UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 2000
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 333-44905
ClimaChem, Inc.
Exact name of Registrant as specified in its charter
OKLAHOMA 73-1528549
State or other I.R.S. Employer
jurisdiction of Identification No.
incorporation or
organization
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 Registrant does not have any equity securities registered
under the Securities Act of 1933, as amended. All outstanding
shares of Common Stock of the registrant are held directly or
indirectly by the registrant's parent company, LSB Industries,
Inc.
PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed:
ClimaChem, Inc. and all of its wholly owned subsidiaries.
The accompanying condensed consolidated balance sheet of
ClimaChem, Inc. at June 30, 2000, the condensed consolidated
statements of operations for the six-month and three-month
periods ended June 30, 2000 and 1999 and the condensed
consolidated statement of cash flows for the six-month periods
ended June 30, 2000 and 1999 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 only
of adjustments of a normal recurring nature except as it relates
to the provision for loss on firm purchase commitments recognized
in the first and second quarters of 2000 and the second quarter
of 1999 and the extraordinary gain recognized in the second
quarter of 2000 on the extinguishment of certain Senior Unsecured
Notes as discussed in Note 6 and Note 7, respectively, of Notes
to Condensed Consolidated Financial Statements. The results of
operations for the six months ended June 30, 2000, are not
necessarily indicative of the results to be expected for the full
year. The condensed consolidated balance sheet at December 31,
1999, was derived from audited financial statements as of that
date. Reference is made to the Company's Annual Report on Form 10-
K for the year ended December 31, 1999, for an expanded
discussion of the Company's financial disclosures and accounting
policies.
CLIMACHEM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 2000 is unaudited)
(Dollars in thousands)
ASSETS June 30, December, 30
2000 1999
Current assets:
Cash $ 3,401 $ 2,673
Trade accounts receivable, net 45,581 41,934
Inventories:
Finished goods 10,018 11,275
Work in process 6,339 5,503
Raw materials 10,428 8,994
________________________
Total inventory 26,785 25,772
Supplies and prepaid items 4,468 4,314
Due from LSB and affiliates, net
(Note 3) 1,840 1,758
_________________________
Total current assets 82,075 76,451
Property, plant and equipment, net 75,225 75,667
Notes and interest receivable from
LSB and affiliates (Note 3) 14,046 13,948
Other assets, net 16,783 18,012
__________________________
$ 188,129 $ 184,078
==========================
(Continued on following page)
CLIMACHEM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 2000 is unaudited)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' June 30, December, 31
EQUITY 2000 1999
Current liabilities:
Accounts payable $ 21,017 $ 16,312
Brokerage account payable 4,863 -
Accrued liabilities 15,829 13,791
Current portion of long-term
debt (Note 7) 31,139 29,644
___________________________
Total current liabilities 72,848 59,747
Long-term debt (Note 7) 94,395 112,544
Accrued losses on firm purchase
commitments (Note 6) 5,009 5,652
Commitments and contingencies
(Note 2) - -
Stockholders' equity:
Common stock, $.10 par value;
500,000 shares authorized,
10,000 shares issued 1 1
Capital in excess of par value 12,652 12,652
Retained earnings (accumulated
deficit) 3,224 (6,518)
________________________
Total stockholders' equity 15,877 6,135
________________________
$ 188,129 $ 184,078
========================
(See accompanying notes)
CLIMACHEM, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
(Dollars in thousands)
Businesses continuing at June 30: 2000 1999
Revenues:
Net sales $ 140,577 $ 125,718
Other income, net 55 240
_______________________
140,632 125,958
Costs and expenses:
Cost of sales 111,729 98,955
Selling, general and
administrative 21,938 20,336
Interest 7,307 7,131
Provision for loss on firm
purchase commitments (Note 6) 2,485 7,500
________________________
143,459 133,922
________________________
Loss before business disposed of,
benefit for income taxes and
extraordinary gain (2,827) (7,964)
Business disposed of (Note 5)
Revenues - 6,374
Operating costs, expenses and
interest - 8,105
________________________
(1,731)
Loss on disposal of business - (1,971)
________________________
- (3,702)
________________________
Loss before benefit for income taxes
and extraordinary gain (2,827) (11,666)
Benefit for income taxes - (3,074)
________________________
Loss before extraordinary gain (2,827) (8,592)
Extraordinary gain, net of income
taxes of $900 (Note 7) 12,569 -
________________________
Net income (loss) $ 9,742 $ (8,592)
________________________
Retained earnings (accumulated
deficit) at beginning of period (6,518) 12,664
________________________
Retained earnings at end of period $ 3,224 $ 4,072
========================
Total comprehensive income (loss):
Net income (loss) $ 9,742 $ (8,592)
Foreign currency translation
income - 1,559
________________________
$ 9,742 $ (7,033)
========================
(See accompanying notes)
CLIMACHEM, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, 2000 and 1999
(Dollars in thousands)
Businesses continuing at June 30: 2000 1999
Revenues:
Net sales $ 73,880 $ 68,357
Other income - 76
______________________
73,880 68,433
Costs and expenses:
Cost of sales 59,575 54,810
Selling, general and
administrative 11,024 10,319
Interest 3,616 3,637
Provision for loss on
firm purchase commitments (Note 6) 1,510 7,500
Other expense 687 -
______________________
76,412 76,266
______________________
Loss before business disposed of,
benefit for income taxes and
extraordinary gain (2,532) (7,833)
Business disposed of (Note 5)
Revenues - 3,506
Operating costs, expenses and
interest - 4,267
______________________
(761)
Loss on disposal of business - (1,971)
______________________
- (2,732)
_______________________
Loss before benefit for income taxes
and extraordinary gain (2,532) (10,565)
Benefit for income taxes - (3,124)
_______________________
Loss before extraordinary gain (2,532) (7,441)
Extraordinary gain, net of income
taxes of $900 (Note 7) 12,569 -
_______________________
Net income (loss) $ 10,037 $ (7,441)
_______________________
Retained earnings (accumulated
deficit) at beginning of period (6,813) 11,513
_______________________
Retained earnings at end of period $ 3,224 $ 4,072
=======================
Total comprehensive income (loss):
Net income (loss) $ 10,037 $ (7,441)
Foreign currency translation
income - 1,337
______________________
$ 10,037 $ (6,104)
======================
(See accompanying notes)
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
2000 1999
Cash flows from operating
activities:
Net income (loss) $ 9,742 $ (8,592)
Adjustments to reconcile net
loss to
Cash flows provided by
operations:
Extraordinary gain on
extinguishment of debt (13,469) -
Depreciation, depletion and
amortization:
Property, plant and
equipment 3,809 4,608
Other 586 516
Provision for possible losses
on receivables 139 484
Provision for deferred income -
taxes - (3,374)
Loss on business disposed of - 1,971
Inventory write-down and
losses on firm purchase
commitments, net of
realizations of $1,521 in
2000 964 9,100
Cash provided (used) by
changes in assets and
liabilities:
Trade accounts receivable (3,617) (6,708)
Inventories (1,013) 1,033
Supplies and prepaid items (1,043) (2,647)
Accounts payable 4,705 3,194
Accrued liabilities 507 2,859
Due from LSB and affiliates (180) 93
______________________
Net cash provided by operating
activities 1,130 2,537
Cash flows from investing
activities:
Capital expenditures (3,635) (3,027)
Payments made for acquisition - (3,113)
Purchase of option - (2,558)
Investments in and advances to
LSB and affiliates - (1,899)
Proceeds from sales of equipment - 3
Decrease (increase) in other assets 991 (569)
_______________________
Net cash used in investing
activities (2,644) (11,163)
Cash flows from financing
activities:
Proceeds from borrowings of long-
term debt 2,442 -
Payments on long-term debt (2,153) (2,767)
Net change in revolving debt 1,953 12,964
_______________________
Net cash provided by financing
activities 2,242 10,197
________________________
Net increase in cash from all
activities 728 1,571
Cash at beginning of period 2,673 750
________________________
Cash at end of period $ 3,401 $ 2,321
========================
(See accompanying notes)
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 1: Basis of Presentation
The Company, a wholly owned subsidiary of LSB Industries,
Inc.("LSB" or "Parent"), was organized under the laws of the
State of Oklahoma in October 1997. The Company's Certificate of
Incorporation authorizes the issuance of 500,000 shares of $.10
par value common stock. All of the issued and outstanding shares
of common stock of the Company are directly or indirectly owned
by LSB. The Company is a holding company which maintains
operations through various wholly owned subsidiaries. The
Company owns, through its subsidiaries, substantially all of the
operations comprising the Chemical Business and Climate Control
Business as previously owned by LSB.
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant inter-company transactions have been eliminated in
the accompanying financial statements. Certain reclassifications
have been made to the prior year consolidated financial
statements to conform to current year presentation.
Note 2: Commitments and Contingencies
Legal Matters
Following is a summary of certain legal actions involving the
Company:
A. Arch Minerals Corporation, et al. v. ICI Explosives USA,
Inc., et al. On May 24, 1996, the plaintiffs filed this
civil cause of action against EDC and five other unrelated
commercial explosives manufacturers alleging that the
defendants allegedly violated certain federal and state
antitrust laws in connection with alleged price fixing of
certain explosive products. EDC does not believe that EDC
conspired with any party, including, but not limited to, the
five other defendants, to fix prices in connection with the
sale of commercial explosives. Based on the anticipated
future cost of defense and without admission of any kind,
EDC has agreed to settle this action in principle for an
amount which management does not consider material which was
accrued and charged to operations in the three-month period
ended June 30, 2000.
ASARCO v. ICI, Et Al. The U.S. District Court for the
Eastern District of Missouri has granted ASARCO and other
plaintiffs in a lawsuit originally brought against various
commercial explosives manufacturers in Missouri, and
consolidated with other lawsuits in Utah, leave to add EDC
as a defendant in that lawsuit. This lawsuit alleges a
national conspiracy, as well as a regional conspiracy,
directed against explosive customers in Missouri and seeks
unspecified damages. EDC has been included in this lawsuit
because it sold products to customers in Missouri during a
time in which other defendants have admitted to
participating in an antitrust conspiracy, and because it has
been sued in the ARCH case discussed above. Based on the
information presently available to EDC, EDC does not believe
that EDC conspired with any party, to fix prices in
connection with the sale of commercial explosives. EDC
intends to vigorously defend itself in this matter.
The Company including its subsidiaries, is a party to various
other claims, legal actions, and complaints arising in the
ordinary course of business. In the opinion of management after
consultation with counsel, all claims, legal actions (including
those described above) and complaints are not presently probable
of material loss, are adequately covered by insurance, or if not
so covered, are without merit or are of such kind, or involve
such amounts that unfavorable disposition would not have a
material effect on the financial position of the Company, but
could have a material impact to the net income (loss) of a
particular quarter or year, if resolved unfavorably.
For the remainder of 2000, the Company has planned capital
expenditures of approximately $2.5 million, but such capital
expenditures are dependent upon obtaining acceptable financing.
The Company expects to delay these expenditures as necessary
based on the availability of adequate working capital and the
availability of financing. The Company believes, based upon
present circumstances, that it will receive relief from certain
of the compliance dates under its wastewater management project
and expects that this will ultimately result in the delay in the
implementation date of such project. Because the Company has not
completed its evaluation of engineering alternatives, the Company
has not yet provided to the state of Arkansas its final design
plans by the deadline of August 1, 2000 set forth in the
applicable consent order. The consent order provides that the
August 1, 2000 deadline for submission of final design plans will
be preceded by the agency's issuance of a revised permit. The
revised permit will include the discharge limits that will apply
to the wastewater treatment project. To date the state has
deferred issuance of the revised permit. The Company continues
to regularly advise the state of the projects engineering status
and financing status. Construction of the wastewater treatment
project is subject to the Company obtaining financing to fund
this project. There are no assurances that the Company will be
able to obtain the required financing. Failure to construct the
wastewater treatment project could have a material adverse effect
on the Company.
Other
LSB and, thus, the Company has retained certain risks associated
with its operations, choosing to self-insure up to various
specified amounts under its automobile, workers' compensation,
health and general liability programs. LSB reviews such programs
on at least an annual basis to balance the cost-benefit between
its coverage and retained exposure.
Note 3: Transactions with Related Parties
Under the terms of the November 21, 1997 Services Agreement
between the Company and LSB, the Company will pay to, or
reimburse, LSB for the value of the office facilities of LSB,
including LSB's principal offices and financial accounting
offices utilized in the performance of the Services Agreement.
LSB will determine the proportionate usage of such facilities by
LSB and the Company, and the Company will pay to, or reimburse,
LSB for its proportionate share of such usage.
Beginning January 1, 2000, the Company began to pay directly to
service providers and employees, the majority of the costs for
services, that it has historically reimbursed to LSB. Charges
for such services reimbursed to LSB aggregate $218,000 and
$2,131,000 for the six months ended June 30, 2000 and 1999,
respectively. Management of the Company believes these charges
from LSB reasonably approximate additional general and
administrative costs which would have been incurred if the
Company had been an independent entity during such periods. These
amounts do not include reimbursements for costs described in the
next paragraph or amounts paid by LSB relating to certain of the
Company's payroll that are directly charged to the Company by
LSB.
In addition, the Service Agreement allows for purchases of other
goods and services to the extent that the amount paid
approximates fair value that would be paid to a third party. In
the six months ended June 30, 2000, subsidiaries of the Company
purchased certain raw materials from a subsidiary of LSB, not a
subsidiary of the Company, for $2,696,000 (none in 1999). The
Company also purchased industrial supplies from subsidiaries of
LSB, which are not subsidiaries of the Company, aggregating
$591,000 in the six months ended June 30, 2000 ($254,000 in
1999).
The Company's Climate Control manufacturing subsidiaries also
lease facilities and production equipment from affiliates under
various operating leases and a capital lease. Rental expense
associated with the operating leases was $843,000 and $382,000
during the six months ended June 30, 2000 and 1999, respectively.
In December 1999, a subsidiary of the Climate Control Business
entered into a capital lease with a subsidiary of LSB which is
not a subsidiary of the Company. The lease agreement required an
initial payment of $2,000,000 for capital improvements required
in the facility, which was paid in 1999, and requires 112 monthly
payments of $20,291 commencing on September 1, 2006. The
accompanying balance sheet includes buildings and improvements
under the capital lease of $3,172,000 and long-term debt includes
a capital lease obligation of $1,209,000 at June 30, 2000
($1,172,000 at December 31, 1999) due to the LSB subsidiary.
For the six months ended June 30, 2000, earnings before interest,
income taxes, depreciation and amortization ("EBITDA") as
defined in the November 21, 1997 Management Agreement between the
Company and LSB exceeded $13.0 million by more than $900,000,
thus the management fee to LSB of $900,000 was expensed in the
Condensed Consolidated Statement of Operations for the period
then ended. This management fee served to reduce the amount due
from LSB and affiliates in the Condensed Consolidated Balance
Sheet as of June 30, 2000. No management fee was earned or paid
to LSB in 1999.
For the six months ended June 30, 2000 the Company recorded a
provision for income taxes relating to the extraordinary gain on
the repurchase of Senior Unsecured Notes for the six months ended
June 30, 2000 of $.9 million, $.8 million of which is payable to
LSB under the terms of the Tax Sharing Agreement. This
obligation to LSB also served to reduce the amount due from LSB
and affiliates in the Condensed Consolidated Balance Sheet as of
June 30, 2000. The Company was not obligated to pay any amount
to LSB in 1999.
Under the terms of an Indenture between the Company, the
guarantors and the trustee relating to the Notes (as defined in
Note 7), the Company did not make any distributions or pay any
dividends to LSB for the six months ended June 30, 2000 and 1999.
The Company has, at various times, maintained certain unsecured
borrowings from LSB and its subsidiaries and made loans and
advances to LSB which generally bear interest. At June 30, 2000
the Company had loans and advances due from LSB of approximately
$14.0 million, $10.0 million of which was loaned to LSB from the
proceeds of the sale of the Notes, as defined, and bears interest
at 10-3/4%, payable on June 1 and December 1 and maturing
November 2007 and approximately $3.4 million due from LSB and
affiliates related to cash advances from the Company to LSB and
affiliates prior to the sale of the Notes, as defined, plus
related interest. The cash advances in the approximate initial
amount of $3.4 million and related interest are due by terms in
November 2007 and bears interest at 7% per annum. At June 30,
2000 the Company had $1.8 million due from LSB and affiliates
included in current assets related to advances, interest, note
receivables and investments. This amount also includes
approximately $.5 million for interest due June 1, 2000 on the
$10 million note payable by LSB to the Company.
LSB and its subsidiaries (other than the Company and its
subsidiaries), the "LSB Non-ClimaChem Entities," are dependent
upon their separate cash flows and the restricted funds which can
be distributed by the Company under the above mentioned
agreements. As of June 30, 2000, the LSB Non-ClimaChem Entities
had a working capital deficit of $4.2 million (including $3.4
million of inventories and $3.1 million of accounts receivable),
and long-term debt of $29.6 million (including that owed to the
Company). For the six months ended June 30, 2000, the LSB Non-
ClimaChem Entities had net income of $.2 million. LSB is focusing
its efforts and resources on its core businesses, primarily
represented by ClimaChem. In April 2000, LSB's Board of Directors
approved a plan for the sale of its Automotive Products Business,
which was concluded on May 4, 2000. LSB is also realigning its
overhead to better match its focus on the Chemical and Climate
Control Businesses of the Company. Based on these plans,
management of LSB believes the LSB Non-ClimaChem Entities will
have sufficient operating capital to meet its obligations as they
come due, including those to the Company. If LSB management is
not successful in executing this plan, including realignment of
overhead to reduce its operating costs or realizing certain
excess and non-core assets, and if the Company is not able to
transfer funds to LSB and its affiliates as permitted under the
Indenture, the amounts due from LSB and its subsidiaries, which
aggregate $15.9 million at June 30, 2000, may not be recoverable.
As of June 30, 2000, the Company has not provided an allowance
for doubtful accounts against these receivables, loans and
advances since it is their present belief that LSB will be able
to pay these amounts; however, it is reasonably possible that the
evaluation relative to the amounts due from LSB and its
subsidiaries could change in the near term.
Note 4: Segment Information
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
(in thousands)
Sales:
Business continuing:
Chemical $ 76,308 $ 69,693 $ 41,241 $ 39,031
Climate Control 64,269 56,025 32,639 29,326
________________________________________
140,577 125,718 73,880 68,357
Business disposed of (1):
Chemical - 6,374 - 3,506
________________________________________
$140,577 $132,092 $73,880 $ 71,863
========================================
Gross profit (loss) (2):
Businesses continuing:
Chemical $ 11,998 $ 9,592 $ 5,884 $ 4,641
Climate Control 16,850 17,171 8,421 8,906
________________________________________
28,848 26,763 14,305 13,547
Business disposed of (1):
Chemical - (229) - (71)
________________________________________
$ 28,848 $ 26,534 $14,305 $ 13,476
========================================
Operating profit (loss) (3):
Businesses continuing:
Chemical $ 4,957 $ 2,658 $ 2,340 $ 1,195
Climate Control 4,110 5,175 1,901 2,764
________________________________________
9,067 7,833 4,241 3,959
Business disposed of (1):
Chemical - (1,488) - (643)
_________________________________________
9,067 6,345 4,241 3,316
Unallocated fees from
Services and Management
Agreements, and general
corporate expenses, net (2,157 ) (1,406) (961) (731)
Interest income 853 726 443 386
Other expense, net (798) (486) (1,129) (310)
Interest Expense:
Businesses continuing (7,307) (7,131) (3,616) (3,637)
Business disposed of -
Chemical - (243) - (118)
Loss on business disposed of - (1,971) - (1,971)
Provision for loss on firm
purchase commitments -
Chemical (2,485) (7,500) (1,510) (7,500)
________________________________________
Loss before benefit
for income taxes and
extraordinary gain $(2,827) $(11,666) $(2,532) $(10,565)
=========================================
(1) On August 2, 1999, the Company sold
substantially all of the assets of its wholly
owned Australian subsidiary, TES. See Note 5 of
Notes to Condensed Consolidated Financial
Statements for further information. The
operating results for TES have been presented
separately in the above table.
(2) Gross profit by industry segment represents net
sales less cost of sales.
(3) Operating profit (loss) by industry segment
represents gross profit less operating expenses
before deducting fees from the Services
Agreement and Management Agreement, other
expense, interest expense, provision for losses
on firm purchase commitments and income taxes
and before extraordinary gain.
Note 5: Business Disposed of
On August 2, 1999 the Company sold substantially all the assets
of its wholly owned Australian subsidiary, Total Energy Systems
Limited and its subsidiaries ("TES"). The loss associated with
this transaction was $2.0 million and was comprised of
disposition costs of approximately $.3 million, the recognition
in earnings of the cumulative foreign currency loss of
approximately $1.1 million and approximately $.6 million related
to the resolution of certain environmental matters.
Note 6: Loss on Firm Purchase Commitment
The Chemical Business is obligated to purchase anhydrous ammonia
pursuant to the terms of a firm uncancelable supply contract. At
June 30, 2000, the purchase price the Chemical Business was
required to pay for anhydrous ammonia to be purchased under the
contract, which was for approximately ten percent of the Chemical
Business' anhydrous ammonia requirements in 2000 (15% in 2001 and
2002), exceeded and was expected to continue to exceed the spot
market prices throughout the purchase period. Due to the
estimated sales prices and the cost to produce the nitrate
products, including the cost of the anhydrous ammonium to be
purchased under the contract, the costs of certain of the
Company's nitrate based products are expected to exceed the
anticipated future sales prices. As a result, an additional
provision for loss on the firm purchase commitment of $1.5
million was recorded in the second quarter of 2000 ($2.5 million
for the six months ended June 30, 2000). At June 30, 2000 and
December 31, 1999, the accompanying balance sheets include
remaining accrued losses under the firm purchase commitment of
$8.4 and $7.4 million, respectively ($3.4 and $1.8 million of
which is classified as current in accrued liabilities,
respectively). Due to the pricing mechanism in the contract, it
is reasonably possible that this loss provision estimate may
change in the near term.
Note 7. Long-term Debt
During the second quarter of 2000, the Company repurchased
approximately $19.2 million of the $105.0 million Senior
Unsecured Notes issued in November 1997. In connection with this
transaction, the Company recognized a gain of approximately $12.5
million, net of income taxes of $.9 million. The outstanding
principal amount of the Notes is approximately $85.8 million at
June 30, 2000. In July 2000, the Company repurchased
approximately $6.0 million face value of additional Notes on
approximately the same basis as the second quarter purchases.
The Company is a holding company with no significant assets other
than the notes and accounts receivable from LSB, specified in the
accompanying Condensed Consolidated Balance Sheet or material
operations other than its investments in its subsidiaries, and
each of its subsidiaries is wholly owned, directly or indirectly,
by the Company. The Company's payment obligations under the
Notes are fully, unconditionally, and jointly and severally
guaranteed by all of the existing subsidiaries of the Company,
except for one subsidiary, El Dorado Nitrogen Company ("EDNC"),
("Guarantor Subsidiaries").
Set forth below are unaudited condensed consolidating financial
statements of the Guarantor Subsidiaries, the Company's
subsidiary, which is not a guarantor of the Notes (the "Non-
Guarantor Subsidiary") and the Company. For all periods
presented, EDNC was the only Non-Guarantor Subsidiary. Separate
financial statements of each Guarantor Subsidiary have not been
provided because management has determined that they are not
material to investors.
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)
As of June 30, 2000
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 203 $ 3,141 $ 57 $ 3,401
Trade accounts receivable, net 42,399 3,110 72 45,581
Inventories 26,583 118 84 26,785
Supplies and prepaid items 3,575 73 820 4,468
Due from LSB and affiliates, net - - 1,840 1,840
____________________________________________________________
Total current assets 72,760 6,442 2,873 82,075
Property, plant and equipment net 73,248 1,054 923 75,225
Notes and interest receivable from
LSB and affiliates - - 14,046 14,046
Investment in and advances to
affiliates - - 88,787 $ (88,787) -
Investment in and interest
receivable on Senior Notes of Parent - 6,161 - (6,161) -
Other assets, net 12,088 1,898 3,362 (565) 16,783
____________________________________________________________
$158,096 $ 15,555 $109,991 $ (95,513) $188,129
============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,030 $ 2,491 $ 496 $ 21,017
Brokerage account payable - 4,863 - 4,863
Accrued liabilities 10,732 4,940 1,187 $ (1,030) 15,829
Current portion of long-term debt 31,139 - - 31,139
_____________________________________________________________
Total current liabilities 59,901 12,294 1,683 (1,030) 72,848
Long-term debt 8,560 - 105,000 (19,165) 94,395
Accrued losses on firm purchase
commitments 5,009 - - 5,009
Payable to Parent 11,581 528 - (12,109) -
Stockholders' equity
Common stock 60 1 1 (61) 1
Capital in excess of par value 78,984 - 12,652 (78,984) 12,652
Retained earnings (accumulated
deficit) (5,999) 2,732 (9,345) 15,836 3,224
___________________________________________________________
Total stockholders' equity 73,045 2,733 3,308 (63,209) 15,877
$158,096 $ 15,555 $109,991 $ (95,513) $188,129
===========================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)
As of December 31, 1999
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 816 $ 703 $ 1,154 $ 2,673
Trade accounts receivable, net 39,709 2,215 10 41,934
Inventories 25,594 178 - 25,772
Supplies and prepaid items 3,306 83 925 4,314
Due from LSB and affiliates, net - - 1,758 1,758
___________________________________________________________
Total current assets 69,425 3,179 3,847 76,451
Property, plant and equipment net 75,158 509 75,667
Notes and interest receivable from
LSB and affiliates - - 13,948 13,948
Investment in and advances to
affiliates - - 91,011 $ (91,011)
Other assets, net 12,353 2,004 3,655 18,012
_____________________________________________________________
$156,936 $ 5,692 $ 112,461 $ (91,011) $ 184,078
=============================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 14,793 $ 1,519 $ - $ 16,312
Accrued liabilities 9,873 2,592 1,326 13,791
Current portion of long-term
debt 29,644 - - 29,644
______________________________________________________________
Total current liabilities 54,310 4,111 1,326 59,747
Long-term debt 7,544 - 105,000 112,544
Accrued losses on firm purchase
commitments 5,652 - 5,652
Payable to Parent 15,515 66 - $ (15,581) -
Stockholders' equity:
Common stock 60 1 1 (61) 1
Capital in excess of par value 78,984 - 12,652 (78,984) 12,652
Retained earnings (accumulated
deficit) (5,129) 1,514 (6,518) 3,615 (6,518)
______________________________________________________________
Total stockholders' equity 73,915 1,515 6,135 $ (75,430) 6,135
_____________________________________________________________
$ 156,936 $ 5,692 $ 112,461 $ (91,011) $ 184,078
==============================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended June 30, 2000
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Business continuing at June
30, 2000
Revenues:
Net Sales $ 123,335 $ 17,242 $140,577
Other income - net 70 142 $ 4,085 $ (4,242) 55
__________________________________________________________
123,405 17,384 4,085 (4,242) 140,632
Costs and expenses:
Cost of sales 96,392 15,337 - 111,729
Selling, general and
administrative 19,362 174 2,402 21,938
Interest 6,060 5,489 (4,242) 7,307
Provision for loss on firm
purchase commitment 2,485 - 2,485
__________________________________________________________
124,299 15,511 7,891 (4,242) 143,459
__________________________________________________________
Income (loss) before
provision (benefit) for
income tax (894) 1,873 (3,806) - (2,827)
Extraordinary gain, net - - - 12,569 12,569
Equity in Earnings of
Subsidiaries - - 348 (348) -
Provision (benefit) for
income taxes (24) 655 (631) -
___________________________________________________________
Net income (loss) $ (870) $ 1,218 $(2,827) $ 12,221 $ 9,742
===========================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended June 30, 1999
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Business continuing at June
30, 1999
Revenues:
Net Sales $ 114,659 $ 11,059 $ - $125,718
Other income (expense) (143) (340) 5,289 $ (4,566) 240
_________________________________________________________
114,516 10,719 5,289 (4,566) 125,958
Costs and expenses:
Cost of sales 89,139 9,816 - 98,955
Selling, general and
administrative 18,902 29 1,405 20,336
Interest 6,029 24 5,644 (4,566) 7,131
Provision for loss on firm
purchase commitment 7,500 - - 7,500
__________________________________________________________
121,570 9,869 7,049 (4,566) 133,922
__________________________________________________________
Income (loss) before
business disposed of and
provison (benefit) for
income tax (7,054) 850 (1,760) - (7,964)
Business disposed of during
1999:
Revenue 6,374 - - 6,374
Operating costs, expense
and interest 8,105 - - 8,105
___________________________________________________________
(1,731) - - (1,731)
Loss on disposal of business (1,971) - - (1,971)
___________________________________________________________
(3,702) - - (3,702)
Income (loss) before
provision (benefit) for
income taxes (10,756) 850 (1,760) (11,666)
Equity in Earnings of
Subsidiaries - - (10,204) 10,204 -
Provision (benefit) for
income taxes - 298 (3,372) (3,074)
___________________________________________________________
Net income (loss) $(10,756) $ 552 $ (8,592) $ 10,204 $ (8,592)
============================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, 2000
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Business continuing at June 30,
2000
Revenues:
Net Sales $ 64,863 $ 9,017 $ - $ 73,880
Costs and expenses:
Cost of sales 51,495 8,080 - 59,575
Selling, general and
administrative 9,645 99 1,280 11,024
Interest 2,867 - 2,661 $ (1,912) 3,616
Provision for loss on firm
purchase commitment 1,510 - - 1,510
Other expense (income) 386 (99) (1,512) 1,912 687
__________________________________________________________
65,903 8,080 2,429 - 76,412
__________________________________________________________
Income (loss) before
provision (benefit) for
income tax (1,040) 937 (2,429) - (2,532)
Extraordinary gain, net 12,569 12,569
Equity in Earnings of
Subsidiaries (355) 355 -
Provision (benefit) for income
taxes (75) 327 (252) - -
__________________________________________________________
Net income (loss) $ (965) $ 610 $(2,532) $ 12,924 $ 10,037
==========================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, 1999
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Business continuing at June 30,
1999
Revenues:
Net Sales $ 62,527 $ 5,830 $ 68,357
Net Income (expense) 132 (340) $ 2,519 $ (2,235) 76
___________________________________________________________
62,659 5,490 2,519 (2,235) 68,433
Costs and expenses:
Cost of sales 50,223 4,587 - - 54,810
Selling, general and
administrative 9,562 26 731 - 10,319
Interest 3,029 21 2,822 (2,235) 3,637
Provision for loss on firm
purchase commitments 7,500 - - - 7,500
___________________________________________________________
70,314 4,634 3,553 (2,235) 76,266
___________________________________________________________
Income (loss) before business
disposed of and provision
(benefit) for income tax (7,655) 856 (1,034) (7,833)
Business disposed of during 1999:
Revenues 3,506 - - 3,506
Operating costs, expenses and
interest 4,267 - - 4,267
____________________________________________________________
(761) - - (761)
Loss on disposal of business (1,971) - - (1,971)
____________________________________________________________
(2,732) - - (2,732)
Loss before provision (benefit)
for income taxes (10,387) 856 (1,034) - (10,565)
Equity in loss of subsidiaries - - (6,550) 6,550 -
Provision (benefit) for income
taxes (3,281) 300 (143) - (3,124)
___________________________________________________________
Net income (loss) $ (7,106) $ 556 $ (7,441) $ 6,550 $ (7,441)
=============================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 2000
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Net cash flows from operations $ (2,041) $ 4,320 $ (1,149) $ 1,130
Cash flows from investing activities
Capital expenditures (3,056) (545) (34) (3,635)
Purchase of Senior Notes of Parent - (1,298) - $ 1,298 -
Decrease(increase) in other assets 944 (39) 86 991
____________________________________________________________
Net cash provided (used) by
investing activities (2,112) (1,882) 52 1,298 (2,644)
Cash flows from financing
activities:
Payments on long-term debt (855) - - (1,298) (2,153)
Proceeds from borrowings on long-
term debt 2,442 - - 2,442
Net change in revolving debt 1,953 - - 1,953
____________________________________________________________
Net cash provided by financing
activities 3,540 - - (1,298) 2,242
____________________________________________________________
Net increase (decrease) in cash from
all activities (613) 2,438 (1,097) 728
Cash at the beginning of period 816 703 1,154 2,673
__________________________________________________________
Cash at end of period $ 203 $ 3,141 $ 57 $ - $ 3,401
===========================================================
</TABLE>
CLIMACHEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 2000 and 1999
Note 7: Long-term Debt (continued)
CLIMACHEM, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1999
(Dollars in thousands)
<TABLE>
GUARANTOR NON- COMPANY ELIMINATIONS CONSOLIDATED
SUBSIDIARIES GUARANTOR (PARENT)
SUBSIDIARY
<S> <C> <C> <C> <C> <C>
Net cash flows from operations $ 765 $ (501) $ 2,273 $ - $ 2,537
Cash flows from investing activities
Capital expenditures (3,027) - - (3,027)
Payments made for acquisition (3,113) - - (3,113)
Purchase of Option (2,558) - - (2,558)
Proceed from sale of equipment 3 - - 3
Deposit on real estate for LSB and
affiliates - - (1,899) (1,899)
Decrease (increase) in other
assets (1,420) 644 207 (569)
____________________________________________________________
Net cash provided (used) by
investing activities (10,115) 644 (1,692) (11,163)
Cash flows from financing
activities:
Payments on long-term debt (2,767) - - (2,767)
Net change in revolving debt 12,964 - - 12,964
____________________________________________________________
Net cash provided by financing
activities 10,197 - - 10,197
Net increase in cash from all
activities 847 143 581 1,571
Cash at the beginning of period 744 2 4 750
_____________________________________________________________
Cash at end of period $ 1,591 $ 145 $ 585 $ - $ 2,321
==============================================================
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") should be
read in conjunction with the Company's June 30, 2000 Condensed
Consolidated Financial Statements.
Certain statements contained in this "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" may be deemed forward-looking statements. See
"Special Note Regarding Forward-Looking Statements".
OVERVIEW
In October 1997, the Company was organized as a new wholly
owned subsidiary of LSB Industries, Inc. ("LSB"). The Company
owns substantially all of LSB's Chemical and Climate Control
Businesses. See Note 1 of Notes to Condensed Consolidated
Financial Statements. Information about the Company's operations
in different industry segments for the six months and three
months ended June 30, 2000 and 1999 is detailed in Note 4 of
Notes to Condensed Consolidated Financial Statements.
Chemical Business
The Company's Chemical Business manufactures three principal
product lines that are derived from anhydrous ammonia: (1)
fertilizer grade ammonium nitrate for the agricultural industry,
(2) explosive grade ammonium nitrate for the mining industry and
(3) concentrated, blended and mixed nitric acid for industrial
applications. In addition, the Company also produces sulfuric
acid for commercial applications primarily in the paper industry.
Sales in the Chemical Business (excluding the Australian
subsidiary in which substantially all of its assets were disposed
of in August, 1999) have increased from $69.7 million in the six
months ended June 30, 1999 to $76.3 million in the six months
ended June 30, 2000 and the gross profit (excluding the
Australian subsidiary) has increased from $9.6 million in 1999 to
$12.0 in 2000. The gross profit percentage (excluding the
Australian subsidiary) has increased from 13.8% in 1999 to 15.7%
in 2000 primarily as a result of improved sales prices and
reductions in costs relating to certain agricultural products and
the realization of approximately $1.5 million of the provision
for loss on firm purchase commitments and inventory write-down.
This increase was offset by lower sales prices and increased
costs relating to certain mining and industrial acid products.
As of June 30, 2000, the Chemical Business had commitments
to purchase 84,000 tons of anhydrous ammonia under the take or
pay contract at a minimum volume of 2,000 tons of anhydrous
ammonia during 2000 and 3,000 tons of anhydrous ammonia during
2001 and 2002. In addition, under the contract the Company is
committed to purchase 50% of its remaining requirements of
anhydrous ammonia through 2002 from this third party at prices
which approximate market prices. Based on the pricing index
contained in this contract, prices paid during the six months
ended June 30, 2000 were higher than the current market spot
price. The purchase price(s) the Chemical Business will be
required to pay for the remaining 84,000 tons of anhydrous
ammonia under this contract currently exceeds and is expected to
continue to exceed the spot market prices throughout the purchase
period. As a result, in the first quarter of 2000 and in 1999
the Company recorded loss provisions for anhydrous ammonia
required to be purchased during the remainder of the contract
aggregating approximately $1.0 and $8.4 million, respectively.
At June 30, 2000, an additional loss provision of approximately
$1.5 million was recorded based on the forward contract pricing
existing at June 30, 2000 and estimated market prices for
products to be manufactured and sold during the remainder of the
contract. At June 30, 2000 the accrued liability for future
payments of the loss provision included in the Condensed
Consolidated Financial Statement was approximately $8.4 million.
During 1999 and the six months ended June 30, 2000, the
Chemical Business has reported losses from operations after
interest and before income tax credit, if any. Management
expects the Chemical Business to continue to report losses until
natural gas and/or anhydrous ammonia prices come down or until
sales prices of the Business' nitrogen products increases to a
level that reflects the high price of such raw material. See
"Special Note Regarding Forward-Looking Statements".
The Chemical Business is a member of an organization of
domestic fertilizer grade ammonium nitrate producers which sought
relief from extremely low priced Russian ammonium nitrate. This
industry group filed a petition in July 1999 with the U.S.
International Trade Commission and the U.S. Department of
Commerce seeking an antidumping investigation and, if warranted,
relief from Russian dumping. The International Trade Commission
rendered a favorable preliminary determination that U.S.
producers of ammonium nitrate have been injured as a result of
Russian ammonium nitrate imports. In addition, the U.S.
Department of Commerce issued a preliminary affirmative
determination that the Russian imports were sold at prices that
were significantly below their fair market value. On May 19,
2000, the U.S. and Russian governments entered into an agreement
to limit volumes and set minimum prices for Russian ammonium
nitrate exported to the United States ("Suspension Agreement").
The U.S. industry , however, requested completion of the
investigation. On August 2, 2000, by unanimous vote, the U.S.
International Trade Commission found that imports by Russian
fertilizer grade ammonium nitrate have materially injured the
domestic ammonium nitrate industry ("Final Determination"). This
Final Determination will not abrogate the Suspension Agreement.
However, in the event that Russia withdraws from or violates the
Suspension Agreement, an antidumping order would be issued
subjecting Russian fertilizer grade ammonium nitrate to a dumping
duty of approximately 250%.
The Australian subsidiary revenues for the six months ended
June 30, 1999 were $6.4 million and the loss was $3.7 million,
including a loss on disposal of $2.0 million. See Note 5 of
Notes to Condensed Consolidated Financial Statements.
Climate Control
The Climate Control Business manufactures and sells a broad
range of hydronic fan coil, air handling, air conditioning,
heating, water source heat pumps, and dehumidification products
targeted to both commercial and residential new building
construction and renovation.
The Climate Control Business focuses on product lines in the
specific niche markets of hydronic fan coils and water source
heat pumps and has established a significant market share in
these specific markets.
Sales in the Climate Control Business have increased from
$56.0 million for the six months ended June 30, 1999 to $64.3
million in the six months ended June 30, 2000 and the gross
profit has decreased from $17.2 million in 1999 to $16.9 million
in 2000. The gross profit percentage has decreased from 30.7% in
1999 to 26.2% in 2000 primarily as a result of (i) increased
material costs relating to a new product line and labor costs,
(ii) decreased margins caused by competitive pressures, and (iii)
increased sales of products with lower margins.
RESULTS OF OPERATIONS
Six months ended June 30, 2000 vs. Six months ended June 30,
1999.
Revenues
Total revenues, excluding business disposed of, for the six
months ended June 30, 2000 and 1999 were $140.6 million and
$126.0 million, respectively (an increase of $14.6 million).
Sales increased $14.8 million and other income decreased $.2
million.
Net Sales
Consolidated net sales, excluding business disposed of,
included in total revenues for the six months ended June 30, 2000
were $140.6 million, compared to $125.7 million for the first six
months of 1999, an increase of $14.8 million. This increase in
sales resulted from: (i) increased sales in the Chemical Business
of $6.6 million due primarily from increased sales volume of
mining and industrial acid products and improved sales prices of
certain agricultural products, and (ii) increased sales in the
Climate Control Business of $8.2 million due primarily from an
increase in export sales and an increase in sales volume due to
improved manufacturing processes.
Gross Profit
Gross profit, excluding business disposed of, was 20.5% for
the first six months of 2000, compared to 21.3% for the first six
months of 1999. The decrease in the gross profit percentage was
due primarily to lower profit margins in the Climate Control
Business caused primarily from (i) increased material costs
relating to a new product line and labor costs, (ii) decreased
gross margins caused by competitive pressures, and (iii)
increased sales of products with lower margins. This decrease
was offset by higher profit margins in the Chemical Business due
to improved sales prices and reductions in costs relating to
certain agricultural products and the realization of
approximately $1.5 million of the provision for loss on firm
purchase commitments and inventory write-down. This increase was
offset by lower sales prices and increased costs relating to
certain mining and industrial acid products.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses,
excluding business disposed of, as a percent of net sales were
15.6% in the six month period ended June 30, 2000, compared to
16.2% for the first six months of 1999. This decrease as a
percentage of sales is primarily the result of higher sales,
however, SG&A expenses are higher in 2000 due primarily to the
management fee to LSB of $.9 million in 2000 which was not
incurred in 1999 and the restructuring of certain administrative
costs relating to the Company's operations which reassigned
personnel and their costs to the companies for which they serve.
Interest Expense
Interest expense, excluding business disposed of, for the
Company was $7.3 million during the first six months of 2000,
compared to $7.1 million during the first six months of 1999.
The interest expense increased due to increased lenders' prime
rates.
Provision for Losses
The Company had a provision for loss on firm purchase
commitments of $2.5 and $7.5 million for the six months ended
June 30, 2000 and 1999, respectively. See discussion in Note 6 of
Notes to Condensed Consolidated Financial Statements.
Businesses Disposed of
The Company sold substantially all the assets of a wholly
owned subsidiary in 1999. See discussion in Note 5 of the Notes
to Condensed Consolidated Financial Statements.
Loss Before Benefits for Taxes and Extraordinary Gain
The Company had a loss before benefit for income taxes and
extraordinary gain of $2.8 million in the first six months of
2000 compared to a loss of $11.7 million in the six months ended
June 30, 1999. Approximately $5.0 million of the increased
profitability of $8.9 million was due to the difference in loss
provisions on firm purchase commitments. The remainder of the
improvement was due to improved profit margins of the Chemical
Business relating to certain agricultural products and the
realization of the loss provision on firm purchase commitments
and inventory write-down in 2000. The profit margins of certain
mining and industrial acid products of the Chemical Business also
decreased due to lower sales prices and higher material costs.
The improvements in the Chemical Business were partially offset
by lower profit margins of the Climate Control Business due to
increased costs associated with new product lines and labor and
lower profit margins in the commercial and export heat pump sales
due to competitive pressures. Also SG&A and interest expense
increased in 2000.
Benefit for Income Taxes
As a result of the Company's net operating loss carry-
forward for income tax purposes, no provision for income taxes
except as they relate to the extraordinary gain discussed below
was necessary for the six months ended June 30, 2000 compared to
a benefit for income taxes of $3.1 million in 1999 pursuant to
the terms of the Tax Sharing Agreement as discussed in Note 3 of
Notes to Condensed Consolidated Financial Statements.
Extraordinary Gain
During the second quarter of 2000, a subsidiary of the
Company repurchased approximately $19.2 million of the Senior
Unsecured Notes and recognized a gain of approximately $12.6
million, net of income taxes of $.9 million. The income tax
relating to this extraordinary gain pertains to state income
taxes and federal alternative minimum taxes which is pursuant to
the Tax Sharing Agreement as discussed in Note 3 of Notes to
Condensed Consolidated Financial Statements.
Three months ended June 30, 2000 vs. Three months ended June 30,
1999.
Revenues
Total revenues, excluding business disposed of, for the
three months ended June 30, 2000 and 1999 were $73.9 million and
$68.4 million, respectively (an increase of $5.5 million relating
to sales).
Net Sales
Consolidated net sales, excluding business disposed of,
included in total revenues for the three months ended June 30,
2000 were $73.9 million, compared to $68.4 million for 1999, an
increase of $5.5 million. This increase in sales resulted from:
(i) increased sales in the Chemical Business of $2.2 million due
primarily from increased sales volume of mining and industrial
acid products offset by decreased sales volume of agricultural
products, and (ii) increased sales in the Climate Control
Business of $3.3 million due primarily from an increase in sales
volume due to improved manufacturing processes offset by a
decrease in residential sales.
Gross Profit
Gross profit, excluding business disposed of, was 19.4% for
the three months ended June 30, 2000, compared to 19.8% for 1999
period. The decrease in the gross profit percentage was due
primarily to lower profit margins in the Climate Control Business
due primarily from (i) increased sales of products with lower
margins, (ii) decreased gross margins caused by competitive
pressures and (iii) increased labor and certain overhead costs.
These lower margins were offset by higher profit margins in the
Chemical Business due to improved sales prices and reductions in
costs relating to certain agricultural products and the
realization of approximately $1.5 million of the provision for
loss on firm purchase commitments in 2000. This increase was
offset by lower sales prices and increased costs relating to
certain mining and industrial acid products.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses,
excluding business disposed of, as a percent of net sales were
14.9% in the three month period ended June 30, 2000, compared to
15.1% for the 1999. This decrease as a percentage of sales is
primarily the result of higher sales, however, SG&A expenses are
higher in 2000 due primarily to the management fee to LSB of $.5
million in the three-month period ended June 30, 2000 which was
not incurred in 1999 and other SG&A expenses due to the
restructuring of certain administrative costs relating to the
Company's operations which reassigned personnel and their costs
to the companies for which they serve.
Interest Expense
Interest expense, excluding business disposed of, for the
Company was $3.6 million during the three months ended June 30,
2000 and 1999. The interest expense remained consistent due to
the reduction in Senior Notes outstanding as discussed above
offset by increased lenders' prime rates.
Provision for Losses
The Company had a provision for loss on firm purchase
commitments of $1.5 and $7.5 million for the three months ended
June 30, 2000 and 1999, respectively. See discussion in Note 6 of
Notes to Condensed Consolidated Financial Statements.
Other Expense
Other expense for the three months ended June 30, 2000
included approximately $.6 million in costs incurred by the
Company in attempts to renegotiate the terms and conditions of
the Indenture related to the Senior Unsecured Notes as well as a
provision for a litigation settlement of $.6 million for the
three months ended June 30, 2000 (none in 1999).
Businesses Disposed of
The Company sold substantially all the assets of a wholly
owned subsidiary in 1999. See discussion in Note 5 of the Notes
to Condensed Consolidated Financial Statements.
Loss Before Benefit for Taxes and Extraordinary Gain
The Company had a loss before benefit for income taxes and
extraordinary gain of $2.5 million in the three-month period
ended June 30, 2000 compared to $10.6 million in the three months
ended June 30, 1999. The increased profitability of $8.1 million
was primarily due to the variance in the loss on firm purchase
commitments of $1.5 million in 2000 compared to $7.5 million in
1999.
Benefit for Income Taxes
As a result of the Company's net operating loss carry-
forward for income tax purposes, no provision for income taxes
except as they relate to the extraordinary gain discussed below
was necessary for the three months ended June 30, 2000 compared
to a benefit for income taxes of $3.1 million in 1999 pursuant to
the terms of the Tax Sharing Agreement as discussed in the Note 3
of Notes to Condensed Consolidated Financial Statements.
Extraordinary Gain
During the second quarter of 2000, a subsidiary of the
Company repurchased approximately $19.2 million of the Senior
Unsecured Notes and recognized a gain of approximately $12.6
million, net of income taxes of $.9 million. The income tax
relating to this extraordinary gain pertains to state income
taxes and federal alternative minimum taxes pursuant to the Tax
Sharing Agreement as discussed in Note 3 of Notes to Condensed
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operations
Historically, the Company's primary cash needs have been for
operating expenses, working capital and capital expenditures.
The Company has financed its cash requirements primarily through
internally generated cash flow, borrowings under its revolving
credit facilities, and by issuance of Senior Unsecured Notes in
November 1997.
Net cash provided by operating activities for the six months
ended June 30, 2000 was $1.1 million, after a noncash
extraordinary gain on extinguishment of debt of $13.5 million,
depreciation and amortization of $4.4 million, losses on purchase
commitments, net of realization of $1.0 million, and the
following changes in assets and liabilities: (i) accounts
receivable increase of $3.6 million; (ii) inventory increases of
$1.0 million; (iii) increase in supplies and prepaid items of
$1.0 million; (iv) increase in accounts payable and accrued
liabilities of $5.2 million, and (v) an increase of $.2 million
due from LSB and affiliates. The increase in accounts receivable
was primarily due to seasonal sales of agricultural products in
the Chemical Business and improved sales in the Climate Control
Business. The increase in inventory was caused primarily from the
production volumes exceeding current customer demand in the
Chemical Business and a new product line offset by a reduction in
air-cooled products inventory in the Climate Control Business.
The increase in supplies and prepaid items was primarily due to
deposits made on manufacturing equipment and supplies in the
Chemical and Climate Control Businesses. The increase in payables
and accrued liabilities resulted primarily from an increase in
production and timing of payments in the Chemical and Climate
Control Businesses. The net increase in the amounts due from LSB
and affiliates relates to the accrued interest on certain notes
receivable.
Cash Flow From Investing And Financing Activities
Cash used in investing activities for the six months ended
June 30, 2000 included $3.6 million in capital expenditures and
$1.0 million decrease in other assets. The capital expenditures
took place in the Chemical and Climate Control Businesses to
enhance production and product delivery capabilities. The
decrease in other assets is primarily due to the reduction in
noncurrent inventory.
Net cash provided by financing activities included proceeds
from long-term debt of $2.4 million, payments on long-term debt
of $2.2 million and net increase in revolving debt of $2.0
million.
Source of Funds
The Company owns substantially all of LSB's former Chemical
and Climate Control Businesses. The Company and its subsidiaries
are dependent on credit agreements with lenders and internally
generated cash flow in order to fund their operations and pay
their debts and obligations.
As of June 30, 2000, LSB and certain of its subsidiaries,
including the Company, are parties to a working capital line of
credit evidenced by two separate loan agreements ("Agreements")
with a lender ("Lender") collateralized by receivables,
inventories and proprietary rights of the parties to the
Agreements. As described in Note 7 of Notes to Condensed
Consolidated Financial Statements, the term of the Agreements is
through December 31, 2000, and is renewable thereafter for
successive thirteen-month terms if, by October 1, 2000, LSB, the
Company and Lender shall have determined new financial covenants
for the calendar year beginning on January 2001. While there is
no assurance that the Company will be successful in extending the
term of such credit facility, the Company believes it will be
successful in extending such facility or replacing such facility
from another Lender with substantially the same terms during
2000.
As of June 30, 2000 LSB, exclusive of the Company, and the
Company had a borrowing availability under their existing
revolver of $.3 million, and $9.1 million respectively, or $9.4
million in the aggregate and the effective interest rate was
11.0%. Borrowings under the Revolver outstanding at June 30,
2000, were $27.0 million, $28.8 million including the borrowings
of Non-ClimaChem companies. The annual interest on the
outstanding debt under the Revolver at June 30, 2000, at the
rates then in effect would approximate $3.0 million. The
Agreements also restrict the flow of funds, except under certain
conditions, to subsidiaries of the Company that are not parties
to the Agreement.
In addition to the credit facilities discussed above, the
Company's wholly owned subsidiary, DSN Corporation ("DSN"), is a
party to three loan agreements with a financial company (the
"Financing Company") for three projects. At June 30, 2000, DSN
had outstanding borrowings of $6.7 million under these loans.
The loans have monthly repayment schedules of principal and
interest through maturity in 2002. The interest rate on each of
the loans is fixed and range from 8.2% to 8.9%. Annual interest,
for the three notes as a whole, at June 30, 2000, at the agreed
to interest rates would approximate $.6 million. The loans are
secured by the various DSN property and equipment. The loan
agreements require the Company to maintain certain financial
ratios, including tangible net worth requirements. In August,
2000, DSN obtained a waiver from the Financing Company of the
covenants financials through June, 2001.
The Company is restricted as to the funds that it may
transfer to LSB under the terms contained in an Indenture
("Indenture") covering the Unsecured Senior Notes issued by the
Company. The Company sustained a net loss of $19.2 million in the
calendar year 1999, and had net income of $9.7 million including
an extraordinary gain of $12.6 million, net of income taxes,
resulting from the repurchase of Senior Unsecured Notes for the
first half of 2000.
Based on the extraordinary gain on the repurchase of Senior
Unsecured Notes of the Company for the six months ended June 30,
2000, the Company has recorded a provision for income taxes of
$.9 million which includes amounts due to LSB in lieu of incomes
taxes of approximately $.8 million. For the six months ended June
30, 2000, EBITDA as defined in the Management Agreement exceeded
$13.0 million by more than $900,000, thus the management fee to
LSB of $900,000 was expensed in the Condensed Consolidated
Statement of Operations for the period then ended. This
management fee in addition to the income taxes served to reduce
the amount due from LSB and affiliates in the Condensed
Consolidated Balance Sheet as of June 30, 2000. No management
fee was earned or paid to LSB in 1999. No amounts were paid to
LSB by the Company under the Tax Sharing Agreement during
1999.See Note 3 of Notes to Condensed Consolidated Financial
Statements for discussion of the "Service Agreement", the "Tax
Sharing Agreement" and the "Management Agreement". There are no
assurances that the Company will continue to be profitable for
the remainder of 2000, or that if profitable, such profits will
be adequate to cause the Company's EBITDA level for the calendar
year 2000 to exceed the minimum threshold of $26.0 million by an
amount sufficient to require the payment of management fees to
LSB for the year 2000. The amount which LSB owed the Company at
June 30, 2000 includes approximately $.5 million for interest due
June 1, 2000 on a $10 million note payable by LSB to the Company.
LSB and its subsidiaries other than the Company and its
subsidiaries (the "LSB Non-ClimaChem Entities") are dependent
upon their separate cash flows and the restricted funds which can
be distributed by the Company under the above mentioned
agreements. As of June 30, 2000, the LSB Non-ClimaChem Entities
had a working capital deficit of $4.2 million (including $3.4
million of inventories and $3.1 million of accounts receivable),
and long-term debt of $29.6 million (including that owed by the
Company). For the six months ended June 30, 2000, the LSB Non-
ClimaChem Entities had a net income of approximately $.2 million
before recognizing their equity in the net income of the Company.
LSB is focusing its efforts and resources on its core businesses,
primarily represented by ClimaChem. On April 5, 2000 LSB's Board
of Directors approved a plan for the disposal of its Automotive
Products Business which was concluded on May 4, 2000 with the
sale of the Automotive Business. LSB is also realigning its
overhead to better match its focus on the Chemical and Climate
Control Businesses of the Company. Based on these plans,
management of LSB believes the LSB Non-ClimaChem Entities will
have sufficient operating capital to meet its obligations as they
come due, including those to the Company. If LSB management is
not successful in executing this plan, including realignment of
overhead to reduce its operating costs or realizing certain
excess and non-core assets, and if the Company is not able to
transfer funds to LSB and its affiliates as permitted under the
Indenture, the recoverability of the loans and advances to LSB,
which aggregate $15.9 million at June 30, 2000 may not be
recoverable. As of June 30, 2000, the Company has not provided an
allowance for doubtful accounts against these receivables, loans
and advances since it is their present belief that LSB will be
able to pay these amounts; however, it is reasonably possible
that the evaluation relative to the amounts due from LSB and its
subsidiaries could change in the near future.
For the remainder of 2000, the Company has planned capital
expenditures of approximately $2.5 million, but such capital
expenditures are dependent upon obtaining acceptable financing.
The Company expects to delay these expenditures as necessary
based on the availability of adequate working capital and the
availability of financing. The Company believes, based upon
present circumstances, that it will receive relief from certain
of the compliance dates under its wastewater management project
and expects that this will ultimately result in the delay in the
implementation date of such project. Because the Company has not
completed its evaluation of engineering alternatives, the Company
has not yet provided to the state of Arkansas its final design
plans by the deadline of August 1, 2000 set forth in the
applicable consent order. The consent order provides that the
August 1, 2000 deadline for submission of final design plans will
be preceded by the agency's issuance of a revised permit. The
revised permit will include the discharge limits that will apply
to the wastewater treatment project. To date the state has
deferred issuance of the revised permit. The Company continues
to regularly advise the state of the projects engineering status
and financing status. Construction of the wastewater treatment
project is subject to the Company obtaining financing to fund
this project. The planned expenditures for the remainder of 2000
do not, currently, include any expenditures related to the
wastewater treatment project. There are no assurances that the
Company will be able to obtain the required financing. Failure to
construct the wastewater treatment project could have a material
adverse effect on the Company.
During the second quarter of 2000, a subsidiary of the
Company repurchased $19.2 million of the Senior Unsecured Notes
for $6.1 million (including $1.0 million of accrued interest) and
recognized a gain of approximately $12.6 million, net of income
taxes. At June 30, 2000, the subsidiary had a liability to the
brokerage firms which reacquired the Senior Unsecured Notes in
the amount of $4.9 million which was paid in July 2000 out of the
subsidiary's working capital. In July 2000, the Company
repurchased approximately $6.0 million, face value of additional
Senior Unsecured Notes on approximately the same basis as the second
quarter purchases. These purchases will serve to reduce interest
expense by approximately $2.7 million annually.
As previously stated, LSB the parent of the Company, owes
the Company approximately $15.9 million, of which $10.0 million
bears an annual rate of interest of 10-3/4%, payable semiannually
on June 1 and December 1, and the principal due in 2007, $4.0
million bears interest at 7% and is due in 2007 and $1.8 million
is due on demand. The amount which LSB owes the Company includes
approximately $.5 million for interest due June 1, 2000 on the
$10 million note payable by LSB to the Company.
Contingencies
The Company has several contingencies that could impact its
liquidity in the event that the Company is unsuccessful in
defending against the claimants. Although management does not
anticipate that these claims will result in substantial adverse
impacts on its liquidity, it is not possible to determine the
outcome. The preceding sentence is a forward-looking statement
that involves a number of risks and uncertainties that could
cause actual results to differ materially. See Special Note
Regarding Forward-Looking Statements and Note 2 of Notes to
Condensed Consolidated Financial Statements.
Quantitative and Qualitative Disclosures about Market Risk
General
The Company's results of operations and operating cash flows
are impacted by changes in market interest rates and raw material
prices for products used in its manufacturing processes.
Interest Rate Risk
The Company's interest rate risk exposure results from its
debt portfolio which is impacted by short-term rates, primarily
prime rate-based borrowings from commercial banks, and long term
rates, primarily fixed rate notes, some of which prohibit
prepayment or require substantial prepayment penalties.
Reference is made to the Company's Annual Report on Form 10-
K for the year ended December 31, 1999, for an expanded analysis
of expected maturities of long term debt and its weighted average
interest rates and discussion related to raw material price risk.
As of June 30, 2000, the Company's variable rate and fixed
rate debt, which aggregated $125.5 million, exceeded the debt's
fair market value by approximately $58.4 million ($78.8 million
at December 31, 1999). The fair value of the Company's Senior
Notes was determined based on a market quotation for such
securities.
Raw Material Price Risk
The Company has a remaining commitment at June 30, 2000 to
purchase 84,000 tons of anhydrous ammonia under a contract. The
Company's purchase price can be higher or lower than the current
market spot price. As of June 30, 2000, based on the forward
contract pricing expected during the remaining contract term and
estimated market prices for certain products to be manufactured
and sold during the remainder of the contract, a provision for
losses during the remainder of the purchase period of $2.5
million was recorded in the six months ended June 30, 2000. See
Note 6 of Notes to Condensed Consolidated Financial Statements.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained within this report may be
deemed "Forward Looking Statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements
in this report other than statements of historical fact are
Forward Looking Statements that are subject to known and unknown
risks, uncertainties and other factors, which could cause actual
results and performance of the Company to differ materially from
such statements. The words "believe", "expect", "anticipate",
"intend", "will", and similar expressions identify Forward
Looking Statements. Forward Looking Statements contained herein
include, among other things, (i) ability to improve operations
and become profitable, (ii) establishing a position as a market
leader, (iii) the amount of the loss provision for anhydrous
ammonia required to be purchased may increase, (iv) amount to be
spent relating to capital expenditures, (v) plan for 2000 to
realize cash, reduce indebtedness and improve liquidity and
operating results, (vi) ability to be able to continue to borrow
under the Company's revolving line of credit, (vii) ability to
obtain financing to fund its presently anticipated capital
requirements, (viii) ability to make required capital
improvement, (ix) ability to collect amounts owing to the Company
by LSB, (x) LSB non-ClimaChem entities ability to pay its
obligations as they come due, (xi) anticipated cost of certain
amounts of anhydrous ammonia exceed the market, and (xi) no
improvements in the gross margin of certain nitrate based
products of the Chemical Business is expected in the near future
due to increased cost of anhydrous ammonia. While the Company
believes the expectations reflected in such Forward Looking
Statements are reasonable, it can give no assurance such
expectations will prove to have been correct. There are a
variety of factors which could cause future outcomes to differ
materially from those described in this report, including, but
not limited to, (i) decline in general economic conditions, both
domestic and foreign, (ii) material reduction in revenues, (iii)
material increase in interest rates; (iv) inability to collect in
a timely manner a material amount of receivables, (v) increased
competitive pressures, (vi) changes in federal, state and local
laws and regulations, especially environmental regulations, or in
interpretation of such, pending (vii) additional releases
(particularly air emissions into the environment), (viii)
material increases in equipment, maintenance, operating or labor
costs not presently anticipated by the Company, (ix) the
requirement to use internally generated funds for purposes not
presently anticipated, (x) ability to become profitable, or if
unable to become profitable, the inability to secure additional
liquidity in the form of additional equity or debt, (xi) the cost
for the purchase of anhydrous ammonia increasing or the Company's
inability to purchase anhydrous ammonia on favorable terms when a
current supply contract terminates, (xii) changes in competition,
(xiii) the loss of any significant customer, (xiv) changes in
operating strategy or development plans, (xv) inability to fund
the working capital and expansion of the Company's businesses,
(xvi) adverse results in any of the Company's pending litigation,
(xvii) inability to obtain necessary raw materials, (xviii)
continuing decreases in the selling price for the Chemical
Business' nitrogen based end products, (xix) ability of LSB to
restructure its payables, and (xx) other factors described in
"Management's Discussion and Analysis of Financial Condition and
Results of Operation" contained in this report. Given these
uncertainties, all parties are cautioned not to place undue
reliance on such Forward-Looking Statements. The Company
disclaims any obligation to update any such factors or to
publicly announce the result of any revisions to any of the
Forward Looking Statements contained herein to reflect future
events or developments.
Independent Accountants' Review Report
Board of Directors
ClimaChem, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of ClimaChem, Inc. and subsidiaries as of June 30, 2000,
and the related condensed consolidated statements of operations
for the six-month and three-month periods ended June 30, 2000 and
1999 and cash flows for the six-month periods ended June 30, 2000
and 1999. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States, which will be performed for the
full year with the objective of expressing an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the
consolidated balance sheet of ClimaChem, Inc. as December 31,
1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated March 17, 2000, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 3, 2000
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no additional material legal proceedings pending
against the Company and/or its subsidiaries not previously reported
by the Company in Item 3 of its Form 10-K for the fiscal period ended
December 31, 1999, which Item 3 is incorporated by reference
herein.
Prior to the date of this report, the Chemical Business
entered into an agreement in principal to settle the litigation
styled Arch Minerals Corporation, et al. v. ICI Explosives USA,
Inc., pending in the United States District Court, Eastern
District of Missouri, for a sum which the Company does not deem
to be material. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits.
The Company has included the following exhibits in this
report:
10.1 Covenant waiver letter, dated August 4, 2000, with
CIT Group, which is incorporated by reference from
exhibit 10.1 to LSB Industries, Inc. ("LSB") Form
10-Q for the quarter ended June 30, 2000;
15.1 Letter Re: Unaudited Financial Information
27.1 Financial Data Schedule.
(B) Reports of Form 8-K.
The Company did not file any reports on Form 8-K during
the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Company has caused the undersigned, duly
authorized, to sign this report on its behalf on this 14th day of
August, 2000.
CLIMACHEM, INC.
By: /s/ Tony M. Shelby
Tony M. Shelby,
Vice President - Chief Financial
Officer, (Principal Financial
Officer)
By: /s/ Jim D. Jones
Jim D. Jones
Vice President - Treasurer
(Principal Accounting Officer)
