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May 01, 2012 at 06:00 AM EDT
Westlake Chemical Announces First Quarter Earnings
First Quarter 2012 Highlights:

HOUSTON, May 1, 2012 /PRNewswire/ -- Westlake Chemical Corporation (NYSE: WLK) today reported record net income for the three months ended March 31, 2012 of $87.8 million, or $1.31 per diluted share, on sales of $1,034.9 million. This represents an improvement of $4.3 million over the quarter ended March 31, 2011 net income of $83.5 million, or $1.25 per diluted share, on sales of $867.3 million. Sales for the first quarter of 2012 increased $167.6 million compared to the first quarter of 2011, driven mainly by higher sales prices for our major products and the sale of feedstock. Income from operations was a record $145.6 million for the first quarter of 2012 as compared to $140.6 million for the first quarter of 2011. Income from operations benefited primarily from higher vinyls integrated product margins, partially offset by lower olefins integrated product margins. Earnings in the first quarter of 2011 were negatively impacted as the result of a fire at a third party storage facility in Mont Belvieu, Texas in the quarter.

First quarter 2012 net income of $87.8 million, or $1.31 per diluted share, was a significant increase from the $26.4 million, or $0.40 per diluted share, reported in the fourth quarter of 2011. First quarter 2012 sales of $1,034.9 million increased $175.7 million compared to sales of $859.2 million in the fourth quarter of 2011. The increase in sales was largely driven by higher prices for all of our olefins products and PVC resin, higher sales volumes for PVC resin, building products and caustic and the sale of feedstock. First quarter 2012 income from operations of $145.6 million increased $95.1 million over the income from operations in the fourth quarter of 2011 of $50.5 million. The increase in operating income in the first quarter of 2012 compared to the fourth quarter of 2011 was primarily the result of lower natural gas liquids ("NGL") ethylene feedstock costs, higher integrated olefins margins, higher sales volumes and margins for PVC resin and higher sales volumes for building products and caustic.

Albert Chao, President and Chief Executive Officer, said, "We are pleased to report record quarterly earnings per share in the first quarter of 2012, and our Vinyls segment achieved its highest quarterly operating income since 2008. Our first quarter earnings benefited from a significant drop in ethane and energy costs, strong demand for our products and high operating rates. Due in large part to shale gas production in North America, our natural gas liquids based ethylene production continues to have a significant cost advantage over naphtha based ethylene production. We expect that our integration strategy and the continuing development of shale gas production, NGL facilities and pipelines will give our Olefins and Vinyls businesses a strong competitive advantage for the foreseeable future."

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) of $182.4 million for the first quarter of 2012 increased $8.0 million compared to $174.4 million in the first quarter of 2011. EBITDA for the first quarter of 2012 increased $97.5 million compared to $84.9 million in the fourth quarter of 2011. A reconciliation of EBITDA to reported net income and to net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Net cash provided by operating activities was $110.1 million in the first quarter of 2012. Capital expenditures in the first quarter of 2012 were $64.9 million. At March 31, 2012, we had cash balances of $960.7 million, including $65.6 million of restricted cash, and our long-term debt was $764.6 million. The restricted cash is designated for qualifying amounts spent for certain capital additions in Louisiana.

OLEFINS SEGMENT
Income from operations for the Olefins segment was $129.2 million in the first quarter of 2012, a decrease of $16.1 million compared to the $145.3 million reported in the first quarter of 2011. This decrease was mainly attributable to lower olefins integrated product margins as compared to the first quarter of 2011. The lower margins were primarily the result of the negative impact of high cost feedstock in inventory at December 31, 2011, which flowed through cost of sales in the first quarter of 2012 as a result of utilizing the first-in-first-out (FIFO) method of inventory accounting. Industry ethane prices dropped from an average of 85.6 cents per gallon in the fourth quarter of 2011 to an average of 56.3 cents per gallon in the first quarter of 2012.

Income from operations for the first quarter of 2012 for the Olefins segment of $129.2 million was an increase of $53.3 million from the $75.9 million reported in the fourth quarter of 2011. This increase was driven primarily by a decrease in ethane feedstock costs and higher polyethylene prices.

VINYLS SEGMENT
Income from operations for the Vinyls segment was $21.1 million, an improvement of $23.9 million over the loss from operations of $2.8 million in the first quarter of 2011. The improvement in operating income was primarily driven by lower feedstock costs, higher sales prices for all of our major products, and higher sales volumes for building products compared to the first quarter of 2011. The first quarter of 2012 income from operations was negatively impacted by the lost production and sales and the expensing of approximately $1.3 million of costs associated with an unscheduled outage at our Geismar VCM unit. Further, we expect the Geismar outage to continue to negatively impact our Vinyls segment results in the second quarter of 2012.

The Vinyls segment's income from operations of $21.1 million in the first quarter of 2012 was an improvement of $40.7 million over the operating loss of $19.6 million reported in the fourth quarter of 2011. The improved results were primarily due to lower propane feedstock costs, higher PVC resin prices and higher sales volumes for all of our major products compared to the fourth quarter of 2011.

The statements in this release relating to matters that are not historical facts, including the significant cost advantage natural gas-based ethylene production continues to have over naptha-based ethylene products and the competitive advantages of our Olefins and Vinyls businesses in the foreseeable future as a result of our integration strategy, shale gas production, NGL facilities and pipelines are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to: general economic and business conditions; the cyclical nature of the chemical industry; availability, cost and volatility of raw materials and utilities, including natural gas from shale production; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions, including environmental regulation; political unrest; industry production capacity and operating rates; the supply/demand balance for our products; competitive products and pricing pressures; access to capital markets; technological developments; the effect and results of litigation and settlements of litigation; operating interruptions; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC in February 2012.

In this release, we refer 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 net cash provided by operating activities.

Westlake Chemical Corporation Conference Call Information:

A conference call to discuss Westlake Chemical Corporation's first quarter 2012 results will be held Tuesday, May 1, 2012 at 11:00 a.m. EDT (10:00 a.m. CDT). To access the conference call, dial (866) 730-5764, or (857) 350-1588 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 59052376.

A replay of the conference call will be available beginning two hours after its conclusion until 11:59 p.m. EDT on Tuesday, May 8, 2012. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 12583170.

The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=180248&eventID=4757674 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








 CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)









Three Months Ended




March 31,




2012


2011




(In thousands of dollars,

except per share data)








Net sales

$ 1,034,867


$    867,252


Cost of sales

862,230


699,668


Gross profit 

172,637


167,584








Selling, general and administrative expenses

27,012


26,947








Income from operations

145,625


140,637








Interest expense

(12,177)


(12,920)


Other income, net

1,347


1,207








Income before income taxes

134,795


128,924








Provision for income taxes

46,982


45,380








Net income 

$      87,813


$      83,544








Earnings per share:






 Basic 

$          1.32


$          1.26



 Diluted 

$          1.31


$          1.25




WESTLAKE CHEMICAL CORPORATION






 CONSOLIDATED BALANCE SHEETS

(Unaudited)








March 31,


December 31,



2012


2011


(In thousands of dollars)

ASSETS





Current assets





  Cash and cash equivalents


$    895,142


$       825,901

  Accounts receivable, net


444,609


407,372

  Inventories


422,405


490,777

  Other current assets


33,720


32,106

     Total current assets


1,795,876


1,756,156

Property, plant and equipment, net


1,263,556


1,232,066

Restricted cash


65,607


96,283

Other assets, net


205,008


182,316






Total assets


$ 3,330,047


$    3,266,821











LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities (accounts payable and accrued liabilities)


$    311,963


$       364,595

Long-term debt


764,583


764,563

Other liabilities


390,471


381,351

Total liabilities


1,467,017


1,510,509






Stockholders' equity


1,863,030


1,756,312






         Total liabilities and stockholders' equity


$ 3,330,047


$    3,266,821



WESTLAKE CHEMICAL CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)








Three Months Ended



March 31,



2012


2011



(In thousands of dollars)

Cash flows from operating activities





Net income 


$   87,813


$   83,544

Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization


35,394


32,578

Deferred income taxes


791


7,416

Other balance sheet changes


(13,941)


(82,878)

       Net cash provided by operating activities


110,057


40,660






Cash flows from investing activities





Additions to property, plant and equipment


(64,902)


(28,808)

Proceeds from disposition of assets


3


630

Proceeds from repayment of loan to affiliate


167


167

Purchase of investments


(2,961)


-

Settlements of derivative instruments


511


(222)

       Net cash used for investing activities


(67,182)


(28,233)






Cash flows from financing activities





Dividends paid


(4,914)


(4,218)

Proceeds from exercise of stock options


480


4,820

Utilization of restricted cash


30,800


11,175

       Net cash provided by financing activities


26,366


11,777






Net increase in cash and cash equivalents


69,241


24,204

Cash and cash equivalents at beginning of period


825,901


630,299






Cash and cash equivalents at end of period


$ 895,142


$ 654,503



WESTLAKE CHEMICAL CORPORATION






SEGMENT INFORMATION

(Unaudited)







Three Months Ended



March 31,



2012


2011



(In thousands of dollars)






Net external sales





Olefins

$    732,271


$ 605,080


Vinyls

302,596


262,172



$ 1,034,867


$ 867,252







Income (loss) from operations





Olefins

$    129,207


$ 145,256


Vinyls

21,082


(2,848)


Corporate and other

(4,664)


(1,771)



$    145,625


$ 140,637







Depreciation and amortization





Olefins

$      23,763


$   21,644


Vinyls

11,509


10,774


Corporate and other

122


160



$      35,394


$   32,578







Other income, net





Olefins

$           956


$        180


Vinyls

240


511


Corporate and other

151


516



$        1,347


$     1,207




WESTLAKE CHEMICAL CORPORATION









RECONCILIATION OF EBITDA TO NET INCOME AND TO NET CASH  

PROVIDED BY OPERATING ACTIVITIES

(Unaudited)











Three Months Ended


Three Months Ended




December 31,


March 31,




2011


2012


2011




(In thousands of dollars)









EBITDA


$                       84,944


$    182,366


$  174,422


Less:








Provision for income taxes


12,805


46,982


45,380


Interest expense


12,543


12,177


12,920


Depreciation and amortization


33,153


35,394


32,578


Net income 


26,443


87,813


83,544


Changes in operating assets and liabilities


96,821


21,453


(50,300)


Deferred income taxes


(5,321)


791


7,416










Net cash provided by operating activities


$                  117,943


$ 110,057


$ 40,660




WESTLAKE CHEMICAL CORPORATION













SUPPLEMENTAL INFORMATION













Product Sales Price and Volume Variance by Operating Segments















First Quarter 2012 vs.




First Quarter 2012 vs.




 First Quarter 2011 




 Fourth Quarter 2011 




 Average

Sales Price 


 Volume 




 Average

Sales Price 


 Volume 


Olefins


+3.5%


+17.6%




+4.5%


+13.3%


Vinyls


+10.3%


+5.1%




+5.0%


+22.5%


Company


+5.5%


+13.8%




+4.6%


+15.9%














Average Quarterly Industry Prices (1)















Quarter Ended




March 31,


June 30,


September 30,


December 31,


March 31,




2011


2011


2011


2011


2012


Ethane (cents/lb)


22.1


26.2


26.3


28.8


18.9


Propane (cents/lb)


32.4


35.4


36.4


34.1


29.8


Ethylene (cents/lb)(2)


49.3


57.5


55.6


54.6


55.2


Polyethylene (cents/lb)(3)


96.7


103.7


96.0


92.7


99.0


Styrene (cents/lb)(4)


74.0


76.3


73.3


64.0


74.3


Caustic soda ($/short ton)(5)


470.0


536.7


570.0


613.3


603.3


Chlorine ($/short ton)(6)


315.0


351.7


348.3


305.8


274.2


PVC (cents/lb) (7)


46.5


54.8


55.2


51.8


56.8



(1)

Industry pricing data was obtained through IHS Chemical. We have not independently verified the data.

(2)

Represents average North American contract prices of ethylene over the period as reported by IHS Chemical.

(3)

Represents average North American contract prices of polyethylene low density film over the period as reported by IHS Chemical.

(4)

Represents average North American contract prices of styrene over the period as reported by IHS Chemical.

(5)

Represents average North American acquisition prices of caustic soda (diaphragm grade) over the period as reported by IHS Chemical.

(6)

Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS Chemical.

(7)

Represents average North American contract prices of PVC over the period as reported by IHS Chemical. During the first quarter of 2012, IHS Chemical made a 23 cents per pound non-market downward adjustment to PVC resin prices. For comparability, we adjusted each of the prior year periods' PVC resin prices downward by 23 cents per pound based on the first quarter 2012 IHS Chemical non-market adjustment.

SOURCE Westlake Chemical Corporation

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