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New words:
applied, assessing, ASU, beginning, CODM, deciding, decision, detail, explanation, FASB, Final, fully, governing, maker, multiple, obtained, permitted, pervasive, prospective, relationship, resolve, restricted, Retrospective, retrospectively, segment, single, slightly, standard, subsidiary, tax, Topic
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currency, favorable, foreign, impacted, integrate, pro, rata
Financial report summary
?Risks
- Risks Inherent in Our Business
- Risks Relating to Our Partnership Structure
- We are substantially dependent on Westlake for our cash flows. If Westlake does not pay us under the terms of the Ethylene Sales Agreement or if our assets fail to perform as intended, we may not have sufficient cash from operations following the establishment of cash reserves and payment of costs and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.
- OpCo is subject to the credit risk of Westlake on a substantial majority of its revenues, and Westlake's leverage and creditworthiness could adversely affect our ability to make distributions to our unitholders.
- OpCo is a restricted subsidiary under certain indentures governing Westlake's senior notes.
- The ethylene sales price charged under the Ethylene Sales Agreement is designed to permit OpCo to cover the substantial majority of its operating costs, but not our public partnership and other OpCo costs, which reduce our net operating profit.
- The fee structure of the Ethylene Sales Agreement may limit OpCo's ability to take advantage of favorable market developments in the future.
- If OpCo is unable to renew or extend the Ethylene Sales Agreement beyond the initial 12-year term or the other agreements with Westlake upon expiration of these agreements, our ability to make distributions in the future could be materially adversely affected and the value of our units could decline.
- OpCo has the right to use the real property underlying Lake Charles Olefins and Calvert City Olefins pursuant to two, 50-year site lease agreements with Westlake. If OpCo is not able to renew the site lease agreements or if the site lease agreements are terminated by Westlake, OpCo may have to relocate Lake Charles Olefins and Calvert City Olefins, abandon the assets or sell the assets to Westlake.
- OpCo depends upon Westlake for numerous services and for its labor force.
- OpCo's ability to receive greater cash flows from increased production may be limited by the Ethylene Sales Agreement.
- Cost reimbursements due to our general partner and Westlake for services provided to us or on our behalf reduce our earnings and therefore our cash available for distribution to our unitholders. The amount and timing of such reimbursements are determined by our general partner.
- The impact and effects of public health crises, pandemics and epidemics could materially adversely affect OpCo's business, financial condition and results of operations.
- Substantially all of OpCo's sales are generated at three facilities located at two sites. Any adverse developments at any of these facilities or sites could have a material adverse effect on our results of operations and therefore our ability to distribute cash to unitholders.
- The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
- If we are unable to make acquisitions from Westlake or third parties on economically acceptable terms, our future growth would be limited, and any acquisitions we make may reduce, rather than increase, our cash generated from operations on a per unit basis.
- Many of our assets have been in service for many years and require significant expenditures to maintain them. As a result, our maintenance or repair costs may increase in the future. In addition, while we establish cash reserves in order to cover turnaround expenditures, the amounts we reserve may not be sufficient to fully cover such expenditures.
- Our production facilities process volatile and hazardous materials that subject us to operating risks that could adversely affect our operating results.
- Our operations and assets are subject to extensive environmental, health and safety laws and regulations.
- Our operations and assets are subject to climate-related risks and uncertainties.
- We are subject to operational and financial risks and liabilities associated with the implementation of and efforts to achieve carbon emission reduction goals.
- Failure to adequately protect critical data and technology systems could materially affect our operations.
- Our variable-rate debt exposes us to increases in interest rates, which could have a material impact on our financial position, results of operation and cash flows, and could reduce the price at which our common units trade.
- A terrorist attack or armed conflict could harm our business.
- Westlake owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including Westlake, may have conflicts of interest with us and have limited duties, and they may favor their own interests to our detriment and that of our unitholders.
- Our general partner has limited its liability regarding our obligations.
- Our partnership agreement replaces our general partner's fiduciary duties to holders of our units.
- Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
- Westlake and other affiliates of our general partner may compete with us.
- Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors, which could reduce the price at which our common units trade.
- Even if holders of our common units are dissatisfied, they cannot currently remove our general partner without its consent.
- Control of our general partner may be transferred to a third party without unitholder consent.
- Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
- The board of directors may modify or revoke our cash distribution policy at any time at its discretion. Our partnership agreement does not require us to pay any distributions at all.
- We expect to distribute a significant portion of our available cash to our partners, which could limit our ability to grow and make acquisitions.
- The holder or holders of our incentive distribution rights may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to the incentive distribution rights, without the approval of the conflicts committee of our board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.
- The incentive distribution rights may be transferred to a third party without unitholder consent.
- We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
- The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by Westlake or other large holders.
- Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
- Unitholders may have liability to repay distributions.
- The tax treatment of publicly-traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
- If the IRS were to contest the U.S. federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce our cash available for distribution to our unitholders.
- Even if unitholders do not receive any cash distributions from us, unitholders will be required to pay taxes on their share of our taxable income.
- Tax gain or loss on the disposition of our common units could be more or less than expected.
- Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
- Non-U.S. Unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our units.
- We treat each purchaser of our common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
- We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
- A unitholder whose units are the subject of a securities loan (e.g., a loan to a "short seller" to cover a short sale of units) may be considered to have disposed of those units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.
- We have adopted certain valuation methodologies in determining a unitholder's allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of our common units.
- Our unitholders will likely be subject to state and local taxes and income tax return filing requirements in jurisdictions where they do not live as a result of investing in our common units.
Management Discussion
- Net Sales. Total net sales decreased by $23.0 million, or 7.5%, to $284.7 million in the first quarter of 2024 from $307.7 million in the first quarter of 2023. The decrease in net sales in the first quarter of 2024 was primarily due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by higher co-products sales volumes. Lower average sales prices in the first quarter of 2024 contributed to a 5.9% decrease in net sales compared to the first quarter of 2023. Lower sales volumes in the first quarter of 2024 contributed to a 1.6% decrease in net sales compared to the first quarter of 2023.