Westlake Chemical Reports Fourth Quarter Results

Westlake Chemical Reports Fourth Quarter Results

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.

OLEFINS SEGMENT

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.

VINYLS SEGMENT

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
    

CONTACT:
Investors, Steve Bender,
or Media, David R. Hansen,
both of Westlake Chemical Corporation,
+1-713-960-9111

Web site: http://www.westlake.com
(WLK)

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