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EX-31.1 - EXHIBIT 31.1 - WESTLAKE CHEMICAL CORPexhibit311_20180930.htm
EX-32.1 - EXHIBIT 32.1 - WESTLAKE CHEMICAL CORPexhibit321_20180930.htm
EX-31.2 - EXHIBIT 31.2 - WESTLAKE CHEMICAL CORPexhibit312_20180930.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
Form 10-Q
 
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                    to                    
Commission File No. 001-32260
 
 
 
 
 
Westlake Chemical Corporation
(Exact name of Registrant as specified in its charter)
 
 
 
 
 

Delaware
 
76-0346924
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
2801 Post Oak Boulevard, Suite 600
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 960-9111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨  
 
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes   ¨     No   x
The number of shares outstanding of the registrant's sole class of common stock as of October 30, 2018 was 129,165,391.



INDEX






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
 
 
(in millions of dollars, except par values and share amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
788

 
$
1,531

Accounts receivable, net
 
1,241

 
1,001

Inventories
 
939

 
900

Prepaid expenses and other current assets
 
36

 
31

Total current assets
 
3,004

 
3,463

Property, plant and equipment, net
 
6,519

 
6,412

Goodwill
 
1,008

 
1,012

Customer relationships, net
 
550

 
616

Other intangible assets, net
 
141

 
161

Other assets, net
 
499

 
412

Total assets
 
$
11,721

 
$
12,076

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
626

 
$
600

Accrued liabilities
 
675

 
657

Current portion of long-term debt, net
 

 
710

Total current liabilities
 
1,301

 
1,967

Long-term debt, net
 
2,667

 
3,127

Deferred income taxes
 
1,184

 
1,111

Pension and other post-retirement benefits
 
303

 
344

Other liabilities
 
178

 
158

Total liabilities
 
5,633

 
6,707

Commitments and contingencies (Note 13)
 


 


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

 

Common stock, $0.01 par value, 300,000,000 shares authorized; 134,651,380 and
134,651,380 shares issued at September 30, 2018 and December 31, 2017, respectively
 
1

 
1

Common stock, held in treasury, at cost; 5,486,164 and 5,232,875 shares at
September 30, 2018 and December 31, 2017, respectively
 
(337
)
 
(302
)
Additional paid-in capital
 
562

 
555

Retained earnings
 
5,400

 
4,613

Accumulated other comprehensive income (loss)
 
(24
)
 
7

Total Westlake Chemical Corporation stockholders' equity
 
5,602

 
4,874

Noncontrolling interests
 
486

 
495

Total equity
 
6,088

 
5,369

Total liabilities and equity
 
$
11,721

 
$
12,076

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

1


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
(in millions of dollars, except per share data and share amounts)
Net sales
 
$
2,255

 
$
2,109

 
$
6,640

 
$
6,031

Cost of sales
 
1,716

 
1,613

 
5,007

 
4,766

Gross profit
 
539

 
496

 
1,633

 
1,265

Selling, general and administrative expenses
 
114

 
98

 
337

 
298

Amortization of intangibles
 
24

 
27

 
75

 
82

Transaction and integration-related costs
 
5

 
7

 
20

 
23

Income from operations
 
396

 
364

 
1,201

 
862

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(28
)
 
(40
)
 
(96
)
 
(119
)
Other income, net
 
23

 
4

 
53

 
13

Income before income taxes
 
391

 
328

 
1,158

 
756

Provision for income taxes
 
73

 
109

 
255

 
233

Net income
 
318

 
219

 
903

 
523

Net income attributable to noncontrolling interests
 
10

 
8

 
30

 
21

Net income attributable to Westlake Chemical Corporation
 
$
308

 
$
211

 
$
873

 
$
502

Earnings per common share attributable to Westlake Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
2.36

 
$
1.62

 
$
6.70

 
$
3.87

Diluted
 
$
2.35

 
$
1.61

 
$
6.67

 
$
3.85

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
129,427,328

 
129,069,186

 
129,512,097

 
129,033,597

Diluted
 
130,052,292

 
129,888,968

 
130,183,201

 
129,789,965

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

2


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018

2017
 
 
 
 
 
 
 
 
 
 
 
(in millions of dollars)
Net income
 
$
318

 
$
219

 
$
903

 
$
523

Other comprehensive income (loss), net of income taxes
 
 
 
 
 
 
 
 
Pension and other post-retirement benefits liability
 
 
 
 
 
 
 
 
Pension and other post-retirement benefits reserves adjustment
 
12

 
1

 
12

 
2

Income tax provision on pension and other post-retirement benefits liability
 
(3
)
 
(1
)
 
(3
)
 
(1
)
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
Foreign currency translation
 

 
40

 
(43
)
 
111

Income tax benefit (provision) on foreign currency translation
 

 

 
1

 
(2
)
Other comprehensive income (loss), net of income taxes
 
9

 
40

 
(33
)
 
110

Comprehensive income
 
327

 
259

 
870

 
633

Comprehensive income attributable to noncontrolling interests, net of tax of $1
for the three months ended September 30, 2018 and 2017; and net of tax of $3 and $2 for the nine months ended September 30, 2018 and 2017, respectively.
 
10

 
8

 
28

 
23

Comprehensive income attributable to Westlake Chemical Corporation
 
$
317

 
$
251

 
$
842

 
$
610

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

3


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
Common Stock
 
Common Stock, Held in Treasury
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Number of Shares
 
At Cost
 
Additional Paid-in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions of dollars, except share amounts)
Balances at December 31, 2016
 
134,651,380

 
$
1

 
5,726,377

 
$
(319
)
 
$
551

 
$
3,412

 
$
(121
)
 
$
368

 
$
3,892

Net income
 

 

 

 

 

 
502

 

 
21

 
523

Other comprehensive income
 

 

 

 

 

 

 
108

 
2

 
110

Shares issued—stock-
based compensation
 

 

 
(174,684
)
 
4

 
(2
)
 

 

 

 
2

Stock-based compensation
 

 

 

 

 
10

 

 

 

 
10

Dividends declared
 

 

 

 

 

 
(76
)
 

 

 
(76
)
Distributions to
noncontrolling interests
 

 

 

 

 

 

 

 
(21
)
 
(21
)
Issuance of Westlake Chemical Partners LP common units
 

 

 

 

 

 

 

 
111

 
111

Balances at September 30, 2017
 
134,651,380

 
$
1

 
5,551,693

 
$
(315
)
 
$
559

 
$
3,838

 
$
(13
)
 
$
481

 
$
4,551

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2017
 
134,651,380

 
$
1

 
5,232,875

 
$
(302
)
 
$
555

 
$
4,613

 
$
7

 
$
495

 
$
5,369

Cumulative effect of accounting change
 

 

 

 

 

 
1

 

 

 
1

Net income
 

 

 

 

 

 
873

 

 
30

 
903

Other comprehensive loss
 

 

 

 

 

 

 
(31
)
 
(2
)
 
(33
)
Common stock repurchased
 

 

 
515,853

 
(49
)
 

 

 

 

 
(49
)
Shares issued—stock-
based compensation
 

 

 
(262,564
)
 
14

 
(6
)
 

 

 

 
8

Stock-based compensation
 

 

 

 

 
13

 

 

 

 
13

Dividends declared
 

 

 

 

 

 
(87
)
 

 

 
(87
)
Distributions to
noncontrolling interests
 

 

 

 

 

 

 

 
(37
)
 
(37
)
Balances at September 30, 2018
 
134,651,380

 
$
1

 
5,486,164

 
$
(337
)
 
$
562

 
$
5,400

 
$
(24
)
 
$
486

 
$
6,088

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

4


WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(in millions of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
903

 
$
523

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
473

 
449

Stock-based compensation expense
 
16

 
17

Loss from disposition of property, plant and equipment
 
26

 
14

Deferred income taxes
 
74

 
23

Other gains, net
 
(20
)
 
(3
)
Changes in operating assets and liabilities
 
 
 
 
Accounts receivable
 
(252
)
 
(185
)
Inventories
 
(42
)
 
24

Prepaid expenses and other current assets
 
(3
)
 
17

Accounts payable
 
36

 
61

Accrued liabilities
 
9

 
57

Other, net
 
(65
)
 
(35
)
Net cash provided by operating activities
 
1,155

 
962

Cash flows from investing activities
 
 
 
 
Additions to property, plant and equipment
 
(507
)
 
(414
)
Additions to investments in unconsolidated subsidiaries
 
(63
)
 
(47
)
Other, net
 
9

 
1

Net cash used for investing activities
 
(561
)
 
(460
)
Cash flows from financing activities
 
 
 
 
Dividends paid
 
(87
)
 
(76
)
Distributions to noncontrolling interests
 
(37
)
 
(21
)
Proceeds from notes payable and drawdown of revolver
 
11

 
231

Net proceeds from issuance of Westlake Chemical Partners LP common units
 

 
111

Repayment of term loan
 

 
(150
)
Repayment of revolver
 

 
(550
)
Redemption and repayment of notes payable
 
(1,177
)
 
(7
)
Repurchase of common stock for treasury
 
(49
)
 

Other
 
8

 
2

Net cash used for financing activities
 
(1,331
)
 
(460
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(6
)
 
22

Net increase (decrease) in cash, cash equivalents and restricted cash
 
(743
)
 
64

Cash, cash equivalents and restricted cash at beginning of period
 
1,554

 
646

Cash, cash equivalents and restricted cash at end of period
 
$
811

 
$
710

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

5

WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in millions 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, 2017 consolidated financial statements and notes thereto of Westlake Chemical Corporation (the "Company") included in the annual report on Form 10-K for the fiscal year ended December 31, 2017 (the "2017 Form 10-K"), filed with the SEC on February 21, 2018. These consolidated financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2017 with the exception of those accounting standards adopted in 2018 as discussed in Note 1.
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, 2018, its results of operations for the three and nine months ended September 30, 2018 and 2017 and the changes in its cash position for the nine months ended September 30, 2018 and 2017.
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, 2018 or any other interim period. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Certain reclassifications have been made to the prior-year financial statements to conform to the current-year presentation.
Recent Accounting Pronouncements
Leases (ASU No. 2016-02)
In February 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on a new lease standard that will supersede the existing lease guidance. The standard requires a lessee to recognize assets and liabilities related to long-term leases that are classified as operating leases under current guidance on its balance sheet. An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures related to leases. The accounting standard will be effective for reporting periods beginning after December 15, 2018. The standard requires adoption using a modified retrospective approach and allows for the election of certain transition practical expedients. The accounting standards update allows for certain transition expedients for leases that commenced prior to the adoption of the new standard. Under the optional transition expedients an entity is not required to reassess (1) whether any expired or existing lease contracts are or contain leases, (2) the classification of leases as operating or capital leases or (3) whether any initial direct costs qualify for capitalization under the new accounting standard. These expedients are required to be elected as a group. The accounting standards update also allows the use of hindsight to determine lease term when considering lease renewal or termination options.
During 2018, the FASB issued additional authoritative guidance that provides an optional transition method which allows entities to continue applying the existing lease guidance in the comparative periods and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The FASB also issued an accounting standards update that allows entities to apply their existing policy for accounting for land easements that exist as of, or expired before, the effective date of the new lease standard. The Company is in the process of evaluating the transition method and other expedients it may elect.
The accounting standard will be effective for reporting periods beginning after December 15, 2018. The Company is in the process of reviewing its existing lease agreements and evaluating the impact that the new accounting guidance will have on the Company's consolidated financial position, results of operations and cash flows.

6

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

Credit Losses (ASU No. 2016-13)
In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Intangibles - Goodwill and Other (ASU No. 2017-04)
In January 2017, the FASB issued an accounting standards update to simplify the subsequent measurement of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Income Statement - Reporting Comprehensive Income (ASU 2018-02)
In February 2018, the FASB issued an accounting standards update to (1) allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the "Tax Act"); and (2) require certain disclosures about stranded tax effects. The accounting standard will be effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of evaluating the impact that the new accounting guidance will have on the Company's consolidated financial position, results of operations and cash flows.
Fair Value Measurement (ASU No. 2018-13)
In August 2018, the FASB issued an accounting standards update to modify the disclosure requirements on fair value measurements. The amendments are effective beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. Most amendments should be applied retrospectively, but certain amendments will be applied prospectively. The Company is in the process of assessing the impact of the standard on the Company's fair value disclosures. However, the standard is not expected to have an impact on the Company's consolidated financial position, results of operations and cash flows.
Intangibles - Goodwill and Other (ASU No. 2018-15)
In August 2018, the FASB issued an accounting standards update to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments are effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted the standard on October 1, 2018, prospectively, and did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers (ASU No. 2014-09)
In May 2014, the FASB issued an accounting standards update on a comprehensive new revenue recognition standard that supersedes virtually all previously issued revenue recognition guidance. The new accounting guidance creates a framework by which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities are required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch-up as of the current period.

7

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

The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), effective January 1, 2018. The Company applied the modified retrospective transition method to all contracts that were not completed as of the adoption date. Periods prior to January 1, 2018 were not adjusted and are reported under the accounting standards that were in place during those periods. The cumulative effects of changes to the Company's consolidated January 1, 2018 balance sheet for the adoption of this accounting standard were immaterial.
The impact of ASC 606 adoption on the financial statements for the three and nine months ended September 30, 2017 as compared with the guidance that was in effect prior to January 1, 2018 was immaterial.
Revenue is recognized when the Company transfers control of inventories to its customers. Amounts recognized as revenues reflect the consideration to which the Company expects to be entitled in exchange for those inventories. Provisions for discounts, rebates and returns are incorporated in the estimate of variable consideration and reflected as reduction to revenue in the same period as the related sales.
Control of inventories generally transfers upon shipment for domestic sales. The Company excludes taxes collected on behalf of customers from the estimated contract price. For export contracts, the point at which control passes to the customer varies depending on the terms specified in the customer contract.
The Company generally invoices customers and recognizes revenue and accounts receivable upon transferring control of inventories. In limited circumstances, the Company transfers control of inventories shortly before it has an unconditional right to receive consideration, resulting in recognition of contract assets. The Company also receives advance payments from certain customers, resulting in recognition of contract liabilities. Contract assets and liabilities are generally settled within the period and are not material to the consolidated balance sheets.
The Company expenses sales commissions when incurred. These costs are recorded within selling, general and administrative expenses. The Company does not disclose the value of unsatisfied performance obligations because its contracts with customers (i) have an original expected duration of one year or less or (ii) have only variable consideration that is calculated based on market prices at specified dates and is allocated to wholly unsatisfied performance obligations.
ASC 606 requires disclosure of disaggregated revenue into categories that depict the nature of how the Company's revenue and cash flows are affected by economic factors. The Company discloses revenues by product and segment in Note 14 to this quarterly report on Form 10-Q.
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU No. 2016-01)
In January 2016, the FASB issued an accounting standards update making certain changes principally to the current guidance for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Among other things, the guidance (1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value, with changes in fair value recognized in net income; (2) allows entities to elect to measure equity investments without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes (changes in the basis of these equity investments to be reported in net income); (3) requires an entity that has elected the fair value option for financial liabilities to recognize changes in fair value due to instrument-specific credit risk separately in other comprehensive income; (4) clarified current guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities; and (5) requires specific disclosure pertaining to financial assets and financial liabilities in the financial statements. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows. The Company is party to a joint venture investment with Lotte Chemical USA Corporation to build an ethylene facility, LACC, LLC ("LACC"). The Company measures its investment in LACC at cost, adjusted for observable price changes because the investment does not have a readily determinable fair value.

8

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

Cash Flows (ASU No. 2016-15)
In August 2016, the FASB issued an accounting standards update providing new guidance on the classification of certain cash receipts and payments including debt extinguishment costs, debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments, proceeds from the settlement of insurance claims and life insurance policies and distributions received from equity method investees in the statement of cash flows. This update is required to be applied using the retrospective transition method to each period presented unless it is impracticable to be applied retrospectively. In such situation, this guidance is to be applied prospectively. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Cash Flows (ASU No. 2016-18)
In November 2016, the FASB issued an accounting standards update to clarify certain existing principles in Accounting Standards Codification 230, Cash flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018. Upon adoption, the Company retrospectively adjusted its financial statements to reflect restricted cash in the beginning and ending cash and restricted cash balances within the statements of cash flows. As a result of this retrospective adoption and reclassification of restricted cash and cash equivalents, net cash provided by (used for) financing activities on the consolidated statement of cash flows for the nine months ended September 30, 2017 has been adjusted to $(460) from the originally reported $(306) to reflect the retrospective application of the new accounting guidance. Previously reported cash and cash equivalents at beginning of the period and cash and cash equivalents at end of the period for the nine months ended September 30, 2017 have been adjusted to include restricted cash of $186 and $32, respectively.
Business Combinations (ASU No. 2017-01)
In January 2017, the FASB issued an accounting standards update to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted the accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (ASU No. 2017-05)
In February 2017, the FASB issued an accounting standards update to clarify the scope of guidance related to other incomegains and losses from the derecognition of nonfinancial assets, and to add guidance for partial sales of nonfinancial assets. The new guidance clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. The guidance also outlines that when an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling interest, it will measure the retained interest at fair value resulting in full gain or loss recognition upon sale of the controlling interest. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.

9

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

Compensation - Retirement Benefits (ASU No. 2017-07)
In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires employers to disaggregate the service cost component from the other components of net periodic benefit cost and report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments also allow only the service cost component to be eligible for capitalization when applicable. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Compensation - Stock Compensation (ASU No. 2017-09)
In May 2017, the FASB issued an accounting standards update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting in Topic 718. Essentially, an entity will not have to account for the effects of a modification if: (1) the fair value of the modified award is the same immediately before and after the modification; (2) the vesting conditions of the modified award are the same immediately before and after the modification; and (3) the classification of the modified award as either an equity instrument or liability instrument is the same immediately before and after the modification. This update is to be applied prospectively to an award modified on or after the adoption date. The accounting standard became effective for reporting periods beginning after December 15, 2017. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (ASU No. 2017-12)
In August 2017, the FASB issued an accounting standards update to improve financial reporting of hedging relationships, to better portray the economic results of an entity's risk management activities in the financial statements and to simplify application of hedge accounting guidance. The accounting standard eliminates certain hedge effectiveness measurement and reporting requirements and expands the types of permissible hedging strategies. The accounting standard will be effective for reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance, to be applied retrospectively to the beginning of the fiscal year. The Company adopted this accounting standard effective January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
2. Financial Instruments
Cash Equivalents
The Company had $355 and $644 of held-to-maturity securities with original maturities of three months or less, primarily consisting of corporate debt securities, classified as cash equivalents at September 30, 2018 and December 31, 2017, respectively. The Company's investments in held-to-maturity securities were held at amortized cost, which approximates fair value.
Restricted Cash and Cash Equivalents
The Company had restricted cash and cash equivalents of $23 at September 30, 2018 and December 31, 2017. The Company's restricted cash and cash equivalents are related to balances that are restricted for payment of distributions to certain of the Company's current and former employees and are reflected primarily in other assets, net in the consolidated balance sheets.

10

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

3. Accounts Receivable
Accounts receivable consist of the following:
 
 
September 30,
2018
 
December 31,
2017
Trade customers
 
$
1,171

 
$
974

Affiliates
 
11

 
9

Allowance for doubtful accounts
 
(24
)
 
(22
)
 
 
1,158

 
961

Federal and state taxes
 
55

 
7

Other
 
28

 
33

Accounts receivable, net
 
$
1,241

 
$
1,001

4. Inventories
Inventories consist of the following:
 
 
September 30,
2018
 
December 31,
2017
Finished products
 
$
566

 
$
549

Feedstock, additives, chemicals and other raw materials
 
221

 
221

Materials and supplies
 
152

 
130

Inventories
 
$
939

 
$
900

5. Goodwill
The gross carrying amounts and changes in the carrying amount of goodwill for the nine months ended September 30, 2018 were as follows:
 
 
Olefins Segment
 
Vinyls Segment
 
Total
Balances at December 31, 2017
 
$
30

 
$
982

 
$
1,012

Effects of changes in foreign exchange rates
 

 
(4
)
 
(4
)
Balances at September 30, 2018
 
$
30

 
$
978

 
$
1,008

The Company performed its annual impairment analysis for the Vinyls reporting units during the second quarter of 2018. The Company elected to perform a qualitative assessment (commonly known as "step zero") for the purposes of its annual goodwill impairment analysis for the Vinyls reporting units. Based upon this assessment, the Company determined that it is more likely than not that the fair value of each of the Vinyls reporting units exceeds its carrying value. Factors considered in the qualitative assessment included macroeconomic conditions, industry and market considerations, cost factors related to raw materials and labor, overall financial performance (both current and projected), changes in management or strategy, and market capitalization.

11

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

6. Long-Term Debt
Long-term debt consists of the following:
 
 
September 30, 2018
 
December 31, 2017
 
 
Principal
Amount
 
Unamortized
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
 
Principal
Amount
 
Unamortized
Premium,
Discount
and Debt
Issuance
Costs
 
Net
Long-term
Debt
3.60% senior notes due 2022 (the "3.60% 2022 Senior Notes")
 
$
250

 
$
(1
)
 
$
249

 
$
250

 
$
(1
)
 
$
249

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

 
(9
)
 
741

 
750

 
(10
)
 
740

Loan related to tax-exempt waste disposal revenue bonds due 2027
 
11

 

 
11

 
11

 

 
11

6 ½% senior notes due 2029 (the "6 ½% 2029 GO Zone Senior Notes")
 
100

 
(1
)
 
99

 
100

 
(1
)
 
99

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

 
(1
)
 
88

 
89

 
(1
)
 
88

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

 

 
65

 
65

 

 
65

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

 
(25
)
 
675

 
700

 
(25
)
 
675

4.375% senior notes due 2047 (the "4.375% 2047 Senior Notes")
 
500

 
(9
)
 
491

 
500

 
(9
)
 
491

3.50% senior notes due 2032 (the "3.50% 2032 GO Zone Refunding Senior Notes")
 
250

 
(2
)
 
248

 
250

 
(2
)
 
248

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

 

 

 
625

 
20

 
645

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

 

 

 
63

 
2

 
65

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

 

 

 
434

 
11

 
445

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

 

 

 
16

 

 
16

Total Long-term debt
 
2,715

 
(48
)
 
2,667

 
3,853

 
(16
)
 
3,837

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Current portion - 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes
 

 

 

 
688

 
22

 
710

Long-term debt, net of current portion
 
$
2,715

 
$
(48
)
 
$
2,667

 
$
3,165

 
$
(38
)
 
$
3,127

New Credit Agreement
On July 24, 2018, the Company entered into a new $1,000 revolving credit facility that is scheduled to mature on July 24, 2023 (the "New Credit Agreement") and, in connection therewith, terminated the existing $1,000 revolving credit facility that was scheduled to mature on August 23, 2021. The New Credit Agreement bears interest at either (a) LIBOR plus a spread ranging from 1.00% to 1.75% or (b) Alternate Base Rate plus a spread ranging from 0.00% to 0.75% in each case depending on the credit rating of the Company. At September 30, 2018, the Company had no borrowings outstanding

12

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

under the New Credit Agreement. As of September 30, 2018, the Company had outstanding letters of credit totaling $4 and borrowing availability of $996 under the New Credit Agreement. The New Credit Agreement contains certain affirmative and negative covenants, including a quarterly total leverage ratio financial maintenance covenant. As of September 30, 2018, the Company was in compliance with the total leverage ratio financial maintenance covenant. The New Credit Agreement also contains certain events of default and if and for so long as certain events of default have occurred and are continuing, any overdue amounts outstanding under the New Credit Agreement will accrue interest at an increased rate, the lenders can terminate their commitments thereunder and payments of any outstanding amounts could be accelerated by the lenders. None of the Company's subsidiaries are required to guarantee the obligations of the Company under the New Credit Agreement.
The New Credit Agreement includes a $150 sub-limit for letters of credit, and any outstanding letters of credit will be deducted from availability under the facility. The New Credit Agreement also provides for a discretionary $50 commitment for swingline loans to be provided on a same-day basis. The Company may also increase the size of the facility, in increments of at least $25, up to a maximum of $500, subject to certain conditions and if certain lenders agree to commit to such an increase.
In connection with the Company's entry into the New Credit Agreement and termination of the prior credit agreement on July 24, 2018, all guarantees by the Guarantor Subsidiaries of the Company's payment obligations under the 4.375% 2047 Senior Notes, the 3.60% 2022 Senior Notes, the 3.60% 2026 Senior Notes and the 5.0% 2046 Senior Notes were released. As a result, beginning with this quarterly report on Form 10-Q, the Company no longer discloses condensed consolidating financial information of its guarantor and non-guarantor subsidiaries.
4.625% Senior Notes due 2021
In December 2017, the Company delivered irrevocable notices for the optional redemption of all of the outstanding 4.625% Westlake 2021 Senior Notes and 4.625% Subsidiary 2021 Senior Notes (collectively, the "2021 Notes"). The 2021 Notes were redeemed on February 15, 2018 at a redemption price equal to 102.313% of the principal amount of the 2021 Notes plus accrued and unpaid interest on the 2021 Notes to the redemption date. The Company recognized a $6 gain in other income upon redemption of the 2021 Notes.
4.875% Senior Notes due 2023
In March 2018, the Company delivered irrevocable notices for the optional redemption of all of the outstanding 4.875% Westlake 2023 Senior Notes and 4.875% Subsidiary 2023 Senior Notes (collectively, the "2023 Notes"). The 2023 Notes were redeemed on May 15, 2018 at a redemption price equal to 102.438% of the principal amount of the 2023 Notes plus accrued and unpaid interest on the 2023 Notes to the redemption date.
As of September 30, 2018, the Company was in compliance with all of its long-term debt covenants.
Unamortized debt issuance costs on long-term debt were $26 and $26 at September 30, 2018 and December 31, 2017, respectively.

13

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

7. Pension and Post-Retirement Benefits
Defined Benefit Plans
Components of net periodic benefit cost (income) for the Company's pension plans are as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
 
U.S.
Plans
 
Non-U.S.
Plans
Service cost
 
$
1

 
$

 
$
2

 
$

 
$
2

 
$
1

 
$
4

 
$
1

Expected administrative expenses
 
1

 

 

 

 
2

 

 

 

Interest cost
 
6

 
1

 
6

 
1

 
18

 
2

 
19

 
2

Expected return on plan assets
 
(10
)
 

 
(10
)
 

 
(32
)
 

 
(30
)
 

Amortization of net loss
 

 

 

 

 

 

 
1

 

Settlement gain
 
(14
)
 

 

 

 
(14
)
 

 

 

Net periodic benefit cost
(income)
 
$
(16
)
 
$
1

 
$
(2
)
 
$
1

 
$
(24
)
 
$
3

 
$
(6
)
 
$
3

During the third quarter of 2018, the Company's U.S. pension plans settled portions of their projected benefit obligations through the purchase of annuities and lump sum payments to certain participants. In conjunction with the settlement, the Company also remeasured the pension obligations and plan assets of the affected plans, resulting in a $26 increase in accumulated other comprehensive income before tax and a corresponding decrease in net pension liabilities recorded in the consolidated balance sheets. The Company recognized a $14 one-time settlement gain in other income, net, which was reclassified from accumulated other comprehensive income.
8. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2018 and 2017 were as follows:
 
 
Benefits
Liability,
Net of Tax
 
Cumulative
Foreign
Currency
Exchange,
Net of Tax
 
Total
Balances at December 31, 2016
 
$
29

 
$
(150
)
 
$
(121
)
Other comprehensive income before reclassifications
 

 
107

 
107

Amounts reclassified from accumulated other
comprehensive income (loss)
 
1

 

 
1

Net other comprehensive income attributable
to Westlake Chemical Corporation
 
1

 
107

 
108

Balances at September 30, 2017
 
$
30

 
$
(43
)
 
$
(13
)
 
 
 
 
 
 
 
Balances at December 31, 2017
 
$
43

 
$
(36
)
 
$
7

Other comprehensive income (loss) before reclassifications
 
20

 
(40
)
 
(20
)
Amounts reclassified from accumulated other
   comprehensive income (loss)
 
(11
)
 

 
(11
)
Net other comprehensive income (loss) attributable
to Westlake Chemical Corporation
 
9

 
(40
)
 
(31
)
Balances at September 30, 2018
 
$
52

 
$
(76
)
 
$
(24
)

14

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

The following table provides the details of the amounts reclassified from accumulated other comprehensive income (loss) into net income in the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017:
Details about Accumulated Other
   Comprehensive Income (Loss)
   Components
 
Location of Reclassification
(Income (Expense)) in
Consolidated Statements
of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Amortization of pension and other post-retirement net loss
 
(1)
 
$

 
$
(1
)
 
$

 
$
(2
)
Pension settlement gain
 
(1)
 
14

 

 
14

 

Income tax provision on pension and other post-retirement benefits liability
 
Benefits from (provision for) income taxes
 
(3
)
 
1

 
(3
)
 
1

Total reclassifications for the
   period
 
 
 
$
11

 
$

 
$
11

 
$
(1
)
_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost and reflected in other income, net in the consolidated statements of operations. See Note 7 for additional information on the pension settlement gain.
9. 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 Company has 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 (including the current portion of 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.

15

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

 
 
September 30, 2018
 
December 31, 2017
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
3.60% 2022 Senior Notes
 
$
249

 
$
246

 
$
249

 
$
255

3.60% 2026 Senior Notes
 
741

 
704

 
740

 
757

Loan related to tax-exempt waste disposal revenue bonds
due 2027
 
11

 
11

 
11

 
11

6 ½% 2029 GO Zone Senior Notes
 
99

 
108

 
99

 
111

6 ½% 2035 GO Zone Senior Notes
 
88

 
96

 
88

 
99

6 ½% 2035 IKE Zone Senior Notes
 
65

 
70

 
65

 
74

5.0% 2046 Senior Notes
 
675

 
687

 
675

 
787

4.375% 2047 Senior Notes
 
491

 
446

 
491

 
518

3.50% 2032 GO Zone Refunding Senior Notes
 
248

 
241

 
248

 
256

4.625% Westlake 2021 Senior Notes
 

 

 
645

 
639

4.625% Subsidiary 2021 Senior Notes
 

 

 
65

 
65

4.875% Westlake 2023 Senior Notes
 

 

 
445

 
449

4.875% Subsidiary 2023 Senior Notes
 

 

 
16

 
16

10. Income Taxes
The effective income tax rate was 18.7% for the third quarter of 2018 as compared to the effective income tax rate of 33.1% for the third quarter of 2017. The lower tax rate in the third quarter of 2018 as compared to the third quarter of 2017 was primarily a result of the tax law changes enacted under the Tax Act, which was signed into law on December 22, 2017. The effective income tax rate for the third quarter of 2018 was below the U.S. federal statutory rate of 21.0% primarily due to certain discrete tax benefit adjustments related to the re-measurement of state deferred tax balances and change in income tax estimate due to the filing of the Company's 2017 U.S. federal tax return. The effective income tax rate for the third quarter of 2017 was below the U.S. federal statutory rate of 35.0% primarily due to a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes.
The effective income tax rate was 22.0% for the nine months ended September 30, 2018. The effective income tax rate for the nine months ended September 30, 2018 was above the U.S. federal statutory rate of 21.0% primarily due to state and foreign taxes. The effective income tax rate was 30.8% for the nine months ended September 30, 2017. The effective income tax rate for the 2017 period was below the U.S. federal statutory rate of 35.0% primarily due to certain discrete adjustments, a higher domestic manufacturing deduction, depletion deductions, income attributable to noncontrolling interests, research and development credits and the foreign earnings rate differential, partially offset by state income taxes.
The Tax Act, among other changes, reduced U.S. corporate income tax rate from 35.0% to 21.0%, effective January 1, 2018, and also required a one-time deemed repatriation of foreign earnings at specified rates. The accounting guidance on income taxes requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The SEC staff guidance allows registrants to record provisional amounts during a measurement period when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The corporate income tax rate change resulted in a revaluation of the Company's deferred tax assets and liabilities. At December 31, 2017, under the above guidance, the Company made a provisional adjustment of $591 of income tax benefit in the 2017 consolidated financial statements for items that the Company could reasonably estimate such as revaluation of deferred tax assets and liabilities and a one-time U.S. tax on the mandatory deemed repatriation of the Company's post-1986 foreign earnings. The Company will continue to assess the income tax effects of the Tax Act based on further standard setting activities, any transition provisions, and changes in the facts and circumstances of the Company's tax position, during the measurement period. No measurement period adjustment was made for the nine months ended September 30, 2018.

16

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

11. Earnings and Dividends per Share
Earnings per Share
The Company has unvested restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share includes the effect of certain stock options.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income attributable to Westlake Chemical Corporation
 
$
308

 
$
211

 
$
873

 
$
502

Less:
 
 
 
 
 
 
 
 
Net income attributable to participating securities
 
(1
)
 
(1
)
 
(4
)
 
(3
)
Net income attributable to common shareholders
 
$
307

 
$
210

 
$
869

 
$
499

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,
 
 
2018
 
2017
 
2018
 
2017
Weighted average common shares—basic
 
129,427,328

 
129,069,186

 
129,512,097

 
129,033,597

Plus incremental shares from:
 
 
 
 
 
 
 
 
Assumed exercise of options
 
624,964

 
819,782

 
671,104

 
756,368

Weighted average common shares—diluted
 
130,052,292

 
129,888,968

 
130,183,201

 
129,789,965

 
 
 
 
 
 
 
 
 
Earnings per common share attributable to Westlake Chemical Corporation:
 
 
 
 
 
 
 
 
Basic
 
$
2.36

 
$
1.62

 
$
6.70

 
$
3.87

Diluted
 
$
2.35

 
$
1.61

 
$
6.67

 
$
3.85

Excluded from the computation of diluted earnings per share are options to purchase 172,194 and 335,276 shares of common stock for the three months ended September 30, 2018 and 2017, respectively, and 143,439 and 291,888 shares of common stock for the nine months ended September 30, 2018 and 2017, respectively. These options were outstanding during the periods reported but were excluded because the effect of including them would have been antidilutive.
Dividends per Share
Dividends per common share for the three months ended September 30, 2018 and 2017 and for the nine months ended September 30, 2018 and 2017 were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Dividends per common share
 
$
0.2500

 
$
0.2100

 
$
0.6700

 
$
0.5912

12. Supplemental Information
Accrued Liabilities
Accrued liabilities were $675 and $657 at September 30, 2018 and December 31, 2017, respectively. Accrued rebates, which are components of accrued liabilities, were $112 and $108 at September 30, 2018 and December 31, 2017, respectively. No other component of accrued liabilities was more than five percent of total current liabilities. Accrued liabilities with affiliates were $45 and $37 at September 30, 2018 and December 31, 2017, respectively.

17

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

Non-cash Investing Activity
The change in capital expenditure accrual resulted in a decrease in additions to property, plant and equipment by $8 for the nine months ended September 30, 2018. The change in capital expenditure accrual resulted in an increase in additions to property, plant and equipment by $8 for the nine months ended September 30, 2017.
Other Income, Net
For the three months ended September 30, 2018, other income, net included income from pension and postretirement plans, including a one-time settlement gain, income from unconsolidated subsidiaries and interest income on cash and cash equivalents of $16$5 and $4, respectively. For the three months ended September 30, 2017, other income, net included income from pension and postretirement plans, income from unconsolidated subsidiaries and interest income on cash and cash equivalents of $2$4 and $1, respectively. For the nine months ended September 30, 2018 other income, net included income from pension and postretirement plans, including a one-time settlement gain, gain on redemption of the 2021 Notes, income from unconsolidated subsidiaries and interest income on cash and cash equivalents of $23, $6, $17 and $13, respectively. For the nine months ended September 30, 2017, other income, net included income from pension and postretirement plans, income from unconsolidated subsidiaries and interest income on cash and cash equivalents of $6, $11 and $2, respectively.
13. Commitments and Contingencies
The Company is involved in a number of legal and regulatory matters, principally environmental in nature, that are incidental to the normal conduct of its business, including lawsuits, investigations and claims. The outcomes of these matters are inherently unpredictable. The Company believes that, in the aggregate, the outcome of all known legal and regulatory matters will not have a material adverse effect on its consolidated financial statements; however, specific outcomes with respect to such matters may be material to the Company's consolidated statements of operations in any particular period in which costs, if any, are recognized. The Company's assessment of the potential impact of environmental matters, in particular, is subject to uncertainty due to the complex, ongoing and evolving process of investigation and remediation of such environmental matters, and the potential for technological and regulatory developments. In addition, the impact of evolving claims and programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs creates further uncertainty of the ultimate resolution of these matters. The Company anticipates that the resolution of many legal and regulatory matters, and in particular environmental matters, will occur over an extended period of time.
Environmental. As of September 30, 2018 and December 31, 2017, the Company had reserves for environmental contingencies totaling approximately $57 and $49, respectively, most of which were classified as noncurrent liabilities. The Company's assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.

18

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

Calvert City Proceedings. For several years, the Environmental Protection Agency (the "EPA") has been conducting remedial investigation and feasibility studies at the Company's Calvert City, Kentucky facility pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"). As the current owner of the Calvert City facility, the Company was named by the EPA as a potentially responsible party ("PRP") along with Goodrich Corporation ("Goodrich") and its successor-in-interest, PolyOne Corporation ("PolyOne"). On November 30, 2017, the EPA published a draft Proposed Plan, incorporating by reference an August 2015 draft Remedial Investigation ("RI") report, an October 2017 draft Feasibility Study ("FS") report and a new Technical Impracticability Waiver document dated December 19, 2017. The draft Proposed Plan described a preferred remedy that included a containment wall with targeted treatment and supplemental hydraulic containment, as well as active treatment of historical groundwater contamination under the Tennessee River. The EPA estimated that the total remedy would cost $200 to $250 with an estimated $1 to $3 in annual operation and maintenance ("O&M") costs. Each PRP, including the Company, submitted comments to the Proposed Plan and associated documents. The Company's comments also proposed alternative removal options for the groundwater contamination under the Tennessee River. On June 18, 2018, the EPA published an amendment to its Proposed Plan. The amended Proposed Plan addresses the comments filed on the river excavation remedy outlined in the original Proposed Plan. Under the amended Proposed Plan, the EPA proposes an interim approach to address the contamination under the river that would include recovery of any mobile contaminants by an extraction well along with further study of the extent of the contamination and potential treatment options. The EPA's revised estimated cost of implementation is $107, with the estimated annual O&M costs remaining unchanged. In September 2018, the EPA published the EPA's section of the final containment remedy for the on shore portion of the site and the interim remedy for the contamination under the river, as outlined in the amended Proposed Plan. The Company's allocation of liability for remedial or O&M costs, if any, will be determined by the outcome of the contractual dispute with Goodrich/PolyOne, which is the subject of a pending arbitration proceeding as described below.
In connection with the 1990 and 1997 acquisitions of the Goodrich chemical manufacturing complex in Calvert City, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated by Goodrich's operations. In 1993, Goodrich spun off the predecessor of 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; and (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. In May 2017, PolyOne filed a demand for arbitration. In this proceeding, PolyOne seeks to readjust the percentage allocation of costs and to recover approximately $17 from the Company in reimbursement of previously paid remediation costs. The Company has filed a cross demand for arbitration seeking unreimbursed remediation costs incurred during the relevant period.
On October 6, 2017, PolyOne filed suit against the Company in the U.S. District Court for the Western District of Kentucky seeking for the court, instead of the arbitration panel, to resolve claims asserted by the Company in the arbitration proceedings related to reimbursement of costs incurred by the Company at the Calvert City complex. On May 30, 2018, the U.S. District Court for the Western District of Kentucky granted the Company's motion to dismiss, concluding that all of PolyOne's claims were the proper subject of the current arbitration panel's jurisdiction, and dismissed PolyOne's action before the court. On July 10, 2018, PolyOne filed another action in the U.S. District Court for the Western District of Kentucky, seeking for the court to issue an injunction against continued proceedings in the arbitration. On July 30, 2018, the Court denied PolyOne's motion for a temporary restraining order and preliminary injunction. The arbitration hearing began in August 2018 and is ongoing.
At this time, the Company is not able to estimate the impact, if any, that the arbitration proceeding could have on the Company's consolidated financial statements either in the current period or in later periods. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the Calvert City 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.

19

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

Environmental Remediation: Reasonably Possible Matters. The Company's assessment of the potential impact of environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, the Company may be subject to reasonably possible loss contingencies related to environmental matters in the range of $55 to $110.
Commitments. The Company became a party to a joint venture investment with Lotte Chemical USA Corporation to build an ethylene facility, LACC. The ethylene facility is located adjacent to the Company's vinyls facility in Lake Charles. Pursuant to the contribution and subscription agreement, the Company agreed to make a maximum capital commitment to LACC of up to $225 to fund the construction costs of the ethylene plant, which represents approximately 10% of the interests in LACC. The construction of the ethylene plant commenced in January 2016, with an anticipated start-up in 2019. As of September 30, 2018, the Company had funded approximately $178 of the Company's portion of the construction costs of the ethylene plant.

20

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

14. Segment Information
The Company operates in two principal operating segments: Olefins and Vinyls. These segments are strategic business units that offer a variety of different products. The Company manages each segment separately as each business requires different technology and marketing strategies.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net external sales
 
 
 
 
 
 
 
 
Olefins
 
 
 
 
 
 
 
 
Polyethylene
 
$
396

 
$
377

 
$
1,152

 
$
1,121

Styrene, feedstock and other
 
145

 
125

 
374

 
413

Total Olefins
 
541

 
502

 
1,526

 
1,534

Vinyls
 
 
 
 
 
 
 
 
PVC, caustic soda and other
 
1,372

 
1,253

 
4,126

 
3,541

Building products
 
342

 
354

 
988

 
956

Total Vinyls
 
1,714

 
1,607

 
5,114

 
4,497

 
 
$
2,255

 
$
2,109

 
$
6,640

 
$
6,031

 
 
 
 
 
 
 
 
 
Intersegment sales
 
 
 
 
 
 
 
 
Olefins
 
$
136

 
$
107

 
$
368

 
$
291

Vinyls
 

 
1

 
1

 
1

 
 
$
136

 
$
108

 
$
369

 
$
292

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
 
 
 
 
 
 
Olefins
 
$
162

 
$
166

 
$
483

 
$
489

Vinyls
 
251

 
214

 
788

 
425

Corporate and other
 
(17
)
 
(16
)
 
(70
)
 
(52
)
 
 
$
396

 
$
364

 
$
1,201

 
$
862

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Olefins
 
$
35

 
$
35

 
$
102

 
$
111

Vinyls
 
124

 
118

 
362

 
332

Corporate and other
 
2

 
1

 
9

 
6

 
 
$
161

 
$
154

 
$
473

 
$
449

 
 
 
 
 
 
 
 
 
Other income, net
 
 
 
 
 
 
 
 
Olefins
 
$
1

 
$

 
$
4

 
$
2

Vinyls
 
16

 
1

 
32

 
7

Corporate and other
 
6

 
3

 
17

 
4

 
 
$
23

 
$
4

 
$
53

 
$
13

 
 
 
 
 
 
 
 
 
Provision for (benefit from) income taxes
 
 
 
 
 
 
 
 
Olefins
 
$
34

 
$
58

 
$
107

 
$
152

Vinyls
 
44

 
61

 
174

 
115

Corporate and other
 
(5
)
 
(10
)
 
(26
)
 
(34
)
 
 
$
73

 
$
109

 
$
255

 
$
233

 
 
 
 
 
 
 
 
 

21

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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Capital expenditures
 
 
 
 
 
 
 
 
Olefins
 
$
33

 
$
21

 
$
81

 
$
70

Vinyls
 
162

 
108

 
420

 
330

Corporate and other
 

 
4

 
6

 
14

 
 
$
195

 
$
133

 
$
507

 
$
414

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,
 
 
2018
 
2017
 
2018
 
2017
Income from operations
 
$
396

 
$
364

 
$
1,201

 
$
862

Interest expense
 
(28
)
 
(40
)
 
(96
)
 
(119
)
Other income, net
 
23

 
4

 
53

 
13

Income before income taxes
 
$
391

 
$
328

 
$
1,158

 
$
756


 
 
September 30,
2018
 
December 31,
2017
Total assets
 
 
 
 
Olefins
 
$
2,074

 
$
2,006

Vinyls
 
8,953

 
8,853

Corporate and other
 
694

 
1,217

 
 
$
11,721

 
$
12,076

15. Westlake Chemical Partners LP
The Company has an 81.7% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), a 43.8% limited partner interest in Westlake Chemical Partners LP ("Westlake Partners"), a general partner interest in Westlake Partners and incentive distribution rights ("IDRs"). On July 27, 2018, the Westlake Partners' partnership agreement was amended to revise the minimum quarterly distribution thresholds for Westlake Partners' IDRs. The amended agreement provides that Westlake Partners will distribute cash each quarter to all the unitholders, pro rata, until each unit has received a distribution of $1.2938. If cash distributions to Westlake Partners' unitholders exceed $1.2938 per unit in any quarter, Westlake Partners' unitholders and Westlake, as the holder of the Westlake Partners' incentive distribution rights, will receive distributions according to the following percentage allocations per the amendment:
 
 
Marginal Percentage Interest in Distributions
Total Quarterly Distribution Per Unit
 
Unitholders
 
IDR Holders
Above $1.2938 up to $1.4063
 
85.0
%