LSB Industries, Inc. (NYSE: LXU) announced today results for the third quarter ended September 30, 2012.
Third Quarter 2012 Financial Highlights Compared to Third Quarter 2011:
Discussion of Third Quarter of 2012:
- Sales were $182.4 million, a 3.2% increase from $176.8 million;
- Operating income was $11.9 million compared to $12.5 million, a decrease of $0.6 million;
- Net income and net income applicable to common shareholders were $6.7 million compared to $6.3 million; and
- Diluted earnings per common share were $0.28 compared to $0.27.
The $5.6 million increase in consolidated sales includes a $7.4 million or 7.2% increase in Chemical Business sales and a $3.8 million or 5.3% decrease in Climate Control Business sales.
For the third quarter of 2012, Chemical Business sales volumes and operating income were adversely affected by certain ongoing issues at two of its facilities as summarized below.
During the third quarter of 2012, the Pryor, Oklahoma plant, (the “Pryor Facility”) experienced problems with the ammonia conversion process at its primary ammonia plant. As a result, third quarter total production was only 50% of the targeted production rate. We estimate that the Pryor Facility’s third quarter operating income was at least $14 million lower than it would have been had ammonia production been at or near targeted levels, based upon the selling price of ammonia and urea ammonium nitrate (“UAN”) during the quarter. We believe this condition will continue until the ammonia converter is replaced in early 2013. However, as of the date of this report, the Pryor Facility’s ammonia production has stabilized at approximately 80% of our targeted production rate.
As previously reported, the El Dorado, Arkansas plant (the “El Dorado Facility”) was damaged on May 15, 2012 when a reactor in its 98% concentration nitric acid plant (“DSN” plant) exploded. As a result, the production at the El Dorado Facility for the third quarter of 2012 was lower than otherwise would have been expected resulting in lost absorption and gross profit margins. In addition, in order to satisfy certain customer product requirements, nitric acid and sulfuric acid were purchased on the open market and resold at a negative gross profit margin. We estimate that the combined negative impact to operating profit resulting from lost sales, lost profits and extra expenses for the third quarter was at least $9 million. We expect this situation to continue, but to a lesser degree when the sulfuric acid plant is brought back into production during the fourth quarter. Our insurance policy provides business interruption coverage, which we believe will cover most of these lost profits and extra expenses. We believe that the first installment of business interruption proceeds will be received no earlier than the first quarter of 2013.