LSB Industries, Inc. (NYSE: LXU) announced today results for the fourth quarter and year ended December 31, 2012.
Fourth Quarter 2012 Financial Highlights Compared to Fourth Quarter 2011:
Year 2012 Financial Highlights Compared to Year 2011:
- Net sales were $177.1 million, an 18% decrease from $215.4 million;
- Operating income was $18.4 million compared to $41.6 million, a decrease of $23.3 million;
- Net income was $11.6 million compared to $28.0 million;
- Net income applicable to common shareholders was $11.6 million compared to $28.0 million;
- Diluted earnings per common share were $0.49 compared to $1.19.
Discussion of Fourth Quarter of 2012:
- Net sales were $759.0 million, a 6% decrease from $805.3 million;
- Operating income was $95.7 million compared to $136.4 million;
- Net income was $58.6 million compared to $83.8 million;
- Net income applicable to common shareholders was $58.3 million compared to $83.5 million;
- Diluted earnings per common share were $2.49 compared to $3.58.
The $38.2 million decrease in consolidated sales includes a $36.8 million or 26% decrease in Chemical Business sales and a $1.1 million or 2% decrease in Climate Control Business sales. The $23.3 million decrease in consolidated operating income includes a decrease of $22.5 million by the Chemical Business and a $0.6 million decrease by the Climate Control Business.
Fourth Quarter - Chemical Business:
Sales for the Chemical Business were $105.3 million, a 26% decrease from $142.0 million in 2011.
Operating income for the Chemical Business was $15.1 million, compared to $37.6 million in 2011.
For the fourth quarter 2012, due to the extended unplanned downtime at three of its facilities as summarized below, Chemical Business sales were adversely affected and operating income was reduced by approximately $29 million, not including business interruption insurance.
- In mid-November, the Pryor, Oklahoma Chemical Plant (the “Pryor Facility”) experienced a main compressor malfunction and all production ceased while repairs were completed. During this outage, the planned installation of a new ammonia converter designed to improve and increase ammonia production capacity was completed. This week we began the process of commissioning the new ammonia converter at the Pryor Facility, which will lead to restarting production. We expect the Pryor Facility to resume and sustain production during March. As a result of this downtime, we estimate that the Pryor Facility negatively impacted the Chemical Business 2012 fourth quarter operating profit by approximately $12 million.
- Also in mid-November, the Cherokee, Alabama Chemical Plant (“the Cherokee Facility”) suffered a pipe rupture that damaged the heat exchanger portion of its ammonia plant. We estimate that due to the initial production disruption and the higher cost of purchasing ammonia from outside sources, the operating profit for the Chemical Business was negatively impacted by $13 million for the fourth quarter 2012 as a result of this incident. We expect repairs to the Cherokee Facility to be completed and production resumed in May 2013.
- As previously reported, the El Dorado, Arkansas, Chemical Plant (the “El Dorado Facility”) was damaged on May 15, 2012 when a reactor in its 98% concentration nitric acid plant exploded. The ongoing effects of this incident resulted in lower production than otherwise would be expected from the El Dorado Facility, along with lost absorption of fixed costs and reduced gross profits. We estimate that the combined negative impact to operating profit resulting from lost sales, lost profits and extra expenses for the fourth quarter was approximately $4 million. We estimate that the monthly negative effect on operating income will approximate $1 million to $2 million at the El Dorado Facility until the new 65% strength nitric acid plant and the nitric acid concentrator are constructed and begin production, which is expected to occur during the first half of 2015.
During the fourth quarter 2012, we recognized $7.3 million business interruption insurance recovery as a reduction to the El Dorado Facility cost of sales. We anticipate that we will receive business interruption insurance proceeds in future quarters to recover a portion of the Cherokee Facility and El Dorado Facility losses.