This discussion and analysis should be read in conjunction with information contained in the accompanying unaudited consolidated interim financial statements of Westlake Chemical Corporation and the notes thereto and the consolidated financial statements and notes thereto of Westlake Chemical Corporation included in Westlake Chemical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.

We are a vertically integrated manufacturer and marketer of petrochemicals, polymers and fabricated products. Our two principal business segments are olefins and vinyls. We use the majority of our internally-produced basic chemicals to produce higher value-added chemicals and fabricated products.

Recent Developments

In March 2009, we acquired a PVC pipe plant in Janesville, Wisconsin for $6.3 million. The plant has the ability to produce PVC pipe in sizes up to 24 inches for use in a variety of applications including sewer, water, plumbing and irrigation. We began operating the plant in April 2009 with limited production, but the plant is designed to produce up to 175 million pounds of PVC pipe annually at full capacity.

In the first quarter of 2009, we began operating a new PVC pipe plant in Yucca, Arizona built to produce pipe for water, sewer, irrigation and related industrial and residential markets in the Western United States. The new plant has the capacity to produce approximately 120 million pounds of PVC pipe annually. Also in the first quarter of 2009, we completed our PVC resin plant expansion in Calvert City and increased our capacity by 300 million pounds per year, bringing our total PVC capacity to 1.7 billion pounds annually.

In late January 2009, our Calvert City, Kentucky complex experienced an ice storm that caused a power failure at the facility and resulted in damage to a compressor for our ethylene unit. The power outage caused the complex to be down for eight days and the ethylene unit compressor damage resulted in reduced production rates for all major products produced at the facility.

One of our ethylene units in Lake Charles, Louisiana was idled during December 2008 due to significant customer inventory destocking and resulting weakened demand. A maintenance turnaround for this unit initially scheduled for the first half of 2009 was brought forward and performed during this down time. The unit was shut down for a total of 86 days (71 days during the first quarter of 2009), and the turnaround was completed in March 2009. During a turnaround, production at the unit is suspended while work on the unit is performed, but sales from inventory can continue during the turnaround period. The cost of this turnaround was approximately $23.1 million, which was capitalized.

In August 2008, we announced that we intend to construct a new chlor-alkali plant to be located at our vinyls manufacturing complex in Geismar, Louisiana. The new chlor-alkali unit would be expected to produce 250,000 ECUs annually upon completion, bringing our total ECU capacity to 525,000 per year. The new plant would be expected to improve the vertical integration of our vinyls business from chlorine downstream into VCM and PVC, and increase caustic soda sales. The project is currently estimated to cost between $250 million and $300 million. At present we are evaluating a start date for construction of this plant in light of current economic and business conditions. The project is expected to take about 36 months to complete. We expect the project would be partially funded with funds drawn from the proceeds of the issuance of the 6 3/4% revenue bonds of the Louisiana Local Government Environmental Facility and Community Development Authority (the "Authority"), issued in December 2007 for our benefit, which are currently held as restricted cash. We expect the remaining funding would come from our revolving credit facility, cash flow from operations, and, possibly, our ability to obtain additional financing.

Results of Operations



                                                       Three Months Ended
                                                            March 31,
                                                       2009            2008
                                                     (dollars in thousands)
       Net external sales
       Olefins
       Polyethylene                                $    256,374      $ 444,163
       Ethylene, styrene and other                       66,395        216,658

       Total olefins                                    322,769        660,821

       Vinyls
       Fabricated finished products                      62,428         91,606
       VCM, PVC, and other                              103,054        162,634

       Total vinyls                                     165,482        254,240

       Total                                       $    488,251      $ 915,061


       (Loss) income from operations
       Olefins                                           16,074         20,152
       Vinyls                                           (15,381 )       (3,085 )
       Corporate and other                               (1,596 )       (3,208 )

       Total (loss) income from operations                 (903 )       13,859
       Interest expense                                  (8,596 )       (8,528 )
       Other income, net                                  2,477          2,408
       (Benefit from) provision for income taxes           (947 )        2,352

       Net (loss) income                           $     (6,075 )    $   5,387

       Diluted (loss) earnings per share           $      (0.09 )    $    0.08

                                                                 Three Months Ended
                                                                   March 31, 2009
                                                                Average
                                                              Sales Price       Volume
Key product sales price and volume percentage change from
prior year period
Olefins(1)                                                          -33.5 %      -17.5 %
Vinyls(2)                                                           -17.6 %      -17.3 %
Company average                                                     -29.1 %      -17.5 %

(1) Includes: Ethylene and co-products, polyethylene, and styrene.

(2) Includes: Ethylene co-products, caustic, VCM, PVC resin, PVC pipe, and other fabricated products.

                                                Three Months Ended
                                                    March 31,
                                                2009         2008
                Average industry prices (1)
                Ethane (cents/lb)                  12.0         34.1
                Propane (cents/lb)                 16.0         34.8
                Ethylene (cents/lb) (2)            31.5         60.5
                Polyethylene (cents/lb) (3)        65.0         88.0
                Styrene (cents/lb) (4)             40.4         72.5
                Caustic ($/short ton) (5)         821.7        453.3
                Chlorine ($/short ton) (6)        175.0        300.0
                PVC (cents/lb) (7)                 45.7         54.3

(1) Industry pricing data was obtained through the Chemical Market Associates, Inc., or CMAI. We have not independently verified the data.

(2) Represents average North American contract prices of ethylene over the period as reported by CMAI.

(3) Represents average North American contract prices of polyethylene low density film over the period as reported by CMAI.

(4) Represents average North American contract prices of styrene over the period as reported by CMAI.

(5) Represents average North American average acquisition prices of caustic soda (diaphragm grade) over the period as reported by CMAI.

(6) Represents average North American contract prices of chlorine (into chemicals) over the period as reported by CMAI.

(7) Represents North American contract prices of PVC over the period as reported by CMAI.

Summary

For the three months ended March 31, 2009, we incurred a net loss of $6.1 million, or $0.09 per diluted share, on net sales of $488.3 million. This represents a decrease in net income of $11.5 million, or $0.17 per diluted share, from the three months ended March 31, 2008 net income of $5.4 million, or $0.08 per diluted share, on net sales of $915.1 million. The loss from operations was $0.9 million for the first quarter of 2009 as compared to income from operations of $13.9 million for the first quarter of 2008. Sales for the three months ended March 31, 2009 decreased $426.8 million compared to the first three months of 2008 due primarily to significantly lower sales prices for all of our major products except caustic and lower sales volumes for all major products except styrene. The first quarter of 2009 loss from operations reflected lower sales volumes, weakness in the vinyls downstream markets, reduced demand for polyethylene, an unscheduled outage caused by an ice storm at our Calvert City facility and a turnaround at one of our ethylene units in Lake Charles. The Calvert City outage and the Lake Charles turnaround resulted in repair costs and the expensing of unabsorbed fixed manufacturing costs of $19.5 million. The increase in loss from operations was partially offset by a gain from trading activity of $2.5 million during the first quarter of 2009 compared to a gain of $0.1 million during the first quarter of 2008.

RESULTS OF OPERATIONS

First Quarter 2009 Compared with First Quarter 2008

Net Sales. Net sales decreased by $426.8 million to $488.3 million in the first quarter of 2009 from $915.1 million in the first quarter of 2008. This decrease was primarily due to lower sales prices and lower sales volumes for most of our major products. Average sales prices for the first quarter of 2009 decreased by 29.1% as compared to the first quarter of 2008, and sales volumes declined 17.5% as compared to the first quarter of 2008 due to lower demand.

Gross Margin. Gross margin percentage of 4.1% in the first quarter of 2009 was relatively flat compared to the 4.0% gross margin percentage in the first quarter of 2008. The 2009 gross margin percentage was negatively impacted by lower sales volumes and lower operating rates. The lower operating rates were primarily due to the ice storm in Calvert City, the turnaround of one of our ethylene units in Lake Charles and weakness in the downstream vinyls markets. These decreases were offset by raw material cost reductions that outpaced the drop in product sales prices. Our raw material cost in both segments normally tracks industry prices, which experienced a decrease of 64.8% for ethane and 54.0% for propane as compared to the first quarter of 2008. Sales prices only decreased an average of 29.1% during that period.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $1.9 million, or 8.2%, in the first quarter of 2009 as compared to the first quarter of 2008. The decrease was primarily due to lower compensation expense and consulting fees.

Interest Expense. Interest expense in the first quarter of 2009 increased by $0.1 million as debt balances and interest rates were relatively flat compared to the first quarter of 2008.

Other Income, Net. Other income, net increased by $0.1 million to $2.5 million in the first quarter of 2009 from $2.4 million in the first quarter of 2008 primarily due to higher equity in income from our joint venture in China, partially offset by lower interest income.

Income Taxes. The effective income tax rate was 13.5% for the three months ended March 31, 2009. The 2009 tax rate is below the statutory rate of 35% primarily due to the loss of the domestic manufacturing deduction due to the carry back of the year-to-date taxable loss and state income taxes, partially offset by state tax credits. The effective tax rate was 30.4% for the three months ended March 31, 2008. The 2008 tax rate was below the statutory rate of 35% primarily due to state tax credits, tax exempt interest income and the domestic manufacturing deduction, partially offset by state income taxes.

Olefins Segment

Net Sales. Net sales decreased by $338.0 million, or 51.2%, to $322.8 million in the first quarter of 2009 from $660.8 million in the first quarter of 2008. This decrease was primarily due to lower sales volumes for all major products except styrene and lower sales prices for all major products. Average sales prices and volumes for the Olefins segment decreased by 33.5% and 17.5%, respectively, in the first quarter of 2009 as compared to the first quarter of 2008.

Income from Operations. Income from operations decreased by $4.1 million, or 20.3%, to $16.1 million in the first quarter of 2009 from $20.2 million in the first quarter of 2008. This decrease was primarily due to lower sales volumes and lower operating rates. The lower operating rates were primarily due to reduced polyethylene demand and the turnaround of one of our ethylene facilities in Lake Charles in the first quarter of 2009. These decreases were partially offset by trading activity, which resulted in a gain in the first quarter of 2009 of $2.5 million as compared to a gain of $0.1 million in the first quarter of 2008.

Vinyls Segment

Net Sales. Net sales decreased by $88.7 million, or 34.9%, to $165.5 million in the first quarter of 2009 from $254.2 million in the first quarter of 2008. This decrease was primarily due to lower sales prices for all of our major vinyls products except caustic and lower sales volumes. Average sales prices and volumes for the Vinyls segment decreased by 17.6% and 17.3%, respectively, in the first quarter of 2009 as compared to the first quarter of 2008.

Income (loss) from Operations. The segment produced a loss from operations of $15.4 million in the first quarter of 2009 as compared to a loss from operations of $3.1 million in the first quarter of 2008, a decline of $12.3 million. The increase in loss from operations was primarily due to lower sales volumes and lower operating rates. Continued weakness in the construction markets further reduced already low seasonal demand and reduced operating rates and margins in our vinyls downstream businesses. In addition, the ice storm at our Calvert City facility caused an extended outage at that facility, adversely impacting production rates for all major products produced at Calvert City and resulted in lost sales and margins due to the reduced production.

CASH FLOW DISCUSSION FOR THREE MONTHS ENDED MARCH 31, 2009 AND 2008

Cash Flows

Operating Activities

Operating activities provided cash of $120.3 million in the first three months of 2009 compared to cash used by operating activities of $28.3 million in the first three months of 2008. The $148.6 million increase in cash flows from operating activities was primarily due to favorable changes in working capital, partially offset by a reduction in income from operations and capitalized turnaround costs of $23.1 million resulting from the turnaround of our ethylene unit in Lake Charles. Income from operations decreased by $14.8 million in the first three months of 2009 as compared to the first three months of 2008. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, inventories, prepaid expense and other current assets less accounts payable and accrued liabilities, provided cash of $108.0 million in the first three months of 2009 (including a federal tax refund of $30.0 million, resulting from over payment of 2008 federal income taxes), compared to $48.7 million of cash used in the first three months of 2008, a favorable change of $156.7 million. This change was largely due to lower inventory and reduced accounts receivable primarily due to the decrease in average sales prices and feedstock costs from the prior year period.

Investing Activities

Net cash used for investing activities during the first three months of 2009 was $40.4 million as compared to net cash used for investing activities of $42.5 million in the first three months of 2008. Capital expenditures were $32.8 million in the first three months of 2009 compared to $43.0 million in the first three months of 2008. The decrease in capital expenditures in the 2009 period was largely due to expenditures related to the expansions at Calvert City during the 2008 period. The remaining capital expenditures in the first quarters of 2009 and 2008 primarily related to maintenance, safety and environmental projects. In addition, we purchased a PVC pipe plant in Janesville, Wisconsin for $6.3 million during the first quarter of 2009.

Financing Activities

Net cash provided by financing activities during the first three months of 2009 was $9.2 million as compared to net cash provided of $53.6 million in the first three months of 2008. The 2009 activity was primarily related to a $14.0 million draw-down of our restricted cash for use for eligible capital expenditures, partially offset by the payment of cash dividends. The 2008 activity was primarily related to borrowing a net $43.4 million under our revolving credit facility and a $13.5 million draw-down of our restricted cash, partially offset by the payment of cash dividends.

Liquidity and Capital Resources

Liquidity and Financing Arrangements

Our principal sources of liquidity are from cash and cash equivalents, restricted cash, cash from operations, short-term borrowings under our revolving credit facility and our long-term financing. In August 2008, we announced plans for the construction of a new chlor-alkali plant at our Geismar, Louisiana facility. The project is currently estimated to cost between $250 million and

$300 million and would be partially funded with funds drawn from the proceeds of the issuance of the 6 3/4% revenue bonds of the Authority, issued in December 2007 for our benefit, which are currently held as restricted cash. We expect the remaining funding will come from our revolving credit facility, cash flow from operations and, possibly, our ability to obtain additional financing in the future. We believe that our sources of liquidity as described above will be adequate to fund our normal operations and on-going capital expenditures. In addition, in response to the declining economic conditions, we have increased our focus on cost cutting and working capital reduction to improve our liquidity. Funding of any potential large expansions or any potential acquisitions of third-party assets may depend on our ability to obtain additional financing in the future. As of March 31, 2009, the indenture governing our senior notes restricted us from incurring additional debt, except for specified permitted debt (including borrowings under our credit facility, additional borrowings under one or more term loan facilities in an amount not to exceed $200 million and $100 million of other debt), because our fixed charge coverage ratio remained below 2.0 at March 31, 2009. We may not be able to access additional liquidity at cost effective interest rates due to the volatility of the commercial credit markets. Despite the current economic downturn and the credit crisis, our management believes that our revolving credit facility should be available up to our borrowing base, if needed. At March 31, 2009, the borrowing base of our credit facility had declined to $235.3 million, which is below the maximum borrowing capacity of $400 million due to our low carrying amount of accounts receivable and inventory, which make up the borrowing base.

Cash and Restricted Cash

Total cash balances were $300.1 million at March 31, 2009, which included cash and cash equivalents of $179.3 million and restricted cash of $120.8 million. In addition, we have a revolving credit facility available to supplement cash if needed, as described under "Debt" below.

Debt

As of March 31, 2009, our long-term debt, including current maturities, totaled $510.3 million, consisting of $250.0 million principal amount of 6 5/8% senior notes due 2016 (less the unamortized discount of $0.5 million), $250.0 million of 6 3/4% senior notes due 2032 and a $10.9 million loan from the proceeds of tax-exempt waste disposal revenue bonds (supported by an $11.3 million letter of credit). The 6 3/4% senior notes evidence and secure our obligations to the Authority under a loan agreement relating to the issuance of $250.0 million aggregate principal amount of the Authority's tax-exempt revenue bonds. Debt outstanding under the tax-exempt waste disposal revenue bonds bears interest at variable rates.

On September 8, 2008, we amended our senior secured revolving credit facility to, among other things, increase the lenders' commitments under the facility from $300 million to $400 million. On February 5, 2009, we further amended our revolving credit facility to allow us to make specified distributions when our fixed charge coverage ratio falls below 1.0 but we maintain at least $125 million to $200 million (depending on the amount of the distribution) of borrowing availability, including cash, under the credit facility. At March 31, 2009, we had no borrowings outstanding under the revolving credit facility, and we had outstanding letters of credit totaling $14.2 million and borrowing availability of $235.3 million under the revolving credit facility. Any borrowings under the facility would bear interest at either LIBOR plus a spread ranging from 2.75% to 3.50% or a base rate plus a spread ranging from 1.25% to 2.0%. The revolving credit facility also requires an unused commitment fee ranging from 0.75% to 0.875%, depending on the average daily borrowings. All interest rates under the facility are subject to monthly grid pricing adjustments based on prior month average daily loan availability. The revolving credit facility matures on September 8, 2013.

On December 13, 2007 the Authority issued $250.0 million of 6 3/4% tax-exempt revenue bonds due November 1, 2032 under the Gulf Opportunity Zone Act of 2005. The bonds are non-callable through November 1, 2017. The bonds are subject to redemption and the holders may require the bonds to be repurchased upon a change of control or a change in or loss of the current tax status. In connection with the issuance of the bonds, we entered into a loan agreement with the Authority pursuant to which we agreed to pay all of the principal, premium, if any, and interest on the bonds and certain other amounts to the Authority. The proceeds from the bond offering were loaned by the Authority to us. We intend to use the proceeds to expand, refurbish and maintain certain of our facilities in the Louisiana Parishes of Calcasieu and Ascension. To evidence and secure our obligations under the loan agreement, we entered into a second supplemental indenture, by and among us, the subsidiary guarantors party thereto and The Bank of New York Trust Company, N.A., as trustee, and issued $250 million aggregate principal amount of our 6 3/ 4% senior notes due 2032 to be held by the trustee pursuant to the terms and provisions of the loan agreement. The 6 3/4% senior notes are unsecured and rank equally in right of payment with other existing and future unsecured senior indebtedness. All domestic restricted subsidiaries that guarantee other debt of ours or of another guarantor of the senior notes in excess of $5.0 million are guarantors of the senior notes. As of March 31, 2009, we had drawn $130.4 million of bond proceeds. The balance of the proceeds, principal plus current and accrued interest income, remains with a trustee, and is classified on our consolidated balance sheet as a non-current asset, restricted cash, until such time as we request reimbursement of amounts used to expand, refurbish and maintain our facilities in Calcasieu and Ascension Parishes.

On January 13, 2006, we issued $250.0 million of 6 5/8% aggregate principal amount of senior notes due 2016. The 6 5/8% senior notes are unsecured and were issued with an original issue discount of $0.8 million. There is no sinking fund and no scheduled amortization of the notes prior to maturity. The notes are subject to redemption and the holders may require us to repurchase the notes upon a change of control. All domestic restricted subsidiaries that guarantee other debt of ours or of another guarantor of the senior notes in excess of $5.0 million are guarantors of the notes.

The agreements governing the 6 5/8% and the 6 3/4% senior notes (together the "senior notes") and the revolving credit facility each contain customary covenants and events of default. Accordingly, these agreements impose significant operating and financial restrictions on us. These restrictions, among other things, provide limitations on incurrence of additional indebtedness, the payment of dividends, certain investments and acquisitions and sales of assets. One such restriction currently restricts us from incurring additional debt, except specified permitted debt (including borrowings under our credit facility), because our fixed charge coverage ratio remained below 2.0 at March 31, 2009. These limitations are subject to a number of important qualifications and exceptions, including, without limitation, an exception for the payment of our regular quarterly dividend of up to $0.20 per share (currently $0.0525 per share). The senior notes indenture does not allow distributions, unless, after giving pro forma effect to the distribution, our fixed charge coverage ratio is at least 2.0 and such payment, together with the aggregate amount of all other distributions after January 13, 2006, is less than the sum of 50% of our consolidated net income for the period from October 1, 2003 to the end of the most recent quarter for which financial statements have been filed, plus 100% of net cash proceeds received after October 1, 2003 as a contribution to our common equity capital or from the issuance or sale of certain securities, plus several other adjustments. The amount allowed under this restriction would have been $444.3 million at March 31, 2009; however, because our fixed charge coverage ratio was below 2.0, the actual amount allowed was restricted to the payment of our regular quarterly dividend of up to $0.20 per share. The revolving credit facility also restricts distributions unless, after giving effect to such payment, our fixed charge coverage ratio is at least 1.0, provided that we may also make specified distributions when our fixed charge coverage ratio falls below 1.0 but we maintain at least between $125 million to $200 million (depending on the amount of the distributions) of borrowing availability, including cash, under the credit facility. No other agreements require us to maintain specified financial ratios. In addition, the senior notes indenture and the revolving credit facility restrict our ability to create liens, to engage in certain affiliate transactions and to engage in sale-leaseback transactions.

In December 1997, we entered into a loan agreement with a public trust established for public purposes for the benefit of the Parish of Calcasieu, Louisiana. The public trust issued $10.9 million principal amount of tax-exempt . . .