Net income for the fourth quarter of 2009 of $12.5 million, or $0.19 per diluted share, decreased $17.3 million from the $29.8 million net income, or $0.45 per diluted share, reported for the third quarter of 2009. Fourth quarter 2009 income from operations was $23.0 million as compared to the $49.0 million reported for the third quarter of 2009, while net sales of $630.0 million decreased by $2.6 million from the $632.6 million reported for the third quarter of 2009. Sales for the fourth quarter of 2009 benefited from continued strength in both the domestic and export polyethylene markets. Vinyls downstream sales volumes, however, were negatively impacted by a seasonal slow down and continued weakness in construction markets. The decrease in income from operations in the fourth quarter of 2009 as compared to the third quarter of 2009 was primarily due to higher feedstock costs, which outpaced the increase in sales prices, and lower PVC pipe sales volumes. Fourth quarter 2009 net income benefited from an effective income tax rate of 19%, which was below the third quarter 2009 effective tax rate of 29%.
Albert Chao, President and Chief Executive Officer, said, "We achieved significant improvement in both earnings and cash flow in 2009 in spite of an economy which has not yet recovered from the global recession. We benefited from our aggressive cost reduction programs and have focused our capital expenditures on furthering our growth strategy. Our Olefins segment volumes and margins showed steady improvement during 2009 driven largely by strength in domestic and export polyethylene sales and margins. Construction markets, however, have not as yet rebounded from the recession, which negatively impacted our Vinyls operating results in 2009. While we will maintain a cautious outlook for 2010, we are pleased with the progress we made this year. We will continue to focus on cost control and conservative financial management, while seeking out opportunities to expand our business."
For the year ended December 31, 2009, Westlake had net income of $53.0 million, or $0.80 per diluted share, on net sales of $2,325.7 million. This represents a positive net income change of $82.5 million, or $1.25 per diluted share, from the year ended December 31, 2008 net loss of $29.5 million, or $0.45 loss per diluted share, on net sales of $3,692.4 million. Sales for 2009 decreased $1,366.7 million primarily due to lower sales prices for all major products and lower sales volumes for all major products except caustic and styrene. Income from operations was $107.3 million for 2009 as compared to a loss from operations of $29.5 million for 2008. Income from operations benefited from significantly lower energy and feedstock costs in 2009. Our Olefins segment enjoyed strong demand in 2009 as polyethylene sales volume bounced back from the fourth quarter of 2008 primarily due to balanced industry supply and demand fundamentals for polyethylene in the U.S. market and strong export demand as U.S. ethane-based producers, such as our company, continue to enjoy a cost advantage over naphtha-based ethylene producers. In addition, Olefins margins were positively impacted by a gain from trading activities of $5.3 million in 2009 compared to a loss of $9.4 million in 2008. Our Vinyls segment margins in 2009 were negatively impacted by weak construction markets, increased chlorine costs, lower operating rates and lower caustic margins. Caustic margins were lower primarily as a result of a 43% decrease in industry caustic prices compared to 2008. The 2008 results were negatively impacted by the $165.8 million loss from operations in the fourth quarter of 2008, which included significant inventory losses and expensing of unabsorbed fixed manufacturing costs. In addition, the 2008 results were negatively affected by Hurricanes Gustav and Ike and higher feedstock, natural gas and electricity costs.
EBITDA (earnings before interest expense, income taxes, depreciation and amortization) for the fourth quarter of 2009 decreased $25.8 million to $56.1 million from $81.9 million in the third quarter of 2009. EBITDA for the fourth quarter of 2009 increased $191.9 million to $56.1 million compared to the negative EBITDA of $135.8 million in the fourth quarter of 2008. A reconciliation of EBITDA to reported net income (loss) and to cash flows from operating activities can be found in the financial schedules at the end of this press release.
Operating activities provided cash of $235.5 million in 2009 compared to $186.1 million in 2008. The increase in cash provided by operating activities was primarily due to the increase in income from operations in 2009 as compared to 2008 and a decrease in working capital. Cash used for investing activities, including capital additions, was $103.2 million in 2009, compared to $172.0 million in 2008. At December 31, 2009, the Company had $346.7 million of cash, including $101.1 million of restricted cash, and the Company's long-term debt was $515.4 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 of $55.1 million in the fourth quarter of 2009 for the olefins segment was $191.4 million higher than the $136.3 million loss in the fourth quarter of 2008. Polyethylene sales volumes, margins and operating rates were all higher in the fourth quarter of 2009 compared to the fourth quarter of 2008 primarily due to improved domestic and export demand. The fourth quarter 2008 results were negatively impacted by approximately $105.0 million due to inventory losses as a result of a sharp drop in product and feedstock prices and the expensing of unabsorbed fixed manufacturing costs related to a significant decrease in operating rates. Trading activity resulted in a gain of $1.7 million in the fourth quarter of 2009 compared to a loss of $1.6 million in the fourth quarter of 2008.
Income from operations for the fourth quarter of 2009 for the Olefins segment was $55.1 million, a decrease of $6.6 million from the $61.7 million reported in the third quarter of 2009. This decrease was primarily due to increased feedstock costs, which outpaced the increase in sales prices for our major olefins products.
Income from operations was $177.1 million in 2009 for the olefins segment compared to a loss from operations of $40.1 million in 2008, a positive change of $217.2 million. This increase was largely attributable to lower energy and feedstock costs, partially offset by lower sales prices for all major olefins products. In addition, trading activity resulted in a gain of $5.3 million for 2009 as compared to a loss of $9.4 million for 2008. Results for 2008 were negatively impacted by a $136.3 million loss from operations in the fourth quarter of 2008 due to inventory losses as a result of a sharp drop in product and feedstock prices and the expensing of unabsorbed fixed manufacturing costs related to a significant decrease in operating rates. Further, the 2008 loss from operations included the impact of Hurricanes Gustav and Ike, which caused two separate outages at the Lake Charles plant, and a styrene plant turnaround, also in Lake Charles.
VINYLS SEGMENT
The Vinyls segment reported a loss from operations of $29.2 million in the fourth quarter of 2009 compared to a loss from operations of $27.9 million in the fourth quarter of 2008, a decline of $1.3 million. Caustic margins were significantly lower in the fourth quarter of 2009 as compared to the fourth quarter of 2008 primarily due to a 78% drop in industry caustic prices. This decrease was partially offset by higher PVC resin and PVC pipe sales volumes in the fourth quarter of 2009 as compared to the fourth quarter of 2008. The results for the fourth quarter of 2008 were negatively impacted by approximately $63.0 million due to inventory losses from a sharp drop in feedstock and product prices and the expensing of unabsorbed fixed manufacturing costs due to a significant decrease in operating rates.
The Vinyls segment reported a loss from operations of $29.2 million in the fourth quarter of 2009 as compared to a loss from operations of $8.1 million in the third quarter of 2009. This change was primarily the result of higher feedstock costs and lower PVC pipe and caustic sales volumes, which were partially offset by higher caustic prices and PVC resin volumes. PVC pipe sales volumes and operating rates were lower in the fourth quarter largely due to seasonal reductions in customer inventories.
The Vinyls segment produced a loss from operations of $57.4 million in 2009 as compared to income from operations of $17.9 million in 2008, a decline of $75.3 million. This decrease was primarily attributable to a significant reduction in caustic margins due to a 43% drop in industry caustic prices compared to 2008, higher chlorine costs, lower operating rates, lower sales prices for all of our major vinyls products and the continued weakness in the construction markets.
The statements in this release relating to matters that are not historical facts, including statements regarding cost control, financial management and opportunities to expand Westlake's business, 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; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions and political unrest; 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; operating interruptions; 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, 2008, which was filed with the SEC in February 2009.
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 (loss) and to cash flow from operating activities.
Westlake Chemical Corporation Conference Call Information:
A conference call to discuss Westlake Chemical Corporation's fourth quarter results will be held Tuesday, February 23, 2010 at 11:00 a.m. EST (10:00 a.m. CST). To access the conference call, dial (800) 798-2796, or (617) 614-6204 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 44746255.
A replay of the conference call will be available beginning an hour after its conclusion until 1:00 p.m. EST on Tuesday, March 2, 2010. To hear a replay, dial (888) 286-8010, or (617) 801-6888 for international callers. The replay passcode is 35127021.
The conference call will also be available via webcast at: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=180248&eventID =2692957 and the earnings release can be obtained via the company's Web page at: /fw/main/IR_Home_Page-123.html.
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
(In thousands of dollars, except per share
data and shares outstanding)
Net sales $630,036 $597,108 $2,325,723 $3,692,353
Cost of sales 583,172 732,691 2,130,595 3,622,985
------- ------- --------- ---------
Gross profit (loss) 46,864 (135,583) 195,128 69,368
Selling, general and
administrative expenses 23,902 30,180 87,871 98,908
------ ------ ------ ------
Income (loss) from
operations 22,962 (165,763) 107,257 (29,540)
Interest expense (8,794) (8,049) (34,957) (33,957)
Other income (expense),
net 1,217 (399) 6,453 5,475
----- ---- ----- -----
Income (loss) before
income taxes 15,385 (174,211) 78,753 (58,022)
Provision for (benefit
from) income taxes 2,932 (64,644) 25,758 (28,479)
----- ------- ------ -------
Net income (loss) $12,453 $(109,567) $52,995 $(29,543)
======= ========= ======= ========
Earnings (loss) per share
Basic $0.19 $(1.67) $0.80 $(0.45)
Diluted $0.19 $(1.67) $0.80 $(0.45)
Weighted average shares
outstanding
Basic 65,979,476 65,655,868 65,914,404 65,623,764
========== ========== ========== ==========
Diluted 66,168,530 65,655,868 66,012,693 65,623,764
========== ========== ========== ==========
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, December 31,
2009 2008
---- ----
(In thousands of dollars)
ASSETS
Current assets
Cash and cash equivalents $245,592 $90,239
Accounts receivable, net 339,796 347,323
Inventories, net 369,417 327,967
Other current assets 33,573 33,460
------ ------
Total current assets 988,378 798,989
Property, plant and equipment, net 1,194,311 1,197,452
Restricted cash 101,149 134,432
Other assets, net 162,518 156,116
------- -------
Total assets $2,446,356 $2,286,989
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (accounts payable and
accrued liabilities) $286,566 $212,288
Long-term debt 515,400 510,319
Other liabilities 359,408 325,322
------- -------
Total liabilities 1,161,374 1,047,929
--------- ---------
Stockholders' equity 1,284,982 1,239,060
Total liabilities and stockholders'
equity $2,446,356 $2,286,989
========== ==========
WESTLAKE CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twelve Months Ended
December 31,
------------
2009 2008
---- ----
(In thousands of
dollars)
Cash flows from operating activities
Net income (loss) $52,995 $(29,543)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 123,199 111,926
Deferred income taxes 31,207 (13,879)
Other balance sheet changes 28,121 117,585
------ -------
Net cash provided by operating activities 235,522 186,089
Cash flows from investing activities
Additions to property, plant and equipment (99,769) (172,561)
Acquisition of business (6,297) -
Proceeds from disposition of assets 3,255 808
Proceeds from involuntary conversion of assets 484 -
Settlements of derivative instruments (859) (199)
---- ----
Net cash used for investing activities (103,186) (171,952)
Cash flows from financing activities
Proceeds from exercise of stock options 879 208
Dividends paid (14,510) (13,456)
Proceeds from borrowings - 851,635
Repayments of borrowings - (852,812)
Utilization of restricted cash 38,851 68,248
Capitalized debt issuance costs (2,203) (2,635)
------ ------
Net cash provided by financing activities 23,017 51,188
Net increase in cash and cash equivalents 155,353 65,325
Cash and cash equivalents at beginning of period 90,239 24,914
------ ------
Cash and cash equivalents at end of period $245,592 $90,239
======== =======
WESTLAKE CHEMICAL CORPORATION
SEGMENT INFORMATION
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
(In thousands of dollars)
Net external sales
Olefins $461,167 $396,078 $1,611,451 $2,547,924
Vinyls 168,869 201,030 714,272 1,144,429
------- ------- ------- ---------
$630,036 $597,108 $2,325,723 $3,692,353
-------- -------- ---------- ----------
Income (loss) from operations
Olefins $55,088 $(136,291) $177,101 $(40,145)
Vinyls (29,156) (27,875) (57,445) 17,877
Corporate and other (2,970) (1,597) (12,399) (7,272)
------ ------ ------- ------
$22,962 $(165,763) $107,257 $(29,540)
------- --------- -------- --------
Depreciation and amortization
Olefins $21,322 $21,714 $82,952 $78,227
Vinyls 10,419 8,633 39,843 33,501
Corporate and other 148 52 404 198
--- -- --- ---
$31,889 $30,399 $123,199 $111,926
------- ------- -------- --------
Other income (expense), net
Olefins $25 $(59) $440 $8
Vinyls 533 (68) 478 162
Corporate and other 659 (272) 5,535 5,305
--- ---- ----- -----
$1,217 $(399) $6,453 $5,475
------ ----- ------ ------
WESTLAKE CHEMICAL CORPORATION
RECONCILIATION OF EBITDA TO NET INCOME (LOSS) AND TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(Unaudited)
Three Months Three Months Twelve Months
Ended Ended Ended
September 30, December 31, December 31,
------------- ------------ ------------
2009 2009 2008 2009 2008
---- ---- ---- ---- ----
(In thousands of dollars)
EBITDA $81,888 $56,068 $(135,763) $236,909 $87,861
Less:
Provision for (benefit from)
income taxes 11,941 2,932 (64,644) 25,758 (28,479)
Interest expense 8,772 8,794 8,049 34,957 33,957
Depreciation and
amortization 31,409 31,889 30,399 123,199 111,926
------ ------ ------ ------- -------
Net income (loss) 29,766 12,453 (109,567) 52,995 (29,543)
Changes in operating
assets and liabilities (8,407) 6,192 236,045 151,320 229,511
Deferred income taxes 38,745 3,421 (16,975) 31,207 (13,879)
------- ------- -------- -------- --------
Net cash provided by
operating activities $60,104 $22,066 $109,503 $235,522 $186,089
======= ======= ======== ======== ========
WESTLAKE CHEMICAL CORPORATION
SUPPLEMENTAL INFORMATION
Product Sales Price and Volume Variance by Operating Segments
Fourth Quarter 2009 Fourth Quarter 2009
vs. vs.
Fourth Quarter 2008 Third Quarter 2009
------------------- ------------------
Average Average
Sales Price Volume Sales Price Volume
----------- ------ ----------- ------
Olefins +1.6% +14.9% +5.4% -0.8%
Vinyls -39.0% +23.0% +5.1% -17.0%
Company -12.1% +17.6% +5.3% -5.7%
Average Quarterly Industry Prices (1)
Quarter Ended
-------------
December March June September December
2008 2009 2009 2009 2009
---- ---- ---- ---- ----
Ethane (cents/lb) 14.1 12.0 14.5 15.9 22.3
Propane (cents/lb) 18.9 16.0 17.3 20.6 25.8
Ethylene (cents/lb) (2) 39.2 31.5 31.5 32.3 40.5
Polyethylene (cents/lb) (3) 71.3 65.0 68.0 72.3 75.0
Styrene (cents/lb) (4) 55.6 40.4 46.2 56.5 55.3
Caustic ($/ short ton) (5) 970.0 821.7 368.3 171.7 216.7
Chlorine ($/ short ton) (6) 236.7 175.0 204.2 388.3 385.0
PVC (cents/lb) (7) 51.0 45.7 48.5 54.5 56.7
(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 American contract prices of ethylene over the
period as reported by CMAI.
(3) Represents average North American 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 American acquisition prices of caustic soda
(diaphragm grade) over the period as reported by CMAI.
(6) Represents average North American contract prices of chlorine (into
chemicals) over the period as reported by CMAI.
(7) Represents average North American contract prices of PVC over the
period as reported by CMAI. During 2008, CMAI made a 16 cent per pound
downward, non-market related adjustment to PVC resin prices.
SOURCE Westlake Chemical Corporation