HOUSTON, Feb. 19 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $18.8 million, or $0.29 per diluted share, for the fourth quarter of 2007. This represents a $4.4 million increase from the fourth quarter of 2006 net income of $14.4 million, or $0.22 per diluted share. Fourth quarter 2007 net income was favorably impacted by a tax benefit of $8.0 million, or $0.12 per diluted share, related to the reorganization of several subsidiaries. Fourth quarter 2006 net income was favorably impacted by a tax benefit of $6.5 million, or $0.10 per diluted share related to the resolution of certain tax matters. Sales for the fourth quarter of 2007 were $850.6 million and income from operations for the fourth quarter of 2007 was $20.0 million. This compares with net sales of $523.9 million and income from operations of $8.5 million in the fourth 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 and higher sales prices. The increase in income from operations was due to stronger earnings in the Olefins segment. Higher selling prices and sales volumes for polyethylene were partially offset by higher feedstock costs. In addition, income from operations for the Olefins segment in the fourth 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. The increase in income from operations was partially offset by continued weakness in the Vinyls segment and its downstream businesses, which were impacted by the slowdown in the construction market. Margins in the vinyls segment weakened primarily due to rising feedstock costs and the inability to raise prices sufficiently to cover these cost increases.
Fourth 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.
Fourth quarter 2007 net income decreased $19.5 million, or $0.30 per diluted share, from the $38.3 million net income, or $0.59 per diluted share, reported in the third quarter of 2007. Fourth quarter income from operations decreased $39.8 million from the $59.8 million reported in the third quarter of 2007, while net sales increased by $10.4 million from the $840.2 million reported in the third quarter of 2007. The increase in sales was primarily due to higher selling prices for polyethylene, PVC resin and caustic which were partially offset by lower sales volumes for PVC resin and pipe. Income from operations declined in the fourth quarter primarily due to sharp increases in ethane and propane feedstock costs. Price increases for both polyethylene and PVC resin were not sufficient to offset these higher costs. In addition, seasonal slowdowns compounded the continued weakness in the Vinyls segment.
For the year ended December 31, 2007, net income was $114.7 million, or $1.76 per diluted share, on net sales of $3,192.2 million. This represents a decrease of $79.9 million, or $1.22 per diluted share, from the year ended December 31, 2006 net income of $194.6 million, or $2.98 per diluted share, 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, and a tax benefit which increased net income by $10.2 million, or $0.16 per diluted share, related to the resolution of certain tax matters. Net income in 2007 was positively impacted by a tax benefit of $8.0 million, or $0.12 per diluted share. Sales for the year ended December 31, 2007 increased from 2006 sales of $2,484.4 million to $3,192.2 million, primarily due to higher sales volumes for polyethylene. The significant increase in polyethylene sales for 2007 was primarily a result of the additional volume from the Longview acquisition and was partially offset by lower average sales prices for our products. Income from operations was $174.7 million for the year ended December 31, 2007 as compared to $313.3 million for the year ended December 31, 2006. The 2007 results have been negatively impacted by a number of factors including a slowdown in construction and a dramatic drop in margins that began early in the fourth quarter of 2006. The Olefins segment continued to experience strong end market demand in 2007 largely due to healthy domestic demand for polyethylene and strong exports. Olefins margins, however, were negatively impacted by rising feedstock costs and a trading loss of $1.0 million in 2007 compared to a trading gain of $18.6 million in 2006. Income from operations benefited from earnings from our Longview facility which was acquired in November 2006. Our Vinyls segment margins deteriorated throughout 2007 primarily due to the industry's inability to raise prices in the downstream products in order to cover the significant increase in feedstock costs.
Albert Chao, President and Chief Executive Officer, said, "We experienced a significant increase in feedstock costs, a seasonal slowdown in business and continued negative impact of the slowdown in construction spending in the fourth quarter of 2007. Polyethylene volumes, however, remained solid and polyethylene selling prices have increased but not sufficiently to offset the rising feedstock costs during 2007. We remain concerned with the continued weakness in the construction market, high energy prices and the effects this may have on the U.S. economy and our business."
EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the fourth quarter of 2007 increased $12.0 million to $47.8 million compared to the $35.8 million in the fourth quarter of 2006. EBITDA for the fourth quarter of 2007 decreased to $47.8 million compared to $86.8 million of EBITDA in the third quarter of 2007. 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 $62.2 million and capital additions were $135.7 million for the year ended December 31, 2007. At December 31, 2007, the Company had $24.9 million of cash and $199.5 million of restricted cash, and the Company's debt was $511.4 million. The restricted cash is held by a trustee until such time as the Company requests reimbursement for qualifying amounts spent for facilities in Louisiana.
Income from operations for the Olefins segment increased by $28.2 million to $25.6 million in the fourth quarter of 2007 from a loss from operations of $2.6 million reported in the fourth quarter of 2006. This increase resulted primarily from higher polyethylene margins as higher selling prices more than offset higher feedstock costs. In addition, the fourth quarter of 2006 was negatively impacted by an unscheduled outage and maintenance turnaround at one of the Company's ethylene units in Lake Charles, Louisiana. These increases were partially offset by trading activity which resulted in a loss in the fourth quarter of 2007 of $7.4 million as compared to a $1.0 million gain in the fourth quarter of 2006.
Fourth quarter 2007 income from operations for the Olefins segment decreased by $31.4 million from the $57.0 million reported in the third quarter of 2007. This decrease was primarily due to sharp increases in ethane and propane feedstock costs which were only partially offset by higher polyethylene selling prices. Polyethylene sales volumes were essentially unchanged in the fourth quarter as compared to the third quarter. Trading activity resulted in a loss of $7.4 million in the fourth quarter of 2007 as compared to a gain of $1.6 million in the third quarter of 2007.
Income from operations for the Olefins segment decreased $8.3 million, or 5.2%, to $152.6 million for the year ended December 31, 2007 from $160.9 million for the year ended December 31, 2006. This decrease was primarily due to the sharp drop in product prices and margins which began early in the fourth quarter of 2006 and continued into 2007. Prices subsequently increased considerably during 2007, but margins were still below the levels in 2006 due to higher feedstock costs. The lower overall prices and margins were partially offset by the additional income from operations contributed by the Longview facility. In addition, trading activity resulted in a loss of $1.0 million in 2007 as compared to a trading gain of $18.6 million in 2006.
Income from operations for the Vinyls segment decreased by $14.3 million to a loss of $4.0 million for the fourth quarter of 2007 from the $10.3 million reported in the fourth quarter of 2006. This decrease was primarily due to lower selling prices for PVC pipe and significantly higher feedstock costs for propane and ethylene. PVC resin prices were higher in the fourth quarter of 2007 as compared to the prior year but overall margins were greatly reduced. Selling prices and margins for PVC resin and PVC pipe suffered in 2007 primarily due to weakness in the construction market. Sales prices and margins continued under pressure in the fourth quarter of 2007 with normal seasonal slowdowns and sharply increasing feedstock costs further reducing profits.
Fourth quarter 2007 income from operations for the Vinyls segment decreased by $9.4 million from the $5.4 million reported in the third quarter of 2007. PVC resin and pipe pricing could not keep pace with the sharp increases in feedstock costs, which resulted in margin deterioration. In addition, sales volumes for PVC resin and pipe fell due to seasonal slowdowns and reduced demand. The decrease was partially offset by higher caustic prices in the fourth quarter as compared to the third quarter.
Income from operations for the Vinyls segment decreased by $127.9 million to $30.0 million for the year ended December 31, 2007 from $157.9 million for the year ended December 31, 2006. This decrease was primarily due to lower selling prices for PVC resin and pipe and higher feedstock costs which were 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 construction market, falling energy prices and seasonal slowdowns. PVC resin and pipe margins remained under pressure during 2007 due to the continued weakness in the construction market, rising feedstock costs and the inability to raise prices sufficiently 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 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 fourth quarter results will be held Tuesday, February 19, 2008 at 11:00 a.m. EST (10:00 a.m. CST). To access the conference call, dial (888) 680-0879, or (617) 213-4856 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 62539151.
A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. EST on Tuesday, February 26, 2008. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 53243054.
The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=180248&eventID=1747018 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 Year Ended December 31, December 31, 2007 2006 2007 2006 (In thousands of dollars, except per share data) Net sales $850,552 $523,903 $3,192,178 $2,484,366 Cost of sales 807,532 492,866 2,920,778 2,087,883 Gross profit 43,020 31,037 271,400 396,483 Selling, general and administrative expenses 22,999 22,529 96,679 83,232 Income from operations 20,021 8,508 174,721 313,251 Interest expense (5,642) (3,163) (18,422) (16,519) Debt retirement cost - - - (25,853) Other income, net 1,654 3,013 2,658 11,670 Income before income taxes 16,033 8,358 158,957 282,549 (Benefit from) provision for income taxes (2,793) (6,039) 44,228 87,990 Net income $18,826 $14,397 $114,729 $194,559 Earnings per common share Basic $0.29 $0.22 $1.76 $2.99 Diluted $0.29 $0.22 $1.76 $2.98 Weighted average shares outstanding Basic 65,257,622 65,202,414 65,234,828 65,133,628 Diluted 65,322,266 65,313,450 65,324,326 65,254,654 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) December 31, December 31, 2007 2006 (In thousands of dollars) ASSETS Current Assets Cash and cash equivalents $24,914 $52,646 Accounts receivable, net 507,463 308,903 Inventories, net 527,871 456,276 Other current assets 31,937 31,962 Total current assets 1,092,185 849,787 Property, plant and equipment, net 1,126,212 1,076,903 Restricted cash 199,450 - Other assets, net 151,488 155,408 Total assets $2,569,335 $2,082,098 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (accounts payable and accrued liabilities) $441,262 $321,912 Long-term debt 511,414 260,156 Other liabilities 329,989 326,489 Total liabilities 1,282,665 908,557 Stockholders' equity 1,286,670 1,173,541 Total liabilities and stockholders' equity $2,569,335 $2,082,098 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Year Ended December 31, 2007 2006 (In thousands of dollars) Cash flows from operating activities Net income $114,729 $194,559 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 103,514 86,262 Deferred tax expense 5,286 13,852 Other balance sheet changes (161,363) (57,489) Net cash provided by operating activities 62,166 237,184 Cash flows from investing activities Additions to property, plant and equipment (135,725) (136,258) Addition to equity investment (308) (4,574) Purchase of short-term investments - (216,510) Sales and maturities of short-term investments - 216,510 Settlement of acquisition purchase price 8,043 (235,674) Proceeds from disposition of assets 190 222 Settlements of derivative instruments 2,995 (28,052) Net cash used for investing activities (124,805) (404,336) Cash flows from financing activities Proceeds from exercise of stock options 328 1,849 Dividends paid (11,778) (8,802) Proceeds from borrowings 326,584 249,185 Repayments of borrowings (325,407) (256,000) Utilization of restricted cash 48,124 - Capitalized debt issuance costs (2,944) (4,329) Net cash provided by (used for) financing activities 34,907 (18,097) Net decrease in cash and cash equivalents (27,732) (185,249) Cash and cash equivalents at beginning of period 52,646 237,895 Cash and cash equivalents at end of period $24,914 $52,646 WESTLAKE CHEMICAL CORPORATION SEGMENT INFORMATION (Unaudited) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 (In thousands of dollars) Net Sales to External Customers Olefins $605,569 $319,686 $2,175,053 $1,369,580 Vinyls 244,983 204,217 1,017,125 1,114,786 $850,552 $523,903 $3,192,178 $2,484,366 Income (Loss) from Operations Olefins $25,596 $(2,570) $152,563 $160,875 Vinyls (4,038) 10,312 29,991 157,918 Corporate and Other (1,537) 766 (7,833) (5,542) $20,021 $8,508 $174,721 $313,251 Depreciation and Amortization Olefins $17,014 $15,869 $67,948 $51,741 Vinyls 9,038 8,386 35,419 34,391 Corporate and Other 37 33 147 130 $26,089 $24,288 $103,514 $86,262 Other Income (Expense), net Olefins $(16) $(11) $155 $(12) Vinyls 212 61 234 216 Corporate and Other* 1,458 2,963 2,269 (14,387) $1,654 $3,013 $2,658 $(14,183) * Debt retirement costs of $25,853 are included in the year ended December 31, 2006. WESTLAKE CHEMICAL CORPORATION RECONCILIATION OF EBITDA TO NET INCOME AND TO CASH FLOW FROM OPERATING ACTIVITIES (Unaudited) Three Months Ended Three Months Ended Year Ended September 30, December 31, December 31, 2007 2007 2006 2007 2006 (In thousands of dollars) EBITDA $86,769 $47,764 $35,809 $280,893 $385,330 Less: Provision for (benefit from) income taxes 17,027 (2,793) (6,039) 44,228 87,990 Interest expense 4,692 5,642 3,163 18,422 16,519 Depreciation and amortization 26,709 26,089 24,288 103,514 86,262 Net income 38,341 18,826 14,397 114,729 194,559 Changes in operating assets and liabilities 20,902 (40,950) 4,684 (57,849) 28,773 Deferred income taxes 1,580 (10,711) 4,235 5,286 13,852 Cash flow from operating activities $60,823 $(32,835) $23,316 $62,166 $237,184 WESTLAKE CHEMICAL CORPORATION SUPPLEMENTAL INFORMATION Product Sales Price and Volume Variance by Operating Segments Fourth Quarter 2007 vs. Fourth Quarter 2007 vs. Fourth Quarter 2006 Third Quarter 2007 Average Average Sales Price Volume Sales Price Volume Olefins +38.2% +51.2% +8.8% -2.6% Vinyls -1.9% +21.9% +0.3% -9.5% Company +23.6% +38.7% +6.5% -5.3% Average Quarterly Industry Prices (1) Quarter Ended December March June September December 2006 2007 2007 2007 2007 Ethane (cents/lb) 20.8 19.9 24.3 27.6 35.2 Propane (cents/lb) 22.4 22.9 26.7 29.0 35.7 Ethylene (cents/lb) (2) 44.8 40.0 44.7 50.2 60.2 Polyethylene (cents/lb) (3) 68.0 67.0 72.7 79.0 86.3 Styrene (cents/lb) (4) 66.9 64.8 71.3 68.1 68.8 Caustic ($/ short ton) (5) 337.5 360.0 405.0 450.0 485.8 Chlorine ($/ short ton) (6) 322.5 297.5 322.5 322.5 322.5 PVC (cents/lb) (7) 57.0 53.3 59.0 61.3 66.7 (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 PVC over the period as reported by CMAI.
SOURCE Westlake Chemical Corporation -0- 02/19/2008
Investors, Steve Bender,
or Media, David R. Hansen,
both of Westlake Chemical Corporation,
Web site: http://www.westlake.com