Westlake Chemical Reports Third Quarter Results

Westlake Chemical Reports Third Quarter Results

HOUSTON, Nov. 1 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $38.3 million, or $0.59 per diluted share, for the third quarter of 2007. This represents a decrease from the third quarter of 2006 net income of $61.7 million, or $0.95 per diluted share. Sales for the third quarter of 2007 were $840.2 million and income from operations for the third quarter of 2007 was $59.8 million. This compares with net sales of $672.4 million and income from operations of $87.0 million in the third quarter 2006. The increase in sales is the result of higher polyethylene sales volumes attributable to the November 30, 2006 acquisition of Eastman Chemical's polyethylene business in Longview, Texas. The decline in income from operations was primarily due to weakness in the Vinyls segment, particularly the downstream products businesses, which was impacted by the slowdown in the residential construction market. Margins remained at low levels primarily due to rising feedstock costs and the vinyls industry's inability to raise prices to cover these cost increases. Vinyls segment third quarter 2007 income from operations was also negatively impacted by $6.7 million for the settlement of litigation with Goodrich Corporation and PolyOne Corporation and associated legal expenses related to past environmental issues at the Calvert City facilities. The decline in income from operations was partially offset by an increase in income from operations for the Olefins segment. The Olefins segment benefited from the earnings from the Longview facilities, which were acquired in November 2006. The third quarter 2006 was adversely impacted by an unscheduled outage at one of the ethylene units in Lake Charles, Louisiana resulting from mechanical problems with a compressor that required extended maintenance.

Third quarter 2007 results were favorably impacted by the utilization of the first-in, first-out (FIFO) inventory accounting method as compared with utilizing the last-in, first-out (LIFO) method used by some companies in the industry. This was due primarily to rising feedstock costs.

Third quarter 2007 net income increased $0.4 million, or $0.01 per diluted share, from the $37.9 million net income, or $0.58 per diluted share, reported in the second quarter of 2007. Third quarter income from operations decreased $2.5 million from the $62.3 million reported in the second quarter of 2007, while net sales increased by $57.5 million from the $782.7 million reported in the second quarter of 2007. The increase in sales was primarily due to higher selling prices for polyethylene, caustic and PVC resin which were partially offset by lower sales volumes for polyethylene and PVC pipe. Income from operations was down slightly as higher selling prices and margins in the Olefins segment was offset by lower margins in the Vinyls segment. Vinyls segment margins declined in the third quarter of 2007 as compared to the second quarter primarily due to the industry's inability to raise prices sufficiently in downstream products in order to offset increased feedstock costs and the impact of the legal settlement of the litigation with PolyOne and Goodrich and associated legal expenses. The Olefins segment, however, has gained strength since the beginning of 2007 primarily due to balanced industry supply and demand fundamentals for polyethylene and strong export demand. Income from operations in the second quarter of 2007 was negatively impacted by a scheduled turnaround at one of the ethylene units in Lake Charles, Louisiana, which was down approximately 30 days.

For the nine months ended September 30, 2007, net income was $95.9 million, or $1.47 per diluted share, compared to $180.2 million net income, or $2.76 per diluted share for the nine months ended September 30, 2006, which included an after-tax charge of $16.3 million, or $0.25 per diluted share, related to debt retirement costs incurred in the first quarter of 2006. Net sales increased $381.1 million, or 19.4%, to $2,341.6 million for the nine months ended September 30, 2007 from the $1,960.5 million reported in the nine months ended September 30, 2006. Income from operations was $154.7 million for the nine months ended September 30, 2007 as compared to $304.7 million for the nine months ended September 30, 2006. The increase in sales was primarily due to the higher polyethylene sales volumes attributable to the Longview facilities acquired on November 30, 2006, which were partially offset by lower selling prices for polyethylene, PVC resin and PVC pipe. The decrease in income from operations was primarily due to reduced product selling prices and higher feedstock costs for ethane and propane. These decreases were partially offset by the income from operations contributed by the Longview facilities.

Albert Chao, President and Chief Executive Officer, said, "We are pleased with the performance of our Olefins segment. Polyethylene markets have remained strong all year both domestically and export. The industry has been able to implement price increases, passing along higher feedstock costs and maintaining strong margins. The Longview acquisition so far has proven to be a great addition to our company. The U.S. gas-based ethylene producers continue to enjoy a cost advantage over naphtha-based ethylene, which puts us in a competitive position globally. We are, however, concerned with the recent increase in crude oil prices and the effects it may have on the economy. Vinyls selling prices and margins continue under pressure due to the continued weakness in the domestic housing market."

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the third quarter of 2007 decreased 1.7% to $86.8 million compared to $88.3 million of EBITDA in the second quarter of 2007 and decreased 22.1% from the $111.4 million in the third quarter of 2006. A reconciliation of EBITDA to reported net income and to cash flows from operating activities can be found in the financial schedules at the end of this press release.

Cash flows from operating activities were $95.0 million and capital additions were $86.3 million for the nine months ended September 30, 2007. At September 30, 2007 the Company's cash balance was $139.3 million and debt was $335.2 million.

OLEFINS SEGMENT

Income from operations for the Olefins segment increased by $15.1 million to $57.0 million in the third quarter of 2007 from $41.9 million reported in the third quarter of 2006. This increase resulted primarily from increases in sales volumes and income from operations contributed by the Longview facilities acquired on November 30, 2006 and the negative impact of the unscheduled outage and maintenance turnaround at one of the Company's ethylene units in Lake Charles, Louisiana during the third quarter of 2006. These increases were partially offset by lower polyethylene prices and higher feedstock costs for ethane and propane in the third quarter of 2007 as compared to the third quarter of 2006. In addition, trading activity resulted in a gain in the third quarter of 2007 of $1.6 million as compared to $5.4 million in the third quarter of 2006.

Third quarter 2007 income from operations for the Olefins segment was $14.3 million higher than the $42.7 million income from operations reported in the second quarter of 2007. This increase resulted primarily from the impact of a scheduled outage during the second quarter of 2007 to complete the tie-in portion of the Company's feedstock flexibility project. The increase was partially offset by reduced trading gains in the third quarter as compared to the second quarter. Trading activity resulted in a gain of $1.6 million in the third quarter of 2007 as compared to a gain of $4.1 million in the second quarter of 2007.

Income from operations for the Olefins segment decreased $36.4 million, or 22.3%, to $127.0 million for the nine months ended September 30, 2007 from $163.4 million for the nine months ended September 30, 2006. This decrease was primarily due to the sharp decrease in product prices and margins which began early in the fourth quarter of 2006 and continued into 2007. Prices increased during the first nine months of 2007, but margins were still below the levels in the first nine months of 2006 due to higher feedstock costs. In addition, trading activity resulted in a gain of $6.4 million in the first nine months of 2007 compared to a $17.7 million gain for the first nine months of 2006.

VINYLS SEGMENT

Income from operations for the Vinyls segment decreased by $43.5 million to $5.4 million for the third quarter of 2007 from the $48.9 million reported in the third quarter of 2006. This decrease was primarily due to lower selling prices and margins for PVC resin and PVC pipe and lower sales volumes for PVC pipe. Selling prices and margins for PVC resin and PVC pipe have suffered over the last year primarily due to weakness in the housing market. Sales prices and margins continued under pressure in the third quarter of 2007 due to the industry's inability to raise prices in response to higher feedstock costs, especially for downstream products. Income from operations was also negatively impacted by $6.7 million for the settlement of the litigation and associated legal expenses.

Third quarter 2007 income from operations for the Vinyls segment decreased by $15.4 million from the $20.8 million reported in the second quarter of 2007. This decrease was primarily due to margin deterioration, as product prices have not been able to keep pace with rising feedstock costs for propane and ethylene, and the negative impact of the legal settlement and associated legal expenses. PVC resin and PVC pipe prices and margins remain under pressure from the continued weakness in the housing market. The decrease was partially offset by higher caustic prices in the third quarter compared to the second quarter.

Income from operations for the Vinyls segment decreased by $113.6 million, to $34.0 million for the nine months ended September 30, 2007 from $147.6 million for the nine months ended September 30, 2006. This decrease was primarily due to lower selling prices for all of the major vinyls products and higher feedstock costs which was partially offset by higher sales volumes for PVC resin and caustic soda. Margins and demand in the first nine months of 2006 were very strong due to supply constraints resulting from the impact of Hurricanes Katrina and Rita. Selling prices, margins and sales volumes for PVC resin and PVC pipe fell dramatically in the fourth quarter of 2006 due to weakness in the housing market, falling energy prices and seasonal slowdowns. These margins have remained under pressure during 2007 due to the continued weakness in the domestic housing market, higher feedstock costs and the inability to raise prices in response to these higher costs.

The statements in this release relating to matters that are not historical facts are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to: the cyclical nature of the chemical industry; availability, cost and volatility of raw materials and utilities; governmental regulatory actions and political unrest; global economic conditions; industry production capacity and operating rates; the supply/demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; the integration of the Eastman acquisition; the effect and results of litigation and settlements of litigation; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to Westlake's Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC in February 2007.

In this release, Westlake refers to a non-GAAP financial measure, EBITDA. EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose a non-GAAP financial measure is generally defined by the U.S. Securities and Exchange Commission as one that purports to measure historical and future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. We have included EBITDA in this release because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. EBITDA allows for meaningful company-to-company performance comparisons by adjusting for factors such as interest expense, depreciation and amortization and taxes, which often vary from company to company. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented in this release may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes (1) interest expense, which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations, (2) depreciation, which is a necessary element of our costs and ability to generate revenues because we use capital assets and (3) income taxes, which is a necessary element of our operations. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. A table included in the financial schedules at the end of this release reconciles EBITDA to net income and to cash flow from operating activities.

Westlake Chemical Corporation Conference Call Information:

A conference call to discuss Westlake Chemical Corporation's third quarter results will be held Thursday, November 1, 2007 at 11:00 a.m. EDT (10:00 a.m. CDT). To access the conference call, dial (866) 510-0705, or (617) 597-5363 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 25602148.

A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. EDT on Thursday, November 8, 2007. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 84394151.

    The conference call will also be available via webcast at:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=180248&eventID=1671338
and the earnings release can be obtained via the company's Web page at:
http://www.westlake.com/fw/main/IR_Home_Page-123.html.

Westlake Chemical Corporation is a manufacturer and supplier of petrochemicals, polymers and fabricated products with headquarters in Houston, Texas. The company's range of products includes: ethylene, polyethylene, styrene, propylene, caustic, VCM, PVC and PVC pipe, windows and fence. For more information, visit the company's Web site at http://www.westlake.com.



                        WESTLAKE CHEMICAL CORPORATION

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

                                Three Months Ended       Nine Months Ended
                                   September 30,            September 30,
                                 2007        2006         2007        2006
                             (In thousands of dollars, except per share data)

    Net sales             $   840,160   $   672,417  $ 2,341,626  $ 1,960,463
    Cost of sales             754,100       563,241    2,113,246    1,595,017
    Gross profit               86,060       109,176      228,380      365,446

    Selling, general and
     administrative
     expenses                  26,305        22,165       73,680       60,703

    Income from operations     59,755        87,011      154,700      304,743

    Interest expense           (4,692)       (3,432)     (12,780)     (13,356)
    Debt retirement cost            -             -            -      (25,853)
    Other income, net             305         3,268        1,004        8,657

    Income before income
     taxes                     55,368        86,847      142,924      274,191

    Provision for income
     taxes                     17,027        25,191       47,021       94,029

    Net income            $    38,341   $    61,656  $    95,903  $   180,162

    Earnings per common
     share
       Basic              $      0.59   $      0.95  $      1.47  $      2.77
       Diluted            $      0.59   $      0.95  $      1.47  $      2.76

    Weighted average
     shares outstanding
       Basic               65,238,376    65,134,582   65,227,147   65,110,448
       Diluted             65,325,668    65,237,824   65,325,020   65,234,840



                        WESTLAKE CHEMICAL CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)

                                               September 30,      December 31,
                                                    2007              2006
                                                  (In thousands of dollars)
    ASSETS
    Current Assets
      Cash and cash equivalents                $   139,259       $    52,646
      Accounts receivable, net                     436,327           308,903
      Inventories, net                             466,399           456,276
      Other current assets                          24,290            31,962
         Total current assets                    1,066,275           849,787
    Property, plant and equipment, net           1,099,611         1,076,903
    Other assets, net                              148,960           155,408

           Total assets                        $ 2,314,846       $ 2,082,098


    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities (accounts payable and
     accrued liabilities)                      $   367,350       $   321,912
    Long-term debt                                 335,217           260,156
    Other liabilities                              344,815           326,489

    Total liabilities                            1,047,382           908,557

    Stockholders' equity                         1,267,464         1,173,541

           Total liabilities and
            stockholders' equity               $ 2,314,846       $ 2,082,098



                        WESTLAKE CHEMICAL CORPORATION

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)

                                                       Nine Months Ended
                                                          September 30,
                                                     2007              2006
                                                   (In thousands of dollars)
    Cash flows from operating activities
    Net income                                   $  95,903         $ 180,162
    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation and amortization                 77,425            61,974
      Deferred tax expense                          15,997             9,617
      Other balance sheet changes                  (94,324)          (37,885)
           Net cash provided by operating
            activities                              95,001           213,868

    Cash flows from investing activities
    Additions to property, plant and equipment     (86,295)         (100,659)
    Additions to equity investments                   (308)           (4,574)
    Purchases of short-term investments                  -          (134,625)
    Sales and maturities of short-term
     investments                                         -            34,350
    Settlement of acquisition purchase price         8,043                 -
    Proceeds from disposition of assets                 33                20
    Settlements of derivative instruments            3,339           (27,520)
           Net cash used for investing
            activities                             (75,188)         (233,008)

    Cash flows from financing activities
    Proceeds from exercise of stock options            303             1,404
    Dividends paid                                  (8,503)           (6,192)
    Proceeds from borrowings                       287,884           249,185
    Repayments of borrowings                      (212,884)         (256,000)
    Capitalized debt issuance costs                      -            (4,328)
           Net cash provided by (used for)
            financing activities                    66,800           (15,931)

    Net increase (decrease) in cash and cash
     equivalents                                    86,613           (35,071)
    Cash and cash equivalents at beginning of
     period                                         52,646           237,895
    Cash and cash equivalents at end of period   $ 139,259         $ 202,824



                        WESTLAKE CHEMICAL CORPORATION

                             SEGMENT INFORMATION
                                 (Unaudited)

                               Three Months Ended        Nine Months Ended
                                  September 30,             September 30,
                                 2007      2006           2007         2006
                                          (In thousands of dollars)

    Net Sales to External
     Customers
    Olefins                   $ 570,418  $ 361,525   $ 1,569,484  $ 1,049,894
    Vinyls                      269,742    310,892       772,142      910,569
                              $ 840,160  $ 672,417   $ 2,341,626  $ 1,960,463


    Income (Loss) from
     Operations
    Olefins                   $  57,032  $  41,851   $   126,967  $   163,445
    Vinyls                        5,420     48,944        34,029      147,606
    Corporate and Other          (2,697)    (3,784)       (6,296)      (6,308)
                              $  59,755  $  87,011   $   154,700  $   304,743


    Depreciation and
     Amortization
    Olefins                   $  17,791  $  12,293   $    50,934  $    35,872
    Vinyls                        8,882      8,747        26,381       26,005
    Corporate and Other              36         38           110           97
                              $  26,709  $  21,078   $    77,425  $    61,974


    Other Income (Expense),
     net
    Olefins                   $       -  $       -          $170  $        (1)
    Vinyls                          (68)        71            21          156
    Corporate and Other*            373      3,197           813      (17,351)
                              $     305  $   3,268   $     1,004  $   (17,196)

    *Debt retirement costs of $25,853 are included in the nine months ended
     September 30, 2006.



                        WESTLAKE CHEMICAL CORPORATION

         RECONCILIATION OF EBITDA TO NET INCOME AND TO CASH FLOW FROM
                             OPERATING ACTIVITIES
                                 (Unaudited)

                             Three Months   Three Months       Nine Months
                                Ended          Ended              Ended
                              June 30,      September 30,      September 30,
                                2007       2007      2006     2007      2006
                                         (In thousands of dollars)
    EBITDA                   $ 88,348   $ 86,769 $ 111,357 $ 233,129 $ 349,521
    Less:
    Provision for income
     taxes                     19,602     17,027    25,191    47,021    94,029
    Interest expense            4,495      4,692     3,432    12,780    13,356
    Depreciation and
     amortization              26,361     26,709    21,078    77,425    61,974
    Net income                 37,890     38,341    61,656    95,903   180,162
    Changes in operating
     assets and liabilities    28,061     20,902     6,431   (16,899)   24,089
    Deferred income taxes      10,641      1,580    (1,119)   15,997     9,617
    Cash flow from operating
     activities              $ 76,592   $ 60,823 $  66,968 $  95,001 $ 213,868



                        WESTLAKE CHEMICAL CORPORATION
                           SUPPLEMENTAL INFORMATION

        Product Sales Price and Volume Variance by Operating Segments

                          Third Quarter 2007 vs.        Third Quarter 2007 vs.
                            Third Quarter 2006           Second Quarter 2007
                         Average Sales                Average Sales
                            Price        Volume           Price      Volume
    Olefins                +10.7%        +47.1%           +7.1%      +3.7%
    Vinyls                 -18.0%         +4.8%           +2.0%      -1.3%
    Company                 -2.1%        +27.1%           +5.6%      +1.7%



                    Average Quarterly Industry Prices (1)

                                               Quarter Ended
                                  September  December  March   June  September
                                     2006      2006    2007    2007    2007
    Ethane (cents/lb)                25.5      20.8    19.9    24.3    27.6
    Propane (cents/lb)               26.0      22.4    22.9    26.7    29.0
    Ethylene (cents/lb) (2)          50.7      44.8    40.0    44.7    50.2
    Polyethylene (cents/lb) (3)      78.7      68.0    67.0    72.7    79.0
    Styrene (cents/lb) (4)           70.1      66.9    64.8    71.3    68.1
    Caustic ($/ short ton) (5)      361.7     337.5   360.0   405.0   450.0
    Chlorine ($/ short ton) (6)     332.5     322.5   297.5   322.5   322.5
    VCM (cents/lb) (7)               43.9      39.6    37.2    40.8    43.4
    PVC (cents/lb) (8)               61.3      57.0    53.3    59.0    61.3


    (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 America spot prices of ethylene over the
        period as reported by CMAI.
    (3) Represents average North America contract prices of polyethylene film
        over the period as reported by CMAI.
    (4) Represents average North American spot prices of styrene over the
        period as reported by CMAI.
    (5) Represents average North America spot prices of caustic soda
        (diaphragm grade) over the period as reported by CMAI.
    (6) Represents average North America contract prices of chlorine (into
        chemicals) over the period as reported by CMAI.
    (7) Represents average North America contract prices of VCM over the
        period as reported by CMAI.
    (8) Represents average North America contract prices of PVC over the
        period as reported by CMAI.
SOURCE  Westlake Chemical Corporation
    -0-                             11/01/2007
    /CONTACT:  Investors, Steve Bender, or Media, David R. Hansen, both of
Westlake Chemical Corporation, +1-713-960-9111/
    /Web site:  http://www.westlakechemical.com /
    (WLK)

CO:  Westlake Chemical Corporation
ST:  Texas
IN:  CHM
SU:  ERN ERP CCA

SS-CD
-- LATH015 --
0738 11/01/2007 06:00 EDT http://www.prnewswire.com

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