LSB Industries, Inc. Reports Results for the 2009 Third Quarter

• Press Release
• Source: LSB Industries, Inc.
• On 4:05 pm EST, Thursday November 5, 2009

OKLAHOMA CITY--(BUSINESS WIRE)--LSB Industries, Inc. (NYSE: LXU - News) announced today results for the third quarter ended September 30, 2009. These results include $7.1 million of expenses related to the start-up of the nitrogen chemical plant in Pryor, Oklahoma (“Pryor Facility”).

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Third Quarter 2009 Financial Highlights Compared to Third Quarter 2008:

• Net sales were $127.8 million, a 39.4% decline from $210.9 million;
• Operating income was $4.3 million compared to $8.7 million;
• Net income was $1.1 million compared to $4.2 million;
• Net income applicable to common shareholders was $1.1 million compared to $4.2 million;
• Diluted earnings per common share were $0.05 compared $0.18.

First Nine Months 2009 Financial Highlights Compared to First Nine Months 2008:

• Net sales were $416.5 million, a 26.8% decline from $569.4 million;
• Operating income was $38.2 million compared to $57.3 million;
• Net income was $21.5 million compared to $33.0 million;
• Net income applicable to common shareholders decreased to $21.2 million from $32.7 million;
• Diluted earnings per common share were $0.95 compared to $1.40.

Discussion of Third Quarter of 2009:

The $83.1 million decline in third quarter net sales includes a decrease of $15.9 million in our Climate Control Business and a decrease of approximately $64.8 million in our Chemical Business.

The $4.4 million decrease in operating income was primarily due to a $5.2 million decrease in the Chemical Business’ operating results including the following variances from 2008:

Net income was $1.1 million for the third quarter of 2009 compared to $4.2 million for the same period of 2008. The net decrease of $3.1 million includes, among other items, the $5.2 million of variances relating to the Chemical Business summarized above partially offset by an increase in Climate Control’s operating income and an adjustment to our provision for income taxes. Our effective income tax rate for the third quarter of 2009 was approximately 55%, which includes an additional provision relating to the adjustments reconciling the completed 2008 federal income tax return to the 2008 estimated tax provision and the impact of a limitation on the domestic manufacturer’s deduction.

Discussion of the First Nine Months 2009:

Operating income for 2009 included start-up expenses associated with the Pryor Facility of $12.3 million including an embedded loss on firm sales commitments of $1.0 million. Expenses associated with maintaining the Pryor Facility were $1.3 million in the same period last year.

Also included in the 2009 pre-tax income is a gain of $1.8 million from the extinguishment of debt as a result of acquiring $10.1 million of our 2007 Debentures, at a discount to face value.

Climate Control Business:

Net sales for the Climate Control Business totaled $67.4 million, a 19.1% decrease from the third quarter of 2008 principally of our heat pump and fan coil products, due primarily to reduced construction activity.

Despite a 19.1% decrease in sales, Climate Control’s gross profit was down only $.1 million as a result of improved gross profit as a percentage of net sales from 29.9% in the third quarter of 2008 to 36.7% for third quarter of 2009. The increase in gross profit as a percentage of net sales was primarily in our heat pump products, caused by higher selling prices and lower material costs, partially offset by lower factory overhead absorption, as a result of lower unit sales volumes. In addition, we had efficiency improvements in our coil manufacturing operation, and our engineering and construction services business recognized improvements in gross profit of $1.1 million related to customer change orders and project performance improvements.

Segment operating income increased 11.3% from the same period in 2008 due primarily to the improvement in gross margin as a percentage of sales and lower operating expenses.

Bookings of new product orders during the third quarter were $49.1 million compared to $101.0 million in the third quarter of 2008 and compared to $54.7 million for the second quarter of 2009. Lower bookings were generally a result of the lower level of commercial construction activity caused by the recession. At September 30, 2009, the backlog of product orders was $39.4 million compared to $49.5 million at June 30, 2009 and $68.5 million at December 31, 2008.

Chemical Business:

Net sales for the Chemical Business were $59.7 million, or 52.0% below 2008. The decrease is primarily attributable to steep declines in commodity prices including the selling prices for our products accompanied by steep declines in our raw material feedstock costs and lower tons sold in our mining markets.

As noted above, the start-up delays at the Pryor Facility resulted in higher than expected third quarter start-up expenses. We previously indicated that the Pryor Facility would probably be producing UAN in September and that the remaining start-up costs would approximate $4.0 million. Due to the delays, the start-up costs expensed in the third quarter increased to $7.1 million, including an unrealized embedded loss of $1.0 million on firm sales commitments at September 30, 2009. The embedded loss includes the effect of higher natural gas costs and the cost in excess of committed selling prices for those tons that we expect to acquire on the open market to make up for the shortfall in Pryor Facility production. We currently expect to be in production in December 2009 barring further delays.

CEO’s Remarks:

Jack Golsen, LSB’s Board Chairman and CEO stated: “Excluding the start-up costs of the Pryor Facility incurred during the third quarter, both our Chemical and Climate Control Businesses reported third quarter 2009 over third quarter 2008 improvement in a very challenging economy.

“Due to current economic conditions, especially in the commercial construction sector, product orders and backlog in our Climate Control Business have declined. Over time, we believe that the recently enacted federal tax credits for geothermal heat pumps will have a positive impact on sales of those highly energy efficient and green products and in the growth potential of our Climate Control Business.

“With respect to our Chemical Business, signs point to an improvement in sales and margins in all three of its primary markets in 2010. Nitrogen fertilizer product demand has been affected by a late grain harvest and a reluctance of distributors to place orders to restock inventory. We feel strongly that the Pryor Facility will be a valuable asset for LSB once it is operational. We estimate that our all-in costs to refurbish the Pryor Facility are a fraction of the cost to construct a plant with comparable capacities. The long-term outlook for grain and crop production and fertilizer required to support them, including UAN, is good. UAN pricing is firming following a period of low prices.

“During the third quarter, we continued to strengthen our balance sheet, by reducing long-term debt, and increasing cash and stockholders’ equity. We purchased $0.9 million face value of our Debentures that are due in 2012 in a negotiated transaction at various discounts from face value bringing our total purchases of our Debentures during 2009 to $10.1 million. As a result of these and prior acquisitions of these Debentures, only $30.4 million remains outstanding at September 30, 2009.

“While we look forward to an economic recovery, we continue to invest in the areas that we believe have long-term strategic growth potential for LSB.”

Conference Call

LSB’s management will host a conference call covering the third quarter results on Thursday, November 5, 2009 at 5:15 pm ET/4:15 pm CT to discuss these results and recent corporate developments. Participating in the call will be 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 706-679-3079. Please call in ten minutes before the conference is scheduled to begin and ask for the LSB conference call.

To listen to a webcast of the call, please go to the Company’s website at www.lsb-okc.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, marketing and engineering company. LSB’s principal business activities consist of the manufacture and sale of commercial and residential climate control products, such as geothermal and water source heat pumps, hydronic fan coils, large custom air handlers; the manufacture and sale of chemical products for the mining, agricultural and industrial markets; and the provision of specialized engineering services and other activities.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements generally are identifiable by use of the words “believe,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects” or similar expressions, and such forward-looking statements include, but are not limited to, production at the Pryor Facility is expected to start in December 2009 ; we believe that the recently enacted federal tax credits for geothermal heat pumps will have a positive impact on sales of those highly energy efficient and green products and in the growth potential of our Climate Control Business; with respect to our Chemical Business, signs point to an improvement in sales and margins in all three of its primary markets in 2010; that the Pryor Facility will be a valuable asset for LSB; cost to refurbish the Pryor Facility; the long-term outlook for grain and crop production and fertilizer required to support them, including UAN, is good; and investments in areas that we believe have long-term strategic growth potential. 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, effect of the recession on the commercial and residential construction industry, acceptance by the market of our geothermal heat pump products, acceptance of our technology, changes to federal legislation or adverse regulations, available working capital, ability to install necessary equipment and renovations at the Pryor facility in a timely manner, ability to finance our investments, and other factors set forth under “A Special Note Regarding Forward-Looking Statements” contained in the Form 10-K for year ended December 31, 2008 and Form 10-Q’s and/or 10-Q/A’s for quarters ended March 31, 2009, June 30, 2009 and September 30, 2009, for a discussion of a variety of factors which could cause the future outcome to differ materially from the forward-looking statements contained in this letter.

LSB Industries, Inc.
Tony M. Shelby, 405-235-4546
Chief Financial Officer
or
Investor Relations:
The Equity Group Inc.
Linda Latman, 212-836-9609
Lena Cati, 212-836-9611