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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 September 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
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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 November 14, 1995 is 12,914,507 shares excluding 1,842,909 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 September 30, 1995, the condensed consolidated statements of operations for
the nine month and three month periods ended September 30, 1995 and 1994 and
the consolidated statements of cash flows for the nine month periods ended
September 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 nine months and three months ended
September 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 September 30, 1995 is unaudited)
(Dollars in thousands)
September 30, December 31,
ASSETS 1995 1994
- --------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 1,429 $ 2,610
Trade accounts receivable, net of allowance
for doubtful accounts 52,029 42,720
Inventories:
Finished goods 34,255 33,926
Work in process 10,734 9,796
Raw materials 18,074 15,611
--------- ---------
Total inventory 63,063 59,333
Supplies and prepaid items 6,335 6,386
--------- ---------
Total current assets 122,856 111,049
Property, plant and equipmen 82,595 73,684
Investments and other assets:
Loans receivable, secured by real estate 15,762 17,243
Other assets, net of allowance
for doubtful accounts 20,135 19,305
--------- ---------
$ 241,348 $ 221,281
--------- ---------
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at September 30, 1995 is unaudited)
(Dollars in thousands)
LIABILITIES, PREFERRED AND COMMON STOCKS September 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1995 1994
- ---------------------------------------- ------------ -----------
Current liabilities:
Drafts payable $ 673 $ 1,291
Accounts payable 29,754 29,496
Accrued liabilities 9,723 8,062
Current portion of long-term debt 15,064 9,716
Total current liabilities 55,214 48,565
Long-term debt 98,219 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, 14,756,536 shares
issued (14,620,156 in 1994) 1,476 1,462
Capital in excess of par value 37,565 37,369
Retained earnings 11,222 12,883
--------- --------
98,263 99,714
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 1,821,419 shares
(1,559,590 in 1994) 10,299 8,915
Total non-redeemable preferred stock, common --------- --------
stock and other stockholders' equity 87,764 90,599
--------- --------
$ 241,348 $ 221,281
========= ========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
---------- ----------
Revenues:
Net sales $ 208,038 $ 190,954
Other income 3,350 3,281
211,388 194,235
Costs and expenses:
Cost of sales 162,032 149,131
Selling, general and administrative 40,554 35,584
Interest 7,540 5,081
Provision for environmental matter (Note 7) - 400
--------- ---------
210,126 190,196
Income from continuing operations --------- ---------
before provision for income taxes 1,262 4,039
Provision for income taxes 112 277
--------- ---------
Income from continuing operations 1,150 3,762
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 $ 1,150 $ 28,546
Net income (loss) applicable to ========== ==========
common stock (Note 4) $ (1,276) $ 26,110
Average common shares outstanding (Note 4): ========== ==========
Primary 13,325,587 14,076,021
Fully diluted 13,338,356 15,841,798
Earnings per common share (Note 4):
Primary:
Income (loss) from:
Continuing operations $ (.10) $ .09
Discontinued operations - 1.76
---------- ----------
Net income (loss) $ (.10) $ 1.85
========== ==========
Fully diluted:
Income (loss) from:
Continuing operations $ (.10) $ .09
Discontinued operations - 1.61
---------- ----------
Net income (loss) $ (.10) $ 1.70
========== ==========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
---------- ---------
Revenues:
Net sales $ 63,878 $ 58,689
Other income 1,647 1,450
---------- ---------
65,525 60,139
Costs and expenses:
Cost of sales 50,902 46,454
Selling, general and administrative 14,003 12,988
Interest 2,520 1,688
---------- ---------
67,425 61,130
Loss from continuing operations
before credit for income taxes (1,900) (991)
Credit for income taxes (99) (78)
---------- ---------
Net loss $ (1,801) $ (913)
Net loss applicable to ========== =========
common stock (Note 4) $ (2,604) $ (1,718)
Average common shares outstanding (Note 4): ========== =========
Primary 12,940,607 13,455,320
Fully diluted 12,940,607 13,455,320
Loss per common share (Note 4):
Primary $ (.20) $ (.13)
========== =========
Fully diluted $ (.20) $ (.13)
========== =========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
________ _________
Cash flows from continuing operations:
Income from continuing operations $ 1,150 $ 3,762
Adjustments to reconcile income from
continuing operations to cash flows
provided (used) by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 5,534 5,250
Other 751 715
Provision for possible losses:
Trade accounts receivable 687 391
Environmental matter - 400
Gain on sale of assets (165) (1,117)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (11,137) (253)
Inventories (3,610) (4,516)
Supplies and prepaid items 73 (1,063)
Accounts payable 345 14,099
Accrued liabilities 1,740 (1,241)
-------- --------
Net cash provided (used) by
continuing operations (4,632) 16,427
Cash flows from investing activities of
continuing operations:
Capital expenditures (15,081) (12,090)
Purchase of loans receivable - (2,877)
Principal payments on notes receivable 1,482 -
Proceeds from sales of equipment and
real estate properties 1,006 4,071
Increase in other assets (696) (5,584)
-------- --------
Net cash used by investing activities
of continuing operations (13,289) (16,480)
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
_________ _________
Cash flows from financing activities of
continuing operations:
Payments on long-term and other debt $ (9,966) $ (6,275)
Long-term and other borrowings 18,435 2,676
Net change in revolving debt facilities 12,874 47,101
Net change in drafts payable (618) 231
Dividends paid (Note 6):
Preferred stocks (2,425) (2,433)
Common stock (386) (414)
Purchases of treasury stock (Note 6):
Preferred stock - (200)
Common stock (1,384) (3,865)
Net proceeds from issuance of
common stock (Note 6) 210 256
Net decrease in receivables sold to
discontinued operations - (31,844)
__________ __________
Net cash provided by financing
activities from continuing operations 16,740 5,233
__________ __________
Net increase (decrease) in cash and cash
equivalents from continuing operations (1,181) 5,180
Net decrease in cash and cash equivalents
from discontinued operations - (1,675)
---------- ----------
Net increase (decrease) in cash and cash
equivalents from all activities (1,181) 3,505
Cash and cash equivalents at beginning of
period 2,610 2,781
---------- ----------
Cash and cash equivalents at end of period $ 1,429 $ 6,286
========== ==========
(See accompanying notes)
LSB INDUSTRIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
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 nine month period ended September 30, 1994 presents the operations of
Equity Bank as income from discontinued operations.
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 these 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 September 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 nine months ended September
30, 1995 of $112,000 is for current state income taxes.
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 (loss) 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. As of September 30, 1995
$17 million has been billed and collected by the Company under this contract.
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 (5) years beginning,in 1995, 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 nine months ended September 30, 1995:
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1995 quarter ended
---------------------------------
March 31 June 30 Sept. 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,060,566 13,045,912 12,941,097
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 180 - 10
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis - 96,692 3,326
Purchases of treasury stock;
calculated on weighted average
basis (13,950) (146,176) (3,826)
---------- ---------- ---------
13,046,796 12,996,428 12,940,607
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 12,940,607
========== ========== ==========
Earnings (loss) for primary earnings per share:
Net earnings (loss) $ 1,448,092 $ 1,502,431 $(1,800,736)
Dividends on cumulative preferred stocks (75,880) (60,000) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (743,437) (743,437) (743,437)
---------- --------- ----------
Earnings (loss) applicable
to common stock $ 628,775 $ 698,994 $(2,604,173)
========== ========= ==========
Earnings (loss) per share $ .05 $ .05 $(.20)
===== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1995
--------------
Net loss applicable to common stock $(1,276,404)
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 13,325,587
==========
Loss 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 Sept. 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691 13,555,191
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 - 180
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846 2,549
Purchase of treasury stock;
calculated on weighted
average basis (20,000) (29,176) (102,599)
---------- ---------- ----------
13,661,164 13,655,361 13,455,320
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 13,455,320
Earnings (loss) for primary
earnings per share:
Net earnings (loss) $ 2,203,665 $27,254,968 $(912,514)
Dividends on cumulative
preferred stocks (76,145) (60,000) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock
(6.5% annually) (747,500) (747,500) (745,469)
---------- ---------- ---------
Earnings (loss) applicable to
common stock $ 1,380,020 $26,447,468 $(1,717,983)
========== ========== =========
Earnings (loss) per share $.10 $1.84 $(.13)
==== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1994
--------------
Net earnings applicable to common stock $26,109,505
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 14,076,021
==========
Earnings per share $1.85
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1995 quarter ended
----------------------------------
March 31 June 30 Sept. 30
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,046,796 12,996,428 12,940,607
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 12,940,607
========== ========== ==========
Earnings (loss) for fully diluted earnings
per share:
Net earnings (loss) $ 1,448,092 $ 1,502,431 $(1,800,736)
Interest on convertible note 180 180 -
Dividends on cumulative convertible
preferred stocks:
Series B (75,880) (60,000) (60,000)
Series 2 Class C (743,437) (743,437) (743,437)
---------- ---------- ----------
Earnings (loss) applicable to
common stock $ 628,955 $ 699,174 $(2,604,173)
========== ========== ==========
Earnings (loss) per share $ .05 $ .05 $(.20)
Nine months
ended
Sept. 30, 1995
--------------
Net loss applicable to common stock $(1,276,044)
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 13,338,356
==========
Loss 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 Sept. 30
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361 13,455,320
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 13,455,320
Earnings (loss) for fully diluted
earnings (loss) per share:
Net earnings (loss) $ 2,203,665 $27,254,968 $(912,514)
Interest on convertible note 180 180 -
Dividends on cumulative convertible
preferred stocks:
Series B - - (60,000)
Series 2 class C (747,500) - (745,469)
---------- ---------- -----------
Earnings (loss) applicable to
common stock $ 1,456,345 $27,255,148 $(1,717,983)
========== ========== ==========
Earnings (loss) per shar $.10 $1.44 $(0.13)
==== ===== ======
Nine months
ended
Sept. 30, 1994
--------------
Net earnings applicable to common stock $26,993,510
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 15,841,798
==========
Earnings per share $1.70
====
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
November 17, 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 November
17, 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 September 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