Acquisition

On July 31, 2014, the Company acquired all the equity interests in German-based Vinnolit Holdings GmbH and its subsidiary companies ("Vinnolit") from several entities associated with Advent International Corporation (the "Sellers"). Vinnolit is headquartered in Ismaning, Germany and is an integrated global leader in specialty PVC resins, with a combined annual capacity of 1.7 billion pounds of PVC, including specialty paste and suspension grades, 1.5 billion pounds of vinyl chloride monomer ("VCM") and 1.0 billion pounds of caustic soda. The Vinnolit acquisition comprised six production facilities located in Burghausen, Gendorf, Cologne, Knapsack and Schkopau in Germany and Hillhouse in the United Kingdom. The Company also acquired Vinnolit's technical centers, including a research and development facility in Gendorf and an applications laboratory in Burghausen. The Company’s management believes that this strategic acquisition will enhance its strategy of integration and expansion into new markets and specialty products, in addition to growing the Company's global presence with a footprint in Europe and surrounding markets.

The purchase price of $736,224 was paid with available cash on hand. The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of this acquired business are included in the Vinyls segment.

The acquired business contributed net sales and net loss of $195,477 and $2,992, respectively, to the Company for the period from July 31, 2014 to September 30, 2014. The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2013:



	Pro Forma Nine Months Ended September 30,
	2014		2013
Net sales	$	4,016,935	$	3,747,619
Net income	$	550,667	$	480,964
Net income attributable to noncontrolling interests	2,399		—
Net income attributable to Westlake Chemical Corporation	$	548,268	$	480,964
Earnings per common share attributable to Westlake Chemical Corporation:
Basic	$	4.11	$	3.59
Diluted	$	4.09	$	3.58

The pro forma amounts above have been calculated after applying the Company’s accounting policies and adjusting the Vinnolit results to reflect (1) the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2013; (2) the elimination of interest expense assuming the long-term debt paid off on behalf of the Sellers as of the acquisition date had been retired as of January 1, 2013; (3) the elimination of transaction-related costs; and (4) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments relate. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Vinnolit acquisition, are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2013 or of future operating performance.

For the nine months ended September 30, 2014, the Company recognized $11,235 of transaction-related costs. These costs are included in general and administrative expenses and other income, net in the consolidated statement of operations for the nine months ended September 30, 2014. The transaction-related costs included in other income, net pertained to losses incurred on forward foreign exchange contracts for the purchase consideration of Vinnolit.

The following table summarizes the purchase consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition. The preliminary allocation of the purchase consideration is based on management’s estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Management estimated that the fair value of the net assets acquired equals consideration paid. Therefore, no goodwill was recorded. The final allocation of purchase consideration could include changes in the estimated fair value of (1) inventories; (2) property, plant and equipment; (3) equity investments; (4) trademark and trade name, developed technologies and customer relationships; (5) power purchase agreement liability; and (6) deferred income taxes.



Fair value of consideration transferred:
Cash paid to Sellers	$	309,619
Cash deposited in escrow ⁽¹⁾	13,390
Retirement of long-term debt as of July 31, 2014, on behalf of the Sellers ⁽²⁾	413,215
Total purchase consideration	$	736,224

Preliminary allocation of consideration transferred to net assets acquired:
Cash	$	125,137
Working capital, excluding inventory and cash ⁽³⁾	23,072
Inventories ⁽⁴⁾	114,961
Property, plant and equipment	471,123
Investments	51,552
Other assets ⁽⁵⁾	65,366
Intangible assets:
Trademarks and trade name (weighted average life of 20 years)	40,170
Developed technologies (weighted average life of 20 years)	31,600
Other intangibles (weighted average life of 9.4 years)	1,422
Deferred income tax asset - current	8,697
Deferred income tax asset - non-current	27,387
Pension obligation	(117,970		)
Other long-term liabilities	(10,723		)
Power purchase agreement liability ⁽⁶⁾	(10,826		)
Deferred income tax liability - current	(6,845		)
Deferred income tax liability - non-current	(77,899		)
Total identifiable net assets	736,224
Goodwill ⁽⁷⁾	—
Consideration transferred	$	736,224

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(1)	None of the cash held in escrow is considered contingent consideration as it is expected to be released to the Sellers pending the Sellers’ satisfaction of general representations and warranties made in connection with the execution of the purchase agreement.


(2)	Vinnolit’s long-term debt paid on behalf of the Sellers was not legally assumed by Westlake in the acquisition and was a condition of the consummation of the purchase agreement. Therefore, the retirement has been included in the total purchase consideration.


(3)	The fair value of accounts receivable acquired is $181,826, with the gross contractual amount being $183,769. The Company expects $1,943 to be uncollectible.


(4)	An adjustment of approximately $16,900 was recorded to reflect Vinnolit's inventories at fair value and increased cost of sales by the same amount for the three months ended September 30, 2014.


(5)	Included in other assets was a loan acquired that was repaid prior to September 30, 2014.


(6)	A liability arising from unfavorable forward purchase contracts for the purchase of power was recognized at fair value. This liability will be amortized over a period of approximately 3.0 years, being the weighted-average life of the forward purchase contracts.


(7)	Management estimated that the fair value of the net assets acquired equals consideration paid. Therefore, no goodwill was recorded.