Westlake Chemical Reports Second Quarter Results

2008-08-05 05:00:00

    HOUSTON, Aug. 5 /EMWNews/ -- Westlake Chemical Corporation

(NYSE: WLK) today reported net income of $47.3 million, or $0.72 per

diluted share, for the second quarter of 2008. This represents an increase

from the second quarter of 2007 net income of $37.9 million, or $0.58 per

diluted share. Sales for the second quarter of 2008 were $1,106.4 million

and income from operations for the second quarter of 2008 was $73.6

million. This compares with net sales of $782.7 million and income from

operations of $62.3 million in the second quarter 2007. The increase in

sales was primarily due to higher selling prices and volumes for most major

products. Income from operations increased in the second quarter as

compared to the second quarter of 2007 as higher polyethylene and styrene

selling prices outpaced higher feedstock, natural gas and electricity

costs. In addition, the second quarter of 2007 was adversely impacted by a

major turnaround lasting approximately 30 days at one of the ethylene units

in Lake Charles, Louisiana. These increases in second quarter 2008

operating income were partially offset by continued weakness in the

construction markets, which negatively impacted Vinyls segment margins.

Vinyls margins were lower in the second quarter of 2008 as compared to the

prior year period as PVC pipe selling prices declined slightly in spite of

higher feedstock costs. PVC resin and caustic selling prices and PVC resin

and pipe sales volumes, however, were higher in the second quarter of 2008

as compared to the second quarter of 2007. The second quarter of 2008 was

negatively impacted by trading losses of $7.0 million as compared to a $4.1

million gain reported in the second quarter of 2007. The second quarter

2008 net income benefited from the reversal of $2.7 million of tax reserves

due to tax settlements, which reduced income tax expense for the period.



    Second quarter 2008 net income increased $41.9 million, or $0.64 per

diluted share, from the $5.4 million net income, or $0.08 per diluted

share, reported in the first quarter of 2008. Second quarter 2008 income

from operations increased $59.7 million from the $13.9 million reported in

the first quarter of 2008, while net sales increased by $191.3 million from

the $915.1 million reported in the first quarter of 2008. The increase in

sales was largely due to higher selling prices for polyethylene, styrene,

PVC resin and caustic and higher sales volumes for all major products. PVC

pipe sales volumes increased substantially in the second quarter as

compared to the first quarter as construction activities picked up after an

extended winter. Styrene sales volume returned to more normal levels after

the styrene facility in Lake Charles, Louisiana underwent a major

maintenance turnaround and revamp project during the first quarter designed

to increase energy efficiency and boost capacity. Income from operations

increased in the second quarter of 2008 as compared to the first quarter of

2008 as selling price increases outpaced higher feedstock and energy costs.

The first quarter of 2008 was negatively impacted by the turnaround of the

styrene plant in Lake Charles and the closure of the Pawling, New York

window and door component manufacturing facility.



    For the six months ended June 30, 2008, net income was $52.7 million,

or $0.81 per diluted share, compared to $57.6 million net income, or $0.88

per diluted share for the six months ended June 30, 2007. Net sales

increased $520.0 million, or 34.6%, to $2,021.5 million for the six months

ended June 30, 2008 from the $1,501.5 million reported in the six months

ended June 30, 2007. Income from operations was $87.4 million for the six

months ended June 30, 2008 as compared to $94.9 million for the six months

ended June 30, 2007. The increase in sales was due to higher selling prices

for all major products and higher sales volumes for ethylene and PVC resin.

Income from operations for the first six months of 2008 was below income

from operations reported in the first six months of 2007 due to, among

other things, higher raw material, natural gas and electricity costs and a

loss from trading activities. Raw material costs for ethane and propane

increased by more than 50% in the first half of 2008 as compared to the

first half of 2007 and trading activity resulted in a loss of $6.9 million

for the first half of 2008 as compared to a $4.8 million gain for the first

half of 2007. The first half of 2008 was negatively impacted by the

turnaround and revamp of the styrene facility and the closure of the

Pawling facility. The first half of 2007 was negatively impacted by a

turnaround at one of the ethylene units in Lake Charles.



    Albert Chao, President and Chief Executive Officer, said, "We are

pleased to report a substantial increase in our operating income and

earnings per share in the second quarter of 2008 as compared to our first

quarter. Margins improved due to higher sales volumes for all of our major

products and we are able to increase prices in order to partially offset

the rise in feedstock costs which have reached unprecedented levels. U.S.

gas-based ethylene producers continue to maintain a cost advantage over

oil-based ethylene producers. Global polyethylene prices remain strong with

high naphtha costs and continue to provide U.S. producers with good export

opportunities. We do, however, remain concerned with the high energy prices

and the persisting housing crisis and the weakening effects they have had

on the economy."



    EBITDA (earnings before interest expense, income taxes, depreciation

and amortization) for the second quarter of 2008 increased $14.9 million to

$103.2 million compared to the $88.3 million in the second quarter of 2007.

EBITDA for the second quarter of 2008 increased $60.9 million from the

$42.3 million of EBITDA in the first quarter of 2008. 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.



    The net use of $8.0 million of cash from operating activities in the

first half of 2008 resulted primarily from increases in working capital

requirements and capitalized turnaround costs incurred at the styrene

facility. Capital additions for the first half of 2008 were $81.8 million.

At June 30, 2008, the Company had $22.5 million of cash and $146.2 million

of restricted cash, and the Company's long-term debt was $549.4 million.

The restricted cash is held by a trustee until such time as the Company

requests reimbursement for qualifying amounts spent for capital additions

in Louisiana.



    OLEFINS SEGMENT



    Income from operations for the Olefins segment increased by $15.1

million to $57.8 million in the second quarter of 2008 from $42.7 million

reported in the second quarter of 2007. This increase was primarily due to

higher selling prices for polyethylene and styrene, which were partially

offset by higher raw material costs for ethane and propane and higher

natural gas and electricity costs. The second quarter of 2007 was also

adversely impacted by the scheduled turnaround at one of the ethylene units

in Lake Charles. Trading activity resulted in a loss of $7.0 million in the

second quarter of 2008 compared to a $4.1 million gain in the second

quarter of 2007.



    Second quarter 2008 income from operations for the Olefins segment

increased by $37.6 million from the $20.2 million reported in the first

quarter of 2008. This increase was primarily due to increases in

polyethylene and styrene sales volumes and prices which were partially

offset by higher feedstock costs. The first quarter of 2008 was adversely

impacted by the styrene plant turnaround. Trading activity resulted in a

loss in the second quarter of 2008 of $7.0 million as compared to a $0.1

million gain in the first quarter of 2008.



    Income from operations for the Olefins segment increased by $8.1

million, or 11.6%, to $78.0 million for the six months ended June 30, 2008

from $69.9 million for the six months ended June 30, 2007. Selling prices

for polyethylene and styrene outpaced rising feedstock costs in the first

half of 2008 as compared to the first half of 2007. Trading activities

resulted in a loss of $6.9 million in the first half of 2008 as compared to

a $4.8 million gain in the same period of 2007. The first half of 2008 was

negatively impacted by the styrene plant turnaround while the first half of

2007 was negatively impacted by the turnaround at one of the ethylene units

in Lake Charles.



    VINYLS SEGMENT



    Income from operations for the Vinyls segment decreased by $2.4 million

to $18.4 million for the second quarter of 2008 from the $20.8 million

income reported in the second quarter of 2007. This decrease was primarily

due to significantly higher feedstock costs for propane and ethylene and a

slight decrease in PVC pipe prices. These decreases in income from

operations were partially offset by higher selling prices for PVC resin and

caustic and higher sales volumes for PVC resin and PVC pipe in the second

quarter of 2008 as compared to the prior year period. The Vinyls segment

margins continue to be negatively impacted by the weakness in the

construction market.



    Second quarter 2008 income from operations for the Vinyls segment

improved by $21.5 million from the $3.1 million loss reported in the first

quarter of 2008. This improvement was largely due to higher selling prices

for PVC resin and caustic. In addition, PVC resin and PVC pipe sales

volumes increased significantly in the second quarter as construction

activities picked up after an extended winter. These increases were

partially offset by higher feedstock costs for propane and ethylene. The

first quarter of 2008 was negatively impacted by costs related to the

closure of the Pawling facility.



    Income from operations for the Vinyls segment decreased by $13.3

million, or 46.5%, to $15.3 million for the six months ended June 30, 2008

from $28.6 million for the six months ended June 30, 2007. This decrease

was primarily due to higher raw material costs for propane and ethylene and

lower sales volumes for PVC pipe. In addition, the shutdown of the Pawling

facility negatively impacted operating income in the first six months of

2008. These decreases were partially offset by higher sales volumes for PVC

resin and higher selling prices for PVC resin and caustic.



    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, 2007, which was

filed with the SEC in February 2008.



    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 Tuesday, August 5, 2008 at 11:00 a.m. EDT

(10:00 a.m. CDT). To access the conference call, dial (800) 659-2056, or

(617) 614-2714 for international callers, approximately 10 minutes prior to

the scheduled start time and reference passcode 82398295.



    A replay of the conference call will be available beginning an hour

after its conclusion until 1:00 p.m. EDT on Tuesday, August 12, 2008. To

hear a replay, dial (888) 286-8010, or (617) 801-6888 for international

callers. The replay passcode is 52344617.




The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=180248&eventID=1903600 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 Six Months Ended June 30, June 30, 2008 2007 2008 2007 (In thousands of dollars, except per share data) Net sales $1,106,449 $782,664 $2,021,510 $1,501,466 Cost of sales 1,009,989 698,233 1,888,346 1,359,146 Gross profit 96,460 84,431 133,164 142,320 Selling, general and administrative expenses 22,884 22,152 45,729 47,375 Income from operations 73,576 62,279 87,435 94,945 Interest expense (9,287) (4,495) (17,815) (8,088) Other income (expense), net 2,199 (292) 4,607 699 Income before income taxes 66,488 57,492 74,227 87,556 Provision for income taxes 19,215 19,602 21,567 29,994 Net income $47,273 $37,890 $52,660 $57,562 Basic and diluted earnings per share $0.72 $0.58 $0.81 $0.88 Weighted average shares outstanding Basic 65,264,781 65,224,697 65,262,169 65,221,365 Diluted 65,296,743 65,324,714 65,292,816 65,324,616 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2008 2007 (In thousands of dollars) ASSETS Current Assets Cash and cash equivalents $22,462 $24,914 Accounts receivable, net 641,504 507,463 Inventories, net 514,462 527,871 Other current assets 39,072 31,937 Total current assets 1,217,500 1,092,185 Property, plant and equipment, net 1,159,799 1,126,212 Restricted Cash 146,150 199,450 Other assets, net 162,523 151,488 Total assets $2,685,972 $2,569,335 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (accounts payable and accrued liabilities) $465,001 $441,262 Long-term debt 549,438 511,414 Other liabilities 337,105 329,989 Total liabilities 1,351,544 1,282,665 Stockholders' equity 1,334,428 1,286,670 Total liabilities and stockholders' equity $2,685,972 $2,569,335 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2008 2007 (In thousands of dollars) Cash flows from operating activities Net income $52,660 $57,562 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 53,378 50,716 Deferred income taxes 9,088 14,417 Other balance sheet changes (123,173) (88,517) Net cash (used for) provided by operating activities (8,047) 34,178 Cash flows from investing activities Additions to property, plant and equipment (81,751) (50,483) Addition to equity investment - (308) Settlement of acquisition purchase price - 8,043 Proceeds from disposition of assets 346 33 Settlements of derivative instruments 535 3,673 Net cash used for investing activities (80,870) (39,042) Cash flows from financing activities Proceeds from exercise of stock options - 62 Dividends paid (6,563) (5,229) Proceeds from borrowings 620,235 191,684 Repayments of borrowings (582,252) (191,684) Utilization of restricted cash 55,045 - Net cash provided by (used for) financing activities 86,465 (5,167) Net decrease in cash and cash equivalents (2,452) (10,031) Cash and cash equivalents at beginning of period 24,914 52,646 Cash and cash equivalents at end of period $22,462 $42,615 WESTLAKE CHEMICAL CORPORATION SEGMENT INFORMATION (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 (In thousands of dollars) Net Sales to External Customers Olefins $765,962 $514,840 $1,426,783 $999,066 Vinyls 340,487 267,824 594,727 502,400 $1,106,449 $782,664 $2,021,510 $1,501,466 Income (Loss) from Operations Olefins $57,804 $42,716 $77,956 $69,935 Vinyls 18,354 20,817 15,269 28,609 Corporate and Other (2,582) (1,254) (5,790) (3,599) $73,576 $62,279 $87,435 $94,945 Depreciation and Amortization Olefins $19,182 $17,487 $36,843 $33,143 Vinyls 8,143 8,838 16,441 17,499 Corporate and Other 52 36 94 74 $27,377 $26,361 $53,378 $50,716 Other Income (Expense), net Olefins $42 $119 $58 $170 Vinyls 67 28 166 90 Corporate and Other 2,090 (439) 4,383 439 $2,199 $(292) $4,607 $699 WESTLAKE CHEMICAL CORPORATION RECONCILIATION OF EBITDA TO NET INCOME AND TO CASH FLOW FROM OPERATING ACTIVITIES (Unaudited) Three Months Three Months Six Months Ended Ended Ended March 31, June 30, June 30, 2008 2008 2007 2008 2007 (In thousands of dollars) EBITDA $42,268 $103,152 $88,348 $145,420 $146,360 Less: Provision for income taxes 2,352 19,215 19,602 21,567 29,994 Interest expense 8,528 9,287 4,495 17,815 8,088 Depreciation and amortization 26,001 27,377 26,361 53,378 50,716 Net income 5,387 47,273 37,890 52,660 57,562 Changes in operating assets and liabilities (34,804) (34,991) 28,061 (69,795) (37,801) Deferred income taxes 1,163 7,925 10,641 9,088 14,417 Cash flow from operating activities $(28,254) $20,207 $76,592 $(8,047) $34,178 WESTLAKE CHEMICAL CORPORATION SUPPLEMENTAL INFORMATION Product Sales Price and Volume Variance by Operating Segments Second Quarter Second Quarter 2008 vs. 2008 vs. Second Quarter First Quarter 2007 2008 Average Average Sales Sales Price Volume Price Volume Olefins +38.9% +9.9% +9.4% +6.5% Vinyls +14.6% +12.5% +6.3% +27.6% Company +30.6% +10.8% +8.5% +12.4% Average Quarterly Industry Prices (1) Quarter Ended June September December March June 2007 2007 2007 2008 2008 Ethane (cents/lb) 24.3 27.6 35.2 34.1 35.4 Propane (cents/lb) 26.7 29.0 35.7 34.8 40.2 Ethylene (cents/lb) (2) 44.7 50.2 60.2 60.5 65.7 Polyethylene (cents/lb) (3) 72.7 79.0 86.3 88.0 94.7 Styrene (cents/lb) (4) 71.3 68.1 68.8 72.5 78.8 Caustic ($/ short ton) (5) 405.0 450.0 485.8 554.2 641.7 Chlorine ($/ short ton) (6) 322.5 322.5 322.5 300.0 275.0 PVC (cents/lb) (7) 59.0 61.3 66.7 54.3 58.7 (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 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 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. In the first quarter of 2008, CMAI made a 16 cent per pound downward, non-market related adjustment to PVC resin prices.

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