FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 1995
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The transition period from to
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Commission file number 1-7677
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LSB INDUSTRIES, INC.
----------------------------------------------------
Exact name of Registrant as specified in its charter
DELAWARE 73-1015226
------------------------------ ---------------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
16 South Pennsylvania, Oklahoma City, Oklahoma 73107
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Address of principal executive offices (Zip Code)
(405) 235-4546
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Registrant's telephone number, including area code
None
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Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO
------ ------
The number of shares outstanding of the Registrant's voting Common Stock, as
of August 8, 1995 is 12,946,097 shares excluding 1,810,419 shares held as
treasury stock.
PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed: LSB Industries, Inc.
and all of its wholly-owned subsidiaries.
The accompanying condensed consolidated balance sheet of LSB Industries, Inc.
at June 30, 1995, the condensed consolidated statements of income for the six
month and three month periods ended June 30, 1995 and 1994 and the
consolidated statements of cash flows for the six month periods ended June 30,
1995 and 1994 have been subjected to a review, in accordance with standards
established by the American Institute of Certified Public Accountants, by
Ernst & Young LLP, independent auditors, whose report with respect thereto
appears elsewhere in this Form 10-Q. The financial statements mentioned above
are unaudited and reflect all adjustments, consisting primarily of adjustments
of a normal recurring nature, which are, in the opinion of management,
necessary for a fair presentation of the interim periods. The results of
operations for the six months and three months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year. The
condensed consolidated balance sheet at December 31, 1994, was derived from
audited financial statements as of that date.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1995 is unaudited)
(Dollars in thousands)
June 30, December 31,
ASSETS 1995 1994
Current assets:
Cash and cash equivalents $ 1,940 $ 2,610
Trade accounts receivable, net of allowance 54,658 42,720
Inventories:
Finished goods 34,801 33,926
Work in process 9,871 9,796
Raw materials 17,019 15,611
--------- ---------
Total inventory 61,691 59,333
Supplies and prepaid items 7,061 6,386
--------- ----------
Total current assets 125,350 111,049
Property, plant and equipment net 79,566 73,684
Investments and other assets:
Loans receivable, secured by real estate 16,901 17,243
Other assets, net of allowance 19,913 19,305
-------- ---------
$ 241,730 $ 221,281
======== =========
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at June 30, 1995 is unaudited)
(Dollars in thousands)
LIABILITIES, PREFERRED AND COMMON STOCKS June 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1995 1994
---------------------------------------- --------- -----------
Current liabilities:
Drafts payable $ 914 $ 1,291
Accounts payable 28,500 29,496
Accrued liabilities 8,870 8,062
Current portion of long-term debt 14,669 9,716
-------- -------
Total current liabilities 52,953 48,565
Long-term debt 98,211 81,965
Contingencies (Note 7)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,588 shares
issued and outstanding (1,597 in 1994) 151 152
Non-redeemable preferred stock, common stock and
other stockholders' equity (Note 6):
Series B 12% cumulative, convertible
preferred stock, $100 par value;
20,000 shares issued and outstanding 2,000 2,000
Series 2 $3.25 convertible, exchangeable
Class C preferred stock, $50 stated
value; 920,000 shares issued and outstanding 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 14,751,516 shares
issued (14,620,156 in 1994) 1,475 1,462
Capital in excess of par value 37,551 37,369
Retained earnings 13,825 12,883
-------- --------
100,851 99,714
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 1,810,419 shares
(1,559,590 in 1994) 10,236 8,915
Total non-redeemable preferred stock, common -------- --------
stock and other stockholders' equity 90,415 90,599
-------- --------
$ 241,730 $ 221,281
======== ========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
--------- ---------
Revenues:
Net sales $ 144,160 $ 132,265
Other income 1,703 1,831
-------- --------
145,863 134,096
Costs and expenses:
Cost of sales 111,130 102,677
Selling, general and administrative 26,551 22,596
Interest 5,020 3,393
Provision for environmental matter (Note 7) - 400
-------- --------
142,701 129,066
Income from continuing operations -------- --------
before provision for income taxes 3,162 5,030
Provision for income taxes 211 355
-------- --------
Income from continuing operations 2,951 4,675
Income from discontinued operations, net
of income taxes (Notes 2 and 3) - 584
Gain on sale of discontinued operations
(Note 2) - 24,200
--------- ---------
Net income $ 2,951 $ 29,459
========= =========
Net income applicable to common stock (Note 4) $ 1,328 $ 27,827
Average common shares outstanding (Note 4): ========= =========
Primary 13,518,077 14,386,371
Fully diluted 13,537,230 17,035,037
Earnings per common share (Note 4):
Primary:
Income from:
Continuing operations $ .10 $ .21
--------- --------
Discontinued operations - 1.72
--------- --------
Net income $ .10 $ 1.93
--------- --------
Fully diluted:
Income from:
Continuing operations $ .10 $ .21
--------- --------
Discontinued operations - 1.48
--------- --------
Net income $ .10 $ 1.69
--------- --------
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
Revenues:
Net sales $ 78,891 $ 68,414
Other income 1,041 1,330
-------- -------
79,932 69,744
Costs and expenses:
Cost of sales 62,003 53,184
Selling, general and administrative 13,682 11,428
Interest 2,632 1,712
Provision for environmental matter (Note 7) - 400
------- -------
78,317 66,724
Income from continuing operations ------- -------
before provision for income taxes 1,615 3,020
Provision for income taxes 112 203
------- -------
Income from continuing operations 1,503 2,817
Income from discontinued operations, net
of income taxes (Notes 2 and 3) - 238
Gain on sale of discontinued operations
(Note 2) - 24,200
--------- ---------
Net income $ 1,503 $ 27,255
========= =========
Net income applicable to common stock (Note 4) $ 699 $ 26,447
========= =========
Average common shares outstanding (Note 4):
Primary 13,483,898 14,359,161
Fully diluted 13,501,261 18,985,827
Earnings per common share (Note 4):
Primary:
Income from:
Continuing operations $ .05 $ .14
--------- ---------
Discontinued operations - 1.70
--------- ---------
Net income $ .05 $ 1.84
========= =========
Fully diluted:
Income from:
Continuing operations $ .05 $ .14
========= =========
Discontinued operations - 1.30
========= =========
Net income $ .05 $ 1.44
========= =========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
___________ ___________
Cash flows from continuing operations:
Income from continuing operations $ 2,951 $ 4,675
Adjustments to reconcile income from
continuing operations to cash flows
provided (used) by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 3,497 3,332
Other 503 489
Provision for possible losses:
Trade accounts receivable 417 519
Environmental matter - 400
Gain on sale of assets (111) (519)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (13,496) (8,188)
Inventories (1,341) 1,261
Supplies and prepaid items (653) (1,384)
Accounts payable (910) 7,862
Accrued liabilities 885 209
_______ _______
Net cash provided (used) by
continuing operations (8,258) 8,656
Cash flows from investing activities of
continuing operations:
Capital expenditures (9,088) (7,993)
Purchase of loans receivable - (2,930)
Principal payments on notes receivable 342 -
Proceeds from sales of equipment and
real estate properties 536 1,331
Increase in other assets (1,633) (2,009)
_______ ______
Net cash used by investing activities
of continuing operations (9,843) (11,601)
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
1995 1994
___________ _________
Cash flows from financing activities of
continuing operations:
Payments on long-term and other debt $ (7,867) $ (6,012)
Long-term and other borrowings 15,880 2,700
Net change in revolving debt facilities 12,930 45,465
Net change in drafts payable (377) 616
Dividends paid (Note 6):
Preferred stocks (1,619) (1,631)
Common stock (389) (414)
Purchases of treasury stock (Note 6) (1,321) (1,697)
Net proceeds from issuance of
common stock (Note 6) 194 244
Net decrease in receivables sold to
discontinued operations - (31,844)
__________ __________
Net cash provided by financing
activities from continuing operations 17,431 7,427
__________ __________
Net increase (decrease) in cash and cash
equivalents from continuing operations (670) 4,482
Net decrease in cash and cash equivalents
from discontinued operations - (1,675)
Net increase (decrease) in cash and cash
equivalents from all activities (670) 2,807
Cash and cash equivalents at beginning of
period 2,610 2,781
--------- ---------
Cash and cash equivalents at end of period $ 1,940 $ 5,588
========= =========
(See accompanying notes)
Note 1: The accompanying financial statements include the accounts of LSB
Industries, Inc. (the "Company") and its subsidiaries. The Company s
financial services subsidiary, Equity Bank for Savings, F.A. ( Equity Bank )
was sold on May 25, 1994. The condensed consolidated statement of income for
the six month and three month periods ended June 30, 1994 present the
operation of Equity Bank as income from discontinued operations. The
Condensed Consolidated Statement of Cash flows for the six months ended June
30, 1994 has been restated for changes in balance sheet classification adopted
at December 31, 1994, as a result of reclassification due to discontinued
operations of the Company's financial services business.
Note 2: On May 25, 1994, pursuant to a Stock Purchase Agreement, dated as of
February 9, 1994, (the" Acquisition Agreement"), the Company sold its wholly-
owned subsidiary, Equity Bank, which constituted the Financial Services
Business of the Company, to Fourth Financial Corporation (the " Purchaser").
The Purchaser acquired all of the outstanding shares of capital stock of
Equity Bank.
Under the Acquisition Agreement and using the proceeds from sale of Equity
Bank, the Company acquired from Equity Bank, prior to closing, certain
subsidiaries of Equity Bank ("Retained Corporations") that own the real and
personal property and other assets contributed by the Company to Equity Bank
at the time of the acquisition of the predecessor of Equity Bank by the
Company for Equity Bank s carrying value of the assets contributed of
approximately $67.4 million, which approximated fair value. The carrying
value of the assets in the consolidated financial statements of the Company
continues to be historical cost. At the time of closing of the sale of Equity
Bank, the Company also acquired: (A) the loan and mortgage on and an option
to purchase Equity Tower located in Oklahoma City, Oklahoma ("Equity Tower
Loan"), for an amount equal to Equity Bank s carrying value of approximately
$13.9 million; (B) other real estate owned by Equity Bank that was acquired by
Equity Bank through foreclosure for an amount equal to Equity Bank s carrying
value of approximately $3.6 million (the Equity Tower Loan and other real
estate owned are collectively called the "Retained Assets"); and (C) certain
other loans for $3.1 million previously owned by Equity Bank. In addition,
the Company acquired the outstanding accounts receivable sold to Equity Bank
by the Company and its subsidiaries under various purchase agreements, dated
March 8, 1988 (the " Receivables" ) for $6.9 million, which approximated fair
value.
Note 3: At June 30, 1995, the Company had net operating loss ("NOL")
carryforwards for tax purposes of approximately $40 million. Such amounts
expire beginning in 1999. The Company also has investment tax credit
carryforwards of approximately $630,000, which expire beginning in 1995.
The Company s provision for income taxes for the six months ended June 30,
1995 of $.2 million is for current state income taxes and federal alternative
minimum tax.
Note 4: Primary earnings per common share are based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each period, after giving appropriate effect to preferred stock
dividends.
Fully diluted earnings per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding and the
assumed conversion of dilutive convertible securities outstanding after
appropriate adjustment for interest and related income tax effects on
convertible notes payable.
Net income applicable to common stock is computed by adjusting net income by
the amount of preferred stock dividends, including undeclared or unpaid
dividends, if cumulative.
Note 5: In 1992, a subsidiary of the Company signed an agreement to supply a
foreign customer with equipment, technology and technical assistance to
manufacture certain types of automotive products. Payments scheduled under
the original contract before amendment totaled $44 million, $17 million of
which has been billed and collected by the Company as of June 30, 1995. In
May 1995, the subsidiary negotiated an amendment to the agreement with the
foreign customer and an agreement with a syndication of foreign lenders
whereby the lenders acquired, without recourse to the Company or such
subsidiary, the unpaid contract amount billable by the Company (present value
of approximately $24 million). Under the amendment with the foreign customer
and the agreement with the foreign lenders, the Company received approximately
$5 million, net of fees, and a commitment from the foreign customer to provide
approximately $21 million of bearing products. The Company is to receive such
bearing products, without charge when and if the foreign customer repays its
debt of approximately $31 million which the foreign lenders acquired from the
subsidiary. In addition, the subsidiary agreed to purchase approximately $6
million of bearing products each year over the next five (5) years at
predetermined prices, not in excess of market prices, subject to the
customer's ability to deliver product, meeting defined quality standards, to
the Company.
Note 6: The table below provides detail of activity in the Stockholders'
Equity accounts for the six months ended June 30, 1995:
<TABLE>
Common Stock Non- Capital Treasury
_______________ redeemable in excess Treasury Stock
Par Preferred of par Retained Stock- Prefer
Shares Value Stock Value Earnings Common red Total
------ ----- --------- -------- -------- -------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 14,620 $1,462 $48,000 $37,369 $12,883 $(8,915) $(200) $90,599
Net Income 2,951 2,951
Conversion of 18 shares of
redeemable preferred stock
to common stock 1 1 1
Exercise of stock options 131 13 181 194
Dividends declared:
Common Stock ($.03 per share) (386) (386)
Series B 12% preferred
stock ($6.00 per share) (120) (120)
Redeemable preferred
stock ($10.00 per share) (16) (16)
Series 2 preferred
stock ($1.62 per share) (1,487) (1,487)
Purchase of treasury stock (1,321) (1,321)
____________ _______ _______ _______ ________ _____ _______
(1)
Balance at June 30, 1995 14,752 $1,475 $48,000 $37,551 $13,825 $(10,236) $(200) $90,415
</TABLE>
(1)
Includes 1,810,419 shares of the Company's Common Stock held in treasury.
Excluding the 1,810,419 shares held in treasury, the outstanding shares of
the Company's Common Stock at June 30, 1995 were 12,941,097.
Note 7:
Following is a summary of certain legal actions involving the Company:
A. In 1987, the U.S. Government notified one of the Company s subsidiaries,
along with numerous other companies, of potential responsibility for
clean-up of a waste disposal site in Oklahoma. No legal action has yet
been filed. The amount of the Company s cost associated with the clean-
up of the site is unknown due to continuing changes in (i) the estimated
total cost of clean-up of the site and (ii) the percentage of the total
waste which was alleged to have been contributed to the site by the
Company, accordingly, no provision for any liability which may result
has been made in the accompanying financial statements. The subsidiary s
insurance carriers have been notified of this matter; however, the
amount of possible coverage, if any, is not yet determinable.
B. As a result of a preliminary environmental assessment report prepared by
the State of Arkansas, the primary manufacturing facility of the
Company s Chemical Business has been placed in the Environmental
Protection Agency s ( EPA ) tracking system of sites which are known or
suspected to be a site of a release of hazardous waste (the "System").
Inclusion in the system does not represent a determination of liability
or a finding that any response action is necessary. As a result of
being placed in the System, the State of Arkansas performed a
preliminary assessment and advised the Company that the site has had
certain releases of contaminants. On July 18, 1994, the Company
received a report from the State of Arkansas which contained findings of
violations of certain environmental laws and requested the Company to
conduct further investigations to better determine the compliance status
of the Company and releases of contaminants at the site. On May 2,
1995, the Company signed a Consent Administrative Agreement
( Agreement ) with the State of Arkansas. The Agreement provides for
the Company to remediate and close a certain landfill, monitor
groundwater for certain contaminants and depending on the results of the
monitoring program to submit a remediation plan, upgrade certain
equipment to reduce wastewater effluent, and pay a civil penalty of
$25,000. While the Company is at this time unable to determine the
ultimate cost of compliance with the Agreement, the Company has
determined the subsidiary s cost to be at least $450,000; therefore, the
Company included a provision for environmental costs of $450,000 in the
1994 results of operations, $400,000 of which was recorded in the three
months ended June 30, 1994. Based on information presently available,
the Company does not believe that compliance with the Agreement, or the
facility being placed in the System, should have a material adverse
effect on the Company or the Company s financial condition.
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 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 or results of operations of the
Company.
The Company has guaranteed approximately $2.5 million of debt of a start-up
aviation company in exchange for a 20% ownership interest, to which no value
has been assigned as of June 30, 1995. This debt requires interest only
payments until September 1996 at which time the outstanding principal and
interest are due in full. As of June 30, 1995, the aviation company was in
compliance with the appropriate provisions of its debt agreement with its
lender.
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 should be read in conjunction with a
review of the Company's June 30, 1995 Condensed Consolidated Financial
Statements.
OVERVIEW
The Company is a diversified holding company which is engaged, through
its subsidiaries, in the Chemical Business, the Environmental Control
Business, the Automotive Products Business and the Industrial Products
Business.
Information about the Company's continuing operations in different
industry segments for the six months and three months ended June 30, 1995 and
1994 is detailed below.
Six Months Three Months
1995 1994 1995 1994
(In thousands)
(Unaudited)
Sales:
Chemical $ 73,938 $ 72,723 $ 41,999 $ 41,771
Environmental Control 45,197 35,250 23,575 14,998
Automotive Products 16,441 17,600 8,562 9,036
Industrial Products 8,584 6,692 4,755 2,609
_______ _______ _______ _______
$144,160 $132,265 $ 78,891 $ 68,414
Gross profit:
Chemical $ 14,179 $ 15,175 $ 7,933 $ 9,087
Environmental Control 13,114 8,781 6,429 3,394
Automotive Products 3,666 4,302 1,579 2,290
Industrial Products 2,071 1,330 947 459
_______ _______ _______ _______
$ 33,030 $ 29,588 $ 16,888 $ 15,230
Operating profit (loss):
Chemical $ 7,618 $ 8,566 $ 4,691 $ 5,677
Environmental Control 5,396 2,329 2,420 236
Automotive Products (818) (125) (866) (10)
Industrial Products (1,062) (703) (712) (486)
_______ _______ _______ _______
11,134 10,067 5,533 5,417
General corporate expenses (2,952) (1,644) (1,286) (685)
Interest expense (5,020) (3,393) (2,632) (1,712)
_______ _______ _______ _______
Income from continuing
operations before
provision for income
taxes $ 3,162 $ 5,030 $ 1,615 $ 3,020
======= ======= ======= =======
RESULTS OF OPERATIONS
Six months ended June 30, 1995 vs. Six months ended June 30, 1994.
Revenues
Total revenues for the six months ended June 30, 1995 and 1994 were
$145.9 million and $134.1 million, respectively (an increase of $11.8
million). Sales increased $11.9 million.
Net Sales
Consolidated net sales included in total revenues for the six months
ended June 30, 1995 were $144.2 million, compared to $132.3 million for the
first six months of 1994, an increase of $11.9 million. This increase in
sales resulted principally from: (i) increased sales in the Chemical Business
of $1.2 million, primarily due to increased business volume of Total Energy
Systems, the Company's subsidiary located in Australia (TES), (ii) increased
sales in the Environmental Control Business of $9.9 million primarily due to
increased heat pump sales to a customer which is retrofitting certain of the
air-conditioning and heating systems on a US military base, and increased fan
coil sales resulting from firm market conditions in 1995, (iii) decreased
sales in the Automotive Products Business of $1.2 million due to a reduced
customer base, and (iv) increased sales in the Industrial Products Business of
$1.9 million, primarily due to increased sales to a foreign customer and
increases in sales of machine tools. Subsequent to realizing the sales to the
customer, the Company purchased a fifty percent (50%) equity interest in the
joint venture which is retrofitting certain air conditioning and heating
systems on a U.S. military base as noted above in (ii). See "Potential
Business Acquisitions" of this Management's Discussion and Analysis.
Gross Profit
Gross profit was 22.9% for the first six months of 1995, compared to
22.4% for the first six months of 1994. The improvement in the gross profit
percentage was due primarily to higher prices and improved absorption of
costs due to increased production volumes in the Environmental Control
Business, and higher prices in the Industrial Products Business.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 18.4% in the six months ended June 30, 1995 and 17.1% in the
first six months of 1994. This increase in SG&A as a percent of sales was
primarily due to: (i) increased expenses to expand the Industrial Products
Business with a less than equivalent corresponding increase in sales , (ii)
decreased sales volume in the Automotive Products Business with a less than
equivalent corresponding reduction in SG&A costs, and, (iii) increased
insurance costs in 1995 versus 1994. These factors were offset in part by
sales increases in the Environmental Control Business with no corresponding
increase in SG&A costs.
Interest Expense
Interest expense for the Company was approximately $5.0 million during
the six months ended June 30, 1995 compared to approximately $3.4 million
during the six months ended June 30, 1994. The increase primarily resulted
from higher interest rates and higher average balances of borrowed funds.
Income Before Taxes
The Company had income from continuing operations before income taxes of
$3.2 million in the first six months of 1995 compared to $5.0 million in the
six months ended June 30, 1994. The decreased profitability of $1.8 million
was primarily due to higher SG&A costs and interest offset by improved gross
profit as previously discussed.
Provision For Income Taxes
As a result of the Company's net operating loss carryforward for income
tax purposes as discussed elsewhere herein and in Note 3 of Notes to Condensed
Consolidated Financial Statements, the Company's provisions for income taxes
for the six months ended June 30, 1995 and the six months ended June 30, 1994
are for current state income taxes and federal alternative minimum taxes.
Income From Discontinued Operations
Income from discontinued operations reflects the results of operations
of the Financial Services Business sold in May 1994. Income from discontinued
operations, net of expenses, was $.6 million in the first six months of 1994.
Three months ended June 30, 1995 vs. Three months ended June 30, 1994.
Revenues
Total revenues for the three months ended June 30, 1995 and 1994 were
$79.9 million and $69.7 million, respectively (an increase of $10.2 million).
Sales increased $10.5 million.
Net Sales
Consolidated net sales included in total revenues for the three months
ended June 30, 1995 were $78.9 million, compared to $68.4 million for the
second quarter of 1994, an increase of $10.5 million. This increase in sales
resulted principally from: (i) increased sales in the Chemical Business of
$.2 million, primarily due to the higher price of ammonia being partially
passed through to customers in the form of price increases and increased
business volume of TES, offset by decreased sales of agricultural products due
to adverse weather conditions during the spring planting season in the
Company's primary market areas. (ii) increased sales in the Environmental
Control Business of $8.6 million primarily due to increased heat pump sales to
a customer which is retrofitting certain of the air conditioning and heating
systems on a US military base, and increased fan coil sales resulting from
firm market conditions for these products, (iii) decreased sales in the
Automotive Products Business of $.5 million due to a reduced customer base,
and (iv) increased sales in the Industrial Products Business of $2.2 million,
primarily due to increased sales to a foreign customer. Subsequent to
realizing the sales to the customer, the Company purchased a fifty percent
(50%) equity interest in the joint venture which is retrofitting certain air
conditioning and heating systems on a U.S. military base as noted above in
(ii). See "Potential Business Acquisitions" of this Management's Discussion
and Analysis.
Gross Profit
Gross profit was 21.4% for the three months ended June 30, 1995,
compared to 22.3% for the three months ended June 30, 1994. The decline in
the gross profit percentage was due primarily to higher cost of ammonia which
is the primary raw material in the Chemical Business and (ii) change in
product sales mix to lower margin items in the Automotive Business, offset by
(iii) higher prices and improved absorption of costs due to increased
production volumes in the Environmental Control Business, and higher prices in
the Industrial Products Business.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 17.3% in the three months ended June 30, 1995 and 16.7% in the
second quarter of 1994. This increase in SG&A as a percent of sales was
primarily due to: (i) increased expenses to expand the Industrial Products
Business with a less than equivalent corresponding increase in sales, (ii)
decreased sales volume in the Automotive Products Business with a less than
equivalent corresponding reduction in SG&A costs, and (iii) increased
insurance costs in 1995 versus 1994. These factors were offset in part by
sales increases in the Environmental Control Business with no corresponding
increase in SG&A costs.
Interest Expense
Interest expense for the Company was approximately $2.6 million during
the three months ended June 30, 1995 compared to approximately $1.7 million
during the three months ended June 30, 1994. The increase primarily resulted
from higher interest rates and higher average balances of borrowed funds.
Income before Taxes
The Company had income from continuing operations before income taxes of
$1.6 million in the second quarter of 1995 compared to $3.0 million in the
three months ended June 30, 1994. The decreased profitability of $1.4
million was primarily due to higher SG&A costs and interest expense as
previously discussed.
Provision For Income Taxes
As a result of the Company's net operating loss carryforward for income
tax purposes as discussed elsewhere herein and in Note 3 of Notes to Condensed
Consolidated Financial Statements, the Company's provisions for income taxes
for the three months ended June 30, 1995 and the three months ended June 30,
1994 are for current state income taxes and federal alternative minimum taxes.
Income From Discontinued Operations
Income from discontinued operations reflects the results of operations
of the Financial Services Business sold in May 1994. Income from discontinued
operations, net of expenses, was $.2 million in the second quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a diversified holding company and its liquidity is
dependent, in large part, on the operations of its subsidiaries and credit
agreements with lenders.
Sources of Funds - In December 1994, the Company and certain of its
subsidiaries finalized a new working capital line of credit. This line of
credit consolidated substantially all of the Company's working capital lines
of credit into one comprehensive funding source. This working capital line of
credit is evidenced by six separate loan agreements ("Agreements") with a
lender ("Lender") collateralized by receivables, inventory and proprietary
rights of the Company and the subsidiaries that are parties to the Agreements.
The agreements provide for revolving credit facilities ("Revolver") for total
direct borrowings up to $65 million, including the issuance of letters of
credit. The Revolver provides for advances at varying percentages of eligible
inventory and trade receivables and bears interest at the Lender's prime
lending rate plus one-half percent (.5%). The rate in effect at June 30, 1995
was 9.5%. The initial term of the Agreements is through December 31, 1997,
and is renewable thereafter for successive thirteen month terms. The Lender
or the Company may terminate the Agreements at the end of the initial term or
at the end of any renewal term without penalty. At June 30, 1995, the
available borrowings, based on eligible collateral, approximated $62.4
million. Borrowings under the Revolver outstanding at June 30, 1995, were
$56.9 million. The Agreements require the Company to maintain certain
financial ratios and contain other financial covenants, including tangible net
worth requirements and capital expenditure limitations. Effective June 30,
1995, the Company renegotiated the tangible net worth covenant to reduce the
requirement from $90 million to $82 million as a result of the Company's
inability to meet the original covenant at June 30, 1995 and Managements
opinion that the Company would not be able to meet the covenant requirements
during the next twelve months of the term of the Agreements. Management
expects that the Company will be able to meet renegotiated covenant
requirements at future measurement dates. The annual interest on the
outstanding debt under the Revolver at June 30, 1995 at the rate then in
effect would be approximately $5.4 million.
In addition to the Agreements discussed above, the Company has the
following term loans in place:
(1) The Company's wholly-owned subsidiaries, El Dorado Chemical Company and
Slurry Explosive Corporation ("Chemical"), which substantially comprise
the Company's Chemical Business, are parties to a loan agreement ("Loan
Agreement") with two institutional lenders ("Lenders"). This Loan
Agreement, as amended, provides for a seven year term loan of $28.5
million ("Term Loan"). The balance of the Term Loan at June 30, 1995
was $10.7 million. Annual principal payments remaining on the Term Loan
are $5.2 million in 1996 and a final payment of $5.5 million on March
31, 1997. The Loan Agreement also provides for a revolving credit
facility which provides for a maximum available credit line of
approximately $3.7 million at June 30, 1995 all of which was borrowed at
June 30, 1995. The availability under this revolving credit facility
decreases by $1.8 million annually in 1995 and 1996 with the remainder
due in March 1997. Annual interest at the agreed to interest rates, if
calculated on the aggregate $14.4 million outstanding balance at June 30
1995 would be approximately $1.8 million. The Term Loan is secured by
substantially all of the assets not otherwise pledged under the Revolver
previously discussed and capital stock of Chemical. The Loan Agreement
requires Chemical to maintain certain financial ratios and contains
other financial covenants, including tangible net worth requirements and
capital expenditures limitations. As of the date of this report,
Chemical is in compliance with all financial covenants. Under the terms
of the Loan Agreement. Chemical cannot transfer funds to the Company in
the form of cash dividends or other advances, except for (i) the amount
of taxes that Chemical would be required to pay if it was not
consolidated with the Company; (ii) an amount equal to fifty percent
(50%) of Chemical's cumulative adjusted net income as long as Chemical's
Total Capitalization Ratio, as defined, is .65:1 or below.
(2) The Company's wholly-owned subsidiary, DSN Corporation ("DSN") is a
party to several loan agreements with a financing company (the
"Financing Company") for two (2) projects which DSN will complete during
1995. These loan agreements are for a construction loan (the
"Construction Loan") which provides for $16.5 million to be used to
construct, equip, reerect, and refurbish a nitric acid plant (the "DSN
Plant") being placed into service by the Chemical Business at it's El
Dorado, Arkansas facility, a loan for approximately $1.2 million to
purchase additional railcars to support the DSN Plant (the Railcar
Loan ), and a loan for approximately $1.1 million to finance the
construction of a mixed acid plant (the Mixed Acid Plant ) in North
Carolina (the "Mixed Acid Loan"). At June 30, 1995, DSN had outstanding
borrowings of $14.6 million under the Construction Loan, $.5 million
under the Mixed Acid Loan and no outstanding borrowings under the
Railcar Loan. The Construction Loan will be repaid upon the completion
of construction and acceptance of the DSN Plant as capable of
production, with proceeds of a permanent loan ("DSN Permanent Loan").
Completion of construction, funding of the remaining $1.8 million and
conversion to the DSN Permanent Loan are expected to occur during 1995.
The DSN Permanent Loan will have a repayment schedule of eighty-four
(84) equal consecutive monthly installments of principal and interest,
payable in arrears. The interest rate per annum will fix for the entire
loan term at the rate per annum for a five year United States Treasury
Security ("Treasury Rate") as determined at the close of business on the
third business day prior to the making of the DSN Permanent Loan plus a
specified percentage. As of August 1, 1995, the interest rate would be
8.9%. The Railcar Loan and the Mixed Acid Loan will be repaid under the
same terms as the Construction Loan. Upon the earlier of completion of
construction of the Mixed Acid Plant or August 1, 1995, the Mixed Acid
Loan will have a repayment schedule of eighty-four (84) equal
consecutive monthly installments of principal and interest, payable in
arrears. The rate of interest on the Mixed Acid Loan will be determined
in the same manner as the DSN Permanent Loan and the rate at August 1,
1995 would be 8.9%, also.
(3) A subsidiary of the Company ("Borrower") entered into a loan agreement
("Agreement"), effective as of May 4, 1995, with Bank IV Oklahoma, N.A.
("Bank"). Pursuant to the Agreement, the Bank loaned $9 million to the
Borrower, evidenced by a Promissory Note ("Note"). The Note bears
interest per annum at a rate equal to one percent (1%) above the prime
rate in effect from day to day as published in the Wall Street Journal.
The outstanding principal balance of the Note is payable in sixty (60)
monthly payments of principal and interest commencing on May 31, 1995.
Payment of the Note is secured by a first and priority lien and security
interest in and to the Borrower's right, title, and interest in the loan
receivable relating to the real property and office building known as
the Bank IV Tower located in Oklahoma City, Oklahoma (the "Tower"), the
Management Agreement relating to the Tower, and the Option to Purchase
Agreement covering the real property on which the Tower is located.
Foreign Subsidiary Financing - On March 7, 1995 the Company guaranteed a
revolving credit working capital facility (the "Facility") between its wholly-
owned Australian subsidiary Total Energy Systems, Ltd. ("TES") and Bank of New
Zealand. The Facility allows for borrowings up to an aggregate of
approximately $3.7 million based on specific percentages of qualified eligible
assets ($3.2 million borrowed at June 30, 1995). Such debt is secured by
substantially all the assets of TES, plus an unlimited guarantee and indemnity
from the Company. The interest rate on this debt is the Bank of New Zealand
Corporate Base Lending Rate plus 0.5% (approximately 9.6% at June 30, 1995).
The Facility is subject to renewal at the discretion of Bank of New Zealand
based upon annual review. The next annual review is due on March 31, 1996.
Cash Flows - Net cash used by operating activities of continuing
operations in the first six months of 1995, after adjustment for net non-cash
expenses of $4.4 million, was $8.3 million. This cash usage included the
following changes in assets: (i) increases in accounts receivable of $13.5
million, (ii) inventory increases of $1.3 million, and (iii) increases in
supplies and prepaid items of $.7 million. The increase in accounts
receivable was due primarily to increased sales by approximately $25 million
over the fourth quarter of 1994 in all businesses, including seasonal sales
increases in the Chemical Business. The increase in inventories was due
primarily to higher sales levels in all businesses; less than anticipated
sales by the Chemical Business for the spring fertilizer season; and,
increases in the Automotive Products Business due to purchases of new products
in excess of the realized sales demand for those products. The increase in
supplies and prepaid items resulted primarily from increased repair supplies
in the Chemical Business. Investing activities during the first six months of
1995 included (i) capital expenditures of $9.1 million, relating primarily to
the construction of a new nitric acid production facility in the Chemical
Business, (ii) principal payments received on certain loans of $.3 million,
(iii) proceeds of $.5 million from the sale of assets, primarily real estate,
and (iv) a net increase in other assets of $1.6 million due primarily to a
subsidiary's investment in an energy conservation joint venture. Cash flows
provided by financing activities included net borrowings of $20.9 million,
offset by dividends paid of $2.0 million and treasury stock purchases of $1.3
million.
In summary, during the six months ended June 30, 1995, cash requirements
for required debt service payments, dividends on Company stocks, and purchases
of treasury stock approximated $11.2 million. In addition, the Company spent
approximately $9.1 million for capital improvements, primarily in connection
with the DSN Plant being constructed by the Chemical Business. The
expenditures noted above, plus the cash used by operations of $8.3 million,
resulted in a borrowing requirement of approximately $12.9 million against the
Company's revolving credit facilities in addition to other borrowings of $15.9
million discussed elsewhere in this report.
Future cash requirements include working capital requirements for
anticipated sales increases in all businesses, and funding for future capital
expenditures, primarily in the Chemical Business and the Environmental Control
Business. Funding for the higher accounts receivable resulting from
anticipated sales increases will be provided by the revolving credit
facilities previously discussed. Inventory requirements for the higher
anticipated sales activity should be met by scheduled reductions in the
inventories of the Environmental Control and Automotive Products Businesses,
both of which have increased their inventories beyond required levels. In the
first six months of 1995, the Chemical Business has incurred additional cost
of $6.0 million to continue installation of the DSN Plant. The Company
anticipates incurring $1.0 million in the third quarter to complete this
project, which is expected to begin full production by September 1995. As
previously noted, the Company expects to borrow an additional $1.8 million
during the third quarter related to the DSN Plant. During the first six
months of 1995, the Chemical Business spent $.5 million in connection with
the Mixed Acid Plant. An additional $.7 million is expected to be incurred on
the Mixed Acid Plant in 1995.
Management believes that cash flows from operations, the Company's
revolving credit facilities, and other sources will be adequate to meet its
presently anticipated capital expenditure, working capital, debt service, and
dividend requirements. The Company currently has no material commitment for
capital expenditures, other than those related to Chemical Business'
completion of an additional concentrated nitric acid plant, a mixed acid plant
and the purchase of additional railcars as discussed above.
During the first six months of 1995, the Company declared and paid the
following aggregate dividends: (1) $12.00 per share on each of the outstanding
shares of its Series B 12% Cumulative Convertible Preferred Stock, which is
the annual dividend on this series of preferred stock for 1995; (2) $1.62 per
share on each outstanding share of its $3.25 Convertible Exchangeable Class C
Preferred Stock, Series 2; (3) $10.00 per share on each outstanding share of
its Convertible Noncumulative Preferred Stock, which is the annual dividend on
this series of preferred stock for 1995; and (4) $.03 per share on its
outstanding shares of Common Stock. The Company expects to continue the
payment of an annual cash dividends on its common stock equal to $.06 per
share in the future in accordance with the policy adopted by the Board of
Directors and the cash dividends on the Company's outstanding series of
preferred stock pursuant to the terms of such preferred stocks.
Foreign Sales Contract -
In connection with an agreement to supply a foreign customer with
equipment, technology and technical assistance ("Agreement") and a contract
with a group of foreign lenders in connection with the Agreement, a subsidiary
of the Company committed to purchase approximately $6 million of bearing
products from the foreign customer each year over the next five years, at
predetermined prices, not in excess of market prices, subject to the
customer's ability to deliver product to the Company's subsidiary meeting
defined quality standards. The Company intends to finance the purchase of
these bearing products from the foreign customer through working capital and
by reducing its purchase of bearing products from other sources from whom the
Company is presently purchasing such products. See Note 5 to Notes to
Condensed Consolidated Financial Statements.
Potential Business Acquisitions - During 1994 the Company, through a
subsidiary, loaned $2.1 million to a French manufacturer of HVAC equipment.
Under the loan agreement, the Company has the option to exchange its rights
under the loan for 80% of the borrower's outstanding common stock. The
Company obtained a security interest in the stock of the French manufacturer
to secure its $2.1 million loan. At this time the decision has not been made
to exercise such option and the $2.1 million loan net of a $650,000 impairment
reserve is carried on the books as a note receivable in other assets.
During the second quarter of 1995, the Company executed a stock option
agreement to acquire eighty percent (80%) of the stock of a specialty sales
organization to enhance the marketing of the Company's air conditioning
products. The stock option has a four (4) year term, and a total option
granting price of $1.0 million payable in installments including an option fee
of $.5 million paid upon signing of the option and annual $100,000 payments
for yearly extensions of the stock option thereafter for up to three (3)
years. Upon exercise of the stock option by the Company, or upon the
occurrence of certain performance criteria which would give the grantors of
the stock option the right to accelerate the date on which the Company must
elect whether to exercise, the Company shall pay certain cash and issue
promissory notes for the balance of the exercise price of the subject shares.
The total exercise price of the subject shares is $4.0 million, less the
amounts paid for the granting and any extensions of the stock option. The
Company expects that it will eventually exercise the stock option, however,
there are no assurances that such stock option will ultimately be exercised.
The Company believes it will be able to finance the cash requirements
associated with the stock option agreement from existing cash reserves and
cashflow from Company operations in the event the Company elects to exercise
its option under the stock option agreement.
A subsidiary of the Company invested approximately $2.8 million to
purchase a fifty percent (50%) equity interest in an energy conservation joint
venture (the "Project"). The Project has been awarded a contract to retrofit
residential housing units at a U.S. Army base. The contract calls for
installation of energy-efficient equipment (including air conditioning and
heating equipment), which will reduce utility consumption. For the
installation and management, the Project will receive an average of seventy-
seven percent(77%) of all energy and maintenance savings during the twenty
(20) year contract term. The Project estimates that the cost to retrofit the
residential housing units at the US Army base will be approximately $17.9
million. The Project has received a loan from a lender to finance up to
approximately $14 million of the cost of the Project. The Company is not
guaranteeing any of the lending obligations of the Project. The Company has
guaranteed the bonding company's exposure under the payment and performance
bonds on the Project, which is approximately $17.9 million.
Availability of Company's Loss Carryovers - The Company anticipates that
its cash flow in future years will benefit to some extent from its ability to
use net operating loss ("NOL") carryovers from prior periods to reduce the
federal income tax payments which it would otherwise be required to make with
respect to income generated in such future years. As of June 30, 1995, the
Company had available NOL carryovers of approximately $40 million, based on
its federal income tax returns as filed with the Internal Revenue Service for
taxable years through 1993, and on the Company's estimates for 1994. These
NOL carryovers will expire beginning in the year 1999.
The amount of these NOL carryovers has not been audited or approved by
the Internal Revenue Service and, accordingly, no assurance can be given that
such NOL carryovers will not be reduced as a result of audits in the future.
In addition, the ability of the Company to utilize these NOL carryovers in the
future will be subject to a variety of limitations applicable to corporate
taxpayers generally under both the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations. These include, in particular, limitations
imposed by Code Section 382 and the consolidated return regulations.
Contingencies - As discussed in Note 7 of Notes to Consolidated
Financial Statements, 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.
ERNST & YOUNG 1700 Liberty Tower
100 North Broadway
Oklahoma City, OK 73102
Phone: 405 278 6800
Fax: 405 278 6823
Independent Accountants' Review Report
Board of Directors
LSB Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of LSB
Industries, Inc. and subsidiaries as of June 30, 1995, and the related
condensed consolidated statements of income for the six month and three month
periods ended June 30, 1995 and 1994 and the condensed consolidated statements
of cash flow for the six month periods ended June 30, 1995 and 1994. 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 generally accepted auditing standards, 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 generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of LSB Industries, Inc. as of
December 31, 1994, and the related consolidated statements of income, non-
redeemable preferred stock, common stock and other stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated March 21, 1995, 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,
1994, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
August 18, 1995 /s/ ERNST & YOUNG
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, 1994, which Item 3
is incorporated by reference herein.
Settled Litigation
James McHugh Construction Co. v. Midwest Bank and Trust Company, et al.,
Case No. 88 CH 2449, Circuit Court of Cook County, Illinois. In April, 1989,
a Company subsidiary, International Environmental Corporation ("IEC"), was
named as a third party defendant by Economy Mechanical Industries of Illinois,
Inc. ("Economy") in connection with a project in Chicago, Illinois. Economy
had purchased fan coil units for the project from IEC, and the units were
built in accordance with Economy's specifications. The general contractor and
a number of subcontractors (including Economy) filed mechanics liens against
the property. The general contractor filed this action to foreclose on its
lien, and the owner asserted numerous claims against the general contractor
and certain subcontractors (including Economy) in the total amount of
$20,610,599. One of the counterclaims made by the owner related to the fan
coil system manufactured by IEC and Economy brought a third party action
against IEC alleging that if the fan coil system was defective, such was the
responsibility of IEC. IEC denied that the fan coils were defective and
contended that any failures, if any, were caused by improper installation or
other causes beyond IEC's control. IEC filed fourth party complaints against
some of its suppliers. Economy amended its third party claim to assert claims
against some of these same suppliers. This matter has been settled. The
settlement required two of IEC's insurance carriers to pay $841,500.00 to the
building owner and $275,000 to IEC for partial reimbursement of previously
paid attorney fees and expenses. One of these insurance policies has a
$250,000 loss limit on IEC's responsibility plus retro-premiums, which amount
will total approximately $300,000. IEC's other insurance policy has no
deductible or self-insured retention.
Item 2. Changes in Securities
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:
11.1 Statement Re: Computation of Per Share Earnings.
15.1 Letter Re: Unaudited Interim 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, 1995.
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 18th day of August, 1995.
LSB INDUSTRIES, INC.
By: /s/ Tony M. Shelby
---------------------------------
Tony M. Shelby,
Senior Vice President of Finance
(Principal Financial Officer)
By: /s/ Jim D. Jones
----------------------------------
Jim D. Jones
Vice President, Controller and
Treasurer (Principal Accounting Officer)
SEC\10Q-J95A.WPC
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1995 quarter ended
March 31 June 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,060,566 13,045,912
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 180 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis - 96,692
Purchases of treasury stock;
calculated on weighted average
basis (13,950) (146,176)
---------- ----------
13,046,796 12,996,428
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 823,140 817,448
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (317,680) (393,498)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion - 63,520
---------- ----------
505,460 487,470
---------- ----------
13,552,256 13,483,898
========== ==========
Earnings for primary earnings per share:
Net earnings $ 1,448,092 $ 1,502,431
Dividends on cumulative preferred stocks (75,880) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (743,437) (743,437)
--------- ---------
Earnings applicable to common stock $ 628,775 $ 698,994
========= =========
Earnings per share $ .05 $ .05
===== ====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1995
Net earnings applicable to common Stock $ 1,327,769
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 13,518,077
==========
Earnings per share $ .10
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 3 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1994 quarter ended
March 31 June 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 -
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846
Purchase of treasury stock;
calculated on weighted
average basis (20,000) (29,176)
---------- ----------
13,661,164 13,655,361
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760
---------- ----------
752,417 703,800
---------- ----------
14,413,581 14,359,161
========== ==========
Earnings for primary earnings per share:
Net earnings $ 2,203,665 $27,254,968
Dividends on cumulative preferred stocks (76,145) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (747,500) (747,500)
--------- ----------
Earnings applicable to common stock $ 1,380,020 $26,447,468
========= ==========
Earnings per share $.10 $1.84
==== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Six months
ended
June 30, 1994
Net earnings applicable to common stock $27,827,488
==========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 14,386,371
==========
Earnings per share $1.93
=====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1995 quarter ended
---------------------------
March 31 June 30
----------- -----------
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,046,796 12,996,428
Shares issuable upon exercise of
options and warrants 823,140 817,448
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price
for the quarter if greater than
the average) (300,737) (380,135)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above on
actual conversion - 63,520
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock, if
dilutive, from date of issue:
Series B - -
Series 2 - -
---------- ----------
13,573,199 13,501,261
========== ==========
Earnings for fully diluted earnings
per share:
Net earnings $ 1,448,092 $ 1,502,431
Interest on convertible note 180 180
Dividends on cumulative convertible
preferred stocks:
Series B (75,880) (60,000)
Series 2 Class C (743,437) (743,437)
---------- ----------
Earnings $ 628,955 $ 699,174
========== ==========
Earning per share $ .05 $ .05
===== =====
Six months
ended
June 30, 1995
-------------
Net earnings $ 1,328,129
===========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 13,537,230
==========
Earnings per share $ .10
======
LSB INDUSTRIES, INC. Exhibit 11.1
Page 6 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_____________________________________
March 31 June 30
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361
Shares issuable upon exercise of
options and warrants 934,807 877,794
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price for
the quarter if greater than the
average) (247,510) (238,754)
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760
Common shares issuable upon conversion
of convertible note payable 4,000 4,000
Common shares issuable upon conversion
of convertible preferred stock,
if dilutive, from date of issue:
Series B 666,666 666,666
Series 2 - 3,956,000
---------- ----------
15,084,247 18,985,827
========== ==========
Earnings for fully diluted
earnings per share:
Net earnings $ 2,203,665 $27,254,968
Interest on convertible note 180 180
Dividends on cumulative preferred
stocks (747,500) -
---------- ----------
Earnings $ 1,456,345 $27,255,148
========== ==========
Earnings per share $.10 $1.44
==== =====
Six months
ended
June 30, 1994
-------------
Net earnings $28,711,493
===========
Weighted average number of common and common
equivalent shares (average of two quarters
above) 17,035,037
==========
Earnings per share $1.69
=====
Exhibit 15.1
ERNST & YOUNG LLP 100 North Broadway Phone: 405 278 6800
Oklahoma City, OK 73102 Fax: 405 278 6823
Fax: 405 278 6834
August 18, 1995
The Board of Directors
LSB Industries, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-8302) and the Registration Statement (Form S-3 No. 33-69800)
of LSB Industries, Inc. and in the related Prospectus of our report dated
August 18, 1995 relating to the unaudited condensed consolidated interim
financial statements of LSB Industries, Inc. which are included in its Form
10-Q for the quarter ended June 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Very truly yours,
/s/ Ernst & Young LLP
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<CIK> 0000060714
<NAME> LSB INDUSTRIES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,940
<SECURITIES> 0
<RECEIVABLES> 54,658
<ALLOWANCES> 1,924
<INVENTORY> 61,691
<CURRENT-ASSETS> 125,350
<PP&E> 142,737
<DEPRECIATION> 63,171
<TOTAL-ASSETS> 241,730
<CURRENT-LIABILITIES> 52,953
<BONDS> 98,211
<COMMON> 1,475
151
48,000
<OTHER-SE> 40,940
<TOTAL-LIABILITY-AND-EQUITY> 241,730
<SALES> 144,160
<TOTAL-REVENUES> 145,863
<CGS> 111,130
<TOTAL-COSTS> 111,130
<OTHER-EXPENSES> 26,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,020
<INCOME-PRETAX> 3,162
<INCOME-TAX> 211
<INCOME-CONTINUING> 2,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,951
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
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