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Section 1: 10-Q (10-Q)

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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
September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                    to                    
Commission File No. 001-36567
 
 
 
 
 
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):
Large accelerated filer
 
¨
 
Accelerated filer
 
x
Non-accelerated filer
 
¨ 
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes        No   x

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



INDEX

 
 
Item
Page
 
 
 
 
5) Other Information





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
 
 
(in thousands of dollars, except unit amounts)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
18,647

 
$
19,744

Receivable under the Investment Management Agreement—Westlake Chemical Corporation ("Westlake")
 
164,888

 
148,956

Accounts receivable, net—Westlake
 
35,001

 
57,280

Accounts receivable, net—third parties
 
14,543

 
16,404

Inventories
 
3,698

 
4,388

Prepaid expenses and other current assets
 
559

 
370

Total current assets
 
237,336

 
247,142

Property, plant and equipment, net
 
1,113,010

 
1,148,265

Goodwill
 
5,814

 
5,814

Deferred charges and other assets, net
 
50,896

 
60,904

Total assets
 
$
1,407,056

 
$
1,462,125

LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable—Westlake
 
$
13,330

 
$
27,477

Accounts payable—third parties
 
4,644

 
5,045

Accrued and other liabilities
 
22,964

 
16,250

Total current liabilities
 
40,938

 
48,772

Long-term debt payable to Westlake
 
399,674

 
477,608

Deferred income taxes
 
1,631

 
1,664

Operating lease liabilities
 
2,082

 

Total liabilities
 
444,325

 
528,044

Commitments and contingencies (Note 13)
 


 


EQUITY
 
 
 
 
Common unitholders—publicly and privately held (21,065,959 and 18,125,141 units issued
and outstanding at September 30, 2019 and December 31, 2018, respectively)
 
470,977

 
409,608

Common unitholder—Westlake (14,122,230 and 14,122,230 units issued and outstanding at
September 30, 2019 and December 31, 2018, respectively)
 
47,940

 
48,774

General partner—Westlake
 
(242,572
)
 
(242,572
)
Total Westlake Chemical Partners LP partners' capital
 
276,345

 
215,810

Noncontrolling interest in Westlake Chemical OpCo LP ("OpCo")
 
686,386

 
718,271

Total equity
 
962,731

 
934,081

Total liabilities and equity
 
$
1,407,056

 
$
1,462,125

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

1




WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019

2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
(in thousands of dollars, except unit amounts and per unit data)
Revenue
 
 
 
 
 
 
 
 
Net sales—Westlake
 
$
216,678

 
$
313,381

 
$
703,765

 
$
802,085

Net co-product, ethylene and other sales—third parties
 
33,247

 
50,269

 
115,308

 
147,812

Total net sales
 
249,925

 
363,650

 
819,073

 
949,897

Cost of sales
 
156,706

 
269,743

 
543,242

 
666,367

Gross profit
 
93,219

 
93,907

 
275,831

 
283,530

Selling, general and administrative expenses
 
6,822

 
5,909

 
21,434

 
20,417

Income from operations
 
86,397

 
87,998

 
254,397

 
263,113

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense—Westlake
 
(4,411
)
 
(5,639
)
 
(15,436
)
 
(16,052
)
Other income, net
 
565

 
668

 
2,533

 
1,742

Income before income taxes
 
82,551

 
83,027

 
241,494

 
248,803

Income tax provision (benefit)
 
72

 
(772
)
 
509

 
(186
)
Net income
 
82,479

 
83,799

 
240,985

 
248,989

Less: Net income attributable to noncontrolling interest in OpCo
 
67,557

 
71,387

 
197,375

 
211,525

Net income attributable to Westlake Chemical Partners LP
 
$
14,922

 
$
12,412

 
$
43,610

 
$
37,464

Net income per limited partner unit attributable to Westlake Chemical Partners LP (basic and diluted)
 
 
 
 
 
 
 
 
Common units
 
$
0.42

 
$
0.38

 
$
1.27

 
$
1.14

Weighted average limited partner units outstanding (basic and diluted)
 
 
 
 
 
 
 
 
Common units—publicly and privately held
 
21,065,959

 
18,119,980

 
20,128,775

 
18,116,433

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.

2




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

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
8,934

 
5,988

 

 

 
67,557

 
82,479

Offering costs related to private placement of common units
 
(255
)
 

 

 

 

 
(255
)
Quarterly distributions to unitholders
 
(9,646
)
 
(6,467
)
 

 

 

 
(16,113
)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake
 

 

 

 

 
(75,494
)
 
(75,494
)
Balance at September 30, 2019
 
$
470,977

 
$
47,940

 
$
(242,572
)

$

 
$
686,386

 
$
962,731





3




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

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
6,975

 
5,437

 

 

 
71,387

 
83,799

Net effect of cash flow hedge
 

 

 

 
(122
)
 

 
(122
)
Units issued for vested phantom units
 
232

 

 

 

 

 
232

Quarterly distributions to unitholders
 
(7,406
)
 
(5,774
)
 
(1
)
 

 

 
(13,181
)
Quarterly distribution to noncontrolling interest retained in OpCo by Westlake
 

 

 

 

 
(86,066
)
 
(86,066
)
Balance at September 30, 2018
 
$
410,555

 
$
49,511

 
$
(242,573
)
 
$

 
$
731,636

 
$
949,129


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

4




WESTLAKE CHEMICAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
 
 
 
 
 
 
(in thousands of dollars)
Cash flows from operating activities
 
 
 
 
Net income
 
$
240,985

 
$
248,989

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
80,382

 
82,176

Provision for (recovery of) doubtful accounts
 
(786
)
 
498

Loss from disposition of property, plant and equipment
 
458

 
593

Other losses (gains), net
 
(33
)
 
(594
)
Changes in operating assets and liabilities
 
 
 
 
Accounts receivable—third parties
 
2,647

 
(4,959
)
Net accounts receivable—Westlake
 
8,217

 
5,088

Inventories
 
(88
)
 
586

Prepaid expenses and other current assets
 
(189
)
 
(177
)
Accounts payable
 
(662
)
 
(4,267
)
Accrued and other liabilities
 
4,869

 
2,279

Other, net
 
(646
)
 
(208
)
Net cash provided by operating activities
 
335,154

 
330,004

Cash flows from investing activities
 
 
 
 
Additions to property, plant and equipment
 
(30,028
)
 
(30,047
)
Maturities of investments with Westlake under the Investment Management Agreement
 
405,445

 
270,050

Investments with Westlake under the Investment Management Agreement
 
(421,445
)
 
(285,000
)
Other
 
46

 

Net cash used for investing activities
 
(45,982
)
 
(44,997
)
Cash flows from financing activities
 
 
 
 
Net proceeds from private placement of common units
 
62,661

 

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
 
(229,260
)
 
(258,824
)
Quarterly distributions to unitholders
 
(45,736
)
 
(39,798
)
Net cash used for financing activities
 
(290,269
)
 
(294,974
)
Net decrease in cash and cash equivalents
 
(1,097
)
 
(9,967
)
Cash and cash equivalents at beginning of period
 
19,744

 
27,008

Cash and cash equivalents at end of period
 
$
18,647

 
$
17,041

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

5

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 $62,661.
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 September 30, 2019, its results of operations for the three and nine months ended September 30, 2019 and 2018 and the changes in its cash position for the nine months ended September 30, 2019 and 2018.

6

Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(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:
 
 
September 30,
2019
 
December 31,
2018
Trade customers
 
$
14,614

 
$
17,325

Allowance for doubtful accounts
 
(134
)
 
(921
)
 
 
14,480

 
16,404

Other
 
63

 

Accounts receivable, net—third parties
 
$
14,543

 
$
16,404



7

Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

3. Inventories
Inventories consist of the following:


September 30,
2019

December 31,
2018
Finished products

$
3,377


$
3,876

Feedstock, additives and chemicals

321


512

Inventories

$
3,698


$
4,388


4. Property, Plant and Equipment
Depreciation expense on property, plant and equipment of $22,313 and $21,960 is included in cost of sales in the consolidated statements of operations for the three months ended September 30, 2019 and 2018, respectively. Depreciation expense on property, plant and equipment of $66,754 and $66,161 is included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2019 and 2018, respectively.
5. Deferred Charges and Other Assets
Amortization expense on other assets of $4,368 and $4,932 is included in costs of sales in the consolidated statements of operations for the three months ended September 30, 2019 and 2018, respectively. Amortization expense on other assets of $13,628 and $16,015 is included in costs of sales in the consolidated statements of operations for the nine months ended September 30, 2019 and 2018, respectively.
6. Distributions and Net Income Per Limited Partner Unit
On October 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 September 30, 2019 of $0.4646 per unit. This distribution is payable on November 26, 2019 to the unitholders of record as of November 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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net income attributable to the Partnership

$
14,922

 
$
12,412

 
$
43,610

 
$
37,464

Less:
 
 
 
 
 
 
 
 
Limited partners' distributions declared on common units

16,348

 
13,566

 
48,127

 
39,559

Distributions declared with respect to the incentive distribution rights
 

 

 

 
733

Distribution in excess of net income

$
(1,426
)
 
$
(1,154
)
 
$
(4,517
)
 
$
(2,828
)
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.

8

Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

 
 
Three Months Ended September 30, 2019
 
 
Limited Partners' Common Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:
 
 
 
 
 
 
Distribution declared
 
$
16,348

 
$

 
$
16,348

Distribution in excess of net income
 
(1,426
)
 

 
(1,426
)
Net income
 
$
14,922

 
$

 
$
14,922

Weighted average units outstanding:
 
 
 
 
 
 
Basic and diluted
 
35,188,189

 
 
 
35,188,189

Net income per limited partner unit:
 
 
 
 
 
 
Basic and diluted
 
$
0.42

 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
Limited Partners' Common Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:
 
 
 
 
 
 
Distribution declared
 
$
13,566

 
$

 
$
13,566

Distribution in excess of net income
 
(1,154
)
 

 
(1,154
)
Net income
 
$
12,412

 
$

 
$
12,412

Weighted average units outstanding:
 
 
 
 
 
 
Basic and diluted
 
32,242,210

 
 
 
32,242,210

Net income per limited partner unit:
 
 
 
 
 
 
Basic and diluted
 
$
0.38

 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
Limited Partners' Common Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:
 
 
 
 
 
 
Distribution declared
 
$
48,127

 
$

 
$
48,127

Distribution in excess of net income
 
(4,517
)
 

 
(4,517
)
Net income
 
$
43,610

 
$

 
$
43,610

Weighted average units outstanding:
 
 
 
 
 
 
Basic and diluted
 
34,251,005

 
 
 
34,251,005

Net income per limited partner unit:
 
 
 
 
 
 
Basic and diluted
 
$
1.27

 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
Limited Partners' Common Units
 
Incentive Distribution Rights
 
Total
Net income attributable to the Partnership:
 
 
 
 
 
 
Distribution declared
 
$
39,559

 
$
733

 
$
40,292

Distribution in excess of net income
 
(2,828
)
 

 
(2,828
)
Net income
 
$
36,731

 
$
733

 
$
37,464

Weighted average units outstanding:
 
 
 
 
 
 
Basic and diluted
 
32,238,663

 
 
 
32,238,663

Net income per limited partner unit:
 
 
 
 
 
 
Basic and diluted
 
$
1.14

 
 
 
 


9

Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(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 September 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 nine months ended September 30, 2019 and 2018 were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Distributions per common unit
 
$
0.4579

 
$
0.4088

 
$
1.3359

 
$
1.1927


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 September 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 $62,661. 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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales—Westlake
 
$
216,678

 
$
313,381

 
$
703,765

 
$
802,085



10

Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Feedstock purchased from Westlake and included in cost of sales
 
$
73,813

 
$
178,493

 
$
285,567

 
$
403,833

Other charges from Westlake and included in cost of sales
 
25,990

 
28,693

 
81,026

 
83,636

Total
 
$
99,803

 
$
207,186

 
$
366,593

 
$
487,469


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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Services received from Westlake and included in selling, general and administrative expenses
 
$
6,525

 
$
4,655

 
$
19,875

 
$
17,947


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 September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Goods and services purchased from Westlake and capitalized as assets
 
$
634

 
$
846

 
$
1,918

 
$
1,988



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WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(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 $716 and $496 was included in the receivable under the Investment Management Agreement balance at September 30, 2019 and December 31, 2018, respectively. Total interest earned related to the Investment Management Agreement was $716 and $703 for the three months ended September 30, 2019 and 2018, respectively, and $2,688 and $1,861 for the nine months ended September 30, 2019 and 2018, respectively.
The Partnership's receivable under the Investment Management Agreement was as follows:
 
 
September 30,
2019
 
December 31,
2018
Receivable under the Investment Management Agreement
 
$
164,888

 
$
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:
 
 
September 30,
2019
 
December 31,
2018
Accounts receivable—Westlake
 
$
35,001

 
$
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:


September 30,
2019

December 31,
2018
Accounts payable—Westlake

$
13,330

 
$
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 $597 and $687 for the three months ended September 30, 2019 and 2018, respectively, and $1,673 and $1,705 for nine months ended September 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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Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(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 September 30, 2019 and 2018 was $4,411 and $5,639, respectively, and for the nine months ended September 30, 2019 and 2018 was $15,436 and $16,052, 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 $0 and $63 for the three months ended September 30, 2019 and 2018, respectively, and for the nine months ended September 30, 2019 and 2018 was zero and $109, respectively. At September 30, 2019 and December 31, 2018, accrued interest on related party debt was $4,411 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:
 
 
September 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 September 30, 2019 and 2018, Westlake accounted for approximately 86.7% and 86.2%, respectively, of the Partnership's net sales. During the nine months ended September 30, 2019 and 2018, Westlake accounted for approximately 85.9% and 84.4%, 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:
 
 
September 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 $123,511 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 4.3% and 4.4%, respectively, at September 30, 2019 and December 31, 2018.
As of September 30, 2019, the Partnership was in compliance with all of the covenants under the OpCo Revolver and the MLP Revolver.

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Table of Contents
WESTLAKE CHEMICAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSContinued
(Unaudited)
(in thousands of dollars, except unit amounts and per unit data)

10. Derivative Commodity Instruments
From time to time, the Partnership uses derivative instruments to reduce price volatility risk on commodities, primarily ethane and ethylene. The Partnership does not use derivative instruments to engage in speculative activities.
The Partnership had no derivatives that were designated as fair value hedges during the nine months ended September 30, 2019 and 2018.
Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in net sales and cost of sales in the consolidated statements of operations for the nine months ended September 30, 2019. There were no non-hedge designated derivative instruments for the nine months ended September 30, 2018.
The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market price declines below the established fixed price. In such case, the Partnership would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Partnership would continue to receive the market price on the actual volume hedge. The Partnership also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty). The Partnership had non-hedge designated derivatives covering approximately 49.4 million gallons and 117.5 million pounds of commodities as of September 30, 2019.
At September 30, 2019, the fair value of these non-hedge designated derivatives recorded as accrued liabilities, other liabilities and deferred charges and other assets, net were $7,160, $172 and $274, respectively. At December 31, 2018, the fair value of these derivative instruments recorded as accrued liabilities and accounts receivable, net were $315 and $253, respectively. The losses related to these derivatives recognized in net sales and cost of sales were $6,801 and $1,294, respectively, for the three months ended September 30, 2019, and $4,375 and $2,678, respectively, for the nine months ended September 30, 2019.
The Partnership's commodity contracts are measured using forward curves supplied by industry recognized sources and unrelated third-party services and classified as Level 2 under the fair value measurement guidance.
11. 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 September 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 September 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.
 
 
September 30, 2019
 
December 31, 2018
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
OpCo Revolver
 
$
22,619

 
$
23,209

 
$
224,064

 
$
221,002

MLP Revolver
 
377,055

 
378,618

 
253,544