2013.06.30 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
Form 10-Q
 
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                    to                    
Commission File No. 001-32260
 
 
 
 
 
Westlake Chemical Corporation
(Exact name of Registrant as specified in its charter)
 
 
 
 
 

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

x
  
Accelerated filer
 
¨
Non-accelerated filer

¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes   ¨     No   x
The number of shares outstanding of the registrant's sole class of common stock as of July 24, 2013 was 66,812,858.



INDEX

 
 
Item
Page
 
 
 
 


Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
June 30,
2013
 
December 31,
2012
 
 
(in thousands of dollars, except
par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
625,501

 
$
790,078

Marketable securities
 
29,969

 
124,873

Accounts receivable, net
 
475,638

 
400,159

Inventories
 
427,139

 
399,298

Prepaid expenses and other current assets
 
20,773

 
14,700

Deferred income taxes
 
22,103

 
22,305

Total current assets
 
1,601,123

 
1,751,413

Property, plant and equipment, net
 
1,785,574

 
1,510,048

Equity investments
 
48,480

 
43,736

Other assets, net
 


 


Intangible assets, net
 
161,324

 
48,292

Deferred charges and other assets, net
 
111,834

 
58,707

Total other assets, net
 
273,158

 
106,999

Total assets
 
$
3,708,335

 
$
3,412,196

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
247,007

 
$
217,050

Accrued liabilities
 
147,449

 
181,460

Total current liabilities
 
394,456

 
398,510

Long-term debt
 
763,820

 
763,761

Deferred income taxes
 
386,789

 
326,290

Other liabilities
 
50,784

 
51,379

Total liabilities
 
1,595,849

 
1,539,940

Commitments and contingencies (Notes 7 and 16)
 


 


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

 

Common stock, $0.01 par value, 150,000,000 shares authorized;
   67,258,512 and 67,187,224 shares issued at June 30, 2013
   and December 31, 2012, respectively
 
673

 
672

Common stock, held in treasury, at cost; 446,825 and 284,493 shares
   at June 30, 2013 and December 31, 2012, respectively
 
(26,585
)
 
(13,302
)
Additional paid-in capital
 
506,609

 
496,254

Retained earnings
 
1,643,515

 
1,399,472

Accumulated other comprehensive loss
 
(11,726
)
 
(10,840
)
Total stockholders' equity
 
2,112,486

 
1,872,256

Total liabilities and stockholders' equity
 
$
3,708,335

 
$
3,412,196

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

1

Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in thousands of dollars, except per share data and share amounts)
Net sales
 
$
939,047

 
$
913,958

 
$
1,803,694

 
$
1,948,825

Cost of sales
 
665,560

 
712,062

 
1,302,398

 
1,574,292

Gross profit
 
273,487

 
201,896

 
501,296

 
374,533

Selling, general and administrative expenses
 
38,260

 
30,918

 
72,014

 
57,930

Income from operations
 
235,227

 
170,978

 
429,282

 
316,603

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(5,343
)
 
(11,571
)
 
(11,624
)
 
(23,748
)
Gain from sales of equity securities
 

 
15,952

 

 
15,952

Other (expense) income, net
 
(95
)
 
1,107

 
3,424

 
2,454

Income before income taxes
 
229,789

 
176,466

 
421,082

 
311,261

Provision for income taxes
 
83,973

 
60,965

 
151,919

 
107,947

Net income
 
$
145,816

 
$
115,501

 
$
269,163

 
$
203,314

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
2.18

 
$
1.73

 
$
4.02

 
$
3.05

Diluted
 
$
2.17

 
$
1.72

 
$
4.01

 
$
3.03

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
66,629,609

 
66,298,633

 
66,627,661

 
66,203,965

Diluted
 
66,895,595

 
66,648,896

 
66,902,273

 
66,603,706

Dividends per common share
 
$
0.1875

 
$
0.0738

 
$
0.3750

 
$
0.1475

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

2

Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(in thousands of dollars)
Net income
 
$
145,816

 
$
115,501

 
$
269,163

 
$
203,314

Other comprehensive (loss) income
 
 
 
 
 
 
 
 
Pension and other post-retirement benefits liability
 
 
 
 
 
 
 
 
Pension and other post-retirement reserves
   adjustment (excluding amortization)
 
(489
)
 
71

 
(489
)
 
71

Amortization of benefits liability
 
695

 
584

 
1,309

 
1,162

Income tax provision on pension and other
   post-retirement benefits liability
 
(80
)
 
(251
)
 
(316
)
 
(473
)
Foreign currency translation adjustments
 
(820
)
 
(449
)
 
(1,390
)
 
63

Cash flow hedges
 
 
 
 
 
 
 
 
Net unrealized losses on hedges
 

 
(813
)
 

 
(813
)
Income tax benefit on hedges
 

 
292

 

 
292

Available-for-sale investments
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains
   on investments
 

 
(11,231
)
 

 
14,243

Income tax benefit (provision) on unrealized
   holding (losses) gains
 

 
4,028

 

 
(5,108
)
Reclassification of net realized gain to
   net income
 

 
(10,232
)
 

 
(10,232
)
Other comprehensive loss
 
(694
)
 
(18,001
)
 
(886
)
 
(795
)
Comprehensive income
 
$
145,122

 
$
97,500

 
$
268,277

 
$
202,519

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

3

Table of Contents


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2013
 
2012
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
269,163

 
$
203,314

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
75,566

 
71,177

Provision for (recovery of) doubtful accounts
 
3,607

 
(161
)
Amortization of debt issuance costs
 
729

 
801

Stock-based compensation expense
 
3,124

 
3,125

Loss from disposition of fixed assets
 
4,125

 
688

Gain from sales of equity securities
 

 
(15,952
)
Deferred income taxes
 
60,425

 
6,720

Windfall tax benefits from share-based payment arrangements
 
(4,576
)
 
(6,468
)
Equity in loss of joint ventures
 
1,369

 
1,926

Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(61,494
)
 
(11,105
)
Inventories
 
(1,893
)
 
83,653

Prepaid expenses and other current assets
 
(7,947
)
 
(2,920
)
Accounts payable
 
5,217

 
(17,043
)
Accrued liabilities
 
(32,382
)
 
(6,369
)
Other, net
 
(59,553
)
 
4,760

Net cash provided by operating activities
 
255,480

 
316,146

Cash flows from investing activities
 
 
 
 
Acquisition of business
 
(178,309
)
 

Additions to equity investments
 
(6,113
)
 

Additions to property, plant and equipment
 
(297,873
)
 
(140,568
)
Construction of assets pending sale-leaseback
 
(136
)
 
(1,760
)
Proceeds from disposition of assets
 
62

 
415

Proceeds from repayment of loan to affiliate
 
167

 
596

Proceeds from sales and maturities of securities
 
209,785

 
46,027

Purchase of securities
 
(114,881
)
 
(2,961
)
Settlements of derivative instruments
 
(1,588
)
 
511

Net cash used for investing activities
 
(388,886
)
 
(97,740
)
Cash flows from financing activities
 
 
 
 
Capitalized debt issuance costs
 

 
(98
)
Dividends paid
 
(25,120
)
 
(9,838
)
Proceeds from exercise of stock options
 
2,656

 
4,508

Repurchase of common stock for treasury
 
(13,283
)
 
(10,784
)
Utilization of restricted cash
 

 
75,975

Windfall tax benefits from share-based payment arrangements
 
4,576

 
6,468

Net cash (used for) provided by financing activities
 
(31,171
)
 
66,231

Net (decrease) increase in cash and cash equivalents
 
(164,577
)
 
284,637

Cash and cash equivalents at beginning of period
 
790,078

 
825,901

Cash and cash equivalents at end of period
 
$
625,501

 
$
1,110,538

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

4

Table of Contents
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 have not been included. These interim consolidated financial statements should be read in conjunction with the December 31, 2012 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, 2012 (the "2012 Form 10-K"), filed with the SEC on February 22, 2013. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2012.
In the opinion of the Company's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company's financial position as of June 30, 2013, its results of operations for the three and six months ended June 30, 2013 and 2012 and the changes in its cash position for the six months ended June 30, 2013 and 2012.
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, 2013 or any other interim period. The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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.
Revisions
The consolidated statement of cash flows for the six months ended June 30, 2012 has been revised to correct the presentation of windfall tax benefits from share-based compensation of $6,468 in financing activities, instead of operating activities. The Company has determined that this revision was immaterial to the Company's previously issued financial statements.
Recent Accounting Pronouncements
Disclosures about Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on disclosures for offsetting assets and liabilities. The new accounting guidance requires companies to disclose both gross and net information about (1) instruments and transactions eligible for offset in the statement of financial position, and (2) instruments and transactions subject to an agreement similar to a master netting arrangement. The FASB issued another accounting standards update clarifying the scope of the assets and liabilities offset disclosure requirements in January 2013. The effective date of the disclosure requirements remains unchanged. The Company adopted the new guidance as of January 1, 2013, and the adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.
Testing Indefinite-Lived Intangible Assets for Impairment
In July 2012, the FASB issued an accounting standards update to simplify how entities test indefinite-lived intangible assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The new accounting guidance provides an entity with an option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test under current accounting guidance. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with current accounting guidance. Also under this new accounting guidance, an entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test, but may resume performing the qualitative assessment in any subsequent period. The Company adopted the new indefinite-lived intangible assets test guidance as of January 1, 2013, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

5

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

Reclassifications Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued an accounting standards update on reporting items reclassified out of accumulated other comprehensive income. The new accounting guidance requires companies to present either parenthetically on the face of the financial statements or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification, with certain exceptions. The Company adopted the new guidance as of January 1, 2013, and the adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.
2. Current Marketable Securities
The Company owned current marketable securities of $29,969 and $124,873 at June 30, 2013 and December 31, 2012, respectively, consisting of short-term corporate debt securities with maturities exceeding three months at the date of acquisition. These debt securities are classified as held-to-maturity and are carried at amortized cost, which approximates their fair value.

3. Accounts Receivable
Accounts receivable consist of the following:
 
 
June 30,
2013
 
December 31,
2012
Trade customers
 
$
441,840

 
$
388,949

Affiliates
 
310

 
258

Allowance for doubtful accounts
 
(9,834
)
 
(11,172
)
 
 
432,316

 
378,035

Federal and state taxes
 
29,802

 
4,011

Other
 
13,520

 
18,113

Accounts receivable, net
 
$
475,638

 
$
400,159

4. Inventories
Inventories consist of the following:
 
 
June 30,
2013
 
December 31,
2012
Finished products
 
$
203,434

 
$
200,940

Feedstock, additives and chemicals
 
166,213

 
143,912

Materials and supplies
 
57,492

 
54,446

Inventories
 
$
427,139

 
$
399,298

5. Property, Plant and Equipment
As of June 30, 2013, the Company had property, plant and equipment, net totaling $1,785,574. The Company assesses these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Other factors considered by the Company when determining if an impairment assessment is necessary include, but are not limited to, significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the U.S. and world economies and uncertainties associated with governmental actions. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Depreciation expense on property, plant and equipment of $32,615 and $30,387 is included in cost of sales in the consolidated statements of operations for the three months ended June 30, 2013 and 2012, respectively. Depreciation expense on property, plant and equipment of $63,535 and $60,559 is included in cost of sales in the consolidated statements of operations for the six months ended June 30, 2013 and 2012, respectively.

6

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

6. Other Assets
Amortization expense on intangible and other assets of $7,959 and $5,795 is included in the consolidated statements of operations for the three months ended June 30, 2013 and 2012, respectively. Amortization expense on intangible and other assets of $12,760 and $11,419 is included in the consolidated statements of operations for the six months ended June 30, 2013 and 2012, respectively.
7. Long-Term Debt
Long-term debt consists of the following:
 
 
June 30,
2013
 
December 31,
2012
3.60% senior notes due 2022
 
$
248,931

 
$
248,872

6 ½% senior notes due 2029
 
100,000

 
100,000

6 ¾% senior notes due 2032
 
250,000

 
250,000

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

 
89,000

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

 
65,000

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

 
10,889

Long-term debt, net
 
$
763,820

 
$
763,761

Revolving Credit Facility
The Company has a $400,000 senior secured revolving credit facility. The facility includes a provision permitting the Company to increase the size of the facility, up to four times, in increments of at least $25,000 each (up to a maximum of $150,000) under certain circumstances if lenders agree to commit to such an increase. At June 30, 2013, the Company had no borrowings outstanding under the revolving credit facility. Any borrowings under the facility will bear interest at either LIBOR plus a spread ranging from 1.75% to 2.25% or a base rate plus a spread ranging from 0.25% to 0.75%. The revolving credit facility also requires an unused commitment fee of 0.375% per annum. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on September 16, 2016. As of June 30, 2013, the Company had outstanding letters of credit totaling $16,921 and borrowing availability of $383,079 under the revolving credit facility. 
8. Stock-Based Compensation
Under the Westlake Chemical Corporation 2013 Omnibus Incentive Plan (as amended and restated, the "2013 Plan"), all employees and nonemployee 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 nonemployee directors may be granted awards in the form of stock options, stock appreciation rights, stock awards, restricted stock units or cash awards (any of which may be a performance award). Total stock-based compensation expense related to the 2013 Plan was $1,626 and $1,475 for the three months ended June 30, 2013 and 2012, respectively, and $3,124 and $3,125 for the six months ended June 30, 2013 and 2012, respectively.
9. Derivative Instruments
Commodity Risk Management
The Company uses derivative instruments to reduce price volatility risk on raw materials and products as a substantial portion of its raw materials and products are commodities whose prices fluctuate as market supply and demand fundamentals change. Business strategies to protect against such instability include ethylene product feedstock flexibility and moving downstream into the olefins and vinyls products where pricing is more stable. The Company does not use derivative instruments to engage in speculative activities.
For derivative instruments that are designated and qualify as fair value hedges, the gains or losses on the derivative instruments, as well as the offsetting losses or gains on the hedged items attributable to the hedged risk, were included in cost of sales in the consolidated statements of operations for the three and six months ended June 30, 2013 and 2012. As of June 30, 2013, the Company had 21,420,000 gallons of feedstock forward contracts designated as fair value hedges.

7

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

Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of sales in the consolidated statements of operations for the three and six months ended June 30, 2013 and 2012.
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).
Disclosures related to the Company's derivative assets and derivative liabilities subject to enforceable master netting arrangements have not been presented as they are not material to the Company's consolidated balance sheets at June 30, 2013 and December 31, 2012.
The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:
 
 
Derivative Assets
 
 
Balance Sheet Location
 
Fair Value as of
 
 
June 30,
2013
 
December 31,
2012
Designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accounts receivable, net
 
$
6,720

 
$
13,032

Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accounts receivable, net
 
2,330

 
1,395

Total derivative assets
 
 
 
$
9,050

 
$
14,427

 
 
Derivative Liabilities
 
 
Balance Sheet Location
 
Fair Value as of
 
 
June 30,
2013
 
December 31,
2012
Designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accrued liabilities
 
$

 
$
399

Not designated as hedging instruments
 
 
 
 
 
 
Commodity forward contracts
 
Accrued liabilities
 
7,244

 
13,295

Total derivative liabilities
 
 
 
$
7,244

 
$
13,694

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statements of operations. For the three and six months ended June 30, 2013 and 2012, there was no material ineffectiveness with regard to the Company's qualifying fair value hedges.
Derivatives in Fair Value
   Hedging Relationships
 
Location of Gain (Loss)
Recognized in 
Income on Derivative
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2013
 
2012
 
2013
 
2012
Commodity forward contracts
 
Cost of sales
 
$
1,533

 
$
2,397

 
$
(110
)
 
$
12,860

 
 
 
 
 
 
 
 
 
 
 
Hedged Items in Fair Value
   Hedging Relationships
 
Location of Gain (Loss)
Recognized in 
Income on Hedged Items
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2013
 
2012
 
2013
 
2012
Firm commitment designated
   as the hedged item
 
Cost of sales
 
$
(1,615
)
 
$
(2,397
)
 
$
(220
)
 
$
(14,061
)

8

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

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:
Derivatives Not Designated as
   Hedging Instruments
 
Location of Gain (Loss)
Recognized in 
Income on Derivative
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2013
 
2012
 
2013
 
2012
Commodity forward contracts
 
Cost of sales
 
$
9,382

 
$
(1,592
)
 
$
16,717

 
$
(1,031
)
See Note 10 for the fair value of the Company's derivative instruments.
10. Fair Value Measurements
The Company reports certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following tables summarize, by level within the fair value hierarchy, the Company's assets and liabilities that were accounted for at fair value on a recurring basis:
 
 
June 30, 2013
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets - Commodity forward contracts
 
$
1,740

 
$
7,310

 
$
9,050

Risk management liabilities - Commodity forward contracts
 
(15
)
 
(7,229
)
 
(7,244
)
Firm commitments
 
 
 
 
 
 
Hedged portion of firm commitment
 

 
(6,720
)
 
(6,720
)
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
Level 1
 
Level 2
 
Total
Derivative instruments
 
 
 
 
 
 
Risk management assets - Commodity forward contracts
 
$
1,395

 
$
13,032

 
$
14,427

Risk management liabilities - Commodity forward contracts
 

 
(13,694
)
 
(13,694
)
Firm commitments
 
 
 
 
 
 
Hedged portion of firm commitment
 

 
399

 
399

Hedged portion of firm commitment
 

 
(13,032
)
 
(13,032
)
The Level 2 measurements are derived using forward curves supplied by industry recognized and unrelated third-party services. There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy for the six months ended June 30, 2013 and 2012.
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 long-term debt, all of which are recorded at carrying value. Further, the Company has current marketable securities that are carried at amortized cost. The amounts reported in the consolidated balance sheets for cash and cash equivalents, current marketable securities, accounts receivable, net and accounts payable approximate their fair value due to the short maturities of these instruments. The carrying and fair values of the Company's long-term debt are summarized in the table below. The Company's long-term debt instruments are publicly-traded. A market approach, based upon quotes from financial reporting services, is used to measure the fair value of the Company's long-term debt. Because the Company's long-term debt instruments may not be actively traded, the inputs used to measure the fair value of the Company's long-term debt are classified as Level 2 inputs within the fair value hierarchy.

9

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

 
 
June 30, 2013
 
December 31, 2012
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
3.60% senior notes due 2022
 
$
248,931

 
$
238,690

 
$
248,872

 
$
251,125

6 ½% senior notes due 2029
 
100,000

 
117,484

 
100,000

 
119,738

6 ¾% senior notes due 2032
 
250,000

 
268,750

 
250,000

 
283,168

6 ½% GO Zone Senior Notes Due 2035
 
89,000

 
104,480

 
89,000

 
102,095

6 ½% IKE Zone Senior Notes Due 2035
 
65,000

 
76,305

 
65,000

 
74,564

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

 
10,889

 
10,889

 
10,889

11. Income Taxes
The effective income tax rate was 36.1% for the six months ended June 30, 2013. The effective income tax rate for the 2013 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction. The effective income tax rate was 34.7% for the six months ended June 30, 2012. The effective income tax rate for the 2012 period was below the U.S. federal statutory rate of 35.0% primarily due to state tax credits and the domestic manufacturing deduction, mostly offset by state income taxes.
There was no material change to the total gross unrecognized tax benefits for the six months ended June 30, 2013. Management anticipates reductions to the total amount of unrecognized tax benefits of an additional $621 within the next twelve months due to expiring statutes of limitations.
The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense. As of June 30, 2013, the Company had no material accrued interest and penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is no longer subject to examinations by tax authorities before the year 2007.
12. Earnings per Share
The Company has unvested shares of restricted stock and restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share include the effect of certain stock options.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Net income
 
$
145,816

 
$
115,501

 
$
269,163

 
$
203,314

Less:
 
 
 
 
 
 
 
 
Net income attributable to participating securities
 
(512
)
 
(606
)
 
(1,091
)
 
(1,240
)
Net income attributable to common shareholders
 
$
145,304

 
$
114,895

 
$
268,072

 
$
202,074


10

Table of Contents
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 June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Weighted average common shares—basic
 
66,629,609

 
66,298,633

 
66,627,661

 
66,203,965

Plus incremental shares from:
 
 
 
 
 
 
 
 
Assumed exercise of options
 
265,986

 
350,263

 
274,612

 
399,741

Weighted average common shares—diluted
 
66,895,595

 
66,648,896

 
66,902,273

 
66,603,706

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
2.18

 
$
1.73

 
$
4.02

 
$
3.05

Diluted
 
$
2.17

 
$
1.72

 
$
4.01

 
$
3.03

Excluded from the computation of diluted earnings per share are options to purchase 71,456 and 327,669 shares of common stock for the three months ended June 30, 2013 and 2012, respectively, and 54,000 and 346,957 shares of common stock for the six months ended June 30, 2013 and 2012, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.
13. Pension and Post-Retirement Benefit Costs
Components of net periodic benefit cost are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
Pension
 
Post-retirement
Healthcare
 
Pension
 
Post-retirement
Healthcare
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
 
$
275

 
$
250

 
$
2

 
$
2

 
$
539

 
$
504

 
$
5

 
$
5

Interest cost
 
515

 
645

 
147

 
185

 
1,016

 
1,291

 
294

 
370

Expected return on plan assets
 
(713
)
 
(623
)
 

 

 
(1,427
)
 
(1,244
)
 

 

Amortization of prior
   service cost
 
74

 
74

 
21

 
21

 
148

 
148

 
42

 
42

Amortization of net loss
 
510

 
445

 
90

 
44

 
940

 
884

 
179

 
88

Net periodic benefit cost
 
$
661

 
$
791

 
$
260

 
$
252

 
$
1,216

 
$
1,583

 
$
520

 
$
505

The Company contributed $388 and $1,021 to the Salaried pension plan in the first six months of 2013 and 2012, respectively, and contributed $350 and $659 to the Wage pension plan in the first six months of 2013 and 2012, respectively. The Company expects to make additional contributions of $776 to the Salaried pension plan and $580 to the Wage pension plan during the fiscal year ending December 31, 2013.
14. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2013 were as follows:
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange
 
Total
Balances at December 31, 2012
 
$
(16,351
)
 
$
5,511

 
$
(10,840
)
Other comprehensive loss before reclassifications
 
(301
)
 
(1,390
)
 
(1,691
)
Amounts reclassified from accumulated other comprehensive loss
 
805

 

 
805

Net other comprehensive income (loss) for the period
 
504

 
(1,390
)
 
(886
)
Balances at June 30, 2013
 
$
(15,847
)
 
$
4,121

 
$
(11,726
)

11

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

The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the three and six months ended June 30, 2013:
Details about Accumulated Other Comprehensive
   Income (Loss) Components
 
Location of Reclassification
(Income (Expense)) in
Consolidated Statements
of Operations
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Amortization of pension and other post-retirement items
 
 
 
 
 
 
Prior service costs
 
(1)
 
$
(95
)
 
$
(190
)
Net loss
 
(1)
 
(600
)
 
(1,119
)
 
 
 
 
(695
)
 
(1,309
)
 
 
Provision for income taxes
 
268

 
504

Total reclassifications for the period
 
 
 
$
(427
)
 
$
(805
)
_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 8 (Employee Benefits) to the financial statements included in the 2012 Form 10-K.
15. Acquisitions
On May 1, 2013, the Company acquired assets comprising CertainTeed Corporation's Pipe and Foundation Group ("PFG") business and accounted for the asset acquisition as a business combination. The PFG acquisition includes the PVC pipe, fittings, profiles and foundation business and associated facilities in Lodi, California and McPherson, Kansas with production capacity of approximately 150 million pounds per year. The Company also acquired technologies and intellectual property for the production of a number of specialized products, including Certa-Lok® restrained joint pipe and Yelomine™ branded products for a variety of end-market applications. The Company's management believes that this acquisition will enhance the Company's building products portfolio by adding new specialty product lines and supporting technology.
The closing date purchase price of $178,309 was paid with available cash on hand. This amount is subject to a post-closing working capital adjustment. The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of this acquired business are included in the Vinyls segment. The revenue and earnings of the PFG business included in the consolidated statement of operations since the acquisition date have not been presented separately as they are not material to the Company's consolidated statements of operations for the three and six months ended June 30, 2013. The pro forma impact of this business combination has not been presented as it is not material to the Company's consolidated statements of operations for the three and six months ended June 30, 2013 and 2012.
For the six months ended June 30, 2013, the Company recognized $991 of acquisition-related costs. These costs are included in selling, general and administrative expenses in the consolidated statement of operations for the six months ended June 30, 2013.
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 final determination of fair value for certain assets and liabilities will be completed as soon as the information necessary to complete the analysis is obtained. These amounts will be finalized as soon as possible, but no later than one year from the acquisition date.

12

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

Fair value of consideration transferred:
 
Cash
$
178,309

 
 
Preliminary allocation of consideration transferred to net assets acquired:
 
Accounts receivable (1)
$
17,695

Inventories
25,948

Property, plant and equipment
31,416

Intangible assets:
 
Customer relationships (weighted average life of 15 years)
58,200

Trademarks
5,200

Developed technology (weighted average life of 15 years)
18,900

Other intangibles (weighted average life of 2 years)
300

Current liabilities
(10,595
)
Other liabilities
(26
)
Total identifiable net assets
147,038

Goodwill (2)
31,271

Consideration transferred
$
178,309

_____________
(1)
The fair value of accounts receivable acquired is $17,695, with the gross contractual amount being $17,772. The Company expects $77 to be uncollectible.
(2)
The goodwill recognized is primarily attributable to synergies from the Company's vinyls integration strategy expected to arise from the Company's PFG acquisition, as well as intangible assets that do not qualify for separate recognition. The goodwill is expected to be deductible for income tax purposes. The Company has not yet completed the process of assigning the goodwill to its reporting units.
Supplemental Noncash Investing Cash Flow Information
In conjunction with the acquisition, liabilities assumed consist of the following:
Fair value of assets acquired
$
188,930

Cash paid
(178,309
)
Liabilities assumed
$
10,621


16. Commitments and Contingencies
The Company is subject to environmental laws and regulations that can impose civil and criminal sanctions and that may require it to mitigate the effects of contamination caused by the release or disposal of hazardous substances into the environment. Under one law, an owner or operator of property may be held strictly liable for remediating contamination without regard to whether that person caused the contamination, and without regard to whether the practices that resulted in the contamination were legal at the time they occurred. Because several of the Company's production sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Company.
Contract Disputes with Goodrich and PolyOne. In connection with the 1990 and 1997 acquisitions of the Goodrich Corporation ("Goodrich") chemical manufacturing complex in Calvert City, Kentucky, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated under Goodrich's operations. In 1993, Goodrich spun off the predecessor of PolyOne Corporation ("PolyOne"), and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination.

13

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

In 2003, litigation arose among the Company, Goodrich and PolyOne with respect to the allocation of the cost of remediating contamination at the site. The parties settled this litigation in December 2007 and the case was dismissed. In the settlement the parties agreed that, among other things: (1) PolyOne would pay 100% of the costs (with specified exceptions), net of recoveries or credits from third parties, incurred with respect to environmental issues at the Calvert City site from August 1, 2007 forward; (2) either the Company or PolyOne might, from time to time in the future (but not more than once every five years), institute an arbitration proceeding to adjust that percentage; and (3) the Company and PolyOne would negotiate a new environmental remediation utilities and services agreement to cover the Company's provision to or on behalf of PolyOne of certain environmental remediation services at the site. The current environmental remediation activities at the Calvert City complex do not have a specified termination date but are expected to last for the foreseeable future. The costs incurred by the Company that have been invoiced to PolyOne to provide the environmental remediation services were $2,687 in 2012. By letter dated March 16, 2010, PolyOne notified the Company that it was initiating an arbitration proceeding under the settlement agreement. In this proceeding, PolyOne seeks to readjust the percentage allocation of costs and to recover approximately $1,400 from the Company in reimbursement of previously paid remediation costs. The arbitration is currently stayed.
Administrative Proceedings. There are several administrative proceedings in Kentucky involving the Company, Goodrich and PolyOne related to the same manufacturing complex in Calvert City. In 2003, the Kentucky Environmental and Public Protection Cabinet (the "Cabinet") re-issued Goodrich's Resource Conservation and Recovery Act ("RCRA") permit which requires Goodrich to remediate contamination at the Calvert City manufacturing complex. Both Goodrich and PolyOne challenged various terms of the permit in an attempt to shift Goodrich's clean-up obligations under the permit to the Company. The Company intervened in the proceedings. The Cabinet has suspended all corrective action under the RCRA permit in deference to a remedial investigation and feasibility study ("RIFS") being conducted pursuant to an Administrative Settlement Agreement ("AOC"), which became effective on December 9, 2009. See "Change in Regulatory Regime" below. The proceedings have been postponed. Periodic status conferences will be held to evaluate whether additional proceedings will be required.
Change in Regulatory Regime. In May 2009, the Cabinet sent a letter to the U.S. Environmental Protection Agency ("EPA") requesting the EPA's assistance in addressing contamination at the Calvert City site under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). In its response to the Cabinet also in May 2009, the EPA stated that it concurred with the Cabinet's request and would incorporate work previously conducted under the Cabinet's RCRA authority into the EPA's cleanup efforts under CERCLA. Since 1983, the EPA has been addressing contamination at an abandoned landfill adjacent to the Company's plant which had been operated by Goodrich and which was being remediated pursuant to CERCLA. During the past two years, the EPA has directed Goodrich and PolyOne to conduct additional investigation activities at the landfill and at the Company's plant. In June 2009, the EPA notified the Company that the Company may have potential liability under section 107(a) of CERCLA at its plant site. Liability under section 107(a) of CERCLA is strict and joint and several. The EPA also identified Goodrich and PolyOne, among others, as potentially responsible parties at the plant site. The Company negotiated, in conjunction with the other potentially responsible parties, the AOC and an order to conduct the RIFS. The parties submitted and received EPA approval for a RIFS work plan to implement the AOC. On July 12, 2013, the parties submitted separate draft RIFS reports to the EPA.
Monetary Relief. Except as noted above with respect to the settlement of the contract litigation among the Company, Goodrich and PolyOne, none of the court, the Cabinet nor the EPA has established any allocation of the costs of remediation among the various parties that are involved in the judicial and administrative proceedings discussed above. At this time, the Company is not able to estimate the loss or reasonable possible loss, if any, on the Company's financial statements that could result from the resolution of these proceedings. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the complex would likely be spread out over an extended period. As a result, the Company believes it is unlikely that any remediation costs allocable to it will be material in terms of expenditures made in any individual reporting period.
EPA Audit of Ethylene Units in Lake Charles. During 2007, the EPA conducted an audit of the Company's ethylene units in Lake Charles, Louisiana, with a focus on leak detection and repair ("LDAR"). As a result of the audit, the EPA brought allegations that the Company had violated certain environmental laws and regulations pertaining to LDAR. The Company has settled this matter by paying a cash penalty of $500 in the quarter ended June 30, 2013.

14

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

In addition to the matters described above, the Company is involved in various routine legal proceedings incidental to the conduct of its business. The Company does not believe that any of these routine legal proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.
17. Segment Information
The Company operates in two principal business 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 June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
413,693

 
$
398,023

 
$
834,461

 
$
843,443

Styrene, feedstock and other
 
209,648

 
274,696

 
371,725

 
561,547

Total Olefins
 
623,341

 
672,719

 
1,206,186

 
1,404,990

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
205,104

 
163,623

 
400,350

 
378,006

Building products
 
110,602

 
77,616

 
197,158

 
165,829

Total Vinyls
 
315,706

 
241,239

 
597,508

 
543,835

 
 
$
939,047

 
$
913,958

 
$
1,803,694

 
$
1,948,825

 
 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
 
Olefins
 
$
74,870

 
$
69,443

 
$
145,153

 
$
170,900

Vinyls
 
444

 
388

 
708

 
776

 
 
$
75,314

 
$
69,831

 
$
145,861

 
$
171,676

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
187,661

 
$
155,891

 
$
348,719

 
$
285,098

Vinyls
 
52,906

 
22,583

 
96,569

 
43,665

Corporate and other
 
(5,340
)
 
(7,496
)
 
(16,006
)
 
(12,160
)
 
 
$
235,227

 
$
170,978

 
$
429,282

 
$
316,603

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Olefins
 
$
26,554

 
$
24,070

 
$
49,900

 
$
47,833

Vinyls
 
13,534

 
11,589

 
25,418

 
23,098

Corporate and other
 
122

 
124

 
248

 
246

 
 
$
40,210

 
$
35,783

 
$
75,566

 
$
71,177

 
 
 
 
 
 
 
 
 
Other income (expense), net
 
 
 
 
 
 
 
 
Olefins
 
$
1,151

 
$
1,001

 
$
5,162

 
$
1,957

Vinyls
 
(520
)
 
(272
)
 
(946
)
 
(31
)
Corporate and other
 
(726
)
 
378

 
(792
)
 
528

 
 
$
(95
)
 
$
1,107

 
$
3,424

 
$
2,454

 
 
 
 
 
 
 
 
 

15

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Provision for (benefit from) income taxes
 
 
 
 
 
 
 
 
Olefins
 
$
70,140

 
$
52,345

 
$
125,617

 
$
94,520

Vinyls
 
19,690

 
6,417

 
33,410

 
12,433

Corporate and other
 
(5,857
)
 
2,203

 
(7,108
)
 
994

 
 
$
83,973

 
$
60,965

 
$
151,919

 
$
107,947

 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
 
 
 
 
Olefins
 
$
28,040

 
$
27,821

 
$
78,080

 
$
45,302

Vinyls
 
118,983

 
45,994

 
219,300

 
92,834

Corporate and other
 
66

 
1,851

 
493

 
2,432

 
 
$
147,089

 
$
75,666

 
$
297,873

 
$
140,568

A reconciliation of total segment income from operations to consolidated income before income taxes is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Income from operations
 
$
235,227

 
$
170,978

 
$
429,282

 
$
316,603

Interest expense
 
(5,343
)
 
(11,571
)
 
(11,624
)
 
(23,748
)
Gain from sales of equity securities
 

 
15,952

 

 
15,952

Other (expense) income, net
 
(95
)
 
1,107

 
3,424

 
2,454

Income before income taxes
 
$
229,789

 
$
176,466

 
$
421,082

 
$
311,261

 
 
June 30,
2013
 
December 31,
2012
Total assets
 
 
 
 
Olefins
 
$
1,561,993

 
$
1,439,308

Vinyls
 
1,421,784

 
1,030,912

Corporate and other
 
724,558

 
941,976

 
 
$
3,708,335

 
$
3,412,196

18. Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2013 were as follows:
 
 
Olefins Segment
 
Vinyls Segment
 
Total
Balance at December 31, 2012
 
$
29,990

 
$

 
$
29,990

Goodwill acquired during the period
 

 
31,271

 
31,271

Balance at June 30, 2013
 
$
29,990

 
$
31,271

 
$
61,261

19. Subsequent Events
Subsequent events were evaluated through the date on which the financial statements were issued.


16

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

20. Guarantor Disclosures
The Company's payment obligations under the 3.60% senior notes due 2022 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 the 3.60% senior notes due 2022 in excess of $5,000 (the "Guarantor Subsidiaries"). Each Guarantor Subsidiary is 100% owned by Westlake Chemical Corporation. 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 Guarantor Subsidiaries and the remaining subsidiaries that do not guarantee the 3.60% senior notes due 2022 (the "Non-Guarantor Subsidiaries"), together with consolidating adjustments necessary to present the Company's results on a consolidated basis.

Condensed Consolidating Financial Information as of June 30, 2013
 
 
Westlake
Chemical
Corporation
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
592,311

 
$
3,464

 
$
29,726

 
$

 
$
625,501

Marketable securities
 
29,969

 

 

 

 
29,969

Accounts receivable, net
 
16,924

 
681,485

 
6,087

 
(228,858
)
 
475,638

Inventories
 

 
411,030

 
16,109

 

 
427,139

Prepaid expenses and other
   current assets
 
130

 
18,569

 
2,074

 

 
20,773

Deferred income taxes
 
431

 
21,581

 
91

 

 
22,103

Total current assets
 
639,765

 
1,136,129

 
54,087

 
(228,858
)
 
1,601,123

Property, plant and equipment, net
 

 
1,777,888

 
7,686

 

 
1,785,574

Equity investments
 
2,464,841

 
81,679

 
31,769

 
(2,529,809
)
 
48,480

Other assets, net
 
17,537

 
261,704

 
1,112

 
(7,195
)
 
273,158

Total assets
 
$
3,122,143

 
$
3,257,400

 
$
94,654

 
$
(2,765,862
)
 
$
3,708,335

Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
243,394

 
$
227,969

 
$
9,845

 
$
(234,201
)
 
$
247,007

Accrued liabilities
 
13,332

 
127,893

 
881

 
5,343

 
147,449

Total current liabilities
 
256,726

 
355,862

 
10,726

 
(228,858
)
 
394,456

Long-term debt
 
752,931

 
10,889

 

 

 
763,820

Deferred income taxes
 

 
393,249

 
735

 
(7,195
)
 
386,789

Other liabilities
 

 
50,744

 
40

 

 
50,784

Stockholders' equity
 
2,112,486

 
2,446,656

 
83,153

 
(2,529,809
)
 
2,112,486

Total liabilities and
stockholders' equity
 
$
3,122,143

 
$
3,257,400

 
$
94,654

 
$
(2,765,862
)
 
$
3,708,335



17

Table of Contents
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, 2012
 
 
Westlake
Chemical
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Balance Sheet
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
753,881

 
$
6,973

 
$
29,224

 
$

 
$
790,078

Marketable securities
 
124,873

 

 

 

 
124,873

Accounts receivable, net
 
7,933

 
1,675,274

 
2,959

 
(1,286,007
)
 
400,159

Inventories
 

 
385,140

 
14,158

 

 
399,298

Prepaid expenses and other
   current assets
 
389

 
11,386

 
2,925

 

 
14,700

Deferred income taxes
 
431

 
21,581

 
293

 

 
22,305

Total current assets
 
887,507

 
2,100,354

 
49,559

 
(1,286,007
)
 
1,751,413

Property, plant and equipment, net
 

 
1,502,902

 
7,146

 

 
1,510,048

Equity investments
 
3,018,926

 
65,448

 
32,923

 
(3,073,561
)
 
43,736

Other assets, net
 
17,033

 
94,678

 
1,252

 
(5,964
)
 
106,999

Total assets
 
$
3,923,466

 
$
3,763,382

 
$
90,880

 
$
(4,365,532
)
 
$
3,412,196

Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
1,285,530

 
$
192,443

 
$
13,969

 
$
(1,274,892
)
 
$
217,050

Accrued liabilities
 
12,808

 
178,915

 
852

 
(11,115
)
 
181,460

Total current liabilities
 
1,298,338

 
371,358

 
14,821

 
(1,286,007
)
 
398,510

Long-term debt
 
752,872

 
10,889

 

 

 
763,761

Deferred income taxes
 

 
331,320

 
934

 
(5,964
)
 
326,290

Other liabilities
 

 
51,312

 
67

 

 
51,379

Stockholders' equity
 
1,872,256

 
2,998,503

 
75,058

 
(3,073,561
)
 
1,872,256

Total liabilities and
stockholders' equity
 
$
3,923,466

 
$
3,763,382

 
$
90,880

 
$
(4,365,532
)
 
$
3,412,196




18

Table of Contents
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 June 30, 2013
 
 
Westlake
Chemical
Corporation
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Statement of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$

 
$
928,782

 
$
13,684

 
$
(3,419
)
 
$
939,047

Cost of sales
 

 
657,457

 
11,522

 
(3,419
)
 
665,560

Gross profit
 

 
271,325

 
2,162

 

 
273,487

Selling, general and administrative
   expenses
 
552

 
36,055

 
1,653

 

 
38,260

(Loss) income from operations
 
(552
)
 
235,270

 
509

 

 
235,227

Interest expense
 
(5,332
)
 
(11
)
 

 

 
(5,343
)
Other (expense) income, net
 
(404
)
 
1,638

 
(1,329
)
 

 
(95
)
(Loss) income before income taxes
 
(6,288
)
 
236,897

 
(820
)
 

 
229,789

(Benefit from) provision for income taxes
 
(2,258
)
 
86,401

 
(170
)
 

 
83,973

Equity in net income of subsidiaries
 
149,846