fund our normal operations and ongoing capital expenditures. Funding of any potential large expansions or any potential acquisitions would likely necessitate and therefore depend on our ability to obtain additional financing in the future. We may not be able to access additional liquidity at cost effective interest rates due to the volatility of the commercial credit markets.
Cash and Cash Equivalents
As of September 30, 2017, our cash and cash equivalents totaled $678.2 million. In addition, we have the Credit Agreement available to supplement cash if needed, as described under "Debt" below.
Debt
As of September 30, 2017, our indebtedness, including current maturities, totaled $3.3 billion, consisting of $100.0 million of 6 ½% senior notes due 2029, $250.0 million of 6 ¾% senior notes due 2032, $89.0 million of 6 ½% senior notes due 2035 (the "6 ½% 2035 GO Zone Senior Notes"), $65.0 million of 6 ½% senior notes due 2035 (the "6 ½% 2035 IKE Zone Senior Notes") (collectively, the "Senior Notes"), $624.8 million aggregate principal amount of 4.625% senior notes due 2021 (the "4.625% 2021 Senior Notes"), $63.2 million aggregate principal amount of the 4.625% senior notes due 2021 (the "4.625% Subsidiary 2021 Senior Notes"), $250.0 million principal amount of 3.60% senior notes due 2022 (the "3.6% senior notes due 2022"), $433.8 million aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% 2023 Senior Notes"), $16.2 million aggregate principal amount of the 4.875% senior notes due 2023 (the "4.875% Subsidiary 2023 Senior Notes"), $750.0 million aggregate principal amount of 3.60% senior notes due 2026 (the "3.60% 2026 Senior Notes"), $700.0 million aggregate principal amount of 5.0% senior notes due 2046 (the "5.0% 2046 Senior Notes") and a $10.9 million loan from the proceeds of tax-exempt waste disposal revenue bonds (supported by an $11.3 million letter of credit), plus unamortized premium net of unamortized discount and debt issuance costs of $3.5 million. The 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes evidence and secure our obligations to the Louisiana Local Government Environmental Facility and Development Authority (the "Authority"), a political subdivision of the State of Louisiana, under four loan agreements relating to the issuance of $100.0 million, $250.0 million, $89.0 million and $65.0 million aggregate principal amount of the Authority's tax-exempt revenue bonds, respectively. As of September 30, 2017, debt outstanding under the tax-exempt waste disposal revenue bonds bore interest at a variable rate. As of September 30, 2017, we were in compliance with all of the covenants with respect to the Senior Notes, the 4,625% 2021 Senior Notes, the 4.625% Subsidiary 2021 Senior Notes, the 3.60% senior notes due 2022, the 4.875% 2023 Senior Notes, the 4.875% Subsidiary 2023 Senior Notes, the 3.60% 2026 Senior Notes, the 5.0% 2046 Senior Notes, the Credit Agreement and our waste disposal revenue bonds.
Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and unless we were to undertake a new expansion or large acquisition, we believe our cash flow from operations, available cash and available borrowings under the Credit Agreement will be adequate to meet our normal operating needs for the foreseeable future.
Term Loan
On August 10, 2016, our indirect subsidiary, 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 $150.0 million 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 2.0% per annum, payable in arrears on the last day of each three-month period following the date of funding and at maturity.

48

Credit Agreement
On August 23, 2016, we and certain of our subsidiaries entered into an unsecured revolving credit facility (the "Credit Agreement"), by and among us, the other borrowers and guarantors referred to therein, the lenders from time to time party thereto (collectively, the "Lenders"), the issuing banks party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent. Under the Credit Agreement, the Lenders have committed to provide an unsecured five-year revolving credit facility in an aggregate principal amount of up to $1.0 billion. The Credit Agreement replaced our $400.0 million senior secured third amended and restated credit facility, dated as of July 17, 2014 (the "Prior ABL Credit Agreement"), by and among us, the financial institutions party thereto, as lenders, Bank of America, N.A., as agent, and us and certain of our subsidiaries, as borrowers. The Credit Agreement includes a $150.0 million sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The Credit Agreement also provides for a discretionary $50.0 million commitment for swing-line loans to be provided on a same-day basis. We may also increase the size of the facility, in increments of at least $25.0 million, up to a maximum of $500.0 million, subject to certain conditions and if certain Lenders agree to commit to such an increase. On October 14, 2016, certain domestic subsidiaries of Axiall and Lagoon LLC were added as subsidiary guarantors to the Credit Agreement.
At September 30, 2017, we had no borrowings outstanding under the Credit Agreement. Borrowings under the Credit Agreement will bear interest, at our option, at either (a) LIBOR plus a spread ranging from 1.0% to 1.75% that will vary depending on our credit rating or (b) Alternate Base Rate plus a spread ranging from 0.0% to 0.75% that will vary depending on our credit rating. The Credit Agreement also requires an undrawn commitment fee ranging from 0.10% to 0.25% that will vary depending on our credit rating. The Credit Agreement matures on August 23, 2021. As of September 30, 2017, we had outstanding letters of credit totaling $45.4 million and borrowing availability of $954.6 million under the Credit Agreement.
Our obligations under the Credit Agreement are guaranteed by our current and future material domestic subsidiaries, subject to customary exceptions. The Credit Agreement contains customary affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. The Credit Agreement also contains customary events of default and if and for so long as an event of default has occurred and is continuing, any amounts outstanding under the Credit Agreement will accrue interest at an increased rate, the Lenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the Lenders. As of September 30, 2017, we were in compliance with the total leverage ratio financial maintenance covenant.
GO Zone and IKE Zone Bonds
As of September 30, 2017, we had drawn all the proceeds from the issuance of the 6 ½% senior notes due 2029, 6 ¾% senior notes due 2032, 6 ½% 2035 GO Zone Senior Notes and 6 ½% 2035 IKE Zone Senior Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 2016 Form 10-K and below for more information on the 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% 2035 GO Zone Senior Notes and the 6 ½% 2035 IKE Zone Senior Notes. All domestic restricted subsidiaries that guarantee other debt of ours or of another guarantor of the Senior Notes in excess of $5.0 million are guarantors of these notes.
The $250.0 million of 6 ¾% senior notes due November 1, 2032 under the GO Zone Act was issued by the Authority in December 2007. The bonds were subject to optional redemption by the Authority upon the direction of the Company at any time on or after November 1, 2017 for 100.0% of the principal plus accrued interest. During September 2017, we directed the Authority to optionally redeem in full $250.0 million 6 ¾% senior notes on November 1, 2017 at a redemption price of par, plus accrued and unpaid interest, if any, to the redemption date. The Authority is required to cause the GO Zone Bonds trustee to surrender the 6 ¾% senior notes due November 2032 of $250.0 million, to the Senior Notes trustee for cancellation. We used cash on hand to fund the redemption of the GO Zone Bonds.

49

The indentures governing the Senior Notes contain customary covenants and events of default. Accordingly, these agreements generally impose significant operating and financial restrictions on us. These restrictions, among other things, provide limitations on incurrence of additional indebtedness, the payment of dividends, certain investments and acquisitions and sales of assets. However, the effectiveness of certain of these restrictions is currently suspended because the Senior Notes are currently rated investment grade by at least two nationally recognized credit rating agencies. The most significant of these provisions, if it were currently effective, would restrict us from incurring additional debt, except specified permitted debt (including borrowings under our credit facility), when our fixed charge coverage ratio is below 2.0:1. These limitations are subject to a number of important qualifications and exceptions, including, without limitation, an exception for the payment of our regular quarterly dividend of up to $0.10 per share. If the restrictions were currently effective, distributions in excess of $100.0 million would not be allowed unless, after giving pro forma effect to the distribution, our fixed charge coverage ratio is at least 2.0:1 and such payment, together with the aggregate amount of all other distributions after January 13, 2006, is less than the sum of 50.0% of our consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which consolidated financial statements have been filed, plus 100.0% of net cash proceeds received after October 1, 2003 as a contribution to our common equity capital or from the issuance or sale of certain securities, plus several other adjustments.
3.60% Senior Notes due 2022
The 3.60% senior notes due 2022 are unsecured and were issued with an original issue discount of $1.2 million. There is no sinking fund and no scheduled amortization of the 3.60% senior notes due 2022 prior to maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 2016 Form 10-K for more information on the 3.60% senior notes due 2022. All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% senior notes due 2022 in excess of $5.0 million are guarantors of the 3.60% senior notes due 2022.
The indenture governing the 3.60% senior notes due 2022 contains customary events of default and covenants that will restrict our and certain of our subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of our or their assets.
3.60% Senior Notes due 2026 and 5.0% Senior Notes due 2046
In August 2016, we issued $750.0 million aggregate principal amount of the 3.60% 2026 Senior Notes and $700.0 million aggregate principal amount of the 5.0% 2046 Senior Notes. In connection with the private offering and issuance of the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes, we entered into a registration rights agreement pursuant to which, among other things, we agreed to file with the SEC a registration statement relating to an offer to exchange the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes for the 2026 and 2046 Exchange Notes containing terms substantially identical to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes (except that the transfer restrictions on the 2026 and 2046 Exchange Notes will be modified or eliminated and there will be no registration rights). On March 27, 2017, we 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 notes have been registered under 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.
All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 3.60% 2026 Senior Notes or the 5.0% 2046 Senior Notes in excess of $40.0 million are guarantors of the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes. The indenture governing the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes contains customary events of default and covenants that will restrict our and certain of our subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of our or their assets. References to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes in this paragraph refer to the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes that were exchanged in the exchange offers described in the preceding paragraph as well as the 3.60% 2026 Senior Notes that were not exchanged in such exchange offers.

50

4.625% Senior Notes due 2021 and 4.875% Senior Notes due 2023
In September 2016, we issued $624.8 million aggregate principal amount of the 4.625% 2021 Senior Notes and $433.8 million aggregate principal amount of the 4.875% 2023 Senior Notes upon the closing of our offers to exchange any and all of the $688.0 million aggregate principal amount of the outstanding 4.625% senior notes due 2021 issued by Eagle Spinco Inc., a wholly owned subsidiary of Axiall, and the $450.0 million aggregate principal amount of the outstanding 4.875% senior notes due 2023 issued by Axiall. In connection with the private offering and issuance of the 4.625% 2021 Senior Notes and the 4.875% Senior Notes, we entered into a registration rights agreement pursuant to which, among other things, we agreed to file with the SEC a registration statement relating to an offer to exchange the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes for new SEC registered notes (the "2021 and 2023 Exchange Notes") containing terms substantially identical to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes except that the transfer restrictions on the 2021 and 2023 Exchange Notes will be modified or eliminated and there will be no registration rights). On March 27, 2017, we commenced registered exchange offers to exchange the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes for new notes that are identical in all material respects to the 4.625% 2021 Senior Notes and the 4.875% 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 100.0% of the 4.625% 2021 Senior Notes and 100.0% of the 4.875% 2023 Senior Notes were exchanged.
All of our domestic subsidiaries that guarantee other indebtedness of ours or of another guarantor of the 4.625% 2021 Senior Notes or the 4.875% 2023 Senior Notes in excess of $40.0 million are guarantors of the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes. The indenture governing the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes contains customary events of default and covenants that will restrict our and certain of our subsidiaries' ability to (1) incur certain secured indebtedness, (2) engage in certain sale-leaseback transactions and (3) consolidate, merge or transfer all or substantially all of our or their assets. References to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes in this paragraph refer to the 4.625% 2021 Senior Notes and the 4.875% 2023 Senior Notes that were exchanged in the exchange offers described in the preceding paragraph.
Revenue Bonds
In December 1997, we entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $10.9 million principal amount of tax-exempt waste disposal revenue bonds in order to finance our construction of waste disposal facilities for an ethylene plant. The waste disposal revenue bonds expire in December 2027 and are subject to redemption and mandatory tender for purchase prior to maturity under certain conditions. Interest on the waste disposal revenue bonds accrues at a rate determined by a remarketing agent and is payable quarterly.
Westlake Chemical Partners LP Credit Arrangements
Our subsidiary, Westlake Chemical Finance Corporation, is the lender party to a $300.0 million revolving credit facility with Westlake Chemical Partners LP ("WLKP"). On August 1, 2017, the revolving credit facility was amended to extend the maturity from 2018 to 2021. Borrowings under the revolver bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (depending on WLKP's consolidated leverage ratio), payable quarterly. WLKP may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. As of September 30, 2017, outstanding borrowings under the credit facility totaled $253.5 million and bore interest at the LIBOR rate plus 2.0%.
Our subsidiary, Westlake Development Corporation, is the lender party to a $600.0 million revolving credit facility with OpCo. The revolving credit facility matures in 2019. As of September 30, 2017, outstanding borrowings under the credit facility totaled $223.6 million and bore interest at the LIBOR rate plus 3.0%, which is accrued in arrears quarterly.
We consolidate WLKP and OpCo for financial reporting purposes as we have a controlling financial interest. As such, the revolving credit facilities described above between our subsidiaries and WLKP and OpCo are eliminated upon consolidation.
Off-Balance Sheet Arrangements
None.

51

FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Certain of the statements contained in this report are forward-looking statements. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expected" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as:
•
future operating rates, margins, cash flows and demand for our products (including any changes as a result of economic growth or North American producers' competitive position);
•
industry market outlook, including the price of crude oil;
•
production capacities;
•
currency devaluation;
•
our ability to borrow additional funds under the Credit Agreement;
•
our ability to meet our liquidity needs;
•
our ability to meet debt obligations under our debt instruments;
•
our intended quarterly dividends;
•
future capacity additions and expansions in the industry;
•
timing, funding and results of capital projects, such as the construction of the LACC plant and associated facilities;
•
results of acquisitions, including our acquisition of Axiall (including the benefits, results and effects thereof);
•
pension plan obligations, funding requirements and investment policies;
•
compliance with present and future environmental regulations and costs associated with environmentally related penalties, capital expenditures, remedial actions and proceedings, including any new laws, regulations or treaties that may come into force to limit or control carbon dioxide and other greenhouse gases emissions or to address other issues of climate change;
•
effects of pending legal proceedings; and
•
timing of and amount of capital expenditures.
We have based these statements on assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under "Risk Factors" in the 2016 Form 10-K and those described from time to time in our other filings with the SEC including, but not limited to, the following:
•
general economic and business conditions;
•
the cyclical nature of the chemical industry;
•
the availability, cost and volatility of raw materials and energy;
•
uncertainties associated with the United States, European and worldwide economies, including those due to political tensions and unrest in the Middle East, the Commonwealth of Independent States (including Ukraine) and elsewhere;
•
current and potential governmental regulatory actions in the United States and other countries and political unrest in other areas;
•
industry production capacity and operating rates;
•
the supply/demand balance for our products;
•
competitive products and pricing pressures;

52

•
instability in the credit and financial markets;
•
access to capital markets;
•
terrorist acts;
•
operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);
•
changes in laws or regulations;
•
technological developments;
•
our ability to realize anticipated benefits of the Merger and to integrate Axiall's business;
•
charges or other liabilities relating to the Merger;
•
the significant indebtedness that we have incurred in connection with the Merger;
•
our ability to integrate acquired businesses other than Axiall;
•
foreign currency exchange risks;
•
our ability to implement our business strategies; and
•
creditworthiness of our customers.
Many of such factors are beyond our ability to control or predict. Any of the factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Accordingly, product margins and the level of our profitability tend to fluctuate with changes in the business cycle. We try to protect against such instability through various business strategies. Our strategies include ethylene feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. We use derivative instruments in certain instances to reduce price volatility risk on feedstocks and products. Based on our open derivative positions at September 30, 2017, a hypothetical $0.10 increase in the price of a gallon of ethane would have increased our income before taxes by $6.9 million and a hypothetical $0.10 increase in the price of a gallon of propane would have increased our income before taxes by $3.8 million. Additional information concerning derivative commodity instruments appears in Notes 13 and 14 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q.
Interest Rate Risk
We are exposed to interest rate risk with respect to fixed and variable rate debt. At September 30, 2017, we had $10.9 million principal amount of variable rate debt outstanding. The debt outstanding under the tax-exempt waste disposal revenue bonds is at a variable rate. We do not currently hedge our variable interest rate debt, but we may do so in the future. The average variable interest rate for our variable rate debt of $10.9 million as of September 30, 2017 was 1.0%. A hypothetical 100 basis point increase in the average interest rate on our variable rate debt would increase our annual interest expense by approximately $0.1 million. Also, at September 30, 2017, we had $3.3 billion aggregate principal amount of fixed rate debt. We are subject to the risk of higher interest cost if and when this debt is refinanced. If interest rates were 1.0% higher at the time of refinancing, our annual interest expense would increase by approximately $33.4 million.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk associated with our international operations. However, the effect of fluctuations in foreign currency exchange rates caused by our international operations has not had a material impact on our overall operating results. We may engage in activities to mitigate our exposure to foreign currency exchange risk in certain instances through the use of currency exchange derivative instruments, including forward exchange contracts, or spot purchases. A forward exchange contract obligates us to exchange predetermined amounts of specified currencies at a stated

53

exchange rate on a stated date.


54

Item 4.
Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures are effective with respect to (i) the accumulation and communication to our management, including our Chief Executive Officer and our Chief Financial Officer, of information required to be disclosed by us in the reports that we submit under the Exchange Act, and (ii) the recording, processing, summarizing and reporting of such information within the time periods specified in the SEC's rules and forms.
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


55

PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
The 2016 Form 10-K, filed on February 22, 2017, contained a description of various legal proceedings in which we are involved. See Note 18 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for a description of certain of those proceedings, which information is incorporated by reference herein.
Item 1A.
Risk Factors
For a discussion of risk factors, please read Item 1A, "Risk Factors" in the 2016 Form 10-K. There have been no material changes from those risk factors.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information on our purchase of equity securities during the quarter ended September 30, 2017.
Period
 
Total Number
of Shares
Purchased (1)
 
Average Price
Paid Per
Share
 
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs (2)
 
Maximum Number
(or Approximate
Dollar Value) of
Shares that
May Yet Be
Purchased Under the
Plans or Programs (2)
July 2017
 
—

 
$
—

 
—

 
$
171,285,000

August 2017
 
—

 
$
—

 
—

 
$
171,285,000

September 2017
 
1,142

 
$
77.67

 
—

 
$
171,285,000

 
 
1,142

 
$
77.67

 
—

 
 
_____________
(1)
Represents shares withheld in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to our employees under the 2013 Plan.
(2)
In November 2014, our Board of Directors authorized a $250.0 million share repurchase program (the "2014 Program"). In November 2015, our Board of Directors approved the expansion of the 2014 Program by an additional $150.0 million. As of September 30, 2017, 4,193,598 shares of common stock had been acquired at an aggregate purchase price of approximately $228.7 million under the 2014 Program. Transaction fees and commissions are not reported in the average price paid per share in the table above. Decisions regarding the amount and the timing of purchases under the 2014 Program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The 2014 Program may be discontinued by our Board of Directors at any time.
 

56

Item 6.
Exhibits
Exhibit No.
 
EXHIBIT INDEX

 
 
 
10.1†


 
 
 
31.1†
 
 
 
 
31.2†
 
 
 
 
32.1#
 
 
 
 
101.INS†
 
XBRL Instance Document
 
 
 
101.SCH†
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL†
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF†
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB†
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE†
 
XBRL Taxonomy Extension Presentation Linkbase Document

______________________________
†
Filed herewith.
#
Furnished herewith.


57


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
 
 
 
WESTLAKE CHEMICAL CORPORATION
 
 
 
 
Date:
November 7, 2017
 
 
By:
 
/S/    ALBERT CHAO        
 
 
 
 
 
 
Albert Chao
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
Date:
November 7, 2017
 
 
By:
 
/S/    M. STEVEN BENDER        
 
 
 
 
 
 
M. Steven Bender
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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