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Section 1: 10-Q (10-Q)

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Non-accelerated filer

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Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period from to

Commission File No. 001-36567

Westlake Chemical Partners LP

(Exact name of Registrant as specified in its charter)



Delaware		32-0436529
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2801 Post Oak Boulevard, Suite 600

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 585-2900

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common units representing limited partnership interests	WLKP	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No x

The registrant had 35,188,189 common units outstanding as of July 30, 2019.

INDEX




Item	Page
PART I. FINANCIAL INFORMATION
1) Financial Statements	1
2) Management's Discussion and Analysis of Financial Condition and Results of Operations	15
3) Quantitative and Qualitative Disclosures about Market Risk	26
4) Controls and Procedures	26

PART II. OTHER INFORMATION
1) Legal Proceedings	26
1A) Risk Factors	27
5) Other Information	27
6) Exhibits	28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTLAKE CHEMICAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2019			December 31, 2018

	(in thousands of dollars, except unit amounts)
ASSETS
Current assets
Cash and cash equivalents	$	17,473		$	19,744
Receivable under the Investment Management Agreement—Westlake Chemical Corporation ("Westlake")	141,327			148,956
Accounts receivable, net—Westlake	38,995			57,280
Accounts receivable, net—third parties	20,435			16,404
Inventories	4,029			4,388
Prepaid expenses and other current assets	95			370
Total current assets	222,354			247,142
Property, plant and equipment, net	1,129,083			1,148,265
Goodwill	5,814			5,814
Deferred charges and other assets, net	53,653			60,904
Total assets	$	1,410,904		$	1,462,125
LIABILITIES
Current liabilities
Accounts payable—Westlake	$	9,996		$	27,477
Accounts payable—third parties	8,030			5,045
Accrued and other liabilities	18,287			16,250
Total current liabilities	36,313			48,772
Long-term debt payable to Westlake	399,674			477,608
Deferred income taxes	1,693			1,664
Operating lease liabilities	1,110			—
Total liabilities	438,790			528,044
Commitments and contingencies (Note 12)
EQUITY
Common unitholders—publicly and privately held (21,065,959 and 18,125,141 units issued and outstanding at June 30, 2019 and December 31, 2018, respectively)	471,944			409,608
Common unitholder—Westlake (14,122,230 and 14,122,230 units issued and outstanding at June 30, 2019 and December 31, 2018, respectively)	48,419			48,774
General partner—Westlake	(242,572		)	(242,572		)
Total Westlake Chemical Partners LP partners' capital	277,791			215,810
Noncontrolling interest in Westlake Chemical OpCo LP ("OpCo")	694,323			718,271
Total equity	972,114			934,081
Total liabilities and equity	$	1,410,904		$	1,462,125

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

WESTLAKE CHEMICAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018

	(in thousands of dollars, except unit amounts and per unit data)
Revenue
Net sales—Westlake	$	230,047		$	253,673		$	487,087		$	488,704
Net co-product, ethylene and other sales—third parties	40,015			48,302			82,061			97,543
Total net sales	270,062			301,975			569,148			586,247
Cost of sales	178,104			204,857			386,536			396,624
Gross profit	91,958			97,118			182,612			189,623
Selling, general and administrative expenses	7,639			7,375			14,612			14,508
Income from operations	84,319			89,743			168,000			175,115
Other income (expense)
Interest expense—Westlake	(5,125		)	(5,547		)	(11,025		)	(10,413		)
Other income, net	1,153			583			1,968			1,074
Income before income taxes	80,347			84,779			158,943			165,776
Income tax provision	237			303			437			586
Net income	80,110			84,476			158,506			165,190
Less: Net income attributable to noncontrolling interest in OpCo	66,377			71,719			129,818			140,138
Net income attributable to Westlake Chemical Partners LP	$	13,733		$	12,757		$	28,688		$	25,052
Net income per limited partner unit attributable to Westlake Chemical Partners LP (basic and diluted)
Common units	$	0.39		$	0.40		$	0.85		$	0.75
Weighted average limited partner units outstanding (basic and diluted)
Common units—publicly and privately held	21,065,959			18,115,036			19,652,417			18,114,630
Common units—Westlake	14,122,230			14,122,230			14,122,230			14,122,230

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

WESTLAKE CHEMICAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



		Partnership
		Common Unitholders— Public and Privately Held			Common Unitholder— Westlake			General Partner— Westlake			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests in OpCo			Total

	(in thousands of dollars)
Balance at December 31, 2018		$	409,608		$	48,774		$	(242,572	)	$	—	$	718,271		$	934,081

Net income		8,422			6,533			—			—		63,441			78,396
Net proceeds from private placement of common units		62,934			—			—			—		—			62,934
Quarterly distributions to unitholders		(7,845		)	(6,112		)	—			—		—			(13,957		)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake		—			—			—			—		(81,507		)	(81,507		)
Balance at March 31, 2019		$	473,119		$	49,195		$	(242,572	)	$	—	$	700,205		$	979,947

Net income		8,222			5,511			—			—		66,377			80,110
Offering costs related to private placement of common units		(18		)	—			—			—		—			(18		)
Quarterly distributions to unitholders		(9,379		)	(6,287		)	—			—		—			(15,666		)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake		—			—			—			—		(72,259		)	(72,259		)
Balance at June 30, 2019		$	471,944		$	48,419		$	(242,572	)	$	—	$	694,323		$	972,114

WESTLAKE CHEMICAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



		Partnership
		Common Unitholders— Public and Privately Held			Common Unitholder— Westlake			General Partner— Westlake			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in OpCo			Total

	(in thousands of dollars)
Balance at December 31, 2017		$	411,228		$	50,265		$	(241,958	)	$	279		$	778,935		$	998,749

Net income		6,498			5,064			733			—			68,419			80,714
Net effect of cash flow hedge		—			—			—			19			—			19
Units issued for vested phantom units		60			—			—			—			—			60
Quarterly distributions to unitholders		(7,000		)	(5,457		)	(614		)	—			—			(13,071		)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake		—			—			—			—			(91,148		)	(91,148		)
Balance at March 31, 2018		$	410,786		$	49,872		$	(241,839	)	$	298		$	756,206		$	975,323

Net income		7,168			5,589			—			—			71,719			84,476
Net effect of cash flow hedge		—			—			—			(176		)	—			(176		)
Quarterly distributions to unitholders		(7,200		)	(5,613		)	(733		)	—			—			(13,546		)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake		—			—			—			—			(81,610		)	(81,610		)
Balance at June 30, 2018		$	410,754		$	49,848		$	(242,572	)	$	122		$	746,315		$	964,467

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

WESTLAKE CHEMICAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
	2019			2018

	(in thousands of dollars)
Cash flows from operating activities
Net income	$	158,506		$	165,190
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	53,701			55,284
Loss from disposition of property, plant and equipment	458			567
Other losses (gains), net	(181		)	538
Changes in operating assets and liabilities
Accounts receivable—third parties	(3,821		)	1,284
Net accounts receivable—Westlake	419			2,885
Inventories	(402		)	(538		)
Prepaid expenses and other current assets	275			260
Accounts payable	2,791			(4,836		)
Accrued and other liabilities	2,096			27
Other, net	(170		)	(90		)
Net cash provided by operating activities	213,672			220,571
Cash flows from investing activities
Additions to property, plant and equipment	(25,582		)	(16,620		)
Maturities of investments with Westlake under the Investment Management Agreement	344,445			178,000
Investments with Westlake under the Investment Management Agreement	(336,445		)	(185,000		)
Other	46			251
Net cash used for investing activities	(17,536		)	(23,369		)
Cash flows from financing activities
Net proceeds from private placement of common units	62,916			—
Proceeds from debt payable to Westlake	123,511			3,648
Repayment of debt payable to Westlake	(201,445		)	—
Quarterly distributions to noncontrolling interest retained in OpCo by Westlake	(153,766		)	(172,758		)
Quarterly distributions to unitholders	(29,623		)	(26,617		)
Net cash used for financing activities	(198,407		)	(195,727		)
Net increase (decrease) in cash and cash equivalents	(2,271		)	1,475
Cash and cash equivalents at beginning of period	19,744			27,008
Cash and cash equivalents at end of period	$	17,473		$	28,483

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

Table of Contents

WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

1. Description of Business and Basis of Presentation

Description of Business

Westlake Chemical Partners LP (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 its initial public offering (the "IPO") of 12,937,500 common units representing limited partner interests. On September 29, 2017, the Partnership completed a secondary offering of 5,175,000 common units at a price of $22.00 per unit. On March 29, 2019, the Partnership completed the issuance and sale of 2,940,818 common units at a price of $21.40 per unit through a private placement. Net proceeds to Westlake Partners from the sale of the units were approximately $62,916.

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. On September 29, 2017, the Partnership purchased an additional 5.0% newly-issued limited partner interest in OpCo for approximately $229,207, resulting in an aggregate 18.3% limited partner interest in OpCo, effective as of July 1, 2017. On March 29, 2019, the Partnership purchased an additional 4.5% newly-issued limited partner interest in OpCo for approximately $201,445, resulting in an aggregate 22.8% limited partner interest in OpCo, effective January 1, 2019. The remaining 77.2% limited partner interest in OpCo is owned by Westlake Chemical Corporation.

OpCo owns three ethylene production facilities and a common carrier ethylene pipeline.

Basis of Presentation

The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Partnership included in the annual report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Form 10-K"), filed with the SEC on March 1, 2019. These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Partnership for the fiscal year ended December 31, 2018 with the exceptions of those accounting standards adopted in 2019 as discussed in Note 1.

References to "Westlake" refer collectively to Westlake Chemical Corporation and its subsidiaries, other than the Partnership, OpCo and OpCo GP.

The Partnership holds a 22.8% limited partner interest and the entire non-economic general partner interest in OpCo. The remaining 77.2% limited partner interest in OpCo is owned 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 77.2% is recorded as noncontrolling interest in the Partnership's consolidated financial statements.

In the opinion of the Partnership's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Partnership's financial position as of June 30, 2019, its results of operations for the three and six months ended June 30, 2019 and 2018 and the changes in its cash position for the six months ended June 30, 2019 and 2018.

Table of Contents

WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

Results of operations and changes in cash position for the interim periods presented are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2019 or any other interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Credit Losses (ASU No. 2016-13)

In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard will be effective for reporting periods beginning after December 15, 2019 and is not expected to have a material impact on the Partnership's consolidated financial position, results of operations and cash flows.

Fair Value Measurement (ASU No. 2018-13)

In August 2018, the FASB issued an accounting standards update to modify the disclosure requirements on fair value measurements. The amendments are effective for reporting periods beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. Most amendments should be applied retrospectively but certain amendments should be applied prospectively. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on the Partnership's consolidated financial position, results of operations and cash flows.

Recently Adopted Accounting Standards

Leases (ASU No. 2016-02)

In February 2016, the FASB issued an accounting standards update on lease accounting that supersedes the previously issued lease guidance. The new standard requires lessees to recognize assets and liabilities for all long-term operating leases. An asset is recognized for the right to use an underlying leased asset and a liability is recognized for the obligation to make payments over the lease term. The standard also requires expanded lease disclosures. The standard requires a modified retrospective adoption approach and allows for the election of certain transition expedients.

The Partnership adopted the standard effective January 1, 2019 using the optional transition method which allows entities to recognize a cumulative adjustment to the opening balance sheet in the period of adoption. The Partnership elected the package of optional transition expedients and was not required to reassess (1) whether any existing contracts are or contain leases, (2) classification of existing leases as operating or capital or (3) whether initial direct costs for existing leases qualify for capitalization under the new accounting standard. The Partnership did not elect the use of hindsight to determine the lease term when considering lease renewal or termination options. Adoption of the new standard did not have a material impact on the Partnership's consolidated financial position, results of operations and cash flows.

2. Accounts Receivable—Third Parties

Accounts receivable—third parties consist of the following:



	June 30, 2019			December 31, 2018
Trade customers	$	19,890		$	17,325
Allowance for doubtful accounts	(711		)	(921		)
	19,179			16,404
Other	1,256			—
Accounts receivable, net—third parties	$	20,435		$	16,404

Table of Contents

WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

3. Inventories

Inventories consist of the following:



	June 30, 2019		December 31, 2018
Finished products	$	3,587	$	3,876
Feedstock, additives and chemicals	442		512
Inventories	$	4,029	$	4,388

4. Property, Plant and Equipment

Depreciation expense on property, plant and equipment of $22,227 and $22,044 is included in cost of sales in the consolidated statements of operations for the three months ended June 30, 2019 and 2018, respectively. Depreciation expense on property, plant and equipment of $44,441 and $44,201 is included in cost of sales in the consolidated statements of operations for the six months ended June 30, 2019 and 2018, respectively.

5. Deferred Charges and Other Assets

Amortization expense on other assets of $4,630 and $5,542 is included in costs of sales in the consolidated statements of operations for the three months ended June 30, 2019 and 2018, respectively. Amortization expense on other assets of $9,260 and $11,083 is included in costs of sales in the consolidated statements of operations for the six months ended June 30, 2019 and 2018, respectively.

6. Distributions and Net Income Per Limited Partner Unit

On July 31, 2019, the board of directors of Westlake Chemical Partners GP LLC ("Westlake GP"), the Partnership's general partner, declared a quarterly cash distribution for the three months ended June 30, 2019 of $0.4579 per unit. This distribution is payable on August 26, 2019 to the unitholders of record as of August 12, 2019.

The distributions are declared subsequent to quarter end; therefore, the table below represents total distributions declared from earnings of the related periods pertaining to such distributions.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income attributable to the Partnership	$	13,733		$	12,757		$	28,688		$	25,052
Less:
Limited partners' distributions declared on common units	16,113			13,179			31,779			25,993
Distributions declared with respect to the incentive distribution rights	—			—			—			733
Distribution in excess of net income	$	(2,380	)	$	(422	)	$	(3,091	)	$	(1,674	)

Net income per unit applicable to common limited partner units is computed by dividing the respective limited partners' interest in net income by the weighted-average number of common 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 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 statement of 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.

Table of Contents

WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)



	Three Months Ended June 30, 2019
	Limited Partners' Common Units			Incentive Distribution Rights		Total
Net income attributable to the Partnership:
Distribution declared	$	16,113		$	—	$	16,113
Distribution in excess of net income	(2,380		)	—		(2,380		)
Net income	$	13,733		$	—	$	13,733
Weighted average units outstanding:
Basic and diluted	35,188,189					35,188,189
Net income per limited partner unit:
Basic and diluted	$	0.39



	Three Months Ended June 30, 2018
	Limited Partners' Common Units			Incentive Distribution Rights		Total
Net income attributable to the Partnership:
Distribution declared	$	13,179		$	—	$	13,179
Distribution in excess of net income	(422		)	—		(422		)
Net income	$	12,757		$	—	$	12,757
Weighted average units outstanding:
Basic and diluted	32,237,266					32,237,266
Net income per limited partner unit:
Basic and diluted	$	0.40



	Six Months Ended June 30, 2019
	Limited Partners' Common Units			Incentive Distribution Rights		Total
Net income attributable to the Partnership:
Distribution declared	$	31,779		$	—	$	31,779
Distribution in excess of net income	(3,091		)	—		(3,091		)
Net income	$	28,688		$	—	$	28,688
Weighted average units outstanding:
Basic and diluted	33,774,647					33,774,647
Net income per limited partner unit:
Basic and diluted	$	0.85



	Six Months Ended June 30, 2018
	Limited Partners' Common Units			Incentive Distribution Rights		Total
Net income attributable to the Partnership:
Distribution declared	$	25,993		$	733	$	26,726
Distribution in excess of net income	(1,674		)	—		(1,674		)
Net income	$	24,319		$	733	$	25,052
Weighted average units outstanding:
Basic and diluted	32,236,860					32,236,860
Net income per limited partner unit:
Basic and diluted	$	0.75

Table of Contents

WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

The amended Partnership Agreement provides that the Partnership will distribute cash each quarter to all the unitholders, pro rata, until each unit has received a distribution of $1.2938. If cash distributions to the Partnership's unitholders exceed $1.2938 per 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 $1.2938 up to $1.4063	85.0	%	15.0	%
Above $1.4063 up to $1.6875	75.0	%	25.0	%
Above $1.6875	50.0	%	50.0	%

The Partnership's distribution for the three months ended June 30, 2019 did not exceed the $1.2938 per unit threshold, and, as a result, no distribution was made with respect to the Partnership's incentive distribution rights to Westlake, as the holder of the Partnership's incentive distribution rights.

Distribution Per Common Unit

Distributions per common unit for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Distributions per common unit	$	0.4452	$	0.3975	$	0.8780	$	0.7839

7. Partners' Equity

On October 4, 2018, the Partnership and Westlake GP, the general partner of the Partnership, entered into an Equity Distribution Agreement with UBS Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC to offer and sell the Partnership's common units, from time to time, up to an aggregate offering amount of $50,000. No common units had been issued under this program as of June 30, 2019.

On March 29, 2019, the Partnership completed the issuance and sale of 2,940,818 common units at a price of $21.40 per unit through a private placement. Net proceeds to the Partnership from the sale of the units were approximately $62,916. TTWF LP, Westlake's principal stockholder and a related party, acquired 1,401,869 common units out of 2,940,818 common units issued in the private placement.

8. 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 each charges Westlake a fee.

Sales to related parties were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net sales—Westlake	$	230,047	$	253,673	$	487,087	$	488,704

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WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

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.

Charges from related parties in cost of sales were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Feedstock purchased from Westlake and included in cost of sales	$	89,599	$	119,925	$	211,754	$	225,340
Other charges from Westlake and included in cost of sales	27,464		26,537		55,036		54,943
Total	$	117,063	$	146,462	$	266,790	$	280,283

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.

Charges from related parties included within selling, general and administrative expenses were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Services received from Westlake and included in selling, general and administrative expenses	$	6,464	$	7,041	$	13,067	$	13,292

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.

Charges from related parties for goods and services capitalized as assets were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Goods and services purchased from Westlake and capitalized as assets	$	641	$	791	$	1,284	$	1,142

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WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

Receivable under the Investment Management Agreement

On August 1, 2017, the Partnership, OpCo and Westlake executed an investment management agreement (the "Investment Management Agreement") that authorized Westlake to invest the Partnership's and OpCo's excess cash with Westlake for a term of up to a maximum of nine months. Per the terms of the Investment Management Agreement, the Partnership earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo. Accrued interest of $371 and $496 was included in the receivable under the Investment Management Agreement balance at June 30, 2019 and December 31, 2018, respectively. Total interest earned related to the Investment Management Agreement was $1,155 and $568 for the three months ended June 30, 2019 and 2018, respectively, and $1,973 and $1,108 for the six months ended June 30, 2019 and 2018, respectively.

The Partnership's receivable under the Investment Management Agreement was as follows:



	June 30, 2019		December 31, 2018
Receivable under the Investment Management Agreement	$	141,327	$	148,956

Accounts Receivables

The Partnership's accounts receivable from Westlake result primarily from ethylene sales to Westlake under the Ethylene Sales Agreement.

The Partnership's accounts receivable from Westlake were as follows:



	June 30, 2019		December 31, 2018
Accounts receivable—Westlake	$	38,995	$	57,280

Accounts Payable to Related Parties

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 payable balances were as follows:



	June 30, 2019		December 31, 2018
Accounts payable—Westlake	$	9,996	$	27,477

Related Party Leases

OpCo is obligated to Westlake under various rail cars leases. Operating lease rentals paid to Westlake for such leases were $562 and $700 for the three months ended June 30, 2019 and 2018, respectively, and $1,076 and $1,018 for six months ended June 30, 2019 and 2018, respectively, and reflected in other charges from Westlake that are included in cost of sales.

OpCo has two site lease agreements with Westlake, each of which has a term of 50 years. Pursuant to the site lease agreements, OpCo pays Westlake one dollar per site per year.

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WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

Debt Payable to Related Parties

See Note 9 for a description of related party debt payable balances. Interest on related party debt payable balances for the three months ended June 30, 2019 and 2018 was $5,125 and $5,547, respectively, and for the six months ended June 30, 2019 and 2018 was $11,025 and $10,413, respectively. Interest on related party debt payable is presented as interest expense—Westlake in the consolidated statements of operations. Interest capitalized as a component of property, plant and equipment on related party debt was zero and $31 for the three months ended June 30, 2019 and 2018, respectively, and for the six months ended June 30, 2019 and 2018 was zero and $46, respectively. At June 30, 2019 and December 31, 2018, accrued interest on related party debt was $5,384 and $5,448, respectively, and is reflected as a component of accrued liabilities in the consolidated balance sheets.

Debt payable to related parties was as follows:



	June 30, 2019		December 31, 2018
Long-term debt payable to Westlake	$	399,674	$	477,608

Major Customer and Concentration of Credit Risk

During the three months ended June 30, 2019 and 2018, Westlake accounted for approximately 85.2% and 84.0%, respectively, of the Partnership's net sales. During the six months ended June 30, 2019 and 2018, Westlake accounted for approximately 85.6% and 83.4%, respectively, of the Partnership's net sales.

Other

See Note 7 above for an additional related party transaction.

9. Long-term Debt Payable to Westlake

Long-term debt payable to Westlake consists of the following:



	June 30, 2019		December 31, 2018
OpCo Revolver (variable interest rate of LIBOR plus 2.0%, scheduled maturity of September 25, 2023)	$	22,619	$	224,064
MLP Revolver (variable interest rate of LIBOR plus 2.0%, scheduled maturity of April 29, 2021)	377,055		253,544
	$	399,674	$	477,608

On April 30, 2019, the Partnership repaid $201,445 of borrowings under the OpCo Revolver.

On March 29, 2019, the Partnership borrowed $123,512 under the MLP Revolver to partially fund the purchase of the additional 4.5% interest in OpCo.

The weighted average interest rate on all long-term debt was 4.6% and 4.4%, respectively, at June 30, 2019 and December 31, 2018.

As of June 30, 2019, the Partnership was in compliance with all of the covenants under the OpCo Revolver and the MLP Revolver.

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WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

10. 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 Partnership has financial assets and liabilities subject to fair value measures. These financial assets and liabilities include 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 June 30, 2019 and December 31, 2018 are summarized in the table below. The Partnership's long-term debt includes the OpCo Revolver and the MLP Revolver at June 30, 2019. 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 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.



	June 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
OpCo Revolver	$	22,619	$	23,072	$	224,064	$	221,002
MLP Revolver	377,055		377,862		253,544		249,747

11. Supplemental Information

Accrued Liabilities

Accrued liabilities were $18,287 and $16,250 at June 30, 2019 and December 31, 2018, respectively. Accrued interest, accrued maintenance, capital expenditures and accrued taxes, which are components of accrued liabilities, were $5,384, $2,451, $2,057 and $3,975, respectively, at June 30, 2019, and $5,448, $2,688, $2,818 and $1,564, respectively, at December 31, 2018. No other component of accrued liabilities was more than five percent of total current liabilities.

Non-cash Investing Activity

The change in capital expenditure accrual resulted in an increase in additions to property, plant and equipment by $567 for the six months ended June 30, 2019. The change in capital expenditure accrual resulted in a decrease in additions to property, plant and equipment by $5,042 for the six months ended June 30, 2018.

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WESTLAKE CHEMICAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

(in thousands of dollars, except unit amounts and per unit data)

12. 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.

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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in Westlake Chemical Partners LP's annual report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Form 10-K"), as filed with the SEC on March 1, 2019. Unless otherwise indicated, references in this report to "we," "our," "us" or like terms, refer to Westlake Chemical Partners LP (the "Partnership"), Westlake Chemical OpCo LP ("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake" refer to Westlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.

Partnership Overview

We are a Delaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, we closed our initial public offering (the "IPO") of 12,937,500 common units. In connection with the IPO, we acquired a 10.6% interest in OpCo and a 100% interest in OpCo GP, which is the general partner of OpCo. On April 29, 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. The 12,686,115 subordinated units of the Partnership, all of which were previously owned by Westlake, were converted into common units of the Partnership on August 30, 2017. On September 29, 2017, we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0% newly-issued limited partner interest in OpCo, resulting in an aggregate 18.3% limited partner interest in OpCo, effective July 1, 2017. On March 29, 2019, we completed a private placement of 2,940,818 common units and used the net proceeds to purchase an additional 4.5% interest in OpCo, effective January 1, 2019, resulting in us owning an aggregate 22.8% limited partner interest in OpCo.

Currently, our sole revenue generating asset is our 22.8% 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 77.2% limited partner interest in OpCo as well as a significant interest in us through its ownership of our general partner, 40.1% of our limited partner units (consisting of 14,122,230 common 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.

How We Generate Revenue

We generate revenue primarily by selling ethylene and the resulting co-products we produce. OpCo and Westlake have 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.

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

The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. The non-GAAP financial measures described in this Form 10-Q are not substitutes for the GAAP measures of earnings and cash flows. We use each of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation, amortization and disposition of property, plant and equipment, less contributions for turnaround reserves, maintenance capital expenditures and mark-to-market adjustment on derivative contracts. We define MLP distributable cash flow as distributable cash flow 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:


•	our operating performance as compared to other publicly traded partnerships;


•	our ability to incur and service debt and fund capital expenditures; and


•	the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

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, income from operations 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 is a necessary element of our operations in the jurisdictions we operate in. 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.

Recent Developments

In April 2019, the Partnership repaid $201.4 million of borrowings under the OpCo Revolver.

Results of Operations



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018

	(dollars in thousands)
Revenue
Net sales—Westlake	$	230,047		$	253,673		$	487,087		$	488,704
Net co-product, ethylene and other sales—third parties	40,015			48,302			82,061			97,543
Total net sales	270,062			301,975			569,148			586,247
Cost of sales	178,104			204,857			386,536			396,624
Gross profit	91,958			97,118			182,612			189,623
Selling, general and administrative expenses	7,639			7,375			14,612			14,508
Income from operations	84,319			89,743			168,000			175,115
Other income (expense)
Interest expense—Westlake	(5,125		)	(5,547		)	(11,025		)	(10,413		)
Other income, net	1,153			583			1,968			1,074
Income before income taxes	80,347			84,779			158,943			165,776
Income tax provision	237			303			437			586
Net income	80,110			84,476			158,506			165,190
Less: Net income attributable to noncontrolling interest in OpCo	66,377			71,719			129,818			140,138
Net income attributable to Westlake Chemical Partners LP	$	13,733		$	12,757		$	28,688		$	25,052
MLP distributable cash flow ⁽¹⁾	$	16,422		$	15,966		$	33,977		$	30,476
EBITDA ⁽²⁾	$	112,329		$	117,912		$	223,669		$	231,473