Westlake Chemical Reports Strong Second Quarter Results
- 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.
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.
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