HOUSTON, May 3 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $19.7 million, or $0.30 per diluted share, for the first quarter of 2007. This represents a decrease from the first quarter of 2006 net income of $51.3 million, or $0.79 per diluted share. The first quarter of 2006 net income was negatively impacted by an after tax charge of $16.3 million, or $0.25 per diluted share, related to the early retirement of debt. Sales for the first quarter of 2007 were $718.8 million, the highest in the history of the Company. Contributing to the record quarterly sales volume was the November 30, 2006 acquisition of Eastman Chemical's polyethylene business in Longview, Texas. Income from operations for the first quarter of 2007 was $32.7 million. This compares with first quarter 2006 income from operations of $110.9 million on net sales of $618.8 million. The decrease in income from operations is due primarily to lower selling prices for both olefins and vinyls products and higher feedstock costs. These reductions were partially offset by higher sales volumes for most of the Company's products. The first quarter of 2006 benefited from strong market conditions that existed for a period of time following Hurricanes Katrina and Rita.
First quarter 2007 results were minimally impacted by the utilization of the first-in, first-out (FIFO) inventory accounting method as compared with utilizing the last-in, first-out (LIFO) method used by some companies in the industry. By comparison, first quarter 2006 results were negatively impacted from using the FIFO method due to falling feedstock costs after the increases that had occurred as a result of Hurricanes Katrina and Rita.
First quarter 2007 net income increased $5.3 million, or $0.08 per diluted share, from the $14.4 million net income, or $0.22 per diluted share, reported in the fourth quarter of 2006. First quarter income from operations increased $24.2 million from the income from operations of $8.5 million reported in the fourth quarter of 2006, while net sales increased by $194.9 million from the $523.9 million reported in the fourth quarter of 2006. The increase in net sales and income from operations was primarily due to higher sales volumes for all major products, which was partially offset by lower selling prices. In addition, the fourth quarter of 2006 was negatively impacted by an unscheduled outage at one of the ethylene units in Lake Charles, Louisiana which was down 55 days beginning September 1, 2006. During the downtime, a major maintenance turnaround was completed, as well as tie-ins of portions of a previously announced project to upgrade the feedstock flexibility of one of the company's ethylene units.
The fourth quarter 2006 results were favorably impacted by a tax benefit which increased net income by $6.5 million, or $0.10 per diluted share, and a lower effective tax rate for the year than what was previously estimated in the third quarter of 2006. The tax benefit resulted from the reversal of various tax accruals due to the resolution of certain tax matters. Fourth quarter 2006 results also benefited from the settlement of two legal disputes and a settlement offer related to certain environmental contingencies which resulted in the reversal of contingent reserves and favorable settlements totaling $3.1 million after tax, or $0.05 per diluted share.
Albert Chao, President and Chief Executive Officer, said, "We are pleased to report record quarterly sales for the first quarter of 2007 due to the recently acquired Longview polyethylene business. First quarter 2007 sales volumes have rebounded after a very slow fourth quarter. Cash margins have improved from the low levels experienced in December as we have been able to implement price increases in both polyethylene and PVC resin during the first quarter and there have been further price increases announced by the industry for the second quarter. We remain concerned with rising feedstock costs and the continued weakness in the residential housing market. We are, however, cautiously optimistic about the U.S. economy as a whole."
EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the first quarter of 2007 increased 62.0% to $58.0 million compared to $35.8 million of EBITDA in the fourth quarter of 2006 but decreased 46.2% from the $107.8 million in the first 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 a negative $42.4 million for the quarter ended March 31, 2007 primarily due to increases in working capital attributable to the acquisition of Eastman's polyethylene business partially offset by earnings from operations. The Company had $18.9 million of capital additions in the first quarter. At March 31, 2007 the Company's cash balance was $13.3 million and debt was $280.9 million including $20.7 million drawn under the Company's $300.0 million revolving credit facility during the first quarter of 2007.
Income from operations for the Olefins segment decreased by $32.4 million to $27.2 million in the first quarter of 2007. This decrease was primarily due to decreases in product prices and margins which began early in the fourth quarter of 2006 and continued into the first quarter of 2007. Although product prices and volumes began to improve in the first quarter of 2007, margins were still significantly below the first quarter of 2006 levels. In addition, transition costs related to the Longview acquisition completed in the fourth quarter of 2006 negatively impacted income from operations in the first quarter of 2007.
First quarter 2007 income from operations for the Olefins segment was $29.8 million higher than the $2.6 million loss from operations reported in the fourth quarter of 2006. The fourth quarter of 2006 was adversely impacted by the unscheduled outage at one of the ethylene units in Lake Charles, Louisiana. The Company reported higher sales volumes for ethylene, polyethylene and styrene in the first quarter of 2007 as compared to the fourth quarter of 2006. Polyethylene converters increased their buying patterns partially in anticipation of higher prices due to price increases implemented in the first quarter. The increases in sales volumes were partially offset by lower average selling prices, higher feedstock costs and the Longview transition costs.
Income from operations for the Vinyls segment decreased by $46.6 million to $7.8 million for the first quarter of 2007. This decrease was primarily due to lower selling prices and margins for all of our vinyls products which was partially offset by higher sales volumes. Selling prices, margins and sales volumes for PVC resin and PVC pipe fell dramatically in the fourth quarter of 2006 due to weakness in the residential housing market, falling energy prices and seasonal slowdowns. Sales prices and margins continued under pressure in the first quarter of 2007. Sales volumes in the first quarter of 2007, however, have improved and the industry has implemented a PVC resin price increase beginning in March, 2007. By comparison, the first quarter of 2006 was very strong due to supply constraints resulting from the impact from Hurricanes Katrina and Rita.
First quarter 2007 income from operations for the Vinyls segment decreased by $2.5 million from the $10.3 million reported in the fourth quarter of 2006. This decrease was primarily due to increasing raw material costs and lower selling prices for most of our vinyls products due to continued weakness in the residential housing market, which was partially offset by higher sales volumes for these products.
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 integration of the Eastman acquisition; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to Westlake's Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC in February 2007.
In this release, Westlake refers to a non-GAAP financial measure, EBITDA. EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose a non-GAAP financial measure is generally defined by the U.S. Securities and Exchange Commission as one that purports to measure historical and future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. We have included EBITDA in this release because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using EBITDA. EBITDA allows for meaningful company-to-company performance comparisons by adjusting for factors such as interest expense, depreciation and amortization and taxes, which often vary from company to company. In addition, we utilize EBITDA in evaluating acquisition targets. Management also believes that EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented in this release may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes (1) interest expense, which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations, (2) depreciation, which is a necessary element of our costs and ability to generate revenues because we use capital assets and (3) income taxes, which is a necessary element of our operations. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. A table included in the financial schedules at the end of this release reconciles EBITDA to net income and to cash flow from operating activities.
Westlake Chemical Corporation Conference Call Information:
A conference call to discuss Westlake Chemical Corporation's first quarter results will be held Thursday, May 3, 2007 at 11:00 a.m. EDT (10:00 a.m. CDT). To access the conference call, dial (800) 688-0836, or (617) 614-4072 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 73021925.
A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. EDT on Thursday, May 10, 2007. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 48629607.
The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=180248&eventID=1533849 and the earnings release can be obtained via the company's Web page at: http://www.westlake.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.westlake.com .
WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2007 2006 (In thousands of dollars, except per share data) Net sales $718,802 $618,779 Cost of sales 660,913 487,721 Gross profit 57,889 131,058 Selling, general and administrative expenses 25,223 20,179 Income from operations 32,666 110,879 Interest expense (3,593) (6,026) Debt retirement cost --- (25,853) Other income, net 991 2,334 Income before income taxes 30,064 81,334 Provision for income taxes 10,392 29,997 Net income $19,672 $51,337 Basic and diluted earnings per share $0.30 $0.79 Weighted average shares outstanding Basic 65,217,996 65,092,195 Diluted 65,324,517 65,230,772 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 2007 2006 (In thousands of dollars) ASSETS Current Assets Cash and cash equivalents $13,325 $52,646 Accounts receivable, net 423,630 308,903 Inventories, net 417,651 456,276 Other current assets 26,338 31,962 Total current assets 880,944 849,787 Property, plant and equipment, net 1,076,364 1,076,903 Other assets, net 153,173 155,408 Total assets $2,110,481 $2,082,098 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (accounts payable and accrued liabilities) $306,552 $321,912 Long-term debt 280,876 260,156 Other liabilities 331,541 326,489 Total liabilities 918,969 908,557 Stockholders' equity 1,191,512 1,173,541 Total liabilities and stockholders' equity $2,110,481 $2,082,098 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2007 2006 (In thousands of dollars) Cash flows from operating activities Net income $19,672 $51,337 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Depreciation and amortization 24,355 20,475 Deferred tax expense 3,776 4,490 Other balance sheet changes (90,217) (9,543) Net cash (used for) provided by operating activities (42,414) 66,759 Cash flows from investing activities Additions to property, plant and equipment (18,873) (28,549) Settlements of derivative instruments 3,815 (27,445) Net cash used for investing activities (15,058) (55,994) Cash flows from financing activities Proceeds from exercise of stock options 62 396 Dividends paid (2,611) (1,791) Proceeds from borrowings 136,075 249,185 Repayments of borrowings (115,375) (256,000) Capitalized debt issuance costs --- (4,084) Net cash provided by (used for) financing activities 18,151 (12,294) Net decrease in cash and cash equivalents (39,321) (1,529) Cash and cash equivalents at beginning of period 52,646 237,895 Cash and cash equivalents at end of period $13,325 $236,366 WESTLAKE CHEMICAL CORPORATION SEGMENT INFORMATION (Unaudited) Three Months Ended March 31, 2007 2006 (In thousands of dollars) Net Sales to External Customers Olefins $484,226 $339,717 Vinyls 234,576 279,062 $718,802 $618,779 Income (Loss) from Operations Olefins $27,219 $59,565 Vinyls 7,792 54,411 Corporate and Other (2,345) (3,097) $32,666 $110,879 Depreciation and Amortization Olefins $15,656 $11,750 Vinyls 8,661 8,697 Corporate and Other 38 28 $24,355 $20,475 Other Income (Expense), net Olefins $52 $--- Vinyls 62 47 Corporate and Other* 877 (23,566) $991 $(23,519) *Debt retirement costs of $25,853 are included in the three months ended March 31, 2006. WESTLAKE CHEMICAL CORPORATION RECONCILIATION OF EBITDA TO NET INCOME AND TO CASH FLOW FROM OPERATING ACTIVITIES (Unaudited) Three Months Ended Three Months Ended December 31 March 31, 2006 2007 2006 (In thousands of dollars) EBITDA $35,809 $58,012 $107,835 Less: Provision for (benefit from) income taxes (6,039) 10,392 29,997 Interest expense 3,163 3,593 6,026 Depreciation and amortization 24,288 24,355 20,475 Net income 14,397 19,672 51,337 Changes in operating assets and liabilities 4,684 (65,862) 10,932 Deferred income taxes 4,235 3,776 4,490 Cash flow from operating activities $23,316 $(42,414) $66,759 WESTLAKE CHEMICAL CORPORATION SUPPLEMENTAL INFORMATION Key Product Sales Price and Volume Variance by Operating Segments First Quarter 2007 First Quarter 2007 vs. vs. First Quarter 2006 Fourth Quarter 2006 Average Average Sales Sales Price Volume Price Volume Olefins(1) -12.8% +61.5% -7.6% +62.8% Vinyls(2) -25.7% +13.1% -12.4% +31.1% Company -17.0% +38.6% -8.4% +48.9% (1) Includes: Ethylene and co-products, polyethylene, and styrene (2) Includes: Ethylene co-products, caustic, VCM, PVC resin, PVC pipe, and other fabrication products Average Quarterly Industry Prices (1) Quarter Ended March June September December March 2006 2006 2006 2006 2007 Ethane (cents/lb) 19.2 22.8 25.5 20.8 19.9 Propane (cents/lb) 22.4 24.9 26.0 22.4 22.9 Ethylene (cents/lb) (2) 50.3 46.5 50.7 44.8 40.0 Polyethylene (cents/lb) (3) 78.0 73.0 78.7 68.0 67.0 Styrene (cents/lb) (4) 60.6 61.7 70.1 66.9 64.8 Caustic ($/ short ton) (5) 424.2 393.3 361.7 337.5 360.0 Chlorine ($/ short ton) (6) 332.5 332.5 332.5 322.5 297.5 VCM (cents/lb) (7) 44.0 42.2 43.9 39.6 37.2 PVC (cents/lb) (8) 62.8 60.0 61.3 57.0 53.3 (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 America spot prices of ethylene over the period as reported by CMAI. (3) Represents average North America contract prices of polyethylene film over the period as reported by CMAI. (4) Represents average North American spot prices of styrene over the period as reported by CMAI. (5) Represents average North America spot prices of caustic soda (diaphragm grade) over the period as reported by CMAI. (6) Represents average North America contract prices of chlorine (into chemicals) over the period as reported by CMAI. (7) Represents average North America contract prices of VCM over the period as reported by CMAI. (8) 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