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Westlake Swings To Profit for Q4, Full Year
February 23, 2010

Westlake Chemical Corp. on Tuesday reported net income for the three months ended December 31, 2009 of $12.5 million, or $0.19 per diluted share, compared to a net loss of $109.6 million, or $1.67 loss per diluted share, reported for the fourth quarter of 2008.

Sales for the three months ended December 31, 2009 of $630.0 million increased $32.9 million compared to sales of $597.1 million in the same period of 2008 primarily due to higher sales volumes for the company's major products, partially offset by lower sales prices for PVC pipe, PVC resin and caustic. Income from operations was $23.0 million for the fourth quarter of 2009 compared to a loss of $165.8 million for the fourth quarter of 2008. The Company's fourth quarter of 2008 income from operations was negatively impacted by significant inventory losses and expensing of unabsorbed fixed manufacturing costs totaling $168.0 million. The Olefins segment benefited from significantly higher operating rates and margins in the fourth quarter of 2009 as compared to the fourth quarter of 2008 largely as a result of a rebound in both domestic and export polyethylene demand. Vinyls operating rates and margins in the fourth quarter of 2009 continued to be negatively impacted by weakness in the construction markets.

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.

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.

Source: Westlake Chemical Corp.

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