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): November 7, 2014
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)) |
Section 2 – Financial Information
Item 2.02. Results of Operations and Financial Condition
On November 7, 2014, LSB Industries, Inc. (the “Company”) issued a press release to report its financial results for the third quarter ended September 30, 2014. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
On November 7, 2014, at 10:00 a.m. ET / 9:00 a.m. CT, the Company will hold a conference call broadcast live over the Internet to discuss the financial results of the third quarter ended September 30, 2014.
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 November 7, 2014 | |
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: November 7, 2014
| LSB INDUSTRIES, INC. | ||
| By: | /s/ Tony M. Shelby | |
| Name: | Tony M. Shelby | |
| Title: | Executive Vice President of Finance and | |
| Chief Financial Officer | ||
Exhibit 99.1
FOR IMMEDIATE RELEASE
LSB INDUSTRIES, INC. REPORTS RESULTS
FOR THE 2014 THIRD QUARTER
Provides Chemical Business Product Volume Guidance for 2014 Fourth Quarter
OKLAHOMA CITY, Oklahoma…November 7, 2014… LSB Industries, Inc. (“LSB”) (NYSE: LXU) today announced results for the third quarter ended September 30, 2014.
Financial Highlights of Third Quarter 2014 Compared to Third Quarter 2013
| • | Net sales were $171.0 million compared to $177.4 million. |
| • | Operating loss was $1.2 million compared to operating income of $23.1 million. |
| • | Net loss and net loss applicable to common shareholders was $3.8 million, or $0.17 per diluted share, compared to net income of $10.3 million or $0.43 per diluted share. |
| • | EBITDA was $8.1 million compared to $29.0 million. |
| • | Third quarter 2013 results included $8.7 million of pre-tax gains for precious metals recoveries and insurance claims. |
Jack Golsen, LSB’s Board Chairman and CEO, stated, “As anticipated, results for our seasonally weak third quarter were impacted by a planned extended turnaround at our Cherokee Facility and, to a lesser extent, the pull forward of planned maintenance at our Pryor and El Dorado Facilities.
“The turnaround at the Cherokee Facility was approximately 7 days longer than we had initially budgeted. However, we completed the work necessary to enable us to transition the facility to a two-year turnaround cycle, an initiative that we expect to ultimately translate into stronger operating profit and cash flow for our Chemical Business. The Cherokee Facility resumed ammonia production at the end of August and since then, has produced steadily at an average rate of approximately 500 tons per day. We expect to sustain this production level for the balance of the fourth quarter of 2014 and for 2015 as we do not have a scheduled turnaround at the Cherokee Facility until 2016.
“The maintenance at the Pryor Facility was the continuation of the extensive work we have been doing to bolster the plant’s reliability. With ammonia, urea and UAN production having run close to targeted levels since early September, we can confidently say that Pryor is in its best condition to achieve consistent production since we brought the facility online in late 2010. In fact, we anticipate full year 2014 ammonia production of approximately 165,000-175,000 tons at Pryor, nearly double that of 2013, and expect continued improvement in 2015.
“At our El Dorado Facility, we performed certain maintenance on our sulfuric acid plant that was originally scheduled for 2015. Our expansion projects underway to install a new ammonia plant, and restore and enhance nitric acid capacity, remain on budget and schedule. As we have previously discussed, El Dorado purchases ammonia as its primary feedstock, versus producing its own ammonia using natural gas, as is the case with our Pryor and Cherokee Facilities. This results in a cost disadvantage for El Dorado, a condition that we expect to persist until the ammonia plant is operational in the first quarter of 2016. Once ammonia production is underway, we forecast substantial incremental operating profit from the El Dorado Facility.”
Mr. Golsen continued, “Climate Control results were essentially in-line with the 2013 third quarter, but were up materially on a sequential basis as our shipment volumes recovered from a drop in order activity caused by the severe winter weather that impacted much of the U.S. in late 2013 and early 2014. Third quarter segment bookings remained robust and we entered the final quarter of the year with our highest backlog since November 2008, reflecting continued improvement in the commercial and institutional markets we serve. With ample plant capacity to support significant volume growth and stronger overhead absorption, combined with the operational efficiency measures we have been implementing, including LEAN, we should see margin expansion in this business as sales increase.”
“As we move toward year-end,” Mr. Golsen concluded, “We feel well positioned to deliver growth in both of our businesses in 2015 and 2016.”
Chemical Business Third Quarter 2014 Compared to Third Quarter 2013:
| Three Months Ended September 30, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| (In millions) | ||||||||||||
| Net sales |
$ | 94.8 | $ | 104.2 | $ | (9.4 | ) | |||||
| Operating income (loss) |
$ | (5.6 | ) | $ | 17.7 | $ | (23.3 | ) | ||||
| Segment EBITDA |
$ | 2.2 | $ | 23.5 | $ | (21.3 | ) | |||||
Comparison of 2014 to 2013 periods:
| • | Net sales decreased due to lower agricultural product volumes as the result of performing a planned major maintenance activity at our Cherokee Facility and a shift in product mix at our Pryor Facility from UAN to ammonia, partially offset by increased selling prices as a result of higher ammonia prices passed-through to customers pursuant to contractual agreements. |
| • | Operating income and EBITDA declined largely as a result of precious metal and insurance recoveries recognized in the third quarter of 2013, and extended maintenance activity at the Cherokee Facility. Additionally, maintenance expense at our El Dorado Facility increased primarily due to an acceleration of our sulfuric acid plant turnaround originally scheduled for 2015. Operating income and EBITDA were also impacted by increased raw material costs for natural gas and ammonia, and lower UAN selling prices compared to the third quarter of 2013. |
| Three Months Ended September 30, | ||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Sales | Sector Mix |
Sales | Sector Mix |
% Change |
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| Sales by Market Sector |
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| Agricultural |
$ | 34.1 | 36 | % | $ | 46.7 | 45 | % | (27 | )% | ||||||||||
| Industrial, mining and other |
60.7 | 64 | % | 57.5 | 55 | % | 6 | % | ||||||||||||
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| $ | 94.8 | $ | 104.2 | |||||||||||||||||
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2
The following tables provide key operating metrics for the Agricultural Sector of our Chemical Business.
| Three Months Ended September 30, | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| Product (tons sold) |
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| Urea ammonium nitrate (UAN) |
44,949 | 104,448 | (57 | )% | ||||||||
| Ammonium nitrate (AN) |
24,411 | 21,227 | 15 | % | ||||||||
| Anhydrous ammonia |
24,699 | 22,020 | 12 | % | ||||||||
| Other |
4,522 | 4,700 | (4 | )% | ||||||||
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| 98,581 | 152,395 | (35 | )% | |||||||||
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| Average Selling Prices (price per ton) |
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| UAN |
$ | 233 | $ | 242 | (4 | )% | ||||||
| AN |
$ | 360 | $ | 338 | 7 | % | ||||||
| Anhydrous ammonia |
$ | 480 | $ | 455 | 6 | % | ||||||
With respect to sales of Industrial, Mining and Other Chemical Products, the following table indicates the volumes sold of our major products.
| Three Months Ended September 30, | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| Product (tons sold) |
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| Nitric acid |
139,801 | 144,428 | (3 | )% | ||||||||
| AN and AN solution |
35,433 | 48,312 | (27 | )% | ||||||||
| Input Costs |
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| Average purchased ammonia cost/ton |
$ | 513 | $ | 488 | 5 | % | ||||||
| Average natural gas cost/MMbtu* |
$ | 4.16 | $ | 3.63 | 15 | % | ||||||
| * | Gross cost excluding any hedging activity |
Climate Control Business Third Quarter 2014 Compared to Third Quarter 2013:
| Three Months Ended September 30, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| (In millions) | ||||||||||||
| Net sales |
$ | 73.5 | $ | 69.9 | $ | 3.6 | ||||||
| Operating income |
$ | 8.4 | $ | 8.5 | $ | (0.1 | ) | |||||
| Segment EBITDA |
$ | 9.7 | $ | 9.3 | $ | 0.4 | ||||||
Comparison of 2014 to 2013 periods:
| • | Net sales increased primarily due to higher sales of other HVAC products. Hydronic fan coil sales increased from higher orders in the current and prior quarter along with an increase in the average unit price of products sold. Water source and geothermal heat pump product sales decreased slightly as a result of a decline in residential product sales primarily due to the previously disclosed loss of sales to Carrier Corporation, partially offset by an increase in commercial product sales. |
| • | Operating income decreased primarily as a result of higher operating expenses including variable selling expenses, partially offset by higher gross profit from increased net sales. |
3
| • | New orders for our climate control products were $74.1 million in the third quarter of 2014 compared to $64.6 million for the third quarter of 2013, $83.1 million for the second quarter of 2014 and $63.2 million for the first quarter of 2014. The $220.4 million in new orders for the first nine months of 2014 reflect a recovery of our core markets. Additionally, new orders for the month of October 2014 were approximately $24.3 million, and our backlog increased to approximately $75.5 million at October 31, 2014 from approximately $73.5 million at September 30, 2014 and $68.1 million at June 30, 2014 and $44.7 million at March 31, 2014. |
| Three Months Ended September 30, | ||||||||||||||||||||
| 2014 | 2013 | % Change |
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| (Dollars in millions) | ||||||||||||||||||||
| Sales | Sector Mix |
Sales | Sector Mix |
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| Sales by Market Sector |
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| Commercial/Institutional |
$ | 61.5 | 84 | % | $ | 56.9 | 81 | % | 8 | % | ||||||||||
| Residential |
12.0 | 16 | % | 13.0 | 19 | % | (8 | )% | ||||||||||||
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| $ | 73.5 | $ | 69.9 | 5 | % | |||||||||||||||
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| Sales | Product Mix |
Sales | Product Mix |
% Change |
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| Sales by Product Category |
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| Heat pumps |
$ | 46.5 | 63 | % | $ | 46.6 | 67 | % | 0 | % | ||||||||||
| Fan coils |
16.5 | 23 | % | 16.2 | 23 | % | 2 | % | ||||||||||||
| Other HVAC |
10.5 | 14 | % | 7.1 | 10 | % | 48 | % | ||||||||||||
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| $ | 73.5 | $ | 69.9 | 5 | % | |||||||||||||||
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Financial Position and Capital Expenditures
As of September 30, 2014, our total cash and investments were $311.1 million, including short-term investments as well as noncurrent restricted cash and investments designated for capital projects.
Total long-term debt was $459.4 million at September 30, 2014 compared to $463.0 million at December 31, 2013 and our $100 million Working Capital Revolver Loan remains undrawn. Interest expense, net of capitalized interest, for the third quarter of 2014 was $5.1 million compared to $5.4 million for the same period in 2013.
Capital expenditures were $70.8 million in the third quarter of 2014, including $50.0 million relating to the expansion projects at our El Dorado Facility, which include a 1,150 ton per day anhydrous ammonia production plant; a new 1,100 ton per day 65% strength nitric acid plant and concentrator; and other support infrastructure. Planned capital expenditures for the remainder of 2014 and 2015, in the aggregate, are estimated to range from $388 million to $458 million, including $280 million to $315 million remaining for the El Dorado expansion projects.
Industry Perspective / Outlook
Barry Golsen, LSB’s President and COO stated, “The demand environment for nitrogen fertilizers remains solid. Last year’s corn harvest improved significantly from the previous year, and this year’s harvest is shaping up to be very strong as well, resulting in a higher stock-to-use ratio and lower forward corn prices. Corn prices have declined substantially from approximately $7.00 per bushel a year ago to approximately $3.70 per bushel currently. If corn prices continue to remain low, farmers may consider planting alternatives to corn. However, since yields per acre reached all-time highs in 2014, the farmers’ revenue per acre is not down proportionately. So despite the current lower corn prices, industry consensus points to between 86 and 88 million acres of corn to be planted in 2015, similar to this past year all benefitting our agricultural chemical business.
4
“With respect to our mining products, in March 2014 we announced that we had elected to not renew our exclusive agreement with Orica when the term ends in April 2015 to enable us to freely sell industrial grade ammonium nitrate (AN) to the commercial explosives market. Since that time, we have executed cost-plus contracts to supply approximately half of the annual 240,000 tons of AN previously committed to Orica, and we are pursuing similar agreements for the balance of the volume under the current Orica contract.
“Regarding our other industrial products which remain a significant part of our Chemical Business, we are encouraged that growth is forecast for the next few years for the industries we serve, particularly given the strong customer relationships we have in these end markets.
“In our Climate Control Business, leading indicators point to solid growth in commercial and institutional construction over the next three years. Notably, the September Architectural Billings Index was positive for the fifth consecutive month, reaching 2007 levels. After experiencing strong year-over-year order growth in the second and third quarters, and into October, we are seeing continued improvement in most of the major vertical markets that we serve, especially lodging, multi-family housing and education. In the near-term, we expect our fourth quarter 2014 Climate Control Business sales to exceed those of last year’s fourth quarter, which we see continuing into 2015.”
Mr. Golsen concluded, “In summary, we see favorable dynamics emerging for both our Chemical and Climate Control end markets. Our focus remains on solid execution across all of our facilities and investing to enhance the economics of our operations in order to drive sales and profit growth and increased value for shareholders in years to come.”
The Company’s outlook for sales volume for the fourth quarter of 2014 in its Chemical Business is as follows:
| Products |
Sales (tons) | |
| Agriculture: |
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| UAN |
95,000 – 115,000 | |
| AN |
25,000 – 30,000 | |
| Anhydrous ammonia |
25,000 – 30,000 | |
| Industrial, Mining and Other: |
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| Nitric acid |
145,000 – 150,000 | |
| AN and AN solution |
30,000 – 35,000 | |
| Anhydrous ammonia |
6,000 – 8,000 | |
Note: Agricultural anhydrous ammonia sales exclude approximately 5,000 to 10,000 tons of intercompany sales.
5
Conference Call
LSB’s management will host a conference call covering the third quarter results on Friday, November 7, 2014 at 10:00 am ET/9:00 am CT to discuss these results and recent corporate developments. 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 section of Investor Info tab.
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 chemical products for the agricultural, mining and industrial markets; and, the manufacture and sale of commercial and residential climate control products, such as water source and geothermal heat pumps, hydronic fan coils, modular geothermal and other chillers and large custom air handlers.
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,” “plans to,” “estimates,” “projects” or similar expressions, including but not limited to, all statements about or in reference to the Architectural Building Index, any references to future natural gas and ammonia costs, and the outlook for the chemical or climate control business such forward-looking statements include, but are not limited to the transition of the facility to a two-year turnaround cycle, an initiative that we expect to ultimately translate into stronger operating profit and cash flow; sustain the Cherokee Facility’s production level for the balance of the fourth quarter of 2014 and for 2015; full year 2014 ammonia production of approximately 165,000-175,000 tons at Pryor; purchased ammonia results in cost disadvantage for El Dorado until the ammonia plant is operational in the first quarter of 2016. Once ammonia production is underway, substantial incremental operating profit from the El Dorado Facility; margin expansion in this business as sales increase; capital expenditures for the remainder of 2014 and 2015; positioned to deliver growth in both of our businesses in 2015 and 2016; this year’s harvest is shaping up to be very strong; acres of corn to be planted in 2015; growth for the next few years for the industries we serve; solid growth in commercial and institutional construction over the next three years; fourth quarter 2014 Climate Control Business sales to exceed those of last year’s fourth quarter, continuing into 2015 and favorable dynamics emerging for both our Chemical and Climate Control end markets.
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, general economic conditions; weather conditions; lack of growth in the commercial and residential construction industry; acceptance by the market of our geothermal heat pump products, acceptance of our technology; increase competitive pressures, domestically and foreign; price increases for raw materials; loss of significant customer; changes to federal legislation or adverse regulations; available working capital; ability to install necessary equipment and renovations at the El Dorado Facility and the Pryor Facility in a timely manner; receipt in a timely manner of production equipment; problems with production equipment; and other factors set forth under “Risk Factors” and “A Special Note Regarding Forward-Looking Statements” in the Form 10-K for year ended December 31, 2013, and the Form 10-Q for each of the quarters ended March 31. June 30, and September 30, 2014, which contain a discussion of a variety of factors which could cause the future outcome to differ materially from the forward-looking statements contained in this release.
6
| Company Contact: Tony M. Shelby, Chief Financial Officer (405) 235-4546 x11297 Mark Behrman, Senior Vice President (405) 235-4546 x11214 |
Investor Relations Contact: Fred Buonocore, CFA (212) 836-9607 Linda Latman (212) 836-9609 The Equity Group Inc. |
See Accompanying Tables
7
LSB Industries, Inc.
Unaudited Financial Highlights
Three Months and Nine Months Ended September 30,
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
| Net sales |
$ | 171,046 | $ | 177,350 | $ | 551,233 | $ | 530,252 | ||||||||
| Cost of sales |
146,660 | 128,441 | 429,256 | 417,262 | ||||||||||||
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| Gross profit |
24,386 | 48,909 | 121,977 | 112,990 | ||||||||||||
| Selling, general and administrative expense |
25,208 | 25,069 | 77,364 | 74,685 | ||||||||||||
| Provisions for (recoveries of) losses on accounts receivable |
70 | (84 | ) | (86 | ) | 182 | ||||||||||
| Property insurance recoveries in excess of losses incurred |
— | — | (5,147 | ) | — | |||||||||||
| Other expense, net |
305 | 781 | 1,418 | 2,992 | ||||||||||||
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| Operating income (loss) |
(1,197 | ) | 23,143 | 48,428 | 35,131 | |||||||||||
| Interest expense, net |
5,079 | 5,395 | 17,458 | 6,662 | ||||||||||||
| Loss on extinguishment of debt |
— | 1,296 | — | 1,296 | ||||||||||||
| Non-operating other income, net |
(89 | ) | (34 | ) | (242 | ) | (10 | ) | ||||||||
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| Income (loss) from continuing operations before provisions (benefit) for income taxes and equity in earnings of affiliate |
(6,187 | ) | 16,486 | 31,212 | 27,183 | |||||||||||
| Provisions (benefit) for income taxes |
(2,415 | ) | 6,345 | 12,286 | 9,967 | |||||||||||
| Equity in earnings of affiliate |
— | (109 | ) | (79 | ) | (452 | ) | |||||||||
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| Income (loss) from continuing operations |
(3,772 | ) | 10,250 | 19,005 | 17,668 | |||||||||||
| Net loss (income) from discontinued operations |
5 | (10 | ) | 28 | 49 | |||||||||||
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| Net income (loss) |
(3,777 | ) | 10,260 | 18,977 | 17,619 | |||||||||||
| Dividends on preferred stocks |
— | — | 300 | 300 | ||||||||||||
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| Net income (loss) applicable to common stock |
$ | (3,777 | ) | $ | 10,260 | $ | 18,677 | $ | 17,319 | |||||||
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| Weighted-average common shares: |
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| Basic |
22,596 | 22,478 | 22,558 | 22,447 | ||||||||||||
| Diluted |
22,596 | 23,597 | 23,662 | 23,587 | ||||||||||||
| Income (loss) per common share: |
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| Basic: |
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| Income (loss) from continuing operations |
$ | (0.17 | ) | $ | 0.46 | $ | 0.83 | $ | 0.78 | |||||||
| Net loss from discontinued operations |
— | — | — | (0.01 | ) | |||||||||||
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| Net income (loss) |
$ | (0.17 | ) | $ | 0.46 | $ | 0.83 | $ | 0.77 | |||||||
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| Diluted: |
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| Income (loss) from continuing operations |
$ | (0.17 | ) | $ | 0.43 | $ | 0.80 | $ | 0.76 | |||||||
| Net loss from discontinued operations |
— | — | — | (0.01 | ) | |||||||||||
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| Net income (loss) |
$ | (0.17 | ) | $ | 0.43 | $ | 0.80 | $ | 0.75 | |||||||
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8
LSB Industries, Inc.
Unaudited Financial Highlights
Three Months and Nine Months Ended September 30,
| Three Months | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net sales: |
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| Chemical (1) |
$ | 94,767 | $ | 104,199 | $ | 345,744 | $ | 303,017 | ||||||||
| Climate Control |
73,485 | 69,863 | 196,585 | 217,490 | ||||||||||||
| Other |
2,794 | 3,288 | 8,904 | 9,745 | ||||||||||||
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| $ | 171,046 | $ | 177,350 | $ | 551,233 | $ | 530,252 | |||||||||
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| Gross profit (loss): (2) |
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| Chemical (1)(3) |
$ | (521 | ) | $ | 24,610 | $ | 57,161 | $ | 39,116 | |||||||
| Climate Control |
23,862 | 23,168 | 61,628 | 70,553 | ||||||||||||
| Other |
1,045 | 1,131 | 3,188 | 3,321 | ||||||||||||
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| $ | 24,386 | $ | 48,909 | $ | 121,977 | $ | 112,990 | |||||||||
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| Operating income (loss): (4) |
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| Chemical (1) (3) |
$ | (5,587 | ) | $ | 17,680 | $ | 46,815 | $ | 20,259 | |||||||
| Climate Control |
8,452 | 8,547 | 17,396 | 24,387 | ||||||||||||
| Other |
397 | 444 | 1,298 | 1,198 | ||||||||||||
| General corporate expense (5) |
(4,459 | ) | (3,528 | ) | (17,081 | ) | (10,713 | ) | ||||||||
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| (1,197 | ) | 23,143 | 48,428 | 35,131 | ||||||||||||
| Interest expense, net (6) |
5,079 | 5,395 | 17,458 | 6,662 | ||||||||||||
| Loss on extinguishment of debt |
— | 1,296 | — | 1,296 | ||||||||||||
| Non-operating other income, net |
||||||||||||||||
| Chemical |
(73 | ) | (1 | ) | (213 | ) | (1 | ) | ||||||||
| Corporate and other business operations |
(16 | ) | (33 | ) | (29 | ) | (9 | ) | ||||||||
| Provisions (benefit) for income taxes |
(2,415 | ) | 6,345 | 12,286 | 9,967 | |||||||||||
| Equity in earnings of affiliate - |
||||||||||||||||
| Climate Control |
— | (109 | ) | (79 | ) | (452 | ) | |||||||||
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|
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| Income (loss) from continuing operations |
$ | (3,772 | ) | $ | 10,250 | $ | 19,005 | $ | 17,668 | |||||||
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| (1) | During the first quarter of 2014, our Chemical Business experienced downtime at the Pryor Facility resulting in lost production and adverse effect on operating results. During the third quarter of 2014, a planned major maintenance activity (“Turnaround”) was performed at the Cherokee Facility, which negatively impacted production, sales and operating results. During the first nine months of 2013, our Chemical Business experienced downtime at the Cherokee, El Dorado and Pryor Facilities resulting in lost production and an adverse effect on operating results. |
| (2) | Gross profit (loss) 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. |
9
LSB Industries, Inc.
Unaudited Financial Highlights
Three Months and Nine Months Ended September 30, 2014 and 2013
| (3) | For the three and nine months ended September 30, 2013, we recognized business interruption insurance recoveries of $4.2 million and $18.4 million, respectively, all of which was recognized as a reduction to cost of sales. During the three and nine months ended September 30, 2013, our Chemical Business recognized a recovery of precious metals of $4.5 million. For the nine months ended September 30, 2014, we recognized business interruption and property insurance recoveries totaling $28.0 million, of which $22.9 million was recognized as a reduction to cost of sales (none for the three months ended September 30, 2014). |
| (4) | Our chief operating decision makers use operating income (loss) by business segment for purposes of making decisions that include resource allocations and performance evaluations. Operating income (loss) by business segment represents gross profit (loss) 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. |
| (5) | General corporate expenses consist of SG&A, other income and other expense that are not allocated to one of our business segments. General corporate expenses consist of the following: |
| Three Months September 30, |
Nine Months September 30, |
|||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Selling, general and administrative |
||||||||||||||||
| Personnel costs |
$ | (2,134 | ) | $ | (1,899 | ) | $ | (6,478 | ) | $ | (6,194 | ) | ||||
| Fees and expenses relating to certain activist shareholders’ proposals (A) |
— | — | (4,163 | ) | — | |||||||||||
| Professional fees |
(1,185 | ) | (1,222 | ) | (3,333 | ) | (3,431 | ) | ||||||||
| All other |
(1,145 | ) | (404 | ) | (3,162 | ) | (1,634 | ) | ||||||||
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| (4,464 | ) | (3,525 | ) | (17,136 | ) | (11,259 | ) | |||||||||
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| Other income |
19 | 3 | 69 | 587 | ||||||||||||
| Other expense |
(14 | ) | (6 | ) | (14 | ) | (41 | ) | ||||||||
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| Total general corporate expense |
$ | (4,459 | ) | $ | (3,528 | ) | $ | (17,081 | ) | $ | (10,713 | ) | ||||
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| (A) | During the first quarter of 2014, we incurred fees and expenses in evaluating and analyzing proposals received from certain activist shareholders and dealing, negotiating and settling with those shareholders in order to avoid a proxy contest. |
| (6) | During the three and nine months ended September 30, 2014, interest expense is net of capitalized interest of $3.9 million and $9.2 million, respectively. During the three and nine months ended September 30, 2013, interest expense is net of capitalized interest of $1.2 million and $2.1 million, respectively. |
10
LSB Industries, Inc.
Consolidated Balance Sheets
(unaudited)
| September 30, 2014 |
December 31, 2013 |
|||||||
| (in thousands) | ||||||||
| Assets |
||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 169,824 | $ | 143,750 | ||||
| Short-term investments |
14,500 | — | ||||||
| Accounts receivable, net |
88,249 | 80,570 | ||||||
| Inventories: |
||||||||
| Finished goods |
27,120 | 29,163 | ||||||
| Work in progress |
2,724 | 2,838 | ||||||
| Raw materials |
27,819 | 23,871 | ||||||
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| Total inventories |
57,663 | 55,872 | ||||||
| Supplies, prepaid items and other: |
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| Prepaid insurance |
3,454 | 15,073 | ||||||
| Precious metals |
12,350 | 14,927 | ||||||
| Supplies |
15,117 | 13,523 | ||||||
| Prepaid income taxes |
5,835 | 12,644 | ||||||
| Other |
4,237 | 3,867 | ||||||
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| Total supplies, prepaid items and other |
40,993 | 60,034 | ||||||
| Deferred income taxes |
8,198 | 13,613 | ||||||
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| Total current assets |
379,427 | 353,839 | ||||||
| Property, plant and equipment, net |
561,270 | 416,801 | ||||||
| Other assets: |
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| Noncurrent restricted cash and cash equivalents |
76,804 | 80,974 | ||||||
| Noncurrent restricted investments |
50,000 | 209,990 | ||||||
| Debt issuance costs, net |
6,917 | 8,027 | ||||||
| Other, net |
19,226 | 13,466 | ||||||
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| Total other assets |
152,947 | 312,457 | ||||||
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| $ | 1,093,644 | $ | 1,083,097 | |||||
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(Continued on following page)
11
LSB Industries, Inc.
Consolidated Balance Sheets (continued)
(unaudited)
| September 30, 2014 |
December 31, 2013 |
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| (in thousands) | ||||||||
| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 75,567 | $ | 61,775 | ||||
| Short-term financing |
1,513 | 13,749 | ||||||
| Accrued and other liabilities |
34,306 | 49,107 | ||||||
| Current portion of long-term debt |
10,597 | 9,262 | ||||||
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| Total current liabilities |
121,983 | 133,893 | ||||||
| Long-term debt |
448,773 | 453,705 | ||||||
| Noncurrent accrued and other liabilities |
17,636 | 17,086 | ||||||
| Deferred income taxes |
72,825 | 66,698 | ||||||
| Commitments and contingencies (Note 9) |
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| 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, $0.10 par value; 75,000,000 shares authorized, 26,920,053 shares issued (26,846,470 at December 31, 2013) |
2,692 | 2,685 | ||||||
| Capital in excess of par value |
169,578 | 167,550 | ||||||
| Retained earnings |
285,531 | 266,854 | ||||||
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|
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| 460,801 | 440,089 | |||||||
| Less treasury stock at cost: |
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| Common stock, 4,320,462 shares |
28,374 | 28,374 | ||||||
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|
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| Total stockholders’ equity |
432,427 | 411,715 | ||||||
|
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|
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| $ | 1,093,644 | $ | 1,083,097 | |||||
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12
LSB Industries, Inc.
Non-GAAP Reconciliation
(unaudited)
This news release includes the measure “EBITDA,” which is deemed a “non-GAAP financial measure” under the rules of the Securities and Exchange Commission, including Regulation G. This non-GAAP measure is calculated using GAAP amounts in our consolidated financial statements. 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.
EBITDA Reconciliations
EBITDA is defined as net income plus interest expense, depreciation, depletion and amortization of property plant and equipment, amortization of other assets, less interest included in amortization, plus provision for income taxes plus loss from discontinued operations. 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. The following table provides a reconciliation of net income to EBITDA for the periods indicated.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (in millions) | ||||||||||||||||
| Net income (loss) |
$ | (3.8 | ) | $ | 10.3 | $ | 19.0 | $ | 17.6 | |||||||
| Plus: |
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| Interest expense |
5.1 | 5.4 | 17.4 | 6.7 | ||||||||||||
| Depreciation and amortization |
9.2 | 7.0 | 26.7 | 20.1 | ||||||||||||
| Provisions (benefit) for income taxes |
(2.4 | ) | 6.3 | 12.3 | 10.0 | |||||||||||
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| EBITDA |
$ | 8.1 | $ | 29.0 | $ | 75.4 | $ | 54.4 | ||||||||
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| Climate Control Business |
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| Operating income (loss) |
$ | 8.5 | $ | 8.5 | $ | 17.4 | $ | 24.4 | ||||||||
| Plus: |
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| Equity in earnings |
— | 0.1 | 0.1 | 0.5 | ||||||||||||
| Depreciation and amortization |
1.2 | 0.7 | 3.5 | 2.0 | ||||||||||||
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| EBITDA |
$ | 9.7 | $ | 9.3 | $ | 21.0 | $ | 26.9 | ||||||||
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| Chemical Business |
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| Operating income (loss) |
$ | (5.6 | ) | $ | 17.7 | $ | 46.8 | $ | 20.3 | |||||||
| Plus: |
||||||||||||||||
| Non-operating income |
0.1 | — | 0.2 | — | ||||||||||||
| Depreciation and amortization |
7.7 | 5.8 | 22.6 | 16.6 | ||||||||||||
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| EBITDA |
$ | 2.2 | $ | 23.5 | $ | 69.6 | $ | 36.9 | ||||||||
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13