Westlake Corp (WLK) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Third Quarter 2007 Earnings Conference Call. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this conference is being recorded today, November 1, 2007.

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. Good morning, everyone. Thank you for joining us for the Westlake Chemical Corporation third quarter conference call. I am joined today by Albert Chao, our President and CEO, and Steve Bender, our Vice President and Chief Financial Officer, 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 third quarter; Steve will then provide you with a more detailed look at our financial and operating results; Albert will conclude with a discussion of recent developments; and then we will open the call up for questions.

Today, Management is going to discuss certain topics that will 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 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 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.

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.Westlake.com.

A replay of today's call will be available beginning one hour after completion of this call until 1:00 P.M. Eastern Time on November 8th, 2007. The replay may be accessed by dialing the following numbers. Domestic callers should dial 1-888-286-8010. International callers may access the replay at 617-801-6888. The access code for both numbers is 84394151. Please note that information reported on this call speaks only as of today, November 1st, 2007 and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

I would finally like to advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage www.Westlake.com. Now I'd like to turn the call over to Albert Chao. Albert?

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us. In this morning's press release, we reported third quarter earnings of $0.59 per diluted share, which was slightly better than the $0.58 we reported in the second quarter of this year. Sales for the quarter were $840 million, driven by the strength in our polyethylene business, which continued through the third quarter.

Ethane prices continued to remain elevated at historically high levels. Higher feedstock costs, coupled with strong domestic and export demand for polyethylene are leading to continued price increases. After implementing polyethylene price increases of $0.10 per pound in the first half of the year, we were able to implement another $0.05 per pound increase in the third quarter, bringing the total for the year to $0.15 per pound.

The industry has also announced price increases in the fourth quarter to mitigate higher feedstock costs. These increases have outpaced the rapidly rising feedstock costs. Despite higher polyethylene prices in North America, producers still have a strong incentive to export. The high oil prices have given the U.S. gas based ethylene producers a cost advantage, which allows us to export our product and maintain a strong U.S. supply/demand balance.

On the PVC side, we have seen weakness throughout the quarter with deterioration occurring both in margin and on the volume side, due to, among other things, the continued weakness in the domestic housing market. While PVC resin and Pipe prices have moved up during the year, they were not able to keep pace with rising raw material costs in the third quarter.

PVC resin prices increased $0.09 per pound in the first half of the year and the industry was able to implement another $0.02 per pound in the third quarter. However, feedstock cost increases exceeded the third quarter price increase, resulting in margin erosion.

Sales volumes for PVC pipe began to slow in the third quarter, putting additional pressure on earnings. The industry has announced price increases for the fourth quarter to mitigate the higher feedstock costs. We now have a $0.02 per pound PVC price increase announced for October 1st, and an additional $0.06 per pound increase announced for November 1st.

Now, I would like to turn the call over to Steve for a review of our third quarter results.

Thank you Albert, and good morning everyone. We'll start with the analysis of our third quarter results compared to those in the prior year. As Albert mentioned earlier, Westlake had sales of $840 million in the third quarter, which represents a 25% increase from the $672 million reported in the third quarter of 2006. This increase was primarily due to the significant increase in polyethylene sales volumes attributable to the Longview facility acquired late last year.

Polyethylene sales volumes have been strong all year, and this trend continued through the third quarter. The higher sales volumes were partially offset by lower polyethylene selling prices.

On the vinyls side, PVC pipe sales volumes exhibited a further slowdown in the third quarter and were lower than volumes sold in the third quarter of 2006. Third quarter 2007 selling prices for PVC resin and pipe were substantially below prices from a year ago. During 2006, both demand and prices remained very strong through the first nine months, due to the supply constraints which resulted from hurricanes Katrina and Rita. In contrast, caustic selling prices and volumes were higher in the third quarter of 2007 as compared to the third quarter of 2006.

For the quarter, operating income was $60 million and net income was $38 million, or $0.59 per diluted share, compared with operating income of $87 million and net income of $62 million, or $0.95 per diluted share in the third quarter of 2006. The decline in income from operations was primarily due to weakness in the Vinyls segment, particularly the downstream product business, mainly as a result of weakness in the residential construction market.

Margins reached low levels in the third quarter due to rising feedstock costs and the vinyls industry's inability to raise prices to cover these higher costs.

Our Vinyls segment third quarter 2007 income from operations was also negatively impacted by $7 million for a litigation settlement with Goodrich Corporation and PolyOne Corporation related to past environmental issues at our Calvert City facilities, which included a payment to resolve past claims and legal expenses incurred in the quarter.

This decline in Vinyl's earnings was partially offset by an increase in income from operations from our Olefins segment. The Olefins segment benefited from the additional earnings from the Longview facility acquired in November 2006. These additional earnings were partially offset by slightly lower selling prices and higher feedstock costs, resulting in lower polyethylene margins in the third quarter 2007.

The third quarter of 2006 earnings were adversely impacted by an unscheduled outage at one of our ethylene units in Lake Charles, resulting from mechanical problems with a compressor that required extended maintenance.

The third quarter results were favorably impacted by the utilization of the first in, first out, or FIFO method of accounting, as compared to utilizing the last in, first out, or LIFO method used by some companies in the industry. The positive impact resulted from rising feedstock prices during the quarter. We estimate that the positive FIFO impact in the third quarter of 2007 was approximately $8 million after tax, or $0.12 per diluted share.

This compares to a $3 million after-tax benefit, or $0.05 per diluted share, in the third quarter of 2006. Please bear in mind that the FIFO calculation is only an estimate, is not audited and is not a GAAP calculation.

The following is a discussion of our sequential operating results for the third quarter versus the second quarter of 2007.

Third quarter 2007 sales were 7% higher than the $783 million reported in the second quarter 2007. This increase was primarily due to higher selling prices for polyethylene, caustic and PVC resin. Operating income decreased $2 million and net income was essentially flat from the operating income of $62 million and net income of $38 million, or $0.58 per diluted share reported in the second quarter of 2007.

Vinyls margins declined, as PVC resin and PVC pipe prices could not keep pace with rising feedstock costs and PVC pipe sales volume slowed down in the third quarter. In addition, the Vinyls segment was negatively impacted by the legal settlement with PolyOne and associated legal expenses. These reductions were partially offset by higher polyethylene margins, as selling prices outpaced higher feedstock costs.

Income from operations in the second quarter of 2007 was negatively impacted by the scheduled turnaround at one of our ethylene units in Lake Charles, which was down approximately 30 days.

Now, turning to our segment analysis. Income from operations in our Olefins segment was $57 million in the third quarter of 2007, compared to $42 million in the third quarter of 2006. Income from operations was higher primarily due to the additional operating income from the Longview polyethylene business acquired in November 2006.

Overall, polyethylene margins were lower in the third quarter of 2007 as compared to the prior year, due to slightly lower selling prices and higher feedstock costs. The third quarter 2006 results were adversely impacted by the unscheduled outage at one of our ethylene units in Lake Charles.

Third quarter income from operations for Olefins was $14 million higher than the $43 million income from operations reported in the second quarter of 2007. The second quarter was negatively impacted by the scheduled turnaround at one of the ethylene units in Lake Charles, which was down, again, for approximately 30 days.

Turning to the Vinyls segment. Income from operations for our vinyls segment was $5 million in the third quarter compared to $49 million in the third quarter of 2006. The $44 million decrease was primarily due to significantly lower margins resulting from lower selling prices and higher feedstock costs for both PVC resin and pipe and lower PVC pipe sales volumes. This decrease was partially offset by higher caustic selling prices and volumes.

Reduced PVC pipe demand is largely a reflection of the sluggish residential housing market. PVC resin and pipe prices have increased during the year, however, they have not been able to keep pace with rising feedstock costs.

Third quarter income from operations for the vinyls segment decreased by $16 million from the $21 million reported in the second quarter of 2007. The decrease was primarily attributable to higher feedstock costs, which was only partially offset by higher PVC resin and caustic prices. Additionally, PVC pipe sales volumes slowed during the third quarter and our vinyls segment was negatively impacted by the $7 million related to the litigation with Goodrich and PolyOne.

Turning to the balance sheet and summarized statement of cash flow. Cash flow from operating activities was $95 million for the first nine months of 2007, compared to $214 million generated during the same period in 2006.

Capital expenditures for the first nine months of 2007 totaled $86 million. We anticipate our 2007 capital expenditures will be approximately $130 million.

Our cash balance was $139 million at September 30, 2007, and our total long term debt was $335 million. Our debt to total capitalization ratio stands at 21%, providing considerable financial flexibility going forward.

Now, I'll turn the call back over to Albert. Albert?

Thanks Steve. First, let me update you on the status of our projects and then we will discuss the outlook for the industry.

Westlake issued a press release earlier this week announcing several projects that will enhance the integration of our vinyls chain. We will expand our chlor-alkali facility and PVC resin plant in Calvert City, Kentucky and also build a large diameter PVC pipe plant at the Calvert City site as well.

We will add 50,000 ECU tons to our chlor-alkali unit and bring the company's total ECU capacity to 275,000 tons per year. This expansion will improve our vertical integration from chlorine downstream into VCM and PVC and also increase our caustic sales. We expect to have this expansion completed by the second half of 2009.

We will also expand the PVC resin plant in Calvert City by an additional 300 million pounds per year, which will bring the total PVC capacity for Westlake to 1.7 billion pounds annually. This expansion, which will be completed by the first half of 2009, will consume VCM from our Calvert City site which is currently being sold on the merchant market.

In addition, we have begun planning for the construction of a new large diameter PVC pipe facility, which will initially produce approximately 50 million pounds per year. This facility will enlarge our position in the large diameter PVC pipe business and further enhance our downstream integration, while the proximity to the company's PVC resin plant will allow us to minimize our freight costs. The expected completion for this facility is the second half of 2008.

The total capital cost from these strategic investments will be approximately $90 million.

Now, let's talk about Trinidad. We are continuing our work with the government of the Republic of Trinidad and Tobago to complete the feasibility study for a feedstock advantaged ethane-based ethylene and polyethylene project. We hope to have a definitive decision as to the project's feasibility later this year or early next year. Once we complete this feasibility study and finalize the terms of the project agreements, we can begin work on our project financing arrangements, then construction can begin.

Finally, let's talk about the outlook for the industry. As I mentioned earlier, we have seen continued strength in the polyethylene markets, both domestically and abroad. High crude oil prices and a weaker U.S. dollar have given the U.S. gas-based ethylene producers a cost advantage, which allows us to export our products and maintain a strong supply/demand balance in the U.S.

The lack of expansion in recent years in North America has further strengthened polyethylene in the U.S. The industry has so far this year been able to implement price increases that have outpaced rising feedstock costs. Feedstock costs have continued to increase during the fourth quarter, and in response to this, the industry has already implemented a $0.04 per pound price increase in October, and has announced additional price increases, totaling $0.11 per pound by the end of the year.

While it is not known at this time if any of these price increases will be implemented, the supply/demand balance for polyethylene should remain strong until new capacity comes on line.

On the vinyls side of the business, we began seeing some slowdown in PVC pipe volumes earlier in this year than we did a year ago. The continued weakness in the residential housing market has resulted in the vinyl industry's inability to raise prices to cover rising feedstock costs, which has led to margin erosion. The industry has announced price increases totaling $0.08 cents per pound in the fourth quarter to help mitigate the impact of the higher costs.

While we hope to implement all of the announced increases, normal seasonal slowdowns will only add to the demand weakness we are experiencing now. We remain cautious about the outlook for vinyls in the coming year, with the weakened demand and the capacity increases expected to come online in the first half of next year.

However, should crude oil prices remain high, so will naphtha and, thus the outlook for gas based ethylene producers looks good, with strong domestic polyethylene demand and strong export opportunities.

Thank you very much. Now let me turn it back over to Dave Hansen.

Thanks, Albert. Before we 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 INSTRUCTIONS) Kevin McCarthy with Banc of America Securities.

This is Vital Aelion sitting in for Kevin.I have two quick questions here. One is, we know that the housing market or rather the more general construction market will have a difficult time in '08, but do you have a view for '09?

Well, that's a difficult question. I think the construction market -- our pipe goes into residential as well as to construction market for nonresidential area, which is 80% of our business. However, the whole construction business impact by the demand of industry from residential and from GDP related activities. If the forecast for 2009 has a more robust GDP growth than 2008, then it should help the whole residential and nonresidential construction business.

Okay. My second question is, regarding polyethylene and vinyl volumes, can you give us a little bit of a sense what is your export split from the total?

We normally export a bit less than the industry average, both in the polyethylene side and the vinyl side, as most of our vinyls are integrated downstream into our own downstream [efficient] business.

The same is true of polyethylene, lower than the industry average?

Yes. Normally that's the case.

Mark Connelly of Credit Suisse.

Just a couple of things. First, when you talk about the pipe market, is the weakness in pipe in terms of being able to pass through prices, is that across the market or are pieces of the market weaker than others? I'm curious whether large diameter is holding up better or whether it's all falling together?

I think in general, it's like rising tide [lift or ship] and vice versa are the same. The pipe market is impacted across the board. But I think volume wise, the housing related pipe sales will be impacted more than the non-housing related.

Okay, that's helpful. The second question, we've been assuming that ethylene and polyethylene margins were up a penny or so in the quarter and if you factor in the impact of Lake Charles, we would be ahead of your reported Olefins number, so clearly there's some other stuff going on. Is there anything significant that explains that gap? Because it looks like a pretty meaningful gap.

No, there's nothing other than we have reported. I will take a look in more details and get back with you if we can.

Okay. And one last question, we've got a $75 ton increase on caustic for November, but chlorine is not looking quite as strong, given PVC. Do you think that caustic can offset chlorine's weakness in the next quarter?

That's a good question. Depending on the volume side, because we're going into a slow season. Usually the second half of the fourth quarter and the first half of the first quarter are the slow season for chlorine and that will impact the demand for chlorine as a result of the supply to caustic market as well. So depending on the volume impact, I don't know it's enough to offset with the price increase or not.

Gregg Goodnight with UBS.

I'm going to ask Kevin's question in a little bit different way. In your press release you noted that polyethylene benchmark pricing was up $0.05 quarter over quarter. I know that's not your margin or your pricing. Is your pricing -- did it trend along with the benchmark or is there some price protection that would delay the effective nickel a pound?

Generally, our average pricing would trend. As you know, there are some price protections in the industry to various degrees. But usually within the quarter that's only the price of implementation what will begin. And generally our average price trends the benchmark.

Okay, so you're saying the benchmark was a good proxy for you, quarter over quarter?

Yes.

Okay. Second question. I sort of guessed at what the economics and margins would be of your proposed project and in today's market, I'm getting EBIT margins like 10%. Is that a reasonable guess if the project were up and going today?

You're talking about the vinyls project?

Yes, the new vinyls expansions -- pipe resin in the four alkalis.

As you know, we only satisfy about 40 to 45% of our chlorine is internal today. With this new expansion we go up to 50% and it definitely will help. It's expansion of an existing chloride plant, so it's a very effective expansion from a cost point of view and operating cost view going forward. And also integrates downstream into our PVC (inaudible) PVC pipe, so it should definitely help the margins.

I see. You're looking at it certainly from a strategic standpoint rather than coming up today and what the margins would be today?

Both. I think as you know, the [ECU] price are still high. The (inaudible) has come down. But with the incremental expansion in our existing plant, it will give us a very competitive cost position.

Edmond Rodriquez with Goldman Sachs.

I have a question on the capacity additions that you announced. While this definitely will benefit your integration, do you believe this will add additional pressure on the market in terms of no more capacity coming on line and given the weakness in margin and pricing we're seeing right now?

Well, as I mentioned earlier, it will help from a cost position and it certainly will add somewhat capacity in industry, but it's a small amount. And if you read all the analysts comments, there's some discussion of whether there will be some higher cost plans will be forced to curtail production or shutdown. That, we don't know.

Okay. And in terms of your feedstock flexibility on a project which has been completed, has that been helping at all, now given that you could crack both light and heavy?

Yes, it helped from number one, energy reductions and two, it gave us 100 million pounds more ethylene. As you know, we are net buy of ethylene today, so that would help. As to the switching of feedstock to light naphtha, as you know, light naphtha today with a high oil price is a disadvantage vis--vis the ethane light gas cracking, so we have not switched to light (inaudible) yet.

Roger Spitz with Merrill Lynch.

Two questions. What is your split between large and small diameter PVC pipe?

Well, if you can call residential markets being the small diameter, we're serving about 20% of our pipe into the residential side of the business. The balance of it goes into water and sewer, which are primarily larger diameters.

Great. And your vinyl segment was hit hard by elevated propane cost. Is your Calvert City propane price close to the U.S. Gulf Coast propane pricing or is it priced at a discount so that it can be competitive with U.S. Gulf Coast ethane crackers?

No, it's based on U.S. Gulf Coast propane price and then we have the transport to Calvert City. We had freight saving from our PVC shipping up to northern part of the U.S. and Canada. We have a freight saving from PVC freight offset the propane shipment.

Bill Hoffman with UBS.

I was wondering, Albert, if you could give us a little bit of guidance on the monthly sales trends that you were seeing in the PVC side of the business and whether you saw meaningful write-off in September and even into October, relative to the earlier months? Just trying to get a sense on the trend.

And then secondly, wanted to just ask about basically the monthly margin trends and where you might be shaking out at this point or whether you have settled for October yet, in both PE and PVC?

I think in October there was some slowing down -- I'm sorry, in the end of the third quarter, some slowing down in the vinyl side, as we mentioned earlier. We saw an earlier slowdown in PVC pipe sales volume than last year and there was some inventory reduction by the downstream customer. However, with the price increases we are seeing in October, we believe that customers will be increasing their purchases, both in PVC and the polyethylene side.

As you know, we have $0.11 a pound announced for polyethylene in the fourth quarter and in November really, an additional $0.06 a pound announced for PVC in November. But, as I mentioned earlier in the call, that going into the winter season, it is normally a seasonal slow period for PVC.

I guess the other question I wanted to probe on a little bit is, do you feel like you are gaining any share in the PV side or is there any share shifting going on right now?

We believe that we are maintaining our market share in the industry.

David Begleiter with Deutsche Bank.

Albert, have you seen any slowing of your export activity heading into November?

I think the exports, people talk about after the Chinese October holidays where the export will come back or not. And from generally speaking, we see business still pretty robust for export from the U.S. generally speaking. But the demand on a global basis remains fairly good, I would say, both for polyethylene and PVC.

And can you comment on your November order books for polyethylene? Has it been prebuying ahead of the $0.05 and $0.06 increases for this month?

Generally speaking, as you know that when there's a large price increase announced and when the industry demand is still reasonably good, there will be some increases in sales. But I think I will talk about this next quarter.

And lastly, on Trinidad, have the economics improved? I'm sure they have, as oil has gone up, and what does it mean for the scope of the project?

Talking about feedstock?

Yes, for Trinidad.

Well, I think the purpose of going overseas to a feedstock advantage carrier is to get a better feedstock to be able to compete, so that should remain the same.

So I guess we'll wait for the release on the feasibility study.

That's right.

Mike Segall with Deutsche Bank.

Question about the revolving credit draw, I noticed that your cash balance went up around the same amount as the draw. I'm just curious if you intend to keep a balance on that for the foreseeable future?

No, Mike. The draw was really just to meet seasonal needs and I would expect that cash balance and the size of the line to come back down shortly after the end of this quarter.

Okay, great. Thank you. And regarding the time of the expenditures for the expansion, the vinyls and chlorine caustic expansion, can you give us a sense of how that 90 million will be layered in over time?

Yes. As we start spending those funds, they'll be layered in some this year and further on into '08. I don't have an exact layering of those numbers at this stage that I'd like to hand out to you. Mostly it will be '08, because as you can see, these units are going to come up in the second half of '09, but I don't have a number, per se, that I'm going to hand out to you, in '08 and '09. But as you can see, the units are going to come up predominantly in the second half of '09, except for the PVC pipe unit, which will come up in '08.

Right. Now I imagine you've given it some thought, given the weakness in vinyl that this capacity will enter the market when the market is recovered and can absorb it. Are you concerned that you might be a little early on this?

No, because we are buying chlorine right now, so that impact should help us any time.

Right, okay. And my last question, last year's fourth quarter was pretty weak, because of inventory destocking. Do you see any signs of that this year or is the market in better balance?

I think last year was a real reaction to the inventory holds during the summer, as reaction to Katrina and Rita in '05. That was a sharp reaction. We don't have those inventory build during the summer for this year and along with the price increases, we don't expect to have a drastic impact like last year fourth quarter.

(OPERATOR INSTRUCTIONS) Bobby [Jornus] with Merrill Lynch.

Two questions. First, I just wanted to clarify your earlier comment regarding PVC export trends in October. The industry saw a sharp pullback in September from pretty much record high August levels. Did you see stabilization in October and if not, how much of that do you think is the result of surging costs versus underlying demand weakness?

My comment probably was saying that the demand for export is certainly impacted by seasonal factors and in the Northern hemisphere the PVC demand will reduce in the winter months. So that would impact, but generally speaking, we don't see, other than the seasonal adjustment material change from normal demand. The global demand across the board in polyethylene and also the polyethylene PVC are still fairly well.

Okay. And the second question was, the industry has raised benchmark PVC prices about $0.12 since February, I guess through October, at least on paper, but costs are up something like $0.09 or $0.10, so could you help us understand why realized margins for the entire industry are actually down? Have increased pressures resulted in more competitive situations where you actually can't realize the increase that at least has gone through on paper?

Well, from my understanding that the PVC margin has reduced with the cost increases, I don't know which period you're looking at for the year. That's why it's reduced the margin. Now, if you compared with very poor position in the fourth quarter of '06, things aren't as bad as in '06 fourth quarter, but the margin definitely compare with the whole year '06 this year. The margin's come down a fair amount.

Operator, I think we have time for one more question.

[Gaze Siles] with JP Morgan.

I had a couple of questions for you. First would be, I was hoping you could clarify something, some issues around the recent settlement regarding environmental remediation at Calvert City. So that issue's been going on for many years, I believe, and there may be more than one lawsuit involved. So, the settlement that was recently announced, is this a settlement of all remaining major issues or are there other issues surrounding remediation or other key issues at that location?

This settlement really eliminated the past environmental issues with PolyOne Corporation and Goodrich Corporation. Going forward, PolyOne will pay approximately 100% of the cost for the environmental remediation going forward, subject to some adjustments left to be discussed going forward.

Okay. And then, on an ongoing basis, could you talk about what type of outlays you might be required to -- you might be committing to as a result of this settlement? And then I also recall at Geismar, the previous owner there had an issue with VCM in the groundwater, which required them to make some ongoing expenditures. Can you just kind of bracket that, what you might be spending for those types of issues?

I think other than what we reported in our 10-Ks and 10-Qs, we're not ready to discuss in details other than those, and (inaudible) will describe the settlement in more detail in the upcoming 10-Q filing. I hope that satisfy your question.

Thank you. How about just to shift over to the PVC side. You talked a lot about the domestic market and the fabricated products side of your business today. I was wondering if you could comment on your Chinese joint venture, and in particular, was there a significant change in the results from the operation and just briefly could you describe the market conditions in China for that business?

Our Chinese business, which is a joint venture, consists primarily of PVC [calendared] film and sheeting, as well as PVC resin sales and the business has been, this year, doing as well or better than last year in general.

Okay. And then last question for Steve, I think, the settlement charge for Calvert City, $6.7 million, can you just clarify, I think that's on the operating line. I was wondering if you had an after-tax effect of that? And secondly, I noticed your tax accrual this quarter was a little bit lower than in the first half of the year, so could you maybe discuss why that is and what type of tax accrual rate we should be thinking about for the full year?

Sure. The effective rate this quarter was lower and it's lower because we have a manufacturing credit of about 1.5% and some other state credits. And I think on a go-forward basis, about a 34.5 to 35% rate is kind of a way to think about that rate on a go-forward basis.

Coming back to your question on the settlement, the legal costs that we incurred are in our SG&A line and there was a $3 million settlement that is in cost of sales. On an after-tax basis that's about $4.3 million versus the $7 million on a pretax basis.

So approximately $0.06 or $0.07 per share after tax, is that correct?

Yes.

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

Well, we'd like to thank all of you for participating in today's call and we look forward to joining together with you again at our next conference call for the fourth quarter. Thank you very much and have a great day.

Thank you for your participation in today's Westlake Chemical Corporation third 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 1:00 PM Eastern Time on Thursday, November 8th. The replay can be accessed by calling the following numbers. Domestic callers should dial 1-888-286-8010. International callers may access the replay at 617-801-6888. The access code at both numbers is 84394151.