UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2013March 31, 2014 |
or
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¨ | 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)
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| | |
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):
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| | | | | | |
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 November 1, 2013April 29, 2014 was 66,770,803133,429,082 (on a post-split basis).
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
| | (in thousands of dollars, except par values and share amounts) | | (in thousands of dollars, except par values and share amounts) |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 591,556 |
| | $ | 790,078 |
| | $ | 532,643 |
| | $ | 461,301 |
|
Marketable securities | | 125,597 |
| | 124,873 |
| | 243,694 |
| | 239,388 |
|
Accounts receivable, net | | 433,025 |
| | 400,159 |
| | 421,879 |
| | 428,457 |
|
Inventories | | 451,571 |
| | 399,298 |
| | 439,009 |
| | 471,879 |
|
Prepaid expenses and other current assets | | 18,809 |
| | 14,700 |
| | 15,880 |
| | 13,888 |
|
Deferred income taxes | | 22,293 |
| | 22,305 |
| | 34,158 |
| | 34,169 |
|
Total current assets | | 1,642,851 |
| | 1,751,413 |
| | 1,687,263 |
| | 1,649,082 |
|
Property, plant and equipment, net | | 1,952,918 |
| | 1,510,048 |
| | 2,150,643 |
| | 2,088,014 |
|
Equity investments | | 65,488 |
| | 43,736 |
| | 67,560 |
| | 66,875 |
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Other assets, net | |
|
| |
|
| |
|
| |
|
|
Intangible assets, net | | 159,376 |
| | 48,292 |
| | 157,086 |
| | 159,046 |
|
Deferred charges and other assets, net | | 102,816 |
| | 58,707 |
| | 109,404 |
| | 97,892 |
|
Total other assets, net | | 262,192 |
| | 106,999 |
| | 266,490 |
| | 256,938 |
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Total assets | | $ | 3,923,449 |
| | $ | 3,412,196 |
| | $ | 4,171,956 |
| | $ | 4,060,909 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 258,067 |
| | $ | 217,050 |
| | $ | 211,952 |
| | $ | 249,613 |
|
Accrued liabilities | | 174,619 |
| | 181,460 |
| | 147,982 |
| | 155,245 |
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Total current liabilities | | 432,686 |
| | 398,510 |
| | 359,934 |
| | 404,858 |
|
Long-term debt | | 763,849 |
| | 763,761 |
| | 763,909 |
| | 763,879 |
|
Deferred income taxes | | 410,166 |
| | 326,290 |
| | 447,203 |
| | 437,976 |
|
Other liabilities | | 51,691 |
| | 51,379 |
| | 32,338 |
| | 35,593 |
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Total liabilities | | 1,658,392 |
| | 1,539,940 |
| | 1,603,384 |
| | 1,642,306 |
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Commitments and contingencies (Notes 7 and 16) | |
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| |
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Commitments and contingencies (Notes 7 and 15) | | |
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| |
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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; 67,276,761 and 67,187,224 shares issued at September 30, 2013 and December 31, 2012, respectively | | 673 |
| | 672 |
| |
Common stock, held in treasury, at cost; 506,525 and 284,493 shares at September 30, 2013 and December 31, 2012, respectively | | (32,711 | ) | | (13,302 | ) | |
Common stock, $0.01 par value, 150,000,000 shares authorized; 134,682,004 and 134,580,208 shares issued at March 31, 2014 and December 31, 2013, respectively (Note 1) | | | 1,347 |
| | 1,346 |
|
Common stock, held in treasury, at cost; 1,252,922 shares at March 31, 2014 and December 31, 2013 (Note 1) | | | (46,220 | ) | | (46,220 | ) |
Additional paid-in capital | | 509,295 |
| | 496,254 |
| | 519,323 |
| | 511,432 |
|
Retained earnings | | 1,798,721 |
| | 1,399,472 |
| | 2,095,904 |
| | 1,954,661 |
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Accumulated other comprehensive loss | | (10,921 | ) | | (10,840 | ) | | (1,782 | ) | | (2,616 | ) |
Total stockholders' equity | | 2,265,057 |
| | 1,872,256 |
| | 2,568,572 |
| | 2,418,603 |
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Total liabilities and stockholders' equity | | $ | 3,923,449 |
| | $ | 3,412,196 |
| | $ | 4,171,956 |
| | $ | 4,060,909 |
|
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
| | (in thousands of dollars, except per share data and share amounts) | | (in thousands of dollars, except per share data and share amounts) |
Net sales | | $ | 1,004,165 |
| | $ | 821,175 |
| | $ | 2,807,859 |
| | $ | 2,770,000 |
| | $ | 1,027,676 |
| | $ | 864,647 |
|
Cost of sales | | 699,694 |
| | 648,996 |
| | 2,002,092 |
| | 2,223,288 |
| | 740,666 |
| | 636,838 |
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Gross profit | | 304,471 |
| | 172,179 |
| | 805,767 |
| | 546,712 |
| | 287,010 |
| | 227,809 |
|
Selling, general and administrative expenses | | 37,869 |
| | 29,662 |
| | 109,883 |
| | 87,592 |
| | 38,955 |
| | 33,754 |
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Income from operations | | 266,602 |
| | 142,517 |
| | 695,884 |
| | 459,120 |
| | 248,055 |
| | 194,055 |
|
Other income (expense) | | | | | | | | | | | | |
Interest expense | | (3,297 | ) | | (11,934 | ) | | (14,921 | ) | | (35,682 | ) | | (9,157 | ) | | (6,281 | ) |
Debt retirement costs | | — |
| | (7,082 | ) | | — |
| | (7,082 | ) | |
Gain from sales of equity securities | | — |
| | 477 |
| | — |
| | 16,429 |
| |
Other (expense) income, net | | (287 | ) | | 1,222 |
| | 3,137 |
| | 3,676 |
| |
Other income, net | | | 2,509 |
| | 3,519 |
|
Income before income taxes | | 263,018 |
| | 125,200 |
| | 684,100 |
| | 436,461 |
| | 241,407 |
| | 191,293 |
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Provision for income taxes | | 92,728 |
| | 38,236 |
| | 244,647 |
| | 146,183 |
| | 83,375 |
| | 67,946 |
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Net income | | $ | 170,290 |
| | $ | 86,964 |
| | $ | 439,453 |
| | $ | 290,278 |
| | $ | 158,032 |
| | $ | 123,347 |
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Earnings per share: | | | | | | | | | |
Earnings per share (Note 1): | | | | | |
Basic | | $ | 2.55 |
| | $ | 1.30 |
| | $ | 6.57 |
| | $ | 4.36 |
| | $ | 1.18 |
| | $ | 0.92 |
|
Diluted | | $ | 2.54 |
| | $ | 1.30 |
| | $ | 6.54 |
| | $ | 4.33 |
| | $ | 1.18 |
| | $ | 0.92 |
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Weighted average shares outstanding: | | | | | | | | | |
Weighted average shares outstanding (Note 1): | | | | | |
Basic | | 66,628,747 |
| | 66,311,958 |
| | 66,628,027 |
| | 66,240,225 |
| | 133,072,254 |
| | 133,251,071 |
|
Diluted | | 66,905,554 |
| | 66,656,760 |
| | 66,903,379 |
| | 66,621,520 |
| | 133,612,924 |
| | 133,817,737 |
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Dividends per common share | | $ | 0.2250 |
| | $ | 0.1875 |
| | $ | 0.6000 |
| | $ | 0.3350 |
| |
Dividends per common share (Note 1) | | | $ | 0.1260 |
| | $ | 0.0938 |
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The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
| | (in thousands of dollars) | | (in thousands of dollars) |
Net income | | $ | 170,290 |
| | $ | 86,964 |
| | $ | 439,453 |
| | $ | 290,278 |
| | $ | 158,032 |
| | $ | 123,347 |
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Other comprehensive (loss) income | | | | | | | | | |
Other comprehensive income (loss), net of income taxes | | | | | |
Pension and other post-retirement benefits liability | | | | | | | | | | | | |
Pension and other post-retirement reserves adjustment (excluding amortization) | | (489 | ) | | 72 |
| | (978 | ) | | 142 |
| |
Amortization of benefits liability | | 695 |
| | 584 |
| | 2,004 |
| | 1,747 |
| | 219 |
| | 614 |
|
Income tax provision on pension and other post-retirement benefits liability | | (78 | ) | | (252 | ) | | (394 | ) | | (725 | ) | | (84 | ) | | (236 | ) |
Foreign currency translation adjustments | | 546 |
| | 865 |
| | (844 | ) | | 928 |
| | (898 | ) | | (570 | ) |
Reclassification of net cash flow hedge losses to net income, net of income tax benefit | | — |
| | 521 |
| | — |
| | — |
| |
Available-for-sale investments | | | | | | | | | | | | |
Unrealized holding gains on investments | | 205 |
| | 339 |
| | 205 |
| | 14,582 |
| | 2,467 |
| | — |
|
Income tax provision on unrealized holding gains | | (74 | ) | | (121 | ) | | (74 | ) | | (5,229 | ) | |
Reclassification of net realized gain to net income | | — |
| | (306 | ) | | — |
| | (10,538 | ) | |
Reclassification of net realized loss to net income | | | 25 |
| | — |
|
Income tax provision on available-for-sale investments | | | (895 | ) | | — |
|
Other comprehensive income (loss) | | 805 |
| | 1,702 |
| | (81 | ) | | 907 |
| | 834 |
| | (192 | ) |
Comprehensive income | | $ | 171,095 |
| | $ | 88,666 |
| | $ | 439,372 |
| | $ | 291,185 |
| | $ | 158,866 |
| | $ | 123,155 |
|
The accompanying notes are an integral part of these consolidated financial statements.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2014 | | 2013 |
| | (in thousands of dollars) | | (in thousands of dollars) |
Cash flows from operating activities | | | | | | | | |
Net income | | $ | 439,453 |
| | $ | 290,278 |
| | $ | 158,032 |
| | $ | 123,347 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
Depreciation and amortization | | 116,294 |
| | 109,601 |
| | 45,972 |
| | 35,356 |
|
Provision for (recovery of) doubtful accounts | | 3,600 |
| | (536 | ) | |
(Recovery of) provision for doubtful accounts | | | (144 | ) | | 393 |
|
Amortization of debt issuance costs | | 1,093 |
| | 1,149 |
| | 365 |
| | 365 |
|
Stock-based compensation expense | | 4,804 |
| | 4,640 |
| | 2,222 |
| | 1,499 |
|
Loss from disposition of fixed assets | | 4,679 |
| | 1,945 |
| | 855 |
| | 2,387 |
|
Gain from sales of equity securities | | — |
| | (16,429 | ) | |
Write-off of debt issuance costs | | — |
| | 1,277 |
| |
Deferred income taxes | | 83,443 |
| | 4,385 |
| | 8,275 |
| | 29,466 |
|
Windfall tax benefits from share-based payment arrangements | | (5,056 | ) | | (7,792 | ) | | (3,512 | ) | | (3,844 | ) |
Equity in loss of joint ventures | | 1,586 |
| | 2,567 |
| |
Income from equity method investments, net of dividends | | | (685 | ) | | (178 | ) |
Other loss, net | | | 444 |
| | — |
|
Changes in operating assets and liabilities | | | | | | | | |
Accounts receivable | | (18,874 | ) | | 13,732 |
| | 5,332 |
| | (7,917 | ) |
Inventories | | (26,325 | ) | | 119,240 |
| | 32,870 |
| | (8,776 | ) |
Prepaid expenses and other current assets | | (5,038 | ) | | (1,977 | ) | | (1,478 | ) | | (2,077 | ) |
Accounts payable | | 19,518 |
| | (35,651 | ) | | (29,706 | ) | | 14,733 |
|
Accrued liabilities | | (15,755 | ) | | 20,077 |
| | (4,952 | ) | | (14,670 | ) |
Other, net | | (55,922 | ) | | (13,675 | ) | | (1,385 | ) | | (53,832 | ) |
Net cash provided by operating activities | | 547,500 |
| | 492,831 |
| | 212,505 |
| | 116,252 |
|
Cash flows from investing activities | | | | | | | | |
Acquisition of business | | (178,309 | ) | | — |
| |
Additions to equity investments | | (23,338 | ) | | — |
| |
Additions to property, plant and equipment | | (498,290 | ) | | (235,463 | ) | | (110,741 | ) | | (150,784 | ) |
Construction of assets pending sale-leaseback | | (136 | ) | | (5,484 | ) | |
Proceeds from disposition of assets | | 78 |
| | 435 |
| | 12 |
| | 2 |
|
Proceeds from repayment of loan to affiliate | | 167 |
| | 763 |
| | — |
| | 167 |
|
Proceeds from sales and maturities of securities | | 239,764 |
| | 47,655 |
| | 30,119 |
| | 124,873 |
|
Purchase of securities | | (232,286 | ) | | (2,961 | ) | | (49,025 | ) | | (94,903 | ) |
Settlements of derivative instruments | | (2,297 | ) | | 471 |
| | (409 | ) | | (679 | ) |
Net cash used for investing activities | | (694,647 | ) | | (194,584 | ) | | (130,044 | ) | | (121,324 | ) |
Cash flows from financing activities | | | | | | | | |
Capitalized debt issuance costs | | — |
| | (2,221 | ) | |
Dividends paid | | (40,204 | ) | | (22,345 | ) | | (16,789 | ) | | (12,553 | ) |
Proceeds from debt issuance | | — |
| | 248,818 |
| |
Proceeds from exercise of stock options | | 3,182 |
| | 6,627 |
| | 2,158 |
| | 1,590 |
|
Repayment of debt | | — |
| | (250,000 | ) | |
Repurchase of common stock for treasury | | (19,409 | ) | | (10,784 | ) | |
Utilization of restricted cash | | — |
| | 96,433 |
| |
Windfall tax benefits from share-based payment arrangements | | 5,056 |
| | 7,792 |
| | 3,512 |
| | 3,844 |
|
Net cash (used for) provided by financing activities | | (51,375 | ) | | 74,320 |
| |
Net (decrease) increase in cash and cash equivalents | | (198,522 | ) | | 372,567 |
| |
Net cash used for financing activities | | | (11,119 | ) | | (7,119 | ) |
Net increase (decrease) in cash and cash equivalents | | | 71,342 |
| | (12,191 | ) |
Cash and cash equivalents at beginning of period | | 790,078 |
| | 825,901 |
| | 461,301 |
| | 790,078 |
|
Cash and cash equivalents at end of period | | $ | 591,556 |
| | $ | 1,198,468 |
| | $ | 532,643 |
| | $ | 777,887 |
|
The accompanying notes are an integral part of these consolidated financial statements.
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, 20122013 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, 20122013 (the "20122013 Form 10-K"), filed with the SEC on February 22, 2013.21, 2014. 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, 20122013.
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, 2013March 31, 2014, its results of operations for the three and ninethree months ended September 30,March 31, 2014 and 2013 and 2012 and the changes in its cash position for the ninethree months ended September 30,March 31, 2014 and 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, 20132014 or any other interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Revisions
The consolidated statement of cash flows for the nine months ended September 30, 2012 has been revised to correct the presentation of windfall tax benefits from share-based compensation of $7,792 in financing activities, instead of operating activities. The Company has determined that this revision was immaterial toOn February 14, 2014, the Company's previously issuedBoard of Directors authorized a two-for-one split of the Company's common stock. Stockholders of record as of February��28, 2014 were entitled to one additional share for every share outstanding, which was distributed on March 18, 2014. The total number of authorized common stock shares and associated par value were unchanged by this stock split. All share amounts and per share data included in the accompanying consolidated financial statements.statements and related notes have been restated to reflect the effect of the stock split.
Recent Accounting Pronouncements
Disclosures about Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB")There are no recently issued an accounting standards update on disclosures for offsetting assets and liabilities. The new accounting guidance requires companieswhich are expected 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 Impairment2. Financial Instruments
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. Cash Equivalents
The Company adopted the new indefinite-lived intangible assets test guidancehad $411,527 and $263,967 of held-to-maturity securities with original maturities of three months or less, primarily consisting of corporate debt securities, classified as of January 1,cash equivalents at March 31, 2014 and December 31, 2013 and the adoption did not have a material impact on the, respectively. The Company's consolidated financial position, results of operations or cash flows.investments in held-to-maturity securities are held at amortized cost, which approximates fair value.
Available-for-Sale Marketable Securities
Investments in available-for-sale securities were classified as follows:
|
| | | | | | | |
| March 31, 2014 | | December 31, 2013 |
Current | $ | 243,694 |
| | $ | 239,388 |
|
Non-current | 17,195 |
| | — |
|
Total available-for-sale securities | $ | 260,889 |
| | $ | 239,388 |
|
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’s investments in current marketable securities were classified as follows:
|
| | | | | | | |
| September 30, 2013 | | December 31, 2012 |
Available-for-sale securities | $ | 120,602 |
| | $ | — |
|
Held-to-maturity securities | 4,995 |
| | 124,873 |
|
Marketable securities | $ | 125,597 |
| | $ | 124,873 |
|
Available-for-Sale Securities
The cost, gross unrealized gains, gross unrealized losses and fair value of the Company’s available-for-sale securities were as follows:
| | | | September 30, 2013 | | March 31, 2014 |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses (1) | | Fair Value | | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses (1) | | Fair Value |
Debt securities | | | | | | | | | | | | | | | | |
Corporate bonds | | $ | 11,888 |
| | $ | 191 |
| | $ | (21 | ) | | $ | 12,058 |
| | $ | 116,669 |
| | $ | 470 |
| | $ | (41 | ) | | $ | 117,098 |
|
U.S. government debt (2) | | 26,400 |
| | 23 |
| | (6 | ) | | 26,417 |
| | 102,201 |
| | 133 |
| | (46 | ) | | 102,288 |
|
Asset-backed securities | | 82,109 |
| | 27 |
| | (9 | ) | | 82,127 |
| | 24,268 |
| | 47 |
| | (7 | ) | | 24,308 |
|
Equity securities | | | 14,985 |
| | 2,210 |
| | — |
| | 17,195 |
|
Total available-for-sale securities | | $ | 120,397 |
| | $ | 241 |
| | $ | (36 | ) | | $ | 120,602 |
| | $ | 258,123 |
| | $ | 2,860 |
| | $ | (94 | ) | | $ | 260,889 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2013 |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses (1) | | Fair Value |
Debt securities | | | | | | | | |
Corporate bonds | | $ | 108,300 |
| | $ | 340 |
| | $ | (69 | ) | | $ | 108,571 |
|
U.S. government debt (2) | | 106,335 |
| | 60 |
| | (79 | ) | | 106,316 |
|
Asset-backed securities | | 24,478 |
| | 34 |
| | (11 | ) | | 24,501 |
|
Total available-for-sale securities | | $ | 239,113 |
| | $ | 434 |
| | $ | (159 | ) | | $ | 239,388 |
|
_____________
| |
(1) | All unrealized loss positions were held at a loss for less than 12 months. |
| |
(2) | U.S. Treasury obligations, U.S. government agency obligations and U.S government agency mortgage-backed securities. |
As of September 30,March 31, 2014 and December 31, 2013, net unrealized gains on the Company's available-for-sale securities of $1311,773, and $176, respectively, net of income tax expense of $74993, and $99, respectively, were recorded in accumulated other comprehensive income. See Note 10 for the fair value hierarchy of the Company’s available-for-sale securities.
As of September 30, 2013March 31, 2014, the corporate bond securities held by the Company had maturities between one month to five years,years; U.S. government debt securities, excluding U.S. government agency mortgage-backed securities, had maturities of less thanbetween one month to onefour year,years; U.S. government agency mortgage-backed securities had maturities between fourone to 2629 yearsyears; and asset-backed securities had maturities between twoone to fivesix years.
Held-to-Maturity SecuritiesThe Company owned held-to-maturityproceeds from sales and maturities of available-for-sale securities and the gross realized gains and losses included in the consolidated statement of $4,995 and $124,873 at September 30, 2013 and December 31, 2012, respectively, consistingoperations are reflected in the table below. The cost of short-term corporate debt securities withsold was determined using the specific identification method. There were no sales or maturities exceedingof available-for-sale securities during the three months at the date of acquisition. These debt securities are carried at amortized cost, which approximates their fair value.ended March 31, 2013.
|
| | | | |
| | Three Months Ended March 31, |
| | 2014 |
Proceeds from sales and maturities of securities | | $ | 30,119 |
|
Gross realized gains | | 13 |
|
Gross realized losses | | (38 | ) |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
3. Accounts Receivable
Accounts receivable consist of the following:
| | | | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
Trade customers | | $ | 404,678 |
| | $ | 388,949 |
| | $ | 415,812 |
| | $ | 410,302 |
|
Affiliates | | 333 |
| | 258 |
| | 287 |
| | 315 |
|
Allowance for doubtful accounts | | (9,832 | ) | | (11,172 | ) | | (11,592 | ) | | (11,741 | ) |
| | 395,179 |
| | 378,035 |
| | 404,507 |
| | 398,876 |
|
Federal and state taxes | | 20,421 |
| | 4,011 |
| | 5,248 |
| | 20,820 |
|
Other | | 17,425 |
| | 18,113 |
| | 12,124 |
| | 8,761 |
|
Accounts receivable, net | | $ | 433,025 |
| | $ | 400,159 |
| | $ | 421,879 |
| | $ | 428,457 |
|
4. Inventories
Inventories consist of the following:
| | | | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
Finished products | | $ | 198,762 |
| | $ | 200,940 |
| | $ | 240,339 |
| | $ | 232,658 |
|
Feedstock, additives and chemicals | | 194,558 |
| | 143,912 |
| | 139,189 |
| | 180,646 |
|
Materials and supplies | | 58,251 |
| | 54,446 |
| | 59,481 |
| | 58,575 |
|
Inventories | | $ | 451,571 |
| | $ | 399,298 |
| | $ | 439,009 |
| | $ | 471,879 |
|
5. Property, Plant and Equipment
As of September 30, 2013March 31, 2014, the Company had property, plant and equipment, net totaling $1,952,9182,150,643. 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 $32,46038,061 and $30,05530,920 is included in cost of sales in the consolidated statements of operations for the three months ended September 30,March 31, 2014 and 2013 and 2012, respectively. Depreciation expense on property, plant and equipment of $95,995 and $90,615 is included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2013 and 2012, respectively.
6. Other Assets
Goodwill for the Olefins segment was $29,990 at March 31, 2014 and December 31, 2013. Goodwill for the Vinyls segment was $32,026 at March 31, 2014 and December 31, 2013. There were no changes in the carrying amount of goodwill by operating segments for the three months ended March 31, 2014.
Amortization expense on intangible and other assets of $8,6348,276 and $8,7174,801 is included in the consolidated statements of operations for the three months ended September 30,March 31, 2014 and 2013 and 2012, respectively. Amortization expense on intangible and other assets of $21,392 and $20,135 is included in the consolidated statements of operations for the nine months ended September 30, 2013 and 2012, respectively.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
7. Long-Term Debt
Long-term debt consists of the following:
| | | | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
3.60% senior notes due 2022 | | $ | 248,960 |
| | $ | 248,872 |
| | $ | 249,020 |
| | $ | 248,990 |
|
6 ½% senior notes due 2029 | | 100,000 |
| | 100,000 |
| | 100,000 |
| | 100,000 |
|
6 ¾% senior notes due 2032 | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 250,000 |
|
6 ½% senior notes due 2035 (the "6 ½% GO Zone Senior Notes Due 2035") | | 89,000 |
| | 89,000 |
| | 89,000 |
| | 89,000 |
|
6 ½% senior notes due 2035 (the "6 ½% IKE Zone Senior Notes Due 2035") | | 65,000 |
| | 65,000 |
| | 65,000 |
| | 65,000 |
|
Loan related to tax-exempt waste disposal revenue bonds due 2027 | | 10,889 |
| | 10,889 |
| | 10,889 |
| | 10,889 |
|
Long-term debt, net | | $ | 763,849 |
| | $ | 763,761 |
| | $ | 763,909 |
| | $ | 763,879 |
|
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 September 30, 2013March 31, 2014, 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 September 30, 2013March 31, 2014, 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 $1,6802,222 and $1,5151,499 for the three months ended September 30,March 31, 2014 and 2013 and 2012, respectively, and $4,804 and $4,640 for the nine months ended September 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 statementsstatement of operations for the three and nine months ended September 30, 2013 and 2012. As of September 30, 2013, theMarch 31, 2013. The Company had 10,710,000 gallons of feedstock forward contractsno derivative instruments that were designated as fair value hedges.hedges for the three months ended March 31, 2014.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of salesgross profit in the consolidated statements of operations for the three and ninethree months ended September 30,March 31, 2014 and 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
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
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
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
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 September 30, 2013March 31, 2014 and December 31, 20122013.
The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:
| | | | Derivative Assets | | Derivative Assets |
| | Balance Sheet Location | | Fair Value as of | | Balance Sheet Location | | Fair Value as of |
| | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
Designated as hedging instruments | | | | | |
Commodity forward contracts | | Accounts receivable, net | | $ | 3,208 |
| | $ | 13,032 |
| |
Not designated as hedging instruments | | | | | | | | |
Commodity forward contracts | | Accounts receivable, net | | 2,541 |
| | 1,395 |
| | Accounts receivable, net | | $ | 248 |
| | $ | 296 |
|
Total derivative assets | | $ | 5,749 |
| | $ | 14,427 |
| | $ | 248 |
| | $ | 296 |
|
| | | | Derivative Liabilities | | Derivative Liabilities |
| | Balance Sheet Location | | Fair Value as of | | Balance Sheet Location | | Fair Value as of |
| | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
Designated as hedging instruments | | | | | |
Commodity forward contracts | | Accrued liabilities | | $ | — |
| | $ | 399 |
| |
Not designated as hedging instruments | | | | | | | | |
Commodity forward contracts | | Accrued liabilities | | 2,090 |
| | 13,295 |
| | Accrued liabilities | | $ | 54 |
| | $ | 176 |
|
Total derivative liabilities | | $ | 2,090 |
| | $ | 13,694 |
| | $ | 54 |
| | $ | 176 |
|
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 nine months ended September 30,March 31, 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 September 30, | | Nine Months Ended September 30, | | Location of Gain (Loss) Recognized in Income on Derivative | | Three Months Ended March 31, |
2013 | | 2012 | | 2013 | | 2012 | 2014 | | 2013 |
Commodity forward contracts | | Cost of sales | | $ | (232 | ) | | $ | (515 | ) | | $ | (342 | ) | | $ | 12,345 |
| | Cost of sales | | $ | — |
| | $ | (1,643 | ) |
| | | | | | | | | | | | |
Hedged Items in Fair Value Hedging Relationships | | Location of Gain (Loss) Recognized in Income on Hedged Items | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Location of Gain (Loss) Recognized in Income on Hedged Items | | Three Months Ended March 31, |
2013 | | 2012 | | 2013 | | 2012 | 2014 | | 2013 |
Firm commitment designated as the hedged item | | Cost of sales | | $ | 236 |
| | $ | 515 |
| | $ | 15 |
| | $ | (13,546 | ) | | Cost of sales | | $ | — |
| | $ | 1,395 |
|
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 September 30, | | Nine Months Ended September 30, | | Location of Gain (Loss) Recognized in Income on Derivative | | Three Months Ended March 31, |
2013 | | 2012 | | 2013 | | 2012 | 2014 | | 2013 |
Commodity forward contracts | | Cost of sales | | $ | 4,854 |
| | $ | 249 |
| | $ | 9,897 |
| | $ | (783 | ) | | Gross profit | | $ | (611 | ) | | $ | 7,335 |
|
See Note 10 for the fair value of the Company's derivative instruments.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
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:
|
| | | | | | | | | | | | |
| | September 30, 2013 |
| | Level 1 | | Level 2 | | Total |
Derivative instruments | | | | | | |
Risk management assets - Commodity forward contracts | | $ | 1,808 |
| | $ | 3,941 |
| | $ | 5,749 |
|
Risk management liabilities - Commodity forward contracts | | (74 | ) | | (2,016 | ) | | (2,090 | ) |
Firm commitments | | | | | | |
Hedged portion of firm commitment | | — |
| | (3,208 | ) | | (3,208 | ) |
Marketable securities | | | | | | |
Available-for-sale securities | | 14,998 |
| | 105,604 |
| | 120,602 |
|
| | | | | | |
| | 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 | ) |
|
| | | | | | | | | | | | |
| | March 31, 2014 |
| | Level 1 | | Level 2 | | Total |
Derivative instruments | | | | | | |
Risk management assets - Commodity forward contracts | | $ | — |
| | $ | 248 |
| | $ | 248 |
|
Risk management liabilities - Commodity forward contracts | | — |
| | (54 | ) | | (54 | ) |
Available-for-sale marketable securities | | 100,603 |
| | 160,286 |
| | 260,889 |
|
| | | | | | |
| | December 31, 2013 |
| | Level 1 | | Level 2 | | Total |
Derivative instruments | | | | | | |
Risk management assets - Commodity forward contracts | | $ | 48 |
| | $ | 248 |
| | $ | 296 |
|
Risk management liabilities - Commodity forward contracts | | — |
| | (176 | ) | | (176 | ) |
Available-for-sale marketable securities | | 91,595 |
| | 147,793 |
| | 239,388 |
|
The Level 2 measurements for the Company's commodity contracts are derived using forward curves supplied by industry-recognized and unrelated third-party services. The Level 2 measurements for the Company's available-for-sale securities are derived using market-based pricing provided by unrelated third-party services.
There were no transfers in andor out of Levels 1 and 2 of the fair value hierarchy for the ninethree months ended September 30,March 31, 2014 and 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. The amounts reported in the consolidated balance sheets for cash and cash equivalents, 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.
|
| | | | | | | | | | | | | | | | |
| | March 31, 2014 | | December 31, 2013 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
3.60% senior notes due 2022 | | $ | 249,020 |
| | $ | 242,600 |
| | $ | 248,990 |
| | $ | 236,905 |
|
6 ½% senior notes due 2029 | | 100,000 |
| | 113,000 |
| | 100,000 |
| | 109,490 |
|
6 ¾% senior notes due 2032 | | 250,000 |
| | 281,775 |
| | 250,000 |
| | 265,148 |
|
6 ½% GO Zone Senior Notes Due 2035 | | 89,000 |
| | 101,238 |
| | 89,000 |
| | 94,606 |
|
6 ½% IKE Zone Senior Notes Due 2035 | | 65,000 |
| | 73,938 |
| | 65,000 |
| | 69,094 |
|
Loan related to tax-exempt waste disposal revenue bonds due 2027 | | 10,889 |
| | 10,889 |
| | 10,889 |
| | 10,889 |
|
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
|
| | | | | | | | | | | | | | | | |
| | September 30, 2013 | | December 31, 2012 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
3.60% senior notes due 2022 | | $ | 248,960 |
| | $ | 238,228 |
| | $ | 248,872 |
| | $ | 251,125 |
|
6 ½% senior notes due 2029 | | 100,000 |
| | 107,800 |
| | 100,000 |
| | 119,738 |
|
6 ¾% senior notes due 2032 | | 250,000 |
| | 267,465 |
| | 250,000 |
| | 283,168 |
|
6 ½% GO Zone Senior Notes Due 2035 | | 89,000 |
| | 94,209 |
| | 89,000 |
| | 102,095 |
|
6 ½% IKE Zone Senior Notes Due 2035 | | 65,000 |
| | 68,804 |
| | 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 35.8%34.5% for the ninethree months ended September 30,March 31, 2014. The effective income tax rate for the 2014 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. The effective income tax rate was 35.5% for the three months ended March 31, 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 33.5% for the nine months ended September 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, partially offset by state income taxes.
There was no material change to the total gross unrecognized tax benefits for the ninethree months ended September 30, 2013March 31, 2014. Management anticipates reductions tothat all of the total amount ofgross unrecognized tax benefits of an additional $6212,501 will be recognized within the next twelve months due to expiring statutes of limitations. The impact from the recognition of these tax benefits on the Company's effective tax rate is expected to be immaterial.
The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense. As of September 30, 2013March 31, 2014, 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Net income | | $ | 170,290 |
| | $ | 86,964 |
| | $ | 439,453 |
| | $ | 290,278 |
| | $ | 158,032 |
| | $ | 123,347 |
|
Less: | | | | | | | | | | | | |
Net income attributable to participating securities | | (587 | ) | | (452 | ) | | (1,691 | ) | | (1,682 | ) | | (384 | ) | | (568 | ) |
Net income attributable to common shareholders | | $ | 169,703 |
| | $ | 86,512 |
| | $ | 437,762 |
| | $ | 288,596 |
| | $ | 157,648 |
| | $ | 122,779 |
|
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 March 31, |
| | 2014 | | 2013 |
Weighted average common shares—basic (1) | | 133,072,254 |
| | 133,251,071 |
|
Plus incremental shares from: | | | | |
Assumed exercise of options (1) | | 540,670 |
| | 566,666 |
|
Weighted average common shares—diluted (1) | | 133,612,924 |
| | 133,817,737 |
|
| | | | |
Earnings per share: (1) | | | | |
Basic | | $ | 1.18 |
| | $ | 0.92 |
|
Diluted | | $ | 1.18 |
| | $ | 0.92 |
|
_____________
| |
(1) | Share amounts and per share data for the three months ended March 31, 2013 have been restated to reflect the effect of a two-for-one stock split on March 18, 2014. See Note 1 for additional information. |
Excluded from the computation of diluted earnings per share are options to purchase 69,662 and 72,776 shares of common stock for the three months ended March 31, 2014 and 2013, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.
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, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Weighted average common shares—basic | | 66,628,747 |
| | 66,311,958 |
| | 66,628,027 |
| | 66,240,225 |
|
Plus incremental shares from: | | | | | | | | |
Assumed exercise of options | | 276,807 |
| | 344,802 |
| | 275,352 |
| | 381,295 |
|
Weighted average common shares—diluted | | 66,905,554 |
| | 66,656,760 |
| | 66,903,379 |
| | 66,621,520 |
|
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 2.55 |
| | $ | 1.30 |
| | $ | 6.57 |
| | $ | 4.36 |
|
Diluted | | $ | 2.54 |
| | $ | 1.30 |
| | $ | 6.54 |
| | $ | 4.33 |
|
Excluded from the computation of diluted earnings per share are options to purchase 68,662 and 168,362 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 57,759 and 293,062 shares of common stock for the nine months ended September 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | Pension | | Post-retirement Healthcare | | Pension | | Post-retirement Healthcare | | Pension | | Post-retirement Healthcare |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
Service cost | | $ | 275 |
| | $ | 250 |
| | $ | 2 |
| | $ | 2 |
| | $ | 815 |
| | $ | 754 |
| | $ | 7 |
| | $ | 7 |
| | $ | 84 |
| | $ | 264 |
| | $ | 5 |
| | $ | 2 |
|
Interest cost | | 515 |
| | 645 |
| | 147 |
| | 185 |
| | 1,531 |
| | 1,936 |
| | 442 |
| | 555 |
| | 595 |
| | 501 |
| | 181 |
| | 147 |
|
Expected return on plan assets | | (713 | ) | | (623 | ) | | — |
| | — |
| | (2,140 | ) | | (1,867 | ) | | — |
| | — |
| | (809 | ) | | (714 | ) | | — |
| | — |
|
Amortization of prior service cost | | 74 |
| | 74 |
| | 21 |
| | 21 |
| | 223 |
| | 223 |
| | 63 |
| | 63 |
| | 74 |
| | 74 |
| | 13 |
| | 21 |
|
Amortization of net loss | | 510 |
| | 445 |
| | 90 |
| | 44 |
| | 1,449 |
| | 1,329 |
| | 269 |
| | 132 |
| | 63 |
| | 429 |
| | 69 |
| | 90 |
|
Net periodic benefit cost | | $ | 661 |
| | $ | 791 |
| | $ | 260 |
| | $ | 252 |
| | $ | 1,878 |
| | $ | 2,375 |
| | $ | 781 |
| | $ | 757 |
| | $ | 7 |
| | $ | 554 |
| | $ | 268 |
| | $ | 260 |
|
The Company contributed $776 and $2,283388 to the Salaried pension plan in the first ninethree months of 2013 and 20122014, respectively, and contributed $640290 and $1,54260 to the Wage pension plan in the first ninethree months of 20132014 and 20122013, respectively. The Company did not contribute to the Salaried pension plan in the first three months of 2013. The Company expects to make additional contributions of $3882,389 to the Salaried pension plan and $290916 to the Wage pension plan during the fiscal year ending December 31, 20132014.
14. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2014 and 2013 were as follows:
|
| | | | | | | | | | | | | | | | |
| | Benefits Liability, Net of Tax | | Cumulative Foreign Currency Exchange | | Net Unrealized Holding Gains on Investments, Net of Tax | | Total |
Balances at December 31, 2013 | | $ | (6,696 | ) | | $ | 3,904 |
| | $ | 176 |
| | $ | (2,616 | ) |
Other comprehensive (loss) income before reclassifications | | — |
| | (898 | ) | | 1,581 |
| | 683 |
|
Amounts reclassified from accumulated other comprehensive loss | | 135 |
| | — |
| | 16 |
| | 151 |
|
Net other comprehensive income (loss) for the period | | 135 |
| | (898 | ) | | 1,597 |
| | 834 |
|
Balances at March 31, 2014 | | $ | (6,561 | ) | | $ | 3,006 |
| | $ | 1,773 |
| | $ | (1,782 | ) |
|
| | | | | | | | | | | | |
| | 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 | | — |
| | (570 | ) | | (570 | ) |
Amounts reclassified from accumulated other comprehensive loss | | 378 |
| | — |
| | 378 |
|
Net other comprehensive income (loss) for the period | | 378 |
| | (570 | ) | | (192 | ) |
Balances at March 31, 2013 | | $ | (15,973 | ) | | $ | 4,941 |
| | $ | (11,032 | ) |
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
14. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2013 were as follows:
|
| | | | | | | | | | | | | | | | |
| | Benefits Liability, Net of Tax | | Cumulative Foreign Currency Exchange | | Net Unrealized Holding Gains on Investments, Net of Tax | | Total |
Balances at December 31, 2012 | | $ | (16,351 | ) | | $ | 5,511 |
| | $ | — |
| | $ | (10,840 | ) |
Other comprehensive (loss) income before reclassifications | | (601 | ) | | (844 | ) | | 131 |
| | (1,314 | ) |
Amounts reclassified from accumulated other comprehensive loss | | 1,233 |
| | — |
| | — |
| | 1,233 |
|
Net other comprehensive income (loss) for the period | | 632 |
| | (844 | ) | | 131 |
| | (81 | ) |
Balances at September 30, 2013 | | $ | (15,719 | ) | | $ | 4,667 |
| | $ | 131 |
| | $ | (10,921 | ) |
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 ninethree months ended September 30,March 31, 2014 and 2013:
| | Details about Accumulated Other Comprehensive Income (Loss) Components | | | Location of Reclassification (Income (Expense)) in Consolidated Statements of Operations | | Three Months Ended March 31, |
| Location of Reclassification (Income (Expense)) in Consolidated Statements of Operations | | Three Months Ended September 30, 2013 | | Nine Months Ended September 30, 2013 | | 2014 | | 2013 |
Amortization of pension and other post-retirement items | | | | | | | | |
Prior service costs | | (1) | | $ | (95 | ) | | $ | (286 | ) | | (1) | | $ | (87 | ) | | $ | (95 | ) |
Net loss | | (1) | | (600 | ) | | (1,718 | ) | | (1) | | (132 | ) | | (519 | ) |
| | (695 | ) | | (2,004 | ) | | (219 | ) | | (614 | ) |
| | Provision for income taxes | | 267 |
| | 771 |
| | Provision for income taxes | | 84 |
| | 236 |
|
| | | (135 | ) | | (378 | ) |
Net unrealized gains on available-for-sale investments | | | | | |
Realized loss on available-for-sale investments | | | Other income, net | | (25 | ) | | — |
|
| | | Provision for income taxes | | 9 |
| | — |
|
| | | (16 | ) | | — |
|
Total reclassifications for the period | | $ | (428 | ) | | $ | (1,233 | ) | | $ | (151 | ) | | $ | (378 | ) |
_____________
| |
(1) | These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 810 (Employee Benefits) to the financial statements included in the 20122013 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 nine months ended September 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 nine months ended September 30, 2013 and 2012.
For the nine months ended September 30, 2013, the Company recognized $1,124 of acquisition-related costs. These costs are included in selling, general and administrative expenses in the consolidated statement of operations for the nine months ended September 30, 2013.
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 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.
|
| | | |
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 | 31,261 |
|
Intangible assets: | |
Customer relationships (weighted average life of 15 years) | 57,600 |
|
Trademarks | 5,200 |
|
Developed technology (weighted average life of 15 years) | 18,900 |
|
Other intangibles (weighted average life of two years) | 300 |
|
Current liabilities | (10,595 | ) |
Other liabilities | (26 | ) |
Total identifiable net assets | 146,283 |
|
Goodwill (2) | 32,026 |
|
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, the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 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 PVCpolyvinyl chloride ("PVC") facility, had been extensively contaminated under Goodrich's operations. In 1993,
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
Goodrich spun off the predecessor of PolyOne Corporation ("PolyOne"), and that predecessor assumed Goodrich's indemnification obligations relating to preexisting contamination.
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 $2,6873,284 in 20122013. 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.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
State 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, under the auspices of the U.S. Environmental Protection Agency ("EPA"), pursuant to an Administrative Settlement Agreement ("AOC"), which became effective on December 9, 2009. See "Change in Regulatory Regime""Federal Administrative Proceedings" below. The proceedings have been postponed. Periodic status conferences will be held to evaluate whether additional proceedings will be required.
Change in Regulatory Regime.Federal Administrative Proceedings. In May 2009, the Cabinet sent a letter to the U.S. Environmental Protection Agency ("EPA")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").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 twothree 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. The EPA has hired a contractor to complete the remedial investigation report.
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.
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.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
17.16. Segment Information
The Company operates in two principal businessoperating 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, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Net external sales | | | | | | | | | | | | |
Olefins | | | | | | | | | | | | |
Polyethylene | | $ | 460,105 |
| | $ | 431,614 |
| | $ | 1,294,566 |
| | $ | 1,275,057 |
| | $ | 487,144 |
| | $ | 420,768 |
|
Styrene, feedstock and other | | 219,234 |
| | 108,171 |
| | 590,959 |
| | 669,718 |
| | 235,654 |
| | 162,077 |
|
Total Olefins | | 679,339 |
| | 539,785 |
| | 1,885,525 |
| | 1,944,775 |
| | 722,798 |
| | 582,845 |
|
Vinyls | | | | | | | | | | | | |
PVC, caustic soda and other | | 212,041 |
| | 191,310 |
| | 612,391 |
| | 569,316 |
| | 190,527 |
| | 195,246 |
|
Building products | | 112,785 |
| | 90,080 |
| | 309,943 |
| | 255,909 |
| | 114,351 |
| | 86,556 |
|
Total Vinyls | | 324,826 |
| | 281,390 |
| | 922,334 |
| | 825,225 |
| | 304,878 |
| | 281,802 |
|
| | $ | 1,004,165 |
| | $ | 821,175 |
| | $ | 2,807,859 |
| | $ | 2,770,000 |
| | $ | 1,027,676 |
| | $ | 864,647 |
|
| | | | | | | | | | | | |
Intersegment sales | | | | | | | | | | | | |
Olefins | | $ | 85,454 |
| | $ | 76,771 |
| | $ | 230,607 |
| | $ | 247,671 |
| | $ | 56,853 |
| | $ | 70,283 |
|
Vinyls | | 403 |
| | 391 |
| | 1,111 |
| | 1,167 |
| | 343 |
| | 264 |
|
| | $ | 85,857 |
| | $ | 77,162 |
| | $ | 231,718 |
| | $ | 248,838 |
| | $ | 57,196 |
| | $ | 70,547 |
|
| | | | | | | | | | | | |
Income (loss) from operations | | | | | | | | | | | | |
Olefins | | $ | 237,239 |
| | $ | 124,452 |
| | $ | 585,958 |
| | $ | 409,550 |
| | $ | 272,333 |
| | $ | 161,058 |
|
Vinyls | | 39,554 |
| | 24,059 |
| | 136,123 |
| | 67,724 |
| | (21,114 | ) | | 43,663 |
|
Corporate and other | | (10,191 | ) | | (5,994 | ) | | (26,197 | ) | | (18,154 | ) | | (3,164 | ) | | (10,666 | ) |
| | $ | 266,602 |
| | $ | 142,517 |
| | $ | 695,884 |
| | $ | 459,120 |
| | $ | 248,055 |
| | $ | 194,055 |
|
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
Olefins | | $ | 26,515 |
| | $ | 27,070 |
| | $ | 76,415 |
| | $ | 74,903 |
| | $ | 26,647 |
| | $ | 23,346 |
|
Vinyls | | 14,089 |
| | 11,232 |
| | 39,507 |
| | 34,330 |
| | 19,168 |
| | 11,884 |
|
Corporate and other | | 124 |
| | 122 |
| | 372 |
| | 368 |
| | 157 |
| | 126 |
|
| | $ | 40,728 |
| | $ | 38,424 |
| | $ | 116,294 |
| | $ | 109,601 |
| | $ | 45,972 |
| | $ | 35,356 |
|
| | | | | | | | | | | | |
Other income (expense), net | | | | | | | | | | | | |
Olefins | | $ | 728 |
| | $ | 806 |
| | $ | 5,889 |
| | $ | 2,764 |
| | $ | 1,454 |
| | $ | 4,010 |
|
Vinyls | | (742 | ) | | 146 |
| | (1,687 | ) | | 115 |
| | (34 | ) | | (425 | ) |
Corporate and other | | (273 | ) | | 270 |
| | (1,065 | ) | | 797 |
| | 1,089 |
| | (66 | ) |
| | $ | (287 | ) | | $ | 1,222 |
| | $ | 3,137 |
| | $ | 3,676 |
| | $ | 2,509 |
| | $ | 3,519 |
|
| | | | | | | | | | | | |
Provision for (benefit from) income taxes | | | | | | | | | | | | |
Olefins | | $ | 82,553 |
| | $ | 36,092 |
| | $ | 208,170 |
| | $ | 130,612 |
| | $ | 93,550 |
| | $ | 55,477 |
|
Vinyls | | 10,710 |
| | 6,556 |
| | 44,120 |
| | 18,989 |
| | (10,070 | ) | | 13,720 |
|
Corporate and other | | (535 | ) | | (4,412 | ) | | (7,643 | ) | | (3,418 | ) | | (105 | ) | | (1,251 | ) |
| | $ | 92,728 |
| | $ | 38,236 |
| | $ | 244,647 |
| | $ | 146,183 |
| | $ | 83,375 |
| | $ | 67,946 |
|
| | | | | | | | | | | | |
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, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Capital expenditures | | | | | | | | | | | | |
Olefins | | $ | 27,577 |
| | $ | 46,867 |
| | $ | 105,656 |
| | $ | 92,168 |
| | $ | 29,074 |
| | $ | 50,040 |
|
Vinyls | | 172,565 |
| | 47,001 |
| | 391,864 |
| | 139,836 |
| | 81,120 |
| | 100,317 |
|
Corporate and other | | 276 |
| | 1,027 |
| | 770 |
| | 3,459 |
| | 547 |
| | 427 |
|
| | $ | 200,418 |
| | $ | 94,895 |
| | $ | 498,290 |
| | $ | 235,463 |
| | $ | 110,741 |
| | $ | 150,784 |
|
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, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Income from operations | | $ | 266,602 |
| | $ | 142,517 |
| | $ | 695,884 |
| | $ | 459,120 |
| | $ | 248,055 |
| | $ | 194,055 |
|
Interest expense | | (3,297 | ) | | (11,934 | ) | | (14,921 | ) | | (35,682 | ) | | (9,157 | ) | | (6,281 | ) |
Debt retirement costs | | — |
| | (7,082 | ) | | — |
| | (7,082 | ) | |
Gain from sales of equity securities | | — |
| | 477 |
| | — |
| | 16,429 |
| |
Other (expense) income, net | | (287 | ) | | 1,222 |
| | 3,137 |
| | 3,676 |
| |
Other income, net | | | 2,509 |
| | 3,519 |
|
Income before income taxes | | $ | 263,018 |
| | $ | 125,200 |
| | $ | 684,100 |
| | $ | 436,461 |
| | $ | 241,407 |
| | $ | 191,293 |
|
| | | | September 30, 2013 | | December 31, 2012 | | March 31, 2014 | | December 31, 2013 |
Total assets | | | | | | | | |
Olefins | | $ | 1,560,303 |
| | $ | 1,439,308 |
| | $ | 1,556,856 |
| | $ | 1,557,510 |
|
Vinyls | | 1,577,549 |
| | 1,030,912 |
| | 1,768,572 |
| | 1,740,595 |
|
Corporate and other | | 785,597 |
| | 941,976 |
| | 846,528 |
| | 762,804 |
|
| | $ | 3,923,449 |
| | $ | 3,412,196 |
| | $ | 4,171,956 |
| | $ | 4,060,909 |
|
18. Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2013 were as follows:
|
| | | | | | | | | | | | |
| | Olefins Segment | | Vinyls Segment | | Total |
Balance at December 31, 2012 | | $ | 29,990 |
| | $ | — |
| | $ | 29,990 |
|
Goodwill acquired during the period | | — |
| | 32,026 |
| | 32,026 |
|
Balance at September 30, 2013 | | $ | 29,990 |
| | $ | 32,026 |
| | $ | 62,016 |
|
19.17. Subsequent Events
Subsequent events were evaluated through the date on which the financial statements were issued.
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)
20.18. 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 adjustmentseliminations necessary to present the Company's results on a consolidated basis.
Condensed Consolidating Financial Information as of September 30, 2013March 31, 2014
| | | | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Balance Sheet | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 560,261 |
| | $ | 4,494 |
| | $ | 26,801 |
| | $ | — |
| | $ | 591,556 |
| | $ | 490,508 |
| | $ | 7,896 |
| | $ | 34,239 |
| | $ | — |
| | $ | 532,643 |
|
Marketable securities | | 125,597 |
| | — |
| | — |
| | — |
| | 125,597 |
| | 243,694 |
| | — |
| | — |
| | — |
| | 243,694 |
|
Accounts receivable, net | | 5,373 |
| | 694,473 |
| | 5,489 |
| | (272,310 | ) | | 433,025 |
| | 58,050 |
| | 888,829 |
| | 3,381 |
| | (528,381 | ) | | 421,879 |
|
Inventories | | — |
| | 435,540 |
| | 16,031 |
| | — |
| | 451,571 |
| | — |
| | 422,166 |
| | 16,843 |
| | — |
| | 439,009 |
|
Prepaid expenses and other current assets | | 468 |
| | 15,931 |
| | 2,410 |
| | — |
| | 18,809 |
| | 889 |
| | 12,864 |
| | 2,127 |
| | — |
| | 15,880 |
|
Deferred income taxes | | 431 |
| | 21,744 |
| | 118 |
| | — |
| | 22,293 |
| | 441 |
| | 33,422 |
| | 295 |
| | — |
| | 34,158 |
|
Total current assets | | 692,130 |
| | 1,172,182 |
| | 50,849 |
| | (272,310 | ) | | 1,642,851 |
| | 793,582 |
| | 1,365,177 |
| | 56,885 |
| | (528,381 | ) | | 1,687,263 |
|
Property, plant and equipment, net | | — |
| | 1,945,405 |
| | 7,513 |
| | — |
| | 1,952,918 |
| | — |
| | 2,144,266 |
| | 6,377 |
| | — |
| | 2,150,643 |
|
Equity investments | | 2,635,954 |
| | 98,823 |
| | 31,634 |
| | (2,700,923 | ) | | 65,488 |
| | 2,975,949 |
| | 101,472 |
| | 31,056 |
| | (3,040,917 | ) | | 67,560 |
|
Other assets, net | | 16,969 |
| | 251,703 |
| | 506 |
| | (6,986 | ) | | 262,192 |
| | 31,493 |
| | 238,867 |
| | 1,176 |
| | (5,046 | ) | | 266,490 |
|
Total assets | | $ | 3,345,053 |
| | $ | 3,468,113 |
| | $ | 90,502 |
| | $ | (2,980,219 | ) | | $ | 3,923,449 |
| | $ | 3,801,024 |
| | $ | 3,849,782 |
| | $ | 95,494 |
| | $ | (3,574,344 | ) | | $ | 4,171,956 |
|
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 311,357 |
| | $ | 220,106 |
| | $ | 4,322 |
| | $ | (277,718 | ) | | $ | 258,067 |
| | $ | 463,650 |
| | $ | 193,020 |
| | $ | 14,351 |
| | $ | (459,069 | ) | | $ | 211,952 |
|
Accrued liabilities | | 15,679 |
| | 151,654 |
| | 1,878 |
| | 5,408 |
| | 174,619 |
| | 15,782 |
| | 200,781 |
| | 731 |
| | (69,312 | ) | | 147,982 |
|
Total current liabilities | | 327,036 |
| | 371,760 |
| | 6,200 |
| | (272,310 | ) | | 432,686 |
| | 479,432 |
| | 393,801 |
| | 15,082 |
| | (528,381 | ) | | 359,934 |
|
Long-term debt | | 752,960 |
| | 10,889 |
| | — |
| | — |
| | 763,849 |
| | 753,020 |
| | 10,889 |
| | — |
| | — |
| | 763,909 |
|
Deferred income taxes | | — |
| | 416,404 |
| | 748 |
| | (6,986 | ) | | 410,166 |
| | — |
| | 451,597 |
| | 652 |
| | (5,046 | ) | | 447,203 |
|
Other liabilities | | — |
| | 51,640 |
| | 51 |
| | — |
| | 51,691 |
| | — |
| | 32,308 |
| | 30 |
| | — |
| | 32,338 |
|
Stockholders' equity | | 2,265,057 |
| | 2,617,420 |
| | 83,503 |
| | (2,700,923 | ) | | 2,265,057 |
| | 2,568,572 |
| | 2,961,187 |
| | 79,730 |
| | (3,040,917 | ) | | 2,568,572 |
|
Total liabilities and stockholders' equity | | $ | 3,345,053 |
| | $ | 3,468,113 |
| | $ | 90,502 |
| | $ | (2,980,219 | ) | | $ | 3,923,449 |
| | $ | 3,801,024 |
| | $ | 3,849,782 |
| | $ | 95,494 |
| | $ | (3,574,344 | ) | | $ | 4,171,956 |
|
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, 20122013
| | | | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | | 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 |
| | $ | 420,948 |
| | $ | 6,227 |
| | $ | 34,126 |
| | $ | — |
| | $ | 461,301 |
|
Marketable securities | | 124,873 |
| | — |
| | — |
| | — |
| | 124,873 |
| | 239,388 |
| | — |
| | — |
| | — |
| | 239,388 |
|
Accounts receivable, net | | 7,933 |
| | 1,675,274 |
| | 2,959 |
| | (1,286,007 | ) | | 400,159 |
| | 3,879 |
| | 738,156 |
| | 2,755 |
| | (316,333 | ) | | 428,457 |
|
Inventories | | — |
| | 385,140 |
| | 14,158 |
| | — |
| | 399,298 |
| | — |
| | 456,306 |
| | 15,573 |
| | — |
| | 471,879 |
|
Prepaid expenses and other current assets | | 389 |
| | 11,386 |
| | 2,925 |
| | — |
| | 14,700 |
| | 778 |
| | 11,312 |
| | 1,798 |
| | — |
| | 13,888 |
|
Deferred income taxes | | 431 |
| | 21,581 |
| | 293 |
| | — |
| | 22,305 |
| | 441 |
| | 33,422 |
| | 306 |
| | — |
| | 34,169 |
|
Total current assets | | 887,507 |
| | 2,100,354 |
| | 49,559 |
| | (1,286,007 | ) | | 1,751,413 |
| | 665,434 |
| | 1,245,423 |
| | 54,558 |
| | (316,333 | ) | | 1,649,082 |
|
Property, plant and equipment, net | | — |
| | 1,502,902 |
| | 7,146 |
| | — |
| | 1,510,048 |
| | — |
| | 2,081,091 |
| | 6,923 |
| | — |
| | 2,088,014 |
|
Equity investments | | 3,018,926 |
| | 65,448 |
| | 32,923 |
| | (3,073,561 | ) | | 43,736 |
| | 2,815,752 |
| | 100,326 |
| | 31,518 |
| | (2,880,721 | ) | | 66,875 |
|
Other assets, net | | 17,033 |
| | 94,678 |
| | 1,252 |
| | (5,964 | ) | | 106,999 |
| | 15,393 |
| | 246,125 |
| | 1,199 |
| | (5,779 | ) | | 256,938 |
|
Total assets | | $ | 3,923,466 |
| | $ | 3,763,382 |
| | $ | 90,880 |
| | $ | (4,365,532 | ) | | $ | 3,412,196 |
| | $ | 3,496,579 |
| | $ | 3,672,965 |
| | $ | 94,198 |
| | $ | (3,202,833 | ) | | $ | 4,060,909 |
|
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 1,285,530 |
| | $ | 192,443 |
| | $ | 13,969 |
| | $ | (1,274,892 | ) | | $ | 217,050 |
| | $ | 316,652 |
| | $ | 223,134 |
| | $ | 10,649 |
| | $ | (300,822 | ) | | $ | 249,613 |
|
Accrued liabilities | | 12,808 |
| | 178,915 |
| | 852 |
| | (11,115 | ) | | 181,460 |
| | 8,334 |
| | 161,140 |
| | 1,282 |
| | (15,511 | ) | | 155,245 |
|
Total current liabilities | | 1,298,338 |
| | 371,358 |
| | 14,821 |
| | (1,286,007 | ) | | 398,510 |
| | 324,986 |
| | 384,274 |
| | 11,931 |
| | (316,333 | ) | | 404,858 |
|
Long-term debt | | 752,872 |
| | 10,889 |
| | — |
| | — |
| | 763,761 |
| | 752,990 |
| | 10,889 |
| | — |
| | — |
| | 763,879 |
|
Deferred income taxes | | — |
| | 331,320 |
| | 934 |
| | (5,964 | ) | | 326,290 |
| | — |
| | 443,026 |
| | 729 |
| | (5,779 | ) | | 437,976 |
|
Other liabilities | | — |
| | 51,312 |
| | 67 |
| | — |
| | 51,379 |
| | — |
| | 35,533 |
| | 60 |
| | — |
| | 35,593 |
|
Stockholders' equity | | 1,872,256 |
| | 2,998,503 |
| | 75,058 |
| | (3,073,561 | ) | | 1,872,256 |
| | 2,418,603 |
| | 2,799,243 |
| | 81,478 |
| | (2,880,721 | ) | | 2,418,603 |
|
Total liabilities and stockholders' equity | | $ | 3,923,466 |
| | $ | 3,763,382 |
| | $ | 90,880 |
| | $ | (4,365,532 | ) | | $ | 3,412,196 |
| | $ | 3,496,579 |
| | $ | 3,672,965 |
| | $ | 94,198 |
| | $ | (3,202,833 | ) | | $ | 4,060,909 |
|
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 March 31, 2014
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 1,020,429 |
| | $ | 9,117 |
| | $ | (1,870 | ) | | $ | 1,027,676 |
|
Cost of sales | | — |
| | 734,350 |
| | 8,186 |
| | (1,870 | ) | | 740,666 |
|
Gross profit | | — |
| | 286,079 |
| | 931 |
| | — |
| | 287,010 |
|
Selling, general and administrative expenses | | 546 |
| | 37,063 |
| | 1,346 |
| | — |
| | 38,955 |
|
(Loss) income from operations | | (546 | ) | | 249,016 |
| | (415 | ) | | — |
| | 248,055 |
|
Interest expense | | (8,947 | ) | | (210 | ) | | — |
| | — |
| | (9,157 | ) |
Other income (expense), net | | 5,006 |
| | (1,883 | ) | | (614 | ) | | — |
| | 2,509 |
|
(Loss) income before income taxes | | (4,487 | ) | | 246,923 |
| | (1,029 | ) | | — |
| | 241,407 |
|
(Benefit from) provision for income taxes | | (1,558 | ) | | 85,110 |
| | (177 | ) | | — |
| | 83,375 |
|
Equity in net income of subsidiaries | | 160,961 |
| | — |
| | — |
| | (160,961 | ) | | — |
|
Net income (loss) | | $ | 158,032 |
| | $ | 161,813 |
| | $ | (852 | ) | | $ | (160,961 | ) | | $ | 158,032 |
|
Comprehensive income (loss) | | $ | 158,866 |
| | $ | 161,948 |
| | $ | (1,750 | ) | | $ | (160,198 | ) | | $ | 158,866 |
|
Condensed Consolidating Financial Information for the Three Months Ended March 31, 2013
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 856,085 |
| | $ | 10,540 |
| | $ | (1,978 | ) | | $ | 864,647 |
|
Cost of sales | | — |
| | 629,286 |
| | 9,530 |
| | (1,978 | ) | | 636,838 |
|
Gross profit | | — |
| | 226,799 |
| | 1,010 |
| | — |
| | 227,809 |
|
Selling, general and administrative expenses | | 510 |
| | 31,709 |
| | 1,535 |
| | — |
| | 33,754 |
|
(Loss) income from operations | | (510 | ) | | 195,090 |
| | (525 | ) | | — |
| | 194,055 |
|
Interest expense | | (6,258 | ) | | (23 | ) | | — |
| | — |
| | (6,281 | ) |
Other income (expense), net | | 4,309 |
| | (290 | ) | | (500 | ) | | — |
| | 3,519 |
|
(Loss) income before income taxes | | (2,459 | ) | | 194,777 |
| | (1,025 | ) | | — |
| | 191,293 |
|
(Benefit from) provision for income taxes | | (874 | ) | | 69,051 |
| | (231 | ) | | — |
| | 67,946 |
|
Equity in net income of subsidiaries | | 124,932 |
| | — |
| | — |
| | (124,932 | ) | | — |
|
Net income (loss) | | $ | 123,347 |
| | $ | 125,726 |
| | $ | (794 | ) | | $ | (124,932 | ) | | $ | 123,347 |
|
Comprehensive income (loss) | | $ | 123,155 |
| | $ | 126,104 |
| | $ | (1,364 | ) | | $ | (124,740 | ) | | $ | 123,155 |
|
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, 2013March 31, 2014
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 992,413 |
| | $ | 13,337 |
| | $ | (1,585 | ) | | $ | 1,004,165 |
|
Cost of sales | | — |
| | 689,388 |
| | 11,891 |
| | (1,585 | ) | | 699,694 |
|
Gross profit | | — |
| | 303,025 |
| | 1,446 |
| | — |
| | 304,471 |
|
Selling, general and administrative expenses | | 514 |
| | 35,714 |
| | 1,641 |
| | — |
| | 37,869 |
|
(Loss) income from operations | | (514 | ) | | 267,311 |
| | (195 | ) | | — |
| | 266,602 |
|
Interest expense | | (3,292 | ) | | (5 | ) | | — |
| | — |
| | (3,297 | ) |
Other income (expense), net | | 3,585 |
| | (3,821 | ) | | (51 | ) | | — |
| | (287 | ) |
(Loss) income before income taxes | | (221 | ) | | 263,485 |
| | (246 | ) | | — |
| | 263,018 |
|
(Benefit from) provision for income taxes | | (70 | ) | | 92,849 |
| | (51 | ) | | — |
| | 92,728 |
|
Equity in net income of subsidiaries | | 170,441 |
| | — |
| | — |
| | (170,441 | ) | | — |
|
Net income (loss) | | $ | 170,290 |
| | $ | 170,636 |
| | $ | (195 | ) | | $ | (170,441 | ) | | $ | 170,290 |
|
Comprehensive income | | $ | 171,095 |
| | $ | 170,764 |
| | $ | 351 |
| | $ | (171,115 | ) | | $ | 171,095 |
|
Condensed Consolidating Financial Information for the Three Months Ended September 30, 2012
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 809,164 |
| | $ | 13,876 |
| | $ | (1,865 | ) | | $ | 821,175 |
|
Cost of sales | | — |
| | 638,892 |
| | 11,969 |
| | (1,865 | ) | | 648,996 |
|
Gross profit | | — |
| | 170,272 |
| | 1,907 |
| | — |
| | 172,179 |
|
Selling, general and administrative expenses | | 498 |
| | 27,601 |
| | 1,563 |
| | — |
| | 29,662 |
|
(Loss) income from operations | | (498 | ) | | 142,671 |
| | 344 |
| | — |
| | 142,517 |
|
Interest expense | | (11,919 | ) | | (15 | ) | | — |
| | — |
| | (11,934 | ) |
Debt retirement costs | | (7,082 | ) | | — |
| | — |
| | — |
| | (7,082 | ) |
Gain from sales of equity securities | | — |
| | 477 |
| | — |
| | — |
| | 477 |
|
Other income (expense), net | | 4,556 |
| | (2,744 | ) | | (590 | ) | | — |
| | 1,222 |
|
(Loss) income before income taxes | | (14,943 | ) | | 140,389 |
| | (246 | ) | | — |
| | 125,200 |
|
(Benefit from) provision for income taxes | | (4,498 | ) | | 42,596 |
| | 138 |
| | — |
| | 38,236 |
|
Equity in net income of subsidiaries | | 97,409 |
| | — |
| | — |
| | (97,409 | ) | | — |
|
Net income (loss) | | $ | 86,964 |
| | $ | 97,793 |
| | $ | (384 | ) | | $ | (97,409 | ) | | $ | 86,964 |
|
Comprehensive income | | $ | 88,666 |
| | $ | 98,109 |
| | $ | 481 |
| | $ | (98,590 | ) | | $ | 88,666 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income (loss) | | $ | 158,032 |
| | $ | 161,813 |
| | $ | (852 | ) | | $ | (160,961 | ) | | $ | 158,032 |
|
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities | | | | | | | | | | |
Depreciation and amortization | | 365 |
| | 45,408 |
| | 564 |
| | — |
| | 46,337 |
|
Deferred income taxes | | (162 | ) | | 8,487 |
| | (50 | ) | | — |
| | 8,275 |
|
Net changes in working capital and other | | (165,553 | ) | | 6,263 |
| | (1,810 | ) | | 160,961 |
| | (139 | ) |
Net cash (used for) provided by operating activities | | (7,318 | ) | | 221,971 |
| | (2,148 | ) | | — |
| | 212,505 |
|
Cash flows from investing activities | | | | | | | | | | |
Additions to property, plant and equipment | | — |
| | (110,559 | ) | | (182 | ) | | — |
| | (110,741 | ) |
Proceeds from disposition of assets | | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Proceeds from sales and maturities of securities | | 30,119 |
| | — |
| | — |
| | — |
| | 30,119 |
|
Purchase of securities | | (49,025 | ) | | — |
| | — |
| | — |
| | (49,025 | ) |
Settlements of derivative instruments | | — |
| | (409 | ) | | — |
| | — |
| | (409 | ) |
Net cash used for investing activities | | (18,906 | ) | | (110,956 | ) | | (182 | ) | | — |
| | (130,044 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | 106,903 |
| | (109,346 | ) | | 2,443 |
| | — |
| | — |
|
Dividends paid | | (16,789 | ) | | — |
| | — |
| | — |
| | (16,789 | ) |
Proceeds from exercise of stock options | | 2,158 |
| | — |
| | — |
| | — |
| | 2,158 |
|
Windfall tax benefits from share-based payment arrangements | | 3,512 |
| | — |
| | — |
| | — |
| | 3,512 |
|
Net cash provided by (used for) financing activities | | 95,784 |
| | (109,346 | ) | | 2,443 |
| | — |
| | (11,119 | ) |
Net increase in cash and cash equivalents | | 69,560 |
| | 1,669 |
| | 113 |
| | — |
| | 71,342 |
|
Cash and cash equivalents at beginning of period | | 420,948 |
| | 6,227 |
| | 34,126 |
| | — |
| | 461,301 |
|
Cash and cash equivalents at end of period | | $ | 490,508 |
| | $ | 7,896 |
| | $ | 34,239 |
| | $ | — |
| | $ | 532,643 |
|
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 NineThree Months Ended September 30,March 31, 2013
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 2,777,280 |
| | $ | 37,561 |
| | $ | (6,982 | ) | | $ | 2,807,859 |
|
Cost of sales | | — |
| | 1,976,131 |
| | 32,943 |
| | (6,982 | ) | | 2,002,092 |
|
Gross profit | | — |
| | 801,149 |
| | 4,618 |
| | — |
| | 805,767 |
|
Selling, general and administrative expenses | | 1,576 |
| | 103,478 |
| | 4,829 |
| | — |
| | 109,883 |
|
(Loss) income from operations | | (1,576 | ) | | 697,671 |
| | (211 | ) | | — |
| | 695,884 |
|
Interest expense | | (14,882 | ) | | (39 | ) | | — |
| | — |
| | (14,921 | ) |
Other income (expense), net | | 7,490 |
| | (2,473 | ) | | (1,880 | ) | | — |
| | 3,137 |
|
(Loss) income before income taxes | | (8,968 | ) | | 695,159 |
| | (2,091 | ) | | — |
| | 684,100 |
|
(Benefit from) provision for income taxes | | (3,202 | ) | | 248,301 |
| | (452 | ) | | — |
| | 244,647 |
|
Equity in net income of subsidiaries | | 445,219 |
| | — |
| | — |
| | (445,219 | ) | | — |
|
Net income (loss) | | $ | 439,453 |
| | $ | 446,858 |
| | $ | (1,639 | ) | | $ | (445,219 | ) | | $ | 439,453 |
|
Comprehensive income (loss) | | $ | 439,372 |
| | $ | 447,490 |
| | $ | (2,483 | ) | | $ | (445,007 | ) | | $ | 439,372 |
|
Condensed Consolidating Financial Information for the Nine Months Ended September 30, 2012
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Operations | | | | | | | | | | |
Net sales | | $ | — |
| | $ | 2,738,180 |
| | $ | 37,154 |
| | $ | (5,334 | ) | | $ | 2,770,000 |
|
Cost of sales | | — |
| | 2,197,300 |
| | 31,322 |
| | (5,334 | ) | | 2,223,288 |
|
Gross profit | | — |
| | 540,880 |
| | 5,832 |
| | — |
| | 546,712 |
|
Selling, general and administrative expenses | | 1,500 |
| | 81,288 |
| | 4,804 |
| | — |
| | 87,592 |
|
(Loss) income from operations | | (1,500 | ) | | 459,592 |
| | 1,028 |
| | — |
| | 459,120 |
|
Interest expense | | (35,652 | ) | | (30 | ) | | — |
| | — |
| | (35,682 | ) |
Debt retirement costs | | (7,082 | ) | | — |
| | — |
| | — |
| | (7,082 | ) |
Gain from sales of equity securities | | 1 |
| | 16,428 |
| | — |
| | — |
| | 16,429 |
|
Other income (expense), net | | 12,044 |
| | (5,724 | ) | | (2,644 | ) | | — |
| | 3,676 |
|
(Loss) income before income taxes | | (32,189 | ) | | 470,266 |
| | (1,616 | ) | | — |
| | 436,461 |
|
(Benefit from) provision for income taxes | | (11,105 | ) | | 158,228 |
| | (940 | ) | | — |
| | 146,183 |
|
Equity in net income of subsidiaries | | 311,362 |
| | — |
| | — |
| | (311,362 | ) | | — |
|
Net income (loss) | | $ | 290,278 |
| | $ | 312,038 |
| | $ | (676 | ) | | $ | (311,362 | ) | | $ | 290,278 |
|
Comprehensive income | | $ | 291,185 |
| | $ | 312,017 |
| | $ | 252 |
| | $ | (312,269 | ) | | $ | 291,185 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income (loss) | | $ | 123,347 |
| | $ | 125,726 |
| | $ | (794 | ) | | $ | (124,932 | ) | | $ | 123,347 |
|
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities | | | | | | | | | | |
Depreciation and amortization | | 365 |
| | 34,766 |
| | 590 |
| | — |
| | 35,721 |
|
Deferred income taxes | | (23 | ) | | 29,896 |
| | (407 | ) | | — |
| | 29,466 |
|
Net changes in working capital and other | | (129,403 | ) | | (68,474 | ) | | 663 |
| | 124,932 |
| | (72,282 | ) |
Net cash (used for) provided by operating activities | | (5,714 | ) | | 121,914 |
| | 52 |
| | — |
| | 116,252 |
|
Cash flows from investing activities | | | | | | | | | | |
Additions to property, plant and equipment | | — |
| | (149,113 | ) | | (1,671 | ) | | — |
| | (150,784 | ) |
Proceeds from disposition of assets | | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Proceeds from repayment of loan to affiliate | | — |
| | — |
| | 167 |
| | — |
| | 167 |
|
Proceeds from sales and maturities of securities | | 124,873 |
| | — |
| | — |
| | — |
| | 124,873 |
|
Purchase of securities | | (94,903 | ) | | — |
| | — |
| | — |
| | (94,903 | ) |
Settlements of derivative instruments | | — |
| | (679 | ) | | — |
| | — |
| | (679 | ) |
Net cash provided by (used for) investing activities | | 29,970 |
| | (149,792 | ) | | (1,502 | ) | | — |
| | (121,324 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | (28,120 | ) | | 28,553 |
| | (433 | ) | | — |
| | — |
|
Dividends paid | | (12,553 | ) | | — |
| | — |
| | — |
| | (12,553 | ) |
Proceeds from exercise of stock options | | 1,590 |
| | — |
| | — |
| | — |
| | 1,590 |
|
Windfall tax benefits from share-based payment arrangements | | 3,844 |
| | — |
| | — |
| | — |
| | 3,844 |
|
Net cash (used for) provided by financing activities | | (35,239 | ) | | 28,553 |
| | (433 | ) | | — |
| | (7,119 | ) |
Net (decrease) increase in cash and cash equivalents | | (10,983 | ) | | 675 |
| | (1,883 | ) | | — |
| | (12,191 | ) |
Cash and cash equivalents at beginning of period | | 753,881 |
| | 6,973 |
| | 29,224 |
| | — |
| | 790,078 |
|
Cash and cash equivalents at end of period | | $ | 742,898 |
| | $ | 7,648 |
| | $ | 27,341 |
| | $ | — |
| | $ | 777,887 |
|
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, 2013
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income (loss) | | $ | 439,453 |
| | $ | 446,858 |
| | $ | (1,639 | ) | | $ | (445,219 | ) | | $ | 439,453 |
|
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities | | | | | | | | | | |
Depreciation and amortization | | 1,094 |
| | 114,432 |
| | 1,861 |
| | — |
| | 117,387 |
|
Deferred income taxes | | (1,102 | ) | | 84,532 |
| | 13 |
| | — |
| | 83,443 |
|
Net changes in working capital and other | | (458,336 | ) | | (87,330 | ) | | 7,664 |
| | 445,219 |
| | (92,783 | ) |
Net cash (used for) provided by operating activities | | (18,891 | ) | | 558,492 |
| | 7,899 |
| | — |
| | 547,500 |
|
Cash flows from investing activities | | | | | | | | | | |
Acquisition of business | | — |
| | (178,309 | ) | | — |
| | — |
| | (178,309 | ) |
Additions to equity investments | | — |
| | (23,338 | ) | | — |
| | — |
| | (23,338 | ) |
Additions to property, plant and equipment | | — |
| | (496,027 | ) | | (2,263 | ) | | — |
| | (498,290 | ) |
Construction of assets pending sale-leaseback | | — |
| | (136 | ) | | — |
| | — |
| | (136 | ) |
Proceeds from disposition of assets | | — |
| | 6 |
| | 72 |
| | — |
| | 78 |
|
Proceeds from repayment of loan to affiliate | | — |
| | — |
| | 167 |
| | — |
| | 167 |
|
Proceeds from sales and maturities of securities | | 239,764 |
| | — |
| | — |
| | — |
| | 239,764 |
|
Purchase of securities | | (232,286 | ) | | — |
| | — |
| | — |
| | (232,286 | ) |
Settlements of derivative instruments | | — |
| | (2,297 | ) | | — |
| | — |
| | (2,297 | ) |
Net cash provided by (used for) investing activities | | 7,478 |
| | (700,101 | ) | | (2,024 | ) | | — |
| | (694,647 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | (130,832 | ) | | 139,130 |
| | (8,298 | ) | | — |
| | — |
|
Dividends paid | | (40,204 | ) | | — |
| | — |
| | — |
| | (40,204 | ) |
Proceeds from exercise of stock options | | 3,182 |
| | — |
| | — |
| | — |
| | 3,182 |
|
Repurchase of common stock for treasury | | (19,409 | ) | | — |
| | — |
| | — |
| | (19,409 | ) |
Windfall tax benefits from share-based payment arrangements | | 5,056 |
| | — |
| | — |
| | — |
| | 5,056 |
|
Net cash (used for) provided by financing activities | | (182,207 | ) | | 139,130 |
| | (8,298 | ) | | — |
| | (51,375 | ) |
Net decrease in cash and cash equivalents | | (193,620 | ) | | (2,479 | ) | | (2,423 | ) | | — |
| | (198,522 | ) |
Cash and cash equivalents at beginning of period | | 753,881 |
| | 6,973 |
| | 29,224 |
| | — |
| | 790,078 |
|
Cash and cash equivalents at end of period | | $ | 560,261 |
| | $ | 4,494 |
| | $ | 26,801 |
| | $ | — |
| | $ | 591,556 |
|
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, 2012
|
| | | | | | | | | | | | | | | | | | | | |
| | Westlake Chemical Corporation | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Statement of Cash Flows | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | |
Net income (loss) | | $ | 290,278 |
| | $ | 312,038 |
| | $ | (676 | ) | | $ | (311,362 | ) | | $ | 290,278 |
|
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities | | | | | | | | | | |
Depreciation and amortization | | 1,149 |
| | 107,191 |
| | 2,410 |
| | — |
| | 110,750 |
|
Deferred income taxes | | (176 | ) | | 3,932 |
| | 629 |
| | — |
| | 4,385 |
|
Net changes in working capital and other | | (317,955 | ) | | 95,909 |
| | (1,898 | ) | | 311,362 |
| | 87,418 |
|
Net cash (used for) provided by operating activities | | (26,704 | ) | | 519,070 |
| | 465 |
| | — |
| | 492,831 |
|
Cash flows from investing activities | | | | | | | | | | |
Additions to property, plant and equipment | | — |
| | (234,713 | ) | | (750 | ) | | — |
| | (235,463 | ) |
Construction of assets pending sale-leaseback | | — |
| | (5,484 | ) | | — |
| | — |
| | (5,484 | ) |
Proceeds from disposition of assets | | — |
| | 414 |
| | 21 |
| | — |
| | 435 |
|
Proceeds from repayment of loan to affiliate | | — |
| | — |
| | 763 |
| | — |
| | 763 |
|
Proceeds from sales of equity securities | | 3 |
| | 47,652 |
| | — |
| | — |
| | 47,655 |
|
Purchase of securities | | — |
| | (2,961 | ) | | — |
| | — |
| | (2,961 | ) |
Settlements of derivative instruments | | — |
| | 471 |
| | — |
| | — |
| | 471 |
|
Net cash provided by (used for) investing activities | | 3 |
| | (194,621 | ) | | 34 |
| | — |
| | (194,584 | ) |
Cash flows from financing activities | | | | | | | | | | |
Intercompany financing | | 317,185 |
| | (321,273 | ) | | 4,088 |
| | — |
| | — |
|
Capitalized debt issuance costs | | (2,221 | ) | | — |
| | — |
| | — |
| | (2,221 | ) |
Dividends paid | | (22,345 | ) | | — |
| | — |
| | — |
| | (22,345 | ) |
Proceeds from borrowings | | 248,818 |
| | — |
| | — |
| | — |
| | 248,818 |
|
Proceeds from exercise of stock options | | 6,627 |
| | — |
| | — |
| | — |
| | 6,627 |
|
Repayment of borrowings | | (250,000 | ) | | — |
| | — |
| | — |
| | (250,000 | ) |
Repurchase of common stock for treasury | | (10,784 | ) | | — |
| | — |
| | — |
| | (10,784 | ) |
Utilization of restricted cash | | 96,433 |
| | — |
| | — |
| | — |
| | 96,433 |
|
Windfall tax benefits from share-based payment arrangements | | 7,792 |
| | — |
| | — |
| | — |
| | 7,792 |
|
Net cash provided by (used for) financing activities | | 391,505 |
| | (321,273 | ) | | 4,088 |
| | — |
| | 74,320 |
|
Net increase in cash and cash equivalents | | 364,804 |
| | 3,176 |
| | 4,587 |
| | — |
| | 372,567 |
|
Cash and cash equivalents at beginning of period | | 803,320 |
| | 2,517 |
| | 20,064 |
| | — |
| | 825,901 |
|
Cash and cash equivalents at end of period | | $ | 1,168,124 |
| | $ | 5,693 |
| | $ | 24,651 |
| | $ | — |
| | $ | 1,198,468 |
|
| |
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 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, 20122013 (the "20122013 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 manufacturer and marketer of petrochemicals,basic chemicals, vinyls, polymers and fabricated building products. Our two principal businessoperating segments are Olefins and Vinyls. We use the majority of our internally-produced basic chemicals to produce higher value-added chemicals and building products.
Since 2009 and continuing through the thirdfirst quarter of 2013,2014, a cost advantage for natural gas liquids-basedethane-based ethylene producers over naphtha-based ethylene producers has allowed a strong export market for ethylene derivatives and higher margins for North American chemical producers, including Westlake. Increased global demand for polyethylene in recent years in particular has resulted in improved operating margins and cash flow for our Olefins segment. However, some olefins industry consultants predict that a significant increase in worldwide ethylene and ethylene derivative capacity may occur within the next decade, with the largest increases in Asia and North America. As a result, our Olefins segment operating margins may be negatively impacted.
Continued weaknessslow recovery in the U.S. construction markets and budgetary constraints in municipal spending have contributed to lower domestic demand for our vinyls products. In addition, increases in feedstock costs, combined with the industry's inability to sufficiently raise domestic prices for polyvinyl chloride ("PVC") resin and building products in order to offset cost increases, affected our Vinyls segment's operating results in 2010 and 2011. However, since late 2010, the PVCpolyvinyl chloride ("PVC") industry has experienced an increase in PVC resin export demand, driven largely by more competitive feedstock and energy cost positions in North America. As a consequence, domestic PVC resin industry operating rates have improved since 2010, largely due to higher PVC resin export shipments. However, looking forward,In the fourth quarter of 2013, we started up our new world scale Geismar, Louisiana chlor-alkali plant. In April 2014, we completed the expansion and conversion of our Calvert City, Kentucky ethylene plant to ethane feedstock (see further discussion in "Recent Developments" below). The completion of these two projects is expected to improve the profitability of our Vinyls segment operating rates and margins may continue to be negatively impacted by the slow recovery of U.S. construction markets.segment.
The current U.S. economic environment, while slowly improving, continues to be somewhat challenging for our customers. However, we believe our customer base is generally healthy. As we continue to manage our business in this environment, including the slowdown in construction activity, we have taken steps designed to address the changes in demand and margins in our Vinyls segment and its resulting impact on our operations by matching production with sales demand and continuing to operate our plants in an efficient manner. We continue to monitor our cost management programs and discretionary capital spending. The impact of the weak global economic environment has been challengingappears to our business and,be slowly improving, but depending on the performance of the global economyboth economies in the remainder of 20132014 and beyond, could still have a negative effect on our financial condition, results of operations or cash flows.
Recent Developments
In August 2008,April 2014, we completed the previously announced plans for the construction of a new chlor-alkali plantfeedstock conversion and ethylene expansion project at our vinyls manufacturing complex in Geismar, Louisiana. We commenced constructionCalvert City ethylene plant. With the completion of thethis project, our Calvert City ethylene plant in 2011. Presently, we expect the new chlor-alkali plant to be operationalnow utilizes cost-advantaged ethane feedstock and increased its capacity by the end of 2013. The new chlor-alkali plant is designed to produce 350,000 electro chemical units ("ECUs"), or 700approximately 180 million pounds of chlorine, per annum. The new plantannually. This expansion and feedstock conversion project is expected to improveenhance our vinyl chain integration and leverage low cost ethane being developed in the vertical integrationMarcellus shale area. The ethylene plant and other production facilities at our Calvert City complex were shut down for approximately 19 days (14 days during the first quarter of 2014) as a result of the feedstock conversion and ethylene expansion project and other planned maintenance turnaround activities. Income from operations for the first quarter of 2014 was negatively impacted by the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the feedstock conversion and ethylene expansion project and maintenance turnaround at the Calvert City complex.
On February 14, 2014, our Board of Directors authorized a two-for-one split of our vinyls business from chlorine downstream into vinyl chloride monomer ("VCM")common stock. Stockholders of record as of February 28, 2014 were entitled to one additional share for every share outstanding, which was distributed on March 18, 2014. The total number of authorized common stock shares and PVC and increase caustic soda sales.associated par value were unchanged by this stock split.
Results of Operations
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
| | (dollars in thousands, except per share data) | | (dollars in thousands, except per share data) |
Net external sales | | | | | | | | | | | | |
Olefins | | | | | | | | | | | | |
Polyethylene | | $ | 460,105 |
| | $ | 431,614 |
| | $ | 1,294,566 |
| | $ | 1,275,057 |
| | $ | 487,144 |
| | $ | 420,768 |
|
Styrene, feedstock and other | | 219,234 |
| | 108,171 |
| | 590,959 |
| | 669,718 |
| | 235,654 |
| | 162,077 |
|
Total Olefins | | 679,339 |
| | 539,785 |
| | 1,885,525 |
| | 1,944,775 |
| | 722,798 |
| | 582,845 |
|
Vinyls | | | | | | | | | | | | |
PVC, caustic soda and other | | 212,041 |
| | 191,310 |
| | 612,391 |
| | 569,316 |
| | 190,527 |
| | 195,246 |
|
Building products | | 112,785 |
| | 90,080 |
| | 309,943 |
| | 255,909 |
| | 114,351 |
| | 86,556 |
|
Total Vinyls | | 324,826 |
| | 281,390 |
| | 922,334 |
| | 825,225 |
| | 304,878 |
| | 281,802 |
|
Total | | $ | 1,004,165 |
| | $ | 821,175 |
| | $ | 2,807,859 |
| | $ | 2,770,000 |
| | $ | 1,027,676 |
| | $ | 864,647 |
|
| | | | | | | | | | | | |
Income (loss) from operations | | | | | | | | | | | | |
Olefins | | $ | 237,239 |
| | $ | 124,452 |
| | $ | 585,958 |
| | $ | 409,550 |
| | $ | 272,333 |
| | $ | 161,058 |
|
Vinyls | | 39,554 |
| | 24,059 |
| | 136,123 |
| | 67,724 |
| | (21,114 | ) | | 43,663 |
|
Corporate and other | | (10,191 | ) | | (5,994 | ) | | (26,197 | ) | | (18,154 | ) | | (3,164 | ) | | (10,666 | ) |
Total income from operations | | 266,602 |
| | 142,517 |
| | 695,884 |
| | 459,120 |
| | 248,055 |
| | 194,055 |
|
Interest expense | | (3,297 | ) | | (11,934 | ) | | (14,921 | ) | | (35,682 | ) | | (9,157 | ) | | (6,281 | ) |
Debt retirement costs | | — |
| | (7,082 | ) | | — |
| | (7,082 | ) | |
Gain from sales of equity securities | | — |
| | 477 |
| | — |
| | 16,429 |
| |
Other (expense) income, net | | (287 | ) | | 1,222 |
| | 3,137 |
| | 3,676 |
| |
Other income, net | | | 2,509 |
| | 3,519 |
|
Provision for income taxes | | 92,728 |
| | 38,236 |
| | 244,647 |
| | 146,183 |
| | 83,375 |
| | 67,946 |
|
Net income | | $ | 170,290 |
| | $ | 86,964 |
| | $ | 439,453 |
| | $ | 290,278 |
| | $ | 158,032 |
| | $ | 123,347 |
|
Diluted earnings per share | | $ | 2.54 |
| | $ | 1.30 |
| | $ | 6.54 |
| | $ | 4.33 |
| |
Diluted earnings per share (1) | | | $ | 1.18 |
| | $ | 0.92 |
|
_____________ | | | | | |
(1) Per share data for the three months ended March 31, 2013 has been restated to reflect the effect of a two-for-one stock split on March 18, 2014. See Note 1 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for additional information. | | (1) Per share data for the three months ended March 31, 2013 has been restated to reflect the effect of a two-for-one stock split on March 18, 2014. See Note 1 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for additional information. |
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2013 | | Nine Months Ended September 30, 2013 | | Three Months Ended March 31, 2014 |
| | Average Sales Price | | Volume | | Average Sales Price | | Volume | | Average Sales Price | | Volume |
Product sales price and volume percentage change from prior year period | | | | | | | | | | | | |
Olefins | | +11.5 | % | | +14.3 | % | | +2.0 | % | | -5.1 | % | | +13.3 | % | | +10.7 | % |
Vinyls | | +6.2 | % | | +9.3 | % | | +2.1 | % | | +9.7 | % | | +1.7 | % | | +4.9 | % |
Company average | | +9.7 | % | | +12.6 | % | | +2.1 | % | | -0.7 | % | | +9.5 | % | | +8.8 | % |
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Average industry prices (1) | | | | | | | | | | | | |
Ethane (cents/lb) | | 8.4 |
| | 11.4 |
| | 8.7 |
| | 14.6 |
| | 11.4 |
| | 8.7 |
|
Propane (cents/lb) | | 24.4 |
| | 21.2 |
| | 22.2 |
| | 24.7 |
| | 30.8 |
| | 20.5 |
|
Ethylene (cents/lb) (2) | | 54.3 |
| | 52.1 |
| | 58.7 |
| | 57.8 |
| | 55.1 |
| | 63.3 |
|
Polyethylene (cents/lb) (3) | | 101.7 |
| | 91.3 |
| | 99.7 |
| | 95.1 |
| | 107.7 |
| | 97.3 |
|
Styrene (cents/lb) (4) | | 83.2 |
| | 77.7 |
| | 83.6 |
| | 75.3 |
| | 86.9 |
| | 85.9 |
|
Caustic soda ($/short ton) (5) | | 605.8 |
| | 579.2 |
| | 611.4 |
| | 565.8 |
| | 579.2 |
| | 602.5 |
|
Chlorine ($/short ton) (6) | | 248.3 |
| | 262.5 |
| | 252.8 |
| | 268.1 |
| | 236.7 |
| | 255.0 |
|
PVC (cents/lb) (7) | | 61.5 |
| | 52.5 |
| | 60.9 |
| | 54.8 |
| | 66.5 |
| | 59.2 |
|
_____________
| |
(1) | Industry pricing data was obtained throughfrom 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 contract prices of polyethylene low density film 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 PVC over the period as reported by IHS Chemical. |
Summary
For the quarter ended September 30, 2013March 31, 2014, net income was $170.3158.0 million, or $2.541.18 per diluted share, on net sales of $1,004.21,027.7 million. This represents an increase in net income of $83.334.7 million, or $1.240.26 per diluted share, compared to the quarter ended September 30, 2012March 31, 2013 net income of $87.0123.3 million, or $1.300.92 per diluted share, on net sales of $821.2864.6 million. Net sales for the thirdfirst quarter of 20132014 increased by $183.0163.1 million compared to net sales for the thirdfirst quarter of 20122013, mainly attributable to higher sales volumes for styrenepolyethylene and caustic,ethylene, higher sales prices for most of our major products and sales contributed by our specialty PVC pipe business, which we acquired in May 2013. Income from operations was $266.6248.1 million for the thirdfirst quarter of 20132014 as compared to $142.5194.1 million for the thirdfirst quarter of 20122013. Income from operations for the thirdfirst quarter of 20132014 benefited primarily from higher olefins volumes and improved olefins and vinyls integrated product margins, predominantly due toas higher sales prices for most of our major productsmore than offset the increase in feedstock and lower overall feedstock costsenergy costs. The increase in first quarter 2014 income from operations as compared to the prior year period.
For the nine months ended September 30,first quarter of 2013, net income was $439.5 million, or $6.54 per diluted share, on net sales of $2,807.9 million. This represents an increase in net income of $149.2 million, or $2.21 per diluted share, from the nine months ended September 30, 2012 net income of $290.3 million, or $4.33 per diluted share, on net sales of $2,770.0 million. Net sales for the nine months ended September 30, 2013 increased marginally by $37.9 million compared to the prior year period mainly due to higher sales volumes and sales prices for styrene, PVC resin and caustic, higher polyethylene sales prices and sales contributed by our specialty PVC pipe business, mostly offset by lower feedstock, ethylene and ethylene co-products sales volumes. Income from operations was $695.9 million for the nine months ended September 30, 2013 as compared to $459.1 million for the nine months ended September 30, 2012. The increase in income from operations was primarily attributable to higher olefins and vinyls integrated product margins, predominantly due to a significant decrease in feedstock costs as average industry ethane prices decreased 40.4% and average industry propane prices decreased 10.1% for the nine months ended September 30, 2013 as compared to the prior year period. The increase in income from operations was partially offset by the lost sales, lower production and therates, unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our Calvert City complex and our Calvert City ethylene plant’s feedstock conversion and expansion of one of the Lake Charles, Louisiana ethylene units and the specialty PVC pipe business acquisition-related costs, including the effect of selling higher cost inventory recorded at fair value, of $5.8 million, or $0.06 per diluted share, after tax.project.
RESULTS OF OPERATIONS
ThirdFirst Quarter 20132014 Compared with ThirdFirst Quarter 2012
2013
Net Sales. Net sales increased by $183.0163.1 million, or 22.3%18.9%, to $1,004.21,027.7 million in the thirdfirst quarter of 20132014 from $821.2864.6 million in the thirdfirst quarter of 20122013, primarily attributable to higher sales volumes for styrenepolyethylene and caustic,ethylene, higher sales prices for most of our major products and sales contributed by our specialty PVC pipe business. Average sales prices for the thirdfirst quarter of 20132014 increased by 9.7%9.5% as compared to the thirdfirst quarter of 20122013. Overall sales volumes increased by 12.6%8.8% as compared to the thirdfirst quarter of 20122013.
Gross Profit. Gross profit margin percentage increased to 30.3%27.9% for the thirdfirst quarter of 20132014 from 21.0%26.3% for the thirdfirst quarter of 20122013, driven mainly by improved olefins and vinyls integrated product margins primarily attributable to higheras an increase in sales prices for most of our major productsoutpaced increases in feedstock and lower ethane costs, partially offset by higher propaneenergy costs. The third quarter 2013 gross profit margin also benefited from higher styrene and caustic sales volumes. Our raw material cost in both segments normally tracks industry prices, which experienced a decreasean increase of 26.3%31.0% for ethane and an increase of 15.1%50.2% for propane, as compared to the thirdfirst quarter of 20122013. Sales prices increased an average of 9.7%9.5% for the thirdfirst quarter of 20132014 as compared to the thirdfirst quarter of 20122013. The gross profit marginIn addition, our margins benefited from the increased ethylene production at our Lake Charles, Louisiana complex after the first quarter 2013 completion of the Petro 2 ethylene unit expansion and its conversion to 100% ethane feedstock capability. Income from operations for the thirdfirst quarter of 20122014 was negatively impacted by the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with a planned outage ofthe maintenance turnaround at our styrene plant in Lake Charles.Calvert City complex and our Calvert City ethylene plant’s feedstock conversion and expansion project.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the thirdfirst quarter of 20132014 of $37.939.0 million increased by $8.25.2 million as compared to the thirdfirst quarter of 20122013, mainly due to an increase in payroll and related labor costs, including incentive compensation, and an increase in selling expenses associated with the increase in sales.compensation.
Interest Expense. Interest expense decreasedincreased by $8.62.9 million to $3.39.2 million in the thirdfirst quarter of 20132014 from $11.96.3 million in the thirdfirst quarter of 20122013 largely as a result of increaseddecreased capitalized interest on major capital projects as compared to the prior year period. Debt balances remained relatively unchanged from the prior year period.
Other (Expense) Income, Net. Other (expense) income, net was net expensefor the first quarter of 2014 of $0.32.5 million inwas mainly comprised of income from our equity method investments. Other income, net for the thirdfirst quarter of 2013 compared to net income of $1.23.5 million included a settlement of a claim, which did not recur in the thirdfirst quarter of 20122014., mainly due to lower investment income and related write-offs and lower interest income in the third quarter
Income Taxes. The effective income tax rate was 35.3%34.5% for the thirdfirst quarter of 20132014. The effective income tax rate for the thirdfirst quarter of 2013 was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, mostly offset by the domestic manufacturing deduction. The effective income tax rate was 30.5% for the third quarter of 2012. The effective income tax rate for the third quarter of 20122014 was below the U.S. federal statutory rate of 35.0% primarily due to state tax credits and the domestic manufacturing deduction, and a reduction inmostly offset by state income taxes.
Olefins Segment
Net Sales. Net sales increased by $139.5 million, or 25.8%, to $679.3 million in the third quarter of 2013 from $539.8 million in the third quarter of 2012, predominantly due to higher styrene sales volumes and higher sales prices for our major products as compared to the prior year period. Styrene sales volumes for the third quarter of 2012 were negatively impacted by a planned outage of our styrene plant in Lake Charles. Average sales prices for the Olefins segment increased by 11.5% in the third quarter of 2013 as compared to the third quarter of 2012. Average sales volumes for the Olefins segment increased by 14.3% in the third quarter of 2013 as compared to the third quarter of 2012.
Income from Operations. Income from operations increased by $112.7 million, or 90.5%, to $237.2 million in the third quarter of 2013 from $124.5 million in the third quarter of 2012. This increase was mainly attributable to higher olefins integrated product margins as compared to the prior year period, primarily as a result of higher sales prices for most of our major products and significantly lower feedstock costs. In addition, olefins integrated margins benefited from the increased ethylene production at our Lake Charles complex after the completion in the first quarter of 2013 of the expansion project to increase the ethane-based ethylene capacity of one of the ethylene units at that complex. Trading activity in the third quarter of 2013 resulted in a gain of $4.9 million as compared to a gain of $0.2 million in the third quarter of 2012. Third quarter 2012 income from operations was negatively impacted by the lost production and unabsorbed fixed manufacturing costs associated with the planned outage of our styrene plant in Lake Charles.
Vinyls Segment
Net Sales. Net sales increased by $43.4 million, or 15.4%, to $324.8 million in the third quarter of 2013 from $281.4 million in the third quarter of 2012. This increase was mainly attributable to higher caustic sales volume, higher PVC resin and caustic sales prices and the sales contributed by our specialty PVC pipe business. Average sales prices for the Vinyls segment increased by 6.2% in the third quarter of 2013 as compared to the third quarter of 2012. Average sales volumes for the Vinyls segment increased by 9.3% in the third quarter of 2013 as compared to the third quarter of 2012.
Income from Operations. Income from operations increased by $15.5 million, or 64.3%, to $39.6 million in the third quarter of 2013 from $24.1 million in the third quarter of 2012. This increase was primarily driven by higher vinyls integrated product margins, largely resulting from higher sales prices for all major products, higher caustic sales volume and improved operating rates as compared to the prior year period.
Nine Months Ended September 30, 2013 Compared with Nine Months Ended September 30, 2012
Net Sales. Net sales increased marginally by $37.9 million, or 1.4%, to $2,807.9 million for the nine months ended September 30, 2013 from $2,770.0 million for the nine months ended September 30, 2012, primarily attributable to higher sales volumes and sales prices for styrene, PVC resin and caustic, higher polyethylene sales prices and sales contributed by our specialty PVC pipe business, mostly offset by lower feedstock, ethylene and ethylene co-products sales volumes. Ethylene and ethylene co-product sales volumes were lower primarily due to the first quarter 2013 turnaround and expansion of one of the Lake Charles ethylene units. Average sales prices for the nine months ended September 30, 2013 increased by 2.1% as compared to the nine months ended September 30, 2012. Overall sales volumes for the nine months ended September 30, 2013 decreased by 0.7% as compared to the nine months ended September 30, 2012.
Gross Profit. Gross profit margin percentage of 28.7% for the nine months ended September 30, 2013 increased from the 19.7% gross profit margin percentage for the nine months ended September 30, 2012. The improvement in gross profit margin percentage was predominantly due to lower feedstock costs. Our raw material cost in both segments normally tracks industry prices, which experienced a decrease of 40.4% and 10.1% for ethane and propane, respectively, as compared to the nine months
ended September 30, 2012. Sales prices increased an average of 2.1% for the nine months ended September 30, 2013 as compared to the prior year period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2013 increased by $22.3 million as compared to the nine months ended September 30, 2012, mainly attributable to an increase in payroll and related labor costs, including incentive compensation, and an increase in the provision for doubtful accounts.
Interest Expense. Interest expense decreased by $20.8 million to $14.9 million for the nine months ended September 30, 2013, largely due to increased capitalized interest on major capital projects and lower average interest rates in the first nine months of 2013 as compared to the prior year period. Debt balances remained relatively unchanged from the prior year period.
Other Income, Net. Other income, net decreased by $0.6 million to $3.1 million for the nine months ended September 30, 2013 from $3.7 million for the nine months ended September 30, 2012. The decrease was principally due to lower investment income and related write-offs, lower interest income and higher losses on foreign exchange as compared to the prior year period, mostly offset by the settlement of a claim against a supplier during the period.
Income Taxes. The effective income tax rate was 35.8%35.5% for the nine months ended September 30,first quarter of 2013. The effective income tax rate for the first quarter of 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 33.5% for the nine months ended September 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, partially offset by state income taxes.
Olefins Segment
Net Sales. Net sales decreasedincreased by $59.3140.0 million, or 3.0%24.0%, to $1,885.5722.8 million forin the nine months ended September 30, 2013first quarter of 2014 from $1,944.8582.8 million forin the nine months ended September 30, 2012first quarter of 2013, mainlypredominantly due to lower feedstock, ethylenehigher sales prices for most of our major products and ethylene co-products sales volumes, partially offset by higher sales volumes for styrene and higher sales prices for polyethylene and styrene. Ethylene and ethylene co-productas compared to the prior year period. Olefins sales volumes for the first quarter of 2013 were lower primarily due to the first quarter 2013 turnaround and expansion of one of the Lake Charles ethylene units.unit. Average sales prices for the Olefins segment increased by 2.0%13.3% forin the nine months ended September 30, 2013first quarter of 2014 as compared to the nine months ended September 30, 2012first quarter of 2013. Average sales volumes for the Olefins segment decreasedincreased by 5.1%10.7% forin the nine months ended September 30, 2013first quarter of 2014 as compared to the nine months ended September 30, 2012first quarter of 2013.
Income from Operations. Income from operations increased by $176.4111.2 million, or 43.1%69.0%, to $586.0272.3 million forin the nine months ended September 30, 2013first quarter of 2014 from $409.6161.1 million forin the nine months ended September 30, 2012first quarter of 2013. This increase was mainly attributable to higher olefins integrated product margins in the first quarter of 2014as compared to the prior year period. Marginsperiod, as the increase in sales prices outpaced increases in feedstock and energy costs. In addition, first quarter 2014 income from operations benefited from higher polyethylene and ethylene sales volumes and improved primarilyproduction rates for most of our major products as compared to the first quarter of 2013. Trading activity in the first quarter of 2014 resulted in a loss of $0.6 million as compared to a gain of $7.3 million in the first quarter of 2013. Income from operations in the first quarter of 2013 was negatively impacted as a result of significantly lower feedstock costs. Income from operations for the nine months ended September 30, 2013 was negatively impacted by the lost production, and the expensing of $19.9 million related to unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of one of the Lake Charles Petro 2 ethylene units. Trading activity for the nine months ended September 30, 2013 resulted in a gain of $9.9 million as compared to a loss of $0.8 million for the prior year period. Income from operations for the first nine months of 2012 was negatively impacted by the lost production and unabsorbed fixed manufacturing costs associated with the planned outage of our Lake Charles styrene plant.unit.
Vinyls Segment
Net Sales. Net sales increased by $97.123.1 million, or 11.8%8.2%, to $922.3304.9 million forin the nine months ended September 30, 2013first quarter of 2014 from $825.2281.8 million forin the nine months ended September 30, 2012first quarter of 2013. This increase was primarilymainly attributable to higher sales volumes for caustic and PVC resin, higher sales prices for most major products andthe sales contributed by our specialty PVC pipe business. Sales volumes forbusiness, partially offset by lower ethylene co-product sales volume due to the first nine monthsplanned shut down of 2012 were negatively impacted by the lower operating rates at our Geismar vinyls complexCalvert City ethylene plant as a result of operational issues related to the unscheduled shut down at the complex.feedstock conversion and expansion project. Average sales prices for the Vinyls segment increased by 2.1%1.7% forin the nine months ended September 30, 2013first quarter of 2014 as compared to the nine months ended September 30, 2012first quarter of 2013, while average. Average sales volumes for the Vinyls segment increased by 9.7%4.9% forin the nine months ended September 30, 2013first quarter of 2014 as compared to the nine months ended September 30, 2012first quarter of 2013.
Loss/Income from Operations. IncomeThe Vinyls segment incurred a loss from operations increased byof $68.421.1 million in the first quarter of 2014 as compared to income from operations of $136.143.7 million forin the nine months ended September 30,first quarter of 2013 from, a negative change of $67.764.8 million for the nine months ended September 30, 2012. This increasedecrease was predominantlyprimarily driven by the lost sales, lower production rates and the expensing of $16.9 million related to unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our Calvert City complex and our Calvert City ethylene plant’s feedstock conversion and expansion project. In addition, the Vinyls segment's first quarter 2014 operating results were negatively impacted by the severe winter weather and significantly higher propane costs, higher sales volumesas average industry prices for caustic and PVC resin and higher operating ratespropane increased by 50.2% as compared to the prior year period, partially offset by the specialty PVC pipe business acquisition-related costs, including the effect of selling higher cost inventory recorded at fair value. The Vinyls segment's operating results for the first nine months of 2012 wereperiod.
negatively impacted by the lost production, lost sales and unabsorbed manufacturing and other costs associated with the unscheduled shut down at our Geismar vinyls complex.
CASH FLOW DISCUSSION FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2014 AND 2013 AND 2012
Cash Flows
Operating Activities
Operating activities provided cash of $547.5212.5 million in the first ninethree months of 20132014 compared to cash provided of $492.8116.3 million in the first ninethree months of 20122013. The $54.796.2 million increase in cash flows from operating activities was mainly due to an increase in income from operations partially offset by an increaseand a decrease in the use of cash for working capital purposes andpurposes. Income from operations increased by $54.0 million in the first three months of 2014 primarily as a result of higher olefins integrated product margins as compared to the prior year period. Cash flows from operating activities for the first three months of 2013 was negatively impacted by deferred turnaround costs from the turnaround of one of our Lake Charles ethylene units. Income from operations increased by $236.8 million in the first nine months of 2013 primarily as a result of higher olefins and vinyls integrated product margins as compared to the prior year period. 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, usedprovided cash of $46.52.0 million in the first ninethree months of 20132014, compared to $115.318.8 million of cash providedused in the first ninethree months of 20122013, an unfavorablea favorable change of $161.820.8 million. The change was caused by higher accounts receivable balances largely attributablemainly due to an increase in average sales volumes during the third quarter of 2013 as compared to the third quarter of 2012 and an increasea decrease in inventory during the 20132014 period.
Investing Activities
Net cash used for investing activities during the first ninethree months of 20132014 was $694.6130.0 million as compared to net cash used for investing activities of $194.6121.3 million in the first ninethree months of 20122013. Capital expenditures were $498.3110.7 million in the first ninethree months of 20132014 compared to $235.5150.8 million in the first nine months of 2012. The higher capital expenditures in the first ninethree months of 2013 were largely, a decrease mainly attributable to the constructioncompletion of the new chlor-alkali plant at our Geismar facility (which is expected to be operational byin December 2013. Capital expenditures in the endfirst three months of 2013),2014 were mainly incurred on the feedstock conversion and ethylene expansion project and PVC plant expansion and ethylene furnaces modernization projectsproject at our Calvert City Kentucky complex and the planned upgrade and expansion of one of the second ethylene unitsunit at our Lake Charles complex. Capital expenditures in the first ninethree months of 20122013 were mainly incurred on the construction of the new Geismar chlor-alkali plant, and the expansion of one of the first ethylene unitsunit at our Lake Charles complex and the feedstock conversion and ethylene furnaces modernization projects at our Calvert City complex. The remaining capital expenditures in the first ninethree months of 20132014 and 20122013 primarily related to projects to improve production capacity or reduce costs, maintenance and maintenance, safety projects and environmental projects at our various facilities. We used $178.3 million of cash to acquire our specialty PVC pipe business. Purchases of securities in the first ninethree months of 20132014 totaled $232.349.0 million and were comprised of short-term commercial paper and corporate and U.S. government debt securities and equity securities. We also received aggregate proceeds of $239.830.1 million from the sales and maturities of short-term commercial paperour investments in the first ninethree months of 20132014. The activity during the first ninethree months of 20122013 was primarily related to the purchases of, and the receipt of proceeds received from the salematurities of, equity securities.short-term commercial paper.
Financing Activities
Net cash used for financing activities during the first ninethree months of 20132014 was $51.411.1 million as compared to net cash providedused of $74.37.1 million in the first ninethree months of 20122013. The activity during the first ninethree months of 20132014 was primarily related to the $40.216.8 million payment of cash dividends, and $19.4 million of cash used for the repurchase of shares of our common stock, partially offset by proceeds of $3.22.2 million from the exercise of stock options. The activity during the first ninethree months of 20122013 was mainly related to the draw-down$12.6 million payment of our restricted cash anddividends, partially offset by proceeds from the exercise of stock options, partially offset by the $22.3 million payment of cash dividends, $10.8 million of repurchases of shares of our common stock and $2.2 million of debt issuance costs associated with the issuance of our 3.60% senior notes due 2022.options.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Our principal sources of liquidity are from cash and cash equivalents, investments in current marketable securities, cash from operations, short-term borrowings under our revolving credit facility and our long-term financing.
In October 2012, we announced a project to convert the feedstock for our Calvert City ethylene plant from propane to ethane and the planned increase in ethylene capacity from 450 million pounds annually to 630 million pounds annually. The ethylene expansion and feedstock conversion project is targeted for start-up in the second quarter of 2014. In addition, we announced an expansion of the existing PVC plant in Calvert City, which should allow us to take advantage of the increased ethylene production at our Calvert City complex and to provide additional PVC resin to meet the growing demands of our global customers. The expansion of the Calvert City PVC plant is expected to increase PVC resin capacity by approximately
200 million pounds annually and is targeted for completion by the second half of 2014. These projects are currently estimated to cost in the range of $210.0 million to $240.0 million in the aggregate.
In August 2010, we announced that we intend to proceed with the previously announced plans for the construction of a new chlor-alkali plant at our Geismar facility. The project is currently estimated to cost in the range of $400.0 million to $425.0 million and is targeted for start-up in the fourth quarter of 2013.
These capital projects are expected to be funded with cash on hand, cash flow from operations, and, if necessary, borrowings under our revolving credit facility and other external financing. As of September 30, 2013, we had incurred a total cost of approximately $465.3 million on these capital projects.
In April 2011, we announced an expansion program to increase the ethane-based ethylene capacity of both of the ethylene units at our Lake Charles complex. We completed the expansion of the first ethylene unit in the first quarter of 2013. We are evaluating plans forcurrently plan to upgrade and expand the expansioncapacity of the secondother ethylene unit at our Lake Charles complex in 2015.the late 2015 to early 2016 time frame. This project is currently estimated to cost in the range of $250.0 million to $310.0 million and will add approximately 250 million pounds of ethylene capacity. The additional capacity from this expansion is expected to provide ethylene for existing internal uses and may also be sold in the merchant market. This capital project is expected to be funded with cash on hand, cash flow from operations, and, if necessary, borrowings under our revolving credit facility and other external financing. We have incurred minimal cost on this project as of March 31, 2014.
In August 2011, our Board of Directors authorized a stock repurchase program totaling $100.0 million. As of September 30, 2013March 31, 2014, we had repurchased 506,5251,252,922 shares of our common stock (on a post-split basis) for an aggregate purchase price of approximately $32.746.2 million under this program. DuringWe did not repurchase any shares under this program during the three months ended September 30, 2013March 31, 2014, we repurchased 59,700 shares of our common stock for an aggregate purchase price of approximately $6.1 million under this program.. Purchases under this 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 program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The program may be discontinued by our Board of Directors at any time.
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 may 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, Cash Equivalents and Current Marketable Securities
As of September 30, 2013March 31, 2014, our cash, cash equivalents and current marketable securities totaled $717.2776.3 million. In addition, we have a revolving credit facility available to supplement cash if needed, as described under "Debt" below.
Debt
As of September 30, 2013March 31, 2014, our long-term debt, including current maturities, totaled $763.8763.9 million, consisting of $250.0 million principal amount of 3.60% senior notes due 2022 (less the unamortized discount of $1.11.0 million), $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% GO Zone Senior Notes Due 2035"), $65.0 million of 6 ½% senior notes due 2035 (the "6 ½% IKE Zone Senior Notes Due 2035") (collectively, but excluding the 3.60% senior notes due 2022, the "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). The 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% GO Zone Senior Notes Due 2035 and the 6 ½% IKE Zone Senior Notes Due 2035 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, 2013March 31, 2014, debt outstanding under the tax-exempt waste disposal revenue bonds bore interest at a variable rate. As of September 30, 2013March 31, 2014, we were in compliance with all of the covenants with respect to the 3.60% senior notes due 2022, the Senior Notes, our waste disposal revenue bonds and our revolving credit facility.
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, we believe our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our normal operating needs for the foreseeable future.
Revolving Credit Facility
We have a $400.0 million senior secured revolving credit facility. The facility includes a provision permitting us to increase the size of the facility, up to four times, in increments of at least $25.0 million each (up to a maximum of $150.0 million) under certain circumstances if certain lenders agree to commit to such an increase.
At September 30, 2013March 31, 2014, we 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 September 30, 2013March 31, 2014, we had outstanding letters of credit totaling $16.9 million and borrowing availability of $383.1 million under the revolving credit facility.
Our revolving credit facility requires us to maintain a minimum fixed charge coverage ratio of 1.0:1 for successive 30-day periods after any date on which the borrowing availability under the facility is less than the greater of (1) 12.5% of the commitments under the facility and (2) $50.0 million, until the borrowing availability exceeds the greater of the amount in clause (1) and the amount in clause (2) for a 30-day period.
In order to make acquisitions or investments, our revolving credit facility provides that (1) we must maintain a minimum borrowing availability of at least the greater of $100.0 million or 25% of the total bank commitments under our revolving credit facility or (2) we must maintain a minimum borrowing availability of at least the greater of $70.0 million or 17.5% of the total bank commitments under our revolving credit facility and meet a minimum fixed charge coverage ratio of 1.0:1 under our revolving credit facility. However, we may make specified distributions up to an aggregate of $25.0 million and specified acquisitions up to an aggregate of $25.0 million if either we maintain a minimum borrowing availability of at least the greater of $70.0 million or 17.5% of the total bank commitments under our revolving credit facility or we meet the minimum fixed charge coverage ratio of 1.0:1 under our revolving credit facility. Notwithstanding the foregoing, we may make (1) investments up to $200.0 million in one or more joint ventures that own feedstock, raw material and ethylene pipeline, storage and fractionating facilities and (2) additional investments up to $55.0 million in Suzhou Huasu Plastics Co., Ltd. The revolving credit facility contains other customary covenants and events of default that impose significant operating and financial restrictions on us. These restrictions, among other things, provide limitations on the occurrence of additional indebtedness and our ability to create liens, to engage in certain affiliate transactions and to engage in sale-leaseback transactions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the 20122013 Form 10-K for more information on the revolving credit facility.
GO Zone and IKE Zone Bonds
As of September 30, 2013March 31, 2014, 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% GO Zone Senior Notes Due 2035 and 6 ½% IKE Zone Senior Notes Due 2035. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt" in the
20122013 Form 10-K for more information on the 6 ½% senior notes due 2029, the 6 ¾% senior notes due 2032, the 6 ½% GO Zone Senior Notes Due 2035 and the 6 ½% IKE Zone Senior Notes Due 2035. 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 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 $0.20 per share (currently $0.2250 per share).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% of our consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which financial statements have been filed, plus 100% 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 20122013 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 assets.
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.
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, we believe our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our normal operating needs for the foreseeable future.
Off-Balance Sheet Arrangements
None.
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 flow and demand for our products;
industry market outlook;
production capacities;
our ability to borrow additional funds under our credit facility;
our ability to meet our liquidity needs;
our intended quarterly dividends;
future capacity additions and expansions in the industry;
timing, funding and results of the expansion and feedstock conversion programs at our Lake Charles and Calvert City complexes;
timing, funding and results of the planned new chlor-alkali plant in Geismar;
results of the feedstock conversion program at our Calvert City ethylene plant;
health of our customer base;
pension plan 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. These statements are subject to a number of assumptions, risks and uncertainties, including those described in "Risk Factors" in the 20122013 Form 10-K and 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 and worldwide economies, including those due to political tensions in the Middle East and elsewhere;
current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries;
industry production capacity and operating rates;
the supply/demand balance for our products;
competitive products and pricing pressures;
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 implement our business strategies; and
creditworthiness of our customers.
Many of these 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.
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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, 2013March 31, 2014, a hypothetical $0.10 increase in the price of a gallon of ethane would have increased our income before taxes by $2.4 million and a hypothetical $0.10 increase in the price of a pound of ethylene would have decreased our income before taxes by $3.9$0.3 million. Additional information concerning derivative commodity instruments appears in Notes 9 and 10 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, 2013March 31, 2014, we had variable rate debt of $10.9 million outstanding. All of the debt outstanding under our revolving credit facility (none was outstanding at September 30, 2013March 31, 2014) and our loan relating to the tax-exempt waste disposal revenue bonds are at variable rates. 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, 2013March 31, 2014 was 0.16%0.10%. 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, 2013March 31, 2014, we had $754.0 million 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 are 1% higher at the time of refinancing, our annual interest expense would increase by approximately $7.5 million.
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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 Senior Vice President, Chief Financial Officer and Treasurer, 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 Senior Vice President, Chief Financial Officer and Treasurer 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, 2013March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
The 20122013 Form 10-K, filed on February 22, 2013,21, 2014, contained a description of various legal proceedings in which we are involved, including environmental proceedings at our facilities in Calvert City. See Note 1615 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.
For a discussion of risk factors, please read Item 1A, "Risk Factors" in the 20122013 Form 10-K and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.10-K. There have been no material changes from those risk factors.
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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, 2013March 31, 2014:. As the transactions presented below were all consummated before the Company’s March 18, 2014 stock-split was effective, all amounts in the table below are presented on a pre-split basis.
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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 (1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 2013 | | — |
| | $ | — |
| | — |
| | $ | 73,415,000 |
|
August 2013 | | — |
| | $ | — |
| | — |
| | $ | 73,415,000 |
|
September 2013 | | 59,700 |
| | $ | 102.62 |
| | 59,700 |
| | $ | 67,289,000 |
|
| | 59,700 |
| | $ | 102.62 |
| | 59,700 |
| | |
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| | | | | | | | | | | | | | |
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) |
January 2014 | | — |
| | $ | — |
| | — |
| | $ | 53,780,000 |
|
February 2014 | | 24,723 |
| | $ | 129.13 |
| | — |
| | $ | 53,780,000 |
|
March 2014 | | — |
| | $ | — |
| | — |
| | $ | 53,780,000 |
|
| | 24,723 |
| | $ | 129.13 |
| | — |
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_____________
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(1) | Represents shares withheld in satisfaction of withholding taxes due upon the vesting of restricted stock and restricted stock units granted to our employees under the 2013 Plan. |
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(2) | On August 22, 2011, we announced the authorization by our Board of Directors of a $100.0 million stock repurchase program. As of September 30, 2013March 31, 2014, 506,5251,252,922 shares of common stock (on a post-split basis) had been acquired at an aggregate purchase price of $32.746.2 million. Decisions regarding the amount and the timing of purchases under the program will be influenced by our cash on hand, our cash flow from operations, general market conditions and other factors. The program may be discontinued by our Board of Directors at any time. None of the purchases during the first quarter of 2014 were pursuant to this program. |
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Exhibit No. | | |
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31.1 | | Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Executive Officer) |
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31.2 | | Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Financial Officer) |
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32.1 | | Section 1350 Certification (Principal Executive Officer and Principal Financial Officer) |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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.
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| | | | | | |
| | | | WESTLAKE CHEMICAL CORPORATION |
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Date: | November 7, 2013May 6, 2014 | | | By: | | /S/ ALBERT CHAO |
| | | | | | Albert Chao |
| | | | | | President and Chief Executive Officer (Principal Executive Officer) |
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Date: | November 7, 2013May 6, 2014 | | | By: | | /S/ M. STEVEN BENDER |
| | | | | | M. Steven Bender |
| | | | | | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |