View:
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 1995
--------------------------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The transition period from to
---------------- ----------------------------
Commission file number 1-7677
-------------------------------------------------------
LSB INDUSTRIES, INC.
----------------------------------------------------
Exact name of Registrant as specified in its charter
DELAWARE 73-1015226
------------------------------ ---------------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
16 South Pennsylvania, Oklahoma City, Oklahoma 73107
-------------------------------------------------------
Address of principal executive offices (Zip Code)
(405) 235-4546
--------------------------------------------------
Registrant's telephone number, including area code
None
------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO
------ ------
The number of shares outstanding of the Registrant's voting Common Stock, as
of August 8, 1995 is 12,946,097 shares excluding 1,810,419 shares held as
treasury stock.
PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed: LSB Industries, Inc.
and all of its wholly-owned subsidiaries.
The accompanying condensed consolidated balance sheet of LSB Industries, Inc.
at June 30, 1995, the condensed consolidated statements of income for the six
month and three month periods ended June 30, 1995 and 1994 and the
consolidated statements of cash flows for the six month periods ended June 30,
1995 and 1994 have been subjected to a review, in accordance with standards
established by the American Institute of Certified Public Accountants, by
Ernst & Young LLP, independent auditors, whose report with respect thereto
appears elsewhere in this Form 10-Q. The financial statements mentioned above
are unaudited and reflect all adjustments, consisting primarily of adjustments
of a normal recurring nature, which are, in the opinion of management,
necessary for a fair presentation of the interim periods. The results of
operations for the six months and three months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year. The
condensed consolidated balance sheet at December 31, 1994, was derived from
audited financial statements as of that date.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1995 is unaudited)
(Dollars in thousands)
June 30, December 31,
ASSETS 1995 1994
Current assets:
Cash and cash equivalents $ 1,940 $ 2,610
Trade accounts receivable, net of allowance 54,658 42,720
Inventories:
Finished goods 34,801 33,926
Work in process 9,871 9,796
Raw materials 17,019 15,611
--------- ---------
Total inventory 61,691 59,333
Supplies and prepaid items 7,061 6,386
--------- ----------
Total current assets 125,350 111,049
Property, plant and equipment net 79,566 73,684
Investments and other assets:
Loans receivable, secured by real estate 16,901 17,243
Other assets, net of allowance 19,913 19,305
-------- ---------
$ 241,730 $ 221,281
======== =========
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at June 30, 1995 is unaudited)
(Dollars in thousands)
LIABILITIES, PREFERRED AND COMMON STOCKS June 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1995 1994
---------------------------------------- --------- -----------
Current liabilities:
Drafts payable $ 914 $ 1,291
Accounts payable 28,500 29,496
Accrued liabilities 8,870 8,062
Current portion of long-term debt 14,669 9,716
-------- -------
Total current liabilities 52,953 48,565
Long-term debt 98,211 81,965
Contingencies (Note 7)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,588 shares
issued and outstanding (1,597 in 1994) 151 152
Non-redeemable preferred stock, common stock and
other stockholders' equity (Note 6):
Series B 12% cumulative, convertible
preferred stock, $100 par value;
20,000 shares issued and outstanding 2,000 2,000
Series 2 $3.25 convertible, exchangeable
Class C preferred stock, $50 stated
value; 920,000 shares issued and outstanding 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 14,751,516 shares
issued (14,620,156 in 1994) 1,475 1,462
Capital in excess of par value 37,551 37,369
Retained earnings 13,825 12,883
-------- --------
100,851 99,714
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 1,810,419 shares
(1,559,590 in 1994) 10,236 8,915
Total non-redeemable preferred stock, common -------- --------
stock and other stockholders' equity 90,415 90,599
-------- --------
$ 241,730 $ 221,281
======== ========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
--------- ---------
Revenues:
Net sales $ 144,160 $ 132,265
Other income 1,703 1,831
-------- --------
145,863 134,096
Costs and expenses:
Cost of sales 111,130 102,677
Selling, general and administrative 26,551 22,596
Interest 5,020 3,393
Provision for environmental matter (Note 7) - 400
-------- --------
142,701 129,066
Income from continuing operations -------- --------
before provision for income taxes 3,162 5,030
Provision for income taxes 211 355
-------- --------
Income from continuing operations 2,951 4,675
Income from discontinued operations, net
of income taxes (Notes 2 and 3) - 584
Gain on sale of discontinued operations
(Note 2) - 24,200
--------- ---------
Net income $ 2,951 $ 29,459
========= =========
Net income applicable to common stock (Note 4) $ 1,328 $ 27,827
Average common shares outstanding (Note 4): ========= =========
Primary 13,518,077 14,386,371
Fully diluted 13,537,230 17,035,037
Earnings per common share (Note 4):
Primary:
Income from:
Continuing operations $ .10 $ .21
--------- --------
Discontinued operations - 1.72
--------- --------
Net income $ .10 $ 1.93
--------- --------
Fully diluted:
Income from:
Continuing operations $ .10 $ .21
--------- --------
Discontinued operations - 1.48
--------- --------
Net income $ .10 $ 1.69
--------- --------
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
Revenues:
Net sales $ 78,891 $ 68,414
Other income 1,041 1,330
-------- -------
79,932 69,744
Costs and expenses:
Cost of sales 62,003 53,184
Selling, general and administrative 13,682 11,428
Interest 2,632 1,712
Provision for environmental matter (Note 7) - 400
------- -------
78,317 66,724
Income from continuing operations ------- -------
before provision for income taxes 1,615 3,020
Provision for income taxes 112 203
------- -------
Income from continuing operations 1,503 2,817
Income from discontinued operations, net
of income taxes (Notes 2 and 3) - 238
Gain on sale of discontinued operations
(Note 2) - 24,200
--------- ---------
Net income $ 1,503 $ 27,255
========= =========
Net income applicable to common stock (Note 4) $ 699 $ 26,447
========= =========
Average common shares outstanding (Note 4):
Primary 13,483,898 14,359,161
Fully diluted 13,501,261 18,985,827
Earnings per common share (Note 4):
Primary:
Income from:
Continuing operations $ .05 $ .14
--------- ---------
Discontinued operations - 1.70
--------- ---------
Net income $ .05 $ 1.84
========= =========
Fully diluted:
Income from:
Continuing operations $ .05 $ .14
========= =========
Discontinued operations - 1.30
========= =========
Net income $ .05 $ 1.44
========= =========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
___________ ___________
Cash flows from continuing operations:
Income from continuing operations $ 2,951 $ 4,675
Adjustments to reconcile income from
continuing operations to cash flows
provided (used) by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 3,497 3,332
Other 503 489
Provision for possible losses:
Trade accounts receivable 417 519
Environmental matter - 400
Gain on sale of assets (111) (519)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (13,496) (8,188)
Inventories (1,341) 1,261
Supplies and prepaid items (653) (1,384)
Accounts payable (910) 7,862
Accrued liabilities 885 209
_______ _______
Net cash provided (used) by
continuing operations (8,258) 8,656
Cash flows from investing activities of
continuing operations:
Capital expenditures (9,088) (7,993)
Purchase of loans receivable - (2,930)
Principal payments on notes receivable 342 -
Proceeds from sales of equipment and
real estate properties 536 1,331
Increase in other assets (1,633) (2,009)
_______ ______
Net cash used by investing activities
of continuing operations (9,843) (11,601)
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
___________ _________
Cash flows from financing activities of
continuing operations:
Payments on long-term and other debt $ (7,867) $ (6,012)
Long-term and other borrowings 15,880 2,700
Net change in revolving debt facilities 12,930 45,465
Net change in drafts payable (377) 616
Dividends paid (Note 6):
Preferred stocks (1,619) (1,631)
Common stock (389) (414)
Purchases of treasury stock (Note 6) (1,321) (1,697)
Net proceeds from issuance of
common stock (Note 6) 194 244
Net decrease in receivables sold to
discontinued operations - (31,844)
__________ __________
Net cash provided by financing
activities from continuing operations 17,431 7,427
__________ __________
Net increase (decrease) in cash and cash
equivalents from continuing operations (670) 4,482
Net decrease in cash and cash equivalents
from discontinued operations - (1,675)
Net increase (decrease) in cash and cash
equivalents from all activities (670) 2,807
Cash and cash equivalents at beginning of
period 2,610 2,781
--------- ---------
Cash and cash equivalents at end of period $ 1,940 $ 5,588
========= =========
(See accompanying notes)
Note 1: The accompanying financial statements include the accounts of LSB
Industries, Inc. (the "Company") and its subsidiaries. The Company s
financial services subsidiary, Equity Bank for Savings, F.A. ( Equity Bank )
was sold on May 25, 1994. The condensed consolidated statement of income for
the six month and three month periods ended June 30, 1994 present the
operation of Equity Bank as income from discontinued operations. The
Condensed Consolidated Statement of Cash flows for the six months ended June
30, 1994 has been restated for changes in balance sheet classification adopted
at December 31, 1994, as a result of reclassification due to discontinued
operations of the Company's financial services business.
Note 2: On May 25, 1994, pursuant to a Stock Purchase Agreement, dated as of
February 9, 1994, (the" Acquisition Agreement"), the Company sold its wholly-
owned subsidiary, Equity Bank, which constituted the Financial Services
Business of the Company, to Fourth Financial Corporation (the " Purchaser").
The Purchaser acquired all of the outstanding shares of capital stock of
Equity Bank.
Under the Acquisition Agreement and using the proceeds from sale of Equity
Bank, the Company acquired from Equity Bank, prior to closing, certain
subsidiaries of Equity Bank ("Retained Corporations") that own the real and
personal property and other assets contributed by the Company to Equity Bank
at the time of the acquisition of the predecessor of Equity Bank by the
Company for Equity Bank s carrying value of the assets contributed of
approximately $67.4 million, which approximated fair value. The carrying
value of the assets in the consolidated financial statements of the Company
continues to be historical cost. At the time of closing of the sale of Equity
Bank, the Company also acquired: (A) the loan and mortgage on and an option
to purchase Equity Tower located in Oklahoma City, Oklahoma ("Equity Tower
Loan"), for an amount equal to Equity Bank s carrying value of approximately
$13.9 million; (B) other real estate owned by Equity Bank that was acquired by
Equity Bank through foreclosure for an amount equal to Equity Bank s carrying
value of approximately $3.6 million (the Equity Tower Loan and other real
estate owned are collectively called the "Retained Assets"); and (C) certain
other loans for $3.1 million previously owned by Equity Bank. In addition,
the Company acquired the outstanding accounts receivable sold to Equity Bank
by the Company and its subsidiaries under various purchase agreements, dated
March 8, 1988 (the " Receivables" ) for $6.9 million, which approximated fair
value.
Note 3: At June 30, 1995, the Company had net operating loss ("NOL")
carryforwards for tax purposes of approximately $40 million. Such amounts
expire beginning in 1999. The Company also has investment tax credit
carryforwards of approximately $630,000, which expire beginning in 1995.
The Company s provision for income taxes for the six months ended June 30,
1995 of $.2 million is for current state income taxes and federal alternative
minimum tax.
Note 4: Primary earnings per common share are based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each period, after giving appropriate effect to preferred stock
dividends.
Fully diluted earnings per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding and the
assumed conversion of dilutive convertible securities outstanding after
appropriate adjustment for interest and related income tax effects on
convertible notes payable.
Net income applicable to common stock is computed by adjusting net income by
the amount of preferred stock dividends, including undeclared or unpaid
dividends, if cumulative.
Note 5: In 1992, a subsidiary of the Company signed an agreement to supply a
foreign customer with equipment, technology and technical assistance to
manufacture certain types of automotive products. Payments scheduled under
the original contract before amendment totaled $44 million, $17 million of
which has been billed and collected by the Company as of June 30, 1995. In
May 1995, the subsidiary negotiated an amendment to the agreement with the
foreign customer and an agreement with a syndication of foreign lenders
whereby the lenders acquired, without recourse to the Company or such
subsidiary, the unpaid contract amount billable by the Company (present value
of approximately $24 million). Under the amendment with the foreign customer
and the agreement with the foreign lenders, the Company received approximately
$5 million, net of fees, and a commitment from the foreign customer to provide
approximately $21 million of bearing products. The Company is to receive such
bearing products, without charge when and if the foreign customer repays its
debt of approximately $31 million which the foreign lenders acquired from the
subsidiary. In addition, the subsidiary agreed to purchase approximately $6
million of bearing products each year over the next five (5) years at
predetermined prices, not in excess of market prices, subject to the
customer's ability to deliver product, meeting defined quality standards, to
the Company.
Note 6: The table below provides detail of activity in the Stockholders'
Equity accounts for the six months ended June 30, 1995:
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1995 quarter ended
March 31 June 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,060,566 13,045,912
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 180 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis - 96,692
Purchases of treasury stock;
calculated on weighted average
basis (13,950) (146,176)
---------- ----------
13,046,796 12,996,428
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 823,140 817,448
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (317,680) (393,498)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion - 63,520
---------- ----------
505,460 487,470
---------- ----------
13,552,256 13,483,898
========== ==========
Earnings for primary earnings per share:
Net earnings $ 1,448,092 $ 1,502,431
Dividends on cumulative preferred stocks (75,880) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (743,437) (743,437)
--------- ---------
Earnings applicable to common stock $ 628,775 $ 698,994
========= =========
Earnings per share $ .05 $ .05
===== ====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1995
Net earnings applicable to common Stock $ 1,327,769
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 13,518,077
==========
Earnings per share $ .10
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 3 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1994 quarter ended
March 31 June 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846
Purchase of treasury stock;
calculated on weighted
average basis (20,000) (29,176)
---------- ----------
13,661,164 13,655,361
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760
---------- ----------
752,417 703,800
---------- ----------
14,413,581 14,359,161
========== ==========
Earnings for primary earnings per share:
Net earnings $ 2,203,665 $27,254,968
Dividends on cumulative preferred stocks (76,145) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (747,500) (747,500)
--------- ----------
Earnings applicable to common stock $ 1,380,020 $26,447,468
========= ==========
Earnings per share $.10 $1.84
==== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1994
Net earnings applicable to common stock $27,827,488
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 14,386,371
==========
Earnings per share $1.93
=====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1995 quarter ended
---------------------------
March 31 June 30
----------- -----------
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,046,796 12,996,428
Shares issuable upon exercise of
options and warrants 823,140 817,448
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price
for the quarter if greater than
the average) (300,737) (380,135)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above on
actual conversion - 63,520
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock, if
dilutive, from date of issue:
Series B - -
Series 2 - -
---------- ----------
13,573,199 13,501,261
========== ==========
Earnings for fully diluted earnings
per share:
Net earnings $ 1,448,092 $ 1,502,431
Interest on convertible note 180 180
Dividends on cumulative convertible
preferred stocks:
Series B (75,880) (60,000)
Series 2 Class C (743,437) (743,437)
---------- ----------
Earnings $ 628,955 $ 699,174
========== ==========
Earning per share $ .05 $ .05
===== =====
Six months
ended
June 30, 1995
-------------
Net earnings $ 1,328,129
===========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 13,537,230
==========
Earnings per share $ .10
======
LSB INDUSTRIES, INC. Exhibit 11.1
Page 6 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_____________________________________
March 31 June 30
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361
Shares issuable upon exercise of
options and warrants 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price for
the quarter if greater than the
average) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock,
if dilutive, from date of issue:
Series B 666,666 666,666
Series 2 - 3,956,000
---------- ----------
15,084,247 18,985,827
========== ==========
Earnings for fully diluted
earnings per share:
Net earnings $ 2,203,665 $27,254,968
Interest on convertible note 180 180
Dividends on cumulative preferred
stocks (747,500) -
---------- ----------
Earnings $ 1,456,345 $27,255,148
========== ==========
Earnings per share $.10 $1.44
==== =====
Six months
ended
June 30, 1994
-------------
Net earnings $28,711,493
===========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 17,035,037
==========
Earnings per share $1.69
=====
Exhibit 15.1
ERNST & YOUNG LLP 100 North Broadway Phone: 405 278 6800
Oklahoma City, OK 73102 Fax: 405 278 6823
Fax: 405 278 6834
August 18, 1995
The Board of Directors
LSB Industries, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-8302) and the Registration Statement (Form S-3 No. 33-69800)
of LSB Industries, Inc. and in the related Prospectus of our report dated
August 18, 1995 relating to the unaudited condensed consolidated interim
financial statements of LSB Industries, Inc. which are included in its Form
10-Q for the quarter ended June 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Very truly yours,
/s/ Ernst & Young LLP