[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
||
For
the quarterly period ended March
31, 2007
|
|||
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
|
|||
LSB
Industries, Inc.
|
|||
Exact
name of Registrant as specified in its charter
|
|||
Delaware
|
73-1015226
|
||
State
or other jurisdiction of
incorporation
or organization
|
I.R.S.
Employer Identification No.
|
||
16
South Pennsylvania
Avenue, Oklahoma City, Oklahoma 73107
|
|||
Address
of
principal executive offices
(Zip
Code)
|
|||
(405)
235-4546
|
|||
Registrant's
telephone number, including area code
|
|||
__ None _ ___
|
|||
Former
name, former address and former fiscal year, if changed since last
report.
|
|
||
PART
I - Financial Information
|
Page
|
|
Item
1.
|
3
|
|
Item
2.
|
32
|
|
Item
3.
|
47
|
|
Item
4.
|
48
|
|
49
|
||
PART
II - Other Information
|
||
Item
1.
|
51
|
|
Item 1A.
|
51
|
|
Item
2.
|
51
|
|
Item
3.
|
52
|
|
Item
4.
|
52
|
|
Item
5.
|
53
|
|
Item
6.
|
53
|
March
31,
2007
|
December
31,
2006
|
(In
Thousands)
|
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
761
|
$
|
2,255
|
|||
Restricted
cash
|
31
|
2,479
|
|||||
Accounts
receivable, net
|
84,985
|
67,571
|
|||||
Inventories:
|
|||||||
Finished
goods
|
22,430
|
20,252
|
|||||
Work
in process
|
2,717
|
3,205
|
|||||
Raw
materials
|
19,773
|
21,992
|
|||||
Total
inventories
|
44,920
|
45,449
|
|||||
Supplies,
prepaid items and other:
|
|||||||
Prepaid
insurance
|
2,609
|
3,443
|
|||||
Precious
metals
|
8,707
|
6,406
|
|||||
Supplies
|
3,534
|
3,424
|
|||||
Other
|
2,291
|
1,468
|
|||||
Total
supplies, prepaid items and other
|
17,141
|
14,741
|
|||||
Total
current assets
|
147,838
|
132,495
|
|||||
Property,
plant and equipment, net
|
76,781
|
76,404
|
|||||
Other
assets:
|
|||||||
Noncurrent
restricted cash
|
1,064
|
1,202
|
|||||
Debt
issuance and other debt-related costs, net
|
1,789
|
2,221
|
|||||
Investment
in affiliate
|
3,349
|
3,314
|
|||||
Goodwill
|
1,724
|
1,724
|
|||||
Other,
net
|
2,379
|
2,567
|
|||||
Total
other assets
|
10,305
|
11,028
|
|||||
$
|
234,924
|
$
|
219,927
|
March
31,
2007
|
December
31,
2006
|
(In
Thousands)
|
Liabilities
and Stockholders’ Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
41,428
|
$
|
42,870
|
|||
Short-term
financing and drafts payable
|
1,902
|
2,986
|
|||||
Accrued
and other liabilities
|
25,179
|
26,816
|
|||||
Current
portion of long-term debt
|
8,963
|
11,579
|
|||||
Total
current liabilities
|
77,472
|
84,251
|
|||||
Long-term
debt
|
93,886
|
86,113
|
|||||
Noncurrent
accrued and other liabilities
|
6,256
|
5,929
|
|||||
Contingencies
(Note 11)
|
|||||||
Stockholders'
equity:
|
|||||||
Series
B 12% cumulative, convertible preferred stock, $100 par value;
20,000 shares issued and outstanding; aggregate liquidation
preference of $3,710,400 ($3,650,400 in 2006)
|
2,000
|
2,000
|
|||||
Series
2 $3.25 convertible, exchangeable Class C preferred stock, $50
stated value; 211,595 shares issued (517,402 in 2006); aggregate
liquidation preference of $15,371,050 ($37,836,070 in 2006)
|
10,580
|
25,870
|
|||||
Series
D 6% cumulative, convertible Class C preferred stock, no par
value; 1,000,000 shares issued; aggregate liquidation
preference
of $1,300,000
|
1,000
|
1,000
|
|||||
Common
stock, $.10 par value; 75,000,000 shares authorized, 22,930,893
shares issued (20,215,339 in 2006)
|
2,293
|
2,022
|
|||||
Capital
in excess of par value
|
110,064
|
79,838
|
|||||
Accumulated
other comprehensive loss
|
(628
|
)
|
(701
|
)
|
|||
Accumulated
deficit
|
(49,566
|
)
|
(47,962
|
)
|
|||
75,743
|
62,067
|
||||||
Less
treasury stock at cost:
|
|||||||
Series
2 Preferred, 18,300 shares
|
797
|
797
|
|||||
Common
stock, 3,447,754 shares
|
17,636
|
17,636
|
|||||
Total
stockholders' equity
|
57,310
|
43,634
|
|||||
$
|
234,924
|
$
|
219,927
|
2007
|
2006
|
(In
Thousands, Except Per Share
Amounts)
|
Net
sales
|
$
|
147,385
|
$
|
111,857
|
|||
Cost
of sales
|
115,333
|
91,678
|
|||||
Gross
profit
|
32,052
|
20,179
|
|||||
Selling,
general and administrative expense
|
18,301
|
14,152
|
|||||
Provisions
for losses on accounts receivable
|
258
|
200
|
|||||
Other
expense
|
24
|
106
|
|||||
Other
income
|
(54
|
)
|
(47
|
)
|
|||
Operating
income
|
13,523
|
5,768
|
|||||
Interest
expense
|
2,588
|
2,875
|
|||||
Non-operating
other income, net
|
(42
|
)
|
(30
|
)
|
|||
Income
from continuing operations before provisions for income
taxes and equity in earnings of affiliate
|
10,977
|
2,923
|
|||||
Provisions
for income taxes
|
344
|
50
|
|||||
Equity
in earnings of affiliate
|
(215
|
)
|
(205
|
)
|
|||
Income
from continuing operations
|
10,848
|
3,078
|
|||||
Net
loss from discontinued operations
|
29
|
100
|
|||||
Net
income
|
10,819
|
2,978
|
|||||
Dividend
requirements and stock dividend on preferred stock exchanged in March
2007
|
4,971
|
248
|
|||||
Other
preferred stock dividend requirements
|
217
|
304
|
|||||
Net
income applicable to common stock
|
$
|
5,631
|
$
|
2,426
|
|||
Weighted
average common shares:
|
|||||||
Basic
|
17,516
|
13,762
|
|||||
Diluted
|
20,976
|
18,220
|
|||||
Income
(loss) per common share:
|
|||||||
Basic:
|
|
||||||
Income
from continuing operations
|
$
|
.32
|
$
|
.19
|
|||
Net
loss from discontinued operations
|
-
|
(.01
|
)
|
||||
Net
income
|
$
|
.32
|
$
|
.18
|
|||
Diluted:
|
|||||||
Income
from continuing operations
|
$
|
.28
|
$
|
.15
|
|||
Net
loss from discontinued operations
|
-
|
(.01
|
)
|
||||
Net
income
|
$
|
.28
|
$
|
.14
|
|||
Common Stock Shares |
Non-
Redeemable Preferred Stock |
Common Stock
Par
Value |
Capital in Excess of Par Value |
Accumulated
Other Comprehensive Loss |
Accumulated Deficit |
Treasury Stock-Preferred |
Treasury Stock- Common |
Total |
Balance
at December 31, 2006
|
20,215
|
$
|
28,870
|
$
|
2,022
|
$
|
79,838
|
$
|
(701
|
)
|
$
|
(47,962
|
)
|
$
|
(797
|
)
|
$
|
(17,636
|
)
|
$
|
43,634
|
|||
Net
income
|
10,819
|
10,819
|
||||||||||||||||||||||
Amortization
of cash flow hedge
|
73
|
73
|
||||||||||||||||||||||
Total
comprehensive income
|
10,892
|
|||||||||||||||||||||||
Cumulative
effect adjustment in accordance with FIN 48
|
(120 |
) |
(120 |
) |
||||||||||||||||||||
Conversion
of debentures to common stock
|
424
|
42
|
2,759
|
2,801
|
||||||||||||||||||||
Exercise
of stock options
|
26
|
3
|
94
|
97
|
||||||||||||||||||||
Exchange
of 305,807 shares of
non-redeemable preferred stock for 2,262,965 shares of common stock |
2,263
|
(15,290
|
)
|
226
|
27,367
|
(12,303
|
)
|
-
|
||||||||||||||||
Conversion
of 71 shares of redeemable
preferred stock to
common stock
|
3
|
6
|
6
|
|||||||||||||||||||||
Balance
at March 31, 2007
|
22,931
|
$
|
13,580
|
$
|
2,293
|
$
|
110,064
|
$
|
(628
|
)
|
$
|
(49,566
|
)
|
$
|
(797
|
)
|
$
|
(17,636
|
)
|
$
|
57,310
|
2007
|
2006
|
(In
Thousands)
|
Cash
flows from continuing operating activities:
|
|||||||
Net
income
|
$
|
10,819
|
$
|
2,978
|
|||
Adjustments
to reconcile net income to net cash used by continuing operating
activities:
|
|||||||
Net
loss from discontinued operations
|
29
|
100
|
|||||
Gains
on sales of property and equipment
|
(3
|
)
|
(15
|
)
|
|||
Depreciation
of property, plant and equipment
|
3,042
|
2,661
|
|||||
Amortization
|
224
|
246
|
|||||
Provision
for losses on accounts receivable
|
258
|
200
|
|||||
Realization
of losses on inventory
|
(317
|
)
|
(836
|
)
|
|||
Realization
and reversal of losses on firm sales commitments
|
(161
|
)
|
-
|
||||
Equity
in earnings of affiliate
|
(215
|
)
|
(205
|
)
|
|||
Distributions
received from affiliate
|
180
|
200
|
|||||
Change
in fair value of interest rate caps
|
96
|
(182
|
)
|
||||
Cash
provided (used) by changes in assets and liabilities:
|
|||||||
Accounts
receivable
|
(17,851
|
)
|
(18,993
|
)
|
|||
Inventories
|
847
|
1,026
|
|||||
Other
supplies and prepaid items
|
(2,018
|
)
|
5
|
||||
Accounts
payable
|
(1,442
|
)
|
972
|
||||
Customer
deposits
|
573
|
3,691
|
|||||
Deferred
rent expense
|
(5,613
|
)
|
(4,032
|
)
|
|||
Other
current and noncurrent liabilities
|
3,406
|
1,439
|
|||||
Net
cash used by continuing operating activities
|
(8,146
|
)
|
(10,745
|
)
|
|||
Cash
flows from continuing investing activities:
|
|||||||
Capital
expenditures
|
(3,512
|
)
|
(1,810
|
)
|
|||
Proceeds
from sales of property and equipment
|
182
|
28
|
|||||
Proceeds
from (deposits of) restricted cash
|
2,586
|
(212
|
)
|
||||
Other
assets
|
180
|
(18
|
)
|
||||
Net
cash used by continuing investing activities
|
(564
|
)
|
(2,012
|
)
|
2007
|
2006
|
(In
Thousands)
|
Cash
flows from continuing financing activities:
|
|||||||
Proceeds
from revolving debt facilities
|
$
|
129,592
|
$
|
99,928
|
|||
Payments
on revolving debt facilities
|
(120,814
|
)
|
(89,559
|
)
|
|||
Proceeds
from 7% convertible debentures, net of fees
|
-
|
16,525
|
|||||
Acquisition
of 10-3/4% Senior Unsecured Notes
|
-
|
(5,950
|
)
|
||||
Proceeds
from other long-term debt, net of fees
|
2,114
|
-
|
|||||
Payments
on other long-term debt
|
(2,657
|
)
|
(653
|
)
|
|||
Proceeds
from short-term financing and drafts payable
|
-
|
65
|
|||||
Payments
on short-term financing and drafts payable
|
(1,084
|
)
|
(1,211
|
)
|
|||
Proceeds
from exercise of stock options
|
97
|
-
|
|||||
Dividends
paid on preferred stock
|
-
|
(68
|
)
|
||||
Net
cash provided by continuing financing activities
|
7,248
|
19,077
|
|||||
Cash
flows of discontinued operations:
|
|||||||
Operating
cash flows
|
(32
|
)
|
(44
|
)
|
|||
Net
increase (decrease) in cash and cash equivalents
|
(1,494
|
)
|
6,276
|
||||
Cash
and cash equivalents at beginning of period
|
2,255
|
4,653
|
|||||
Cash
and cash equivalents at end of period
|
$
|
761
|
$
|
10,929
|
|||
Supplemental
cash flow information:
|
|||||||
Noncash
investing and financing activities:
|
|||||||
Debt
issuance costs
|
$
|
11
|
$
|
1,475
|
|||
Debt
issuance costs associated with 7% convertible debentures converted
to
common stock
|
$
|
202
|
$
|
-
|
|||
7%
convertible debentures converted to common stock
|
$
|
3,000
|
$
|
-
|
|||
Series
2 preferred stock converted to common stock of which $12,303,000
was
charged to accumulated deficit
|
$
|
27,593
|
$
|
-
|
|||
As
Originally
Reported
|
As Adjusted
|
Effect
of
Change
|
Accrued
and other liabilities
|
$
|
27,806
|
$
|
26,816
|
$
|
(990
|
)
|
|||||
Total
current liabilities
|
$
|
85,241
|
$
|
84,251
|
$
|
(990
|
)
|
|||||
Accumulated
deficit
|
$
|
(48,952
|
)
|
$
|
(47,962
|
)
|
$
|
990
|
||||
Total
stockholders’ equity
|
$
|
42,644
|
$
|
43,634
|
$
|
990
|
As
Originally
Reported
|
As Adjusted
|
Effect
of
Changes
|
Net
sales
|
$
|
111,744
|
$
|
111,857
|
$
|
113
|
||||||
Cost
of sales
|
$
|
92,197
|
$
|
91,678
|
$
|
(519
|
)
|
|||||
Gross
profit
|
$
|
19,547
|
$
|
20,179
|
$
|
632
|
||||||
Selling,
general and administrative expense (1)
|
$
|
14,142
|
$
|
14,352
|
$
|
210
|
||||||
Operating
income
|
$
|
5,346
|
$
|
5,768
|
$
|
422
|
||||||
Income
from continuing operations before provision for income taxes and
equity in
earnings of affiliate
|
$
|
2,501
|
$
|
2,923
|
$
|
422
|
||||||
Income
from continuing operations
|
$
|
2,656
|
$
|
3,078
|
$
|
422
|
||||||
Net
income
|
$
|
2,556
|
$
|
2,978
|
$
|
422
|
||||||
Net
income applicable to common stock
|
$
|
2,004
|
$
|
2,426
|
$
|
422
|
As
Originally
Reported
|
As
Adjusted
|
Effect
of
Change
|
Income
per common share:
|
||||||||||||
Basic:
|
||||||||||||
Income
from continuing operations
|
$
|
.16
|
$
|
.19
|
$
|
.03
|
||||||
Net
income
|
$
|
.15
|
$
|
.18
|
$
|
.03
|
||||||
Diluted:
|
||||||||||||
Income
from continuing operations
|
$
|
.13
|
$
|
.15
|
$
|
.02
|
||||||
Net
income
|
$
|
.12
|
$
|
.14
|
$
|
.02
|
As
Originally
Reported
|
As
Adjusted
|
Effect
of
Change
|
Net
income
|
$
|
2,556
|
$
|
2,978
|
$
|
422
|
||||||
Cash
provided by change in other current and noncurrent
liabilities
|
$
|
1,861
|
$
|
1,439
|
$
|
(422
|
)
|
|||||
Net
cash used by continuing operations activities
|
$
|
(10,745
|
)
|
$
|
(10,745
|
)
|
$
|
-
|
March
31,
2007
|
December
31,
2006
|
(In
Thousands)
|
Trade
receivables
|
$
|
85,771
|
$
|
68,165
|
|||
Other
|
1,546
|
1,675
|
|||||
87,317
|
69,840
|
||||||
Allowance
for doubtful accounts
|
(2,332
|
)
|
(2,269
|
)
|
|||
$
|
84,985
|
$
|
67,571
|
Three
Months Ended
March
31,
|
2007
|
2006
|
(In
Thousands)
|
Balance
at beginning of period
|
$
|
1,255
|
$
|
2,423
|
|||||
Add:
Realization of losses
|
(317
|
)
|
(836
|
)
|
|||||
Deduct:
Write-offs/disposals
|
-
|
(324
|
)
|
||||||
Balance
at end of period
|
$
|
938
|
$
|
1,263
|
Three
Months Ended
March
31,
|
2007
|
2006
|
Balance
at beginning of period
|
$
|
1,251
|
$
|
861
|
||||
Add:
Charged to costs and expenses
|
508
|
385
|
||||||
Deduct:
Costs incurred
|
(532
|
)
|
(325
|
)
|
||||
Balance
at end of period
|
$
|
1,227
|
$
|
921
|
March
31,
2007
|
December
31,
2006
|
(In
Thousands)
|
Accrued
payroll and benefits
|
$
|
6,467
|
$
|
4,170
|
||
Customer
deposits
|
3,511
|
2,938
|
||||
Deferred
revenue on extended warranty contracts
|
2,686
|
2,426
|
||||
Accrued
commissions
|
2,395
|
2,565
|
||||
Accrued
insurance
|
1,812
|
1,646
|
||||
Accrued
death benefits
|
1,594
|
1,446
|
||||
Accrued
precious metals costs
|
1,536
|
1,068
|
||||
Accrued
contractual manufacturing obligations
|
1,449
|
1,801
|
||||
Accrued
environmental costs
|
1,426
|
1,432
|
||||
Accrued
warranty costs
|
1,227
|
1,251
|
||||
Deferred
rent expense
|
-
|
5,231
|
||||
Other
|
7,332
|
6,771
|
||||
31,435
|
32,745
|
|||||
Less
noncurrent portion
|
6,256
|
5,929
|
||||
Current
portion of accrued and other liabilities
|
$
|
25,179
|
$
|
26,816
|
March
31,
|
December
31,
|
||
2007
|
2006
|
(In
Thousands)
|
Senior
Secured Loan due 2009 (A)
|
$
|
50,000
|
$
|
50,000
|
|||
Working
Capital Revolver Loan due 2009 - ThermaClime (B)
|
34,550
|
26,048
|
|||||
7%
Convertible Senior Subordinated Notes due 2011 (C)
|
1,000
|
4,000
|
|||||
Other,
with interest at rates of 4.25% to 9.36% most of which is secured
by
machinery, equipment and real estate
|
17,299
|
17,644
|
|||||
102,849
|
97,692
|
||||||
Less
current portion of long-term debt
|
8,963
|
11,579
|
|||||
Long-term
debt due after one year
|
$
|
93,886
|
$
|
86,113
|
(A)
|
ThermaClime
and certain of its subsidiaries (the “Borrowers”) are parties of a $50
million term loan (“Senior Secured Loan”) with a certain lender (the
“Lender”). The Senior Secured Loan is to be repaid as
follows:
|
·
|
quarterly
interest payments which began September 30,
2004;
|
·
|
quarterly
principal payments of $312,500 beginning September 30,
2007;
|
·
|
a
final payment of the remaining outstanding principal of $47.5 million
and
accrued interest on September 16,
2009.
|
·
|
certain
real property and equipment located at the El Dorado,
Arkansas facility (“El Dorado Facility”),
|
·
|
certain
real property and equipment located at the Cherokee, Alabama facility
(“Cherokee Facility”),
|
·
|
certain
equipment of the Climate Control Business, and
|
·
|
the
equity stock of certain of ThermaClime’s
subsidiaries.
|
(B)
|
ThermaClime
and its subsidiaries ("the Borrowers") are parties of a $50 million
revolving credit facility (the "Working Capital Revolver Loan")
that
provides for advances based on specified percentages of eligible
accounts
receivable and inventories for ThermaClime, and its subsidiaries.
The
Working Capital Revolver Loan, as amended, matures in April 2009.
The
Working Capital Revolver Loan accrues interest at a base rate (generally
equivalent to the prime rate) plus .75% or LIBOR plus 2%. The interest
rate at March 31, 2007 was 6.91% considering the impact of the
interest
rate cap contracts which set a maximum three-month LIBOR base rate
of
4.59% on $30 million and mature on March 29, 2009. Interest is
paid
monthly. The facility provides for up to $8.5 million of letters
of
credit. All letters of credit outstanding reduce availability under
the
facility. Amounts available for additional borrowing under the
Working
Capital Revolver Loan at March 31, 2007 were $14.3 million. Under
the
Working Capital Revolver Loan, as amended, the lender also requires
the
borrowers to pay a letter of credit fee equal to 1% per annum of
the
undrawn amount of all outstanding letters of credit, an unused
line fee
equal to .5% per annum for the excess amount available under the
facility
not drawn and various other audit, appraisal and valuation
charges.
|
·
|
incur
additional indebtedness,
|
·
|
incur
liens,
|
·
|
make
restricted payments or loans to affiliates who are not Borrowers,
|
·
|
engage
in mergers, consolidations or other forms of recapitalization,
|
·
|
dispose
assets, or
|
·
|
repurchase
ThermaClime's 10-3/4% Senior Unsecured Notes (the “Notes”).
|
(C)
|
On
March 14, 2006, we completed a private placement to six qualified
institutional buyers pursuant to which we sold $18 million aggregate
principal amount of our 7% Convertible Senior Subordinated Debentures
due
2011 (the “Debentures”). We used a placement agent for this transaction
which we paid a fee of 6% of the aggregate gross proceeds received
in the
financing. Other offering expenses in connection with the transaction
were
$.4 million. As a result, the total debt issuance costs related to
this
transaction were $1.5 million. Interest on the Debentures is payable
semi-annually in arrears on March 1 and September 1 of each year
which
began September 1, 2006.
|
A.
|
Environmental
Matters
|
·
|
discharge
into the sewer discharge system of the city of El Dorado, Arkansas
(the
“City”), subject to the El Dorado Facility obtaining a sewer discharge
permit from the City; or
|
·
|
utilization
of a joint pipeline to be constructed by the
City.
|
·
|
if
the inquiry will ever rise to the level of an investigation or proceeding,
or
|
·
|
the
materiality to the Company’s financial position with respect to
enforcement actions, if any, the SEC may have available to it.
|
Three
Months Ended
March
31,
|
2007
|
2006
|
Numerator:
|
|||||||
Net
income
|
$
|
10,819
|
$
|
2,978
|
|||
Dividend
requirements and stock dividends on preferred stock exchanged in
March
2007
|
(4,971
|
)
|
(248
|
)
|
|||
Other
preferred stock dividend requirements
|
(217
|
)
|
(304
|
)
|
|||
Numerator
for basic net income per common share - net income applicable to
common
stock
|
5,631
|
2,426
|
|||||
Other
preferred stock dividend requirements on preferred stock
assumed to be converted, if dilutive
|
217
|
60
|
|||||
Interest
expense including amortization of debt issuance costs,
net of income taxes, on convertible debt assumed to be
converted
|
|
50
|
95
|
||||
Numerator
for diluted net income per common share
|
$
|
5,898
|
$
|
2,581
|
|||
Denominator:
|
|||||||
Denominator
for basic net income per common share - weighted-average
shares
|
17,516,200
|
13,761,638
|
|||||
Effect
of dilutive securities:
|
|||||||
Convertible
preferred stock
|
1,779,320
|
950,526
|
|||||
Stock
options
|
1,283,519
|
1,200,696
|
|||||
Convertible
notes payable
|
312,525
|
2,254,000
|
|||||
Warrants
|
84,446
|
52,665
|
|||||
Dilutive
potential common shares
|
3,459,810
|
4,457,887
|
|||||
Denominator
for diluted net income per common share - adjusted weighted-average
shares
and assumed conversions
|
20,976,010
|
18,219,525
|
|||||
Basic
net income per common share
|
$
|
.32
|
$
|
.18
|
|||
Diluted
net income per common share
|
$
|
.28
|
$
|
.14
|
Three
Months Ended
March
31,
|
2007
|
2006
|
Convertible
preferred stock
|
1,044,361
|
2,620,127
|
Three
Months Ended
March
31,
|
2007
|
2006
|
||
(In
Thousands)
|
Other
expense (1)
|
$
|
24
|
$
|
106
|
|||||
Other
income (1)
|
$
|
54
|
$
|
47
|
|||||
Non-operating
other income, net:
|
|||||||||
Interest
income
|
$
|
42
|
$
|
37
|
|||||
Miscellaneous
income (1)
|
26
|
24
|
|||||||
Miscellaneous
expense (1)
|
(26
|
)
|
(31
|
)
|
|||||
Total
non-operating other income, net
|
$
|
42
|
$
|
30
|
Three
Months Ended
March
31,
|
2007
|
2006
|
(In
Thousands)
|
Net
sales:
|
|||||||
Climate
Control
|
$
|
71,305
|
$
|
47,362
|
|||
Chemical
|
73,720
|
62,530
|
|||||
Other
|
2,360
|
1,965
|
|||||
$
|
147,385
|
$
|
111,857
|
||||
Gross
profit: (1)
|
|||||||
Climate
Control
|
$
|
20,707
|
$
|
14,807
|
|||
Chemical
(2)
|
10,532
|
4,701
|
|||||
Other
|
813
|
671
|
|||||
$
|
32,052
|
$
|
20,179
|
||||
Operating
income: (3)
|
|||||||
Climate
Control
|
$
|
8,508
|
$
|
5,573
|
|||
Chemical
(2)
|
7,710
|
1,809
|
|||||
General
corporate expenses and other business operations, net (4)
|
(2,695
|
)
|
(1,614
|
)
|
|||
13,523
|
5,768
|
||||||
Interest
expense
|
(2,588
|
)
|
(2,875
|
)
|
|||
Non-operating
other income, net:
|
|||||||
Climate
Control
|
2
|
-
|
|||||
Chemical
|
28
|
19
|
|||||
Corporate
and other business operations
|
12
|
11
|
|||||
Provision
for income taxes
|
(344
|
)
|
(50
|
)
|
|||
Equity
in earnings of affiliate-Climate Control
|
215
|
205
|
|||||
Income
from continuing operations
|
$
|
10,848
|
$
|
3,078
|
(1)
|
Gross
profit by industry segment represents net sales less cost of sales.
Gross
profit classified as “Other” relates to the sales of industrial machinery
and related components.
|
(2)
|
During the first quarters of 2007 and 2006, we recorded the realization of losses on certain nitrate-based inventories of $328,000 and $929,000, respectively. During the first quarter of 2006, we realized insurance recoveries of $554,000 relating to a business interruption claim. The above transactions contributed to an increase in gross profit. |
(3)
|
Our
chief operating decision makers use operating income by industry
segment
for purposes of making decisions which include resource allocations
and
performance evaluations. Operating income by industry segment represents
gross profit by industry segment less SG&A incurred by each industry
segment plus other income and other expense earned/incurred by each
industry segment before general corporate expenses and other business
operations, net. General corporate expenses and other business operations,
net, consist of unallocated portions of gross profit, SG&A, other
income and other expense.
|
(4) |
The
amounts included are not allocated to our Climate Control and Chemical
Businesses since these items are not included in the operating results
reviewed by our chief operating decision makers for purposes of making
decisions as discussed above. A detail of these amounts are as follows:
|
|
Three
Months Ended
March
31,
|
2007
|
2006
|
(In
Thousands)
|
Gross
profit-Other
|
$
|
813
|
$
|
671
|
|||
Selling,
general and administrative:
|
|||||||
Personnel
costs
|
(1,658
|
)
|
(1,202
|
)
|
|||
Professional
fees
|
(994
|
)
|
(840
|
)
|
|||
Office
overhead
|
(196
|
)
|
(198
|
)
|
|||
Shareholders
relations
|
(98
|
)
|
(8
|
)
|
|||
Property,
franchise and other taxes
|
(83
|
)
|
(71
|
)
|
|||
Advertising
|
(80
|
)
|
(30
|
)
|
|||
All
other (A)
|
(403
|
)
|
58
|
||||
Total
selling, general and administrative
|
(3,512
|
)
|
(2,291
|
)
|
|||
Other
income
|
18
|
6
|
|||||
Other
expense
|
(14
|
)
|
-
|
||||
Total
general corporate expenses and other business
operations, net
|
$
|
(2,695
|
)
|
$
|
(1,614
|
)
|
March
31,
|
December
31,
|
2007
|
2006
|
(In
Thousands)
|
Climate
Control
|
$
|
106,552
|
$
|
97,166
|
||||
Chemical
|
117,317
|
109,122
|
||||||
Corporate
assets and other
|
11,055
|
13,639
|
||||||
Total
assets
|
$
|
234,924
|
$
|
219,927
|
·
|
the
participation of the Jayhawk Group and Golsen Group in the tender
offer;
|
·
|
the
number of shares of our common stock issued to the Jayhawk Group
and
Golsen Group as a result of the tender offer;
and
|
·
|
the
amount of accrued and unpaid dividends waived by the Jayhawk Group
and
Golsen Group as the result of the tender
offer.
|
·
|
Climate
Control Business engaged in the manufacturing and selling of a broad
range
of air conditioning and heating products in the niche markets we
serve
consisting of geothermal and water source heat pumps, hydronic fan
coils,
large custom air handlers and other products used in commercial and
residential new building construction, renovation of existing buildings
and replacement of existing
systems.
|
·
|
Chemical
Business engaged in the manufacturing and selling of chemical products
produced from plants located in Arkansas, Alabama and Texas for the
industrial, mining and agricultural markets.
|
|
2007 |
2006 |
Change |
Percentage
Change |
(Dollars
In Thousands)
|
Net
sales:
|
||||||||||||||
Climate
Control:
|
||||||||||||||
Geothermal
and water source heat pumps
|
$
|
40,564
|
$
|
29,248
|
$
|
11,316
|
38.7
|
%
|
||||||
Hydronic
fan coils
|
21,366
|
14,023
|
7,343
|
52.4
|
%
|
|||||||||
Other
HVAC products
|
9,375
|
4,091
|
5,284
|
129.2
|
%
|
|||||||||
Total
Climate Control
|
$
|
71,305
|
$
|
47,362
|
$
|
23,943
|
50.6
|
%
|
||||||
|
||||||||||||||
Chemical:
|
||||||||||||||
Agricultural
products
|
$
|
31,069
|
$
|
20,376
|
$
|
10,693
|
52.5
|
%
|
||||||
Industrial
acids and other chemical products
|
22,968
|
22,701
|
267
|
1.2
|
%
|
|||||||||
Mining
products
|
19,683
|
19,453
|
230
|
1.2
|
%
|
|||||||||
Total
Chemical
|
$
|
73,720
|
$
|
62,530
|
$
|
11,190
|
17.9
|
%
|
||||||
|
||||||||||||||
Other
|
$
|
2,360
|
$
|
1,965
|
$
|
395
|
20.1
|
%
|
||||||
|
||||||||||||||
Total
net sales
|
$
|
147,385
|
$
|
111,857
|
$
|
35,528
|
31.8
|
%
|
·
|
Net
sales of our geothermal and water source heat pump products increased
primarily as a result of a 19% increase in the number of units sold
in the
commercial and residential markets due to customer demand. We continue
to
maintain a market share leadership position based on data supplied
by the
Air-Conditioning and Refrigeration Institute;
|
·
|
Net
sales of our hydronic fan coils increased primarily due to a 18%
increase
in the number of units sold due to an increase in customer orders
as well
as an increase in average unit sales prices
as the result of lower discounting and higher selling prices driven
by raw
material cost increases;
|
·
|
Net
sales of our other HVAC products increased as the result of an
increase in
the number of larger custom air handlers sold as the result of
shipping
units sold pursuant to several customer orders and engineering
and
construction services due to work completed on construction
contracts.
|
·
|
Volume
at El Dorado increased 16% and sales prices increased 5% directly
related
to strong agricultural product market demand relative to supply for
nitrogen fertilizer;
|
·
|
Volume
at Cherokee increased 29% primarily related to the same market-driven
demand for nitrogen fertilizer. Additionally, there were low demand
and
production curtailments experienced throughout the first quarter
of 2006
as the result of reduction in orders from several key customers due
to the
high cost of natural gas caused by the effects of Hurricane Katrina.
Sales
prices decreased 4% due primarily to the lower natural gas costs
in the
2007 first quarter which are pass through costs under pricing arrangements
with certain of our customers;
|
·
|
Both
volume and sales prices increased approximately 4% at Baytown. The
increase in sales prices resulted primarily from higher ammonia costs
and
a change in proportionate sales to various
customers.
|
2007
|
2006
|
Change
|
Percentage
Change |
(Dollars
In Thousands)
|
Gross
profit:
|
||||||||||||||
Climate
Control
|
$
|
20,707
|
$
|
14,807
|
$
|
5,900
|
39.8
|
%
|
||||||
Chemical
|
10,532
|
4,701
|
5,831
|
124.0
|
%
|
|||||||||
Other
|
813
|
671
|
142
|
21.2
|
%
|
|||||||||
$
|
32,052
|
$
|
20,179
|
$
|
11,873
|
58.8
|
%
|
2007
|
2006
|
Change
|
||||||||
Gross
profit percentage (1):
|
||||||||||
Climate
Control
|
29.0
|
%
|
31.3
|
%
|
(2.3
|
)%
|
||||
Chemical
|
14.3
|
%
|
7.5
|
%
|
6.8
|
%
|
||||
Other
|
34.4
|
%
|
34.1
|
%
|
0.3
|
%
|
||||
Total
|
21.7
|
%
|
18.0
|
%
|
3.7
|
%
|
2007
|
2006
|
Change
|
(In
Thousands)
|
Operating
income:
|
|||||||||||
Climate
Control
|
$
|
8,508
|
$
|
5,573
|
$
|
2,935
|
|||||
Chemical
|
7,710
|
1,809
|
5,901
|
||||||||
General
corporate expense and other business operations, net
|
(2,695
|
)
|
(1,614
|
)
|
(1,081
|
)
|
|||||
$
|
13,523
|
$
|
5,768
|
$
|
7,755
|
· |
an
increase of $10.4 million relating to the Chemical Business as the
result
of increased sales at El Dorado and Cherokee primarily as a result
of
seasonal higher sales due to the spring planting season as discussed
above
under “Results of Operations” and granting an extended term of 24 days to
a major customer and
|
· |
an
increase of $7.5 million relating to the Climate Control Business
due
primarily to increased sales of hydronic fan coil products as discussed
above under “Results of Operations,” and the sales of large custom air
handlers in March 2007.
|
· |
a
decrease of $3.6 million relating to the Chemical Business primarily
relating to the increased sales as the result of the spring planting
season partially offset by
|
· |
an
increase of $3.0 million relating primarily to geothermal and water
source
heat pump products in the Climate Control Business due primarily
to
increased production and
increased
levels of raw materials and finished goods on hand as the result
of the
expansion of our facilities to meet customer
demand.
|
·
|
a
decrease of $5.3 million in the Chemical Business due, in part, to
the
payment of invoices relating to Baytown’s property taxes and a scheduled
lease billing and invoices relating to maintenance performed at El
Dorado
offset, in part, by
|
·
|
an
increase of $3.9 million in the Climate Control Business primarily
as the
result of increased production and increased levels of raw materials
and
finished goods on hand.
|
· |
net
proceeds of $8.8 million from revolving debt facilities to provide
working
capital as the result of the increase in accounts
receivable;
|
· |
conversion
of $3.0 million of the 7% convertible debentures into common stock;
and
|
· |
capital
expenditures of approximately $3.5 million relating to the Climate
Control
and Chemical Businesses.
|
·
|
the
Climate Control’s emphasis on increasing the sales and operating margins
of all products, developing and introducing new and energy efficient
products, and increasing production to meet customer
demand;
|
·
|
the
Climate Control Business will continue to launch new products and
product
upgrades in an effort to maintain and improve our current market
position
and to establish presence in new markets;
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·
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Shipping
substantially all of our March 31, 2007 backlog within twelve
months;
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·
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certain
actions taken to increase the production level, to improve the product
delivery lead times, and reduce the current backlog in the Climate
Control
Business;
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·
|
our
Chemical Business continues to focus on growing our non-seasonal
industrial customer base with an emphasis on customers accepting
the risk
inherent with raw material costs, while maintaining a strong presence
in
the seasonal agricultural sector;
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·
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our
strategy in the Chemical Business is to maximize production efficiency
of
the facilities, thereby lowering the fixed cost of each ton
produced;
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·
|
the
amount to finance with lenders relating to committed expenditures
for
production equipment;
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·
|
increasing
capacity and reducing overtime as a result of our investment in property
and equipment in the Climate Control Business;
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·
|
the
prospects for new product lines in the Climate Control Business are
improving and will contribute favorably in the future;
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·
|
retaining
most of our future earnings, if any, to provide funds for our operations
and/or expansion of our business;
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·
|
not
paying cash dividends on our outstanding common stock in the foreseeable
future;
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·
|
our
capital base continues to improve;
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·
|
adequate
cash from internal cash flows and financing sources to enable us
to
satisfy our cash requirements for the remainder of
2007;
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·
|
ability
to meet all required financial covenant tests for the remainder of
2007
under our loan agreements;
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·
|
Having
adequate cash to satisfy our cash requirements as they become due
in
2007;
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·
|
our
seasonal products in our Chemical Business;
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·
|
whether
we will be deemed an accelerated filer as of June 29, 2007, and if
so,
there will be a substantial increase in cost;
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·
|
capital
expenditures and the amounts thereof including the amounts relating
to the
discharge of wastewater and the sulfuric acid plant’s air
emissions;
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· |
the
issuance of a consent administrative order for the El Dorado Facility
prior to June 12, 2007, and the issuance of the permit modification
during
the third quarter of 2007; and
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· |
the
intent to discharge the El Dorado Facility's wastewater into its
holding
pond for up to six months if te consent administrative order is not
issued
on or before June 1, 2007.
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