Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying consolidated and combined financial statements, the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" in this report.
Unless the context otherwise requires, references in this report to the "Predecessor" refer to Westlake Chemical Partners LP Predecessor, our predecessor for accounting purposes, and refer to the time periods prior to the completion of our initial public offering on August 4, 2014 (the "IPO"). Unless otherwise indicated, references in this report to "we," "our," "us" or like terms refer to Westlake Chemical Partners LP ("Westlake Chemical Partners LP" or the "Partnership"), Westlake Chemical OpCo LP ("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"), and references to the Partnership for all periods prior to the IPO refer to the Predecessor. References to "Westlake" refer to Westlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo.
Partnership Overview
On August 4, 2014, we closed our initial public offering (the "IPO") of 12,937,500 common units. We are a Delaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets. Currently, our sole revenue generating asset is our 13.3% limited partner interest in OpCo, a limited partnership formed by Westlake and us in anticipation of the IPO to own and operate an ethylene production business. We control OpCo through our ownership of its general partner. Westlake retains the remaining 86.7% limited partner interest in OpCo as well as a significant interest in us through its ownership of our general partner, 52.2% of our limited partner units (consisting of 1,436,115 common units and all of the subordinated units) and our incentive distribution rights. OpCo's assets include (1) two ethylene production facilities ("Petro 1" and "Petro 2" and, collectively, "Lake Charles Olefins") at Westlake's Lake Charles, Louisiana site; (2) one ethylene production facility ("Calvert City Olefins") at Westlake's Calvert City, Kentucky site; and (3) a 200-mile common carrier ethylene pipeline (the "Longview Pipeline") that runs from Mont Belvieu, Texas to Westlake's Longview, Texas facility.
On April 29, 2015, we purchased a 2.7% newly-issued limited partner interest in OpCo for approximately $135.3 million, resulting in an aggregate 13.3% limited partner interest in OpCo effective April 1, 2015. In order to fund this purchase, we entered into a revolving credit facility (the "MLP Revolver") with a subsidiary of Westlake, which has a total borrowing capacity of $300.0 million. We intend to rely on the MLP Revolver in making any additional purchases of limited partner interests in OpCo in the future. For more information on the MLP Revolver, please see "Liquidity and Capital Resources—Indebtedness—MLP Revolver."
How We Generate Revenue
We generate revenue primarily by selling ethylene and the resulting co-products we produce. In connection with the IPO, OpCo and Westlake entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which we generate a substantial majority of our revenue. The Ethylene Sales Agreement is a long-term, fee-based agreement with a minimum purchase commitment and includes variable pricing based on OpCo's actual feedstock and natural gas costs and estimated other costs of producing ethylene (including OpCo's estimated operating costs and a five-year average of OpCo's expected future maintenance capital expenditures and other turnaround expenditures based on OpCo's planned ethylene production capacity for the year), plus a fixed margin per pound of $0.10 less revenue from co-products sales. Pursuant to the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production), which is measured at the end of the year, is generally not reduced for the first 45 days of a force majeure event, but is reduced for the portion of a force majeure event extending beyond the 45th day.
Westlake has an option to take 95% of volumes in excess of the minimum commitment on an annual basis under the Ethylene Sales Agreement if we produce more than our planned production. Under the Ethylene Sales Agreement, the price for the sale of such excess ethylene to Westlake is based on a formula similar to that used for the minimum purchase commitment, with the exception of certain fixed costs. In addition, under the Ethylene Sales Agreement, if production costs billed to Westlake on an annual basis are less than 95% of the actual production costs incurred by OpCo during the contract year, OpCo is entitled to recover the shortfall in such production costs (proportionate to the volume sold to Westlake) in the subsequent year ("Shortfall"). The Shortfall is recognized during the period in which the related operating, maintenance or turnaround activities occur.
We sell ethylene production in excess of volumes sold to Westlake, as well as all associated co-products resulting from the ethylene production, directly to third parties on either a spot or contract basis. Net proceeds (after transportation and other costs) from the sales of associated co-products that result from the production of ethylene purchased by Westlake are netted against the ethylene price charged to Westlake under the Ethylene Sales Agreement, thereby substantially reducing our exposure to fluctuations in the market prices of these co-products. During 2016, all the third-party ethylene and associated co-products sales generated greater than
13%
of our total revenues. The significant drop in crude oil prices since the third quarter of 2014 and continuing through 2016 may create volatility in the North American and global markets, which may result in further reduced prices and margins in third-party ethylene and such co-products sales in 2017.
Under the Services and Secondment Agreement, OpCo uses a portion of its production capacity to process purge gas for Westlake. On August 4, 2016, OpCo and Westlake entered into an amendment to the Ethylene Sales Agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of OpCo's production capacity that is used to process Westlake's purge gas instead of producing ethylene and to clarify that costs specific to the processing of Westlake's purge gas would be recovered under the Services and Secondment Agreement, and not the Ethylene Sales Agreement.
Please refer to Note 2 to the consolidated and combined financial statements within this report for more information on the Ethylene Sales Agreement.
How We Source Feedstock
In connection with the IPO, OpCo entered into a 12-year feedstock supply agreement (the "Feedstock Supply Agreement") with Westlake Petrochemicals LLC, a wholly owned subsidiary of Westlake, under which Westlake Petrochemicals LLC supplies OpCo with ethane and other feedstocks that OpCo uses to produce ethylene under the Ethylene Sales Agreement. OpCo may purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from Westlake Petrochemicals LLC.
Please refer to Note 2 to the consolidated and combined financial statements within this report for more information on the Feedstock Supply Agreement.
How We Evaluate Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (1) production volumes, (2) operating and maintenance expenses, including turnaround costs, and (3) MLP distributable cash flow and EBITDA.
Production Volumes
The amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at Calvert City Olefins and Lake Charles Olefins. Although Westlake has committed to purchasing minimum volumes from us under the Ethylene Sales Agreement, our results of operations are impacted by our ability to:
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produce sufficient volumes of ethylene to meet our commitments under the Ethylene Sales Agreement or recover our estimated costs through the pricing provisions of the Ethylene Sales Agreement;
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contract with third parties for the remaining uncommitted production capacity;
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add or increase capacity at our existing production facilities, or add additional production capacity via organic expansion projects and acquisitions; and
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achieve or exceed the specified yield factors for natural gas, ethane and other feedstock under the Ethylene Sales Agreement.
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Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs
Our management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs. Our operating expenses are comprised primarily of feedstock costs and natural gas, labor expenses (including contractor services), utility costs (other than natural gas) and turnaround and maintenance expenses. With the exception of feedstock, including natural gas, and utilities-related expenses, operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances, particularly maintenance and turnaround activities. Our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs. These capital expenditures relate to the maintenance and integrity of our facilities. We capitalize
the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected facility.
Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement. Because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the Ethylene Sales Agreement for any given 12-month period, our ability to manage operating expenses, maintenance expenditures and turnaround cost may directly affect our profitability and cash flows. The impact on profitability is partially mitigated by the fact that we recognize any Shortfall as revenue in the period such costs and expenses are incurred. We seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows, without compromising our commitment to safety and environmental stewardship. In addition, we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence. The purchase price under the Ethylene Sales Agreement is not designed to cover capital expenditures for expansions.
MLP Distributable Cash Flow and EBITDA
We use each of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation and amortization, less contributions for turnaround reserves and maintenance capital expenditures. We define MLP distributable cash flow as distributable cash flow attributable to periods subsequent to the date of the IPO less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
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our operating performance as compared to other publicly traded partnerships;
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our ability to incur and service debt and fund capital expenditures;
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the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
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We believe that the presentation of MLP distributable cash flow and EBITDA provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to MLP distributable cash flow are net income and net cash provided by operating activities. MLP distributable cash flow should not be considered as an alternative to GAAP net income or net cash provided by operating activities. MLP distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. The GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities, but EBITDA should not be considered an alternative to such GAAP measures. EBITDA has important limitations as an analytical tool because it excludes (1) interest expense, which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations, (2) depreciation, which is a necessary element of our costs and ability to generate revenues because we use capital assets and (3) income taxes, which was a necessary element of the Predecessor's operations. MLP distributable cash flow and EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See reconciliations for each of MLP distributable cash flow and EBITDA under "Results of Operations" below.
Factors Affecting the Comparability of Our Financial Results
Our results of operations subsequent to the IPO are not comparable to the Predecessor's historical results of operations for the reasons described below:
Revenue
Ethylene, Co-products and Excess Feedstock Sales
There are differences in the way the Predecessor generated and recorded revenue and the way we generate and record revenue from ethylene sales to Westlake. The Predecessor generally recognized revenue for ethylene sold internally based on a transfer pricing formula intended to approximate the fair market value of the commodity. Subsequent to the IPO, a substantial majority of our revenue from ethylene sales is generated from sales of ethylene to Westlake under the Ethylene Sales Agreement. The Ethylene Sales Agreement contains minimum purchase commitments and pricing that is expected to generate a fixed margin of $0.10 per pound.
The Predecessor's third-party sales consisted of ethylene, feedstock and associated co-products sales. With respect to third-party ethylene sales, the Predecessor also resold externally procured ethylene to third parties. Subsequent to the IPO, the ethylene procurement and reselling activities of the Predecessor remained with Westlake. In addition, the Predecessor's net sales included revenue from sales to third parties of excess feedstock not used in the ethylene production process. Following the closing of the IPO, we do not generate revenues from the sale of excess feedstock to third parties as all of the Predecessor's feedstock risk-management activities remained with Westlake. However, we sell all of our co-products volume to third parties in a manner consistent with the Predecessor. As such, there are no significant changes to revenue related to the sale of co-products, as compared to the Predecessor's historical revenue from co-products sales.
Expenses
Selling, General and Administrative Expenses
The Predecessor's selling, general and administrative expenses included direct and indirect charges for the management and operation of our ethylene and other transportation assets allocated by Westlake for general corporate services such as treasury, information technology, legal, corporate tax, human resources, executive compensation, and other financial and administrative services. These expenses were charged or allocated to the Predecessor based on the nature of the expense and the Predecessor's proportionate share of fixed assets, headcount or other measure, as deemed appropriate. Subsequent to the IPO, under the Services and Secondment Agreement and the Omnibus Agreement, Westlake continues to charge us a combination of direct and allocated charges for similar general corporate services as those charged to the Predecessor historically. We also incur certain annual general and administrative expenses as a result of being a separate publicly traded partnership which were not reflected in the periods prior to the IPO.
Income Taxes
The Partnership is a limited partnership and is treated as a partnership for U.S. federal income tax purposes and, therefore, is not liable for entity-level federal income taxes. The Partnership is, however, subject to state and local income taxes. The Predecessor's tax provision was determined on a separate return basis. Accordingly, we expect our tax provision to be significantly reduced as compared to that of the Predecessor.
Noncontrolling Interest
At the closing of the IPO, Westlake contributed a 5.8% limited partner interest and the general partner interest in OpCo to us. Immediately following the IPO, we used the IPO net proceeds to acquire an additional 4.8% limited partner interest in OpCo directly from OpCo and Westlake retained the remaining 89.4% limited partner interest in OpCo. Subsequently, in April 2015, we purchased an additional 2.7% newly-issued limited partner interest in OpCo, resulting in an aggregate 13.3% limited partner interest in OpCo effective April 1, 2015. Westlake owns the remaining 86.7% limited partner interest in OpCo, which is recorded as noncontrolling interest in our consolidated financial statements.
Factors Affecting Our Business
Supply and Demand for Ethylene and Resulting Co-products
We generate a substantial majority of our revenue from the Ethylene Sales Agreement. This contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways: (1) the cost-plus pricing structure of the Ethylene Sales Agreement is expected to generate a fixed margin of $0.10 per pound, adjusting automatically for changes in feedstock costs; and (2) Westlake is committed to purchase 95% of the annual planned output, subject to a maximum commitment of 3.8 billion pounds of ethylene per year, with an option to purchase an additional 95% of actual output in excess of the planned output on a contract year basis. As a result, our direct exposure to commodity price risk is limited to approximately 5% of our total ethylene production, which is that portion sold to third parties, assuming Westlake exercises its option to purchase 95% of the over production, as well as to our co-products sales.
We also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers. Demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand, the resulting operating rates and general economic activity. While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations during the term of the Ethylene Sales Agreement through the minimum commitment and the cost-plus based pricing, our ability to execute our growth strategy in our areas of operation will depend, in part, on the demand for ethylene derivatives in the geographical areas served by our ethylene production facilities.
Recent Developments
On January 19, 2017, the IRS and U.S. Department of Treasury issued final regulations relating to the Qualifying Income Exception. These final regulations issued by the IRS and Treasury uphold Westlake's private letter ruling and holds that the Partnership's activities constitute "qualifying income." On January 24, 2017, these final regulations were published in the Federal Register. They are now effective.
We completed an upgrade and capacity expansion of the Lake Charles Petro 1 ethylene unit in the third quarter of 2016. The Petro 1 expansion project increased OpCo's ethylene capacity by approximately 250 million pounds annually.
Our Calvert City Olefins unit experienced an unexpected shutdown that occurred on June 1, 2016. We restarted the unit in mid July 2016 (after 46 days). The unplanned outage was caused by a mechanical failure, which resulted in a force majeure event under the Ethylene Sales Agreement with Westlake. Pursuant to the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production), which is measured at the end of the year, is generally not reduced for the first 45 days of a force majeure event, but is reduced for the portion of a force majeure event extending beyond the 45th day. Based on the year-end measurement as described above, a buyer deficiency fee was recognized as recoverable from Westlake in our consolidated financial statements.
In January 2016, we announced an expansion project to increase the ethylene capacity at our Calvert City facility. The expansion, along with other initiatives, is expected to increase ethylene capacity by approximately 100 million pounds annually and is targeted for completion during the first half of 2017. The total ethylene capacity at Calvert City Olefins is expected to increase to 730 million pounds annually at the completion of this project.
Results of Operations
The table below and descriptions that follow represent the consolidated results of operations of the Partnership for the year 2016 and 2015. The consolidated and combined results of operations for the year 2014 consist of the consolidated results of the Partnership for the period from August 4, 2014 through December 31, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014. Our consolidated results of operations subsequent to the IPO are not comparable to the Predecessor's historical combined results of operations for the reasons discussed under "Factors Affecting the Comparability of Our Financial Results."
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Year Ended December 31,
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2016
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2015
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2014
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(in thousands of dollars, except unit amounts and per unit data)
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Net sales—Westlake
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$
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853,719
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$
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834,918
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$
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1,292,089
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Net co-products, ethylene and feedstock sales—third parties
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133,017
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172,303
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457,611
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Total net sales
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986,736
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1,007,221
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1,749,700
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Gross profit
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391,331
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382,882
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745,812
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Selling, general and administrative expenses
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24,887
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23,550
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29,256
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Income from operations
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366,444
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359,332
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716,556
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Other income (expense)
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Interest expense—Westlake
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(12,607
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)
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(4,967
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)
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(10,499
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)
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Other income, net
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601
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160
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3,151
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Income before income taxes
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354,438
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354,525
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709,208
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Provision for income taxes
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1,035
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672
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199,388
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Net income
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$
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353,403
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$
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353,853
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$
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509,820
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Less: Predecessor net income prior to initial public
offering on August 4, 2014
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—
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—
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361,334
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Net income subsequent to initial public offering
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353,403
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353,853
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148,486
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Less: Net income attributable to noncontrolling
interest in OpCo
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312,463
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314,022
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134,909
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Net income attributable to Westlake Chemical
Partners LP subsequent to initial public offering
and limited partners' interest in net income
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$
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40,940
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$
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39,831
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$
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13,577
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Net income attributable to Westlake Chemical
Partners LP subsequent to initial public offering
per limited partner unit (basic and diluted)
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Common units
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$
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1.50
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$
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1.47
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$
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0.50
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Subordinated units
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$
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1.50
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$
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1.47
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$
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0.50
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Weighted average limited partner units outstanding
(basic and diluted)
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Common units—public
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12,937,500
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12,937,500
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12,937,500
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Common units—Westlake
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1,436,115
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1,436,115
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1,436,115
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Subordinated units—Westlake
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12,686,115
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12,686,115
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12,686,115
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Year Ended December 31,
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2016
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2015
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Average Sales
Price
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Volume
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Average Sales
Price
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Volume
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Product sales price and volume percentage change
from prior year
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+10.1
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%
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-12.1
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%
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-38.0
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%
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-4.4
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%
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Year Ended December 31,
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2016
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2015
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2014
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Average industry prices
(1)
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Ethane (cents/lb)
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6.6
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6.2
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9.0
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Propane (cents/lb)
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11.4
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10.7
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24.7
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Ethylene (cents/lb)
(2)
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26.9
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30.6
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58.4
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______________________________
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(1)
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Industry pricing data was obtained through IHS Chemical. We have not independently verified the data.
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(2)
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Represents average North American spot prices of ethylene over the period as reported by IHS Chemical.
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Summary
For the year ended
December 31, 2016
, net income was
$353.4 million
on net sales of
$986.7 million
. This represents a decrease in net income of
$0.5 million
compared to 2015 net income of
$353.9 million
on net sales of
$1,007.2 million
. Net sales for
2016
decreased by
$20.5 million
as compared to
2015
mainly due to lower overall sales volumes to Westlake and third parties, partially offset by the Shortfall of $63.5 million and buyer deficiency fee of $13.1 million recognized during the year. Income from operations was
$366.4 million
for 2016 as compared to
$359.3 million
in 2015. Income from operations for year ended December 31, 2016 increased mainly as a result of the Shortfall recognized during 2016, partially offset by the lower volume of ethylene sales to Westlake and third parties and lower ethylene sales prices to third parties as compared to 2015.
2016
Compared with
2015
Net Sales
. Net sales decreased by
$20.5 million
, or
2.0%
, to
$986.7 million
in 2016 from
$1,007.2 million
in
2015
, primarily due to lower sales volume that was partially offset by an increase in average sales price. Lower sales volumes in 2016 resulted in a decrease in net sales by
12.1%
as compared to 2015. The decrease in sales volume to Westlake and third parties during 2016 was primarily due to a decrease in ethylene production due to our upgrade and capacity expansion project at the Lake Charles Petro 1 facility and lower ethylene production at the Calvert City Olefins facility due to the unplanned outage during 2016. The increase in average sales price of ethylene and related co-products in 2016 resulted in an increase in net sales by
10.1%
as compared to 2015. The increase in average sales price in 2016 was primarily due to the Shortfall, resulting from the higher maintenance capital expenditures, the buyer deficiency fee (primarily because Westlake's obligation to pay under the Ethylene Sales Agreement was not reduced during the first 45 days of the force majeure event in Calvert City in 2016), resulting from Calvert City Olefins facility's unplanned outage, recognized during 2016 and higher ethylene sales prices to Westlake, as compared to 2015. These increases were partially offset by lower ethylene sales price to third parties, as compared to 2015.
Gross Profit
. Gross profit margin percentage increased to
39.7%
in
2016
from
38.0%
in
2015
primarily due to the Shortfall recognized during 2016, partially offset by the lower operating rates at the Lake Charles Petro 1 and Calvert City Olefins
ethylene production facilities during 2016, which resulted in lower ethylene sales volumes to Westlake and third parties, as compared to the year ended December 31, 2015.
Selling, General and Administrative Expenses
. Selling, general and administrative expenses increased by
$1.3 million
, or
5.5%
, to
$24.9 million
in
2016
from
$23.6 million
in
2015
. The increase was mainly attributable to an increase in general and administrative expense allocation from Westlake during 2016 as compared to the prior year, which was partially offset by lower professional fees.
Interest Expense
. Interest expense increased by
$7.6 million
to
$12.6 million
in
2016
from
$5.0 million
in
2015
, due to an increase in our average debt balance, primarily to fund the capital expenditures related to the Lake Charles Petro 1 upgrade and expansion and the working capital requirements. This increase in interest expense was partially offset by the lower average interest rate for the year ended December 31, 2016 as compared to the prior year due to the April 2015 repayment of a significant portion of the August 2013 Promissory Notes (as defined in "Liquidity and Capital Resources—Indebtedness"), which bear a higher interest rate as compared to our other outstanding debt.
2015
Compared with
2014
Net Sales. Net sales decreased by $742.5 million, or 42.4%, to $1,007.2 million in 2015 from $1,749.7 million in 2014, primarily due to a lower average sales price of ethylene sold to Westlake resulting from the execution of the Ethylene Sales Agreement following the IPO, lower average sales price of ethylene sold to third parties due to the significant decline in market prices in 2015 and a lower volume of ethylene sold to third parties, partially offset by increased volume of ethylene sold to
Westlake in 2015 as compared to 2014. The total ethylene sales volume in 2015 was lower as compared to 2014 due primarily to Westlake's retention of the Predecessor's ethylene procurement and reselling activities, which was partially offset by higher production in 2015 resulting from the Calvert City Olefins expansion in 2014 and other efficiency projects. Further, co-product sales prices were significantly lower in 2015 as compared to 2014, primarily due to the significant decline in market prices of coproducts, which resulted in a decrease in co-product sales to third parties. This decrease in sales prices was partially offset by an increase in volume of co-product sales to third parties. Additionally, there were no excess feedstock sales subsequent to the IPO in 2014 or in 2015 as such activities were retained by Westlake. The overall average sales prices of ethylene and co-products in 2015 decreased by 38.0% as compared to 2014 and overall sales volumes in 2015 decreased by 4.4% as compared to 2014.
Gross Profit.
Gross profit margin percentage decreased to 38.0% in 2015 from 42.6% in 2014 primarily due to a reduction in margin for ethylene sold to Westlake resulting from the Ethylene Sales Agreement and also due to the decline in margin from ethylene sold to third parties as a result of the significant decline in ethylene market prices during 2015. The decrease was largely offset by a drop in feedstock prices, a decrease in energy costs as well as the absence in 2015 of costs and lost production associated with the Calvert City Olefins turnaround, conversion and expansion activities that took place during the first and second quarters of 2014.
Selling, General and Administrative Expenses
. Selling, general and administrative expenses decreased by $5.7 million, or
19.5%, to $23.6 million in 2015 from $29.3 million in 2014. The decrease was mainly attributable to the absence of an allocation from Westlake of labor costs attributable to the Predecessor's operations retained by Westlake after the IPO, partially offset by incremental selling, general and administrative expenses incurred by the Partnership subsequent to the IPO as a result of being a separate publicly-traded partnership.
Interest Expense
. Interest expense decreased by $5.5 million to $5.0 million in 2015 from $10.5 million in 2014, primarily due to a lower average interest rate in 2015 as compared to the prior year. The lower average interest rate in 2015 as compared to the prior year was due to the repayment of a significant portion of the August 2013 Promissory Notes (as defined in "Liquidity and Capital Resources—Indebtedness") in April 2015, which bear a higher interest rate as compared to our other outstanding debt.
Other Income, Net
. Other income, net decreased by $3.0 million to $0.2 million in 2015 from $3.2 million in 2014, primarily due to the absence of income attributable to the Predecessor's equity stake in a natural gas liquids pipeline joint venture that was not contributed to us in connection with the IPO.
Income Taxes.
The effective income tax rate was 0.2% in 2015 as compared to 28.1% for 2014. The effective income tax
rate in 2015 is not comparable to the effective income tax rate for 2014 as the Partnership is not subject to federal income taxes
subsequent to the IPO.
Cash Flows
Operating Activities
Operating activities provided cash of
$287.7 million
in
2016
compared to cash provided of
$452.5 million
in
2015
. The
$164.8 million
decrease
in cash flows from operating activities was mainly due to the Lake Charles Petro 1 facility turnaround, which resulted in a net cash use of approximately
$77.9 million
during 2016 as compared to
$3.5 million
of net cash used during 2015, and an increase in the use of cash for working capital purposes, as compared to the prior year. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued liabilities, used cash of
$89.8 million
in 2016 as compared to
$19.4 million
of cash provided during 2015, resulting in an overall unfavorable change of
$109.2 million
. This change was primarily due to the Shortfall recognized as Westlake receivable in 2016.
Operating activities provided cash of $452.5 million in 2015 compared to cash provided of $604.0 million in 2014. The $151.5 million decrease in cash flows from operating activities was mainly due to a decrease in net income from operations as a result of the Ethylene Sales Agreement by $155.9 million, partially offset by a decrease in use of cash for working capital purposes.
Investing Activities
Net cash used for investing activities during
2016
was
$299.5 million
as compared to net cash used for investing activities of
$231.2 million
in
2015
. Capital expenditures were
$299.6 million
in
2016
compared to
$231.2 million
in
2015
. Capital expenditures during 2016 and 2015 were primarily incurred for our upgrade and expansion of the Lake Charles Petro 1 facility, which was completed in July 2016, as further discussed under "Liquidity and Capital Resources—Capital Expenditures" below.
Net cash used for investing activities during 2015 was $231.2 million as compared to net cash used for investing activities of $203.0 million in 2014. Capital expenditures were $231.2 million in 2015 compared to $202.8 million in 2014. Capital expenditures in 2015 were primarily incurred in connection with the planned upgrade and expansion of OpCo's Petro 1 facility to increase ethylene production capacity as further discussed under "Liquidity and Capital Resources—Capital Expenditures" below. The remaining capital expenditures in 2015 primarily related to projects to improve production capacity or reduce costs, maintenance and safety projects and environmental projects at our facilities.
Financing Activities
Net cash used for financing activities during 2016 was
$68.9 million
as compared to net cash used for financing activities of
$185.5 million
during 2015. The cash outflows during 2016 were related to the distribution of
$244.6 million
to Westlake and of
$34.9 million
to other unitholders by the Partnership and OpCo and the repayment of
$1.6 million
of borrowings under the OpCo Revolver to fund our working capital requirements. The distributions and repayment in 2016 were partially offset by borrowings under the OpCo Revolver of
$212.2 million
to fund capital expenditures and our working capital requirements.
Net cash used for financing activities during 2015 was $185.5 million as compared to net cash used for financing activities of $267.3 million during 2014. The activity during 2015 was primarily related to the repayment of $135.3 million of the August 2013 Promissory Notes and the distribution of $310.8 million to Westlake and of $31.1 million to other unitholders by the Partnership and OpCo. The repayment and distributions were partially offset by our borrowings under the MLP Revolver to fund the purchase of an additional 2.7% limited partner interest in OpCo in April 2015 for $135.3 million and borrowings under the OpCo Revolver of $156.4 million to fund the capital expenditures for the Petro 2 and Petro 1 ethylene plants.
Liquidity and Capital Resources
Liquidity and Financing Arrangements
Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations. To the extent we do not generate sufficient cash flow to fund capital expenditures, we expect to fund them primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity and debt interests.
The Partnership maintains separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Services and Secondment Agreement. Our sources of liquidity include cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary and possible under then current market conditions, the issuance of additional equity interests or debt. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. Westlake may also provide other direct and indirect financing to us from time to time, although it is not required to do so.
In order to fund non-annual turnaround expenditures, we cause OpCo to reserve approximately $30.0 million during each twelve-month period for turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.
Our cash is generated from cash distributions from OpCo. OpCo was a restricted subsidiary and guarantor under Westlake's credit facility and the indentures governing its senior notes until August 2016. These guarantees were released during August 2016. The indentures governing Westlake's senior notes prevent OpCo from making distributions to us if any default or event of default (as defined in the indentures) exists. Westlake's credit facility does not prevent OpCo from making distributions to us.
On January 27, 2017, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of
$0.3450
per unit payable on February 22, 2017 to unitholders of record on February 7, 2017, and a distribution to the incentive distribution rights holders ("IDR Holders") which equates to approximately
$9.5 million
per quarter, or approximately
$37.9 million
per year in aggregate (in each case, including the distribution to the IDR Holders), based on the number of common and subordinated units outstanding on December 31, 2016. We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate.
Capital Expenditures
We completed an expansion of the Petro 2 ethylene facility in Lake Charles in the first quarter of 2013, which increased OpCo's ethylene production capacity by approximately 240 million pounds annually. We completed an upgrade and capacity expansion of the Lake Charles Petro 1 ethylene unit in the third quarter of 2016, which increased OpCo's ethylene production capacity by approximately 250 million pounds annually.
In January 2016, we announced an expansion project to increase the ethylene capacity at our Calvert City facility. The expansion, along with other initiatives, is expected to increase ethylene capacity by approximately 100 million pounds annually and is targeted for completion during the first half of 2017. The total ethylene capacity at Calvert City Olefins is expected to increase to 730 million pounds annually at the completion of this project. This capital project is currently estimated to cost in the range of $70.0 million to $80.0 million and is expected to be funded with borrowings under the OpCo Revolver. As of
December 31, 2016
, we had incurred a total cost of approximately $
38.1
million on this capital project.
In April 2014, the Predecessor completed the feedstock conversion and ethylene expansion project at Calvert City Olefins that resulted in approximately 180 million pounds of additional annual capacity and also provided OpCo with 100% ethane feedstock capability at the facility.
Westlake has historically funded capital expenditures related to Lake Charles Olefins and Calvert City Olefins. During the years ended December 31, 2016 and 2015, Westlake loaned OpCo
$212.2 million
and $291.7 million, respectively, of which $157.6 million and $291.7 million was used for capital expenditures. We expect that
Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.
Cash and Cash Equivalents
As of
December 31, 2016
, our cash and cash equivalents totaled
$88.9 million
. In addition, we have a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.
Indebtedness
August 2013 Promissory Notes
In connection with the closing of the IPO, OpCo assumed $246.1 million of indebtedness under three intercompany promissory notes (the "August 2013 Promissory Notes"). As of December 31, 2016,
$31.8 million
of the principal amount of the August 2013 Promissory Notes was still outstanding. The August 2013 Promissory Notes have a ten-year term and bear interest at the prime rate plus a 1.5% margin, which is accrued in arrears quarterly. OpCo has the right at any time to prepay the August 2013 Promissory Notes, in whole or in part, without any premium or penalty. The August 2013 Promissory Notes mature in August 2023.
OpCo Revolver
In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with Westlake ("OpCo Revolver") that may be used to fund growth projects and working capital needs. As of December 31, 2016, outstanding borrowings under the OpCo Revolver totaled
$427.5 million
and bore interest at the LIBOR rate plus 3.0%, which is accrued in arrears quarterly. The OpCo Revolver matures in 2019.
MLP Revolver
In 2015, we entered into a $300.0 million senior, unsecured revolving credit agreement with Westlake Chemical Finance Corporation, an affiliate of Westlake ("MLP Revolver"). The MLP Revolver is scheduled to mature on April 29, 2018. Borrowings under the MLP Revolver bear interest at LIBOR plus a spread ranging from 2.0% to 3.0% (depending on our consolidated leverage ratio), payable quarterly. The MLP Revolver provides that we may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that we maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.00 or less, or (2) during any other period, 4.50:1.00 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. As of December 31, 2016, the outstanding borrowings under the MLP Revolver totaled
$135.3 million
. We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us.
Contractual Obligations and Commercial Commitments
In addition to long-term debt, we are required to make payments relating to various types of obligations. The following table summarizes our contractual obligations as of
December 31, 2016
relating to long-term debt, interest payments, operating leases and purchase obligations for the next five years and thereafter. The amounts do not include deferred charges and other items classified in other liabilities in the consolidated balance sheet due to the uncertainty of the future payment schedule.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
Total
|
|
2017
|
|
2018-2019
|
|
2020-2021
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
Total Debt:
|
|
|
|
|
|
|
|
|
|
|
|
Principal
(1)
|
|
$
|
594.7
|
|
|
$
|
—
|
|
|
$
|
562.9
|
|
|
$
|
—
|
|
|
$
|
31.8
|
|
Interest
(2)
|
|
58.6
|
|
|
22.8
|
|
|
30.1
|
|
|
3.3
|
|
|
2.4
|
|
Operating leases
(3)
|
|
4.6
|
|
|
1.1
|
|
|
1.7
|
|
|
1.4
|
|
|
0.4
|
|
Purchase obligations
(4)
|
|
31.1
|
|
|
31.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
689.0
|
|
|
$
|
55.0
|
|
|
$
|
594.7
|
|
|
$
|
4.7
|
|
|
$
|
34.6
|
|
______________________________
|
|
(1)
|
Long-Term Debt
. Long-term debt consists of the August 2013 Promissory Notes and the revolving credit facilities.
|
|
|
(2)
|
Interest Payments.
Interest payments are based on interest rates in effect at
December 31, 2016
and assume contractual amortization payments.
|
|
|
(3)
|
Operating Leases.
Represent noncancelable operating leases with respect to rail cars that are subleased to OpCo and two site lease agreements for various periods. Pursuant to the site lease agreements, OpCo leases the real property underlying Lake Charles Olefins and Calvert City Olefins. OpCo is also granted rights to access and use certain other portions of Westlake's production facilities that are necessary to operate OpCo's ethylene production facilities. OpCo owes Westlake one dollar per site per year. Each of the site lease agreements has a term of 50 years.
|
|
|
(4)
|
Purchase Obligations.
Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including a minimum quantity and price. We are party to various obligations to purchase goods and services, including the Services and Secondment Agreement, in the ordinary course of our business, as well as various purchase commitments for our capital projects.
|
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. We have evaluated the accounting policies used in the preparation of the accompanying consolidated and combined financial statements and related notes and believe those policies are reasonable and appropriate.
We apply those accounting policies that we believe best reflect the underlying business and economic events, consistent with GAAP. Our more critical accounting policies include those related to long-lived assets, fair value estimates and environmental and legal obligations. Inherent in such policies are certain key assumptions and estimates. We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment. Our significant accounting policies are summarized in Note 1 to the consolidated and combined financial statements appearing elsewhere in this Form 10-K. We believe the following to be our most critical accounting policies applied in the preparation of our financial statements.
Long-Lived Assets.
Key estimates related to long-lived assets include useful lives, recoverability of carrying values and existence of any retirement obligations. Such estimates could be significantly modified. The carrying values of long-lived assets could be impaired by 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, the cyclical nature of the chemical and refining industries and uncertainties associated with governmental actions.
We evaluate long-lived assets for potential impairment indicators 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. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and the operational performance of our businesses. Actual impairment losses incurred could vary significantly from amounts estimated. 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. Additionally, future events could cause us to conclude that impairment indicators exist and that associated long-lived assets of our businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
The estimated useful lives of long-lived assets range from three to 35 years. Depreciation and amortization of these assets, including amortization of deferred turnaround costs, under the straight-line method over their estimated useful lives totaled
$98.2 million
,
$81.2 million
and
$77.6 million
in
2016, 2015 and 2014
, respectively. If the useful lives of the assets were found to be shorter than originally estimated, depreciation or amortization charges would be accelerated.
We defer the costs of planned major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected unit. Total costs deferred on turnarounds were
$77.1 million
,
$3.2 million
and
$0.3 million
in
2016, 2015 and 2014
, respectively. Amortization in
2016, 2015 and 2014
of previously deferred turnaround costs was
$20.8 million
,
$16.8 million
and
$17.0 million
, respectively. As of
December 31, 2016
, deferred turnaround costs, net of accumulated amortization, totaled
$89.2 million
. Expensing turnaround costs as incurred would likely result in greater variability of our quarterly operating results and would adversely affect our financial position and results of operations.
Additional information concerning long-lived assets and related depreciation and amortization appears in Notes 6 and 7 to the audited consolidated and combined financial statements appearing elsewhere in this Form 10-K.
Fair Value Estimates.
We develop estimates of fair value to allocate the purchase price paid to acquire a business to the assets acquired and liabilities assumed in an acquisition, to assess impairment of long-lived assets, goodwill and intangible assets and to record derivative instruments. We use all available information to make these fair value determinations, including the engagement of third-party consultants. At December 31, 2016, recorded goodwill was $5.8 million, all of which was associated with the acquisition of the Longview Pipeline as part of the acquisition of Westlake's Longview production facilities. In addition, we record all derivative instruments at fair value. The fair value of the financial instruments is estimated using quoted market prices in active markets and observable market-based inputs or unobservable inputs that are corroborated by market data when active markets are not available or unobservable inputs that are not corroborated by market data. See Note 15 to the consolidated and combined financial statements in this report for more information.
Environmental and Legal Obligations.
We consult with various professionals to assist us in making estimates relating to environmental costs and legal proceedings. We accrue an expense when we determine that it is probable that a liability has been incurred and the amount is reasonably estimable. While we believe that the amounts recorded in the accompanying consolidated and combined financial statements related to these contingencies are based on the best estimates and judgments available, the actual outcomes could differ from our estimates. Additional information about certain legal proceedings and environmental matters appears in Note 18 to the consolidated and combined financial statements appearing elsewhere in this Form 10-K.
Recent Accounting Pronouncements
See Note 3 to the consolidated and combined financial statements for a full description of recent accounting pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
A substantial portion of the Partnership's products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. However, our direct exposure to commodity price risk is limited to approximately 5% of our total ethylene production, which is the portion sold to third parties. We believe we have substantially mitigated our indirect exposure to commodity price fluctuation during the term of the Ethylene Sales Agreement through the minimum commitment and the cost-plus based pricing.
Interest Rate Risk
We are exposed to interest rate risk with respect to our outstanding debt, all of which is variable rate debt. At
December 31, 2016
, we had variable rate debt totaled
$594.6 million
outstanding, all of which was owed to wholly owned subsidiaries of Westlake,
$31.8 million
of which accrues interest at a variable rate of prime plus 150 basis points,
$427.5 million
of which accrues interest at a variable rate of LIBOR plus 300 basis points and the remaining
$135 million
of which accrues interest at a variable rate of LIBOR plus 200 basis points. During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the debt. The weighted average variable interest rate of our debt, excluding the effectively fixed rate portion through the interest rate contract, was
3.80%
as of
December 31, 2016
. We will continue to be subject to interest rate risk with respect to our variable rate debt as well as the risk of higher interest cost if and when this debt is refinanced. A hypothetical increase in our average interest rate on variable rate debt (excluding the effectively fixed rate debt portion through the interest rate contract) by 100 basis points would increase our annual interest expense by approximately $
5.2 million
, based on the
December 31, 2016
debt balance.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated and Combined Financial Statements
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Page
|
|
|
Management's Report on Internal Control over Financial Reporting
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2016 and 2015
|
|
Consolidated and Combined Statements of Operations for the Years Ended December 31, 2016, 2015 and
2014
|
|
Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2016 and 2015
|
|
Consolidated and Combined Statements of Changes in Equity
for the Years Ended
December 31, 2016, 2015
and 2014
|
|
2014
|
|
Notes to Consolidated and Combined Financial Statements
|
|
Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or because the required information is shown in the consolidated and combined financial statements or notes thereto.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Westlake Chemical Partners LP (the "Partnership") is responsible for establishing and maintaining adequate internal control over financial reporting. The Partnership's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The management of the Partnership assessed the effectiveness of the Partnership's internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated Framework
(2013). Based on its assessment, Partnership's management has concluded that the Partnership's internal control over financial reporting was effective as of December 31, 2016 based on those criteria.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of internal control over financial reporting as of December 31, 2016 as stated in their report that appears on the following page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Partners of Westlake Chemical Partners LP and Board of Directors
of Westlake Chemical Partners GP LLC:
In our opinion, the accompanying balance sheets and the related statements of operations, comprehensive income, changes in equity, and cash flows present fairly, in all material respects, the financial position of Westlake Chemical Partners LP and its subsidiaries at
December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
. The Partnership's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Partnership's internal control over financial reporting based on our audits (which were integrated audits in 2016 and 2015). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 7, 2017
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
(in thousands of dollars,
except unit amounts)
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
88,900
|
|
|
$
|
169,559
|
|
Accounts receivable, net—Westlake Chemical Corporation ("Westlake")
|
|
126,977
|
|
|
39,655
|
|
Accounts receivable, net—third parties
|
|
12,085
|
|
|
11,927
|
|
Inventories
|
|
3,934
|
|
|
3,879
|
|
Prepaid expenses and other current assets
|
|
269
|
|
|
267
|
|
Total current assets
|
|
232,165
|
|
|
225,287
|
|
Property, plant and equipment, net
|
|
1,222,238
|
|
|
1,020,469
|
|
Other assets, net
|
|
|
|
|
Goodwill
|
|
5,814
|
|
|
5,814
|
|
Deferred charges and other assets, net
|
|
95,011
|
|
|
38,779
|
|
Total other assets, net
|
|
100,825
|
|
|
44,593
|
|
Total assets
|
|
$
|
1,555,228
|
|
|
$
|
1,290,349
|
|
LIABILITIES
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable—Westlake
|
|
$
|
12,130
|
|
|
$
|
15,550
|
|
Accounts payable—third parties
|
|
9,930
|
|
|
18,737
|
|
Accrued liabilities
|
|
15,717
|
|
|
23,407
|
|
Total current liabilities
|
|
37,777
|
|
|
57,694
|
|
Long-term debt payable to Westlake
|
|
594,629
|
|
|
384,006
|
|
Deferred income taxes
|
|
1,736
|
|
|
1,392
|
|
Other liabilities
|
|
123
|
|
|
90
|
|
Total liabilities
|
|
634,265
|
|
|
443,182
|
|
Commitments and contingencies (Notes 8 and 18)
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Common unitholders—public (12,937,500 units issued and outstanding)
|
|
297,367
|
|
|
294,565
|
|
Common unitholder—Westlake (1,436,115 units issued and outstanding)
|
|
4,813
|
|
|
4,502
|
|
Subordinated unitholder—Westlake (12,686,115 units issued and outstanding)
|
|
42,534
|
|
|
39,786
|
|
General partner—Westlake
|
|
(242,430
|
)
|
|
(242,572
|
)
|
Accumulated other comprehensive income
|
|
200
|
|
|
280
|
|
Total Westlake Chemical Partners LP partners' capital
|
|
102,484
|
|
|
96,561
|
|
Noncontrolling interest in Westlake Chemical OpCo LP ("OpCo")
|
|
818,479
|
|
|
750,606
|
|
Total equity
|
|
920,963
|
|
|
847,167
|
|
Total liabilities and equity
|
|
$
|
1,555,228
|
|
|
$
|
1,290,349
|
|
The accompanying notes are an integral part of the consolidated and combined financial statements.
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars,
except unit amounts and per unit data)
|
Revenue
|
|
|
|
|
|
|
Net sales—Westlake
|
|
$
|
853,719
|
|
|
$
|
834,918
|
|
|
$
|
1,292,089
|
|
Net co-products, ethylene and feedstock sales—third parties
|
|
133,017
|
|
|
172,303
|
|
|
457,611
|
|
Total net sales
|
|
986,736
|
|
|
1,007,221
|
|
|
1,749,700
|
|
Cost of sales
|
|
595,405
|
|
|
624,339
|
|
|
1,003,888
|
|
Gross profit
|
|
391,331
|
|
|
382,882
|
|
|
745,812
|
|
Selling, general and administrative expenses
|
|
24,887
|
|
|
23,550
|
|
|
29,256
|
|
Income from operations
|
|
366,444
|
|
|
359,332
|
|
|
716,556
|
|
Other income (expense)
|
|
|
|
|
|
|
Interest expense—Westlake
|
|
(12,607
|
)
|
|
(4,967
|
)
|
|
(10,499
|
)
|
Other income, net
|
|
601
|
|
|
160
|
|
|
3,151
|
|
Income before income taxes
|
|
354,438
|
|
|
354,525
|
|
|
709,208
|
|
Provision for income taxes
|
|
1,035
|
|
|
672
|
|
|
199,388
|
|
Net income
|
|
$
|
353,403
|
|
|
$
|
353,853
|
|
|
$
|
509,820
|
|
Less: Predecessor net income prior to initial public offering on
August 4, 2014
|
|
—
|
|
|
—
|
|
|
361,334
|
|
Net income subsequent to initial public offering
|
|
353,403
|
|
|
353,853
|
|
|
148,486
|
|
Less: Net income attributable to noncontrolling interest in OpCo
|
|
312,463
|
|
|
314,022
|
|
|
134,909
|
|
Net income attributable to Westlake Chemical Partners LP subsequent
to initial public offering and limited partners' interest in net income
|
|
$
|
40,940
|
|
|
$
|
39,831
|
|
|
$
|
13,577
|
|
Net income attributable to Westlake Chemical Partners LP subsequent
to initial public offering per limited partner unit (basic and diluted)
|
|
|
|
|
|
|
Common units
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.50
|
|
Subordinated units
|
|
$
|
1.50
|
|
|
$
|
1.47
|
|
|
$
|
0.50
|
|
Weighted average limited partner units outstanding
(basic and diluted)
|
|
|
|
|
|
|
Common units—public
|
|
12,937,500
|
|
|
12,937,500
|
|
|
12,937,500
|
|
Common units—Westlake
|
|
1,436,115
|
|
|
1,436,115
|
|
|
1,436,115
|
|
Subordinated units—Westlake
|
|
12,686,115
|
|
|
12,686,115
|
|
|
12,686,115
|
|
Distributions per common unit
|
|
$
|
1.29
|
|
|
$
|
1.15
|
|
|
$
|
0.45
|
|
The accompanying notes are an integral part of the consolidated and combined financial statements.
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Net income
|
|
$
|
353,403
|
|
|
$
|
353,853
|
|
Other comprehensive income:
|
|
|
|
|
Cash flow hedge:
|
|
|
|
|
Interest rate contract:
|
|
|
|
|
Adjustments in fair value of cash flow hedge
|
|
(416
|
)
|
|
85
|
|
Reclassification of losses to net income
|
|
336
|
|
|
195
|
|
Total other comprehensive income
|
|
(80
|
)
|
|
280
|
|
Comprehensive income
|
|
353,323
|
|
|
354,133
|
|
Comprehensive income attributable to noncontrolling interest in OpCo
|
|
312,463
|
|
|
314,022
|
|
Comprehensive income attributable to Westlake Chemical Partners LP
|
|
$
|
40,860
|
|
|
$
|
40,111
|
|
The accompanying notes are an integral part of the consolidated and combined financial statements.
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Partnership
|
|
|
Net
Investment
|
|
Common Unitholders -
Public
|
|
Common Unitholder -
Westlake
|
|
Subordinated Unitholder -
Westlake
|
|
General
Partner -
Westlake
|
|
Accumulated
Other
Comprehensive
Income
|
|
Noncontrolling Interest
in OpCo
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Balances at December 31, 2013
|
|
$
|
455,432
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
455,432
|
|
Net income from January 1, 2014
through August 3, 2014
|
|
361,334
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
361,334
|
|
Net distributions to Westlake prior to
initial public offering
|
|
(448,101
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(448,101
|
)
|
Predecessor net liabilities not assumed
by OpCo
|
|
239,706
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
239,706
|
|
Balance as of August 4, 2014 (prior to
initial public offering)
|
|
$
|
608,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
608,371
|
|
Allocation of net investment to unitholders
|
|
(608,371
|
)
|
|
—
|
|
|
3,563
|
|
|
31,479
|
|
|
—
|
|
|
—
|
|
|
573,329
|
|
|
—
|
|
Proceeds from initial public offering, net
of finance and other offering costs
|
|
—
|
|
|
286,088
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
286,088
|
|
Distribution to the noncontrolling interest
in OpCo
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(151,729
|
)
|
|
(151,729
|
)
|
Purchase of additional interest in OpCo
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(242,572
|
)
|
|
—
|
|
|
242,572
|
|
|
—
|
|
Net income
|
|
—
|
|
|
6,493
|
|
|
720
|
|
|
6,364
|
|
|
—
|
|
|
—
|
|
|
134,909
|
|
|
148,486
|
|
Quarterly distribution to unitholders
|
|
—
|
|
|
(2,204
|
)
|
|
(245
|
)
|
|
(2,162
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,611
|
)
|
Quarterly distribution to noncontrolling
interest retained in OpCo by Westlake
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51,655
|
)
|
|
(51,655
|
)
|
Balances at December 31, 2014
|
|
$
|
—
|
|
|
$
|
290,377
|
|
|
$
|
4,038
|
|
|
$
|
35,681
|
|
|
$
|
(242,572
|
)
|
|
$
|
—
|
|
|
$
|
747,426
|
|
|
$
|
834,950
|
|
Net income
|
|
—
|
|
|
19,044
|
|
|
2,114
|
|
|
18,673
|
|
|
—
|
|
|
—
|
|
|
314,022
|
|
|
353,853
|
|
Net effect of cash flow hedge
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
280
|
|
|
—
|
|
|
280
|
|
Quarterly distribution to unitholders
|
|
—
|
|
|
(14,856
|
)
|
|
(1,650
|
)
|
|
(14,568
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,074
|
)
|
Quarterly distribution to noncontrolling
interest retained in OpCo by Westlake
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(310,842
|
)
|
|
(310,842
|
)
|
Balances at December 31, 2015
|
|
$
|
—
|
|
|
$
|
294,565
|
|
|
$
|
4,502
|
|
|
$
|
39,786
|
|
|
$
|
(242,572
|
)
|
|
$
|
280
|
|
|
$
|
750,606
|
|
|
$
|
847,167
|
|
Net income
|
|
—
|
|
|
19,440
|
|
|
2,157
|
|
|
19,062
|
|
|
281
|
|
|
—
|
|
|
312,463
|
|
|
353,403
|
|
Net effect of cash flow hedge
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
—
|
|
|
(80
|
)
|
Quarterly distribution to unitholders
|
|
—
|
|
|
(16,638
|
)
|
|
(1,846
|
)
|
|
(16,314
|
)
|
|
(139
|
)
|
|
—
|
|
|
—
|
|
|
(34,937
|
)
|
Quarterly distribution to noncontrolling
interest retained in OpCo by Westlake
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(244,590
|
)
|
|
(244,590
|
)
|
Balances at December 31, 2016
|
|
$
|
—
|
|
|
$
|
297,367
|
|
|
$
|
4,813
|
|
|
$
|
42,534
|
|
|
$
|
(242,430
|
)
|
|
$
|
200
|
|
|
$
|
818,479
|
|
|
$
|
920,963
|
|
The accompanying notes are an integral part of the consolidated and combined financial statements.
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
353,403
|
|
|
$
|
353,853
|
|
|
$
|
509,820
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
Depreciation and amortization
|
|
98,210
|
|
|
81,210
|
|
|
77,611
|
|
Provision for doubtful accounts
|
|
394
|
|
|
170
|
|
|
65
|
|
Loss from disposition of property, plant and equipment
|
|
3,021
|
|
|
1,812
|
|
|
1,544
|
|
Deferred income taxes
|
|
344
|
|
|
(456
|
)
|
|
8,608
|
|
Income from equity method investment, net of dividends
|
|
—
|
|
|
—
|
|
|
1,073
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
Accounts receivable—third parties
|
|
(552
|
)
|
|
25,424
|
|
|
(31,551
|
)
|
Net accounts receivable—Westlake
|
|
(90,742
|
)
|
|
(11,836
|
)
|
|
(11,059
|
)
|
Inventories
|
|
(55
|
)
|
|
2,755
|
|
|
24,686
|
|
Prepaid expenses and other current assets
|
|
(2
|
)
|
|
(55
|
)
|
|
(624
|
)
|
Accounts payable
|
|
(2,175
|
)
|
|
836
|
|
|
(4,915
|
)
|
Accrued and other liabilities
|
|
3,791
|
|
|
2,317
|
|
|
20,166
|
|
Other, net
|
|
(77,911
|
)
|
|
(3,488
|
)
|
|
8,588
|
|
Net cash provided by operating activities
|
|
287,726
|
|
|
452,542
|
|
|
604,012
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
(299,638
|
)
|
|
(231,185
|
)
|
|
(202,823
|
)
|
Proceeds from disposition of assets
|
|
157
|
|
|
—
|
|
|
—
|
|
Settlements of derivative instruments
|
|
—
|
|
|
—
|
|
|
(133
|
)
|
Net cash used for investing activities
|
|
(299,481
|
)
|
|
(231,185
|
)
|
|
(202,956
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from debt payable to Westlake
|
|
212,175
|
|
|
291,709
|
|
|
181,642
|
|
Repayment of debt payable to Westlake
|
|
(1,552
|
)
|
|
(135,341
|
)
|
|
—
|
|
Quarterly distributions to noncontrolling interest retained in OpCo by
Westlake
|
|
(244,590
|
)
|
|
(310,842
|
)
|
|
(51,655
|
)
|
Quarterly distributions to unitholders
|
|
(34,937
|
)
|
|
(31,074
|
)
|
|
(4,611
|
)
|
Repayment of debt payable to Westlake with proceeds from the initial public
offering
|
|
—
|
|
|
—
|
|
|
(78,940
|
)
|
Net proceeds from issuance of common units
|
|
—
|
|
|
—
|
|
|
286,088
|
|
Proceeds from initial public offering distributed to Westlake
|
|
—
|
|
|
—
|
|
|
(151,729
|
)
|
Net distributions to Westlake prior to initial public offering
|
|
—
|
|
|
—
|
|
|
(448,101
|
)
|
Net cash used for financing activities
|
|
(68,904
|
)
|
|
(185,548
|
)
|
|
(267,306
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
(80,659
|
)
|
|
35,809
|
|
|
133,750
|
|
Cash and cash equivalents at beginning of the year
|
|
169,559
|
|
|
133,750
|
|
|
—
|
|
Cash and cash equivalents at end of the year
|
|
$
|
88,900
|
|
|
$
|
169,559
|
|
|
$
|
133,750
|
|
The accompanying notes are an integral part of the consolidated and combined financial statements.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(in thousands of dollars, except unit amounts and per unit data)
1. Description of Business and Significant Accounting Policies
Description of Business
Westlake Chemical Partners LP ("Westlake Chemical Partners LP" or the "Partnership") is a Delaware limited partnership formed in March 2014 to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, the Partnership completed an initial public offering (the "IPO") of
12,937,500
common units representing limited partner interests. In connection with the IPO, the Partnership acquired a
10.6%
interest in Westlake Chemical OpCo LP ("OpCo") and a
100%
interest in Westlake Chemical OpCo GP LLC ("OpCo GP"), which is the general partner of OpCo. On April 29, 2015, the Partnership purchased an additional
2.7%
newly-issued limited partner interest in OpCo for approximately
$135,341
, resulting in an aggregate
13.3%
limited partner interest in OpCo effective April 1, 2015. OpCo owns
three
ethylene production facilities and a common carrier ethylene pipeline (collectively, the "Contributed Assets").
References in these financial statements to the Partnership, OpCo and OpCo GP used in the present tense or prospectively refer to the period subsequent to the IPO. References in these financial statements to the "Predecessor" refer to Westlake Chemical Partners LP Predecessor, the Partnership's predecessor for accounting purposes and refer to the time periods prior to the IPO. References to "Westlake" refer collectively to Westlake Chemical Corporation and its subsidiaries, other than the Partnership, OpCo and OpCo GP.
In connection with the IPO, OpCo and Westlake entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which the Partnership generates a substantial majority of its revenue. For more information, see Note 2 to the consolidated and combined financial statements.
The Partnership sells ethylene production in excess of volumes sold to Westlake, as well as all of the co-products resulting from the ethylene production, including propylene, crude butadiene, pyrolysis gasoline and hydrogen, directly to third parties on either a spot or contract basis. Co-products sold to third parties continue to be transported by rail or truck. Net proceeds (after transportation and other costs) from the sales of ethylene co-products that result from the production of ethylene purchased by Westlake are netted against the ethylene price charged to Westlake under the Ethylene Sales Agreement, thereby reducing the Partnership's exposure to fluctuations in the market prices of these co-products.
The Partnership's operations consist of activities relating solely to the Contributed Assets. The Predecessor's operations consisted of the entire ethylene business of Westlake, including the activities of the Contributed Assets, as well as activities which were retained by Westlake. Ethylene business activities retained by Westlake include, but are not limited to, procuring feedstock, managing inventory and commodity risk and transporting ethylene from manufacturing facilities.
Basis of Presentation
The accompanying consolidated and combined financial statements have been prepared in conformity with the accounting principles generally accepted in the United States.
The Partnership holds a
13.3%
limited partner interest and the entire non-economic general partner interest in OpCo. The remaining
86.7%
limited partner interest in OpCo is owned directly by Westlake, which has no rights to direct the activities that most significantly impact the economic performance of OpCo. As a result of the fact that substantially all of OpCo's activities are conducted on behalf of Westlake, and the fact that OpCo exhibits disproportionality of voting rights to economic interest, OpCo was deemed to be a variable interest entity. The Partnership, through its ownership of OpCo's general partner, has the power to direct the activities that most significantly impact the economic performance of OpCo, and it also has the obligation or right to absorb losses or receive benefits from OpCo that could potentially be significant to OpCo. As such, the Partnership was determined to be OpCo's primary beneficiary and therefore consolidates OpCo's results of operations and financial position. Westlake's retained interest of
86.7%
is recorded as noncontrolling interest in the Partnership's consolidated financial statements.
All financial information presented for the periods after the IPO represents the consolidated results of operations, financial position and cash flows of the Partnership. Financial information for the period prior to the IPO represents the combined results of operations, financial position and cash flows of the Predecessor. The consolidated and combined financial statements for the year ended December 31, 2014 were prepared as follows:
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
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The consolidated statement of operations for the year ended December 31, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through December 31, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014.
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The consolidated statement of cash flows for the year ended December 31, 2014 consists of the consolidated results of the Partnership for the period from August 4, 2014 through December 31, 2014 and the combined results of the Predecessor for the period from January 1, 2014 through August 3, 2014.
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The consolidated statement of changes in equity for the year ended December 31, 2014 consists of the combined activity for the Predecessor prior to August 4, 2014, and the consolidated activity for the Partnership at and subsequent to the IPO on August 4, 2014 through December 31, 2014. The combined statement of changes in equity for the year ended December 31, 2013 consists entirely of the combined activity of the Predecessor.
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Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are readily convertible into cash and have a maturity of three months or less at the date of acquisition.
Allowance for Doubtful Accounts
The determination of the allowance for doubtful accounts is based on estimation of the amount of accounts receivable that the Partnership believes are unlikely to be collected. Estimating this amount requires analysis of the financial strength of the Partnership's customers, the use of historical experience, the Partnership's accounts receivable aged trial balance and specific collectibility analysis. The allowance for doubtful accounts is reviewed quarterly. Past due balances over
90
days and high risk accounts, as determined by the analysis of financial strength of customers, are reviewed individually for collectibility.
Inventories
Inventories primarily include product, material and supplies. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") or average method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, net of accumulated depreciation. Cost includes expenditures for improvements and betterments that extend the useful lives of the assets and interest capitalized on significant capital projects.
Interest expense is capitalized for qualifying assets under construction. Capitalized interest costs are included in property, plant and equipment and are depreciated over the useful life of the related asset. Capitalized interest was
$5,961
,
$5,116
and
$2,638
for the years ended
December 31, 2016
, 2015 and 2014. Repair and maintenance costs are charged to operations as incurred. Gains and losses on the disposal or retirement of property, plant and equipment are reflected in the statement of operations when the assets are sold or retired.
The accounting guidance for asset retirement obligations requires the recording of liabilities equal to the fair value of asset retirement obligations and corresponding additional asset costs, when there is a legal asset retirement obligation as a result of existing or enacted law, statute or contract. The Partnership has conditional asset retirement obligations for the removal and disposal of hazardous materials from certain of the Partnership's manufacturing facilities. However, no asset retirement obligations have been recognized because the fair value of the conditional legal obligation cannot be measured due to the indeterminate settlement date of the obligation. Settlement of these conditional asset retirement obligations is not expected to have a material adverse effect on the Partnership's financial condition, results of operations or cash flows in any individual reporting period.
Depreciation is provided by utilizing the straight-line method over the estimated useful lives of the assets as follows:
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Classification
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Years
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Buildings and improvements
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25
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Plant and equipment
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25
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Ethylene pipeline
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35
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Other
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3-10
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WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
Impairment of Long-Lived Assets
The accounting guidance for the impairment or disposal of long-lived assets requires that the Partnership assess long-lived 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 Partnership 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 United States 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. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. Assets are considered to be impaired if the carrying amount of an asset exceeds the future undiscounted cash flows. The impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.
Impairment of Goodwill and Intangible Assets
The accounting guidance for goodwill and intangible assets requires that goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Other intangible assets with finite lives are amortized over their estimated useful life and reviewed for impairment in accordance with the provisions of the accounting guidance. As of
December 31, 2016
, the Partnership's recorded goodwill was
$5,814
. See Note 7 for more information on the Partnership's annual goodwill impairment test.
Turnaround Costs
The Partnership accounts for turnaround costs under the deferral method. Turnarounds are the scheduled and required shutdowns of specific operating units in order to perform planned major maintenance activities. The costs related to the significant overhaul and refurbishment activities include maintenance materials, parts and direct labor costs. The costs of the turnaround are deferred when incurred at the time of the turnaround and amortized (within depreciation and amortization) on a straight-line basis until the next planned turnaround, which ranges from
three
to
six
years. Deferred turnaround costs are presented as a component of other assets, net. The cash outflows related to these costs are included in operating activities in the consolidated statement of cash flows.
Exchanges
The Partnership enters into inventory exchange transactions with respect to ethylene. These exchanges are settled in like-kind quantities and are valued at lower of cost or market. Cost is determined using the FIFO method.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to concentration of risk consist principally of trade receivables from third-party customers who purchase ethylene and ethylene co-products. The Partnership performs periodic credit evaluations, as applicable, of the customers' financial condition and generally does not require collateral. The Partnership maintains allowances for potential losses, as applicable.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, products are delivered to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. Title and risk of loss passes to the customer upon delivery under executed customer purchase orders or contracts. Provisions for discounts, rebates and returns are provided for in the same period as the related sales are recorded.
Net Income per Unit
The accounting guidance for earnings per unit requires the Partnership to present basic earnings per unit and diluted earnings per unit. Net income per unit applicable to common limited partner units and to subordinated limited partner units is computed by dividing the respective limited partners' interest in net income by the weighted average number of common units, subordinated units and incentive distribution rights outstanding. Because the Partnership has more than one class of
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
participating securities, it uses the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units and subordinated units. Diluted net income per limited partner unit is the same as basic net income per limited partner unit, as there were no potentially dilutive common or subordinated units outstanding as of December 31,
2016
and
2015
.
Derivative Instruments
The accounting guidance for derivative instruments and hedging activities requires that the Partnership and the Predecessor recognize all derivative instruments on the balance sheet at fair value, and changes in the derivative's fair value must be currently recognized in earnings or comprehensive income, depending on the designation of the derivative. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in comprehensive income and is recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings currently.
The Predecessor utilized commodity derivative instruments to reduce price risks by purchasing or selling futures on established exchanges. The Partnership did not enter into any commodity derivative instruments since the date of the IPO on August 4, 2014. During 2015, the Partnership entered into an interest rate contract with Westlake designed to reduce the risks of variability of the interest rates under the MLP Revolver. The interest rate contract fixed the LIBOR component of the interest rate for a portion of the MLP Revolver balance and was designated as a cash flow hedge. During 2014, the Predecessor had no cash flow hedges. See Note 14 for more information on the derivative instruments and Note 15 for a summary of the fair value of derivative instruments.
Environmental Costs
Environmental costs relating to current operations are expensed or capitalized, as appropriate, depending on whether such costs provide future economic benefits. Remediation liabilities are recognized when the costs are considered probable and can be reasonably estimated. Measurement of liabilities is based on currently enacted laws and regulations, existing technology and undiscounted site-specific costs. Environmental liabilities in connection with properties that are sold or closed are realized upon such sale or closure, to the extent they are probable and estimable and not previously reserved. Recognition of any joint and several liabilities is based upon the Partnership's best estimate of its final pro rata share of the liability.
Fair Value of Financial Instruments
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 fair value of the Partnership's debt differs from the carrying value due to the long-term maturities of the debt. The fair value of the financial instruments is estimated using quoted market prices in active markets and observable market-based inputs or unobservable inputs that are corroborated by market data when active markets are not available or unobservable inputs that are not corroborated by market data. See Note 15 for more information on the fair value of financial instruments.
Income Taxes
The Partnership is a limited partnership and is treated as a partnership for U.S. federal income tax purposes and, therefore, is not liable for entity-level federal income taxes. The Partnership is, however, subject to state and local income taxes. The Predecessor's operating results were included in Westlake's consolidated U.S. federal and state income tax returns. Amounts presented in the combined financial statements prior to the IPO relate to income taxes that have been determined on a separate tax return basis and the Predecessor's contribution to Westlake Chemical Corporation's net operating losses and tax credits have been included in the Predecessor's financial statements. The Predecessor utilized the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets or liabilities are recorded based upon temporary differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities during the period. Valuation allowances were recorded against deferred tax assets when it was considered more likely than not that the deferred tax assets will not be realized on a separate tax return basis.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
Segment Reporting
The Partnership accounts for segment reporting in accordance with the Financial Accounting Standards Board guidance, which establishes standards for entities to report information about the operating segments and geographic areas in which they operate. The Partnership only operates one segment (ethylene production) and all of its operations are located in the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Net Investment
In the consolidated and combined statements of changes in equity, net investment represents Westlake's historical investment in the Predecessor, its accumulated net earnings after taxes and the net effect of transactions with, and allocations from, Westlake.
Other Assets
Certain other assets (see Note 7) are amortized over periods ranging from
five
to
15
years using the straight-line method.
Other Comprehensive Income
The Partnership has reported
no
comprehensive income for the year ended December 31, 2014 due to the absence of items of other comprehensive income.
2. Initial Public Offering and Purchase of Additional Interests
Initial Public Offering
On July 30, 2014, the Partnership's common units began trading on the New York Stock Exchange under the ticker symbol "WLKP." On August 4, 2014, the Partnership completed the IPO of
12,937,500
common units at a price to the public of
$24.00
per unit (
$22.53
per unit net of underwriting discount), including
1,687,500
common units that were issued pursuant to the exercise in full of the underwriters' over-allotment option.
In connection with the IPO, in exchange for Westlake's contribution of a
5.8%
limited partner interest in OpCo and OpCo's general partner interest to the Partnership, Westlake received:
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1,436,115
common units and
12,686,115
subordinated units; and
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the Partnership's general partner interest and its incentive distribution rights.
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The Partnership received net proceeds of
$286,088
from the IPO, net of underwriting discounts, structuring fees and offering expenses of approximately
$24,412
. The Partnership used the net proceeds from the IPO to purchase an additional
4.8%
limited partner interest in OpCo, resulting in the Partnership owning a
10.6%
limited partner interest in OpCo. The Partnership recorded the incremental
4.8%
limited partner interest in OpCo at its historical carrying value of
$43,516
and the excess cash paid over historical carrying value of
$242,572
as a decrease to the General partner—Westlake capital account.
OpCo used the
$286,088
it received from the Partnership in exchange for a
4.8%
limited partner interest in OpCo to (1) establish a
$55,419
turnaround reserve, (2) reimburse Westlake
$151,729
for the Pre-August 2013 Capex, and (3) repay
$78,940
of the August 2013 Promissory Notes assumed by OpCo. Immediately after the repayment, the outstanding indebtedness payable to Westlake under the August 2013 Promissory Notes was
$167,116
.
Agreements with Westlake and Related Parties
The agreements described below became effective on August 4, 2014, concurrent with the closing of the IPO.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
Ethylene Sales Agreement
OpCo entered into a
12
-year ethylene sales agreement with Westlake (the "Ethylene Sales Agreement"). The Ethylene Sales Agreement requires Westlake to purchase a minimum volume of ethylene each year equal to
95%
of OpCo's planned ethylene production per year (the "Minimum Commitment"), subject to certain exceptions and a maximum commitment of
3.8 billion
pounds per year. So long as Westlake is not in default under the Ethylene Sales Agreement, if OpCo's actual production exceeds planned production, Westlake has the option to purchase up to
95%
of the excess production (the "Excess Production Option").
The fee for each pound of ethylene purchased by Westlake from OpCo up to the Minimum Commitment in any calendar year will equal:
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the actual price OpCo pays Westlake to purchase ethane (or other feedstock, such as propane, if applicable) to produce each pound of ethylene, subject to a specified cap and a floor on the amount of feedstock that should be needed to produce each pound of ethylene; plus
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the actual price OpCo pays Westlake to purchase natural gas to produce each pound of ethylene, subject to a specified cap and a floor on the amount of natural gas that should be needed to produce each pound of ethylene; plus
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OpCo's estimated operating costs (including selling, general and administrative expenses), divided by OpCo's planned ethylene production for the year (in pounds); plus
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a
five
-year average of OpCo's expected future maintenance capital expenditures and other turnaround expenditures, divided by OpCo's planned ethylene production capacity for the year (in pounds); less
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the proceeds (on a per pound of ethylene basis) received by OpCo from the sale of co-products (including, but not limited to, propylene, crude butadiene, pyrolysis gasoline and hydrogen) associated with producing the ethylene purchased by Westlake; plus
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a
$0.10
per pound margin.
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The fee for the Excess Production Option, if exercised, equals OpCo's estimated variable operating costs of producing the incremental ethylene, net of revenues from co-products sales plus a
$0.10
per pound margin.
The estimated operating costs and the expected future maintenance capital expenditures and other turnaround expenditures will be adjusted at the end of each year, to be applicable for the fee for the next calendar year, to reflect certain changes in forecasted costs.
The result of the fee structure is that OpCo should recover the portion of its total operating costs and maintenance capital expenditures and other turnaround expenditures corresponding to the portion of OpCo's aggregate production that is purchased by Westlake. Any shortfall in recovery of such costs is recognized during the current year and is recoverable from Westlake in the subsequent year.
The Ethylene Sales Agreement has an initial term extending until December 31, 2026 and automatically renews thereafter for successive
12
-month terms unless terminated.
Feedstock Supply Agreement
OpCo entered into a feedstock supply agreement with Westlake, pursuant to which Westlake agreed to sell to OpCo ethane and other feedstock in amounts sufficient for OpCo to produce the ethylene to be sold under the Ethylene Sales Agreement (the "Feedstock Supply Agreement"). The Feedstock Supply Agreement provides that OpCo may obtain feedstock from Westlake based on Westlake's total cost of purchasing and delivering the feedstock, including applicable transportation, storage and other costs. Title and risk of loss for all feedstock purchased by OpCo through the Feedstock Supply Agreement passes to OpCo upon delivery to one of three delivery points described in the Feedstock Supply Agreement.
The Feedstock Supply Agreement has an initial term extending until December 31, 2026 and automatically renews thereafter for successive
12
-month terms unless terminated by either party; provided, however, that such agreement can only be renewed in the event the Ethylene Sales Agreement is renewed simultaneously. The Feedstock Supply Agreement may, in certain circumstances, terminate concurrently with the termination of the Ethylene Sales Agreement.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
Services and Secondment Agreement
OpCo entered into a Services and Secondment Agreement with Westlake, pursuant to which OpCo provides Westlake with certain services required for the operation of Westlake's facilities; and Westlake provides OpCo with comprehensive operating services for OpCo's facilities, ranging from services relating to the maintenance and operations of the common facilities necessary for the operation of OpCo's units, to making available certain shared utilities such as electricity and natural gas that are necessary for the operation of OpCo's units. Westlake also seconds employees to OpCo to allow OpCo to operate its facilities. Such seconded employees will be under the control of OpCo while they work on OpCo's facilities.
The Services and Secondment Agreement has an initial
12
-year term. The Services and Secondment Agreement may be renewed thereafter upon agreement of the parties and shall automatically terminate if the Ethylene Sales Agreement terminates under certain circumstances. Westlake and OpCo each can terminate the Services and Secondment Agreement under certain circumstances, including if the other party materially defaults on the performance of its obligations and such default continues for a
30
-day period.
Site Lease Agreements
OpCo entered into
two
site lease agreements with Westlake pursuant to which Westlake leases to OpCo the real property underlying Lake Charles Olefins and Calvert City Olefins, respectively, and grants OpCo rights to access and use certain other portions of Westlake's ethylene production facilities that are necessary to operate OpCo's production facilities. OpCo owes Westlake
one
dollar per site per year. The site lease agreements each have a term of
50
years. Each of the site lease agreements may be renewed if agreed by the parties.
Omnibus Agreement
The Partnership entered into an Omnibus Agreement with Westlake that addresses (1) Westlake's indemnification of the Partnership for certain matters, including environmental and tax matters, (2) the provision by Westlake of certain management and other general and administrative services to the Partnership and its general partner and (3) the Partnership's reimbursement to Westlake for such services. The Omnibus Agreement also addresses Westlake's right of first refusal on any proposed transfer of the ethylene production facilities that serve Westlake's other facilities and Westlake's right of first refusal on any proposed transfer of the Partnership's equity interests in OpCo.
Exchange Agreement
OpCo and Westlake entered into an exchange agreement, which had an initial term through August 1, 2015 and is continuing year to year thereafter, unless and until terminated by either party. Under the exchange agreement, OpCo may require Westlake to deliver up to
200 million
pounds of ethylene for OpCo per year from the Site Leases to an ethylene hub in Mt. Belvieu, Texas, for which OpCo would be required to pay an exchange fee of
$0.006
per pound.
Purchase of Additional Interests in OpCo
On April 29, 2015, the Partnership purchased an additional
2.7%
newly-issued limited partner interest in OpCo for approximately
$135,341
, resulting in an aggregate
13.3%
limited partner interest in OpCo effective April 1, 2015. In order to fund this purchase, the Partnership entered into a revolving credit facility with a total borrowing capacity of
$300,000
with a subsidiary of Westlake. Westlake owns the remaining
86.7%
limited partner interest in OpCo, which is recorded as noncontrolling interest in the 2015 consolidated financial statements.
3. Recent Accounting Pronouncements
Revenue from Contracts with Customers
(ASU No. 2014-09)
In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on a comprehensive new revenue recognition standard that will supersede the existing revenue recognition guidance. The new accounting guidance creates a framework by which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either "full retrospective" adoption, meaning that the standard is applied to all of the periods presented with a cumulative catch-up as of the earliest period presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
period presented in the financial statements with a cumulative catch-up as of the current period. In July 2015, the FASB deferred the effective date for the revenue recognition standard. The accounting standard will now be effective for reporting periods beginning after December 15, 2017. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Leases (ASU No. 2016-02)
In February 2016, the FASB issued an accounting standards update on a new lease standard that will supersede the existing lease guidance. The standard requires a lessee to recognize assets and liabilities related to long-term leases that are classified as operating leases under current guidance on its balance sheet. An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures related to leases. The accounting standard will be effective for reporting periods beginning after December 15, 2018. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Credit Losses (ASU No. 2016-13)
In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard will be effective for reporting periods beginning after December 15, 2019. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Cash Flows (ASU No. 2016-15)
In August 2016, the FASB issued an accounting standards update providing new guidance on the classification of certain cash receipts and payments including debt extinguishment costs, debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments, proceeds from the settlement of insurance claims and life insurance policies and distributions received from equity method investees in the statement of cash flows. This update is required to be applied using the retrospective transition method to each period presented unless it is impracticable to be applied retrospectively. In such situation, this guidance is to be applied prospectively. The accounting standard will be effective for reporting periods beginning after December 15, 2017. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Business Combinations (ASU No. 2017-01)
In January 2017, the FASB issued an accounting standard update to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The accounting standard will be effective for reporting periods beginning after December 15, 2017. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
Going Concern (ASU No. 2014-15)
In August 2014, the FASB issued an accounting standard update providing guidance related to evaluating whether there is substantial doubt about the reporting entity's ability to continue as a going concern and about related financial statement note disclosures. Disclosures are required if there is substantial doubt as to the Partnership's continuation as a going concern within one year after the issue date of financial statements. The standard provides guidance for making the assessment, including consideration of management's plans which may alleviate doubt regarding the Partnership's ability to continue as a going concern. The accounting standard became effective for the annual reporting period ending after December 15, 2016, and all
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
annual and interim periods thereafter. The Partnership adopted this accounting standard effective December 31, 2016 and the adoption did not have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
Amendments to the Consolidation Analysis (ASU No. 2015-02)
In February 2015, the FASB issued an accounting standards update making certain changes to the current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models. The new standard changes the consideration of substantive rights, related party interests and fees paid to the decision maker when applying the variable interest entity consolidation model and eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. The accounting standard is effective for annual periods beginning after December 15, 2015. The Partnership adopted this accounting standard effective January 1, 2016, and the adoption did not have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (ASU No. 2015-06)
In April 2015, the FASB issued an accounting standard update requiring that the earnings of transferred net assets from a general partner prior to the dropdown date of the net assets to a master limited partnership be allocated entirely to the general partner when calculating earnings per unit under the two class method. As a result, previously reported earnings per unit of the limited partners will not change as a result of a dropdown transaction. The accounting standard is effective for annual periods beginning after December 15, 2015. The Partnership adopted this accounting standard effective January 1, 2016 and the adoption of this accounting standard did not have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
Balance Sheet Classification of Deferred Taxes (ASU No. 2015-17)
In November 2015, the FASB issued an accounting standards update that requires all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting within a jurisdiction. The accounting standard is required to be adopted for reporting periods beginning after December 15, 2016; however, early adoption of this standard is permitted. The Partnership elected to early adopt this accounting standard, to be applied prospectively, effective January 1, 2016. Consistent with the prospective application of this accounting standard, prior period comparative information was not adjusted. The early adoption of this accounting standard did not have an impact on the Partnership's consolidated financial position, results of operations and cash flows.
4. Accounts Receivable—Third Parties
Accounts receivable—third parties consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Trade customers
|
|
$
|
11,913
|
|
|
$
|
12,097
|
|
Allowance for doubtful accounts
|
|
(564
|
)
|
|
(170
|
)
|
|
|
11,349
|
|
|
11,927
|
|
Other
|
|
736
|
|
|
—
|
|
Accounts receivable, net—third parties
|
|
$
|
12,085
|
|
|
$
|
11,927
|
|
Our allowance for doubtful accounts activity during the years ended December 31, 2016, 2015 and 2014 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at January 1
|
|
$
|
170
|
|
|
$
|
—
|
|
|
$
|
2,105
|
|
Charged to Expense
|
|
394
|
|
|
170
|
|
|
65
|
|
Deductions
(1)
|
|
—
|
|
|
—
|
|
|
(2,170
|
)
|
Balance at December 31
|
|
$
|
564
|
|
|
$
|
170
|
|
|
$
|
—
|
|
______________________________
(1) The 2014 deduction represents an adjustment for assets retained by Westlake pursuant to the IPO on August 4, 2014.
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Finished products
|
|
$
|
3,610
|
|
|
$
|
3,527
|
|
Feedstock, additives and chemicals
|
|
324
|
|
|
352
|
|
Inventories
|
|
$
|
3,934
|
|
|
$
|
3,879
|
|
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Building and improvements
|
|
$
|
16,757
|
|
|
$
|
16,124
|
|
Plant and equipment
|
|
1,690,317
|
|
|
1,231,684
|
|
Other
|
|
72,215
|
|
|
67,353
|
|
|
|
1,779,289
|
|
|
1,315,161
|
|
Less: Accumulated depreciation
|
|
(644,070
|
)
|
|
(601,980
|
)
|
|
|
1,135,219
|
|
|
713,181
|
|
Construction in progress
|
|
87,019
|
|
|
307,288
|
|
Property, plant and equipment, net
|
|
$
|
1,222,238
|
|
|
$
|
1,020,469
|
|
Depreciation expense on property, plant and equipment of
$77,444
,
$64,369
and
$60,004
is included in cost of sales in the consolidated and combined statements of operations for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
7. Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Weighted
Average
Life
|
Goodwill
|
|
$
|
5,814
|
|
|
$
|
—
|
|
|
$
|
5,814
|
|
|
$
|
5,814
|
|
|
$
|
—
|
|
|
$
|
5,814
|
|
|
|
Deferred charges and
other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contract
|
|
290
|
|
|
—
|
|
|
290
|
|
|
436
|
|
|
—
|
|
|
436
|
|
|
|
Turnaround costs
|
|
154,453
|
|
|
(65,268
|
)
|
|
89,185
|
|
|
100,020
|
|
|
(67,767
|
)
|
|
32,253
|
|
|
6
|
Other
|
|
8,723
|
|
|
(3,187
|
)
|
|
5,536
|
|
|
8,710
|
|
|
(2,620
|
)
|
|
6,090
|
|
|
17
|
Total deferred charges and
other assets
|
|
163,466
|
|
|
(68,455
|
)
|
|
95,011
|
|
|
109,166
|
|
|
(70,387
|
)
|
|
38,779
|
|
|
|
Other assets, net
|
|
$
|
169,280
|
|
|
$
|
(68,455
|
)
|
|
$
|
100,825
|
|
|
$
|
114,980
|
|
|
$
|
(70,387
|
)
|
|
$
|
44,593
|
|
|
|
Amortization expense on other assets of
$20,766
,
$16,841
and
$17,607
is included in the consolidated and combined statements of operations for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Goodwill
The impairment test for the recorded goodwill was performed in October
2016
and did not indicate impairment of the goodwill. The fair value of the goodwill was calculated using both a discounted cash flow methodology and a market value methodology. The discounted cash flow projections were based on a
nine
-year forecast, from 2017 to 2025, to reflect the
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
cyclicality of the Partnership's business. The forecast was based on (1) prices and spreads projected by IHS Chemical, a chemical industry organization offering market and business advisory services for the chemical market, for the same period, and (2) estimates by management, including their strategic and operational plans. Other significant assumptions used in the discounted cash flow projection included sales volumes based on current capacities. The future cash flows were discounted to present value using a discount rate of
8.8%
. The significant assumptions used in determining the fair value of the reporting unit using the market value methodology include the determination of appropriate market comparables and the estimated multiples of EBITDA a willing buyer is likely to pay. Under the discounted cash flow methodology, even if the fair value of OpCo decreased by
10%
, the carrying value of OpCo would not exceed its fair value.
8. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
August 2013 Promissory Notes (variable interest rate of prime plus 1.5%, original
scheduled maturity of August 1, 2023)
|
|
$
|
31,775
|
|
|
$
|
31,775
|
|
OpCo Revolver (variable interest rate of London Interbank Offered Rate ("LIBOR") plus
3.0%, original scheduled maturity of August 4, 2019)
|
|
427,513
|
|
|
216,890
|
|
MLP Revolver (variable interest rate of LIBOR plus 2.0%, original scheduled maturity of
April 29, 2018)
|
|
135,341
|
|
|
135,341
|
|
Long-term debt payable to Westlake
|
|
$
|
594,629
|
|
|
$
|
384,006
|
|
In 2013, the August 2013 Promissory Notes were issued for capital expenditures incurred by Westlake on behalf of the Predecessor's operations. Proceeds drawn under the August 2013 Promissory Notes during 2014 were used to fund capital expenditures at the Predecessor's ethylene plants. In connection with the IPO, OpCo assumed the August 2013 Promissory Notes and used proceeds from the IPO to repay a portion of the balance it assumed. See Note 2 for a description of the August 2013 Promissory Notes and proceeds used to repay balances of such promissory notes assumed in connection with the IPO.
In connection with the IPO on August 4, 2014, OpCo entered into a
$600,000
senior unsecured revolving credit facility agreement with Westlake (the "OpCo Revolver"). The OpCo Revolver accrues interest quarterly at a rate of LIBOR plus
3.0%
, which may be paid-in-kind as an addition to the principal at OpCo's option. Proceeds drawn under the OpCo Revolver during 2016 were used to fund capital expenditures at OpCo's ethylene plants and to fund the working capital requirements.
On April 29, 2015, the Partnership entered into a
$300,000
revolving credit facility agreement with Westlake (the "MLP Revolver") to fund the Partnership's purchase of an additional
2.7%
newly-issued, limited partner interest in OpCo for
$135,341
. Borrowings under the MLP Revolver bear interest at LIBOR plus a spread ranging from
2.0%
to
3.0%
(depending on the Partnership's consolidated leverage ratio), payable quarterly. The MLP Revolver provides that the Partnership may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that the Partnership maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo),
5.50
:1.00 or less, or (2) during any other period,
4.50
:1.00 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the MLP Revolver balance. The interest rate contract terminates on the earlier of the MLP Revolver maturity date or in August 2018. See Note 14 for additional information on the interest rate contract.
As of
December 31, 2016
, the Partnership was in compliance with all of the covenants under the August 2013 Promissory Notes, the OpCo Revolver and the MLP Revolver.
The weighted average interest rate on all long-term debt was
3.72%
and
3.30%
at
December 31, 2016
and
2015
, respectively.
As of
December 31, 2016
, the Partnership had no maturities of long-term debt until 2018. The MLP Revolver matures on April 29, 2018, the OpCo Revolver matures on August 4, 2019, and the August 2013 Promissory Notes mature on August 1, 2023.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
9. Distributions and Net Income Per Limited Partner Unit
On January 27, 2017, the board of directors of Westlake Chemical Partners GP LLC ("Westlake GP"), the Partnership's general partner, declared a quarterly cash distribution for the period from October 1,
2016
to
December 31, 2016
of
$0.3450
per unit, and of
$142
to the holders of the Partnership's incentive distribution rights ("IDR Holders"). This distribution was paid on February 22, 2017 to unitholders of record on February 7, 2017.
The Partnership Agreement provides that the Partnership will distribute cash each quarter during the subordination period in the following manner: first, to the holders of common units, until each common unit has received the minimum quarterly distribution of
$0.2750
, plus any arrearages from prior quarters; second, to the holders of subordinated units, until each subordinated unit has received the minimum quarterly distribution of
$0.2750
; and third, to the holders of common and subordinated units, pro rata, until each unit has received a distribution of
$0.3163
. If cash distributions to the Partnership's unitholders exceed
$0.3163
per common unit and subordinated unit in any quarter, the Partnership's unitholders and Westlake, as the holder of the Partnership's incentive distribution rights, will receive distributions according to the following percentage allocations:
|
|
|
|
|
|
|
|
|
|
Marginal Percentage Interest in Distributions
|
Total Quarterly Distribution Per Unit
|
|
Unitholders
|
|
IDR Holders
|
Above $0.3163 up to $0.3438
|
|
85.0
|
%
|
|
15.0
|
%
|
Above $0.3438 up to $0.4125
|
|
75.0
|
%
|
|
25.0
|
%
|
Above $0.4125
|
|
50.0
|
%
|
|
50.0
|
%
|
For the
three months ended December 31, 2016
, the Partnership's distribution exceeded the
$0.3163
per common and subordinated unit target, which resulted in distributions to the IDR Holders.
The distributions are declared subsequent to quarter end; therefore, the table below represents total cash distributions declared from earnings of the related periods pertaining to such distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Net income attributable to the Partnership
|
|
$
|
40,940
|
|
|
$
|
39,831
|
|
|
$
|
13,577
|
|
Less:
|
|
|
|
|
|
|
Limited partners' distribution declared on common units
|
|
19,016
|
|
|
16,980
|
|
|
6,403
|
|
Limited partners' distribution declared on subordinated units
|
|
16,784
|
|
|
14,986
|
|
|
5,649
|
|
Distributions declared with respect to the incentive distribution rights
|
|
281
|
|
|
—
|
|
|
—
|
|
Net income in excess of distribution
|
|
$
|
4,859
|
|
|
$
|
7,865
|
|
|
$
|
1,525
|
|
Net income per unit applicable to common limited partner units and to subordinated limited partner units is computed by dividing the respective limited partners' interest in net income by the weighted-average number of common units and subordinated units outstanding for the period. Because the Partnership has more than one class of participating securities, it uses the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units and incentive distribution rights. Net income attributable to the Partnership is allocated to the unitholders in accordance with their respective ownership percentages in preparation of the consolidated and combined statements of changes in equity. However, when distributions related to the incentive distribution rights are made, net income equal to the amount of those distributions is first allocated to the general partner before the remaining net income is allocated to the unitholders based on their respective ownership percentages. Basic and diluted net income per unit is the same because the Partnership does not have any potentially dilutive units outstanding for the periods presented. Net income per unit is only calculated for the periods subsequent to the IPO as no units were outstanding prior to August 4, 2014.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Incentive Distribution Rights
|
|
Total
|
Net income attributable to the Partnership:
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
19,016
|
|
|
$
|
16,784
|
|
|
$
|
281
|
|
|
$
|
36,081
|
|
Net income in excess of distribution
|
|
2,581
|
|
|
2,278
|
|
|
—
|
|
|
4,859
|
|
Net income
|
|
$
|
21,597
|
|
|
$
|
19,062
|
|
|
$
|
281
|
|
|
$
|
40,940
|
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
14,373,615
|
|
|
12,686,115
|
|
|
|
|
27,059,730
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Incentive Distribution Rights
|
|
Total
|
Net income attributable to the Partnership:
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
16,980
|
|
|
$
|
14,986
|
|
|
$
|
—
|
|
|
$
|
31,966
|
|
Net income in excess of distribution
|
|
4,178
|
|
|
3,687
|
|
|
—
|
|
|
7,865
|
|
Net income
|
|
$
|
21,158
|
|
|
$
|
18,673
|
|
|
$
|
—
|
|
|
$
|
39,831
|
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
14,373,615
|
|
|
12,686,115
|
|
|
|
|
27,059,730
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
1.47
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Incentive Distribution Rights
|
|
Total
|
Net income attributable to the Partnership:
|
|
|
|
|
|
|
|
|
Distribution
|
|
$
|
6,403
|
|
|
$
|
5,649
|
|
|
$
|
—
|
|
|
$
|
12,052
|
|
Net income in excess of distribution
|
|
810
|
|
|
715
|
|
|
—
|
|
|
1,525
|
|
Net income
|
|
$
|
7,213
|
|
|
$
|
6,364
|
|
|
$
|
—
|
|
|
$
|
13,577
|
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
14,373,615
|
|
|
12,686,115
|
|
|
|
|
27,059,730
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
10.
Related Party Transactions
The Partnership and OpCo regularly enter into related party transactions with Westlake. See below for a description of transactions with related parties.
Sales to Related Parties
OpCo sells ethylene to Westlake under the Ethylene Sales Agreement. Additionally, the Partnership and OpCo from time to time provide other services or products for which it charges Westlake a fee. Prior to the IPO, the Predecessor sold the majority of its ethylene to Westlake for use in Westlake's downstream operations.
Sales to related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales—Westlake
|
|
$
|
853,719
|
|
|
$
|
834,918
|
|
|
$
|
1,292,089
|
|
Under the Services and Secondment Agreement, OpCo uses a portion of its production capacity to process purge gas for Westlake. On August 4, 2016, OpCo and Westlake entered into an amendment to the Ethylene Sales Agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of OpCo's production capacity that is used to process Westlake's purge gas instead of producing ethylene and to clarify that costs specific to the processing of Westlake's purge gas would be recovered under the Services and Secondment Agreement, and not the Ethylene Sales Agreement.
Cost of Sales from Related Parties
Charges for goods and services purchased by the Partnership and OpCo from Westlake and included in cost of sales relate primarily to feedstock purchased under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement. Prior to the IPO, services provided by Westlake and included in cost of sales related primarily to services provided by employees of Westlake Management Services, Inc., a subsidiary of Westlake. The cost of services provided by employees of Westlake Management Services, Inc. was allocated to the Predecessor's operations primarily on the basis of direct usage.
Charges from related parties in cost of sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Feedstock purchased from Westlake and included in cost of sales
|
|
$
|
287,778
|
|
|
$
|
307,582
|
|
|
$
|
155,232
|
|
Other charges from Westlake and included in cost of sales
|
|
85,872
|
|
|
74,050
|
|
|
60,264
|
|
Total
|
|
$
|
373,650
|
|
|
$
|
381,632
|
|
|
$
|
215,496
|
|
Services from Related Parties Included in Selling, General and Administrative Expenses
Charges for services purchased by the Partnership from Westlake and included in selling, general and administrative expenses primarily relate to services Westlake performs on behalf of the Partnership under the Omnibus Agreement, including the Partnership's finance, legal, information technology, human resources, communication, ethics and compliance and other administrative functions. Prior to the IPO, the Predecessor was allocated costs incurred by Westlake on its behalf for similar functions. These allocations were based primarily on the basis of direct usage when identifiable, with the remainder allocated on the basis of fixed assets, headcount or other measure.
Charges from related parties included within selling, general and administrative expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Services received from Westlake and included in selling,
general and administrative expenses
|
|
$
|
21,971
|
|
|
$
|
20,681
|
|
|
$
|
21,302
|
|
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
Goods and Services from Related Parties Capitalized as Assets
Charges for goods and services purchased by the Partnership and OpCo from Westlake which were capitalized as assets relate primarily to the services of Westlake employees under the Services and Secondment Agreement. Prior to the IPO, salaries and benefits of Westlake Management Services, Inc. were allocated to the Predecessor primarily on the basis of direct usage.
Charges from related parties for goods and services capitalized as assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Goods and services purchased from Westlake and capitalized as assets
|
|
$
|
17,874
|
|
|
$
|
4,332
|
|
|
$
|
5,823
|
|
Accounts Receivable from and Accounts Payable to Related Parties
The Partnership's accounts receivable from Westlake result primarily from ethylene sales to Westlake, the shortfall recoverable from Westlake and a buyer deficiency fee, in each case under the Ethylene Sales Agreement. Under the Ethylene Sales Agreement, if production costs billed to Westlake on an annual basis are less than
95%
of the actual production costs incurred by OpCo during the year, OpCo is entitled to recover the shortfall in the subsequent year. The shortfall is recognized in the period when such production activities occur. The shortfall recognized in 2016 is recoverable during 2017, per the Ethylene Sales Agreement. During 2016, Calvert City Olefins experienced a shutdown caused by a mechanical failure, which resulted in a force majeure event under the Ethylene Sales Agreement with Westlake. Based on the annual year-end measurement, a buyer deficiency fee of
$13,106
was recognized as a receivable from Westlake and as a component of net sales in the consolidated financial statements as of and for the year ended December 31, 2016. The buyer deficiency fee was collected from Westlake in January 2017.
The Partnership's accounts payable to Westlake result primarily from feedstock purchases under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement and the Omnibus Agreement.
The related party accounts receivable and accounts payable balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Accounts receivable, net—Westlake
|
|
$
|
126,977
|
|
|
$
|
39,655
|
|
Accounts payable—Westlake
|
|
12,130
|
|
|
15,550
|
|
Debt Payable to Related Parties
In connection with the IPO, OpCo assumed the August 2013 Promissory Notes and entered into a senior unsecured revolving credit facility with Westlake. In April 2015, the Partnership entered into an unsecured revolving credit facility with Westlake. See Note 8 for a description of related party debt payable balances. Interest on related party debt payable balances, net of capitalized interest, for the years ended December 31, 2016, 2015 and for the period from August 4, 2014 to December 31, 2014 was
$12,607
, $
4,967
and $
10,499
, respectively, and are reflected as a component of other income (expense) in the consolidated and combined statements of operations. Interest capitalized as a component of property, plant and equipment on related party debt was
$5,961
and
$5,116
for the years ended December 31, 2016 and
2015
, respectively. At
December 31, 2016
and
2015
, accrued interest on related party debt was
$5,517
and
$2,879
, respectively, and is reflected as a component of accrued liabilities in the consolidated balance sheets.
Debt payable to related parties was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Long-term debt payable to Westlake
|
|
$
|
594,629
|
|
|
$
|
384,006
|
|
General
OpCo, together with other subsidiaries of Westlake not included in these consolidated and combined financial statements, were guarantors under Westlake's revolving credit facility and the indentures governing its senior notes. During August 2016, OpCo and certain subsidiaries of Westlake were released from their guarantees.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
As of
December 31, 2015
, Westlake had outstanding letters of credit totaling
$30,098
under its revolving credit facility and
$754,000
principal amount outstanding under its senior notes (less the unamortized discount and debt issuance costs of
$774
).
During August 2015, the Partnership entered into an interest rate contract with Westlake to fix the LIBOR component of the interest rate for a portion of the MLP Revolver balance. See Note 14 for additional information on the interest rate contract.
During the years ended December 31, 2016, 2015 and for the period from August 4, 2014 to December 31, 2014, the Partnership reimbursed
$245
,
$1,033
and
$0
, respectively, to Westlake for certain state tax payments.
OpCo has entered into
two
site lease agreements with Westlake in connection with the IPO, and each has a term of
50
years. Pursuant to the site lease agreements, OpCo pays Westlake
one
dollar per site per year.
11. Partners' Equity
Common Unit
As described below, the common unitholders have preference over subordinated unitholders on receipt of distributions, including, in certain circumstances, cash distributions upon liquidation, as set out in the Partnership's agreement of limited partnership (the "Partnership Agreement"). The common unitholders have limited rights on matters affecting Partnership's business, limited voting rights and are not entitled to elect the general partner or its directors.
Subordinated Unit
The subordinated unitholders have similar rights as the common unitholders. However, during the subordination period, the subordinated unitholders are not entitled to receive quarterly distributions from operating surplus until the common unitholders have received the minimum quarterly distribution from operating surplus and, among other things, in certain circumstances, are subordinated in the receipt of cash distributions upon liquidation. The subordination period will end on the first business day after the Partnership has earned and paid an aggregate amount of at least the minimum quarterly distribution multiplied by the total number of outstanding common and subordinated units for each of three consecutive, non-overlapping four-quarter periods ending on or after June 30, 2017, and there are no outstanding arrearages on the Partnership's common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least
150.0%
of the minimum quarterly distribution on an annualized basis multiplied by the total number of outstanding common and subordinated units and have earned that amount plus the related distribution on the incentive distribution rights, for any four-quarter period ending on or after June 30, 2015, and there are no outstanding arrearages on Partnership's common units.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
12. Accumulated Other Comprehensive Income
Accumulated other comprehensive income or loss primarily reflects the effective portion of the gain or loss on derivative instrument designated and qualified as a cash flow hedge. Gain or loss amounts related to a cash flow hedge recorded in accumulated other comprehensive income or loss are reclassified to income in the same period in which the underlying hedged forecasted transaction affects income. If it becomes probable that a forecasted transaction will not occur, the related net gain or loss in accumulated other comprehensive income or loss is immediately reclassified into income.
Changes in accumulated other comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
Balance at January 1
|
|
$
|
280
|
|
|
$
|
—
|
|
Interest rate contract - Other comprehensive income before reclassifications
|
|
(416
|
)
|
|
85
|
|
Interest rate contract - Amounts reclassified to net income
|
|
336
|
|
|
195
|
|
Balance at December 31
|
|
$
|
200
|
|
|
$
|
280
|
|
13. Unit-based Compensation
The Westlake Chemical Partners LP Long-Term Incentive Plan (the "Plan") was adopted on July 15, 2014 and provides for grants of unit options, restricted units, phantom units, unit awards, distribution equivalent rights ("DERs") and other unit-based awards. The purpose of the Plan is to attract and retain the services of individuals who are essential for the growth and profitability of the Partnership and to encourage such individuals to devote their best efforts to advancing the business of the Partnership and its affiliates. Awards under the Plan are determined by the board of directors of the Partnership's general partner or a committee thereof (the "Committee"). Under the Plan, DERs may be granted, which represent a contingent right to receive an amount in cash, units, restricted units and/or phantom units, as determined by the Committee at its sole discretion, equal in value to the cash distributions made by the Partnership with respect to a common unit during the period such award is outstanding. The terms and conditions of each award are determined by the Committee. The maximum number of common units of the Partnership that may be delivered with respect to awards under the Plan is
1,270,000
. The phantom units along with a corresponding number of DERs were granted to certain non-employee directors of the general partner of the Partnership during the years ended December 31, 2016, 2015 and the period from August 4, 2014 through December 31, 2014. These phantom units vest on the third anniversary of the grant date. There were no forfeitures under the Plan during 2016, 2015 and the period from August 4, 2014 through December 31, 2014. During 2016, the vesting of
5,543
phantom units was accelerated in connection with the retirement of
one
of our non-employee directors. The total fair value of phantom units that vested during the year ended December 31, 2016 was $
123,221
.
Non-vested phantom unit awards as of December 31, 2016 and 2015 and awards granted during the respective periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted
Average Fair Value
|
Non-vested balance at December 31, 2014
|
|
4,404
|
|
|
$
|
29.49
|
|
Granted
|
|
12,559
|
|
|
20.57
|
|
Non-vested balance at December 31, 2015
|
|
16,963
|
|
|
22.89
|
|
Granted
|
|
9,900
|
|
|
22.91
|
|
Vested
|
|
(5,543
|
)
|
|
23.38
|
|
Non-vested balance at December 31, 2016
|
|
21,320
|
|
|
22.77
|
|
Each phantom unit represents the right to receive, upon vesting, either a cash payment equal to the fair market value of one Partnership common unit or a Partnership common unit. Each DER has distribution rights only so long as the phantom units to which it relates to has not vested or been settled.
The awards, which are classified as liability awards for financial accounting purposes, are re-measured at each reporting date until they vest. The total units available for grant at
December 31, 2016
were
1,248,680
. The total compensation cost recognized during the years ended December 31, 2016,
2015
and for the period from August 4, 2014 through
December 31, 2014
was
$194
,
$75
and
$15
, respectively, and is included in selling, general and administrative expenses and classified as a liability in the
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
consolidated and combined financial statements of the Partnership. The unrecognized compensation cost associated with all grants under the Plan at
December 31, 2016
was
$300,296
and the weighted average remaining term of the units at
December 31, 2016
was
1.96 years
.
14. Derivative Instruments
Commodity Risk Management
The Predecessor used derivative instruments to reduce price volatility risk on raw materials and products, as a substantial portion of its raw materials and products were commodities whose prices fluctuate as market supply and demand fundamentals change. The Predecessor employed strategies to protect against such instability, including ethylene product feedstock flexibility. The Predecessor did not use derivative instruments to engage in speculative activities. The Contributed Assets did not include the entity engaged in commodity risk management activities or any of its open derivative positions. The Partnership has not engaged in any hedging activity and did not use any derivative instruments related to the commodities in the period subsequent to the IPO through December 31, 2014 or during the years ended December 31, 2015 and 2016.
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, are included in cost of sales in the consolidated and combined statements of operations. There were
no
derivative instruments that were designated as fair value hedges for the years ended
December 31, 2016
and
2015
.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in gross profit in the consolidated and combined statements of operations for the years ended December 31,
2015
and
2014
. The Partnership had
no
derivative instruments that were not designated as hedging instruments subsequent to the IPO through December 31, 2014, or during
2015
and
2016
. The impact of derivative instruments that have not been designated as hedges in the consolidated and combined statements of operations for the year ended December 31, 2014 was as follows:
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments
|
|
Location of Gain (Loss)
Recognized in Income on Derivative
|
|
Year Ended December 31, 2014
|
Commodity forward contracts
|
|
Cost of sales
|
|
$
|
(9,244
|
)
|
There was
no
open derivative position related to commodities at
December 31, 2016
or
2015
.
Interest Rate Risk Management
During August 2015, the Partnership entered into an interest rate contract with Westlake designed to reduce the risks of variability of the interest rate under the MLP Revolver. The interest rate contract fixed the LIBOR component of the interest rate for a portion of the MLP Revolver balance. This contract was designated as a cash flow hedge. With the exception of this interest rate contract, the Partnership did not have any other derivative financial instruments during the years ended
December 31, 2016
and
2015
. For the year ended
December 31, 2014
, neither the Partnership nor the Predecessor had any interest rate contracts.
The fair value of the derivative instrument on the Partnership's consolidated balance sheet as of
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Asset
|
Derivative in Cash Flow Hedging Relationship
|
|
Balance Sheet Location
|
|
Fair Value as of
December 31,
2016
|
|
Fair Value as of
December 31,
2015
|
Interest rate contract
|
|
Deferred charges and other assets, net
|
|
$
|
290
|
|
|
$
|
436
|
|
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
The following tables present the effect of the derivative instrument designated as cash flow hedge on the consolidated statements of operations and the consolidated statements of comprehensive income for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative in Cash Flow Hedging Relationship
|
|
Location of Gain (Loss)
Recognized in
Statement of Operations
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
Interest rate contract—Loss reclassified
from accumulated other comprehensive
income to net income
|
|
Interest expense
|
|
$
|
(336
|
)
|
|
$
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative in Cash Flow Hedging Relationship
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
Interest rate contract—Adjustments to fair value recognized in other comprehensive
income
|
|
$
|
(416
|
)
|
|
$
|
85
|
|
There was
no
material ineffectiveness with regard to the Partnership and Predecessor's qualifying hedges for the years ended December 31, 2016, 2015 and 2014.
See Note 15 for the fair value of derivative instruments.
15. Fair Value Measurements
The Partnership 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 table summarizes, by level within the fair value hierarchy, the Partnership's asset under the interest rate contract that was accounted for at fair value on a recurring basis at
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Level 2
|
|
Total
|
Derivative instruments
|
|
|
|
|
Asset—Interest rate contract
|
|
$
|
290
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Level 2
|
|
Total
|
Derivative instruments
|
|
|
|
|
Asset—Interest rate contract
|
|
$
|
436
|
|
|
$
|
436
|
|
The fair value of the Level 2 interest rate contract is determined using standard valuation methodologies which incorporate relevant contract terms along with readily available market data (i.e. the 3 month LIBOR forward curve). There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy during
2016
.
In addition to the above, the Partnership 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 payable to Westlake, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for 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 Partnership's long-term debt at December 31, 2016 and December 31, 2015 are summarized in the table below. The Partnership's long-term debt includes the August 2013 Promissory Notes, the OpCo Revolver and the MLP Revolver. The fair value of debt is determined based on the present value of expected future cash flows using a discounted cash flow methodology. Because the Partnership's valuation methodology used for long-term debt requires the use of significant
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
unobservable inputs, the inputs used to measure the fair value of the Partnership's long-term debt are classified as Level 3 within the fair value hierarchy. Inputs used to estimate the fair values of the Partnership's long-term debt include the selection of an appropriate discount rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
August 2013 Promissory Notes
|
|
$
|
31,775
|
|
|
$
|
31,775
|
|
|
31,775
|
|
|
31,775
|
|
OpCo Revolver
|
|
427,513
|
|
|
442,716
|
|
|
216,890
|
|
|
215,738
|
|
MLP Revolver
|
|
135,341
|
|
|
134,835
|
|
|
135,341
|
|
|
130,439
|
|
16. Income Taxes
The Partnership is a limited partnership and is treated as a partnership for U.S. federal income tax purposes and, therefore, is not liable for entity-level federal income taxes. The Partnership is, however, subject to state and local income taxes. The Predecessor's operating results were included in Westlake's consolidated U.S. federal and state income tax returns. Amounts presented in the combined financial statements prior to the IPO relate to income taxes that have been determined on a separate tax return basis and the Predecessor's contribution to Westlake Chemical Corporation's net operating losses and tax credits have been included in the Predecessor's financial statements.
The components of income tax disaggregated between the Partnership and the Predecessor are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
Predecessor
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Period from August 4, 2014 to December 31, 2014
|
|
Period from January 1, 2014 to August 3, 2014
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168,773
|
|
State and local
|
|
691
|
|
|
1,128
|
|
|
800
|
|
|
21,207
|
|
|
|
691
|
|
|
1,128
|
|
|
800
|
|
|
189,980
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,890
|
|
State and local
|
|
344
|
|
|
(456
|
)
|
|
265
|
|
|
1,453
|
|
|
|
344
|
|
|
(456
|
)
|
|
265
|
|
|
8,343
|
|
Total provision
|
|
$
|
1,035
|
|
|
$
|
672
|
|
|
$
|
1,065
|
|
|
$
|
198,323
|
|
The reconciliation of income tax expense at the U.S. statutory rate to the income tax expense disaggregated between the Partnership and the Predecessor is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
Predecessor
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Period from August 4, 2014 to December 31, 2014
|
|
Period from January 1, 2014 to August 3, 2014
|
Provision for federal income tax, at statutory rate
|
|
$
|
124,054
|
|
|
$
|
124,083
|
|
|
$
|
52,343
|
|
|
$
|
195,880
|
|
State income tax provision, net of federal income tax
effect
|
|
1,035
|
|
|
672
|
|
|
1,065
|
|
|
14,729
|
|
Partnership income not subject to entity-level federal
income tax
|
|
(124,054
|
)
|
|
(124,083
|
)
|
|
(52,343
|
)
|
|
—
|
|
Manufacturing deduction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,214
|
)
|
Other, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(72
|
)
|
Total provision
|
|
$
|
1,035
|
|
|
$
|
672
|
|
|
$
|
1,065
|
|
|
$
|
198,323
|
|
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
The tax effects of the principal temporary differences between financial reporting and income tax reporting are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Property, plant and equipment
|
|
$
|
(1,488
|
)
|
|
$
|
(1,291
|
)
|
Turnaround costs
|
|
(248
|
)
|
|
(101
|
)
|
Total deferred tax liabilities
|
|
$
|
(1,736
|
)
|
|
$
|
(1,392
|
)
|
|
|
|
|
|
Balance sheet classifications
|
|
|
|
|
Noncurrent deferred tax liability
|
|
$
|
(1,736
|
)
|
|
$
|
(1,392
|
)
|
Total deferred tax liabilities
|
|
$
|
(1,736
|
)
|
|
$
|
(1,392
|
)
|
17. Supplemental Information
Accrued Liabilities
Accrued liabilities were
$15,717
and
$23,407
at
December 31, 2016
and
2015
, respectively. Accruals related to accrued interest, capital expenditures, and maintenance expenses, which are components of accrued liabilities, were
$5,517
,
$2,647
and
$2,586
at
December 31, 2016
, respectively, and were
$2,879
,
$14,745
and
$2,949
at
December 31, 2015
, respectively. No other component of accrued liabilities was more than five percent of total current liabilities.
Cash Flow Information
Non-cash Operating Activity
The Predecessor settled
$9,315
of its total interest expense incurred on long-term debt payable to Westlake as an addition to principal on debt outstanding in
2014
.
Non-cash Investing Activity
The change in capital expenditure accrual
increasing
additions to property, plant and equipment was
$18,113
for the year ended
December 31, 2016
and the change in capital expenditure accrual
reducing
additions to property, plant and equipment was
$14,552
and
$418
for the years ended
December 31, 2015
and
2014
, respectively.
Non-cash Financing Activity
Related party notes payable to Westlake of
$238,600
were deemed settled through net investment in
2014
. The non-cash settlement was recorded as an increase in Westlake's net investment in the Predecessor.
No
cash was transferred in connection with the deemed settlement of these notes.
Interest and Income Taxes
Interest paid by the Partnership, net of interest capitalized, was
$9,901
,
$9,538
and
$1,366
for the years ended
December 31, 2016
,
2015
and 2014, respectively. Income tax paid by the Partnership was
$633
and
$1,264
for the years ended
December 31, 2016
and 2015, respectively, of which
$388
and
$231
was paid directly to the tax authorities for the years ended December 31, 2016 and 2015, and
$245
and
$1,033
was paid to Westlake as reimbursements for the years ended December 31, 2016 and 2015.
No
income tax payments were made during 2014 by the Partnership.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
18. Commitments and Contingencies
The Partnership is subject to environmental laws and regulations that can impose civil and criminal sanctions and that may require the Partnership to mitigate the effects of contamination caused by the release or disposal of hazardous substances into the environment. These laws include the federal Clean Air Act, the federal Water Pollution Control Act, the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Toxic Substances Control Act and various other federal, state and local laws and regulations. Under CERCLA, an owner or operator of property may be held strictly liable for remediating contamination without regard to whether that person caused the contamination, and without regard to whether the practices that resulted in the contamination were legal at the time they occurred. Because the Partnership's production sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Partnership. Westlake will indemnify the Partnership for liabilities that occurred or existed prior to August 4, 2014.
Potential Flare Modifications
. For several years, the EPA has been conducting an enforcement initiative against petroleum refineries and petrochemical plants with respect to emissions from flares. On April 21, 2014, Westlake received a Clean Air Act Section 114 Information Request from the EPA which sought information regarding flares at the Calvert City and Lake Charles facilities. The EPA has informed Westlake that the information provided leads the EPA to believe that some of the flares are out of compliance with applicable standards. The EPA has indicated that it is seeking a consent decree with that would obligate Westlake to take corrective actions relating to the alleged noncompliance. Westlake believes the resolution of these matters may require the payment of a monetary sanction in excess of
$100
.
Louisiana Notice of Violations
. The Louisiana Department of Environmental Quality ("LDEQ") has issued notices of violations ("NOVs") regarding the Partnership's assets, and those of Westlake, for various air compliance issues. The Partnership and Westlake are working with LDEQ to settle these claims, and a global settlement of all claims is being discussed. Westlake has reached a verbal agreement with the LDEQ to settle various NOVs in
two
separate settlements for a combined
$192
in civil penalties.
In addition to the matters described above, the Partnership is involved in various legal proceedings incidental to the conduct of its business. The Partnership does not believe that any of these legal proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.
Other Commitments
The Partnership is obligated under various long-term and short-term noncancelable operating leases, primarily related to rail car leases and land. Several of the leases provide for renewal terms. At
December 31, 2016
, future minimum lease commitments were as follows:
|
|
|
|
|
2017
|
$
|
1,144
|
|
2018
|
907
|
|
2019
|
839
|
|
2020
|
771
|
|
2021
|
656
|
|
Thereafter
|
383
|
|
|
$
|
4,700
|
|
Rental expense was approximately
$2,542
,
$3,125
and
$3,558
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
The Partnership has various purchase commitments for its capital projects and for materials, supplies and services incident to the ordinary conduct of business.
19. Major Customer and Concentration of Credit Risk
During the years ended
December 31, 2016
,
2015
and
2014
, Westlake accounted for approximately
86.5%
,
82.9%
and
73.8%
, respectively, of the Partnership's and the Predecessor's net sales.
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS—(Continued)
(in thousands of dollars, except unit amounts and per unit data)
20. Subsequent Events
Distribution
On
January 27, 2017
, the Board of Directors of the Partnership's general partner announced a quarterly distribution for the period from October 1, 2016 through December 31, 2016 of
$0.3450
per unit and
$142
to IDR Holders, which was paid on
February 22, 2017
to unitholders of record as of
February 7, 2017
.
General
Subsequent events were evaluated through the date on which the financial statements were issued.
21. Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2016
|
|
June 30,
2016
|
|
September 30,
2016
|
|
December 31,
2016
|
Net sales
|
|
$
|
252,604
|
|
|
$
|
210,841
|
|
|
$
|
229,354
|
|
|
$
|
293,937
|
|
Gross profit
|
|
110,414
|
|
|
88,381
|
|
|
86,801
|
|
|
105,735
|
|
Income from operations
|
|
104,317
|
|
|
82,533
|
|
|
81,013
|
|
|
98,581
|
|
Net income
|
|
102,771
|
|
|
81,192
|
|
|
75,859
|
|
|
93,581
|
|
Net income attributable to Westlake Chemical Partners LP
|
|
12,084
|
|
|
9,344
|
|
|
8,661
|
|
|
10,851
|
|
Net income attributable to Westlake Chemical Partners LP
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common unitholder
|
|
$
|
0.45
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.39
|
|
Basic and diluted earnings per subordinated unitholder
|
|
$
|
0.45
|
|
|
$
|
0.34
|
|
|
$
|
0.32
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2015
|
|
June 30,
2015
|
|
September 30,
2015
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
258,391
|
|
|
$
|
251,705
|
|
|
$
|
248,619
|
|
|
$
|
248,506
|
|
Gross profit
|
|
96,227
|
|
|
94,528
|
|
|
94,145
|
|
|
97,982
|
|
Income from operations
|
|
90,227
|
|
|
88,533
|
|
|
88,314
|
|
|
92,258
|
|
Net income
|
|
88,389
|
|
|
87,243
|
|
|
87,046
|
|
|
91,175
|
|
Net income attributable to Westlake Chemical Partners LP
|
|
8,500
|
|
|
10,443
|
|
|
10,103
|
|
|
10,785
|
|
Net income attributable to Westlake Chemical Partners LP
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common unitholder
|
|
$
|
0.31
|
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.40
|
|
Basic and diluted earnings per subordinated unitholder
|
|
$
|
0.31
|
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.40
|
|