FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended September 30, 1995
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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 Commission
----------------- -----------------
file number 1-7677
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LSB INDUSTRIES, INC.
----------------------------------------------------
Exact name of Registrant as specified in its charter
DELAWARE 73-1015226
- ------------------------------ --------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification
No.
16 South Pennsylvania, Oklahoma City, Oklahoma 73107
-------------------------------------------------------
Address of principal executive offices (Zip Code)
(405) 235-4546
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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 November 14, 1995 is 12,914,507 shares excluding 1,842,909 shares held as
treasury stock.
PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed: LSB Industries, Inc.
and all of its wholly-owned subsidiaries.
The accompanying condensed consolidated balance sheet of LSB Industries, Inc.
at September 30, 1995, the condensed consolidated statements of operations for
the nine month and three month periods ended September 30, 1995 and 1994 and
the consolidated statements of cash flows for the nine month periods ended
September 30, 1995 and 1994 have been subjected to a review, in accordance
with standards established by the American Institute of Certified Public
Accountants, by Ernst & Young LLP, independent auditors, whose report with
respect thereto appears elsewhere in this Form 10-Q. The financial statements
mentioned above are unaudited and reflect all adjustments, consisting
primarily of adjustments of a normal recurring nature, which are, in the
opinion of management, necessary for a fair presentation of the interim
periods. The results of operations for the nine months and three months ended
September 30, 1995 are not necessarily indicative of the results to be
expected for the full year. The condensed consolidated balance sheet at
December 31, 1994, was derived from audited financial statements as of that
date.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at September 30, 1995 is unaudited)
(Dollars in thousands)
September 30, December 31,
ASSETS 1995 1994
- --------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 1,429 $ 2,610
Trade accounts receivable, net of allowance
for doubtful accounts 52,029 42,720
Inventories:
Finished goods 34,255 33,926
Work in process 10,734 9,796
Raw materials 18,074 15,611
--------- ---------
Total inventory 63,063 59,333
Supplies and prepaid items 6,335 6,386
--------- ---------
Total current assets 122,856 111,049
Property, plant and equipmen 82,595 73,684
Investments and other assets:
Loans receivable, secured by real estate 15,762 17,243
Other assets, net of allowance
for doubtful accounts 20,135 19,305
--------- ---------
$ 241,348 $ 221,281
--------- ---------
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Information at September 30, 1995 is unaudited)
(Dollars in thousands)
LIABILITIES, PREFERRED AND COMMON STOCKS September 30, December 31,
AND OTHER STOCKHOLDERS' EQUITY 1995 1994
- ---------------------------------------- ------------ -----------
Current liabilities:
Drafts payable $ 673 $ 1,291
Accounts payable 29,754 29,496
Accrued liabilities 9,723 8,062
Current portion of long-term debt 15,064 9,716
Total current liabilities 55,214 48,565
Long-term debt 98,219 81,965
Contingencies (Note 7)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,588 shares
issued and outstanding (1,597 in 1994) 151 152
Non-redeemable preferred stock, common stock and
other stockholders' equity (Note 6):
Series B 12% cumulative, convertible
preferred stock, $100 par value;
20,000 shares issued and outstanding 2,000 2,000
Series 2 $3.25 convertible, exchangeable
Class C preferred stock, $50 stated
value; 920,000 shares issued and outstanding 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 14,756,536 shares
issued (14,620,156 in 1994) 1,476 1,462
Capital in excess of par value 37,565 37,369
Retained earnings 11,222 12,883
--------- --------
98,263 99,714
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 1,821,419 shares
(1,559,590 in 1994) 10,299 8,915
Total non-redeemable preferred stock, common --------- --------
stock and other stockholders' equity 87,764 90,599
--------- --------
$ 241,348 $ 221,281
========= ========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
---------- ----------
Revenues:
Net sales $ 208,038 $ 190,954
Other income 3,350 3,281
211,388 194,235
Costs and expenses:
Cost of sales 162,032 149,131
Selling, general and administrative 40,554 35,584
Interest 7,540 5,081
Provision for environmental matter (Note 7) - 400
--------- ---------
210,126 190,196
Income from continuing operations --------- ---------
before provision for income taxes 1,262 4,039
Provision for income taxes 112 277
--------- ---------
Income from continuing operations 1,150 3,762
Income from discontinued operations, net
of income taxes (Notes 2 and 3) - 584
Gain on sale of discontinued operations
(Note 2) - 24,200
---------- ----------
Net income $ 1,150 $ 28,546
Net income (loss) applicable to ========== ==========
common stock (Note 4) $ (1,276) $ 26,110
Average common shares outstanding (Note 4): ========== ==========
Primary 13,325,587 14,076,021
Fully diluted 13,338,356 15,841,798
Earnings per common share (Note 4):
Primary:
Income (loss) from:
Continuing operations $ (.10) $ .09
Discontinued operations - 1.76
---------- ----------
Net income (loss) $ (.10) $ 1.85
========== ==========
Fully diluted:
Income (loss) from:
Continuing operations $ (.10) $ .09
Discontinued operations - 1.61
---------- ----------
Net income (loss) $ (.10) $ 1.70
========== ==========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, 1995 and 1994
(Dollars in thousands, except per share amounts)
1995 1994
---------- ---------
Revenues:
Net sales $ 63,878 $ 58,689
Other income 1,647 1,450
---------- ---------
65,525 60,139
Costs and expenses:
Cost of sales 50,902 46,454
Selling, general and administrative 14,003 12,988
Interest 2,520 1,688
---------- ---------
67,425 61,130
Loss from continuing operations
before credit for income taxes (1,900) (991)
Credit for income taxes (99) (78)
---------- ---------
Net loss $ (1,801) $ (913)
Net loss applicable to ========== =========
common stock (Note 4) $ (2,604) $ (1,718)
Average common shares outstanding (Note 4): ========== =========
Primary 12,940,607 13,455,320
Fully diluted 12,940,607 13,455,320
Loss per common share (Note 4):
Primary $ (.20) $ (.13)
========== =========
Fully diluted $ (.20) $ (.13)
========== =========
(See accompanying notes)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
________ _________
Cash flows from continuing operations:
Income from continuing operations $ 1,150 $ 3,762
Adjustments to reconcile income from
continuing operations to cash flows
provided (used) by continuing operations:
Depreciation, depletion and amortization:
Property, plant and equipment 5,534 5,250
Other 751 715
Provision for possible losses:
Trade accounts receivable 687 391
Environmental matter - 400
Gain on sale of assets (165) (1,117)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (11,137) (253)
Inventories (3,610) (4,516)
Supplies and prepaid items 73 (1,063)
Accounts payable 345 14,099
Accrued liabilities 1,740 (1,241)
-------- --------
Net cash provided (used) by
continuing operations (4,632) 16,427
Cash flows from investing activities of
continuing operations:
Capital expenditures (15,081) (12,090)
Purchase of loans receivable - (2,877)
Principal payments on notes receivable 1,482 -
Proceeds from sales of equipment and
real estate properties 1,006 4,071
Increase in other assets (696) (5,584)
-------- --------
Net cash used by investing activities
of continuing operations (13,289) (16,480)
(Continued on following page)
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
_________ _________
Cash flows from financing activities of
continuing operations:
Payments on long-term and other debt $ (9,966) $ (6,275)
Long-term and other borrowings 18,435 2,676
Net change in revolving debt facilities 12,874 47,101
Net change in drafts payable (618) 231
Dividends paid (Note 6):
Preferred stocks (2,425) (2,433)
Common stock (386) (414)
Purchases of treasury stock (Note 6):
Preferred stock - (200)
Common stock (1,384) (3,865)
Net proceeds from issuance of
common stock (Note 6) 210 256
Net decrease in receivables sold to
discontinued operations - (31,844)
__________ __________
Net cash provided by financing
activities from continuing operations 16,740 5,233
__________ __________
Net increase (decrease) in cash and cash
equivalents from continuing operations (1,181) 5,180
Net decrease in cash and cash equivalents
from discontinued operations - (1,675)
---------- ----------
Net increase (decrease) in cash and cash
equivalents from all activities (1,181) 3,505
Cash and cash equivalents at beginning of
period 2,610 2,781
---------- ----------
Cash and cash equivalents at end of period $ 1,429 $ 6,286
========== ==========
(See accompanying notes)
LSB INDUSTRIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
Note 1: The accompanying financial statements include the accounts of LSB
Industries, Inc. (the "Company") and its subsidiaries. The Company s
financial services subsidiary, Equity Bank for Savings, F.A. ( Equity Bank )
was sold on May 25, 1994. The condensed consolidated statement of income for
the nine month period ended September 30, 1994 presents the operations of
Equity Bank as income from discontinued operations.
Note 2: On May 25, 1994, pursuant to a Stock Purchase Agreement, dated as of
February 9, 1994, (the Acquisition Agreement ), the Company sold its wholly-
owned subsidiary, Equity Bank, which constituted the Financial Services
Business of the Company, to Fourth Financial Corporation (the Purchaser ).
The Purchaser acquired all of the outstanding shares of capital stock of
Equity Bank.
Under the Acquisition Agreement and using the proceeds from sale of Equity
Bank, the Company acquired from Equity Bank, prior to closing, certain
subsidiaries of Equity Bank ( Retained Corporations ) that own the real and
personal property and other assets contributed by the Company to Equity Bank
at the time of the acquisition of the predecessor of Equity Bank by the
Company for Equity Bank s carrying value of the assets contributed of
approximately $67.4 million, which approximated fair value. The carrying
value of these assets in the consolidated financial statements of the Company
continues to be historical cost. At the time of closing of the sale of Equity
Bank, the Company also acquired: (A) the loan and mortgage on and an option
to purchase Equity Tower located in Oklahoma City, Oklahoma ( Equity Tower
Loan ), for an amount equal to Equity Bank s carrying value of approximately
$13.9 million; (B) other real estate owned by Equity Bank that was acquired by
Equity Bank through foreclosure for an amount equal to Equity Bank s carrying
value of approximately $3.6 million (the Equity Tower Loan and other real
estate owned are collectively called the Retained Assets ); and (C) certain
other loans for $3.1 million previously owned by Equity Bank. In addition,
the Company acquired the outstanding accounts receivable sold to Equity Bank
by the Company and its subsidiaries under various purchase agreements, dated
March 8, 1988 (the Receivables ) for $6.9 million, which approximated fair
value.
Note 3: At September 30, 1995, the Company had net operating loss ( NOL )
carryforwards for tax purposes of approximately $40 million. Such amounts
expire beginning in 1999. The Company also has investment tax credit
carryforwards of approximately $630,000, which expire beginning in 1995.
The Company s provision for income taxes for the nine months ended September
30, 1995 of $112,000 is for current state income taxes.
Note 4: Primary earnings per common share are based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each period, after giving appropriate effect to preferred stock
dividends.
Fully diluted earnings per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding and the
assumed conversion of dilutive convertible securities outstanding after
appropriate adjustment for interest and related income tax effects on
convertible notes payable.
Net income (loss) applicable to common stock is computed by adjusting net
income by the amount of preferred stock dividends, including undeclared or
unpaid dividends, if cumulative.
Note 5: In 1992, a subsidiary of the Company signed an agreement to supply a
foreign customer with equipment, technology and technical assistance to
manufacture certain types of automotive products. As of September 30, 1995
$17 million has been billed and collected by the Company under this contract.
In May 1995, the subsidiary negotiated an amendment to the agreement with the
foreign customer and an agreement with a syndication of foreign lenders
whereby the lenders acquired, without recourse to the Company or such
subsidiary, the unpaid contract amount billable by the Company (present value
of approximately $24 million). Under the amendment with the foreign customer
and the agreement with the foreign lenders, the Company received approximately
$5 million, net of fees, and a commitment from the foreign customer to provide
approximately $21 million of bearing products. The Company is to receive such
bearing products, without charge when and if the foreign customer repays its
debt of approximately $31 million which the foreign lenders acquired from the
subsidiary. In addition, the subsidiary agreed to purchase approximately $6
million of bearing products each year over (5) years beginning,in 1995, at
predetermined prices, not in excess of market prices, subject to the
customer's ability to deliver product, meeting defined quality standards, to
the Company.
Note 6: The table below provides detail of activity in the Stockholders'
Equity accounts for the nine months ended September 30, 1995:
<TABLE>
<CAPTION>
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) $90,599
Net Income 1,150 1,150
Conversion of 9.5 shares of
redeemable preferred stock
to common stock 1 1 1
Exercise of stock options 136 14 195 209
Dividends declared:
Common Stock ($.03 per share) (386) (386)
Series B 12% preferred
stock ($9.00 per share) (180) (180)
Redeemable preferred
stock ($10.00 per share) (16) (16)
Series 2 preferred
stock ($2.44 per share) (2,229) (2,229)
Purchases of treasury stock (1,384) (1,384)
_______ _______ _______ _______ ________ ________ _____ _______
(1)
Balance at September 30, 1995 14,757 $1,476 $48,000 $37,565 $11,222 $(10,299) $(200) $87,764
======= ====== ======= ======= ======= ======== ===== =======
</TABLE>
(1)
Includes 1,821,419 shares of the Company's Common Stock held in treasury.
Excluding the 1,821,419 shares held in treasury, the outstanding shares of the
Company's Common Stock at September 30, 1995 were 12,935,117.
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. The Company has paid the civil money penalty, completed the
landfill closure, and begun the ground water monitoring process. 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. 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 on an unsecured basis approximately $2.5 million of
debt from lenders to a start-up aviation company in exchange for a 24%
ownership interest in the aviation company, to which no value has been
assigned as of September 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 September 30, 1995, the aviation company was in compliance
with the appropriate provisions of its debt agreements with its lenders.
Note 8:
As previously announced, the Company is going to restructure its business due
to unsatisfactory returns on investments in certain business segments. The
extent and precise form of the restructuring has not been determined, other
than the Company's intent to reduce its investment in the Automotive Products
and Industrial Products Businesses, where the return on investment has not
been satisfactory, and to concentrate resources in the Chemical and
Environmental Control Businesses.
Note 9:
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of" ("FAS 121"). FAS 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used for long-lived assets and
certain intangibles to be disposed of. This statement requires that such
assets be reviewed for impairment, utilizing estimated cash flows resulting
from the use of such assets and their eventual disposition, whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.
The Company has not determined the effect, if any, implementation of FAS 121
will have on the Company's financial statements. This statement is effective
for financial statements for fiscal years beginning after December 15, 1995.
The Company anticipates the adoption of FAS 121 and the implementation of its
provisions no later than the first quarter of 1996; however, earlier
application is permitted.
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 September 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 nine months and three months ended September 30,
1995 and 1994 is detailed below.
Nine Months Three Months
1995 1994 1995 1994
---- ---- ---- ----
(In thousands)
(Unaudited)
Sales:
Chemical $106,569 $103,859 $ 32,631 $ 31,136
Environmental Control 64,696 52,977 19,499 17,727
Automotive Products 25,167 25,420 8,726 7,820
Industrial Products 11,606 8,698 3,022 2,006
_______ _______ _______ _______
$208,038 $190,954 $ 63,878 $ 58,689
Gross profit:
Chemical $ 20,571 $ 20,479 $ 6,392 $ 5,304
Environmental Control 17,670 13,439 4,556 4,658
Automotive Products 5,018 6,188 1,352 1,886
Industrial Products 2,747 1,717 676 387
_______ _______ _______ _______
$ 46,006 $ 41,823 $ 12,976 $ 12,235
======= ======= ======= =======
Operating profit (loss):
Chemical $ 10,869 $ 11,130 $ 3,251 $ 2,564
Environmental Control 6,046 3,527 650 1,198
Automotive Products (1,960) (678) (1,142) (553)
Industrial Products (2,015) (2,103) (953) (1,400)
_______ _______ _______ _______
12,940 11,876 1,806 1,809
General corporate expenses (4,138) (2,756) (1,186) (1,112)
Interest expense (7,540) (5,081) (2,520) (1,688)
_______ _______ _______ _______
Income (loss) from continuing
operations before
provision for income taxes $ 1,262 $ 4,039 $ (1,900) $ (991)
======= ======= ======= =======
As previously announced, the Company is going to restructure its
business due to unsatisfactory returns on investments in certain business
segments. The extent and precise form of the restructuring has not been
determined, other than the Company's intent to reduce its investment in the
Automotive Products and Industrial Products Businesses, where the return on
investment has not been satisfactory, and to concentrate resources in the
Chemical and Environmental Control Businesses. As of the date of this report
the Company is not aware of the effects that such restructuring will have on
the Company's results of operation or liquidity but it is management's opinion
that the implementation of such plan should improve liquidity.
RESULTS OF OPERATIONS
Nine months ended September 30, 1995 vs. Nine months ended September 30, 1994.
Revenues
--------
Total revenues for the nine months ended September 30, 1995 and 1994
were $211.4 million and $194.2 million, respectively (an increase of $17.2
million). Sales increased $17.1 million.
Net Sales
- ---------
Consolidated net sales included in total revenues for the nine months
ended September 30, 1995 were $208.1 million, compared to $191.0 million for
the first nine months of 1994, an increase of $17.1 million. This increase in
sales resulted principally from: (i) increased sales in the Chemical Business
of $2.7 million, primarily due to higher sales prices to partially pass higher
ammonia costs through to customers and increased business volume of Total
Energy Systems, the Company's subsidiary located in Australia (TES), (ii)
increased sales in the Environmental Control Business of $11.7 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 improved market conditions in 1995,
and (iii) increased sales in the Industrial Products Business of $2.9
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 for $2.8 million
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 22.1% for the first nine months of 1995, compared to
21.9% for the first nine 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 19.5% in the nine months ended September 30, 1995 and 18.6% in
the first nine 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)
increased expense in the Automotive Products Business, 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 $7.5 million during
the nine months ended September 30, 1995 compared to approximately $5.1
million during the nine months ended September 30, 1994. The increase
primarily resulted from higher average balances of borrowed funds.
Income Before Taxes
-------------------
The Company had income from continuing operations before income taxes of
$1.3 million in the first nine months of 1995 compared to $4.0 million in the
nine months ended September 30, 1994. The decreased profitability of $2.7
million was primarily due to higher SG&A costs of $5.0 million and interest
expense of $2.5 million offset by improved gross profit of $4.2 million 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 nine months ended September 30, 1995 and the nine months ended
September 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 $584,000 in the first nine months of 1994.
Three months ended September 30, 1995 vs. Three months ended September 30,
- -------------------------------------------------------------------------
1994.
- ----
Revenues
--------
Total revenues for the three months ended September 30, 1995 and 1994
were $65.5 million and $60.1 million, respectively (an increase of $ 5.4
million). Sales increased $ 5.2 million.
Net Sales
---------
Consolidated net sales included in total revenues for the three months
ended September 30, 1995 were $63.9 million, compared to $58.7 million for the
third quarter of 1994, an increase of $ 5.2 million. This increase in sales
resulted principally from: (i) increased sales in the Chemical Business of
$1.5 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, (ii) increased sales in the Environmental Control
Business of $1.8 million primarily due to increased fan coil sales resulting
from improved market conditions for these products, (iii) increased sales in
the Automotive Products Business of $.9 million due to the acquisition of New
Alloy Company on June 1, 1995, a manufacturer and distributor of automotive U-
joint products, and (iv) increased sales in the Industrial Products Business
of $1.0 million, primarily due to increased sales of machine tools.
Gross Profit
------------
Gross profit was 20.3% for the three months ended September 30, 1995,
compared to 20.8% for the three months ended September 30, 1994. The decline
in the gross profit was due primarily to a change in product mix in the
Environmental Control Business and customer mix in the Automotive Products
Business, offset by sales price increases in 1995 to partially pass on to
customers abnormally high ammonia cost increases sustained in late 1993, 1994
and early 1995 and the lowered cost of ammonia incurred in the latter part of
1995
Selling, General and Administrative Expense
-------------------------------------------
Selling, general and administrative ("SG&A") expenses as a percent of
net sales were 21.9% in the three months ended September 30, 1995 and 22.1% in
the third quarter of 1994. This decrease in SG&A as a percent of sales was
primarily due to increased sales volume in the Environmental Control,
Automotive Products, and Industrial Products Businesses with a less than
equivalent corresponding increase in SG&A costs, and decreased insurance costs
in 1995 versus 1994.
Interest Expense
----------------
Interest expense for the Company was approximately $2.5 million during
the three months ended September 30, 1995 compared to approximately $1.7
million during the three months ended September 30, 1994. The increase
primarily resulted from higher average balances of borrowed funds.
Income before Taxes
-------------------
The Company had a loss from continuing operations before income taxes of
$1.9 million in the third quarter of 1995 compared to $1.0 million in the
three months ended September 30, 1994. The decreased profitability of $.9
million was primarily due to higher gross profit of $.7 million offset by
increases in SG&A of $1.0 million and higher interest expense of $.8 million.
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 September 30, 1995 and the three months ended
September 30, 1994 are for current state income taxes and federal alternative
minimum taxes.
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%) Per discussion below (rate changed to
the Lender's prime lending rate plus one percent effective November 16, 1995).
The rate in effect at September 30, 1995 was 9.25%. 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 September 30, 1995, the available borrowings, based on
eligible collateral, approximated $59.3 million. Borrowings under the
Revolver outstanding at September 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 August 17, 1995, the Company
renegotiated the tangible net worth covenant to reduce the requirement from
$90 million to $82 million. Due to lower earnings than anticipated the Company
did not meet the original covenant at June 30, 1995 and it was Managements
opinion that the Company would not meet the covenant requirements during the
next twelve months of the term of the Agreements. Effective November 16, 1995
the Company renegotiated further reductions in the tangible net worth
covenants for the period December 31, 1995 through December 31, 1997 and
simultaneous therewith agreed to an increase in the interest rate it pays the
Lender by one-half percent (.5%). The tangible net worth covenants were reset
to $78 million at December 31, 1995 escalating quarterly to $84 million at
December 31, 1997. The covenants had previously been $82 million at December
31, 1995 escalating quarterly to $98 million at December 31, 1996 and
thereafter. Management expects that the Company will be able to meet the
renegotiated covenant requirements at future measurement dates. The annual
interest on the outstanding debt under the Revolver at September 30, 1995 at
the rate then in effect would be approximately $5.3 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 September 30,
1995 was $14.4 million. Annual principal payments remaining on the Term
Loan are $7.0 million in 1996 and a final payment of $7.4 million on
March 31, 1997. Annual interest at the agreed to interest rates, if
calculated on the $14.4 million outstanding balance at September 30,
1995 would be approximately $1.7 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 covenant requirements. The
Company anticipates that chemical will be able to meet covenant
requirements at future measurement dates. Under the terms of the
current 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; and, (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 substantially
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 September 30, 1995, DSN had
outstanding borrowings of $14.6 million under the Construction Loan, $.6
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 October 31, 1995, the interest rate would
be 8.5%. The Railcar Loan and the Mixed Acid Loan will be repaid under
the same terms as the Construction Loan. Upon completion of
construction of the Mixed Acid Plant, 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 October 31, 1995 would be 8.5%,
also. Monthly aggregate principal installments of approximately
$204,000 will be required once the above discussed construction loans
convert to permanent loans.
(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 ($3.0 million borrowed at September 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 11% at September 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. TES is in technical non-compliance with a certain financial covenant
contained in the loan agreement involving the Facility. However, the lender
that the lender has not taken any action against TES or the Company as a
result of such non-compliance and the lender has continued to allow TES to
borrow under the Revolver. The outstanding borrowing under the facility at
September 30, 1995 has been classified as due within one year in the
accompanying condensed consolidated financial statements.
Cash Flows - Net cash used by operating activities of continuing
operations in the first nine months of 1995, after adjustment for net non-cash
expenses of $6.8 million, was $4.6 million. This cash usage included the
following changes in assets and liabilities: (i) increases in accounts
receivable of $11.1 million, (ii) inventory increases of $3.6 million, (iii)
decreases in supplies and prepaid items of $.1 million, and (iv) increases in
accounts payable and accrued liabilities of $2.1 million. The increase in
accounts receivable was due primarily to increased sales of approximately $9.9
million over the fourth quarter of 1994 in all businesses. The increase in
inventories was due primarily to higher sales levels in all businesses and
increases in the Automotive Products Business due to purchases of new products
in excess of the realized sales demand for those products. These increases
were offset by inventory reductions in the Environmental Control Business due
to reductions of excess inventory and to deliveries under a large contract in
1995 of inventory that was manufactured in 1994. The increase in accounts
payable and accrued liabilities is due to expansion of the product base and
increased business volume and normal fluctuations in the timing of payments.
Investing activities during the first nine months of 1995 included (i) capital
expenditures of $15.1 million, relating primarily to the construction of a new
nitric acid production facility in the Chemical Business, including $.9
million of capitalized interest associated with such construction (ii)
principal payments received on certain loans receivable of $1.5 million, (iii)
proceeds of $1.0 million from the sale of assets, primarily real estate, and
(iv) a net increase in other assets of $.7 million due primarily to a
subsidiary's investment of $2.8 million in the joint venture previously
discussed offset by sales of other assets primarily real estate held for sale.
Cash flows provided by financing activities included net borrowings of $20.7
million, offset by dividends paid of $2.8 million and treasury stock purchases
of $1.4 million.
In summary, during the nine months ended September 30, 1995, cash
requirements for required debt service payments, dividends on Company stocks,
and purchases of treasury stock approximated $14.8 million. In addition, the
Company spent approximately $14.2 million for capital improvements, of which
$8.5 million was in connection with the DSN Plant being constructed by the
Chemical Business. The expenditures noted above, plus the cash used by
operations of $4.6 million, resulted in a borrowing requirement of
approximately $12.9 million against the Company's revolving credit facilities
in addition to other borrowings of $18.4 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. 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 Automotive Products Business,
which has increased its inventories beyond required levels. In the first nine
months of 1995, the Chemical Business has incurred additional cost of $8.5
million to continue installation of the DSN Plant. The Company anticipates
incurring $1.9 million to complete this project, which was producing at 80% of
design capacity on October 31, 1995. As previously noted, the Company expects
the final funding of$3.1 million related to the DSN Plant and related railcars
to occur during the fourth quarter 1995. During the first nine months of
1995, the Chemical Business spent $1.6 million in connection with the Mixed
Acid Plant. An additional $.1 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 the 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 nine months of 1995, the Company 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) $2.44 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) $.06 per share on its
outstanding shares of Common Stock, $.03 of which was declared in December
1994 but paid in January 1995. The Company expects to continue the payment of
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 for five years starting in 1995, 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.
During the first nine months of 1995 the Company purchased $2.1 million of
bearing products from the foreign customer. 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
whose product line is compatible with that of the Company's Environmental
Control Business in the U.S.A. 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 $500,000 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 cash flow 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 US 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 $18.8
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 September 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 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 LLP 2600 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 September 30, 1995, and the related
condensed consolidated statements of operations for the nine-month and three-
month periods ended September 30, 1995 and 1994 and the condensed consolidated
statements of cash flow for the nine-month periods ended September 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 operations, 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.
November 17, 1995 /s/ ERNST & YOUNG LLP
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
------------------
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 September 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 20th day of November 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-s95.xmt
LSB INDUSTRIES, INC. Exhibit 11.1
Page 1 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1995 quarter ended
---------------------------------
March 31 June 30 Sept. 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,060,566 13,045,912 12,941,097
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 180 - 10
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis - 96,692 3,326
Purchases of treasury stock;
calculated on weighted average
basis (13,950) (146,176) (3,826)
---------- ---------- ---------
13,046,796 12,996,428 12,940,607
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 823,140 817,448 -
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (317,680) (393,498) -
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion - 63,520 -
---------- ---------- ----------
505,460 487,470 -
---------- ---------- ----------
13,552,256 13,483,898 12,940,607
========== ========== ==========
Earnings (loss) for primary earnings per share:
Net earnings (loss) $ 1,448,092 $ 1,502,431 $(1,800,736)
Dividends on cumulative preferred stocks (75,880) (60,000) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock (6.5% annually) (743,437) (743,437) (743,437)
---------- --------- ----------
Earnings (loss) applicable
to common stock $ 628,775 $ 698,994 $(2,604,173)
========== ========= ==========
Earnings (loss) per share $ .05 $ .05 $(.20)
===== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 2 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1995
--------------
Net loss applicable to common stock $(1,276,404)
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 13,325,587
==========
Loss per share $(.10)
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 3 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
1994 quarter ended
---------------------------------------
March 31 June 30 Sept. 30
Shares for primary earnings per share:
Weighted average shares:
Common shares outstanding from
beginning of period 13,673,971 13,659,691 13,555,191
Common shares issued on conversion
of redeemable preferred stock;
calculated on weighted average
basis 360 - 180
Common shares issued upon exercise
of employee or director stock
options; calculated on weighted
average basis 6,833 24,846 2,549
Purchase of treasury stock;
calculated on weighted
average basis (20,000) (29,176) (102,599)
---------- ---------- ----------
13,661,164 13,655,361 13,455,320
Common Stock equivalents:
Shares issuable upon exercise of
options and warrants (including
the weighted average for shares
subject to options and warrants
granted during the period) 934,807 877,794 -
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on average market price for
the period) (247,510) (238,754) -
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760 -
---------- ---------- ----------
752,417 703,800 -
---------- ---------- ----------
14,413,581 14,359,161 13,455,320
Earnings (loss) for primary
earnings per share:
Net earnings (loss) $ 2,203,665 $27,254,968 $(912,514)
Dividends on cumulative
preferred stocks (76,145) (60,000) (60,000)
Dividends on convertible, exchangeable
Class C preferred stock
(6.5% annually) (747,500) (747,500) (745,469)
---------- ---------- ---------
Earnings (loss) applicable to
common stock $ 1,380,020 $26,447,468 $(1,717,983)
========== ========== =========
Earnings (loss) per share $.10 $1.84 $(.13)
==== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 4 of 6
PRIMARY EARNINGS PER SHARE COMPUTATION
Nine months
ended
Sept. 30, 1994
--------------
Net earnings applicable to common stock $26,109,505
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 14,076,021
==========
Earnings per share $1.85
====
LSB INDUSTRIES, INC. Exhibit 11.1
Page 5 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1995 quarter ended
----------------------------------
March 31 June 30 Sept. 30
Shares for fully diluted earnings per
share:
Weighted average shares outstanding
for primary earnings per share 13,046,796 12,996,428 12,940,607
Shares issuable upon exercise of
options and warrants 823,140 817,448 -
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price
for the quarter if greater than
the average) (300,737) (380,135) -
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above on
actual conversion - 63,520 -
Common shares issuable upon conversion
of convertible note payable 4,000 4,000 -
Common shares issuable upon conversion
of convertible preferred stock, if
dilutive, from date of issue:
Series B - - -
Series 2 - - -
---------- ---------- ----------
13,573,199 13,501,261 12,940,607
========== ========== ==========
Earnings (loss) for fully diluted earnings
per share:
Net earnings (loss) $ 1,448,092 $ 1,502,431 $(1,800,736)
Interest on convertible note 180 180 -
Dividends on cumulative convertible
preferred stocks:
Series B (75,880) (60,000) (60,000)
Series 2 Class C (743,437) (743,437) (743,437)
---------- ---------- ----------
Earnings (loss) applicable to
common stock $ 628,955 $ 699,174 $(2,604,173)
========== ========== ==========
Earnings (loss) per share $ .05 $ .05 $(.20)
Nine months
ended
Sept. 30, 1995
--------------
Net loss applicable to common stock $(1,276,044)
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 13,338,356
==========
Loss per share $ (.10)
======
LSB INDUSTRIES, INC. Exhibit 11.1
Page 6 of 6
FULLY DILUTED EARNINGS PER SHARE COMPUTATION
1994 quarter ended
_____________________________________
March 31 June 30 Sept. 30
Shares for fully diluted earnings
per share:
Weighted average shares outstanding
for primary earnings per share 13,661,164 13,655,361 13,455,320
Shares issuable upon exercise of
options and warrants 934,807 877,794 -
Assumed repurchase of outstanding
shares up to the 20% limitation
(based on ending market price for
the quarter if greater than the
average) (247,510) (238,754) -
Common shares issuable on conversion
of redeemable preferred stock,
excluding shares included above
on actual conversion 65,120 64,760 -
Common shares issuable upon conversion
of convertible note payable 4,000 4,000 -
Common shares issuable upon conversion
of convertible preferred stock,
if dilutive, from date of issue:
Series B 666,666 666,666 -
Series 2 - 3,956,000 -
----------- ----------- -----------
15,084,247 18,985,827 13,455,320
Earnings (loss) for fully diluted
earnings (loss) per share:
Net earnings (loss) $ 2,203,665 $27,254,968 $(912,514)
Interest on convertible note 180 180 -
Dividends on cumulative convertible
preferred stocks:
Series B - - (60,000)
Series 2 class C (747,500) - (745,469)
---------- ---------- -----------
Earnings (loss) applicable to
common stock $ 1,456,345 $27,255,148 $(1,717,983)
========== ========== ==========
Earnings (loss) per shar $.10 $1.44 $(0.13)
==== ===== ======
Nine months
ended
Sept. 30, 1994
--------------
Net earnings applicable to common stock $26,993,510
==========
Weighted average number of common and common
equivalent shares (average of three quarters
above) 15,841,798
==========
Earnings per share $1.70
====
Exhibit 15.1
ERNST & YOUNG LLP 100 North Broadway Phone: 405 278 6800
Oklahoma City, OK 73102 Fax: 405 278 6823
Fax: 405 278 6834
November 17, 1995
The Board of Directors
LSB Industries, Inc.
We are aware of the incorporation by reference in the
Registration Statement (Form S-8 No. 33-8302) and the
Registration Statement (Form S-3 No. 33-69800) of LSB Industries,
Inc. and in the related Prospectus of our report dated November
17, 1995 relating to the unaudited condensed consolidated interim
financial statements of LSB Industries, Inc. which are included
in its Form 10-Q for the quarter ended September 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report
is not a part of the registration statement prepared or certified
by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
Very truly yours,
/s/ Ernst & Young LLP
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<NAME> LSB INDUSTRIES, INC.
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