WLK 10-Q Quarterly Report Sept. 30, 2013 | Alphaminr
WESTLAKE CHEMICAL CORP
ALPHAMINR

WLK 10-Q Quarter ended Sept. 30, 2013

Balance Sheet
Cash Flow
Income Statement
Debt
WESTLAKE CHEMICAL CORP
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10-Q 1 a2013093010q.htm 10-Q 2013.09.30 10Q

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

Delaware
76-0346924
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2801 Post Oak Boulevard, Suite 600
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 960-9111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
The number of shares outstanding of the registrant's sole class of common stock as of November 1, 2013 was 66,770,803 .


INDEX



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2013
December 31,
2012
(in thousands of dollars, except
par values and share amounts)
ASSETS
Current assets
Cash and cash equivalents
$
591,556

$
790,078

Marketable securities
125,597

124,873

Accounts receivable, net
433,025

400,159

Inventories
451,571

399,298

Prepaid expenses and other current assets
18,809

14,700

Deferred income taxes
22,293

22,305

Total current assets
1,642,851

1,751,413

Property, plant and equipment, net
1,952,918

1,510,048

Equity investments
65,488

43,736

Other assets, net




Intangible assets, net
159,376

48,292

Deferred charges and other assets, net
102,816

58,707

Total other assets, net
262,192

106,999

Total assets
$
3,923,449

$
3,412,196

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
258,067

$
217,050

Accrued liabilities
174,619

181,460

Total current liabilities
432,686

398,510

Long-term debt
763,849

763,761

Deferred income taxes
410,166

326,290

Other liabilities
51,691

51,379

Total liabilities
1,658,392

1,539,940

Commitments and contingencies (Notes 7 and 16)




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

—

Common stock, $0.01 par value, 150,000,000 shares authorized;
67,276,761 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
)
Additional paid-in capital
509,295

496,254

Retained earnings
1,798,721

1,399,472

Accumulated other comprehensive loss
(10,921
)
(10,840
)
Total stockholders' equity
2,265,057

1,872,256

Total liabilities and stockholders' equity
$
3,923,449

$
3,412,196

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,
2013
2012
2013
2012
(in thousands of dollars, except per share data and share amounts)
Net sales
$
1,004,165

$
821,175

$
2,807,859

$
2,770,000

Cost of sales
699,694

648,996

2,002,092

2,223,288

Gross profit
304,471

172,179

805,767

546,712

Selling, general and administrative expenses
37,869

29,662

109,883

87,592

Income from operations
266,602

142,517

695,884

459,120

Other income (expense)
Interest expense
(3,297
)
(11,934
)
(14,921
)
(35,682
)
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

Income before income taxes
263,018

125,200

684,100

436,461

Provision for income taxes
92,728

38,236

244,647

146,183

Net income
$
170,290

$
86,964

$
439,453

$
290,278

Earnings per share:
Basic
$
2.55

$
1.30

$
6.57

$
4.36

Diluted
$
2.54

$
1.30

$
6.54

$
4.33

Weighted average shares outstanding:
Basic
66,628,747

66,311,958

66,628,027

66,240,225

Diluted
66,905,554

66,656,760

66,903,379

66,621,520

Dividends per common share
$
0.2250

$
0.1875

$
0.6000

$
0.3350

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,
2013
2012
2013
2012
(in thousands of dollars)
Net income
$
170,290

$
86,964

$
439,453

$
290,278

Other comprehensive (loss) income
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

Income tax provision on pension and other
post-retirement benefits liability
(78
)
(252
)
(394
)
(725
)
Foreign currency translation adjustments
546

865

(844
)
928

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

Income tax provision on unrealized
holding gains
(74
)
(121
)
(74
)
(5,229
)
Reclassification of net realized gain to
net income
—

(306
)
—

(10,538
)
Other comprehensive income (loss)
805

1,702

(81
)
907

Comprehensive income
$
171,095

$
88,666

$
439,372

$
291,185

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

3

WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2013
2012
(in thousands of dollars)
Cash flows from operating activities
Net income
$
439,453

$
290,278

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
116,294

109,601

Provision for (recovery of) doubtful accounts
3,600

(536
)
Amortization of debt issuance costs
1,093

1,149

Stock-based compensation expense
4,804

4,640

Loss from disposition of fixed assets
4,679

1,945

Gain from sales of equity securities
—

(16,429
)
Write-off of debt issuance costs
—

1,277

Deferred income taxes
83,443

4,385

Windfall tax benefits from share-based payment arrangements
(5,056
)
(7,792
)
Equity in loss of joint ventures
1,586

2,567

Changes in operating assets and liabilities
Accounts receivable
(18,874
)
13,732

Inventories
(26,325
)
119,240

Prepaid expenses and other current assets
(5,038
)
(1,977
)
Accounts payable
19,518

(35,651
)
Accrued liabilities
(15,755
)
20,077

Other, net
(55,922
)
(13,675
)
Net cash provided by operating activities
547,500

492,831

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
)
Construction of assets pending sale-leaseback
(136
)
(5,484
)
Proceeds from disposition of assets
78

435

Proceeds from repayment of loan to affiliate
167

763

Proceeds from sales and maturities of securities
239,764

47,655

Purchase of securities
(232,286
)
(2,961
)
Settlements of derivative instruments
(2,297
)
471

Net cash used for investing activities
(694,647
)
(194,584
)
Cash flows from financing activities
Capitalized debt issuance costs
—

(2,221
)
Dividends paid
(40,204
)
(22,345
)
Proceeds from debt issuance
—

248,818

Proceeds from exercise of stock options
3,182

6,627

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

Net cash (used for) provided by financing activities
(51,375
)
74,320

Net (decrease) increase in cash and cash equivalents
(198,522
)
372,567

Cash and cash equivalents at beginning of period
790,078

825,901

Cash and cash equivalents at end of period
$
591,556

$
1,198,468

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

4
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars, except share amounts and per share data)


1. Basis of Financial Statements
The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the December 31, 2012 financial statements and notes thereto of Westlake Chemical Corporation (the "Company") included in the annual report on Form 10-K for the fiscal year ended December 31, 2012 (the " 2012 Form 10-K"), filed with the SEC on February 22, 2013. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Company for the fiscal year ended December 31, 2012 .
In the opinion of the Company's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company's financial position as of September 30, 2013 , its results of operations for the three and nine months ended September 30, 2013 and 2012 and the changes in its cash position for the nine months ended September 30, 2013 and 2012 .
Results of operations and changes in cash position for the interim periods presented are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2013 or any other interim period. The preparation of financial statements in conformity with 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 to the Company's previously issued financial statements.
Recent Accounting Pronouncements
Disclosures about Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on disclosures for offsetting assets and liabilities. The new accounting guidance requires companies to disclose both gross and net information about (1) instruments and transactions eligible for offset in the statement of financial position, and (2) instruments and transactions subject to an agreement similar to a master netting arrangement. The FASB issued another accounting standards update clarifying the scope of the assets and liabilities offset disclosure requirements in January 2013. The effective date of the disclosure requirements remains unchanged. The Company adopted the new guidance as of January 1, 2013, and the adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.
Testing Indefinite-Lived Intangible Assets for Impairment
In July 2012, the FASB issued an accounting standards update to simplify how entities test indefinite-lived intangible assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The new accounting guidance provides an entity with an option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test under current accounting guidance. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with current accounting guidance. Also under this new accounting guidance, an entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test, but may resume performing the qualitative assessment in any subsequent period. The Company adopted the new indefinite-lived intangible assets test guidance as of January 1, 2013, and the adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

5
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
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses (1)
Fair Value
Debt securities
Corporate bonds
$
11,888

$
191

$
(21
)
$
12,058

U.S. government debt (2)
26,400

23

(6
)
26,417

Asset-backed securities
82,109

27

(9
)
82,127

Total available-for-sale securities
$
120,397

$
241

$
(36
)
$
120,602

_____________
(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, 2013 , net unrealized gains on the Company's available-for-sale securities of $131 , net of income tax expense of $74 , 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, 2013 , the corporate bond securities held by the Company had maturities between one to five years, U.S. government debt securities, excluding U.S. government agency mortgage-backed securities, had maturities of less than one year, U.S. government agency mortgage-backed securities had maturities between four to 26 years and asset-backed securities had maturities between two to five years.
Held-to-Maturity Securities
The Company owned held-to-maturity securities of $4,995 and $124,873 at September 30, 2013 and December 31, 2012 , respectively, consisting of short-term corporate debt securities with maturities exceeding three months at the date of acquisition. These debt securities are carried at amortized cost, which approximates their fair value.


6
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
Trade customers
$
404,678

$
388,949

Affiliates
333

258

Allowance for doubtful accounts
(9,832
)
(11,172
)
395,179

378,035

Federal and state taxes
20,421

4,011

Other
17,425

18,113

Accounts receivable, net
$
433,025

$
400,159

4. Inventories
Inventories consist of the following:
September 30,
2013
December 31,
2012
Finished products
$
198,762

$
200,940

Feedstock, additives and chemicals
194,558

143,912

Materials and supplies
58,251

54,446

Inventories
$
451,571

$
399,298

5. Property, Plant and Equipment
As of September 30, 2013 , the Company had property, plant and equipment, net totaling $1,952,918 . 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 $32,460 and $30,055 is included in cost of sales in the consolidated statements of operations for the three months ended September 30, 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
Amortization expense on intangible and other assets of $8,634 and $8,717 is included in the consolidated statements of operations for the three months ended September 30, 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.


7
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
3.60% senior notes due 2022
$
248,960

$
248,872

6 ½% senior notes due 2029
100,000

100,000

6 ¾% senior notes due 2032
250,000

250,000

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

89,000

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

65,000

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

10,889

Long-term debt, net
$
763,849

$
763,761

Revolving Credit Facility
The Company has a $400,000 senior secured revolving credit facility. The facility includes a provision permitting the Company to increase the size of the facility, up to four times, in increments of at least $25,000 each (up to a maximum of $150,000 ) under certain circumstances if lenders agree to commit to such an increase. At September 30, 2013 , the Company had no borrowings outstanding under the revolving credit facility. Any borrowings under the facility will bear interest at either LIBOR plus a spread ranging from 1.75% to 2.25% or a base rate plus a spread ranging from 0.25% to 0.75% . The revolving credit facility also requires an unused commitment fee of 0.375% per annum. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on September 16, 2016. As of September 30, 2013 , the Company had outstanding letters of credit totaling $16,921 and borrowing availability of $383,079 under the revolving credit facility.
8. Stock-Based Compensation
Under the Westlake Chemical Corporation 2013 Omnibus Incentive Plan (as amended and restated, the "2013 Plan"), all employees and nonemployee directors of the Company, as well as certain individuals who have agreed to become the Company's employees, are eligible for awards. Shares of common stock may be issued as authorized in the 2013 Plan. At the discretion of the administrator of the 2013 Plan, employees and nonemployee directors may be granted awards in the form of stock options, stock appreciation rights, stock awards, restricted stock units or cash awards (any of which may be a performance award). Total stock-based compensation expense related to the 2013 Plan was $1,680 and $1,515 for the three months ended September 30, 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 statements of operations for the three and nine months ended September 30, 2013 and 2012 . As of September 30, 2013 , the Company had 10,710,000 gallons of feedstock forward contracts designated as fair value hedges.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012 .
The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative

8
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 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, 2013 and December 31, 2012 .
The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:
Derivative Assets
Balance Sheet Location
Fair Value as of
September 30,
2013
December 31,
2012
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

Total derivative assets
$
5,749

$
14,427

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

$
399

Not designated as hedging instruments
Commodity forward contracts
Accrued liabilities
2,090

13,295

Total derivative liabilities
$
2,090

$
13,694

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statements of operations. For the three and nine months ended September 30, 2013 and 2012 , there was no material ineffectiveness with regard to the Company's qualifying fair value hedges.
Derivatives in Fair Value
Hedging Relationships
Location of Gain (Loss)
Recognized in
Income on Derivative
Three Months Ended September 30,
Nine Months Ended September 30,
2013
2012
2013
2012
Commodity forward contracts
Cost of sales
$
(232
)
$
(515
)
$
(342
)
$
12,345

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,
2013
2012
2013
2012
Firm commitment designated
as the hedged item
Cost of sales
$
236

$
515

$
15

$
(13,546
)
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,
2013
2012
2013
2012
Commodity forward contracts
Cost of sales
$
4,854

$
249

$
9,897

$
(783
)
See Note 10 for the fair value of the Company's derivative instruments.


9
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
)
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 and out of Levels 1 and 2 of the fair value hierarchy for the nine months ended September 30, 2013 and 2012 .
In addition to the financial assets and liabilities above, the Company has other financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts payable and long-term debt, all of which are recorded at carrying value. 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.

10
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% for the nine months ended September 30, 2013 . The effective income tax rate for the 2013 period was above the U.S. federal statutory rate of 35.0% primarily due t o 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 nine months ended September 30, 2013 . Management anticipates reductions to the total amount of unrecognized tax benefits of an additional $621 within the next twelve months due to expiring statutes of limitations.
The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense. As of September 30, 2013 , the Company had no material accrued interest and penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is no longer subject to examinations by tax authorities before the year 2007.
12. Earnings per Share
The Company has unvested shares of restricted stock and restricted stock units outstanding that are considered participating securities and, therefore, computes basic and diluted earnings per share under the two-class method. Basic earnings per share for the periods are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share include the effect of certain stock options.
Three Months Ended September 30,
Nine Months Ended September 30,
2013
2012
2013
2012
Net income
$
170,290

$
86,964

$
439,453

$
290,278

Less:
Net income attributable to participating securities
(587
)
(452
)
(1,691
)
(1,682
)
Net income attributable to common shareholders
$
169,703

$
86,512

$
437,762

$
288,596


11
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,
Pension
Post-retirement
Healthcare
Pension
Post-retirement
Healthcare
2013
2012
2013
2012
2013
2012
2013
2012
Service cost
$
275

$
250

$
2

$
2

$
815

$
754

$
7

$
7

Interest cost
515

645

147

185

1,531

1,936

442

555

Expected return on plan assets
(713
)
(623
)
—

—

(2,140
)
(1,867
)
—

—

Amortization of prior
service cost
74

74

21

21

223

223

63

63

Amortization of net loss
510

445

90

44

1,449

1,329

269

132

Net periodic benefit cost
$
661

$
791

$
260

$
252

$
1,878

$
2,375

$
781

$
757

The Company contributed $776 and $2,283 to the Salaried pension plan in the first nine months of 2013 and 2012 , respectively, and contributed $640 and $1,542 to the Wage pension plan in the first nine months of 2013 and 2012 , respectively. The Company expects to make additional contributions of $388 to the Salaried pension plan and $290 to the Wage pension plan during the fiscal year ending December 31, 2013 .


12
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 nine months ended September 30, 2013 :
Details about Accumulated Other Comprehensive
Income (Loss) Components
Location of Reclassification
(Income (Expense)) in
Consolidated Statements
of Operations
Three Months Ended September 30, 2013
Nine Months Ended September 30, 2013
Amortization of pension and other post-retirement items
Prior service costs
(1)
$
(95
)
$
(286
)
Net loss
(1)
(600
)
(1,718
)
(695
)
(2,004
)
Provision for income taxes
267

771

Total reclassifications for the period
$
(428
)
$
(1,233
)
_____________
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. For additional information, please read Note 8 (Employee Benefits) to the financial statements included in the 2012 Form 10-K.
15. Acquisitions
On May 1, 2013, the Company acquired assets comprising CertainTeed Corporation's Pipe and Foundation Group ("PFG") business and accounted for the asset acquisition as a business combination. The PFG acquisition includes the PVC pipe, fittings, profiles and foundation business and associated facilities in Lodi, California and McPherson, Kansas with production capacity of approximately 150 million pounds per year. The Company also acquired technologies and intellectual property for the production of a number of specialized products, including Certa-Lok® restrained joint pipe and Yelomine™ branded products for a variety of end-market applications. The Company's management believes that this acquisition will enhance the Company's building products portfolio by adding new specialty product lines and supporting technology.
The closing date purchase price of $178,309 was paid with available cash on hand. This amount is subject to a post-closing working capital adjustment. The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of this acquired business are included in the Vinyls segment. The revenue and earnings of the PFG business included in the consolidated statement of operations since the acquisition date have not been presented separately as they are not material to the Company's consolidated statements of operations for the three and 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 .

13
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, an owner or operator of property may be held strictly liable for remediating contamination without regard to whether that person caused the contamination, and without regard to whether the practices that resulted in the contamination were legal at the time they occurred. Because several of the Company's production sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Company.
Contract Disputes with Goodrich and PolyOne. In connection with the 1990 and 1997 acquisitions of the Goodrich Corporation ("Goodrich") chemical manufacturing complex in Calvert City, Kentucky, Goodrich agreed to indemnify the Company for any liabilities related to preexisting contamination at the complex. For its part, the Company agreed to indemnify Goodrich for post-closing contamination caused by the Company's operations. The soil and groundwater at the complex, which does not include the Company's nearby PVC facility, had been extensively contaminated under Goodrich's operations. In 1993,

14
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 $2,687 in 2012 . By letter dated March 16, 2010, PolyOne notified the Company that it was initiating an arbitration proceeding under the settlement agreement. In this proceeding, PolyOne seeks to readjust the percentage allocation of costs and to recover approximately $1,400 from the Company in reimbursement of previously paid remediation costs. The arbitration is currently stayed.
Administrative Proceedings. There are several administrative proceedings in Kentucky involving the Company, Goodrich and PolyOne related to the same manufacturing complex in Calvert City. In 2003, the Kentucky Environmental and Public Protection Cabinet (the "Cabinet") re-issued Goodrich's Resource Conservation and Recovery Act ("RCRA") permit which requires Goodrich to remediate contamination at the Calvert City manufacturing complex. Both Goodrich and PolyOne challenged various terms of the permit in an attempt to shift Goodrich's clean-up obligations under the permit to the Company. The Company intervened in the proceedings. The Cabinet has suspended all corrective action under the RCRA permit in deference to a remedial investigation and feasibility study ("RIFS") being conducted pursuant to an Administrative Settlement Agreement ("AOC"), which became effective on December 9, 2009. See "Change in Regulatory Regime" below. The proceedings have been postponed. Periodic status conferences will be held to evaluate whether additional proceedings will be required.
Change in Regulatory Regime. In May 2009, the Cabinet sent a letter to the U.S. Environmental Protection Agency ("EPA") requesting the EPA's assistance in addressing contamination at the Calvert City site under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). In its response to the Cabinet also in May 2009, the EPA stated that it concurred with the Cabinet's request and would incorporate work previously conducted under the Cabinet's RCRA authority into the EPA's cleanup efforts under CERCLA. Since 1983, the EPA has been addressing contamination at an abandoned landfill adjacent to the Company's plant which had been operated by Goodrich and which was being remediated pursuant to CERCLA. During the past two years, the EPA has directed Goodrich and PolyOne to conduct additional investigation activities at the landfill and at the Company's plant. In June 2009, the EPA notified the Company that the Company may have potential liability under section 107(a) of CERCLA at its plant site. Liability under section 107(a) of CERCLA is strict and joint and several. The EPA also identified Goodrich and PolyOne, among others, as potentially responsible parties at the plant site. The Company negotiated, in conjunction with the other potentially responsible parties, the AOC and an order to conduct the RIFS. The parties submitted and received EPA approval for a RIFS work plan to implement the AOC. On July 12, 2013, the parties submitted separate draft RIFS reports to the EPA.
Monetary Relief . Except as noted above with respect to the settlement of the contract litigation among the Company, Goodrich and PolyOne, none of the court, the Cabinet nor the EPA has established any allocation of the costs of remediation among the various parties that are involved in the judicial and administrative proceedings discussed above. At this time, the Company is not able to estimate the loss or reasonable possible loss, if any, on the Company's financial statements that could result from the resolution of these proceedings. Any cash expenditures that the Company might incur in the future with respect to the remediation of contamination at the complex would likely be spread out over an extended period. As a result, the Company believes it is unlikely that any remediation costs allocable to it will be material in terms of expenditures made in any individual reporting period.
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.


15
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

17. Segment Information
The Company operates in two principal business segments: Olefins and Vinyls. These segments are strategic business units that offer a variety of different products. The Company manages each segment separately as each business requires different technology and marketing strategies.
Three Months Ended September 30,
Nine Months Ended September 30,
2013
2012
2013
2012
Net external sales
Olefins
Polyethylene
$
460,105

$
431,614

$
1,294,566

$
1,275,057

Styrene, feedstock and other
219,234

108,171

590,959

669,718

Total Olefins
679,339

539,785

1,885,525

1,944,775

Vinyls
PVC, caustic soda and other
212,041

191,310

612,391

569,316

Building products
112,785

90,080

309,943

255,909

Total Vinyls
324,826

281,390

922,334

825,225

$
1,004,165

$
821,175

$
2,807,859

$
2,770,000

Intersegment sales
Olefins
$
85,454

$
76,771

$
230,607

$
247,671

Vinyls
403

391

1,111

1,167

$
85,857

$
77,162

$
231,718

$
248,838

Income (loss) from operations
Olefins
$
237,239

$
124,452

$
585,958

$
409,550

Vinyls
39,554

24,059

136,123

67,724

Corporate and other
(10,191
)
(5,994
)
(26,197
)
(18,154
)
$
266,602

$
142,517

$
695,884

$
459,120

Depreciation and amortization
Olefins
$
26,515

$
27,070

$
76,415

$
74,903

Vinyls
14,089

11,232

39,507

34,330

Corporate and other
124

122

372

368

$
40,728

$
38,424

$
116,294

$
109,601

Other income (expense), net
Olefins
$
728

$
806

$
5,889

$
2,764

Vinyls
(742
)
146

(1,687
)
115

Corporate and other
(273
)
270

(1,065
)
797

$
(287
)
$
1,222

$
3,137

$
3,676

Provision for (benefit from) income taxes
Olefins
$
82,553

$
36,092

$
208,170

$
130,612

Vinyls
10,710

6,556

44,120

18,989

Corporate and other
(535
)
(4,412
)
(7,643
)
(3,418
)
$
92,728

$
38,236

$
244,647

$
146,183


16
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,
2013
2012
2013
2012
Capital expenditures
Olefins
$
27,577

$
46,867

$
105,656

$
92,168

Vinyls
172,565

47,001

391,864

139,836

Corporate and other
276

1,027

770

3,459

$
200,418

$
94,895

$
498,290

$
235,463

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,
2013
2012
2013
2012
Income from operations
$
266,602

$
142,517

$
695,884

$
459,120

Interest expense
(3,297
)
(11,934
)
(14,921
)
(35,682
)
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

Income before income taxes
$
263,018

$
125,200

$
684,100

$
436,461

September 30,
2013
December 31,
2012
Total assets
Olefins
$
1,560,303

$
1,439,308

Vinyls
1,577,549

1,030,912

Corporate and other
785,597

941,976

$
3,923,449

$
3,412,196

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

17
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

20. Guarantor Disclosures
The Company's payment obligations under the 3.60% senior notes due 2022 are fully and unconditionally guaranteed by each of its current and future domestic subsidiaries that guarantee other debt of the Company or of another guarantor of the 3.60% senior notes due 2022 in excess of $5,000 (the "Guarantor Subsidiaries"). Each Guarantor Subsidiary is 100% owned by Westlake Chemical Corporation. These guarantees are the joint and several obligations of the Guarantor Subsidiaries. The following unaudited condensed consolidating financial information presents the financial condition, results of operations and cash flows of Westlake Chemical Corporation, the Guarantor Subsidiaries and the remaining subsidiaries that do not guarantee the 3.60% senior notes due 2022 (the "Non-Guarantor Subsidiaries"), together with consolidating adjustments necessary to present the Company's results on a consolidated basis.

Condensed Consolidating Financial Information as of September 30, 2013
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

Marketable securities
125,597

—

—

—

125,597

Accounts receivable, net
5,373

694,473

5,489

(272,310
)
433,025

Inventories
—

435,540

16,031

—

451,571

Prepaid expenses and other
current assets
468

15,931

2,410

—

18,809

Deferred income taxes
431

21,744

118

—

22,293

Total current assets
692,130

1,172,182

50,849

(272,310
)
1,642,851

Property, plant and equipment, net
—

1,945,405

7,513

—

1,952,918

Equity investments
2,635,954

98,823

31,634

(2,700,923
)
65,488

Other assets, net
16,969

251,703

506

(6,986
)
262,192

Total assets
$
3,345,053

$
3,468,113

$
90,502

$
(2,980,219
)
$
3,923,449

Current liabilities
Accounts payable
$
311,357

$
220,106

$
4,322

$
(277,718
)
$
258,067

Accrued liabilities
15,679

151,654

1,878

5,408

174,619

Total current liabilities
327,036

371,760

6,200

(272,310
)
432,686

Long-term debt
752,960

10,889

—

—

763,849

Deferred income taxes
—

416,404

748

(6,986
)
410,166

Other liabilities
—

51,640

51

—

51,691

Stockholders' equity
2,265,057

2,617,420

83,503

(2,700,923
)
2,265,057

Total liabilities and
stockholders' equity
$
3,345,053

$
3,468,113

$
90,502

$
(2,980,219
)
$
3,923,449



18
WESTLAKE CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(in thousands of dollars, except share amounts and per share data)

Condensed Consolidating Financial Information as of December 31, 2012
Westlake
Chemical
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Balance Sheet
Current assets
Cash and cash equivalents
$
753,881

$
6,973

$
29,224

$
—

$
790,078

Marketable securities
124,873

—

—

—

124,873

Accounts receivable, net
7,933

1,675,274

2,959

(1,286,007
)
400,159

Inventories
—

385,140

14,158

—

399,298

Prepaid expenses and other
current assets
389

11,386

2,925

—

14,700

Deferred income taxes
431

21,581

293

—

22,305

Total current assets
887,507

2,100,354

49,559

(1,286,007
)
1,751,413

Property, plant and equipment, net
—

1,502,902

7,146

—

1,510,048

Equity investments
3,018,926

65,448

32,923

(3,073,561
)
43,736

Other assets, net
17,033

94,678

1,252

(5,964
)
106,999

Total assets
$
3,923,466

$
3,763,382

$
90,880

$
(4,365,532
)
$
3,412,196

Current liabilities
Accounts payable
$
1,285,530

$
192,443

$
13,969

$
(1,274,892
)
$
217,050

Accrued liabilities
12,808

178,915

852

(11,115
)
181,460

Total current liabilities
1,298,338

371,358

14,821

(1,286,007
)
398,510

Long-term debt
752,872

10,889

—

—

763,761

Deferred income taxes
—

331,320

934

(5,964
)
326,290

Other liabilities
—

51,312

67

—

51,379

Stockholders' equity
1,872,256

2,998,503

75,058

(3,073,561
)
1,872,256

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

$
3,763,382

$
90,880

$
(4,365,532
)
$
3,412,196




19
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, 2013
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



20
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 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



21
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



22
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


23

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, 2012 (the " 2012 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, polymers and fabricated building products. Our two principal business 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 third quarter of 2013, a cost advantage for natural gas liquids-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 weakness 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 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, our Vinyls segment operating rates and margins may continue to be negatively impacted by the slow recovery of U.S. construction markets.
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 challenging to our business and, depending on the performance of the global economy in the remainder of 2013 and beyond, could have a negative effect on our financial condition, results of operations or cash flows.
Recent Developments
In August 2008, we announced plans for the construction of a new chlor-alkali plant at our vinyls manufacturing complex in Geismar, Louisiana. We commenced construction of the plant in 2011. Presently, we expect the new chlor-alkali plant to be operational by the end of 2013. The new chlor-alkali plant is designed to produce 350,000 electro chemical units ("ECUs"), or 700 million pounds of chlorine, per annum. The new plant is expected to improve the vertical integration of our vinyls business from chlorine downstream into vinyl chloride monomer ("VCM") and PVC and increase caustic soda sales.

24

Results of Operations
Three Months Ended September 30,
Nine Months Ended September 30,
2013
2012
2013
2012
(dollars in thousands, except per share data)
Net external sales
Olefins
Polyethylene
$
460,105

$
431,614

$
1,294,566

$
1,275,057

Styrene, feedstock and other
219,234

108,171

590,959

669,718

Total Olefins
679,339

539,785

1,885,525

1,944,775

Vinyls
PVC, caustic soda and other
212,041

191,310

612,391

569,316

Building products
112,785

90,080

309,943

255,909

Total Vinyls
324,826

281,390

922,334

825,225

Total
$
1,004,165

$
821,175

$
2,807,859

$
2,770,000

Income (loss) from operations
Olefins
$
237,239

$
124,452

$
585,958

$
409,550

Vinyls
39,554

24,059

136,123

67,724

Corporate and other
(10,191
)
(5,994
)
(26,197
)
(18,154
)
Total income from operations
266,602

142,517

695,884

459,120

Interest expense
(3,297
)
(11,934
)
(14,921
)
(35,682
)
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

Provision for income taxes
92,728

38,236

244,647

146,183

Net income
$
170,290

$
86,964

$
439,453

$
290,278

Diluted earnings per share
$
2.54

$
1.30

$
6.54

$
4.33

Three Months Ended September 30, 2013
Nine Months Ended September 30, 2013
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
%
Vinyls
+6.2
%
+9.3
%
+2.1
%
+9.7
%
Company average
+9.7
%
+12.6
%
+2.1
%
-0.7
%
Three Months Ended September 30,
Nine Months Ended September 30,
2013
2012
2013
2012
Average industry prices (1)
Ethane (cents/lb)
8.4

11.4

8.7

14.6

Propane (cents/lb)
24.4

21.2

22.2

24.7

Ethylene (cents/lb) (2)
54.3

52.1

58.7

57.8

Polyethylene (cents/lb) (3)
101.7

91.3

99.7

95.1

Styrene (cents/lb) (4)
83.2

77.7

83.6

75.3

Caustic soda ($/short ton) (5)
605.8

579.2

611.4

565.8

Chlorine ($/short ton) (6)
248.3

262.5

252.8

268.1

PVC (cents/lb) (7)
61.5

52.5

60.9

54.8

_____________
(1)
Industry pricing data was obtained through IHS Chemical. We have not independently verified the data.

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(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, 2013 , net income was $170.3 million , or $2.54 per diluted share, on net sales of $1,004.2 million . This represents an increase in net income of $83.3 million , or $1.24 per diluted share, compared to the quarter ended September 30, 2012 net income of $87.0 million , or $1.30 per diluted share, on net sales of $821.2 million . Net sales for the third quarter of 2013 increased by $183.0 million compared to net sales for the third quarter of 2012 , mainly attributable to higher sales volumes for styrene and caustic, 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 $266.6 million for the third quarter of 2013 as compared to $142.5 million for the third quarter of 2012 . Income from operations for the third quarter of 2013 benefited primarily from improved olefins and vinyls integrated product margins, predominantly due to higher sales prices for most of our major products and lower overall feedstock costs as compared to the prior year period.
For the nine months ended September 30, 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 production and the unabsorbed fixed manufacturing costs and other costs associated with the turnaround 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.
RESULTS OF OPERATIONS
Third Quarter 2013 Compared with Third Quarter 2012
Net Sales . Net sales increased by $183.0 million , or 22.3% , to $1,004.2 million in the third quarter of 2013 from $821.2 million in the third quarter of 2012 , primarily attributable to higher sales volumes for styrene and caustic, higher sales prices for most of our major products and sales contributed by our specialty PVC pipe business. Average sales prices for the third quarter of 2013 increased by 9.7% as compared to the third quarter of 2012 . Overall sales volumes increased by 12.6% as compared to the third quarter of 2012 .
Gross Profit . Gross profit margin percentage increased to 30.3% for the third quarter of 2013 from 21.0% for the third quarter of 2012 , driven mainly by improved olefins and vinyls integrated product margins, primarily attributable to higher sales prices for most of our major products and lower ethane costs, partially offset by higher propane 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 decrease of 26.3% for ethane and an increase of 15.1% for propane, as compared to the third quarter of 2012 . Sales prices increased an average of 9.7% for the third quarter of 2013 as compared to the third quarter of 2012 . The gross profit margin for the third quarter of 2012 was negatively impacted by the unabsorbed fixed manufacturing costs associated with a planned outage of our styrene plant in Lake Charles.
Selling, General and Administrative Expenses . Selling, general and administrative expenses for the third quarter of 2013 of $37.9 million increased by $8.2 million as compared to the third quarter of 2012 , 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.

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Interest Expense . Interest expense decreased by $8.6 million to $3.3 million in the third quarter of 2013 from $11.9 million in the third quarter of 2012 largely as a result of increased 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 expense of $0.3 million in the third quarter of 2013 compared to net income of $1.2 million in the third quarter of 2012 , mainly due to lower investment income and related write-offs and lower interest income in the third quarter of 2013.
Income Taxes. The effective income tax rate was 35.3% for the third quarter of 2013 . The effective income tax rate for the third 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 2012 was below the U.S. federal statutory rate of 35.0% primarily due to state tax credits, the domestic manufacturing deduction and a reduction in 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

27

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% for the nine months ended September 30, 2013 . The effective income tax rate for the 2013 period was above the U.S. federal statutory rate of 35.0% primarily due to state income taxes, partially offset by the domestic manufacturing deduction. The effective income tax rate was 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 decreased by $59.3 million , or 3.0% , to $1,885.5 million for the nine months ended September 30, 2013 from $1,944.8 million for the nine months ended September 30, 2012 , mainly due to lower feedstock, ethylene 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-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 Olefins segment increased by 2.0% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 . Average sales volumes for the Olefins segment decreased by 5.1% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 .
Income from Operations . Income from operations increased by $176.4 million , or 43.1% , to $586.0 million for the nine months ended September 30, 2013 from $409.6 million for the nine months ended September 30, 2012 . This increase was mainly attributable to higher olefins integrated product margins as compared to the prior year period. Margins improved primarily 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 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.
Vinyls Segment
Net Sales . Net sales increased by $97.1 million , or 11.8% , to $922.3 million for the nine months ended September 30, 2013 from $825.2 million for the nine months ended September 30, 2012 . This increase was primarily attributable to higher sales volumes for caustic and PVC resin, higher sales prices for most major products and sales contributed by our specialty PVC pipe business. Sales volumes for the first nine months of 2012 were negatively impacted by the lower operating rates at our Geismar vinyls complex as a result of operational issues related to the unscheduled shut down at the complex. Average sales prices for the Vinyls segment increased by 2.1% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 , while average sales volumes increased by 9.7% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 .
Income from Operations. Income from operations increased by $68.4 million to $136.1 million for the nine months ended September 30, 2013 from $67.7 million for the nine months ended September 30, 2012 . This increase was predominantly driven by lower feedstock costs, higher sales volumes for caustic and PVC resin and higher operating rates 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 were

28

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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
Cash Flows
Operating Activities
Operating activities provided cash of $547.5 million in the first nine months of 2013 compared to cash provided of $492.8 million in the first nine months of 2012 . The $54.7 million increase in cash flows from operating activities was mainly due to an increase in income from operations, partially offset by an increase in the use of cash for working capital purposes and 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, used cash of $46.5 million in the first nine months of 2013 , compared to $115.3 million of cash provided in the first nine months of 2012 , an unfavorable change of $161.8 million . The change was caused by higher accounts receivable balances largely attributable to an increase in average sales volumes during the third quarter of 2013 as compared to the third quarter of 2012 and an increase in inventory during the 2013 period.
Investing Activities
Net cash used for investing activities during the first nine months of 2013 was $694.6 million as compared to net cash used for investing activities of $194.6 million in the first nine months of 2012 . Capital expenditures were $498.3 million in the first nine months of 2013 compared to $235.5 million in the first nine months of 2012 . The higher capital expenditures in the first nine months of 2013 were largely attributable to the construction of the new chlor-alkali plant at our Geismar facility (which is expected to be operational by the end of 2013), the feedstock conversion, PVC plant expansion and ethylene furnaces modernization projects at our Calvert City, Kentucky complex and the expansion of one of the ethylene units at our Lake Charles complex. Capital expenditures in the first nine months of 2012 were mainly incurred on the construction of the new Geismar chlor-alkali plant and the expansion of one of the ethylene units at our Lake Charles complex. The remaining capital expenditures in the first nine months of 2013 and 2012 primarily related to projects to improve production capacity or reduce costs and maintenance, safety 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 nine months of 2013 totaled $232.3 million and were comprised of short-term commercial paper and corporate and U.S. government debt securities. We also received aggregate proceeds of $239.8 million from the maturities of short-term commercial paper in the first nine months of 2013 . The activity during the first nine months of 2012 was primarily related to the proceeds received from the sale of equity securities.
Financing Activities
Net cash used for financing activities during the first nine months of 2013 was $51.4 million as compared to net cash provided of $74.3 million in the first nine months of 2012 . The activity during the first nine months of 2013 was primarily related to the $40.2 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 $3.2 million from the exercise of stock options. The activity during the first nine months of 2012 was mainly related to the draw-down of our restricted cash and 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.
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

29

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 for the expansion of the second ethylene unit at our Lake Charles complex in 2015.
In August 2011, our Board of Directors authorized a stock repurchase program totaling $100.0 million. As of September 30, 2013 , we had repurchased 506,525 shares of our common stock for an aggregate purchase price of approximately $32.7 million under this program. During the three months ended September 30, 2013 , 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, 2013 , our cash, cash equivalents and current marketable securities totaled $717.2 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, 2013 , our long-term debt, including current maturities, totaled $763.8 million , consisting of $250.0 million principal amount of 3.60% senior notes due 2022 (less the unamortized discount of $1.1 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, 2013 , debt outstanding under the tax-exempt waste disposal revenue bonds bore interest at a variable rate. As of September 30, 2013 , 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.
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, 2013 , 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, 2013 , we had outstanding letters of credit totaling $16.9 million and borrowing availability of $383.1 million under the revolving credit facility.

30

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 2012 Form 10-K for more information on the revolving credit facility.
GO Zone and IKE Zone Bonds
As of September 30, 2013 , 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 2012 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). 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 2012 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.

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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;
•
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 2012 Form 10-K and the following:

32

•
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.
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, 2013 , 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 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, 2013 , 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, 2013 ) 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, 2013 was 0.16%. 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, 2013 , 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.

33

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, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


34

PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
The 2012 Form 10-K, filed on February 22, 2013, contained a description of various legal proceedings in which we are involved, including environmental proceedings at our facilities in Calvert City. See Note 16 to the unaudited consolidated financial statements within this Quarterly Report on Form 10-Q for a description of certain of those proceedings, which information is incorporated by reference herein.
Item 1A.
Risk Factors
For a discussion of risk factors, please read Item 1A, "Risk Factors" in the 2012 Form 10-K and in our Quarterly Report on Form 10-Q for the quarter end ed March 31, 2013. Th ere have been no material changes from those risk factors.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information on our purchase of equity securities during the quarter ended September 30, 2013 :
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

_____________
(1)
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, 2013 , 506,525 shares of common stock had been acquired at an aggregate purchase price of $32.7 million . Deci sions 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.


35

Item 6.
Exhibits
Exhibit No.
31.1
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Executive Officer)
31.2
Rule 13a – 14(a) / 15d – 14(a) Certification (Principal Financial Officer)
32.1
Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

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


WESTLAKE CHEMICAL CORPORATION
Date:
November 7, 2013
By:
/ S /    A LBERT C HAO
Albert Chao
President and Chief Executive Officer
(Principal Executive Officer)
Date:
November 7, 2013
By:
/ S /    M. S TEVEN B ENDER
M. Steven Bender
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)

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