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): February 28, 2013

 

 

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))

 

 

 

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Section 2 – Financial Information

Item 2.02. Results of Operations and Financial Condition

On February 28, 2013, LSB Industries, Inc. (the “Company”) issued a press release to report its financial results for the fourth quarter and year ended December 31, 2012. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

On February 28, 2013, at 5:15 p.m. ET / 4:15 p.m. CT, the Company will hold a conference call broadcast live over the Internet to discuss the financial results of the fourth quarter and year ended December 31, 2012.

The information contained in this Item 2.02 of this Form 8-K and the Exhibit 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

The information contained in the accompanying Exhibit 99.1 shall not be deemed filed for purposes of Section 18 of the Exchange Act or incorporated by reference in any filing under the Exchange Act or the Securities Act, except as shall be expressly set forth by specific reference to such Exhibit 99.1 in such filing.

(d) Exhibits.

 

Exhibit		Description
99.1		Press Release issued by LSB Industries, Inc. dated February 28, 2013

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: February 28, 2013

 

Exhibit 99.1

 

 

COMPANY CONTACT:		Investor Relations Contact:
Tony M. Shelby, Chief Financial Officer		Linda Latman (212) 836-9609
(405) 235-4546		Fred Buonocore (212) 836-9607
		The Equity Group Inc.

FOR IMMEDIATE RELEASE

LSB INDUSTRIES, INC. REPORTS RESULTS FOR THE

2012 FOURTH QUARTER AND YEAR

ANTICIPATES SIGNIFICANT IMPROVEMENT IN MID-2013 AS CHEMICAL

FACILITIES RESUME PRODUCTION AND STRONG MARKET CONDITIONS PREVAIL

OKLAHOMA CITY, Oklahoma…February 28, 2013… LSB Industries, Inc. (NYSE: LXU) announced today results for the fourth quarter and year ended December 31, 2012.

Fourth Quarter 2012 Financial Highlights Compared to Fourth Quarter 2011:

 

•

Net sales were $177.1 million, an 18% decrease from $215.4 million;

 

•

Operating income was $18.4 million compared to $41.6 million, a decrease of $23.3 million;

 

•

Net income was $11.6 million compared to $28.0 million;

 

•

Net income applicable to common shareholders was $11.6 million compared to $28.0 million;

 

•

Diluted earnings per common share were $0.49 compared to $1.19.

Year 2012 Financial Highlights Compared to Year 2011:

 

•

Net sales were $759.0 million, a 6% decrease from $805.3 million;

 

•

Operating income was $95.7 million compared to $136.4 million;

 

•

Net income was $58.6 million compared to $83.8 million;

 

•

Net income applicable to common shareholders was $58.3 million compared to $83.5 million;

 

•

Diluted earnings per common share were $2.49 compared to $3.58.

Discussion of Fourth Quarter of 2012:

The $38.2 million decrease in consolidated sales includes a $36.8 million or 26% decrease in Chemical Business sales and a $1.1 million or 2% decrease in Climate Control Business sales. The $23.3 million decrease in consolidated operating income includes a decrease of $22.5 million by the Chemical Business and a $0.6 million decrease by the Climate Control Business.

Fourth Quarter—Chemical Business:

Sales for the Chemical Business were $105.3 million, a 26% decrease from $142.0 million in 2011.

Operating income for the Chemical Business was $15.1 million, compared to $37.6 million in 2011.

For the fourth quarter 2012, due to the extended unplanned downtime at three of its facilities as summarized below, Chemical Business sales were adversely affected and operating income was reduced by approximately $29 million, not including business interruption insurance.

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•

In mid-November, the Pryor, Oklahoma Chemical Plant (the “Pryor Facility”) experienced a main compressor malfunction and all production ceased while repairs were completed. During this outage, the planned installation of a new ammonia converter designed to improve and increase ammonia production capacity was completed. This week we began the process of commissioning the new ammonia converter at the Pryor Facility, which will lead to restarting production. We expect the Pryor Facility to resume and sustain production during March. As a result of this downtime, we estimate that the Pryor Facility negatively impacted the Chemical Business 2012 fourth quarter operating profit by approximately $12 million.

 

•

Also in mid-November, the Cherokee, Alabama Chemical Plant (“the Cherokee Facility”) suffered a pipe rupture that damaged the heat exchanger portion of its ammonia plant. We estimate that due to the initial production disruption and the higher cost of purchasing ammonia from outside sources, the operating profit for the Chemical Business was negatively impacted by $13 million for the fourth quarter 2012 as a result of this incident. We expect repairs to the Cherokee Facility to be completed and production resumed in May 2013.

 

•

As previously reported, the El Dorado, Arkansas, Chemical Plant (the “El Dorado Facility”) was damaged on May 15, 2012 when a reactor in its 98% concentration nitric acid plant exploded. The ongoing effects of this incident resulted in lower production than otherwise would be expected from the El Dorado Facility, along with lost absorption of fixed costs and reduced gross profits. We estimate that the combined negative impact to operating profit resulting from lost sales, lost profits and extra expenses for the fourth quarter was approximately $4 million. We estimate that the monthly negative effect on operating income will approximate $1 million to $2 million at the El Dorado Facility until the new 65% strength nitric acid plant and the nitric acid concentrator are constructed and begin production, which is expected to occur during the first half of 2015.

During the fourth quarter 2012, we recognized $7.3 million business interruption insurance recovery as a reduction to the El Dorado Facility cost of sales. We anticipate that we will receive business interruption insurance proceeds in future quarters to recover a portion of the Cherokee Facility and El Dorado Facility losses.

Fourth Quarter—Climate Control Business:

Net sales for the Climate Control Business were $67.9 million, a slight decrease from the fourth quarter 2011. The decrease was due to lower residential product sales partially offset by increases in commercial product sales, primarily for large custom air handlers and hydronic fan coils.

Climate Control’s operating income was $5.8 million compared to $6.4 million for the fourth quarter of 2011 due to the decline in sales volume discussed above. The lower margin was primarily due to product mix, as well as lower sales volume of residential products which generally have higher profit margins than our commercial products.

Bookings of new product orders during the quarter were $66.8 million compared to $60.7 million in the final quarter of 2011. At December 31, 2012, backlog of confirmed customer product orders was $55.5 million compared to $51.3 million at September 30, 2012 and $44.5 million at December 31, 2011. The increase in backlog was related to higher product orders for our commercial products partially offset by lower product orders for our residential products.

 

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2012 Overview:

Consolidated net sales for 2012 were $759.0 million, or 6% below 2011 reflecting decreases of $34.0 million in our Chemical Business and $15.4 million in our Climate Control Business.

Consolidated operating income for 2012 was $95.7 million compared to $136.4 million for 2011. The 30% or $40.8 million decrease was primarily attributable to decreases of $34.4 million in our Chemical Business and $6.9 million in our Climate Control Business. In addition, general corporate expense and other business operations net expenses decreased $0.5 million. The Chemical Business operating income for 2012 was $82.1 million or $34.4 million lower than 2011. The decrease in the Chemical Business operating income was due, in part, to costs associated with ongoing operational issues at certain of its facilities.

Climate Control sales for 2012 were $266.2 million, or approximately $15.4 million lower than 2011, and included a $21.1 million decrease in geothermal and water source heat pump sales partially offset by a $1.4 million increase in hydronic fan coil sales along with a $4.3 million increase in other HVAC sales related to an increase in sales of our large custom air handlers. From a market sector perspective, the net decline included a $12.6 million decrease in residential product sales and a $2.8 million decrease in commercial/institutional product sales. We believe the decline in our residential product sales is due to a combination of low natural gas prices, low levels of construction in the single-family residential sectors we serve (high-end housing), less replacement business than the previous few years, and low consumer confidence. The slight decline in the commercial/institutional sector of our business was related to timing of shipments.

CEO’s Remarks:

Reviewing the year as a whole, Jack Golsen, LSB’s Board Chairman and CEO stated, “Regarding our Chemical Business 2012 downtime events, although they were unrelated to each other, the events at our Pryor, Cherokee and El Dorado facilities, caused us to undergo a thorough reexamination of our process safety management (“PSM”), reliability and mechanical integrity programs. As a result, we have recently undertaken a concerted program to attempt to improve the reliability and mechanical integrity of our chemical plant facilities. The improvement program includes engaging outside experts and consultants who specialize in risk management, reliability, mechanical integrity and PSM. We believe that the implementation of these programs will contribute to improved reliability and more consistent operations of these facilities.”

Mr. Golsen continued, “The current outlook for 2013 according to most indicators, including low natural gas costs and the forecast for near record acres of corn to be planted, point to positive supply and demand fundamentals for the types of nitrogen fertilizer products we produce and sell. Although there is still uncertainty in the global and US economies and despite the fact that there was some downward pressure on fertilizer prices during the winter months, we believe the outlook for 2013 is positive.

“We expect the Climate Control Business to experience moderate sales growth in the short-term compared to 2012. Although a significant part of the Climate Control Business sales are products that are used for renovation and replacement applications, sales increases in the medium-term and long-term are expected to be primarily driven by growth in new construction, as well as the introduction of new products. We continue to increase our sales and marketing efforts for all of our Climate Control products in an effort to increase our share of the existing market for our products as well as expand the market for and application of our products, including geothermal heat pumps.”

He concluded, “At LSB, we have continued to take a long-term approach to managing the Company and building for the future. We believe that we have not yet realized our full potential and that as we achieve stable production at our chemical facilities, and the economy strengthens for our Climate Control products, we should benefit from the investments we have made.”

 

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Conference Call

LSB’s management will host a conference call covering the 2012 fourth quarter and full year results and recent corporate developments today, Thursday, February 28, 2013 at 5:15 pm ET/4:15 pm CT. Participating in the call will be Board Chairman and CEO, Jack E. Golsen; President and COO, Barry H. Golsen; and Executive Vice President and CFO, Tony M. Shelby. Interested parties may participate in the call by dialing (201) 493-6739. Please call in ten 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 and Presentation section of Investors page of the website.

To listen to a webcast of the call, please go to the Company’s website at www.lsbindustries.com at least 15 minutes before 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 is a manufacturing and marketing company. LSB’s principal business activities consist of the manufacture and sale of commercial and residential climate control products, such as geothermal and water source heat pumps, hydronic fan coils and modular geothermal chillers, and large custom air handlers; and the manufacture and sale of chemical products for the agricultural, mining, and industrial markets.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements generally are identifiable by use of the words “believe,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects” or similar expressions, and such forward-looking statements include, that in our Chemical Business, we expect the Pryor Facility to resume and sustain production during March 2013, we expect repairs to the Cherokee Facility to be completed in May 2013, the new 65% strength nitric acid plant and the nitric acid concentrator are to be constructed at the El Dorado Facility and we expect to begin production during the first half of 2015, the implementation of the risk management, reliability, mechanical integrity and PSM programs will contribute to improved reliability and more consistent operations, the current 2013 outlook for our fertilizer products is positive, any estimates regarding losses or effect of plant downtime, expectations regarding insurance recoveries; regarding our Climate Control Business, we expect to experience moderate sales growth in the short-term compared to 2012; and that we believe the outlook for 2013 is positive, and, that we have not yet realized our full potential, and that as the economy strengthens we should benefit from the investments we have made. Investors are cautioned that such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from the forward-looking statements as a result of various factors, including, but not limited to, the fertilizer outlook could be affected by significant changes in commodity prices, acres planted or weather conditions and other factors set forth under “A Special Note Regarding Forward-Looking Statements” contained in the Form 10-K for year ended December 31, 2012, for a discussion of a variety of factors which could cause the future outcome to differ materially from the forward-looking statements contained in this letter.

# # #

See Accompanying Tables

 

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LSB Industries, Inc.

Unaudited Financial Highlights

Years and Three Months Ended December 31, 2012 and 2011

 

		Year Ended								Three Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(in thousands, except share and per share amounts)
Net sales		$	759,031			$	805,256			$	177,137			$	215,364
Cost of sales			575,295				582,238				136,767				152,543
Gross profit			183,736				223,018				40,370				62,821
Selling, general and administrative expense			89,988				86,343				24,000				21,606
Provisions for (recovery of) losses on accounts receivable			(214	)			347				(29	)			187
Other expense			2,118				3,823				1,012				1,291
Other income			(3,811	)			(3,938	)			(2,974	)			(1,903	)
Operating income			95,655				136,443				18,361				41,640
Interest expense			4,237				6,658				437				1,177
Losses on extinguishment of debt			—				136				—				—
Non-operating other expense (income), net			(281	)			—				(11	)			3
Income from continuing operations before provisions for income taxes and equity in earnings of affiliate			91,699				129,649				17,935				40,460
Provisions for income taxes			33,594				46,208				6,484				12,626
Equity in earnings of affiliate			(681	)			(543	)			(171	)			(168	)
Income from continuing operations			58,786				83,984				11,622				28,002
Net loss from discontinued operations			182				142				62				14
Net income			58,604				83,842				11,560				27,988
Dividends on preferred stocks			300				305				—				—
Net income applicable to common stock		$	58,304			$	83,537			$	11,560			$	27,988
Weighted-average common shares:
Basic			22,359,967				21,962,294				22,401,531				22,295,625
Diluted			23,538,569				23,499,242				23,569,686				23,500,380
Income per common share:
Basic
Income from continuing operations		$	2.62			$	3.81			$	0.52			$	1.26
Net loss from discontinued operations			(0.01	)			(0.01	)			—				—
Net income		$	2.61			$	3.80			$	0.52			$	1.26
Diluted
Income from continuing operations		$	2.50			$	3.59			$	0.49			$	1.19
Net loss from discontinued operations			(0.01	)			(0.01	)			—				—
Net income		$	2.49			$	3.58			$	0.49			$	1.19

(See accompanying notes)

 

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LSB Industries, Inc.

Notes to Unaudited Financial Highlights

Years and Three Months Ended December 31, 2012 and 2011

 

Note 1:

Net income applicable to common stock is computed by adjusting net income by the amount of preferred stock dividends and dividend requirements. Basic income per common share is based upon net income applicable to common stock and the weighted-average number of common shares outstanding during each period.

Diluted income per share is based on net income applicable to common stock, plus preferred stock dividends and dividend requirements on preferred stock assumed to be converted, if dilutive, and interest expense including amortization of debt issuance costs, net of income taxes, on convertible debt assumed to be converted, if dilutive, and the weighted-average number of common shares and dilutive common equivalent shares outstanding, and the assumed conversion of dilutive convertible securities outstanding.

 

Note 2:

Provisions (benefits) for income taxes are as follows:

 

		Years Ended								Three Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(in thousands)
Current:
Federal		$	28,654			$	33,006			$	7,249			$	8,509
State			4,695				4,514				783				(2,355	)
Total current			33,349				37,520				8,032				6,154
Deferred:
Federal			559				7,543				(997	)			5,611
State			(314	)			1,145				(551	)			861
Total deferred			245				8,688				(1,548	)			6,472
Provisions for income taxes		$	33,594			$	46,208			$	6,484			$	12,626

The current provision for federal income taxes shown above includes regular federal income tax after the consideration of permanent and temporary differences between income for Generally Accepted Accounting Principles (“GAAP”) and tax purposes. The current provision for state income taxes includes regular state income tax and provisions for uncertain income tax positions.

The deferred tax provision results from the recognition of changes in our prior year deferred tax assets and liabilities, and the utilization of state NOL carryforwards and other temporary differences.

 

Note 3:

During 2012, our Chemical Business encountered a number of significant issues including an explosion in one of our nitric acid plants at the El Dorado Facility in May, a pipe rupture at the Cherokee Facility in November that damaged the ammonia plant, and mechanical issues at the Pryor Facility, all resulting in lost production and significant adverse effect on 2012 sales, operating income and cash flow.

We estimate the cumulative negative effect on operating income from these incidents to be approximately $83 million and $29 million for the year and three months ended December 31, 2012, respectively, including lost absorption and gross profit margins.

Until the facilities are returned to normal production, operating income at these facilities will continue to be lower in 2013 than otherwise would be expected. We estimate that the monthly negative effect on operating income will approximate $1 million to $2 million at the El Dorado Facility until the new 65% strength nitric acid plant and the nitric acid concentrator are constructed and begin production during the first half of 2015. In addition, we estimate the monthly negative effect on operating income will approximate $8 million to $9 million at the Cherokee Facility until the repairs of the ammonia plant are completed and production resumes, which production is currently scheduled to begin in May 2013. Also, we estimate the monthly adverse effect on the Pryor Facility’s operating income in 2013 prior to the restart of the ammonia plant was approximately $8 million.

 

Note 4:

Information about the Company’s operations in different industry segments for the years and three months ended December 31, 2012 and 2011 is detailed on the following page.

 

 

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LSB Industries, Inc.

Notes to Unaudited Financial Highlights

Years and Three Months Ended December 31, 2012 and 2011

 

		Year Ended								Three Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(in thousands)
Net sales:
Chemical		$	477,813			$	511,854			$	105,262			$	142,034
Climate Control			266,171				281,565				67,885				68,937
Other			15,047				11,837				3,990				4,393
		$	759,031			$	805,256			$	177,137			$	215,364
Gross profit: (1)
Chemical		$	97,692			$	130,687			$	18,903			$	40,898
Climate Control			80,981				88,178				20,089				20,489
Other			5,063				4,153				1,378				1,434
		$	183,736			$	223,018			$	40,370			$	62,821
Operating income: (2)
Chemical		$	82,101			$	116,503			$	15,078			$	37,580
Climate Control			25,834				32,759				5,827				6,402
General corporate expense and other business operations, net			(12,280	)			(12,819	)			(2,544	)			(2,342	)
			95,655				136,443				18,361				41,640
Interest expense			4,237				6,658				437				1,177
Losses on extinguishment of debt			—				136				—				—
Non-operating other expense (income), net:
Chemical			(1	)			(1	)			—				—
Climate Control			(1	)			(2	)			—				—
Corporate and other business operations			(279	)			3				(11	)			3
Provisions for income taxes			33,594				46,208				6,484				12,626
Equity in earnings of affiliate, Climate Control			(681	)			(543	)			(171	)			(168	)
Income from continuing operations		$	58,786			$	83,984			$	11,622			$	28,002

 

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LSB Industries, Inc.

Notes to Unaudited Financial Highlights

Years and Three Months Ended December 31, 2012 and 2011

 

(1)	Gross profit by business segment represents net sales less cost of sales. Gross profit classified as “Other” relates to the sales of industrial machinery and related components.

(2)

Our chief operating decision makers use operating income by business segment for purposes of making decisions that include resource allocations and performance evaluations. Operating income by business segment represents gross profit by business segment less selling, general and administrative expense (“SG&A”) incurred by each business segment plus other income and other expense earned/incurred by each business segment before general corporate expenses and other business operations, net. General corporate expenses and other business operations, net, consist of unallocated portions of gross profit, SG&A, other income and other expense.

 

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LSB Industries, Inc.

Consolidated Balance Sheets

 

		December 31,
		2012				2011
		(in thousands)
Assets
Current assets:
Cash and cash equivalents		$	98,020			$	124,929
Restricted cash			31				31
Short-term investments			—				10,005
Accounts receivable, net			82,801				87,351
Inventories			64,973				59,506
Supplies, prepaid items and other:
Prepaid insurance			10,049				5,953
Precious metals			13,528				17,777
Supplies			9,855				7,513
Fair value of derivatives and other			170				53
Prepaid income taxes			—				8,679
Other			2,096				2,034
Total supplies, prepaid items and other			35,698				42,009
Deferred income taxes			3,224				4,275
Total current assets			284,747				328,106
Property, plant and equipment, net			281,871				164,547
Other assets:
Investment in affiliate			1,809				2,910
Goodwill			1,724				1,724
Other, net			6,461				4,722
Total other assets			9,994				9,356
		$	576,612			$	502,009

(continued on following page)

 

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LSB Industries, Inc.

Consolidated Balance Sheets

(continued)

 

		December 31,
		2012				2011
		(in thousands)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	68,333			$	57,891
Short-term financing			9,254				5,646
Accrued and other liabilities			34,698				28,677
Current portion of long-term debt			4,798				4,935
Total current liabilities			117,083				97,149
Long-term debt			67,643				74,525
Noncurrent accrued and other liabilities			16,369				15,239
Deferred income taxes			21,020				21,826
Commitments and contingencies
Stockholders’ equity:
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, 26,731,360 shares issued (26,638,285 at December 31, 2011)			2,673				2,664
Capital in excess of par value			165,006				162,092
Retained earnings			212,192				153,888
			382,871				321,644
Less treasury stock at cost:
Common stock, 4,320,462 shares			28,374				28,374
Total stockholders’ equity			354,497				293,270
		$	576,612			$	502,009

 

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