Westlake Corp (WLK) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation's fourth quarter earnings conference call.

(Operator instructions).

I would now like to turn the call over to today's host, Dave Hansen, Westlake's Senior Vice President of Administration. Sir, you may begin.

Thank you and good morning everyone. Thank you for joining the Westlake Chemical conference call. This is Dave Hansen and I am joined today by our President and CEO, Albert Chao; and our Senior Vice President and Chief Financial Officer, Ruth Dreessen.

The agenda for today's will be as follows - Albert will first make a few comments regarding Westlake's performance during the fourth quarter. Ruth will then provide you with a more detailed look at our financial and operating results. After that, we will open the call up to questions.

Before we begin, I need to inform the callers that there will be statements in this morning's teleconference relating to matters that are not historical facts but are forward-looking statements. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties.

Actual results could differ materially based upon factors including the cyclical nature of the chemical industry; availability, cost and volatility of raw and materials and utilities; governmental regulatory actions and political unrest; global economic conditions; industry 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.

has issued a press release with details of our quarterly financial and operating results. This document is available in the press release section of our Webpage at www.westlakechemical.com. I would also like to point out that a replay of today's call will be available beginning one hour after completion of this call until 11:59 P.M. Eastern time on February 25th. The replay maybe accessed by calling the following numbers - (inaudible) should dial 1-888-286-8010. International callers may access the replay at 617-801-6888. The access code at both numbers is 98300329. These numbers will be repeated at the end of this call.

I would finally advise you that this conference call is being broadcast live through an Internet Webcast system. Now I'd like to turn the call over to Albert Chao for a few comments.

Albert?

Thanks, Dave. Good morning, ladies and gentlemen, and thank you for joining us. I'm pleased to report to you that we had a strong fourth quarter and a record year in 2004. We continue to see positive signs of economic recovery and industry improvement since our last conference call in November.

The operating rates for both the Olefins and Vinyls industries were impressive for the fourth quarter and producer inventories remain low. Sustained by high global demand and a strong U.S. economy, our industry is enjoying volume growth and margin expansion in spite of high energy and feedstock costs.

While the prices of oil and gas remain a concern, U.S. petrochemical production is competitive in the global markets. On a consolidated basis, Westlake has continued to make steady gains with sequential quarter over quarter improvements in operating income. Performance of Westlake for 2004 was significantly improved over 2003 due to record production and strong for our products. 2004 was Westlake's most profitable year in our history.

We also achieved several significant milestones during the year including our initial public offering in August; the Bristolpipe acquisition; and the Geismar Vinyl facility startup. As you may know, our IPO was one of the best performing IPO's of the year. And we are gratified that our new shareholders have benefitted from a strong performance.

As we look forward to the new year we are optimistic that an industry recovery will continue. Now, I would like to turn the call over to our Chief Financial Officer, Ruth Dreessen, for a review of our results.

Ruth?

Thanks, Albert, and good morning everyone. As we reported in this morning's press release, Westlake had improved sales of 563 million in the fourth quarter compared to 366 million in quarter four of the previous year. However, sales were slightly below the 572 million reported for the third quarter of this year.

Net earnings available to common shareholders improved to 47 million or 73 cents per diluted share in quarter four compared to net earnings of 11 million or 21 cents per diluted share in the fourth quarter of 2003; and 28 million or 50 cents per diluted in the third quarter of 2004.

It should be noted that during the third quarter we had debt requirement costs, net of taxes, of $9 million that lowered our diluted earnings per share by 16 cents. We also had several nonoperating items in the fourth quarter. The net effect of these was a $2 million after tax benefit or 3 cents per share.

Also during the fourth quarter we had a benefit from utilizing FIFO inventory accounting, which compared with the LIFO methodology benefitted us by $25 million. As mentioned earlier by Albert, 2004 was the most profitable year in Westlake's history. We had 121 million in net income or $2.18 per diluted share on net sales of $2 billion.

This compares very favorably with 2003 net income of 15 million or 30 cents per diluted share on net sales of 1.4 billion. Adjusting annually for the nonoperating items previously mentioned results in EPS of $2.31 for 2004. Due to our IPO completed in August of this year, our share count has changed during 2004. Please refer to our press release issued this morning for a comparison of our share counts for the fourth quarter of this year versus the fourth quarter of last year as well as account for the full year versus last year.

Turning to our segment analysis. Our Olefins segment continued to enjoy higher prices for all of its products during the quarter. The Olefins segment earning 65 million of income from operations during the quarter compared to 19 million in the fourth quarter of '03 and 45 million in the third quarter of this year.

The fourth quarter saw increases in the cost of our major feedstocks, methane and propane. Given the strong demand for our products, however, we have been successful in passing these increased costs onto our customers. We experienced margin improvements in all segment products in the fourth quarter compared to the third quarter. Our fourth quarter results reflect continued price momentum for polyethylene with industry increases of 6 cents for both LD and LLDPE during the quarter.

For the quarter, industry volumes were down primarily due to some softening in the Asian markets. While the export markets did weaken compared to the third quarter, they still remained open to U.S. producers. The industry currently has price increases announced for December and February totaling 9 cents pound with implementation still pending.

Our Olefins segment earning 180 million income from operations during 2004, up considerably from the 55 million of income from operations earned in '03. Stronger demand of both domestic and export resulted in increased prices and volumes for all of our products. Turning to the Vinyl segment.

The segment earned 19 million of income for operations during the quarter compared to 5 million in the fourth quarter of '03 and 26 million in the third quarter of this year. PVC resin prices and caustic prices increased during the quarter. However, we did see some margin deterioration in the Vinyls chain primarily due to the increased price of ethylene and the feedstock as well as Geismar start up costs.

The industry implemented a 1 cent increase for PVC in November and an additional 2 cents in December. The industry also implemented caustic price increases totaling $110.00 per ton during the fourth quarter. These price increases have helped us offset the increased cost of our raw materials.

Overall volumes in the segment during the quarter weakened slightly compared to the third quarter due to expected seasonal trends. We did see an increase in our PVC pipe volume due partly to the full quarter impact of the Bristol acquisition. Bristol aside, however, PVC pipe sales volumes were also unusually strong during the fourth quarter and we did not see the seasonal slow down that we normally experience in PVC pipe. However, pipe pricing remains essentially flat in the fourth quarter compared to the third.

Also, as we previously announced, we successfully started up our VCM and PVC in Geismar, Louisiana in late December. This phase of the startup will result in approximately 300 million pounds of capacity per year. Turning to current market conditions.

During 2004 PVC resin prices increased by a total of 15 cents per pound. In addition, there are now increases announced for the first quarter totaling 4 cents per pound. Caustic prices, which had deteriorated early in the year, have rebounded. The industry implemented price increases of $205.00 per ton in '04 and has announced further increases of $50.00 per ton for the first quarter of '05.

We have also seen some price improvement for PVC pipe in the first quarter of '05 - along the higher PVC resin prices. Our Vinyls segment earned 70 million of income from operations in 2004 as compared to 14 million in 2003. A strong supply/demand balance and improving economy has led to increases prices in margins for Vinyl products.

Now turning to the balance sheet and cash flow. We had positive operating cash flow of 67 million and CapEx of 22 million in the fourth quarter. Due to the increased prices of our feedstocks and manufactured products, our working capital increased by 25 million during the quarter.

We prepaid 50 million of our senior secured notes on December 30th and ended the quarter with 43 million of cash on our balance sheet. Our revolver borrowings remained at zero. Taking our cash position into account, our total net debt level was 255 million at year end and our leverage was 0.8 times EBITDA.

For 2005 we expect our interest expense to decrease as we continue to repay debt and accumulate cash. Our capital spending assumptions for 2005 reflect an increase from previous estimates and will probably be in the $120 to $130 billion range.

In summary, we are pleased with our year to date performance and remain optimistic about the cyclical upturn in the industry and the prospects for a strong 2005.

Thanks and I will now turn the call back to Dave Hansen.

Thank you very much, Ruth. Before Albert and Ruth begin taking questions, I would like to remind you that a replay of this teleconference will be available starting an hour after we conclude the call. We will provide that number again at the end of the call.

Operator, we're now prepared to take questions.

Thank you, sir.

(Operator instructions).

Sir, our first question is from the line of Kevin McCarthy with Banc of America Securities.

Yes, good morning, Albert. You mentioned in your prepared remarks that inventory levels were quite low at the producer level. I see your inventories increases quite a bit sequentially. Is that entirely attributable to higher raw material costs and higher prices for finished goods? And I was wondering if you could also comment on inventory levels downstream, closer to the consumer, please?

Kevin, I think I can address that question. We did have the impact of higher pricing on our inventories, but we also had some slightly higher volumes. So, I would say that it's basically kind of mostly prices, but you know, definitely some volume as well.

We were very low on inventory in the third quarter. Our operating folks got very uncomfortable with the level of inventory that we had. So, we took the opportunity to replenish to basically, you know, for operational reasons.

Okay, and downstream?

Downstream is a little bit more difficult, obviously, to judge. My impression is that, you know, from anecdotal evidence that inventories generally are still pretty low throughout the system.

Okay, that's helpful. Second, I was wondering if you could update us on the timing and any progress on your feedstock flexibility project, please?

We are moving ahead with our feedstock flexibility project. We actually have completed sort of the first phase in terms of some engineering work. The project is moving on schedule. We had previously announced that we planned to implement it and do the work in our turnaround next year and that is still our goal.

Okay, thanks. I'll get back in the queue.

Our next question is from the line of David Silver with JP Morgan.

Yes, hi. Good morning.

Good morning, David.

I had a couple of questions. I guess, first I noted your comment about the FIFO benefit during the quarter of approximately 25 million. So, first, I guess I was wondering if you could characterize if that was pretax or after tax?

That's pretax.

That's pretax. Okay. And then if you could maybe characterize the source of it and when you expect it to kind of flow through the income statement so maybe your results kind of more normally track, I guess, industry benchmark moves and prices and costs? Thanks.

Well, I think our income tracks, you know, it's perfectly normal. There are other companies out there on FIFO. I think that really the reason for the increase is simply the increased cost of our feedstocks and our finished goods.

Okay, so we'll just kind of track the flows in there as well. But no one product in particular that your sighting for the bulk of it?

No, no, no. It was across the board.

Okay. Second, I had a question on your PVC - I guess on the pipe side. So, you did complete the acquisition of Bristolpipe. And you also indicated, I believe, that there was effectively no realized price increase in the fourth quarter.

I was wondering if you could maybe talk about whether you think Bristolpipe had a positive effect on the fourth quarter? And then secondly, what the outlook for passing through some of these higher costs on the pipe-side would be?

Bristolpipe did have a positive effect. Of course, Bristol's smaller than our existing pipe business. And I want to point out that the fact that prices were flat in the fourth quarter is actually pretty good. As you may know, the fourth quarter for the pipe industry is traditionally a very slow season due primarily to weather.

In fact, most pipe producers shutdown for a week during December. So, it's actually quite low for there to be a seasonal dip in volumes and prices.

Okay, and in that seasonal trend you're kind of - normal seasonal trend - you're kind of pleased with the way the business has performed then?

Yes, I think we did better than we would have expected.

And then just one last question on PVC. You mentioned you completed the startup work for the Geismar expansion. And I guess I was wondering, in the first quarter should we expect any further kind of lingering startup costs? Or are all those costs pretty much completed as of the end of the fourth quarter?

There might be some impact. I can't give you a number because obviously, we didn't go to full capacity day one. But I think that in terms of pure startup costs, the plant is started up. It's running.

Very good. Okay, I'm going to get back in the queue. Thank you.

And our next question is from the line of Bob Goldberg with Scobis (ph) Asset Management.

Good morning.

Good morning, Bob.

A question on SG&A. It was up at least 4 million sequentially 3Q to 4Q on the 9 million sales decline sequentially. Was there anything unusual in SG&A in the fourth quarter in terms of comp or anything like that?

Well, there was a bonus accrual in the fourth quarter that contributed to that rise. And that's just simply because we're doing very well. We had some costs associated with the IPO. Kind of a lingering effect of that. We did have Bristol SG&A as well for the full quarter. And you know, just some little this and that's. But those are big items.

Any one of the three - was the bonus accrual the largest part of it?

Yes, it was.

It was. Okay. And can you quantify what the startup costs were? In terms of the Geismar plant?

Yes, the startup costs in the fourth quarter were about $4 million.

Okay. Maybe a little bit more in the first, but probably pretty deminimus, I would imagine?

Right.

Okay. Also a question on working capital. If we assume that oil and gas will stay around where they are today, would you expect working capital still to be a drain on cash flow? Or can you hold working capital - what do you assume for '05?

Right, well, you have to split working capital up into sales, accounts receivable on the one hand and inventories on the other. I think that if oil and gas basically stay steady and our feedstocks act accordingly, we would not expect an increase - a significant increase in working capital.

On the sales side, of course, and the accounts receivable side if our finished product prices continue to rise we will see a bump up.

Okay, and related - are you happy with where inventory levels are at Westlake right now? Are they a little bit high or are they in normal range? You said they were very low in the third quarter.

I think that we were very low. Across the board, our operating guys were uncomfortable with the level of inventories. So, I have not heard anyone complain, you know, as of the end of the quarter. I think that these things go up and down and we don't really see any kind of permanent shift here that is not going vary from quarter to quarter.

So, you don't necessarily need to come down for present levels? They're adequate. Is that a fair assessment?

I think they will come down because, you know, particularly in Vinyls we will have a seasonal start, you know, basically a ramp up. So, the normal pattern would be for them to go down between now and the next couple of months.

Okay. My next question is on cash taxes. What do you expect for 2005? Are you going to be paying significant cash taxes? Or are you not protect from those within oils?

Well, we're supposed to have an inner well (ph) that will protect us through the year. So, we will be paying some cash taxes, but we still have some benefit of our remaining inner well.

Okay, any ballpark as to what the outlay might be for 2005?

I don't want to really get into that. It's too much of a forward-looking comment, frankly.

Okay, but it will be somewhere - it won't be zero. You won't be fully protected for the year?

Correct.

Okay. All right, thank you.

And our next question is from the line of David Silver with JP Morgan.

Yes, hi. I was hoping you might be able to comment on, I guess, the pace of price increases in a couple of your products. In particular, caustic soda is an area I believe where the amount of selling price increases that have been announced and are being implemented are pretty substantial.

And I noted in your earlier comment, Ruth, I believe, that you mentioned a certain amount of price improvement that was implemented - $110.00 "implemented" I guess during the fourth quarter. And I was wondering if you could comment on whether, you know, that $110.00 was implemented at the beginning, in the middle, at the end?

I mean, how would you kind of characterize that? I guess I'm just trying to kind of make some judgments on the incremental improvement from fourth quarter to first quarter in that product. Thanks.

I think that that 110 was spread out through the quarter.

So, you should say maybe half of it - effectively half of it was in effect for the whole quarter?

I'm guessing, David, but that's probably okay.

Okay. And then separately, you know, I think there's a lot of questions here about your cash flows. And just in general, if I look at your balance sheet it looks like you're delivering at a pretty quick pace and the higher cost increments of your debt are likely to eliminated fairly, you know, in fairly short order if operating trends continue.

Could you or Albert maybe comment on where you think you want the balance sheet to go? I mean, is the goal to eliminate all the debt? Or to eliminate the higher cost increments? And then what might be the next best use - the next highest priority use for your cash flow?

Well, let me reiterate what we've been saying pretty much consistently since our IPO. We are definitely a growth company. We're always looking for opportunities to expand or to improve our asset base.

I think the increase in CapEx is evidence of that. After that, of course, we are interested in paying down more debt. We believe that a cyclical company should have a conservative balance sheet. And those are really our two priorities.

Okay, so no change at all even, you know, based on I guess the strong earnings results maybe somewhat ahead of budget, but you're still on track there in terms of how you view the debt?

Correct.

Okay, last question. In terms of the quarterly results, were there any hedging gains or losses of note on anything - either natural gas or any other product?

Not of any significance. No.

Okay, very good. Thanks a lot.

And we have a question from the line of Gregg Goodnight with UBS.

Good morning.

Hey, Gregg.

A question - your CapEx jumping up like that. Does your feedstock project explain all of that or are there some other projects there that I'm not aware of?

Oh, there's numerous projects there. We have cost reduction. We've got still some work at Geismar we're doing. Feedstock is also in there.

Okay. So, in general, the cost improvement project not a lot of defensive environmentally related projects and the like?

No.

Okay. Second question, your FIFO benefit of 25 million - did you split that between the segments for us? Is it mostly Vinyls or?

No, it's mostly Olefins than Vinyls.

Okay.

Hold on one second and I can get that for you. Of the 25 million, 20 was in Olefins and Vinyls.

Okay, sounds good. Your dividend. Any thought to increasing your dividend?

I think that the dividend comes after the other two items I addressed in terms of growth and debt reduction. But I think, you know, it's something that we're always thinking about.

Okay, so perhaps not this year, then?

No.

Okay. Let's see - there was one more and I'll get back in the queue as soon as I remember it. Thanks.

Okay.

And our next question is from the line of CJ Maldoni (ph) with Deutsche Asset Management.

Hello. In your opening remarks you commented on, you know, additional debt reduction and I did quite catch it. I think you said that you repurchased 50 million of notes? First, I guess, is that correct?

It was 50 million of the B loans.

Okay. Could you run through the balances of debt in your capital structure, please?

Sure. We have 247 million of the public bonds outstanding; we have 40 million left on the B loan as of December; and 10 million in IRBs.

Okay, that's all that I had. Thank you.

Our next question is from the line of Nancy Traub with Credit Suisse First Boston.

Good morning. You mentioned in the press release that there were several non operating incomes that had a net - items that had a net benefit after tax of 2.1 million?

That's right.

But there were only two that were listed there. Two items. Could you kind of give us the tax implications on those two and then mention what the other things were?

Okay. We had the sale of some equipment; we had an adjustment to our taxes; we had some debt retirement costs; and we had some insurance costs. And all of that netted to the 2.1 million or 3 cents per share.

Right, but we don't see how much they were pretax.

Well, I can give you the pretax numbers. George - the turn this over to George Mangieri, our Controller, and he can give you the pretax numbers.

Okay, let me just - okay, the total pretax impact was $3.4 million of these unusual or non-operating items. And let me give the impact by segment. Vinyl segment it was approximately a 1.8 million impact to the Vinyl segment; 2.7 million impact related to the Olefins segment; and Corporate was $1.1 million charge related to the corporate segment.

That was the debt retirement?

That was the debt retirement.

And what's in these other pieces for Vinyls and Olefins?

Well, the Olefins segment was a sale of equipment of $1.3 million and I think you can see that on the income statement.

Yes.

And then there was an acquisition related adjustment related to the Olefins segment which had an after tax impact of $2.1 million.

Okay.

And the debt retirement and then there was an adjustment to our insurance premiums related to OYL (ph), which was approximately 0.6 million, which was a charge - 0.6 million after tax.

All right. Now, suppose I just took the two you have liste here - the gain on the sale of assets and the debt retirement costs. What would the tax implication be on those two? You might want to get back to me on that.

Well, Nancy, you know what our tax rate is. I mean, I think you could figure it out.

All right, but it certainly didn't come out - you used the normal tax rate? The tax rate that's there?

Yes.

All right. That's fine. Another thing. I'm interested in the change in volumes. You do mention how, you know, volumes were down and this and that, but can you be a little more specific? You know, 2 percent, 3 percent? That kind of thing? For Olefins and Vinyls. And you either give it versus the third quarter or year over year?

Well, I don't think we were down year over year. I was just talking about the third to the fourth quarter. I'd have to get back to you on that, Nancy.

Okay, great.

I don't have the number right in front of me.

The FIFO adjustment of 25 million in the fourth quarter, what would be your projection for first quarter - since we're already just about through two months?

You know, I think you can pretty much estimate it from taking a look at what feedstock costs are and product prices. And the industry doesn't seem to be experiencing a huge increase. But that's about all I'm going to say about the first quarter.

Okay. So, methane and propane we should be looking at for feedstocks?

Correct.

Now, the operating rate you did mention - you brought up Geismar. What kind of operating rates do you have there and when do you expect to be operating full out? And have you started the construction for the second part?

Hi, Nancy, this is Albert.

Hi.

We are running the first phase at the full rate for our PVC operation. And the second phase, as we said before, when we feel the market condition is right and we can start the second phase.

Okay. All right, well, thank you.

You're welcome.

Our next question is from the line of Bob Righteous (ph) with Bear Stearns.

Yes, hi. Good quarter, guys. Just a couple of things that I probably didn't hear correctly or didn't hear. One, you guys have 450 million pounds of styrene. At least that's what I saw on the sheet. I didn't hear you say anything about that. Could you - and maybe you did. I just didn't hear it. Could you just go over what you said about it? Or if you didn't, could you just kind of explain what happened in the fourth quarter and what kind of price increases there are on the first quarter?

We didn't say anything about styrene. Styrene is part of our Olefins group -

Right, I know.

It's a very kind of a small segment within the Olefins groups.

I wasn't deaf then, that's good.

Pardon?

I wasn't deaf. I didn't think I heard it.

Yes, I mean, in terms of the industry I think that we, you know, basically pricing for the third to the fourth quarter was about flat as far as I can see.

Right.

Operating rates were flat as well.

Right.

And we did see a drop of benzine at the end of the quarter.

Right. And any views on the first quarter in terms of pricing or raw material costs?

Well, in terms of the first quarter I can just tell you if you look at CMAI, they're showing prices coming down.

Okay. And on caustic, Dave asked you the question, you got $110.00 in caustic in the fourth quarter. Is that correct?

Yes.

Can you tell us what the price of caustic was for you guys or you don't tell us?

No, we do not.

Okay, is there - in the first quarter is there any price increases for caustic on the table, did you say?

Yes, there's a $50.00 price increase for caustic in the first quarter.

I saw CMAI I think is talking like - well, (inaudible) use like 650/700 in that range. And I can't remember caustic. It's north of 300. Is it fair to assume that you're in that ballpark?

Oh, yes. Definitely.

And in terms of - are you flat out in caustic?

Yes.

And let me ask you one other question. If there were - since there's consolidation in the industry you saw in the fourth, I forget, Falkin (ph) being sold to Occidental (ph). Are you guys a consolidator in that industry? Or are you guys a seller in that industry of your products or neither?

Well, we are - we're very much dedicated to the concept of integration.

Okay, I got it. So, you're going to need chlorine.

And chlorine is very important to us.

So, would you be a buyer if other facilities came up? And during this period, would you guys be a buyer of other facilities if possible?

Well, we would certainly look at it. But I don't, you know, we haven't made any strategic decision -

I understand. But I mean, if things like - I'm just curious if things like the Falkin stuff came up, would you - I don't know if you looked. Did you look at that? And obviously, you either passed on it or someone outbid you. But I mean, would you look at other facilities if they came available?

You know, I don't want to speculate on the future. You know, we're very interested in integration. We're short chlorine. I think we can just leave it at that.

Okay, so you may - okay, that's fine. And one last question, in terms of polyethylene, do you have any sense whether the pricing's sticking/not sticking or it's too early to tell?

It's too early to tell.

Okay, thanks for your help.

Our next question is from the line of Andy Parr (ph) with Andover Capital.

Two quick questions. Could you - I forgot what the FIFO impact was in the third quarter?

Seventeen.

Seventeen, did you say?

Yes.

Do you remember the split between Olefins and Vinyls?

No, but again, I think that Olefins is really the bigger portion. That's where you get the methane and propane primarily.

Since you answered so quickly, do you have the second quarter?

No, I never go back that far. We can get it for you later if you want.

Great. Second question is, the SG&A would be accrual here - bonus accrual in the fourth quarter. Does that continue here in the stock price performance in the fourth? I mean, should we model that going forward from a recurring number? What we saw in the fourth quarter? The total SG&A?

Well, this is only part of the total. Yes, I guess you could. If things continue on it's logical.

And lastly, anything funky with the share count going on that we should know about in '05 with options?

No. No. The funky thing - for lack of a better word - on the share count is that according to GAAP we had to count an average for the year. So, our average for the year - our share count for the year is lower than our share count for the quarter. But going forward there won't be that same discrepancy.

Great. Thanks.

And our next question is from the line of Robert Koort with Goldman Sachs.

Thank you, good morning.

Hey, Bob.

I'm just curious - you mentioned that you're short chlorine so at some point you might want to address that. Given where margins are today, can you envision any possible chance that you would build a new chlorine plant in order to get access right at your plant site and save the transportation headaches?

And then the same question, I guess, you don't need ethylene, but if you were a net short ethylene buyer out in the market today, given where margins are ethylene, would it makes sense to build a naphtha cracker given where the structure is today?

Well, let me address the ethylene question first because that's very, very simple straight forward. We don't think it makes any sense to build a greenfield cracker in North America today either naphtha or ethane. And we certainly have said consistently that we have no intentions of doing so.

Chlorine, you know, you have to look at it. I don't want to never say never, but I can tell you right now we haven't come to any decision on what we're going to do about the shortness of our chlorine. One other thing about the ethylene - we are not short ethylene. We're long.

Right. I was suggesting if you were in somebody else's shoes. I mean, it just seems the margin structure today you can make a positive reinvestment case. But I guess the question is, by the time it comes on is that when you really need extra ethylene?

Exactly. You need to really look forward and take the future into account.

And then a related question around chlorine. If we sort of polled all the various consultancies out there, for some reason there's an expectation that chloralkaline margins peak late this year/early next year. Yet, consistent with what you just said about building new chlorine, there doesn't seem to be a lot coming on in the world.

Can you give me some color from where you guys stand on why you wouldn't expect to see continued expansion until the day that there is more chlorine coming on?

Well, I think there is a number of items where chlorine and chloralkali are concerned. First of all, you know, if you look at the areas of the world, if you're talking globally, where there's capacity coming on in other products you're talking about Asia and the Middle East.

I think that China has some issues in terms of the supply of power. So, that's restricting chloralkali capacity going in there. In terms of the Middle East, there's just not a lot of capacity going on in that region of the world either.

Yes, I guess, that gets to my question. I mean, I guess I don't understand why there's an expectation that chlorine will peak any time soon given that - I just can't envision, unless you think there's not enough derivatives capacity to draw chlorine. But even then, then the derivatives chain in the PVC and VCM ought to continue going upwards.

I'm trying to understand what the regulator is on chlorine aor the chloralkali chain margins continue to expand when there's nothing coming on globally and I haven't been able to reconcile it. I was hoping maybe you could give me some input there.

Yes, I think you're right from the sense that suddenly Shintech (ph) - this is Albert, by the way - Shintech has announced an expansion of a new chlorine grassroots (ph) plant in the U.S. So, that would bring chlorine capacity downstream. I'm sure that people can get a little bit of the bottleneck creek in chlorine plants increase current density or add a few more cells. So, those creek will come in.

As Ruth mentioned the chlorine plant under construction in China. The debate is how much power they can have access to. There's a few projects announced in the Middle East. And also, depending on supply and demand - demand really for chlorine derivatives, which vinyl's only one of them. There are the urethanes and PN02 (ph) and a bunch of other applications. So, it's a worldwide supply and demand that's being balanced.

Albert, if I maybe could just fill that down. As long as the demand trans globally continues strongly there's no reason to expect that margin power shouldn't do the same?

As I said, supply-wise there's some coming on this creek (ph), I'm sure. In areas with this high EPU (ph) prices everybody can have a creek built working on creeks (inaudible) announce these creeks to be very small.

But the chlorine demand globally, historically has been growing on a 1 or 2 percent - very, very slow global growth of chlorine caustic.

Thanks.

You're welcome.

Sir, your next question is from the line of Gregg Goodnight with UBS.

Ruth, I was wondering about operating rates on your crackers with this feedstock upgrade projects. How many weeks outage are you going to have in your petrol one or petrol two and when will it be?

Well, that would be next year.

Okay.

I think it's the first quarter, maybe second quarter, kind of March/April area of '06.

Okay, will it be both crackers down and how long?

No, it's just be one cracker or a petrol two cracker. And I'm not sure, but four or five weeks is kind of a normal time frame.

Okay. That's all I had. Thanks a bunch.

And our next question is from the line of Bob Goldberg with Scobis Asset Management.

Hi, just a couple of quick follow-ups. Seasonally, if you exclude the startup of the Geismar plant, would you expect volumes in the Olefins and in the Vinyls chain to be higher than the fourth quarter? Or inline with the fourth quarter? Any thoughts there?

You're talking about the first quarter versus the fourth quarter?

Yes, sequential volumes.

Seasonally you would expect - particularly Vinyls - you would expect the quarter to be higher than the fourth. It's weather related. So, as long as the weather is good, you will have a ramp up. There's not seasonality in the Olefins.

Okay. And just one point of clarification on the FIFO benefit helped - FIFO accounting helped earnings, but it did hurt cash flow? Is that a fair statement? And if prices do come down over the course of '05 for whatever reason that you'd see a nice benefit to cash flows?

Exactly.

Okay, great. Thanks.

Our next question is from the line of Kevin McCarthy with Banc of America Securities.

Yes, just a followup on Bob Goldberg's previous question. If Vinyls' volume would typically improve sequentially subject to weather and you have pending price increases - certainly in caustic, I believe also in PVC resin - would you expect operating income in the Vinyls segment to improve sequentially in the first quarter?

Well, we don't comment on the future. But from an industry perspective and a logical perspective what you just subscribed should result in an improvement.

Okay. And you know, similarly on the Olefins side, I think you have not as much seasonality, but also price increases working through there as well. Should we have a similar working thesis for Olefins?

You know, the seasonality is not as strong domestically in Olefins. I think, though, globally you probably did have a little bit of a slowdown. So, your thesis is probably logical.

Okay. Thanks very much.

And our next question is from the line of David Silver with JP Morgan.

Yes, hi. Just a couple of question for modeling for 2005. You did give us some guidance on the capital spending. Did you also give us some guidance on DD&A for next year? And also a tax accrual rate - so not a cash tax, but tax accrual for calculating EPS?

I did not mention the DD&A. I do not think it's going to be significantly different than this year. The tax accrual rate - I'll be perfectly honest. I am still looking at that because there is a new tax bill that's just been introduced that benefits manufacturing companies. So, my starting point was 37 percent. It might be slightly lower than that.

Okay, very good. And then - I apologize for asking this again. I don't know if you covered. But we did talk about kind of the pipe pricing being flat in the fourth quarter. Are there price increases on the table for January 1st or the first quarter? And how do you kind of assess that?

There are price increases on the table for the first quarter.

Okay. Have they been announced? I mean, is there a certain range or a target?

You know, the pipe dynamic is a little bit different than the chemicals. It's more of a one on one type negotiation. But generally we believe that in the industry there are increases on the table.

Okay. Very good. Thanks a lot.

(Operator instructions). Our next question is from the line of Sergey Vasnetsov with Lehman Brothers.

Hi, good morning.

Good morning, Sergey.

I want to ask you a question - (inaudible) Albert as well. And this is about the capital structure. Obviously, you're making a lot of money and right now paying down debt. But conceptually, do you see that there are times during a cycle when it's been official for the Company beneficiaries to buyback shares? Maybe you can address both in the context of your Company let's say now through the next two or three years.

I'm not I understand the question, but let me just try to address it. Okay -

What I was specifically saying is your share price has done extremely well. People cannot get enough of your stock. Maybe you can help them issuing some more shares at this point in time. I know you have your own cash, but you can pay down debt to get to the level of (inaudible) the cycle and it would to help yourself.

Well, I did say that we have any plans right now to issue more shares. I will tell you that it's highly unlikely that we'd do a share buyback for the very reason that you just mentioned.

Right. Well, I was looking both ways. Obviously, share price fluctuates cyclically. And just what's your philosophical view, I guess, on the share counts and share issuance or buy backs?

Well, our investors have made it pretty clear that they believe that are slow to small compared to other companies. I think that that would make stock buyback kind of a difficult thing to do.

Initiation (ph)?

Well, of course, in the future depending on the opportunities. What happens with the Company, our shareholders' individual plans. You know, those things are possible.

Okay, thank you.

And our final question comes from Leo Mullin (ph) from RBC Dain Rauscher.

My question is very brief. What is the operating rate of the plants collectively now?

Well, basically, the operating rate is very, very high. Collectively, I would say it's probably in the high 90's or close to 100 percent.

Thank you.

And at this time the Q&A session has now ended. Are there any closing remarks?

Well, we'd like to thank everyone for participating in today's call. We hope that you'll join us again for our next conference call to discuss our first quarter results. Thank you very much and have a great day.

Ladies and gentlemen, we thank you for participating in today's Westlake Chemical Corporation fourth quarter earnings conference call.