Westlake Announces Strong Second Quarter Earnings

Westlake Announces Strong Second Quarter Earnings


Second quarter 2010 highlights
- Earnings per share up over 200% versus year-ago quarter and last quarter.
- Net sales increased 42% versus second quarter 2009.

HOUSTON, Aug 03, 2010 /PRNewswire via COMTEX/ --

Westlake Chemical Corporation (NYSE: WLK) today reported net income for the three months ended June 30, 2010 of $56.9 million, or $0.86 per diluted share, on sales of $818.4 million. This represents an improvement from the quarter ended June 30, 2009 net income of $16.9 million, or $0.26 per diluted share, on sales of $574.9 million. Sales for the second quarter of 2010 increased $243.5 million compared to the second quarter of 2009 driven primarily by higher sales prices for most of the Company's major products. Income from operations was $99.5 million for the second quarter of 2010 as compared to $36.2 million for the second quarter of 2009. Income from operations benefited from improved Olefins integrated product margins resulting from increases in product prices, which were only partially offset by increased feedstock costs. This increase in income from operations was partially offset by lower PVC resin and pipe margins.

Second quarter 2010 earnings of $56.9 million, or $0.86 per diluted share, are an improvement over the $17.6 million, or $0.27 per diluted share, reported by the Company in the first quarter of 2010. Sales in the second quarter of 2010 were $818.4 million compared to sales of $778.3 million in the first quarter of 2010, an increase of $40.1 million. The increase in sales was largely due to higher average sales prices for all major products. Second quarter 2010 income from operations of $99.5 million was an increase of $65.1 million over the income from operations in the first quarter of 2010 of $34.4 million. The increase in income from operations was primarily due to higher Olefins integrated product margins resulting from lower feedstock costs, continued strong demand for polyethylene and higher sales prices. In addition, during the first quarter we had an unscheduled outage at one of the ethylene units at our Lake Charles facility caused by freezing temperatures.

Albert Chao, President and Chief Executive Officer, said, "We are pleased to report a significant improvement in earnings in the second quarter of 2010 as the Olefins segment margins continued to improve. The Olefins segment benefited from strong domestic and export demand for polyethylene and lower feedstock costs. Our natural gas-based production of ethylene continues to have a cost advantage over naphtha-based ethylene. In addition, we bolstered our cash position in July 2010 with the issuance of $100.0 million in tax exempt bonds, restricted for qualifying investments."

Net income for the six months ended June 30, 2010 was $74.6 million, or $1.13 per diluted share, on net sales of $1,596.7 million. This represents an increase in net income of $63.8 million, or $0.97 per diluted share, from the six months ended June 30, 2009 net income of $10.8 million, or $0.16 per diluted share, on net sales of $1,063.1 million. Sales for the six months ended June 30, 2010 increased $533.6 million compared to the prior year period mainly due to higher sales prices and sales volumes for most of our major products. Income from operations was $134.0 million for the six months ended June 30, 2010 as compared to $35.3 million for the six months ended June 30, 2009. The increase in income from operations was primarily attributable to improved production rates for most of our major products and higher Olefins integrated product margins as compared to the prior year period. This increase was partially offset by lower caustic margins resulting from a 47.1% decrease in industry caustic prices compared to the first six months of 2009 and the unscheduled outage at one of our ethylene units in Lake Charles in the first quarter of 2010. In addition, trading activity for the six months ended June 30, 2010 resulted in a loss of $2.2 million compared to a gain of $3.9 million for the six months ended June 30, 2009. Income from operations for the six months ended June 30, 2009 was negatively impacted by an unscheduled outage at our Calvert City facility and a turnaround at one of our ethylene units in Lake Charles.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the second quarter of 2010 increased $63.9 million to $131.5 million from $67.6 million in the first quarter of 2010. EBITDA for the second quarter of 2010 increased $63.1 million compared to the EBITDA of $68.4 million in the second quarter of 2009. A reconciliation of EBITDA to reported net income and to net cash (used for) provided by operating activities can be found in the financial schedules at the end of this press release.

Net cash provided by operating activities was $55.6 million in the first six months of 2010. Capital expenditures for the first six months of 2010 were $31.1 million. At June 30, 2010, we had $142.3 million of net debt. Net debt is long-term debt of $515.4 million less cash balances of $373.1 million ($84.3 million of the cash balances are restricted for qualifying investments). In addition, we issued $100.0 million in tax-exempt bonds in July 2010, which are also restricted for qualifying investments in the state of Louisiana.

OLEFINS SEGMENT

Income from operations increased by $66.9 million to $111.2 million in the second quarter of 2010 from $44.3 million in the second quarter of 2009. This increase was mainly attributable to improved Olefins integrated product margins, which were partially offset by a loss from trading activity. Olefins integrated product margins benefited from a significant increase in product prices, which outpaced the increase in feedstock costs. Trading activity resulted in a loss of $2.6 million in the second quarter of 2010 compared to a loss of $0.1 million in the second quarter of 2009.

Income from operations for the second quarter of 2010 for the Olefins segment of $111.2 million increased $53.0 million from the $58.2 million reported in the first quarter of 2010. This increase was primarily due to increased Olefins integrated product margins as a result of a decrease in average feedstock costs, continued strong demand for polyethylene and higher sales prices.

Income from operations in the first six months of 2010 was $169.4 million, an increase of $109.0 million from the $60.4 million in the first six months of 2009. This increase was mainly attributable to improved Olefins integrated product margins, higher operating rates and increased polyethylene sales volume. The increase was partially offset by the unscheduled outage at one of our ethylene units in Lake Charles during the first six months of 2010. In addition, trading activity resulted in a loss of $2.2 million for the six months ended June 30, 2010 as compared to a gain of $3.9 million for the prior year period. The first six months of 2009 was negatively impacted by a turnaround at one of our ethylene units in Lake Charles.

VINYLS SEGMENT

The Vinyls segment incurred a loss from operations of $10.9 million in the second quarter of 2010 compared to a loss from operations of $4.8 million in the second quarter of 2009. This decrease was primarily due to lower PVC resin and pipe margins, which were negatively impacted by higher feedstock costs. These factors were only partially offset by higher caustic volumes and increased sales prices. In addition, continued weakness in the construction markets has prevented us from raising downstream fabricated products prices to sufficiently offset cost increases.

The Vinyls segment loss of $10.9 million in the second quarter of 2010 was an improvement as compared to the loss of $14.9 million in the first quarter of 2010. The improved results were primarily due to higher caustic sales prices and margins.

The Vinyls segment incurred a loss from operations of $25.8 million for the six months ended June 30, 2010 as compared to a loss from operations of $20.2 million for the six months ended June 30, 2009, a negative change of $5.6 million. Operating results were negatively impacted by lower margins for caustic, resulting from a 47.1% decrease in industry caustic prices, and higher feedstock costs compared to the prior year period.

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: general economic and business conditions; the cyclical nature of the chemical industry; availability, cost and volatility of raw materials and utilities; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions and political unrest; 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; operating interruptions; 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, 2009, which was filed with the SEC in February 2010.

In this release, Westlake refers to non-GAAP financial measures, EBITDA and net debt. 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 (loss) and to cash flow from operating activities. We have presented net debt because management believes that net debt is helpful in analyzing leverage and uses it as a performance measure. Net debt should not be considered as an alternative to total debt determined in accordance with GAAP.

Westlake Chemical Corporation Conference Call Information:

A conference call to discuss Westlake Chemical Corporation's second quarter 2010 results will be held Tuesday, August 3, 2010 at 11:00 a.m. EDT (10:00 a.m. CDT). To access the conference call, dial (866) 825-3209, or (617) 213-8061 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 88106536.

A replay of the conference call will be available beginning two hours after its conclusion until 1:00 p.m. EDT on Tuesday, August 10, 2010. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 36309906.

The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=180248&eventID=3223147 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

                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                        (Unaudited)



                            Three Months Ended
                                 June 30,
                                 --------
                              2010           2009
                              ----           ----
                         (In thousands of dollars, except per share data
                                                and shares outstanding)

    Net sales             $818,389       $574,865
    Cost of sales          692,365        519,203
                           -------        -------
    Gross profit         126,024         55,662

    Selling, general
     and
     administrative
     expenses             26,487         19,487
                          ------         ------

    Income from
     operations           99,537         36,175

    Interest expense      (8,784)        (8,795)
    Other (expense)
     income, net            (180)         1,303
                            ----          -----

    Income before
     income taxes         90,573         28,683

    Provision for
     income taxes         33,631         11,832
                          ------         ------

    Net income           $56,942        $16,851
                         =======        =======

    Basic and diluted
     earnings per
     share                 $0.86          $0.26
                           =====          =====

    Weighted average
     shares
     outstanding:
            Basic     66,141,710     65,925,121
            Diluted   66,289,758     65,982,952
                         =======



                               Six Months Ended
                                   June 30,
                                   --------
                              2010              2009
                              ----              ----
                         (In thousands of dollars, except per share data
                                                and shares outstanding)

    Net sales           $1,596,723        $1,063,116
    Cost of sales        1,413,019           987,390
                         ---------           -------
    Gross profit         183,704            75,726

    Selling, general
     and
     administrative
     expenses             49,738            40,454
                          ------            ------

    Income from
     operations          133,966            35,272

    Interest expense     (17,572)          (17,391)
    Other (expense)
     income, net             914             3,780
                             ---             -----

    Income before
     income taxes        117,308            21,661

    Provision for
     income taxes         42,719            10,885
                          ------            ------

    Net income           $74,589           $10,776
                         =======           =======

    Basic and diluted
     earnings per
     share                 $1.13             $0.16
                           =====             =====

    Weighted average
     shares
     outstanding:
            Basic     66,090,164        65,861,550
            Diluted   66,228,794        65,890,986
                         =======


                       WESTLAKE CHEMICAL CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                                (Unaudited)



                                                                    December
                                                   June 30,            31,
                                                         2010            2009
                                                         ----            ----
                                                        (In thousands of
                                                            dollars)
    ASSETS
    Current assets
      Cash and cash equivalents                      $288,805        $245,592
      Accounts receivable, net                        427,919         339,796
      Inventories, net                                370,025         369,417
      Other current assets                             44,344          33,573
                                                       ------          ------
         Total current assets                       1,131,093         988,378
    Property, plant and equipment, net              1,172,632       1,194,311
    Restricted cash                                    84,298         101,149
    Other assets, net                                 156,114         162,518
                                                      -------         -------

         Total assets                              $2,544,137      $2,446,356
                                                   ==========      ==========


    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities (accounts payable
     and accrued liabilities)                        $304,924        $286,566
    Long-term debt                                    515,441         515,400
    Other liabilities                                 365,665         359,408
                                                      -------         -------

         Total liabilities                          1,186,030       1,161,374
                                                    ---------       ---------

    Stockholders' equity                            1,358,107       1,284,982



             Total liabilities and stockholders'
              equity                               $2,544,137      $2,446,356
                                                   ==========      ==========


                            WESTLAKE CHEMICAL CORPORATION

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (Unaudited)



                                                         Six Months Ended
                                                             June 30,
                                                             --------
                                                         2010          2009
                                                         ----          ----
                                                          (In thousands of
                                                              dollars)
    Cash flows from operating activities
    Net income                                        $74,589       $10,776
    Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization                    64,121        59,901
      Deferred income taxes                             6,065      (10,959)
      Other balance sheet changes                    (89,181)        93,634
                                                      -------        ------
           Net cash provided by operating activities   55,594       153,352

    Cash flows from investing activities
    Additions to property, plant and equipment       (31,086)      (50,363)
    Acquisition of business                                 -        (6,297)
    Proceeds from disposition of assets                   438         3,251
    Proceeds from repayment of loan to affiliate          167             -
    Settlements of derivative instruments               8,116           155
                                                        -----           ---
           Net cash used for investing activities    (22,365)      (53,254)

    Cash flows from financing activities
    Proceeds from exercise of stock options               702            42
    Dividends paid                                     (7,606)       (6,922)
    Utilization of restricted cash                     16,974        21,979
    Capitalized debt issuance costs                       (86)       (1,429)
                                                          ---        ------
           Net cash provided by financing activities    9,984        13,670

    Net increase in cash and cash equivalents          43,213       113,768
    Cash and cash equivalents at beginning of period  245,592        90,239
                                                      -------        ------

    Cash and cash equivalents at end of period       $288,805      $204,007
                                                     ========      ========


                           WESTLAKE CHEMICAL CORPORATION

                                SEGMENT INFORMATION
                                    (Unaudited)



                     Three Months Ended               Six Months Ended
                          June 30,                        June 30,
                          --------                        --------
                      2010          2009            2010            2009
                      ----          ----            ----            ----
                                 (In thousands of dollars)

    Net external
     sales
    Olefins       $577,327      $386,542      $1,142,351        $709,311
    Vinyls         241,062       188,323         454,372         353,805
                  $818,389      $574,865      $1,596,723      $1,063,116
                  --------      --------      ----------      ----------


    Income (loss)
     from
     operations
    Olefins       $111,158       $44,289        $169,403         $60,363
    Vinyls         (10,890)       (4,829)        (25,816)        (20,210)
    Corporate and
     other            (731)       (3,285)         (9,621)         (4,881)
                   $99,537       $36,175        $133,966         $35,272
                   -------       -------        --------         -------


    Depreciation
     and
     amortization
    Olefins        $21,465       $20,892         $42,701         $40,616
    Vinyls          10,482         9,971          21,127          19,159
    Corporate and
     other             146            50             293             126
                   $32,093       $30,913         $64,121         $59,901
                   -------       -------         -------         -------


    Other income
     (expense),
     net
    Olefins            $36           $33             $74            $163
    Vinyls            (408)           28             (25)             31
    Corporate and
     other             192         1,242             865           3,586
                     $(180)       $1,303            $914          $3,780
                     -----        ------            ----          ------



                 WESTLAKE CHEMICAL CORPORATION

     RECONCILIATION OF EBITDA TO NET INCOME AND TO NET CASH
          (USED FOR) PROVIDED BY OPERATING ACTIVITIES
                          (Unaudited)


                                    Three Months
                                       Ended              Three Months Ended
                                     March 31,                 June 30,
                                     ---------                 --------
                                             2010          2010          2009
                                             ----          ----          ----
                                            (In thousands of dollars)

    EBITDA                                $67,551      $131,450       $68,391
    Less:
    Provision for income taxes              9,088        33,631        11,832
    Interest expense                        8,788         8,784         8,795
    Depreciation and amortization          32,028        32,093        30,913
                                           ------        ------        ------
    Net income                             17,647        56,942        16,851
    Changes in operating assets and
     liabilities                          (73,389)       48,329        35,262
    Deferred income taxes                     664         5,401       (19,064)

    Net cash (used for) provided by
     operating activities                $(55,078)     $110,672       $33,049
                                         ========      ========       =======



                                                Six Months Ended
                                                    June 30,
                                                    --------
                                               2010            2009
                                               ----            ----
                                          (In thousands of dollars)

    EBITDA                                 $199,001         $98,953
    Less:
    Provision for income taxes               42,719          10,885
    Interest expense                         17,572          17,391
    Depreciation and amortization            64,121          59,901
                                             ------          ------
    Net income                               74,589          10,776
    Changes in operating assets and
     liabilities                            (25,060)        153,535
    Deferred income taxes                     6,065         (10,959)

    Net cash (used for) provided by
     operating activities                   $55,594        $153,352
                                            =======        ========


                                 WESTLAKE CHEMICAL CORPORATION

                                   SUPPLEMENTAL INFORMATION


                 Product Sales Price and Volume Variance by Operating Segments


                 Second Quarter          Second Quarter
                    2010 vs.                2010 vs.
                 Second Quarter           First Quarter
                        2009                   2010
                  --------------         -------------
             Average       Volume    Average       Volume
             Sales                   Sales
             Price         ------    Price         ------
            ------                  ------
    Olefins    +51.2%         -1.7%     +4.5%        -2.4%
    Vinyls     +25.6%         +2.4%     +7.3%        +5.7%
    Company    +42.8%         -0.3%     +5.3%        -0.1%



                     Average Quarterly Industry Prices (1)


                                            Quarter Ended
                                            -------------
                            June  September     December  March  June
                             2009      2009         2009    2010  2010
                              ---       ---          ---     ---   ---
    Ethane (cents/lb)        14.5      15.9         22.3    24.7  18.4
    Propane (cents/lb)       17.3      20.6         25.8    29.4  25.7
    Ethylene (cents/lb) (2)  31.5      32.3         40.5    52.3  45.6
    Polyethylene (cents/lb)
     (3)                     68.0      72.3         75.0    86.3  89.0
    Styrene (cents/lb) (4)   46.3      56.5         55.3    67.7  64.7
    Caustic ($/short ton)
     (5)                    368.3     171.7        216.7   273.3 356.7
    Chlorine ($/short ton)
     (6)                    204.2     388.3        385.0   311.7 310.0
    PVC (cents/lb) (7)       48.5      54.5         56.7    67.0  67.3





    (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 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 average North American contract prices of PVC over the
    period as reported by CMAI.

SOURCE Westlake Chemical Corporation

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