Westlake Corp (WLK) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the Westlake Chemical Corporation first quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2006. I would now like to turn the call over to today's host, Steve Bender, Westlake's Vice President and Treasurer. You may begin, sir

Good morning everyone and thank you for joining us for the Westlake Chemical Corporation first quarter conference call. I am joined today by our President and CEO, Albert Chao, Senior Vice President and Chief Financial Officer Danny Gibbons and other members of our management team.

The agenda for today will be as follows - Albert will first make a few comments regarding Westlake's performance during the first quarter. Danny then will provide you with a more detailed look at our financial and operating results. And Albert will conclude a discussion of recent developments and then we will open the call up for questions.

Today, management is going to discuss certain topics that contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risk or uncertainty.

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

Westlake issued earlier this morning 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. A replay of today's call will be available beginning one hour after completion of this call until 5:00 P.M. Eastern Time on May 12. The replay may be accessed by calling the following numbers. Domestic callers should dial 1-866-356-4123. International callers may access the replay at 617-597-5393. The access code for both numbers is 11164808. Please note that information reported on this call speaks only as of today, May 5, 2006, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage www.westlakechemical.com.

Now I'd like to turn the call over to Albert Chao.

Thank you, Steve. Good morning, ladies and gentlemen, and thank you for joining us. I am pleased to report to you that we have started 2006 with a strong first quarter. In this morning's press release, we reported earnings of $0.79 per diluted share in the first quarter, which included a non-operating charge of $0.25 per diluted share for the early retirement of debt.

After adjusting for this charge, earnings per share are $1.04 per diluted share. For the first quarter, our operating margin was 17.9%, the highest since 1995. Our vinyls segment continues to benefit from our downstream integration strategy with PVC pipe prices and margins reaching all time highs during the quarter. Our olefins segment continues to enjoy high ethylene and polyethylene margins due to strong supply/demand fundamentals.

I am also happy to say that after natural gas and gas derivatives price spikes experienced in the fourth quarter resulting from the hurricanes, natural gas prices have fallen, while crude oil prices have remained high. As a result our gas based ethylene cracking ability provides us with a strong cost position compared with oil-based ethylene crackers in the U.S. and around the world.

Now, I would like to turn the call over to our Chief Financial Officer, Danny Gibbons, for a review of our first quarter results. Danny joined us recently after having spent over 20 years at Valero Energy Corporation, lastly as its CFO. I would like to welcome Danny to our management team and his first investor conference call.

I would also like to thank Steve Bender for filling this job in the last call.

Danny?

Thanks, Albert, and good morning, everyone. As we reported in this morning's press release, Westlake had sales of 619 million in the first quarter, which was unchanged from the 619 million of sales reported in the first quarter of 2005. Higher selling prices and higher sales volumes for PVC resin were offset by lower sales volumes for merchant ethylene and PVC pipe. Merchant ethylene sales volumes decreased due to increases in internal consumption for ethylene at the company's Geismar facilities, while PVC resin sales increased due to additional production from the Geismar vinyls facility. PVC pipe selling prices spiked during the fourth quarter due to PVC resin supply disruptions that happened as a result of the shutdown of the many vinyls plants along the U.S. Gulf Coast for Hurricanes Katrina and Rita. PVC pipe sales volumes were lower in the first quarter of 2006 as customers tightly managed inventories in light of the high PVC pipe prices.

Net income was 51 million or $0.79 per share in the first quarter of 2006, compared with net income of 61 million or $0.94 per share in the first quarter of 2005. All reference herein to earnings per share are on a fully diluted basis. The decrease in net income was due to a non-operating charge of 25.9 million or $0.25 a share, which relates to the early retirement of debt.

Excluding the loss on the early extinguishment of debt, net income would have been 67 million, or 6 million higher than the first quarter of 2005. This increase was attributable to a margin improvement in our vinyls segment, which we will discuss in more detail in a moment.

Now for a discussion of first quarter of 2006 versus the fourth quarter of 2005. First quarter sales were 17 million lower than the fourth quarter due to lower selling prices for all of our products, except PVC pipe, and lower sales volumes for VCM and PVC pipe. These decreases were partially offset by higher sales volumes for polyethylene, styrene and PVC resin. Selling prices fell during the first quarter of 2006 as feedstock and energy costs came down from the extremely high levels experienced in the fourth quarter of 2005, resulting from the previously mentioned hurricanes.

Olefins sales volumes improved 17% in the first quarter as compared to the fourth quarter, as sales volumes were adversely impacted by production outages in the fourth quarter of 2005 at our Lake Charles facility, caused by Hurricane Rita. PVC resin sales volumes increased due to additional volumes produced at our Geismar facility.

First quarter net income was below the 74 million net income or $1.13 per share reported in the fourth quarter of 2005, primarily due to the loss on the early retirement of debt mentioned above and a lower effective tax rate for the fourth quarter of 2005 associated with a federal tax benefit of $4 million.

The first quarter results were adversely impacted from the use of FIFO accounting. As you know, our utilization of FIFO impacts our earnings differently than most companies that use LIFO. Energy and feedstock prices came down significantly during the first quarter as compared to the high costs experienced in the fourth quarter of 2005, again, that were attributable to Hurricanes Katrina and Rita that hit the U.S. Gulf Coast. We estimate that the FIFO impact for Westlake in the first quarter was approximately $35 million, or $0.35 per share. Please bear in mind that the FIFO calculation is only an estimate, is not audited and is not a GAAP calculation.

As Albert mentioned earlier, Westlake had the highest operating income margins during the first quarter of 2006 since 1995. This was in spite of the negative impact caused by our FIFO accounting method.

Now, turning to our segment analysis. Our olefins segment generated 60 million in income from operations during the first quarter of 2006 compared to 62 million in the first quarter of last year. The slight decrease was primarily due to the higher feedstock costs incurred in the fourth quarter, flowing through our income statement in the first quarter resulting from the use of FIFO.

First quarter income from operations for olefins was 4 million higher than that reported in the fourth quarter of 2005. The sequential increase was primarily due to 17% higher sales volumes. Keep in mind that sales volumes were adversely impacted in the fourth quarter of 2005 by a two-week outage at our Lake Charles facility, caused by Hurricane Rita.

Turning to the Vinyls segment, our vinyls segment earned 54 million of income from operations in the first quarter, compared to 42 million in the first quarter of 2005. The $12 million improvement over last year was due to generally higher selling prices for most of our products, which outpaced rising feedstock and energy costs, and higher sales volumes for PVC resin. These increases were partially offset by lower PVC pipe sales volumes.

Income from operations for the vinyls segment was 4 million below the 58 million earned in the fourth quarter of 2005, primarily due to lower PVC pipe sales volumes, partially offset by higher selling prices for PVC pipe. Again, PVC pipe demand was unusually high in the fourth quarter of 2005, due to supply disruptions caused by the hurricanes.

Turning to the balance sheet and summarized statement of cash flow. We generated 67 million in cash from operating activities during the first quarter of 2006. Capital expenditures for the quarter were 29 million. Again, we expended 22.2 million as a make whole premium on the early extinguishment of debt and wrote off 3.7 million of capitalized debt issuance costs. Our cash balance was 236 million at March 31st, slightly down from the 238 million reported at December 31st, 2005.

We have no outstanding borrowings under our revolving bank credit facility at this time. During the quarter, we completed the refinancing of our long-term debt and issued 250 million of new six-and-five-eighths unsecured senior notes due 2016. We used the proceeds from these new senior notes along with cash on hand to redeem our 8.75% senior notes that were due 2011 and repaid the $9 million balance of the term loan. The refinancing reduces our interest expense going forward.

I would also like to point out that the covenants associated with our new senior notes provide significantly greater financial flexibility. In addition, we amended our senior secured revolving bank credit facility to increase the commitment from 200 million to 300 million. Our debt to total capitalization ratio at March 31 stood at 20%. If you net our cash balance against our outstanding debt, lowers our debt to total capitalization ratio to approximately 2%.

Obviously, the company has significant financial flexibility and the ability to take advantage of opportunities as they arise. One final point I'd like to make. Our return on net capital employed on a pretax basis was 29% for the trailing twelve months ending March 31, 2006. Our returns are among the highest in our peer group and it is a testament to the Westlake strategy - great integration, higher operating rates and a strong product mix.

Now, I'll turn the call back over to Albert to discuss some recent developments. Albert?

Thanks, Danny. First, I want to discuss our upcoming turnaround activity. In the second quarter, various units at our Calvert City Vinyls complex will be brought down for a maintenance turnaround. The ethylene and VCM units are expected to be down approximately 16 days while the chlor-alkali and PVC units will be down for a shorter period.

In the third quarter, one of our ethylene plants at Lake Charles will be brought down for approximately 40-odd days. Capitalized costs related to the Calvert City turnaround are currently estimated to be approximately $7 million and additional maintenance expense to be incurred during the turnaround is currently estimated to be $5 million. Capitalized costs related to the turnaround at Lake Charles are currently estimated to be approximately $20 million. While the Lake Charles ethylene plant is down, we will complete the installation of our feedstock flexibility project. The project will cost approximately $60 million and will provide us ability to switch approximately 20% of our Lake Charles ethylene facility feedstock to heavier feedstock when it is advantaged to ethane. This project will also help reduce our energy costs.

Secondly, on May 2nd, 2006, TTWF LP, our controlling stockholder, completed the sale of 5.5 million shares of the company's outstanding common stock in a public offering. TTWF LP received all the proceeds from the sale of the stock. The purpose for the sale of those shares was to increase the number of shares held by the public, thereby increasing the float and attracting new investors to Westlake. We have accomplished these objectives and I would like to welcome those new shareholders to the Westlake family.

The next item I want you to know is that Westlake has agreed with the other owners of Suzhou Huasu Plastics Company Limited, our vinyls joint venture in China, to purchase additional interests in the joint venture. The transaction will result in an increase in the Westlake's ownership percentage in the joint venture from approximately 43% to approximately 58% and will provide Westlake more opportunity to participate in this very dynamic market.

Finally, Westlake and the government of the Republic of Trinidad and Tobago have entered into a memorandum of understanding for Westlake to develop a feedstock-advantaged, ethane-based ethylene and polyethylene project in that country, the first on the island.

The project would use approximately 37,500 barrels per day of ethane to produce 1.25 billion pounds per year of ethylene, which would in turn be used to produce polyethylene and other derivative products. The project could be expanded in the future as more ethane becomes available. The capital cost is initially estimated to be approximately 1.5 billion. The size, scope, and cost of the project are subject to further definition as the parties undertake a detailed feasibility study pursuant to the MOU. It is expected that the project would be financed through a project financing arrangement. The preliminary project schedule shows that construction would start in late 2007 and that the project would start operations in late 2010.

In summary, we had a great quarter, and based on the strong business conditions and the supply-demand balance in the chemical industry, we are optimistic about the outlook going forward.

Thank you very much.

Now let me turn it back to Steve Bender.

Thank you, Albert.

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

Operator, we can now start taking questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS].

Your first question comes from the line of [Mike Judd] with Greenwood Consultants. You may proceed.

Good morning, and thanks for taking my question. I'm just curious, what do you see happening in the spot ethylene market since Huntsman announced that they were having some issues in Port Arthur. What do you see happening? Has the market tightened?

Certainly Nova has indicated that the ethylene market is fairly tight here.

Yes, we believe the spot price has moved up as we speak and certainly demand is coming back to a seasonally strong period of the year. So that would also make the demand-supply balance tighter.

Are spot prices at contract at this point, or where are they in relation to contract prices for May?

Right, I think depending what you mean by contract price. I think CMAI reports that as of end of April, the spot price in the U.S. is between 37.5 cents and $0.40, and the natural section is 47.5 cents.

Okay, and you've mentioned that we are entering into a seasonally stronger period. Are you beginning to see, both on the PVC resin side and the pipe side, as well as on the polyethylene side, are you beginning to see the converters basically coming into the marketplace to restock ahead of price increases, or what's going on? What are the dynamics in the market currently?

Certainly, as Danny and I alluded to the Hurricanes Katrina and Rita, at the end of last year, price had gone up a lot last year. As a result, converters, really destocking the inventory on a hands to mouth basis during the first quarter. As a result, the volume from some of our products are lower than expected. We believe with the increasing energy prices we've seen the last few weeks, as well as the depletion of the inventory at converted levels, the demand should increase.

Yes, that's terrific. Are you actually seeing it yet? Is it actually occurring now, or is it just an expectation on your part?

From what I read in the trade journals and what we believe in the industry, that should be happening.

Thank you.

You're welcome.

Your next question comes from the line of Kevin McCarthy with Banc of America Securities. You may proceed.

Yes, good morning, gentlemen. Two questions. On the subject of feedstock flexibility, if you had that in place today would you be cracking any differently? Also, Albert, you mentioned there would be some energy savings. Perhaps you could quantify those. And then, if you were to see increasing demand and much stronger pricing and margin, might you defer the shutdown in Lake Charles, or do you plan to proceed in the third quarter irrespective of the market conditions over the next couple of months?

Certainly, Kevin. I think today with natural gas to oil prices in a 10 or 11 to one range, it is far higher beneficial for ethane, which is a gas-to-oil ratio on the BTU equivalent is about six to one. So ethane is certainly today the favored feedstock [ONS], and had we had the feedstock flexibility project up and running, we would not go to the heavier.

When the oil and gas balance reverses on the right time, suddenly we can have effect, we can go back and forth. A question about energy, as you know, many of the plants built in the U.S. were based on $2 or $3 gas range, and today, with $6, $7, $8, or as high as $13 in the fourth quarter of last year, many of these energy-saving projects are very, very beneficial.

Okay, and then on the timing, do you plan to shut down in 3Q, regardless of what the market conditions are over the next couple of months?

Yes, I think as you know, ethylene plants turnarounds go from four years to six years, and this is the first major turnaround we've done for a long time. So we can push back to some degree, but also there are various issues with whether it's hurricane or winter period, a [inaudible]. So, I think we've picked the opportune time to do the project.

Great. And I have a second question on flexibility, but it's flexibility of a very different kind, your financial flexibility. With net debt to cap of 2%, perhaps you could comment, Albert, on how you might deploy your excess cash flow over the next 12 months and maybe address the subject of dividend distributions versus potential for bolt-on acquisitions or simply letting the cash accumulate.

Certainly, as we have discussed that in many of our conference calls and equity conference meetings, that our objective is our cash first for CapEx, and this year it will be 130, $175 million of CapEx. And after that, we will look at investments, and as we reported in the past, that we constantly look at investment opportunities in our core businesses, that's the vinyl and olefins business, on a global basis. And we've studied in the past, we'll study in the future. And when we find the right opportunity, certainly we will report back to our investors.

After that, we'll look at any debt reductions. Currently, we don't have any debt to reduce, and lastly, we'll look at paying dividends, and our board reviews dividend payments on a quarterly basis in their board meetings.

Okay, thank you very much.

You're welcome, Kevin.

Your next question comes from the line of Bill Young with Credit Suisse. You may proceed.

Hi, Albert. Where do we stand, in your view, on added capacity in PVC going forward, especially construction of some PVC plants by some of your competitors. How do you assess how that's going to impact the market, and when do you think they're going to be coming online?

Yes, the PVC additions have been announced by Shintech and by Georgia Gulf. Shintech have announced that it will be taking two phases and Georgia Gulf has announced a one-phase capacity increase. I think that depends also on the supply-demand of the market and the growth of the market, how it will impact the vinyls business.

Well, what do you see from the timing, from your perspective? Two phases, one phase, when do you think they'll be starting up, given your intelligence in the marketplace?

Our intelligence is limited.

I've never heard that before.

Yes, I think they mentioned the, I think, 2007-2008 period for poly startup. This is all we know.

Okay, where do you stand on bank integration as far as, say, chlorine goes?

All the chlorine produced, consumed internally. We don't sell any chlorine on the merchant market.

How about purchasing.

Purchasing. Certainly, as we reported in the previous conference calls, we constantly look at opportunity to expand our plans or purchase assets or continue buying chlorine on the market, and we constantly evaluate all three options.

But you're not any closer to decision now than you were then?

We constantly look at our options.

Okay. So, one more question. If you covered this before, I apologize, but for your potential investment there in Trinidad, based on your memorandum of understanding, how much actual dollar investment will be required on an equity basis as far as Westlake's concerned, versus project financing and this type of thing?

Certainly. The estimated product cost, preliminary estimate, we said in our press release, was $1.5 billion. In a typical project financing scheme, equity could be in the range of 30%. So the equity portion could be in the range of $450 million, and depending the split of equity between us and the government and Trinidad and Tobago, which they mentioned they have option to invest up to 30%, the range can be from 350 to 450, if they don't exercise the option.

Okay, great. Thanks for the update.

Your next question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Hi, this is [James Sheehan], sitting in for David. Just a question on your outlook for ethylene pricing in May. Do you see - what do you see as the chances for a price increase going through, and do you see that price increase expanding margins in the business, or will the price increase just be keeping pace with feedstock costs?

You're talking about the polyethylene price announcements, right?

Yes.

Yes, I think the industry, we believe, has announced - various companies announced price increases, effective May 1, for $0.06 a pound, and there was an announcement made for June at $0.07 a pound, so a total of $0.13 a pound. Certainly, in the last few weeks a month, energy prices, especially crude oil prices, has showed up very high. We believe the dynamics, especially with some outages in some of the ethylene plants, could put a lot of pressure on supply-demand, especially the converted inventories at very low levels. So we believe that the dynamics should support a strong price increase.

And just to follow up on that, do you see that just resulting from the tighter supplied balances, so that the price increases are just keeping margins about the same, or do you see the option for margin expansion there?

Well, I think, depending on the ethylene feedstock, as I mentioned earlier, that we are ethane based, EP-based cracking company, so our feedstock cost increase has not been as high as some of our industry peers who are using naptha or gas oil base as feedstocks, which end up quite high.

Thank you very much.

You're welcome.

Your next question comes from the line of Gregg Goodnight with UBS. You may proceed.

Good morning, gentlemen. My understanding is that Louisiana chemical firms are facing electric surcharge. Basically, the electrical companies in the state trying to recoup some of the cost of the hurricane. Could you comment on did you see these surcharges in the first quarter? Can you give us an idea of magnitude, if you did?

Yes, Gregg. Usually, the power costs do not come in effect with changing energy prices for a few months, typically. From Louisiana, there has been discussion about surcharge, discussion about whether industrial users or the consumer should pay it, also the government should pay it. I'm not aware of conclusion of those discussions.

Okay, so still a work in progress, then.

As far as I know, yes.

Okay. The second question, on your additional ownership of Suzhou. You mentioned you're going to 58% ownership. Could you comment on accounting issues? Where do you stand now in terms of consolidation? What do you see in terms of revenue impacts to what you've been previously reporting and where are the earnings going to go?

Certainly, Gregg. I will let Danny, our CFO, answer that. Danny?

Gregg, we are going from 43 to 58. We don't think we're going to end up consolidating Huasu. There are some participatory voting issues there about how the entity is run. We believe that Pricewaterhouse has concluded that we're not going to be able to consolidate that entity.

We're still doing some research on it, but their preliminary conclusion is that we're not going to consolidate. Obviously, we've got between now and August 10th when the second quarter 10-Q is filed to make sure everybody agrees with that, but the preliminary estimate right now is that we will not consolidate. So the accounting - you won't see, I guess - if that's the case, you won't see any difference going forward, other than you'll have a 15% increase in your equity and earnings.

Okay, very good. And pardon my Chinese pronunciation. It wasn't very good.

Suzhou Huasu, you did good.

Very good.

Would you comment on the cash flow item in investing opportunities, negative 27 million, was that associated with this ownership, or can you explain that one?

Gregg, no, it wasn't. The 27 million is related to the derivatives that were in the third quarter that settled up in this quarter. So the income statement effect was in the third quarter of last year. The cash effect is actually in the third quarter of this year. So when you see - actually, when you see payables go down, 50 million, 27 million of that, is because of this derivative issue.

Okay, I got you. Okay, thanks, that's all I had.

Your next question comes from the line of [Etlani Rodriguez]. You may proceed.

Hi, good morning, guys. A quick question, in terms of your inventory days, can you tell us what they are in the ethylene, polyethylene business. I mean, given that you plan to shut down for 40 days during the heart of the restocking period, how do you intend to handle the spike in volumes and so forth, so what do your inventory days look like?

Yes, we do not report inventory days, but generally our inventory was very low back in the fourth quarter of last year, after the hurricanes. And we will build back to a reasonable inventory level and we are prepared to continue sales steadily during the turnaround period.

Okay, there are questions like on the Trinidad MOU. Why do you think that Westlake was able to be successful there when many other companies have failed to get the proper or the right concessions from the government.

Certainly, Westlake has a lot of experience in building grassroots ethylene plants and polyethylene plants both in the U.S. and overseas, and we've been working very hard in this project for several years, and also we have experience with not only with ethylene, polyethylene, but also in downstream fabrications. And many of our peers have been looking in the larger arena of the Middle East and so that's the reason we were picked as the preferred partner.

Okay, thank you.

Your next question comes from the line of Bob Goldberg with Scopus Asset Management. You may proceed.

Good morning. Just wondering if you could comment on fundamentals in PVC. We've been hearing that possibly you're starting to see some firming in PVC resin prices, which have been weak into the first part of 2006, and the same thing with PVC pipe. With ethylene tightening up and coming into the spring season, are we starting to see any turnaround in pricing for resin, which could help support pipe pricing?

Certainly, Bob. As mentioned with after the hurricanes, inventories have been low, PVC resin has gone up and PVC pipe prices and volumes of sales were up in the first quarter, but since the first quarter, both PVC pipe prices hit their peaks and then came down, and as a result, the volume came down a lot, and people, again, in the hand-to-mouth relations with the users. And the PVC resin, we believe, several companies have announced or may warrant a $0.02 a pound increase. Again, I mentioned that the second quarter is typically a period, especially with PVC pipe, construction starts will increase and it will be typically a strong quarter.

So with the increasing ethylene cost, ethylene price, we believe there's a good possibility for an increase in PVC resin price.

And, Albert, how would you characterize inventory levels through the supply chain in PVC? Are they normal, are they on the low side, high side? How would you characterize inventories?

Yes, we believe, on the converter side, as I said, the inventory is quite low. We believe in the producer side, it's reasonable, and for Westlake we do have a turnaround coming.

Okay, thank you.

You're welcome.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of David Silver with JPMorgan. You may proceed.

Yes, good morning. I have a couple of questions to start for Danny, and, Danny, I'm hoping you can walk me through the change in revenues year over year on the olefins side. So, if I look at your supplemental information and I look at an average sales price change of plus 16%, and a volume change of minus 10%, and just doing very simple math, I'm expecting something like a 6% revenue increase, but when I look at the revenues as they're reported, there's a drop from year over year. Could you maybe plug in the gap there, for us?

Yes, I think, again, on the olefins, what we've tried to explain is that you can't explain it from looking at the changes in the prices in volumes. It all is related to FIFO, because effectively the margins were better, and even though the volumes were down, the margins were still good on a lot of our products, but when you start running through the effect of $13 natural gas prices and the effect it had on inventories and you start running that through the first quarter, that's why I made my comment the way I did, is because even though it looks like it would have been very positive, the effect of FIFO accounting was very negative. So that was really what had happened.

Yes, and I guess - no, I recognize the FIFO effect, but I'm wondering if FIFO affects the top line, the revenues in this case.

Well, I mean, on a price-volume basis, the increase in the prices is offset completely by the decrease in the volumes.

Okay.

I mean, it's almost dollar for dollar.

Okay, and I was just wondering if you could go back and help me understand how the turnarounds will affect your second quarter reported financial results. So you did outline some capital cost items and then some maintenance cost items, and I just want to clarify how much of the $7 million in capital costs and the $5 million in maintenance on Calvert City and then the $20 million of capitalized costs for Lake Charles, how much of that should we expect to flow through the income statement in the second quarter, versus how much has already been capitalize and reflected in your reported results?

For the month of may, the compensated claim will be down 16 days. The 7 million is capitalized turnaround cost. The 5 million is additional maintenance that will be incurred during the turnaround period that will not be capitalized. So the impact on second quarter is not only being down for 16 days, but it's also the additional maintenance that's not capitalized. So it has a pretty significant impact on second quarter.

As far as Lake Charles being in the third quarter, the 20 million is all capitalized. It's all related to the turnaround. There's some additional minor maintenance during that time, not significant, though. [Going to be] down for 40 days in the third quarter with the ethylene plant, again, so that's a pretty long period of time, being down every five to six years. So that needs to be reflected.

Okay, thank you. And then a couple of questions for Albert. First, I was just hoping you could comment on the caustic soda market, whether you view - whether Westlake has announced a second quarter price increase and maybe you could talk about that market and prospects for higher pricing there, maybe talk about how the spot pricing looks compared to contract. Thank you.

Yes, I think the caustic market is sold on a month to month and some quarterly basis, and it has had some pricing pressures, both from first quarter demand, as well as some [liquid] imports.

Okay, and then maybe one more question about use of cash, Albert. Obviously, the Trinidad project is a very big project. You mentioned perhaps a 30% equity requirement after allowing for the Trinidad government's minority interest. Could you maybe discuss how you envision the capital contribution being made by Westlake, let's say over the next few years.

In other words, without knowing the exact amount, but do you think it's one-third, one-third, one-third, or do you envision a meaningful capital contribution in '06, or might that start in '07? Can you just kind of walk through the pace or the structure at which Westlake might be required to contribute to the equity side of that project?

Yes, we don't have a funding plan or schedule as of now. We are developing our plan of going forward, but we don't anticipate any material large use of funds this year.

Okay, thank you very much.

You're welcome.

You next question comes from the line of Kevin McCarthy with Banc of America Securities.

Thank you. Just a follow-up on FIFO. Obviously, that pressured earnings quite a bit in the first quarter, $0.35 a share. I know it's difficult to predict, but as energy prices and your input costs remain stable from today through the balance of the quarter, what would you anticipate as a FIFO benefit in 2Q?

I mean, you're going to still see the effect of inventory flowing through through the second quarter. You'll still have some negative effect, and then as prices stabilize, you wouldn't expect to have anything, so I'm thinking second quarter is not going to be too much.

Not a big number either way?

No, I wouldn't think so.

Okay, and then would like to get a little bit of information about the month of April. Perhaps you could comment on what you saw in polyethylene volumes April of '06 versus April of '05 and what you're seeing trend wise in that business so far in the second quarter.

As I commented earlier - this is Albert, Kevin, that because of the low inventories in a converted level, as well as increasing energy prices, as well as into an equally strong quarter, we believe the volume should improve in the second quarter.

Okay, and then finally, Albert, is there any news on the subject of Royal relative to your most recent public comment?

Certainly, as we reported that the quarter hearing - first hearing - will be in June, and certainly this is a commercial dispute and we're in discussion with the other party to resolve it amicably, if possible.

And is that an arbitration hearing?

No, it's a court hearing.

Court hearing. And which court is that?

In Canada.

Okay, thank you very much.

You're welcome.

At this time, there are no further questions in queue, and I would like to turn the presentation back over to Mr. Steve Bender for closing remarks.

Thank you again for participating in today's call, and we hope you will join us again for the next conference call, to discuss our second quarter result.

Operator, do you want to go ahead and give the follow-up dial-in call?

Yes, sir. Ladies and gentlemen, I would like to thank you for your participation in today's Westlake Chemical Corporation first quarter earnings conference call. As a reminder, this call will be available for replay beginning an hour after the call has ended, and may be accessed until 5:00 PM Eastern Standard Time on May 12th. The replay can be accessed by calling the following numbers. Domestic callers should dial 1-888-286-8010. Again, that number is 1-888-286-8010. International callers may access the replay at 617-801-6888. Again, that is 617-801-6888. And the access code for both numbers is 60513054.

Thank you very much, ladies and gentlemen, and have a wonderful day.