Westlake Chemical Reports Third Quarter Results
HOUSTON, Nov. 3 /PRNewswire-FirstCall/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income of $43.5 million, or $0.67 per diluted share, and income from operations of $70.1 million on net sales of $605.4 million for the third quarter of 2005. This compares favorably with third quarter 2004 net income of $28.3 million, or $0.50 per diluted share, and income from operations of $68.9 million on net sales of $572.0 million. The improvement in net sales and income from operations was primarily the result of increased selling prices, which outpaced higher energy and feedstock costs, and higher PVC resin and PVC pipe sales volumes. PVC pipe sales volumes were higher due to strong end-markets and the August 2004 acquisition of the assets of Bristolpipe Corporation. These increases were partially offset by lower ethylene, polyethylene, styrene, VCM and caustic sales volumes, and feedstock related trading losses. Third quarter 2005 net income also benefited from lower interest expense largely due to lower debt balances.
In the third quarter of 2005, 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 of the company's competitors. Third quarter 2004 net income includes an after-tax charge of $9.3 million related to the early retirement of debt. This charge reduced earnings per diluted share in the third quarter of 2004 by $0.16 per diluted share.
Albert Chao, President and Chief Executive Officer, stated, "We are pleased to report a strong quarter in spite of the effects that Hurricanes Katrina and Rita had on energy prices and the economy as a whole. The chemical industry has responded with pricing initiatives to compensate for the increases in cost. Although our Vinyls segment results were below second quarter 2005 performance, we have seen positive signs of improved business activity and higher selling prices."
On September 22, 2005, the company shut down its vinyls facilities at its Geismar, Louisiana complex and its olefins facilities at its Lake Charles complex due to Hurricane Rita. Both complexes sustained minimal damage from the hurricane; however, the lack of electrical power and other utilities caused extended outages at the complexes. The Geismar operations were re- started on September 30, 2005. The facilities at Lake Charles, Louisiana were re-started on October 14, 2005. The production outages had a minimal impact on the company's third quarter results and Westlake is currently assessing the impact on the fourth quarter.
Third quarter 2005 net income decreased $5.0 million, or $0.07 per diluted share from the $48.5 million net income, or $0.74 per diluted share, reported in the second quarter of 2005. Third quarter 2005 income from operations decreased $12.7 million from the income from operations of $82.8 million reported in the second quarter of 2005 while net sales increased by $24.7 million from the $580.7 million reported in the second quarter of 2005. The decreases in operating income and net income were due primarily to energy and raw material price spikes caused by Hurricanes Katrina and Rita and feedstock related trading losses. These decreases were partially offset by higher selling prices for ethylene and polyethylene and higher sales volumes for ethylene, polyethylene, PVC resin and PVC pipe.
For the nine months ended September 30, 2005, net income was $153.2 million, or $2.35 per diluted share, on net sales of $1,804.7 million. This compares favorably with the nine months ended September 30, 2004 net income of $73.4 million, or $1.41 per diluted share, on net sales of $1,422.3 million, which included an after-tax charge of $9.3 million, or $0.18 per diluted share related to the early retirement of debt. Income from operations was $254.5 million for the nine months ended September 30, 2005 as compared to $161.8 million for the nine months ended September 30, 2004. These increases were primarily due to higher sales volumes in the company's Vinyls segment and higher selling prices for all of the company's olefins and vinyls products which outpaced higher feedstock and energy costs. Year-to-date net income for 2005 also benefited from lower interest expense resulting from lower debt balances. Additionally, net income for the third quarter and the nine months ended September 30, 2005 benefited from adjustments to depreciation and income tax expense related to prior periods, which increased net income by $3.8 million or $0.06 per diluted share.
EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the third quarter of 2005 was $90.1 million compared to $77.2 million in the third quarter of 2004 and $101.9 million in the second quarter of 2005. 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 company generated strong cash flows from operations of $175.1 million in the first nine months of 2005 and repaid $30.9 million of its senior secured term loan during that period, leaving it with $123.3 million of cash and $267.2 million of debt on the balance sheet as of September 30, 2005.
Income from operations for the Olefins segment increased by $0.4 million to $45.1 million in the third quarter of 2005 from $44.7 million in the third quarter of 2004. This increase was primarily due to ethylene and polyethylene price increases and an adjustment of $2.5 million related to prior periods which reduced depreciation expense. These increases were partially offset by higher raw material costs for ethane and propane, higher energy costs, lower sales volumes, and feedstock related trading losses.
Third quarter 2005 income from operations for the Olefins segment increased by $13.1 million from the $32.0 million income from operations reported in the second quarter of 2005. This increase was primarily due to higher selling prices and sales volumes for ethylene and polyethylene, which was partially offset by higher energy and raw material costs, lower selling prices and sales volumes for styrene, and feedstock related trading losses.
Income from operations for the Olefins segment increased by $25.3 million to $139.5 million for the nine months ended September 30, 2005 from $114.2 million for the nine months ended September 30, 2004. This increase was primarily due to price increases for all of the segment's products. These increases were partially offset by slightly lower sales volumes, higher raw material costs and higher energy costs. Merchant ethylene sales volumes were lower for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 largely due to the increase in internal ethylene consumption at the Geismar facility.
Income from operations for the Vinyls segment increased by $2.6 million to $28.9 million in the third quarter of 2005 from $26.3 million in the third quarter of 2004. This increase was primarily due to higher sales volumes for PVC resin and PVC pipe and higher selling prices for all of the segment's products. These increases were partially offset by higher energy costs and higher raw material costs for propane.
Third quarter income from operations for the Vinyls segment decreased by $22.1 million from the $51.0 million income from operations reported in the second quarter of 2005. This decrease was primarily due to higher raw material costs for propane and ethylene and lower selling prices for PVC resin and PVC pipe. These decreases were partially offset by higher sales volumes for PVC resin and PVC pipe. Ethylene is purchased in the company's Vinyls segment directly from its Olefins segment.
Income from operations for the Vinyls segment increased by $70.4 million to $121.5 million for the nine months ended September 30, 2005 from $51.1 million for the nine months ended September 30, 2004. This increase was primarily due to higher selling prices for all of the segment's products and higher sales volumes for VCM, PVC resin and PVC pipe. These increases were partially offset by higher raw material and energy costs. The first nine months of 2004 earnings were adversely impacted by a fire at the Calvert City ethylene plant. The estimated impact on operating income of the outage relating to the fire was approximately $8.4 million.
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, 2004, which was filed in March 2005.
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 3, 2005 at 11:00 a.m. EST (10:00 a.m. CST). To access the conference call, dial (800) 295-4740, or (617) 614-3925 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 78298181.
A replay of the conference call will be available beginning an hour after its conclusion until 11:59 p.m. EST (10:59 p.m. CST) on Thursday, November 10, 2005. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 63476770.
The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=180248&eventID=1150493 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 .
Contact - (713) 960-9111 Investors - Steve Bender Media - David R. Hansen
WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in $000) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Net sales $605,391 $572,031 $1,804,666 $1,422,284 Cost of sales 516,127 487,520 1,496,139 1,217,437 Gross profit 89,264 84,511 308,527 204,847 Selling, general and administrative expenses 19,202 15,055 53,994 41,251 Impairment of long-lived assets --- 516 --- 1,830 Income from operations 70,062 68,940 254,533 161,766 Interest expense (5,834) (10,144) (17,867) (32,261) Debt retirement cost --- (14,685) (646) (14,685) Other expense, net 888 1,801 322 445 Income before income taxes 65,116 45,912 236,342 115,265 Provision for income taxes 21,590 17,595 83,147 41,869 Net Income $43,526 $28,317 $153,195 $73,396 Basic earnings per share $0.67 $0.50 $2.36 $1.41 Diluted earnings per share $0.67 $0.50 $2.35 $1.41 Weighted average shares outstanding Basic 65,026,962 56,903,270 64,987,068 51,985,368 Diluted 65,261,382 57,027,343 65,252,220 52,027,027 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited, in $000) Unaudited September 30, December 31, 2005 2004 Current Assets Cash and cash equivalents $123,348 $43,396 Accounts receivable (net) 356,034 234,247 Inventories 286,588 319,816 Other current assets 23,768 74,479 Total current assets 789,738 671,938 Property, plant and equipment (net) 855,846 855,052 Other assets (net) 58,215 65,463 Total assets $1,703,799 $1,592,453 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $269,494 $249,015 Current portion of long-term debt 1,200 1,200 Total current liabilities 270,694 250,215 Long-term debt 265,989 296,889 Other liabilities 245,080 275,952 Total liabilities 781,763 823,056 Stockholders' equity 922,036 769,397 Total liabilities and stockholders' equity $1,703,799 $1,592,453 WESTLAKE CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in $000) Nine Months Ended September 30, 2005 2004 Cash flows from operating activities Net income $153,195 $73,396 Adjustments to reconcile net income to net cash Depreciation and amortization 60,649 62,849 Deferred tax expense 30,527 38,843 Other balance sheet changes (69,245) (91,727) 21,931 9,965 Net cash provided by operating activities 175,126 83,361 Cash flows from investing activities Additions to property, plant and equipment (60,732) (30,912) Business acquisitions --- (33,294) Proceeds from insurance claims --- 1,081 Proceeds from disposition of assets 43 1,006 Net cash used for investing activities (60,689) (62,119) Cash flows from financing activities Proceeds from issuance of common stock, net --- 181,261 Proceeds from exercise of stock options 966 Dividends paid (4,551) --- Repayments of borrowings (30,900) (188,900) Net cash used for financing activities (34,485) (7,639) Net increase (decrease) in cash and cash equivalents 79,952 13,603 Cash and cash equivalents at beginning of period 43,396 37,381 Cash and cash equivalents at end of period $123,348 $50,984 WESTLAKE CHEMICAL CORPORATION SEGMENT INFORMATION (unaudited, in $000) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Net Sales to External Customers Olefins $331,228 $363,170 $1,025,285 $894,245 Vinyls 274,163 208,861 779,381 528,039 $605,391 $572,031 $1,804,666 $1,422,284 Income (Loss) from Operations Olefins $45,086 $44,745 $139,502 $114,215 Vinyls 28,850 26,273 121,482 51,069 Corporate and Other (3,874) (2,078) (6,451) (3,518) $70,062 $68,940 $254,533 $161,766 Depreciation and Amortization Olefins $9,767 $13,051 $34,699 $39,321 Vinyls 9,320 7,965 25,918 23,121 Corporate and Other 18 95 32 407 $19,105 $21,111 $60,649 $62,849 Other Income (Expense), net Olefins $(67) $831 $(1,996) $(2,249) Vinyls (188) 170 276 135 Corporate and Other* 1,143 (13,885) 1,396 (12,126) $888 $(12,884) $(324) $(14,240) * Debt retirement costs of $646 are included in the nine months ended September 30, 2005. Debt retirement costs of $14,685 are included in the three and nine months ended September 30, 2004. 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 Nine Months Ended June 30, September 30, September 30, 2005 2005 2004 2005 2004 EBITDA $101,943 $90,055 $77,167 $314,858 $210,375 Less: Income tax provision 27,077 21,590 17,595 83,147 41,869 Interest expense 5,879 5,834 10,144 17,867 32,261 Depreciation and amortization 20,461 19,105 21,111 60,649 62,849 Net income 48,526 43,526 28,317 153,195 73,396 Changes in operating assets and liabilities 31,434 (19,868) (287) (8,596) (28,878) Deferred income taxes 11,482 7,770 16,346 30,527 38,843 Cash flow from operating activities $91,442 $31,428 $44,376 $175,126 $83,361 WESTLAKE CHEMICAL CORPORATION SUPPLEMENTAL INFORMATION Key Product Sales Price and Volume Variance by Operating Segments Q3'05 vs Q3'04 Q3'05 vs Q2'05 Average Average Sales Sales Price Volume Price Volume Olefins (1) +15.3% -14.2% +7.7% +0.9% Vinyls (2) +20.7% +8.7% +2.0% +2.1% Average +17.3% -5.0% +5.1% +1.4% (1) Includes: ethylene and co-products, polyethylene, and styrene (2) Includes: ethylene co-products, caustic, VCM, PVC resin, PVC pipe, and other fabrication products Average Quarterly Industry Prices Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 '04 '04 '05 '05 '05 Ethane (cents/lb) 17.6 20.3 17.6 17.6 23.1 Propane (cents/lb) 18.8 20.1 18.7 19.5 22.9 Ethylene (cents/lb) (1) 32.8 39.2 41.5 38.3 41.2 Polyethylene (cents/lb) (2) 55.7 66.0 68.0 62.0 65.2 Styrene (cents/lb) (3) 66.0 68.3 64.5 61.6 60.3 Caustic ($/ short ton) (4) 194.2 300.0 345.0 382.0 390.0 Chlorine ($/ short ton) (5) 290.0 310.0 330.0 350.0 350.0 VCM (cents/lb) (6) 33.1 36.2 38.5 37.5 37.8 PVC (cents/lb) (7) 47.5 49.8 53.8 54.2 53.2 Source: CMAI (1) Contract-Net Transaction (2) Contract Low Density Polyethylene, GP- Film (3) Contract-Styrene (4) Contract-Diaphragm caustic (5) Contract Chlorine (6) Contract Vinyl Chloride Monomer (7) Contract Polyvinyl Chloride-Pipe Grade
SOURCE Westlake Chemical CorporationCONTACT: Investors, Steve Bender or 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