Westlake Chemical Reports Strong Third Quarter Results

Westlake Chemical Reports Strong Third Quarter Results

Highlights

  • 11% increase in sales
  • 24% increase in third quarter income from operations
  • HOUSTON, Nov. 2 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $61.7 million, or $0.95 per diluted share, for the third quarter of 2006, an increase of 42% from the third quarter of 2005 net income of $43.5 million, or $0.67 per diluted share. Income from operations was $87.0 million on net sales of $672.4 million for the third quarter of 2006. This compares favorably with third quarter 2005 income from operations of $70.1 million on net sales of $605.4 million. The improvement in income from operations was primarily the result of increased selling prices, which outpaced higher feedstock costs, and improved feedstock trading results. The improvement in income from operations was partially offset by lower production volumes and higher maintenance expense due to an unscheduled outage at one of the company's ethylene units in Lake Charles, Louisiana. The unscheduled shutdown resulted from mechanical problems with a compressor that required extended maintenance. As a result of the unscheduled outage, the company was able to complete a maintenance turnaround of the unit which had previously been scheduled for later in the year or early in 2007. During the unit's downtime, the company also completed portions of a previously announced project to upgrade the feedstock flexibility at the ethylene plant, which is expected to reduce energy costs and provide additional ethylene capacity. The unit was successfully restarted in late October and resumed full production.

    Albert Chao, President and Chief Executive Officer, said, "We are pleased to report strong third quarter results despite the negative impact of the unscheduled outage at Lake Charles. In addition to higher sales, our income from operations margin ('operating margin') increased to 13% in the third quarter of 2006 from 12% in the third quarter of 2005. Income from operations in the first nine 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."

    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 was slightly favorable in the third quarter.

    Compared to the second quarter of 2006, net income decreased $5.5 million, or $0.08 per diluted share, in the third quarter of 2006. However, third quarter 2006 net sales were $3.1 million higher than the $669.3 million reported in the second quarter of 2006. Third quarter 2006 income from operations decreased $19.9 million from the income from operations of $106.9 million reported in the second quarter of 2006. The decrease in net income and income from operations in the third quarter of 2006 as compared to the second quarter of 2006 was primarily due to the unscheduled outage at the ethylene unit in Lake Charles, Louisiana. The third quarter of 2006 was also negatively impacted by lower sales volumes for polyethylene and PVC pipe and higher feedstock costs. These decreases were partially offset by higher selling prices for most of the company's products.

    For the nine months ended September 30, 2006, net income was $180.2 million, or $2.76 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 nine months of 2005, net income was $153.2 million, or $2.35 per diluted share. Net sales increased $155.8 million or 9% to $1,960.5 million for the nine months ended September 30, 2006 from the $1,804.7 million reported for the nine months ended September 30, 2005. Income from operations was $304.7 million for the nine months ended September 30, 2006 as compared to $254.5 million for the nine months ended September 30, 2005. The year to date increases were primarily due to higher selling prices, which were partially offset by higher feedstock costs and lower production volumes and higher maintenance expense due to the maintenance turnaround at the company's facility in Calvert City, Kentucky and the unscheduled outage at the ethylene unit in Lake Charles, Louisiana. Net income also benefited from lower interest expense resulting from lower interest rates due to the re-financing completed in the first quarter of this year, higher interest income and improved feedstock trading results. Additionally, net income for the three months and nine months ended September 30, 2006 benefited from adjustments to deferred income taxes and the extra-territorial exclusion income benefit ("ETI"), which reduced income tax expense and increased net income by $3.7 million, or $0.06 per diluted share.

    EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the third quarter of 2006 increased 24% to $111.4 million compared to $90.1 million in the third quarter of 2005 but decreased 15%, or $18.9 million, from $130.3 million of EBITDA in the second quarter of 2006. A reconciliation of EBITDA to reported net income and to cash flows from operating activities can be found in the financial schedules at the end of this press release.

    Cash flows from operating activities were $213.9 million for the nine months ended September 30, 2006, $100.7 million of which was used for capital additions. At the end of the third quarter of 2006, the company's cash and short-term investments balance was $303.1 million and total debt outstanding was $260.1 million.

    OLEFINS SEGMENT

    Income from operations for the Olefins segment decreased by $3.2 million, or 7%, to $41.9 million in the third quarter of 2006 from $45.1 million in the third quarter of 2005. This decrease was primarily due to the unscheduled outage at the ethylene unit in Lake Charles, Louisiana. While the unit was down, the company conducted a maintenance turnaround of the facility. The unit was successfully restarted in late October. The negative effect on operating income of the unscheduled outage was partially offset by higher selling prices for the company's Olefins products which more than offset higher raw material costs. Merchant ethylene sales volumes were lower for the third quarter of 2006 as compared to the third quarter of 2005 largely due to the increase in internal ethylene consumption resulting from additional VCM production at the company's Geismar vinyls facility.

    Third quarter 2006 income from operations for the Olefins segment decreased by $20.1 million from the $62.0 million income from operations reported in the second quarter of 2006. This decrease was primarily due to the unscheduled outage at the ethylene unit in Lake Charles, Louisiana, higher raw material costs for ethane and propane and lower polyethylene sales volumes. These decreases were partially offset by higher selling prices for the company's Olefins products.

    Income from operations for the Olefins segment increased by $23.9 million, or 17%, to $163.4 million for the nine months ended September 30, 2006 from $139.5 million for the nine months ended September 30, 2005. This increase was primarily due to price increases for all of the company's Olefins products. These increases were partially offset by the impact from the unscheduled outage referred to above, higher 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 resulting from additional VCM production at the Geismar facility.

    VINYLS SEGMENT

    Income from operations for the Vinyls segment increased by $20.0 million, or 69%, to $48.9 million in the third quarter of 2006 from the $28.9 million reported in the third quarter of 2005. This increase was primarily due to higher sales volumes for PVC resin and higher selling prices for both PVC resin and PVC pipe, partially offset by increased raw material costs.

    Third quarter 2006 income from operations for the Vinyls segment increased by $4.6 million from the $44.3 million income from operations reported in the second quarter of 2006. This increase was primarily due to the negative impact of a planned maintenance turnaround at the company's vinyls complex in Calvert City, Kentucky during the second quarter of 2006. In addition, the third quarter of 2006 benefited from higher selling prices for both PVC resin and PVC pipe. These increases were partially offset by higher feedstock costs and lower PVC pipe sales volumes.

    Income from operations for the Vinyls segment increased by $26.1 million, or 22%, to $147.6 million for the nine months ended September 30, 2006 from $121.5 million for the nine months ended September 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 the planned maintenance turnaround during the second quarter of 2006 and higher 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 third quarter results will be held Thursday, November 2, 2006 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). To access the conference call, dial (800) 299-9086, or (617) 786-2903 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 10251707.

    A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. Eastern Time on Thursday, November 9, 2006. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 42524429.

        The conference call will also be available via webcast at:
    http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
    eventDetails&c=180248&eventID=1402866 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 www.westlakechemical.com .

    
    
                            WESTLAKE CHEMICAL CORPORATION
    
                        CONSOLIDATED STATEMENTS OF OPERATIONS
    
                                     (Unaudited)
    
                                  Three Months Ended      Nine Months Ended
                                     September 30,           September 30,
                                   2006        2005        2006        2005
                               (In thousands of dollars, except per share data)
    
        Net sales                $672,417    $605,391  $1,960,463  $1,804,666
        Cost of sales             563,241     516,127   1,595,017   1,496,139
        Gross profit              109,176      89,264     365,446     308,527
    
        Selling, general and
         administrative
         expenses                  22,165      19,202      60,703      53,994
    
        Income from operations     87,011      70,062     304,743     254,533
    
        Interest expense           (3,432)     (5,834)    (13,356)    (17,867)
        Debt retirement cost          ---         ---     (25,853)       (646)
        Other income, net           3,268         888       8,657         322
    
        Income before income
         taxes                     86,847      65,116     274,191     236,342
    
        Provision for income
         taxes                     25,191      21,590      94,029      83,147
    
        Net income                $61,656     $43,526    $180,162    $153,195
    
        Earnings per common share
           Basic                    $0.95       $0.67       $2.77       $2.36
           Diluted                  $0.95       $0.67       $2.76       $2.35
    
        Weighted average
         shares outstanding
           Basic               65,134,582  65,026,962  65,110,448  64,987,068
           Diluted             65,237,824  65,261,382  65,234,840  65,252,220
    
    
    
                            WESTLAKE CHEMICAL CORPORATION
    
                             CONSOLIDATED BALANCE SHEETS
    
                                     (Unaudited)
    
                                                   September 30,      December 31,
                                                        2006              2005
                                                      (In thousands of dollars)
    
        Current Assets
          Cash and cash equivalents                   $202,824          $237,895
          Short-term investments                       100,275               ---
          Accounts receivable, net                     335,063           302,779
          Inventories, net                             312,928           339,870
          Other current assets                          22,552            22,319
            Total current assets                       973,642           902,863
        Property, plant and equipment, net             909,532           863,232
        Other assets, net                               88,928            61,094
    
              Total assets                          $1,972,102        $1,827,189
    
    
              LIABILITIES AND STOCKHOLDERS' EQUITY
        Current liabilities
          Accounts payable and accrued
           liabilities                                $269,953          $304,649
          Current portion of long-term debt                ---             1,200
            Total current liabilities                  269,953           305,849
        Long-term debt                                 260,135           265,689
        Other liabilities                              269,713           261,545
    
              Total liabilities                        799,801           833,083
    
        Stockholders' equity                         1,172,301           994,106
    
        Total liabilities and stockholders'
         equity                                     $1,972,102        $1,827,189
    
    
    
                            WESTLAKE CHEMICAL CORPORATION
    
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
    
                                     (Unaudited)
    
                                                           Nine Months Ended
                                                             September 30,
                                                        2006              2005
                                                       (In thousands of dollars)
        Cash flows from operating activities
        Net income                                    $180,162          $153,195
    
        Adjustments to reconcile net income
         to net cash provided by operating
         activities:
          Depreciation and amortization                 61,974            60,649
          Deferred tax expense                           9,617            30,527
          Other balance sheet changes                  (37,885)          (69,245)
    
        Net cash provided by operating
         activities                                    213,868           175,126
    
        Cash flows from investing activities
        Additions to property, plant and
         equipment                                    (100,659)          (60,732)
        Addition to equity investment                   (4,574)              ---
        Purchase of short-term investments            (134,625)              ---
        Sales and maturities of short-term
         investments                                    34,350               ---
        Settlements of derivative instruments          (27,520)              ---
        Proceeds from disposition of assets                 20                43
    
        Net cash used for investing
         activities                                   (233,008)          (60,689)
    
        Cash flows from financing activities
        Proceeds from the exercise of stock
         options                                         1,404               966
        Dividends paid                                  (6,192)           (4,551)
        Proceeds from borrowings                       249,185               ---
        Repayment of borrowings                       (256,000)          (30,900)
        Capitalized debt issuance costs                 (4,328)              ---
    
        Net cash used for financing
         activities                                    (15,931)          (34,485)
    
        Net (decrease) increase in cash and
         cash equivalents                              (35,071)           79,952
    
        Cash and cash equivalents at
         beginning of period                           237,895            43,396
    
        Cash and cash equivalents at end of
         period                                       $202,824          $123,348
    
    
    
                            WESTLAKE CHEMICAL CORPORATION
    
                                 SEGMENT INFORMATION
    
                                     (Unaudited)
    
                                    Three Months Ended        Nine Months Ended
                                       September 30,             September 30,
                                      2006      2005           2006       2005
                                            (In thousands of dollars)
    
        Net Sales to External Customers
        Olefins                     $361,525  $331,228     $1,049,894  $1,025,285
        Vinyls                       310,892   274,163        910,569     779,381
                                    $672,417  $605,391     $1,960,463  $1,804,666
    
        Income (Loss) from Operations
        Olefins                      $41,851   $45,086       $163,445    $139,502
        Vinyls                        48,944    28,850        147,606     121,482
        Corporate and Other           (3,784)   (3,874)        (6,308)     (6,451)
                                     $87,011   $70,062       $304,743    $254,533
    
        Depreciation and Amortization
        Olefins                      $12,293    $9,767        $35,872     $34,699
        Vinyls                         8,747     9,320         26,005      25,918
        Corporate and Other               38        18             97          32
                                     $21,078   $19,105        $61,974     $60,649
    
        Other Income (Expense), net
        Olefins                         $---      $(67)           $(1)    $(1,996)
        Vinyls                            71      (188)           156         276
        Corporate and Other*           3,197     1,143        (17,351)      1,396
                                      $3,268      $888       $(17,196)      $(324)
    
         *Debt retirement costs of $25,853 and $646 are included in the nine
          months ended September 30, 2006 and September 30, 2005, respectively.
    
    
    
                            WESTLAKE CHEMICAL CORPORATION
    
        RECONCILIATION OF EBITDA TO NET INCOME AND TO CASH FLOW FROM OPERATING
                                      ACTIVITIES
    
                                     (Unaudited)
    
                                   Three
                                   Months
                                   Ended   Three Months Ended  Nine Months Ended
                                  June 30,    September 30,      September 30,
                                    2006      2006     2005      2006      2005
                                             (In thousands of dollars)
    
        EBITDA                    $130,329  $111,357  $90,055  $349,521  $314,858
        Less:
        Provision for income
         taxes                      38,841    25,191   21,590    94,029    83,147
        Interest expense             3,898     3,432    5,834    13,356    17,867
        Depreciation and
         amortization               20,421    21,078   19,105    61,974    60,649
    
        Net income                  67,169    61,656   43,526   180,162   153,195
        Changes in operating
         assets and liabilities      6,726     6,431  (19,868)   24,089    (8,596)
        Deferred income taxes        6,246    (1,119)   7,770     9,617    30,527
        Cash flows from operating
         activities                $80,141   $66,968  $31,428  $213,868  $175,126
    
    
    
                            WESTLAKE CHEMICAL CORPORATION
                               SUPPLEMENTAL INFORMATION
    
          Key Product Sales Price and Volume Variance by Operating Segments
    
    
                                     Qtr3-06 v. Qtr3-05       Qtr3-06 v. Qtr2-06
                                     Average                  Average
                                      Sales                    Sales
                                      Price      Volume        Price      Volume
        Olefins (A)                   +19.8%     -11.3%        +10.3%      -7.3%
        Vinyls (B)                    +11.4%      +1.8%         +2.1%      -5.0%
        Company average               +15.7%      -5.3%         +6.3%      -6.2%
    
         (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 (A)
    
                                                Qtr 3  Qtr 4  Qtr 1  Qtr 2  Qtr 3
                                                 '05    '05    '06    '06    '06
        Ethane (cents/lb)                        23.1   25.7   19.2   22.8   25.5
        Propane (cents/lb)                       22.9   25.2   22.4   24.9   26.0
        Ethylene (cents/lb) (B)                  41.2   55.8   50.3   46.5   50.7
        Low density polyethylene (cents/lb) (C)  65.2   86.0   78.0   73.0   78.7
        Linear low density polyethylene
         (cents/lb) (D)                          57.2   78.0   70.0   65.0   70.7
        Styrene (cents/lb) (E)                   60.3   63.8   60.6   61.7   70.1
        Caustic ($/ short ton) (F)              390.0  457.5  424.2  393.3  361.7
        Chlorine ($/ short ton) (G)             350.0  357.5  332.5  332.5  332.5
        VCM (cents/lb) (H)                       38.6   48.0   44.0   42.2   43.9
        PVC (cents/lb) (I)                       53.2   65.8   62.8   60.0   61.3
    
         (A)  Industry pricing data was obtained through the Chemical Market
              Associates, Inc., or CMAI. We have not independently verified the
              data.
         (B)  Represents average North America spot prices of ethylene over the
              period as reported by CMAI.
         (C)  Represents average North America contract prices of LDPE general
              purpose film over the period as reported by CMAI.
         (D)  Represents average North America contract prices of LLDPE butene
              film over the period as reported by CMAI.
         (E)  Represents average North American spot prices of styrene over the
              period as reported by CMAI.
         (F)  Represents average North America spot prices of caustic soda
              (diaphragm grade) over the period as reported by CMAI.
         (G)  Represents average North America contract prices of chlorine (into
              chemicals) over the period as reported by CMAI.
         (H)  Represents average North America contract prices of VCM over the
              period as reported by CMAI.
         (I)  Represents average North America contract prices of PVC over the
              period as reported by CMAI.
    

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

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