LSB Industries, Inc. Reports Operating Results for the 2015 Fourth Quarter

El Dorado Ammonia Plant Remains on Track to be in Production Early in
Second Quarter of 2016

Provides Chemical Business Product Volume Guidance for Full Year 2016

OKLAHOMA CITY–(BUSINESS WIRE)–LSB Industries, Inc. (“LSB”) (NYSE:LXU) today announced results for the
fourth quarter and full year ended December 31, 2015.

Financial Highlights of Fourth Quarter 2015 Compared to Fourth
Quarter 2014

  • Net sales decreased 16% to $157.0 million compared to $187.3 million.
  • Adjusted operating loss was $8.9 million compared to operating income
    of $4.9 million.
  • Adjusted EBITDA was $1.9 million compared to $14.4 million. Adjusted
    net loss applicable to common shareholders was $5.2 million, or $0.23
    loss per diluted share compared to net income applicable to common
    shareholders of $0.7 million, or $0.03 per diluted share.

Financial Highlights of Full Year 2015 Compared to Full Year 2014

  • Net sales decreased 6.5% to $711.8 million compared to $761.2 million.
  • Adjusted operating loss was $5.6 million compared to operating income
    of $25.4 million.
  • Adjusted EBITDA was $36.5 million compared to $61.8 million. Adjusted
    net loss applicable to common shareholders was $6.8 million or $0.30
    loss per diluted share compared to adjusted net income applicable to
    common shareholders of $2.1 million, or $0.09 per diluted share.

“Our fourth quarter fell short of our expectations,” stated Dan
Greenwell, LSB’s President and CEO. “Results for our Chemical Business
were weaker than the fourth quarter of 2014 due to unplanned downtime at
our Pryor Facility, lower sales of ammonium nitrate to the mining sector
and lower selling prices for agricultural chemicals, which were down
approximately 16% compared to the prior year period. Looking at the
current year, fertilizer prices appear to have stabilized, and we
believe that, due to the contracted fall fertilizer application season,
demand for fertilizers will be stronger this spring and pricing will
firm up from current levels.

“Additionally, we were disappointed with the unplanned outage at our
Cherokee Facility. Cherokee operated efficiently and consistently during
2015, with the exception of two weeks in December, and its ammonia plant
operated at an on-stream rate of 94% for the full year of 2015. We are
continuing to take positive steps with equipment replacement and
upgrades at both the Pryor and Cherokee plants to increase on-stream
rates in 2016.

“On the subject of our El Dorado Facility, as we’ve previously
announced, we began operating our new nitric acid plant and concentrator
in the second and fourth quarters of 2015, respectively, and attained a
significant milestone by achieving mechanical completion of a new
375,000 ton per year ammonia plant within the last several weeks. The
ammonia plant is currently in its commissioning phase, and we plan to
begin producing ammonia early in the second quarter of 2016. We expect
the total cost of the El Dorado Expansion Project remain within the
previously announced range of $831 million to $855 million. We continue
to expect that this expansion will have a transformative impact on the
profitability of our Chemical Business and LSB overall in the coming
quarters and years.

“Turning to our Climate Control Business, while sales were down
slightly, reflecting continuing weakness in demand for residential heat
pumps, fourth quarter bookings and year-end 2015 backlog were up versus
last year, pointing to the continued gradual recovery in our commercial
and institutional end markets. Most encouraging was the 50 basis points
of gross margin expansion generated by Climate Control in the quarter.
This improved margin was the result of the operational excellence
initiatives we have been implementing over the past several quarters,
which included managerial enhancements, labor productivity improvements
and cost reductions, and we expect further improvement throughout 2016.”

Mr. Greenwell concluded, “We have much left to accomplish to deliver the
level of financial performance I believe that LSB is capable of
generating. Over the past twelve months, the organization has undergone
substantial changes and worked its way through a number of challenges
and distractions. In 2016 our attention will be set squarely on
execution of our strategic plan with the startup of the El Dorado
ammonia plant and a focus on improving the reliability of our Chemical
facilities, along with growing sales and improving the margins of our
Climate Control Business. Additionally, we believe that the stronger
profitability and cash flow we expect to generate, will give us
opportunities to improve our overall capitalization and liquidity. As a
result, we think we are well positioned to deliver greater value to our
shareholders in the coming year.”

Chemical Business Fourth Quarter 2015 Compared to Fourth Quarter 2014:

    Three Months Ended December 31,
2015   2014*   Change
(In millions)
Net sales $ 87.4 $ 115.1 $ (27.7 )
Operating income (loss) $ (10.3 ) $ 4.5 $ (14.8 )

Segment EBITDA

$

3.0

$

12.6

$

(9.6

)

 

 

 

 

 

 

 

 

*Refer to Note 1 – Summary of Significant Accounting Policies in the 10K
for reclass adjustments impacting 2014 comparative periods

Comparison of 2015 to 2014 periods:

  • Net sales of agricultural products decreased primarily due to lower
    product selling prices as indicated in the table below. During the
    fourth quarter of 2015, the Pryor Facility experienced 46 days of
    unplanned downtime in the Urea plant coupled with a 14 day unplanned
    outage in the ammonia plant at the Cherokee Facility. During the
    fourth quarter of 2014, the Cherokee plant experienced an unplanned
    outage in the ammonia plant which lasted approximately 33 days. Sales
    of mining products declined due to the expiration of our take-or-pay
    contract with Orica in April 2015, and overall softening in the coal
    markets. A decrease in sales of industrial products was the result of
    lower ammonia prices passed through to contractual customers,
    partially offset by higher volumes.
  • Operating income and EBITDA declined primarily as a result of the
    aforementioned weaker selling prices, partially offset by the cost of
    natural gas at our Cherokee and Pryor facilities. The El Dorado
    Facility experienced lower fixed cost absorption as a result of the
    decreased production and sales of low density AN attributable to the
    Orica contract. Additionally, the lower on-stream production rate at
    the Pryor and Cherokee facilities translated into lost sales and
    reduced absorption of fixed overhead costs. The El Dorado Facility
    produces agricultural grade AN, nitric acid and industrial grade AN
    from purchased ammonia, which is currently at a cost disadvantage
    compared to products produced from natural gas. This cost
    disadvantage, along with the impact from the loss of Orica and certain
    additional expenses related to the El Dorado Expansion projects,
    resulted in an EBITDA loss for the facility during the 2015 period of
    approximately $11.6 million compared to an EBITDA loss of
    approximately $5.9 million in fourth quarter 2014.
  Three Months Ended December 31,
2015     2014    
(Dollars in millions)

Sales by Market Sector

Sales

  Sector Mix

Sales

  Sector Mix % Change  
Agricultural $ 39.6 45 % $ 49.3 43 % (20 ) %
Industrial, Mining and Other   47.8 55 %   65.8 57 % (27 ) %
$ 87.4 $ 115.1 (24 ) %

The following tables provide key operating metrics for the Agricultural
products of our Chemical Business:

   
Three Months Ended December 31,

Product (tons sold)

2015   2014   % Change  
Urea ammonium nitrate (UAN) 85,978 76,288 13 %
Ammonium nitrate (AN) 30,010 29,738 1 %
Ammonia 21,155 29,614 (29 ) %
Other   3,076   4,847 (37 ) %
  140,219   140,487 %

Average Selling Prices (price per ton) (A)

UAN $ 199 $ 243 (18 ) %
AN $ 255 $ 315 (19 ) %
Ammonia $ 443 $ 510 (13 ) %
 

(A) Average selling prices represent “net back” prices which are
calculated as sales less freight expenses divided by product sales
volume in tons.

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 December 31,
Product (tons sold) 2015   2014   % Change
Nitric acid 145,837 131,321 11 %
LDAN/HDAN (B) 15,309 24,183 (37)%
AN solution 19,909 23,960 (17)%
Ammonia 5,974 5,601 7 %
 

(B) Under the Orica contract that expired in April 2015, Orica paid for
60,000 tons of ammonium nitrate in 2014, but actual tons sold to Orica
for the period were 23,284

       

Input Costs

Average purchased ammonia cost/ton $ 415 $ 593 (30 )%
Average natural gas cost/MMbtu $ 3.05 $ 3.89 (22 ) %
 

Climate Control Business Fourth Quarter 2015 Compared to Fourth
Quarter 2014:

   
Three Months Ended December 31,
2015   2014   Change
(In millions)
Net sales $ 67.0 $ 68.8 $ (1.8 )
Operating income $ 4.4 $ 4.3 $ 0.1
Segment EBITDA $ 5.6 $ 5.5 $ 0.1
 
 

Comparison of 2015 to 2014 periods:

  • Net sales decreased primarily due to lower volumes and selling prices
    for heat pumps for residential applications and, to a lesser extent,
    lower volumes of fan coils. These declines were partially offset by
    higher sales of our custom air handlers reflecting the increased order
    levels in the fourth quarter of 2014 and first quarter of 2015.
  • Operating income and EBITDA increased despite the lower sales as a
    result of material and productivity savings generated by the
    implementation of operational efficiency initiatives.
  • New orders for Climate Control products were $58.7 million in the
    fourth quarter of 2015, up slightly from the fourth quarter of 2014.
    For the full year of 2015, new orders of $260.5 million decreased
    approximately 6% as compared to 2014. New orders from the commercial
    end-markets were down 5% from 2014, while residential product new
    orders declined 17% on a full year basis. Backlog of $67.1 million as
    of December 31, 2015 increased approximately 3% over year-end 2014
    levels and was 6% lower than backlog at September 30, 2015.
 
Three Months Ended December 31,
2015     2014    
(Dollars in millions)

Sales by Market Sector

Sales

  Sector Mix

Sales

 

Sector
Mix

%
Change

 
Commercial/Institutional $ 57.7 86 % $ 57.5 84 % %
Residential   9.3 14 %   11.3 16 % (18 ) %
$ 67.0 $ 68.8 (3 ) %
Three Months Ended December 31,
2015   2014  
(Dollars in millions)

Sales by Product Category

Sales

Product

Mix

Sales

Product
Mix

%
Change

 
Heat pumps $ 38.2 57 % $ 42.0 61 % (9 ) %
Fan coils 16.4 24 % 17.1 25 % (4 ) %
Other HVAC   12.4 19 %   9.7 14 % 28 %
$ 67.0 $ 68.8 (3 ) %
 

Financial Position and Capital Additions

As of December 31, 2015, our total cash and investments were $127.3
million, including short-term investments.

Total long-term debt, including current portion was $520.4 million at
December 31, 2015 compared to $450.9 million at December 31, 2014 and
our Working Capital Revolver Loan at December 31, 2015 was undrawn
(borrowing availability, which is tied in to eligible accounts
receivable and inventories, was $64.4 million at December 31, 2015).
Interest expense, net of capitalized interest, for the fourth quarter of
2015 was $0.9 million compared to $4.1 million for the same period in
2014. Additionally, in December 2015 the Company issued $210 million of
preferred stock with an aggregate liquidation preference of $212.3
million, inclusive of accrued dividends at December 31, 2015.

Capital additions were $146.5 million in the fourth quarter of 2015,
including $140.8 million relating to the expansion projects at our El
Dorado Facility. Planned capital additions for 2016, in the aggregate,
are estimated to range from $174 million to $210 million, including $126
million to $150 million remaining for the full-year on the El Dorado
expansion project. Some of the 2016 planned capital additions, not
related to the El Dorado expansion project, may be deferred should we
need to do so.

Full Year 2016 Chemical Business Sales Volume Outlook

The Company’s outlook for sales volume for the full year 2016 in its
Chemical Business is as follows:

   
Products     Sales (tons)
Agriculture:      
UAN     365,000 – 390,000
AN     185,000 – 210,000
Ammonia     110,000 – 130,000
       
Industrial, Mining and Other:      
Nitric acid     540,000 – 570,000
AN     110,000 – 135,000
AN Solution     55,000 – 65,000
Ammonia     150,000 – 175,000
 

Conference Call

LSB’s management will host a conference call covering the fourth quarter
results on Tuesday, March 1, 2016 at 10:00 am ET/9:00 am CT to discuss
these results and recent corporate developments. Participating in the
call will CEO, Dan Greenwell and Executive Vice President and CFO, Mark
Behrman. Interested parties may participate in the call by dialing (201)
493-6739. Please call in 10 minutes before the conference is scheduled
to begin and ask for the LSB conference call. To coincide with the
conference call, LSB will post a slide presentation at www.lsbindustries.com
on the webcast section of 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 prior to the conference call to download and install
any necessary audio software. If you are unable to listen live, the
conference call webcast will be archived on the Company’s website. We
suggest listeners use Microsoft Explorer as their web browser.

LSB Industries, Inc.

LSB 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 Reform Act of 1995.
These forward-looking statements generally are identifiable by use of
the words “believe,” “expect,” “intend,” “plan to,” “estimate,”
“project” or similar expressions, and include but are not limited to:
our belief that we have accurately revised the cost projections and
timing of completion for the El Dorado project; our expectation of
increased reliability and production consistency at our Facilities,
including our Cherokee and Pryor Facilities; our projections of trends
in the fertilizer market; our outlook for commercial and residential
construction; our expectation of continued success of our operational
excellence initiatives; our belief in stronger profitability and
expectation of cash flow generation; opportunities to improve our
overall capitalization and liquidity; and our planned capital additions
for 2016.

Investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties.
Though we believe that expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such
expectation will prove to be correct. Actual results may differ
materially from the forward-looking statements as a result of various
factors, including, but not limited to: general economic conditions;
weather conditions; increased costs to complete the El Dorado project;
ability to install necessary equipment and renovations at our Facilities
in a timely manner; changes to federal legislation or adverse
regulations; increased competitive pressures, domestic and foreign;
ability to complete transactions to address our leveraged balance sheet
and cash flow requirements; loss of significant customers; increased
costs of raw materials; and other factors set forth under “Risk Factors”
and “Special Note Regarding Forward-Looking Statements” in the Form 10-K
for year ended December 31, 2015 and, if applicable, our Quarterly
Reports on Form 10-Q and our Current Reports on Form 8-K, which contain
a discussion of a variety of factors which could cause future outcomes
to differ materially from the forward-looking statements contained in
this release.

See Accompanying Tables

           

LSB Industries, Inc.

Financial Highlights

Three Months and Twelve Months Ended December 31,

 
Three Months Twelve Months
2015   2014(1) 2015   2014(1)
(In Thousands, Except Per Share Amounts)
 
Net sales $ 157,021 $ 187,258 $ 711,781 $ 761,246
Cost of sales 137,951 157,204 608,073 613,372
Gross profit 19,070 30,054 103,708 147,874
 
Selling, general and administrative expense 28,572 25,198 112,288 98,405
Provision for (recovery of) losses on accounts receivable

(99)

220

253

134

Impairment of long lived assets 3,518 43,188
Property insurance recoveries in excess of losses (5,147)
Other expense (income) (273) (298) (1,269) 1,120
Operating income (loss) (12,648) 4,934 (50,752) 53,362
 
Interest expense, net 876 4,141 7,381 21,599
Non-operating other income (289) (39) (396) (281)
Non-operating other expense (2) 520 520

Income (loss) from continuing operations before
       provision
(benefit) for income taxes and
       equity in earnings of
affiliate

(13,755)

832

(58,257)

32,044

Provision (benefit) for income taxes (5,708) 114 (23,550) 12,400
Equity in earnings of affiliate (79)
Income (loss) from continuing operations (8,047) 718 (34,707) 19,723
 
Net loss from discontinued operations 21 61 58 89
Net income (loss) (8,068) 657 (34,765) 19,634
Dividends on convertible preferred stocks 300 300
Dividends on Series E redeemable preferred

stock

2,287 2,287
Accretion of Series E redeemable preferred

stock (3)

686 686
Net (loss) income applicable to common stock $ (11,041) $ 657 $ (38,038) $ 19,334
 
Weighted-average common shares:
Basic 22,812 22,626 22,759 22,575
Diluted 22,812 22,772 22,759 23,667
 
Income (loss) per common share:
Basic $ (0.48) $ 0.03 $ (1.67) $ 0.86
Diluted $ (0.48) $ 0.03 $ (1.67) $ 0.83
 
(1)   *Refer to Note 1 – Summary of Significant Accounting Policies in the
10K for reclass adjustments impacting 2014 comparative periods
(2) Fair market value adjustment on participant rights value (456,225
shares)
(3) Represents accretion on discount/issuance costs pertaining to $210.0
million preferred stock issuance
 
               

LSB Industries, Inc.

Financial Highlights

Three Months and Twelve Months Ended December 31,

 
Three Months Twelve Months
2015     2014 2015     2014
(In Thousands)
Net sales:
Chemical (1) $ 87,365 $ 115,139 $ 428,129 $ 483,638
Climate Control 66,996 68,773 274,086 265,358
Other 2,660 3,346 9,566 12,250
$ 157,021 $ 187,258 $ 711,781 $ 761,246
Gross profit (loss): (1)(2)
Chemical $ (2,475) $ 8,080 $ 16,644 $ 61,084
Climate Control 20,639 20,815 83,660 82,443
Other 906 1,159 3,404 4,347
$ 19,070 $ 30,054 $ 103,708 $ 147,874
Operating income (loss): (1)(4)
Chemical (2)(3) $ (10,285) $ 4,466 $ (41,831) $ 51,281
Climate Control 4,413 4,279 19,892 21,675
Other 359 473 1,104 1,771
General corporate expenses (5) (7,135) (4,284) (29,917) (21,365)
(12,648) 4,934 (50,752) 53,362
Interest expense, net (6) 876 4,141 7,381 21,599
Non-operating income, net:
Chemical (286) (36) (363) (249)
Climate Control (4)
Corporate and other business operations (3) (3) (29) (32)
Non-operating other expense 520 520
Provision (benefit) for income taxes (5,708) 114 (23,550) 12,400
Equity in earnings of affiliate – Climate Control (79)
Income (loss) from continuing operations $ (8,047) $ 718 $ (34,707) $ 19,723
 
 
(1) During the fourth quarter of 2015 sales prices declined for Ammonia,
UAN and AN by 13%, 18% and 19% respectively as compared to the same
period in 2014. Also during the fourth quarter of 2015, the ammonia
plant at the Cherokee Facility and the Urea plant at the Pryor
Facility were taken out of service for unplanned downtime. During
the third quarter of 2015, a planned major maintenance activity
(“Turnaround”) was performed at our Pryor Facility. Following the
completion of the Turnaround, the Pryor Facility experienced
unplanned downtime while restarting the plant that negatively
impacted production, sales and operating results. During the third
quarter of 2014, Turnaround was performed at the Cherokee Facility,
which negatively impacted production, sales and operating results.
During the fourth quarter of 2014, our Cherokee Facility experienced
downtime resulting in lost production and adverse effect on
operating results. Refer to Note 1 – Summary of Significant
Accounting Policies in the 10K for reclass adjustments impacting
2014 comparative periods
 
(2) 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.
 
(3) During the third quarter of 2015, our chemical business recognized
an impairment charge of $39.7 million related to our working
interest in natural gas properties. During the fourth quarter of
2015, our Pryor Facility recognized an impairment charge of $3.5
million on certain older machinery and equipment. During the first
quarter of 2014, we recognized business interruption and property
insurance recoveries totaling $28.0 million, of which approximately
$22.9 million was recognized as a reduction to cost of sales
 
(4) 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.
 
(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 Ended     Twelve Months Ended
December 31, December 31,
2015     2014 2015     2014
(In Thousands)
Selling, general and administrative:
Personnel costs (A) $ (3,680) $ (1,956) $ (14,798) $ (8,434)
Fees and expenses relating to shareholders (B) (156) (151) (4,603) (4,843)
Professional and director fees (C) (2,223) (1,203) (6,610) (4,536)
All other (1,150) (999) (3,979) (3,632)
Total selling, general and administrative (7,209) (4,309) (29,990) (21,445)
Other income 55 28 128 97
Other expense 19 (3) (55) (17)
Total general corporate expenses $ (7,135) $ (4,284) $ (29,917) $ (21,365)
 
(A)   Increased costs for 2015 are related to additional costs incurred
primarily relating to certain severance agreements with former
executives, compensation incentives and additional personnel
performing general corporate activities.
 
(B) These fees and expenses include costs associated with evaluating and
analyzing proposals received from certain activist shareholders and
dealing, negotiating and settling with those shareholders in order
to avoid proxy contests.
 
(C) Increased professional fees are primarily related to our review of
various financing alternatives during the fourth quarter of 2015.
Director fees also increased as a result of the increased size of
the Board combined with changes in their fee structure.
(6)   During the three and twelve months ended December 31, 2015, interest
expense is net of capitalized interest of $9.7 million and $30.6
million, respectively. During the three and twelve months ended
December 31, 2014, interest expense is net of capitalized interest
of $4.9 million and $14.1 million, respectively.
 

LSB Industries, Inc.

Consolidated Balance Sheets

             
December 31, December 31,
2015 2014
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 127,314 $ 186,811
Restricted cash 365
Short-term investments 14,500
Accounts receivable, net 92,602 88,074
Inventories:
Finished goods 24,383 28,218
Work in progress 2,042 2,763
Raw materials 26,812 25,605
Total inventories 53,237 56,586
Supplies, prepaid items and other:
Prepaid insurance 10,563 13,752
Precious metals 12,918 12,838
Supplies 18,681 15,927
Prepaid and refundable income taxes 6,811 7,387
Other 5,797 5,438
Total supplies, prepaid items and other 54,770 55,342
Deferred income taxes 4,774 17,204
Total current assets 332,697 418,882
 
Property, plant and equipment, net 1,005,488 619,205
 
Other assets:
Noncurrent restricted cash and cash equivalents 45,969
Noncurrent restricted investments 25,000
Intangible and other, net 23,642 21,516
Total other assets 23,642 92,485
$ 1,361,827 $ 1,130,572
 

Contacts

Company:
LSB Industries, Inc.
Mark Behrman, 405-235-4546
Chief
Financial Officer
or
Investor Relations:
The
Equity Group Inc.
Fred Buonocore, 212-836-9607
Linda Latman,
212-836-9609

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