Westlake Chemical Reports Strong Second Quarter Results

Westlake Chemical Reports Strong Second Quarter Results

Highlights

  • 15% increase in sales and 39% increase in second quarter EPS.
  • Major planned maintenance turnaround successfully completed at Calvert City.
  • Continued strong industry conditions.

HOUSTON, Aug. 3 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $67.2 million, or $1.03 per diluted share, for the second quarter of 2006, an increase of 39% from the second quarter of 2005 net income of $48.5 million, or $0.74 per diluted share. Income from operations was $106.9 million on net sales of $669.3 million for the second quarter of 2006. This compares favorably with second quarter 2005 income from operations of $82.8 million on net sales of $580.7 million. The improvement in income from operations was primarily the result of increased selling prices, which outpaced higher feedstock costs. The improvement in income from operations was partially offset by lower production volumes and higher maintenance expense due to a planned maintenance turnaround at the Company's facilities in Calvert City, Kentucky.

Albert Chao, President and Chief Executive Officer, said, "We are pleased to report strong second quarter results despite the negative impact of a major planned maintenance turnaround at Calvert City. Sales increased $89 million, or 15%, over the second quarter of 2005. In addition, our income from operations margin ('operating margin') increased to 16% in the second quarter of 2006 from 14% in the second quarter of 2005. Income from operations in the first six months of 2006 was the highest in the history of the company, and operating margin was the highest since 1995. We continue to benefit from our vertical integration strategy and robust product demand for our key products."

Second quarter results were positively impacted by the utilization of first-in, first-out (FIFO) inventory accounting as compared with utilizing the last-in, first-out (LIFO) method used by some companies in the industry as a result of rising feedstock costs.

Second quarter 2006 net income increased $15.9 million, or $0.24 per diluted share, from the $51.3 million net income, or $0.79 per diluted share, reported in the first quarter of 2006 primarily due to the $25.9 million ($16.3 million after tax) of debt retirement costs incurred in the first quarter of 2006. Second quarter 2006 income from operations decreased $4.0 million from the income from operations of $110.9 million reported in the first quarter of 2006, while net sales increased by $50.5 million from the $618.8 million reported in the first quarter of 2006. The decrease in income from operations was due to a planned outage for maintenance turnaround at the Company's vinyls complex in Calvert City, Kentucky which was successfully completed in the second quarter and lower operating margins in the Company's vinyls segment due to higher feedstock costs and lower average selling prices. The increase in sales was primarily due to higher sales volumes for the Company's major products.

For the six months ended June 30, 2006, net income was $118.5 million, or $1.82 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. For the first six months of 2005 net income was $109.7 million and EPS was $1.68 per diluted share. Net sales increased $88.7 million or 7% to $1,288.0 million for the six months ended June 30, 2006 from the $1,199.3 million reported for the six months ended June 30, 2005. Income from operations was $217.7 million for the six months ended June 30, 2006 as compared to $184.5 million for the six months ended June 30, 2005. The year to date increases were primarily due to higher selling prices which outpaced higher feedstock and natural gas costs. Year to date net income for 2006 also benefited from lower interest expense resulting from lower interest rates due to the refinancing completed in the first quarter of this year.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the second quarter of 2006 increased 28% to $130.3 million compared to $101.9 million in the second quarter of 2005 and increased 21% compared to $107.8 million in the first quarter of 2006. EBITDA in the first quarter of 2006 was negatively impacted by debt retirement costs of $25.9 million. 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 $146.9 million for the six months ended June 30, 2006, $62.9 million of which was used for capital additions. At the end of the second quarter the Company's cash balance was $275.6 million and debt was $260.1 million.

OLEFINS SEGMENT

Income from operations for the Olefins segment increased by $30.0 million, or 94%, to $62.0 million in the second quarter of 2006 from $32.0 million in the second quarter of 2005. This increase was primarily due to higher selling prices for all of the Company's major products and higher sales volumes for polyethylene. These increases were partially offset by lower sales volumes for ethylene and styrene and higher feedstock costs. Merchant ethylene sales volumes were lower for the second quarter of 2006 as compared to the second quarter of 2005 largely due to the increase in internal ethylene consumption at our Geismar vinyls facility.

Second quarter 2006 income from operations for the Olefins segment increased by $2.4 million from the $59.6 million income from operations reported in the first quarter of 2006. This increase was primarily due to higher sales volumes and lower natural gas costs.

Income from operations for the Olefins segment increased by $27.2 million, or 29%, to $121.6 million for the six months ended June 30, 2006 from $94.4 million for the six months ended June 30, 2005. This increase was primarily due to price increases for all of the segment's products. These increases were partially offset by higher natural gas and feedstock costs and lower merchant ethylene sales volumes. As discussed above merchant ethylene sales volumes were lower due to the increase in internal ethylene consumption at the Geismar facility.

VINYLS SEGMENT

Income from operations for the Vinyls segment decreased by $6.7 million to $44.3 million in the second quarter of 2006 from $51.0 million in the second quarter of 2005. This decrease was primarily due to a planned outage for maintenance turnaround at the Company's vinyls complex in Calvert City, Kentucky which was successfully completed in the second quarter. Higher selling prices for most of the Company's vinyls products and higher sales volumes for PVC resin and PVC pipe were more than offset by lower sales volumes and prices for VCM and increased raw material costs.

Second quarter income from operations for the Vinyls segment decreased by $10.1 million from the $54.4 million income from operations reported in the first quarter of 2006. This decrease was primarily due to the outage for a planned maintenance turnaround at the Company's vinyls complex in Calvert City, Kentucky, lower selling prices for VCM, PVC resin and PVC pipe and higher feedstock costs. These decreases were partially offset by higher sales volumes and lower natural gas costs.

Income from operations for the Vinyls segment increased by $6.1 million, or 7%, to $98.7 million for the six months ended June 30, 2006 from $92.6 million for the six months ended June 30, 2005. This increase was primarily due to higher selling prices for PVC resin and PVC pipe and higher sales volumes for PVC resin. These increases were partially offset by the impact from a planned maintenance turnaround during the second quarter of 2006 and higher natural gas and feedstock costs. PVC resin sales volumes increased largely due to additional production from the Geismar vinyls facility.

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; 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, 2005, which was filed with the SEC in February 2006.

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 second quarter results will be held Thursday, August 3, 2006 at 11:00 a.m. EDT (10:00 a.m. CDT). To access the conference call, dial (800) 510-9834, or (617) 614- 3669 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 77946714.

A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. EDT on Thursday, August 10, 2006. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 95712404.

    The conference call will also be available via webcast at:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=180248&eventID=1353908  and the earnings release can be
obtained via the company's Web page at:
http://www.westlakechemical.com/investors.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.westlakechemical.com .



                           WESTLAKE CHEMICAL CORPORATION

                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                (unaudited, in $000)

                                   Three Months Ended        Year-to-Date
                                       June 30,                June 30,
                                   2006        2005        2006        2005

    Net sales                    $669,267    $580,659  $1,288,046  $1,199,275
    Cost of sales                 544,055     481,179   1,031,776     980,012
    Gross profit                  125,212      99,480     256,270     219,263

    Selling, general and
     administrative expenses       18,359      16,717      38,538      34,792

    Income from operations        106,853      82,763     217,732     184,471

    Interest expense               (3,898)     (5,879)     (9,924)    (12,033)
    Debt retirement cost              ---         ---     (25,853)       (646)
    Other income, net               3,055      (1,281)      5,389        (566)

    Income before income taxes    106,010      75,603     187,344     171,226

    Income tax provision           38,841      27,077      68,838      61,557

    Net income                    $67,169     $48,526    $118,506    $109,669


    Basic earnings per share        $1.03       $0.75       $1.82       $1.69
    Diluted earnings per share      $1.03       $0.74       $1.82       $1.68

    Weighted average shares
     outstanding
       Basic                   65,104,100  64,995,129  65,098,181  64,966,790
       Diluted                 65,235,847  65,203,447  65,233,323  65,247,563



                          WESTLAKE CHEMICAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                              (unaudited, in $000)

                                                 Unaudited
                                                  June 30,        December 31,
                                                    2006              2005

    Current Assets
      Cash and cash equivalents                   $275,615          $237,895
      Accounts receivable (net)                    323,009           302,779
      Inventories, net                             343,093           339,870
      Other current assets                          24,418            22,319
         Total current assets                      966,135           902,863
    Property, plant and equipment (net)            900,791           863,232
    Other assets (net)                              75,437            61,094

           Total assets                         $1,942,363        $1,827,189


         LIABILITIES AND STOCKHOLDERS'EQUITY
    Current liabilities
      Accounts payable and accrued
       liabilities                                $301,091          $304,649
      Current portion of long-term debt                ---             1,200
         Total current liabilities                 301,091           305,849
    Long-term debt                                 260,115           265,689
    Other liabilities                              269,697           261,545

           Total liabilities                       830,903           833,083

    Stockholders' equity                         1,111,460           994,106

    Total liabilities and stockholders'
     equity                                     $1,942,363        $1,827,189



                          WESTLAKE CHEMICAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                              (unaudited, in $000)

                                                       Six Months Ended
                                                  June 30,          June 30,
                                                    2006              2005

    Cash flows from operating activities
    Net income                                    $118,506          $109,669

    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
       Depreciation and amortization                40,896            41,544
       Deferred tax expense                         10,736            22,757
       Other balance sheet changes                 (23,238)          (30,272)

    Net cash provided by operating
     activities                                    146,900           143,698

    Cash flows from investing activities
    Additions to property, plant and
     equipment                                     (62,887)          (44,092)
    Addition to equity investment                   (4,574)              ---
    Proceeds from disposition of assets                  7                34
    Settlements of derivative instruments          (27,445)              ---

    Net cash used for investing
     activities                                    (94,899)          (44,058)

    Cash flows from financing activities
    Proceeds from exercise of stock
     options                                           396
    Dividends paid                                  (3,583)           (2,763)
    Proceeds from borrowings                       249,185
    Repayments of borrowings                      (256,000)          (30,600)
    Capitalized debt costs                          (4,279)

    Net cash used for financing
     activities                                    (14,281)          (33,363)

    Net increase in cash and cash
     equivalents                                    37,720            66,277

    Cash and cash equivalents at
     beginning of period                           237,895            43,396

    Cash and cash equivalents at end of
     period                                       $275,615          $109,673



                          WESTLAKE CHEMICAL CORPORATION

                               SEGMENT INFORMATION

                               (unaudited, in $000)

                                Three Months Ended       Six Months Ended
                                     June 30,                 June 30,
                                  2006      2005         2006          2005

    Net Sales to External
     Customers
    Olefins                    $348,652    $317,390     $688,369     $694,057
    Vinyls                      320,615     263,269      599,677      505,218
                               $669,267    $580,659   $1,288,046   $1,199,275


    Income (Loss) from
     Operations
    Olefins                     $62,029     $32,004    $121,594       $94,416
    Vinyls                       44,251      50,980      98,662        92,632
    Corporate and Other             573        (221)     (2,524)       (2,577)
                               $106,853     $82,763    $217,732      $184,471


    Depreciation and
     Amortization
    Olefins                     $11,829     $12,178     $23,579       $24,932
    Vinyls                        8,561       8,269      17,258        16,598
    Corporate and Other              31          14          59            14
                                $20,421     $20,461     $40,896       $41,544


    Other Income (Expense), net
    Olefins                         $(1)    $(2,227)        $(1)      $(1,928)
    Vinyls                           38         435          85           465
    Corporate and Other*          3,018         511     (20,548)          251
                                 $3,055     $(1,281)   $(20,464)      $(1,212)

    * Debt retirement costs of $25,853 and $646 are included in the six
      months ended June 30, 2006 and June 30, 2005, respectively



                           WESTLAKE CHEMICAL CORPORATION

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

                                (unaudited, in $000)

                              Three
                              Months
                              Ended    Three Months Ended   Six Months Ended
                             March 31,      June 30,            June 30,
                               2006      2006      2005      2006      2005

    EBITDA                   $107,835  $130,329  $101,943  $238,164  $224,803
    Less:
    Income tax provision       29,997    38,841    27,077    68,838    61,557
    Interest expense            6,026     3,898     5,879     9,924    12,033
    Depreciation and
     amortization              20,475    20,421    20,461    40,896    41,544

    Net income                 51,337    67,169    48,526   118,506   109,669
    Changes in operating
     assets and liabilities    10,932     6,726    31,430    17,658    11,272
    Deferred income taxes       4,490     6,246    11,486    10,736    22,757
    Cash flow from operating
     activities               $66,759   $80,141   $91,442  $146,900  $143,698



                         WESTLAKE CHEMICAL CORPORATION
                           SUPPLEMENTAL INFORMATION

       Key Product Sales Price and Volume Variance by Operating Segments

                             Qtr2-06 v. Qtr2-05         Qtr2-06 v. Qtr1-06

                            Average                    Average
                             Sales                      Sales
                             Price      Volume          Price      Volume

    Olefins(A)              +17.1%      -3.4%          -7.6%       +10.9%
    Vinyls(B)               +11.4%      +9.3%          -1.7%       +16.9%
    Average                 +14.4%      +2.4%          -4.9%       +13.7%

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

    (B) Includes: Ethylene co-products, caustic, VCM, PVC resin, PVC pipe,
        and other fabrication products



                        Average Quarterly Industry Prices

                                        Qtr 2   Qtr 3   Qtr 4   Qtr 1   Qtr 2
                                        '05      '05     '05     '06     '06
    Ethane (cents/lb)                   17.6     23.1    25.7    19.2    22.8
    Propane (cents/lb)                  19.5     22.9    25.2    22.4    24.9
    Ethylene (cents/lb) (A)             38.3     41.2    55.8    50.3    46.5
    Polyethylene (cents/lb) (B)         62.0     65.2    86.0    78.0    73.0
    Styrene (cents/lb) (C)              61.6     60.3    63.8    60.6    61.7
    Caustic ($/ short ton) (D)         382.5    390.0   457.5   424.2   393.3
    Chlorine ($/ short ton) (E)        350.0    350.0   357.5   332.5   332.5
    VCM (cents/lb) (F)                  37.5     38.6    48.0    44.0    42.2
    PVC (cents/lb) (G)                  54.2     53.2    65.8    62.8    60.0

    Source: CMAI
    (A) Contract-Net Transaction (Pipeline)
    (B) Contract Low Density Polyethylene, GP- Film (Domestic Market,
        Contract, GP-Film)
    (C) Contract-Styrene (Contract Market)
    (D) Contract-Diaphragm caustic (Grade, Avg - incl Forecast)
    (E) Contract Chlorine (Contract Market Avg)
    (F) Contract Vinyl Chloride Monomer (Calculated Market Value)
    (G) Contract Polyvinyl Chloride-Pipe Grade (Contract Market)

SOURCE:
Westlake Chemical Corporation

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

Web site:
http://www.westlakechemical.com
http://www.westlakechemical.com/investors.html

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