UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 25, 2018
LSB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 1-7677 | 73-1015226 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma | 73107 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code (405) 235-4546
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
On July 25, 2018, LSB Industries, Inc. (the “Company”) issued a press release to report its financial results for the second quarter ended June 30, 2018. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
On July 26, 2018, at 10:00 a.m. (Eastern time) / 9:00 a.m. (Central time), the Company will hold a conference call broadcast live over the Internet to discuss the financial results of the second quarter ended June 30, 2018.
The information contained in this Item 2.02 of this Form 8-K and the Exhibit 99.1 attached hereto are being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Act of 1934 (as amended), or otherwise subject to the liabilities of such section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 (as amended), except as shall be expressly set forth by specific reference to this Item 2.02 in such filing.
| Item 9.01 | Exhibits. |
(d) Exhibits.
| Exhibit Number |
Description | |
| 99.1 | Press Release issued by LSB Industries, Inc. dated July 25, 2018, titled “LSB Industries, Inc. Reports Operating Results for the 2018 Second Quarter”. | |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: July 25, 2018
| LSB INDUSTRIES, INC. | ||
| By: | /s/ Mark T. Behrman | |
| Name: | Mark T. Behrman | |
| Title: | Executive Vice President and Chief Financial Officer | |
3
Exhibit 99.1
LSB INDUSTRIES, INC. REPORTS OPERATING RESULTS
FOR THE 2018 SECOND QUARTER
OKLAHOMA CITY, Oklahoma…July 25, 2018… LSB Industries, Inc. (NYSE: LXU) (“LSB” or the “Company”) today announced results for the second quarter ended June 30, 2018.
Second Quarter Highlights
| • | Net sales of $103.2 million for the second quarter of 2018, compared to adjusted net sales(1) of $105.2 million for the second quarter of 2017 ($122.9 million originally reported) which excludes $15.6 million for the comparative impact to revenue from new revenue recognition standards adopted in 2018 primarily related to the Baytown facility, that are not reflected in prior year financials, and $2.1 million from businesses sold in the second and third quarters of 2017 |
| • | Net loss of $27.5 million for the second quarter of 2018, compared to a loss of $7.0 million for the second quarter of 2017 |
| • | Adjusted EBITDA(1) of $17.8 million for the second quarter of 2018, compared to $21.7 million ($22.2 million originally reported) excluding $0.5 million from businesses sold in 2017 |
“Our second quarter performance was disappointing relative to our expectations headed into the period,” stated Daniel Greenwell, LSB’s President and CEO. “As we previously announced, our results were impacted by unplanned downtime at our El Dorado facility and, to a lesser extent, our Pryor facility. As a result, we had lower production volume of both our agricultural and industrial products resulting in reduced sales, lower fixed cost absorption and additional costs, which offset a material year-over-year improvement in pricing for our agricultural products along with lower natural gas feedstock costs and stronger sales volumes of our industrial and mining products.”
Mr. Greenwell continued, “We recognized year-over-year pricing improvement for all of our major agricultural product categories during the second quarter, with net pricing per ton for UAN, HDAN, and agricultural ammonia, rising 14%, 13%, and 10% respectively, reflecting a more favorable alignment of demand with market capacity for these products relative to last year. While the third quarter is typically our seasonally weakest quarter for agricultural products due to the conclusion of the spring fertilizer season, based on third quarter presales of UAN and ammonia, we expect a continued trend towards stronger pricing relative to 2017 for the balance of this year. Pricing for our industrial products was lower than the prior year’s second quarter as a result of the lower Tampa ammonia pricing quarter over quarter which averaged $265 a metric ton for the second quarter of 2018, as compared to $295 a metric ton for the second quarter of 2017. Our industrial ammonia sales volumes declined due to the aforementioned downtime at El Dorado, however, our nitric acid and other industrial products volumes increased 35% and 15% respectively driven by the continued strength of the U.S. economy. Favorable trends in our mining products business also continued, with our mining product volumes increasing 20% as compared to the second quarter of 2017 as we continue to gain momentum in these markets.”
| (1) | This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section. |
1
“On the operations front, Cherokee’s ammonia plant once again ran at a 100% on-stream rate for the quarter, which was the sixth out of the last seven quarters of running at this level. After delivering a 100% on-stream rate in the first quarter, El Dorado’s ammonia plant ran at a 62% on-stream rate during the second quarter after a power outage resulted in tube failures in the ammonia plant’s boiler. While this disruption was an impediment to what would have otherwise been a very good quarter, it did provide us with the opportunity to pull forward maintenance work previously planned for the facility’s September 2018 Turnaround. As a result, we expect increased production volume and lower Turnaround expense at El Dorado in the third quarter. Pryor’s ammonia plant ran at a 65% on-stream rate for the second quarter, which included the impact of downtime to repair leaks to its waste heat boiler. In the second half of 2018, we expect on-stream rates to average approximately 94% across all facilities.”
Mr. Greenwell concluded, “Our outlook for the second half of the year calls for significant improvement in Adjusted EBITDA and free cash flow as compared to the same period last year as a result of anticipated higher overall pricing relative to 2017 for the products we sell, combined with our expectations for more consistent plant operating rates. The technological enhancements we have been making to our company-wide maintenance management system are largely complete and we expect to yield increasing benefits as the year progresses. We are confident that we have the financial flexibility to execute our strategy aimed at delivering greater and more consistent profits and increased value for our shareholders.”
| Three Months Ended June 30, | ||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Net Sales by Market Sector |
Net Sales |
Sector Mix |
Adjusted Net Sales(1) |
Sector Mix |
% Change |
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| Agricultural |
$ | 58.0 | 56 | % | $ | 57.2 | 54 | % | 1 | % | ||||||||||
| Industrial |
32.8 | 32 | % | 37.6 | 36 | % | (13 | )% | ||||||||||||
| Mining |
12.4 | 12 | % | 10.4 | 10 | % | 19 | % | ||||||||||||
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| $ | 103.2 | $ | 105.2 | (2 | )% | |||||||||||||||
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| (1) | Due to the January 1, 2018 adoption of ASC 606, Revenue from Contracts with Customers (“ASC 606”), certain industrial sales are no longer recognized. Since we adopted ASC 606 using the “modified retrospective” method, the prior periods were not restated. However, if we had applied ASC 606 to these specific arrangements during the second quarter of 2017, net sales for these products would have been reduced by approximately $15.6 million as illustrated above. Additionally, adjusted net sales are adjusted to remove revenue associated with businesses sold in 2017. See Non – GAAP reconciliation section for more information. |
Comparison of 2018 to 2017 periods:
| • | Net sales of our agricultural products were up slightly during the quarter relative to the prior year period. Stronger pricing for UAN, HDAN and agricultural ammonia was offset by lower sales volumes for these products as a result of lower on-stream rates at the El Dorado and Pryor facilities. With respect to industrial sales, net sales of industrial ammonia were also impacted by lower on-stream rates at El Dorado. However, nitric acid and AN solution sales were strong for the quarter and low density ammonium nitrate (LDAN) sales volumes for mining applications also increased as a result of our sales and marketing efforts and stronger overall demand from this market. |
| • | Adjusted EBITDA from continuing operations was lower compared to the prior year period primarily due to reduced agricultural and industrial product volumes, partially offset by improved pricing as discussed above, lower natural gas feedstock costs and improved mining volumes. |
2
The following tables provide key sales metrics for our Agricultural products:
| Three Months Ended June 30, | ||||||||||||
| Product (tons sold) |
2018 | 2017 | % Change | |||||||||
| Urea ammonium nitrate (UAN) |
110,336 | 118,488 | (7 | )% | ||||||||
| High density ammonium nitrate (HDAN) |
93,126 | 105,115 | (11 | )% | ||||||||
| Ammonia |
12,956 | 12,248 | 6 | % | ||||||||
| Other |
12,822 | 12,829 | 0 | % | ||||||||
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| 229,240 | 248,680 | (8 | )% | |||||||||
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| Average Selling Prices (price per ton) (A) |
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| UAN |
$ | 178 | $ | 156 | 14 | % | ||||||
| HDAN |
$ | 254 | $ | 224 | 13 | % | ||||||
| Ammonia |
$ | 316 | $ | 288 | 10 | % | ||||||
| (A) | Average selling prices represent “net back” prices which are calculated as sales less freight expenses divided by product sales volume in tons. |
The following table indicates the volumes sold of our major Industrial products:
| Three Months Ended June 30, | ||||||||||||
| Product (tons sold) |
2018 | 2017 | % Change | |||||||||
| Ammonia |
41,194 | 66,313 | (38 | )% | ||||||||
| Nitric acid, excluding Baytown |
33,504 | 24,806 | 35 | % | ||||||||
| Other Industrial Products |
9,224 | 8,015 | 15 | % | ||||||||
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| 83,922 | 99,134 | (15 | )% | |||||||||
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The following table indicates the volumes sold of our major Mining products:
| Three Months Ended June 30, | ||||||||||||
| Product (tons sold) |
2018 | 2017 | % Change | |||||||||
| LDAN/HDAN/AN solution |
48,001 | 39,940 | 20 | % | ||||||||
| Input Costs |
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| Average natural gas cost/MMBtu |
$ | 2.60 | $ | 3.09 | (16 | )% | ||||||
Financial Position and Capital Expenditures
As of June 30, 2018, our total cash position was $47.2 million. Additionally, we had approximately $34.3 million of borrowing availability under our Working Capital Revolver. There were no borrowings under the Working Capital Revolver at June 30, 2018.
Total long-term debt, including the current portion, was $416.4 million at June 30, 2018 compared to $409.4 million at December 31, 2017. The aggregate liquidation value of the Series E Redeemable Preferred at June 30, 2018, inclusive of accrued dividends of $58.4 million, was $198.2 million.
Interest expense for the second quarter of 2018 was $11.7 million compared to $9.3 million for the same period in 2017. For the full year of 2018, we expect interest expense to be approximately $43 million.
Capital expenditures were approximately $9.2 million in the second quarter of 2018 and $15.4 million for the first six months of 2018. For the full year of 2018, total capital expenditures, which are related to maintaining and enhancing safety and reliability at our facilities, are expected to be approximately $31.0 million.
3
Volume Outlook
The Company’s revised outlook for sales volumes for the second half and full year of 2018 (including lost sales related to El Dorado and Cherokee Turnarounds) are as follows:
| Products |
Second Half 2018 Sales (tons) |
Full Year 2018 Sales (tons) |
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| Agriculture: |
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| UAN |
235,000 – 245,000 | 445,000 – 455,000 | ||||||
| HDAN |
90,000 – 95,000 | 275,000 – 285,000 | ||||||
| Ammonia |
45,000 – 55,000 | 90,000 – 100,000 | ||||||
| Industrial, Mining and Other: |
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| Ammonia |
115,000 – 125,000 | 220,000 – 230,000 | ||||||
| LDAN/HDAN and AN solution |
85,000 – 95,000 | 180,000 – 190,000 | ||||||
| Nitric Acid and Other Mixed Acids |
50,000 – 60,000 | 100,000 – 110,000 | ||||||
| Sulfuric Acid |
60,000 – 70,000 | 125,000 – 135,000 | ||||||
| DEF |
6,000 – 12,000 | 14,000 – 19,000 | ||||||
Conference Call
LSB’s management will host a conference call covering the second quarter results on July 26, 2018 at 10:00 a.m. ET/9:00 a.m. CT to discuss these results and recent corporate developments. Participating in the call will be President and CEO, Daniel Greenwell, Executive Vice President and CFO, Mark Behrman and Executive Vice President, Chemical Manufacturing, John Diesch. Interested parties may participate in the call by dialing (201) 493-6739. Please call in 10 minutes before the conference is scheduled to begin and ask for the LSB conference call. To coincide with the conference call, LSB will post a slide presentation at www.lsbindustries.com on the webcast section of the Investor tab of our website.
To listen to a webcast of the call, please go to the Company’s website at www.lsbindustries.com at least 15 minutes prior to the conference call to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website. We suggest listeners use Microsoft Explorer as their web browser.
LSB Industries, Inc.
LSB Industries, Inc., headquartered in Oklahoma City, Oklahoma, manufactures and sells chemical products for the agricultural, mining, and industrial markets. The Company owns and operates facilities in Cherokee, Alabama, El Dorado, Arkansas and Pryor, Oklahoma, and operates a facility for a global chemical company in Baytown, Texas. LSB’s products are sold through distributors and directly to end customers throughout the United States. Additional information about the Company can be found on its website at www.lsbindustries.com.
4
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identifiable by use of the words “may,” “believe,” “expect,” “intend,” “plan to,” “estimate,” “project” or similar expressions, and include but are not limited to: financial performance improvement; view on sales to mining customers; estimates of consolidated depreciation and amortization and future Turnaround expenses; our expectation of production consistency and enhanced reliability at our Facilities; our projections of trends in the fertilizer market; improvement of our financial and operational performance; our planned capital expenditures for 2018; reduction of SG&A expenses; volume outlook and our ability to complete plant repairs as anticipated.
Investors are cautioned that such forward-looking statements are not guarantees of future performance and involve risk and uncertainties. Though we believe that expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectation will prove to be correct. Actual results may differ materially from the forward-looking statements as a result of various factors. These and other risk factors are discussed in the Company’s filings with the Securities and Exchange Commission (SEC), including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in our Form 10-K for the year ended December 31, 2017 and, if applicable, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statement to reflect events, new information or circumstances occurring after the date of this press release except as required by applicable law.
| Company Contact: Mark Behrman, Chief Financial Officer (405) 235-4546 |
Investor Relations Contact: The Equity Group Inc. Fred Buonocore, CFA (212) 836-9607 Kevin Towle (212) 836-9620 |
See Accompanying Tables
5
LSB Industries, Inc.
Financial Highlights
Three and Six Months Ended June 30,
| June 30, | June 30, | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In Thousands, Except Per Share Amounts) | ||||||||||||||||
| Net sales |
$ | 103,199 | $ | 122,853 | (1) | $ | 203,649 | $ | 246,197 | (1) | ||||||
| Cost of sales |
100,126 | 111,513 | (1) | 190,483 | 223,242 | (1) | ||||||||||
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| Gross profit |
3,073 | 11,340 | 13,166 | 22,955 | ||||||||||||
| Selling, general and administrative expense |
8,397 | 8,232 | 16,700 | 18,777 | ||||||||||||
| Other expense, net |
545 | 3,406 | 451 | 2,155 | ||||||||||||
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| Operating income (loss) |
(5,869 | ) | (298 | ) | (3,985 | ) | 2,023 | |||||||||
| Interest expense, net |
11,693 | 9,292 | 20,999 | 18,650 | ||||||||||||
| Loss on extinguishment of debt |
5,951 | — | 5,951 | — | ||||||||||||
| Non-operating other expense (income), net |
(331 | ) | 204 | (1,240 | ) | 435 | ||||||||||
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| Loss before provision (benefit) for income taxes |
(23,182 | ) | (9,794 | ) | (29,695 | ) | (17,062 | ) | ||||||||
| Provision (benefit) for income taxes |
4,324 | (2) | (2,761 | ) | 3,402 | (4,043 | ) | |||||||||
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| Net loss |
(27,506 | ) | (7,033 | ) | (33,097 | ) | (13,019 | ) | ||||||||
| Dividends on convertible preferred stocks |
75 | 75 | 150 | 150 | ||||||||||||
| Dividends on Series E redeemable preferred stock |
6,628 | 5,789 | 12,966 | 11,325 | ||||||||||||
| Accretion of Series E redeemable preferred stock |
802 | 1,618 | 2,401 | 3,217 | ||||||||||||
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| Net loss attributable to common stockholders |
$ | (35,011 | ) | $ | (14,515 | ) | $ | (48,614 | ) | $ | (27,711 | ) | ||||
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| Basic and dilutive net loss per common share: |
$ | (1.27 | ) | $ | (0.53 | ) | $ | (1.77 | ) | $ | (1.02 | ) | ||||
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| (1) | Due to the January 1, 2018 adoption of ASC 606, Revenue from Contracts with Customers (“ASC 606”), certain industrial sales and associated cost of sales are no longer recognized. Since we adopted ASC 606 using the “modified retrospective” method, the prior periods were not restated. If we had applied ASC 606 to these specific arrangements during the second quarter and first half of 2017, net sales for these products would have been reduced by approximately $15.6 million and $33.3 million, respectively. ASC 606 had no net impact on operating income. See Non – GAAP reconciliation section for more information. |
| (2) | During the second quarter of 2018, we established a valuation allowance on a portion of our federal deferred tax assets (resulting in an income tax provision) since we currently believe that it is more-likely-than not that a portion of our federal deferred tax assets will not be able to be utilized. |
6
LSB Industries, Inc.
Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (In Thousands) | ||||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 47,216 | $ | 33,619 | ||||
| Accounts receivable, net |
39,208 | 59,570 | ||||||
| Inventories: |
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| Finished goods |
13,327 | 20,415 | ||||||
| Raw materials |
1,552 | 1,441 | ||||||
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| Total inventories |
14,879 | 21,856 | ||||||
| Supplies, prepaid items and other: |
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| Prepaid insurance |
4,763 | 10,535 | ||||||
| Precious metals |
6,640 | 7,411 | ||||||
| Supplies |
28,939 | 27,729 | ||||||
| Prepaid and refundable income taxes |
792 | 1,736 | ||||||
| Other |
1,434 | 1,284 | ||||||
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| Total supplies, prepaid items and other |
42,568 | 48,695 | ||||||
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| Total current assets |
143,871 | 163,740 | ||||||
| Property, plant and equipment, net |
986,737 | 1,014,038 | ||||||
| Intangible and other assets, net |
9,728 | 11,404 | ||||||
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| $ | 1,140,336 | $ | 1,189,182 | |||||
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7
LSB Industries, Inc.
Consolidated Balance Sheets (continued)
| June 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (In Thousands) | ||||||||
| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 51,278 | $ | 55,992 | ||||
| Short-term financing |
2,480 | 8,585 | ||||||
| Accrued and other liabilities |
21,387 | 35,573 | ||||||
| Current portion of long-term debt |
12,899 | 9,146 | ||||||
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| Total current liabilities |
88,044 | 109,296 | ||||||
| Long-term debt, net |
403,464 | 400,253 | ||||||
| Noncurrent accrued and other liabilities |
10,656 | 11,691 | ||||||
| Deferred income taxes |
58,229 | 54,787 | ||||||
| Commitments and contingencies |
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| Redeemable preferred stocks: |
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| Series E 14% cumulative, redeemable Class C preferred stock, no par value, 210,000 shares issued; 139,768 outstanding; aggregate liquidation preference of $198,197,000 ($185,231,000 at December 31, 2017) |
187,421 | 174,959 | ||||||
| Series F redeemable Class C preferred stock, no par value, 1 share issued and outstanding; aggregate liquidation preference of $100 |
— | — | ||||||
| Stockholders’ equity: |
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| Series B 12% cumulative, convertible preferred stock, $100 par value; 20,000 shares issued and outstanding |
2,000 | 2,000 | ||||||
| Series D 6% cumulative, convertible Class C preferred stock, no par value; 1,000,000 shares issued and outstanding |
1,000 | 1,000 | ||||||
| Common stock, $.10 par value; 75,000,000 shares authorized, 31,280,685 shares issued |
3,128 | 3,128 | ||||||
| Capital in excess of par value |
196,792 | 193,956 | ||||||
| Retained earnings |
207,750 | 256,214 | ||||||
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| 410,670 | 456,298 | |||||||
| Less treasury stock, at cost: |
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| Common stock, 2,667,122 shares (2,662,027 shares at December 31, 2017) |
18,148 | 18,102 | ||||||
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| Total stockholders’ equity |
392,522 | 438,196 | ||||||
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| $ | 1,140,336 | $ | 1,189,182 | |||||
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8
LSB Industries, Inc.
Non-GAAP Reconciliation
This news release includes certain “non-GAAP financial measures” under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our consolidated financial statements.
EBITDA Reconciliation
EBITDA is defined as net income (loss) plus interest expense, plus loss on extinguishment of debt, plus depreciation, depletion and amortization (DD&A) (which includes DD&A of property, plant and equipment and amortization of intangible and other assets), plus provision for income taxes. We believe that certain investors consider EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to EBITDA for the periods indicated.
| LSB Consolidated ($ in millions) | Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net loss |
$ | (27.5 | ) | $ | (7.0 | ) | $ | (33.1 | ) | $ | (13.0 | ) | ||||
| Plus: |
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| Interest expense |
11.7 | 9.3 | 21.0 | 18.7 | ||||||||||||
| Loss on extinguishment of debt |
6.0 | — | 6.0 | — | ||||||||||||
| Depreciation, depletion and amortization |
19.5 | 17.5 | 37.8 | 35.1 | ||||||||||||
| Provision (benefit) for income taxes |
4.3 | (2.8 | ) | 3.4 | (4.1 | ) | ||||||||||
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| EBITDA |
$ | 14.0 | $ | 17.0 | $ | 35.1 | $ | 36.7 | ||||||||
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9
LSB Industries, Inc.
Non-GAAP Reconciliation (continued)
Adjusted EBITDA
Adjusted EBITDA is reported to show the impact of one time/non-cash or non-operating items-such as, loss on sale of a business and other property and equipment, one-time income or fees, certain fair market value adjustments, non-cash stock-based compensation, and consulting costs associated with our 2018 reliability and purchasing initiatives. Consulting costs associated with our 2018 reliability and purchasing initiatives were not adjusted in the first quarter of 2018 and as a result this was updated in the six months ended as shown below. For comparative purposes, 2017 is also adjusted to remove the impact of businesses sold during 2017. We historically have performed Turnaround activities on an annual basis, however we are moving towards extending Turnarounds to a two or three-year cycle. Rather than being capitalized and amortized over the period of benefit, our accounting policy is to recognize the costs as incurred. Given these Turnarounds are essentially investments that provide benefits over multiple years, they are not reflective of our operating performance in a given year. As a result, we believe it is more meaningful for investors to exclude them from our calculation of adjusted EBITDA used to assess our performance. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items. The following tables provide reconciliations of EBITDA excluding the impact of the supplementary adjustments. Our policy is to adjust for non-cash, non-recurring, non-operating items that are greater than $0.5 million quarterly or cumulatively.
| LSB Consolidated ($ in millions) | Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| EBITDA: |
$ | 14.0 | $ | 17.0 | $ | 35.1 | $ | 36.7 | ||||||||
| Stock-based compensation |
1.6 | 1.6 | 3.0 | 2.8 | ||||||||||||
| Derecognition of death benefit accrual |
— | — | — | (1.4 | ) | |||||||||||
| Loss on sale of a business and other property and equipment |
0.5 | 3.6 | 0.5 | 4.1 | ||||||||||||
| Fair market value adjustment on preferred stock embedded derivatives |
(0.3 | ) | — | (1.1 | ) | 0.6 | ||||||||||
| Consulting costs associated with reliability and purchasing initiatives |
0.6 | — | 1.7 | — | ||||||||||||
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| Adjusted EBITDA |
$ | 16.4 | $ | 22.2 | $ | 39.2 | $ | 42.8 | ||||||||
| EBITDA from businesses sold |
— | (0.5 | ) | — | (2.2 | ) | ||||||||||
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| Adjusted EBITDA excluding businesses sold in 2017 |
$ | 16.4 | $ | 21.7 | $ | 39.2 | $ | 40.6 | ||||||||
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| Turnaround costs |
1.4 | — | 1.7 | — | ||||||||||||
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| Adjusted EBITDA excluding Turnaround costs |
$ | 17.8 | $ | 21.7 | $ | 40.9 | $ | 40.6 | ||||||||
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10
Net Sales Reconciliation
Since we adopted ASC 606 using the “modified retrospective” method, the prior periods were not restated. As a result, we are presenting Adjusted Net Sales to show the impact of applying ASC 606 to certain arrangements for the first quarter of 2017 consistent with accounting treatment used for the same period in 2018. ASC had no net impact on operating income. Additionally, net sales are adjusted to remove revenue associated with businesses sold in 2017.
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net sales ($ in millions) |
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| Agricultural |
$ | 58.0 | $ | 57.2 | $ | 110.3 | $ | 120.5 | ||||||||
| Industrial |
32.8 | 53.2 | 70.9 | 102.1 | ||||||||||||
| Mining |
12.4 | 10.4 | 22.4 | 18.0 | ||||||||||||
| Other |
— | 2.1 | — | 5.6 | ||||||||||||
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| Total net sales |
$ | 103.2 | $ | 122.9 | $ | 203.6 | $ | 246.2 | ||||||||
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| Impact of ASC 606 – Industrial |
— | (15.6 | ) | — | (33.3 | ) | ||||||||||
| Revenue from businesses sold in 2017 |
— | (2.1 | ) | — | (5.6 | ) | ||||||||||
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| Total adjusted net sales |
$ | 103.2 | $ | 105.2 | $ | 203.6 | $ | 207.3 | ||||||||
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Agricultural Sales Price Reconciliation
The following table provides a reconciliation of total agricultural sales as reported under GAAP in our consolidated financial statement reconciled to “net” sales which is calculated as sales less freight expenses. We believe this provides a relevant industry comparison among our peer group.
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Agricultural sales ($ in millions) |
$ | 58.0 | $ | 57.2 | $ | 110.3 | $ | 120.5 | ||||||||
| Less freight: |
3.9 | 4.3 | 7.8 | 9.9 | ||||||||||||
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| Net sales |
$ | 54.1 | $ | 52.9 | $ | 102.5 | $ | 110.6 | ||||||||
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11