Westlake Chemical Partners LP

Previous wording

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.

Current wording

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. We plan to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025.

Previous wording

For the quarter ended March 31, 2024, net income was $89.6 million on net sales of $284.7 million. This represents a decrease in net income of $1.9 million as compared to net income of $91.5 million on net sales of $307.7 million for the quarter ended March 31, 2023. Net income attributable to the Partnership for the first quarter of 2024 was $14.8 million as compared to $14.9 million for the first quarter of 2023. Income from operations was $95.1 million for the first quarter of 2024 as compared to $98.2 million for the first quarter of 2023. Income from operations and net income for the first quarter of 2024 as compared to the first quarter of 2023 were lower primarily due to lower ethylene and co-products sales prices as well as lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by lower ethane feedstock and natural gas costs. Net income attributable to the Partnership for the first quarter of 2024 was comparable with the first quarter of 2023. Net sales for the first quarter of 2024 decreased by $23.0 million as compared to net sales for the first quarter of 2023, mainly due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

For the quarter ended June 30, 2024, net income was $88.0 million on net sales of $284.2 million. This represents an increase in net income of $12.7 million as compared to net income of $75.3 million on net sales of $264.2 million for the quarter ended June 30, 2023. Net income attributable to the Partnership for the second quarter of 2024 was $14.4 million as compared to $11.9 million for the second quarter of 2023, an increase of$2.5 million. Income from operations was $93.6 million for the second quarter of 2024 as compared to $80.5 million for the second quarter of 2023. Income from operations, net income and net income attributable to the Partnership for the second quarter of 2024 as compared to the second quarter of 2023 were higher primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake. Net sales for the second quarter of 2024 increased by $20.0 million as compared to net sales for the second quarter of 2023, mainly due to higher ethylene sales volumes to Westlake and higher ethylene and co-products sales prices to third parties in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

Previous wording

First Quarter 2024 Compared with First Quarter 2023

Current wording

Second Quarter 2024 Compared with Second Quarter 2023

Previous wording

Net Sales. Total net sales decreased by $23.0 million, or 7.5%, to $284.7 million in the first quarter of 2024 from $307.7 million in the first quarter of 2023. The decrease in net sales in the first quarter of 2024 was primarily due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by higher co-products sales volumes. Lower average sales prices in the first quarter of 2024 contributed to a 5.9% decrease in net sales compared to the first quarter of 2023. Lower sales volumes in the first quarter of 2024 contributed to a 1.6% decrease in net sales compared to the first quarter of 2023.

Current wording

Net Sales. Total net sales increased by $20.0 million, or 7.6%, to $284.2 million in the second quarter of 2024 from $264.2 million in the second quarter of 2023. The increase in net sales in the second quarter of 2024 was primarily due to higher ethylene sales volumes to Westlake and higher ethylene and co-products sales prices to third parties in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake. Lower average sales prices in the second quarter of 2024 contributed to a 1.2% decrease in net sales compared to the second quarter of 2023. Higher sales volumes in the second quarter of 2024 contributed to an 8.8% increase in net sales compared to the second quarter of 2023.

Previous wording

Gross Profit. Gross profit decreased to $102.2 million in the first quarter of 2024 from $106.1 million in the first quarter of 2023. The lower gross profit was primarily due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by lower ethane feedstock and natural gas costs. Gross profit margin percentage in the first quarter of 2024 was 35.9%, which was comparable to 34.5% for the first quarter of 2023.

Current wording

Gross Profit. Gross profit increased to $101.2 million in the second quarter of 2024 from $87.7 million in the second quarter of 2023. Gross profit margin percentage in the second quarter of 2024 was 35.6%, as compared to 33.2% for the second quarter of 2023. The higher gross profit was primarily due to higher ethylene sales volumes to Westlake, higher ethylene and co-products sales prices to third parties and lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake. The higher gross profit margin was primarily due to lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.8 million, or 10.1%, to $7.1 million in the first quarter of 2024 as compared to $7.9 million in the first quarter of 2023. The decrease in the first quarter of 2024 was mainly attributable to a reduction in the provision for credit losses recognized and lower service costs in the first quarter of 2024 as compared to the first quarter of 2023.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.4 million, or 5.6%, to $7.6 million in the second quarter of 2024 as compared to $7.2 million in the second quarter of 2023. The increase was mainly attributable to higher service costs in the second quarter of 2024 as compared to the second quarter of 2023.

Previous wording

Interest Expense—Westlake. Interest expense of $6.6 million in the first quarter of 2024 decreased from $7.3 million in the first quarter of 2023 mainly due to lower average debt balance outstanding in the first quarter of 2024 as compared to the first quarter of 2023.

Current wording

Interest Expense—Westlake. Interest expense of $6.7 million in the second quarter of 2024 increased from $6.1 million in the second quarter of 2023 mainly due to higher interest rates on the debt balance outstanding in the second quarter of 2024 as compared to the second quarter of 2023.

Previous wording

Other Income, net. Other income, net increased by $0.5 to $1.3 million in the first quarter of 2024 from $0.8 in the first quarter of 2023, primarily due to higher interest earned on the balance with Westlake under the Investment Management Agreement due to higher market interest rates.

Current wording

Other Income, net. Other income, net increased by $0.2 million to $1.3 million in the second quarter of 2024 from $1.1 million in the second quarter of 2023, primarily due to higher interest earned on the balance with Westlake under the Investment Management Agreement due to higher market interest rates.

Previous wording

MLP Distributable Cash Flow. MLP distributable cash flow decreased by $0.7 million to $16.9 million in the first quarter of 2024 from$17.6 million in the first quarter of 2023. The decrease in the first quarter of 2024, as compared to the prior-year period, was primarily attributable to higher contribution to turnaround reserves and decreased earnings at OpCo, partially offset by lower distributable cash flow attributable to noncontrolling interest.

Current wording

MLP Distributable Cash Flow. MLP distributable cash flow increased by $2.1 million to $17.1 million in the second quarter of 2024 from $15.0 million in the second quarter of 2023. The increase in the second quarter of 2024, as compared to the prior-year period, was primarily attributable to increased earnings at OpCo, partially offset by higher reserves for turnarounds and maintenance capital expenditures.

Previous wording

CASH FLOW DISCUSSION FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Current wording

CASH FLOW DISCUSSION FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Previous wording

Operating activities provided cash of $104.6 million in the first three months of 2024 compared to cash provided by operating activities of $144.9 million in the first three months of 2023. The $40.3 million decrease in cash flows from operating activities was mainly due to a decrease of $38.0 million in cash used by working capital during the three months ended March 31, 2024 as compared to the prior-year period. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued and other liabilities, used cash of $9.7 million in the first three months of 2024 as compared to $28.3 million of cash provided in the first three months of 2023, resulting in an overall unfavorable change of $38.0 million. The unfavorable change in working capital was mainly attributable to unfavorable changes in net accounts receivable—Westlake, accounts receivable—third parties, and accrued and other liabilities. The unfavorable change in accounts receivable, net—Westlake was due to a smaller buyer deficiency fee and Shortfall collected in the first three months of 2024 as compared to the first three months of 2023 and lower ethane feedstock costs. Unfavorable changes in accounts receivables— third parties and accrued and other liabilities were due to higher third party sales and lower maintenance costs in the first three months of 2024 as compared to the first three months of 2023.

Current wording

Operating activities provided cash of $226.5 million in the first six months of 2024 compared to cash provided by operating activities of $243.4 million in the first six months of 2023. The $16.9 million decrease in cash flows from operating activities was mainly due to a decrease of $49.4 million in cash provided by working capital during the six months ended June 30, 2024 as compared to the prior-year period. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued and other liabilities, provided cash of $0.3 million in the first six months of 2024 as compared to $49.7 million of cash provided in the first six months of 2023, resulting in an overall unfavorable change of $49.4 million. The unfavorable change in working capital was mainly attributable to unfavorable changes in net accounts receivable—Westlake, accounts receivable—third parties, accounts payable—third parties and accrued and other liabilities. The unfavorable change in accounts receivable, net—Westlake was primarily due to a smaller buyer deficiency fee and Shortfall collected in the first six months of 2024 as compared to the first six months of 2023 partially offset by lower ethane feedstock costs. Unfavorable changes in accounts receivables— third parties, accounts payable—third parties and accrued and other liabilities were due to higher third party sales and lower maintenance costs in the first six months of 2024 as compared to the first six months of 2023.

Previous wording

Net cash used for investing activities in the first three months of 2024 was $9.8 million as compared to net cash provided by investing activities of $0.2 million in the first three months of 2023, resulting in an overall unfavorable change of $10.0 million in investing cash flows. During the first three months of 2023, there were net maturities of investments of $12.9 million under the Investment Management Agreement, whereas, in the first three months of 2024 there were no investing activities under the Investment Management Agreement. Capital expenditures during the first three months of 2024 was slightly lower than the first three months of 2023. For both the comparative periods, these capital expenditures were primarily related to projects to increase production capacity or reduce costs, maintenance costs and safety and environmental projects at our facilities.

Current wording

Net cash used for investing activities in the first six months of 2024 was $20.0 million as compared to net cash used for investing activities of $46.3 million in the first six months of 2023, resulting in an overall favorable change of $26.3 million in investing cash flows. During the first six months of 2023, there were net investments with Westlake of $29.1 million under the Investment Management Agreement, whereas, in the first six months of 2024 there were no investing activities under the Investment Management Agreement. Capital expenditures during the first six months of 2024 were slightly higher than the first six months of 2023. For both the comparative periods, these capital expenditures were primarily related to projects to increase production capacity or reduce costs, maintenance costs and safety and environmental projects at our facilities.

Previous wording

Net cash used for financing activities in the first three months of 2024 was $97.7 million as compared to net cash used for financing activities of $105.3 million in the first three months of 2023. The outflows in the first three months of 2024 were related to distributions of $81.0 million to the noncontrolling interest retained in OpCo by Westlake and of $16.6 million to unitholders by the Partnership. The cash outflows in the first three months of 2023 were related to distributions of $88.7 million to the noncontrolling interest retained in OpCo by Westlake and of $16.6 million to unitholders by the Partnership.

Current wording

Net cash used for financing activities in the first six months of 2024 was $199.1 million as compared to net cash used for financing activities of $202.5 million in the first six months of 2023. The cash outflows in the first six months of 2024 were related to distributions of $165.9 million to the noncontrolling interest retained in OpCo by Westlake and of $33.2 million to unitholders by the Partnership. The cash outflows in the first six months of 2023 were related to distributions of $169.3 million to the noncontrolling interest retained in OpCo by Westlake and of $33.2 million to unitholders by the Partnership.

Previous wording

In order to fund non-annual turnaround expenditures, we cause OpCo to reserve an amount for turnaround costs during each twelve-month period designed to cover future turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.

Current wording

In order to fund non-annual turnaround expenditures, we cause OpCo to reserve an amount for turnaround costs during each twelve-month period designed to cover future turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. We expect to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.

Previous wording

Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins. No such funding was required by OpCo during the three months ended March 31, 2024 and 2023. Total capital expenditures for the three months ended March 31, 2024 and 2023 were $9.8 million and $12.7 million, respectively. We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.

Current wording

Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins. No such funding was required by OpCo during the six months ended June 30, 2024 and 2023. Total capital expenditures for the six months ended June 30, 2024 and 2023 were $20.0 million and $17.2 million, respectively. We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.

Previous wording

As of March 31, 2024, our cash and cash equivalents totaled $55.8 million. In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.

Current wording

As of June 30, 2024, our cash and cash equivalents totaled $66.0 million. In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.

Previous wording

•turnaround activities and the variability of OpCo's cash flow;

Current wording

•turnaround activities (such as our plan to commence Petro 1 turnaround in the first quarter of 2025) and the variability of OpCo's cash flow;