LSB Reports Approval of Sale of Automotive Products Business
11 April 2000
LSB Industries, Inc. Reports Board of Directors Approval of Sale of Automotive Products Business; Reports Results for the Year Ended December 31, 1999
OKLAHOMA CITY, April 11 LSB Industries, Inc.
(OTC Bulletin Board: LSBD) announced today its results for the year ended
December 31, 1999, and the Board's approval of the sale of the Automotive
Products Business.
Sale of Automotive
On April 5, 2000, the Board of Directors of the Company approved a plan to
divest the Company's Automotive Products Business. The plan provides for a
sale to an unrelated third party. The sale is scheduled to close on or before
June 30, 2000, subject to certain conditions being met. Accordingly, the
Automotive Business has been presented in the accompanying Consolidated
Financial Highlights as a discontinued operation. All amounts for prior
periods have been restated to reflect the Automotive Business as a
discontinued operation. (See Note 3 of Notes to Unaudited Financial
Highlights, following.)
Results for the year and the three months ended December 31, 1999
Total revenues from businesses continuing for the calendar year ended
December 31, 1999 and 1998 were $255.3 million and $257.1 million
respectively. Total revenues from businesses continuing for the three months
ended December 31, 1999 and 1998 were $62.4 million and $54.3 million,
respectively.
The Company reported a net loss for the calendar year 1999 of
$49.8 million. After deducting $3.2 million of preferred stock dividends, the
net loss applicable to common stock was $53.0 million, or $4.48 per share,
basic and diluted on 11.8 million average common shares compared to a net loss
applicable to common stock of $5.1 million, or $.42 for the 1998 calendar year
on 12.4 million average common shares.
Included in the 1999 net loss of $49.8 million were losses for (i)
businesses disposed of $3.9 million, (ii) discontinued operations of
$18.1 million, (iii) provisions for losses on firm contractual raw material
purchase commitments $8.4 million, and (iv) impairment of long-lived assets
$4.1 million.
For the three months ended December 31, 1999, the net loss applicable to
common stock after deducting preferred stock dividends of $802,000 was
$26.6 million, or $2.25 per share, compared to $10.2 million or $.85 for the
comparable quarter of 1998.
Included in the 1999 fourth quarter net loss, were losses for (i)
discontinued operations $13.7 million, and (ii) impairment of long-lived
assets $4.1 million.
In commenting on the results for the year and the quarter, Tony Shelby,
Chief Financial Officer, indicated that the reported losses were predominantly
a result of a significant down-cycle in the Company's Chemical Business
related to over supply in the market of the nitrogen products produced with
commensurately low selling prices, and losses from the Company's Automotive
Business which is being sold pursuant to a plan approved by the Company's
Board of Directors on April 5, 2000, including a loss provision of
approximately $10 million related to the Board approved plan.
Jack E. Golsen, Board Chairman, made the following comments regarding the
current status of business. "Despite the loss we just reported for 1999,
management has taken major steps, as outlined below. Most of the losses
reported are associated with either discontinued or sold businesses which were
not profitable, or are one-time non-cash losses relating to unusual situations
in the Chemical Business which are not expected to be repeated in the future."
-- The Board recently approved the sale of the Company's Automotive
Business.
-- During 1999, the Company sold its unprofitable Australian Explosive
Business.
-- During 1999, the Company also recognized the expected future losses
on an unfavorable contract to purchase anhydrous ammonia, the
principal raw material of its Chemical Business.
-- LSB expects the preliminary antidumping findings by the US government
against Russian ammonium nitrate fertilizer manufacturers who have
been dumping large quantities of competing product in the Company's
primary market, to have a positive impact on the business going
forward. These findings are subject to further investigation by the
US government.
-- In May 1999, the Chemical Business successfully completed
construction of the Baytown, Texas, Nitric Acid Plant and began
production.
-- The steps taken during 1999 position LSB to concentrate on its core
businesses, Chemical and Climate Control in the future.
As a result of the effect on liquidity of the 1999 losses, the Company is
considering alternatives that are intended to raise new capital, as well as
reduce debt, including anticipated discussions with the holders of ClimaChem,
Inc.'s $105 million in outstanding senior unsecured notes. Chanin Capital
Partners have been retained as financial advisor to provide assistance to the
Company and its wholly-owned subsidiary ClimaChem, Inc., in evaluating
liquidity alternatives including issues related to ClimaChem, Inc.,
outstanding $105 million 10-3/4 senior unsecured notes and to provide advice
concerning all alternatives available to the Company and ClimaChem, Inc.
The Company is a manufacturing, marketing and engineering company with
activities on a worldwide basis. The Company's principal business activities
consist of the manufacture and sale of chemical products for the mining,
agricultural and industrial markets, the manufacture and sale of commercial
and residential climate control products, the provision of specialized
engineering services and other activities.
This press release contains certain "Forward-Looking Statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
include all statements in this press release other than statements of
historical facts that address activities, events, or developments that the
Company expects, but not limited to, the Forward-Looking Statements relating
to the estimated pricing for anhydrous ammonia and/or the estimated net
realizable value of the nitrogen products that the Chemical Business will
produce and sell from such raw materials, the efforts of the Company and the
wholly-owned subsidiary, ClimaChem, Inc., to restructure their balance sheet,
improve their liquidity by reducing debt, as well as raising new capital and
ClimaChem, Inc.'s issues related to the $105 million in outstanding senior
unsecured notes and for preliminary antidumping findings to have a positive
impact. While the Company believes these expectations are reasonable, there
are no assurances such expectations will be achieved nor that the estimate
used will prove to be accurate. There are a variety of factors which could
cause future outcomes to differ materially from those described in the press
release, including, but not limited to (i) general economic conditions, both
domestic and foreign, (ii) increased competitive pressures, (iii) the loss of
any significant customer, (iv) failure of the market to accept the Company's
new product lines, (v) inability to obtain additional financing on terms
satisfactory to the Company, (vi) failure of the government to issue a final
ruling that the Russians improperly dumped ammonium nitrate into the US, and
(vii) inability to restructure its balance sheet by (a) reducing its debt in
terms satisfactory to the Company, and (b) by raising additional capital due
to the Company's and ClimaChem's losses. All parties are cautioned not to
place undue reliance on such Forward-Looking Statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the result of any revisions to any of the Forward-Looking Statements contained
herein to reflect future events or developments.
LSB Industries, Inc.
Financial Highlights (Notes)
Twelve Months and Three Months Ended December 31, 1999 and 1998
(unaudited)
(In thousands, except per share amounts)
Twelve Months Three Months
1999 1998 1999 1998
Business continuing
at December 31, 1999
Net Sales $254,236 $255,858 $62,658 $54,293
Other Income 1,036 1,290 (244) 12
$255,272 $257,148 $62,414 $54,305
Cost and expenses:
Cost of sales
(Note 1) 203,480 201,279 51,328 44,447
Selling, general
administrative 51,672 48,918 14,772 13,146
Provision for
impairment on
long-lived assets
(Note 2) 4,126 --- 4,126 ---
Interest 15,115 14,504 4,189 4,436
274,393 264,701 74,415 62,029
Loss from continuing
operations before
provision for loss
on purchase commitments
and businesses
disposed of (19,121) (7,553) (12,001) (7,724)
Provision for loss on
purchase commitments
(Note 1) 8,439 --- --- ---
Loss from continuing
operations before
businesses disposed
of and provision for
income taxes (27,560) (7,553) (12,001) (7,724)
Businesses disposed
of (Note 4)
Revenues 7,461 14,184 273 2,813
Operating costs,
expenses and
interest (9,419) (17,085) (273) (3,941)
(1,958) (2,901) 0 (1,128)
Gain (loss) on
disposal of
businesses (1,971) 12,993 --- ---
(3,929) 10,092 0 (1,128)
Income (loss) from
continuing operations
before provision for
income taxes (31,489) 2,539 (12,001) (8,852)
Provision for
income taxes (157) (100) (55) 175
Income (loss) from
continuing
operations (31,646) 2,439 (12,056) (8,677)
Loss from discontinued
operations (Note 3) (18,121) (4,359) (13,722) (746)
Net loss $(49,767) $(1,920) $(25,778) $(9,423)
Net loss applicable
to common stock $(52,995) $(5,149) $(26,580) $(10,226)
Loss per common share
- basic and diluted
Loss from continuing
operations $(2.95) $(0.07) $(1.09) $(0.79)
Loss on discontinued
operations $(1.53) $(0.35) $(1.16) $(0.06)
$(4.48) $(0.42) $(2.25) $(0.85)
Average common shares
outstanding used in
computing basic and
diluted loss per
common share 11,838 12,373 11,823 11,984
see accompanying notes
LSB Industries, Inc.
Notes to Unaudited Financial Highlights
Twelve Months and Three Months Ended December 31, 1999 and 1998
Note 1: Inventory Write-down and Loss on Firm Purchase Commitment
During 1999, the Chemical Business had firm uncancelable
commitments to purchase anhydrous ammonia pursuant to the terms
of two supply contracts. At June 30, 1999, the date the Company
recognized a provision for loss under the supply contracts and
wrote-down the inventory, the purchase price the Chemical
Business was required to pay for anhydrous ammonia under the
contracts, which were for a significant percentage of the
Chemical Business' anhydrous ammonia requirements, exceeded and
were expected to continue to exceed the spot market prices
throughout the purchase period. Additionally, the market for
nitrate-based products at that time was saturated with an excess
supply of products caused, in part, by the import of Russian
product and significantly depressed selling prices for the
Company's products. Due to the decline in sales prices and the
cost to produce the nitrate products, including the cost of the
anhydrous ammonium to be purchased under the contract, the costs
of the Company's nitrate-based products exceeded the anticipated
future sales prices. As a result, provisions for losses on the
firm purchase commitment aggregating $8.4 million were recorded
($7.5 million in second quarter of 1999 and $.9 million in third
quarter of 1999), as well as a write-down of nitrate-based
inventory of $1.6 million.
Note 2: Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to
future net cash flows expected to be generated by the asset.
For the year ended December 31, 1999, the Company recognized
impairment totaling $4.1 million associated with two chemical
plants which are to be sold or dismantled. The 1999 provision
for impairment represents the difference between the net carrying
cost and the estimated salvage value for the nonoperating plant
to be dismantled and the difference between the net carrying cost
and the estimated selling price less cost to dispose for the
plant to be sold.
Note 3: Discontinued Operations
On April 5, 2000, the Board of Directors approved a plan to
dispose of the Company's Automotive Products Business. The plan
provides for a sale to an unrelated third party, MC Acquisition
Corp. The sale is subject to the finalization of documents by
the lender and certain other conditions.
The Company expects to close the sale of the Automotive Products
Business by June 30, 2000, and has accrued anticipated losses
through the date of sale of approximately $2.1 million. Based on
the preliminary terms of the pending sale, the Company has fully
reserved its investments in the net assets. As of December 31,
1999, under the terms of the sale, the buyer is to assume all of
the liabilities of the Automotive Products Business, and the
Company is to receive a note for its investment of approximately
$7.9 million, secured by the asset of the buyer, with such note
being subordinated to the primary lender of the buyer. The
Company will remain a guarantor on certain equipment notes of the
Automotive Products Business which had outstanding indebtedness
of approximately $5.2 million as of December 31, 1999, and on its
revolving credit agreement in the amount of $1 million (for which
the Company has posted a letter of credit at December 31, 1999).
The loss on disposal does not include the loss, if any, which may
result if the Company is required to perform on its guarantees
described above.
Note 4. Businesses Disposed Of
On August 2, 1999, the Company sold substantially all the assets
of its wholly-owned Australian subsidiary, Total Energy Systems
Limited and its subsidiaries ("TES"), of the Chemical Business.
Pursuant to the sale agreement, TES retained certain of its
liabilities to be liquidated from the proceeds of the sale and
from the collection of its accounts receivables which were
retained. In connection with the closing in August 1999, the
Company received approximately $3.6 million in net proceeds from
the assets sold, after paying off $6.4 million bank debt and the
purchaser assuming approximately $1.1 million of debt related to
certain capitalized lease obligations. The Company substantially
completed the liquidation of the assets and liabilities retained
during the fourth quarter of 1999.
In February 1997, the Company foreclosed on a loan receivable
with a carrying amount of $14.0 million, and exercised its option
to acquire the related office building located in Oklahoma City,
known as "The Tower".
In March 1998, a subsidiary of the Company closed the sale of The
Tower and realized proceeds of approximately $29.3 million from
the sale, net of transaction costs. Proceeds from the sale were
used to retire the outstanding indebtedness. The Company
recognized a gain on the sale of the property of approximately
$13 million in 1998.
Note 5.
Basic and diluted earnings (loss) per common share is based upon
the weighted average number of common shares outstanding during
each period after giving appropriate effect to preferred stock
dividend requirements.
Note 6.
Information about the Company's operations in different industry
segments, segregating TES from the Chemical segment, for the
twelve months and three months ended December 31, 1999 and 1998,
is detailed on the following page.
LSB Industries, Inc.
Notes to Unaudited Financial Highlights
Twelve Months and Three Months Ended December 31, 1999 and 1998
(in thousands)
(unaudited)
Twelve Months Ended Three Months Ended
December 31 December 31
Net Sales 1999 1998 1999 1998
Business continuing
Chemical $128,154 $125,757 $29,725 $24,942
Climate Control 117,055 115,786 30,496 25,892
Industrial Products 9,027 14,315 2,437 3,459
254,236 255,858 62,658 54,293
Subsidiary disposed
of: Chemical 7,461 14,184 --- 2,781
261,697 270,042 62,658 57,074
Gross profit:
Business continuing
Chemical 13,532 18,570 2,226 3,014
Climate Control 35,467 32,278 9,048 5,779
Industrial Products 1,757 3,731 56 1,053
50,756 54,579 11,330 9,846
Operating profit (loss):
Business continuing
Chemical 1,325 6,592 (1,999) (543)
Climate Control 9,751 10,653 1,607 258
Industrial Products (2,507) (403) (1,189) 377
8,569 16,842 (1,581) 92
Subsidiary disposed
of: Chemical (1,632) (2,467) --- (1,034)
6,937 14,375 (1,581) (942)
General corporate
expenses and other (8,449) (9,891) (2,105) (3,380)
Interest expense
Businesses
continuing (15,115) (14,504) (4,189) (4,436)
Businesses disposed
of: Chemical (326) (434) --- (94)
Gain (loss) on businesses
disposed of (1,971) 12,993 --- ---
Provision for loss on
firm purchase
commitments: Chemical (8,439) --- --- ---
Provision for impairment
on long-lived
assets: Chemical (4,126) --- (4,126) ---
Income (loss) from
continuing operations
before provision
for income taxes (31,489) 2,539 (12,001) (8,852)
Provision for
income taxes (157) (100) (55) 175
Income (loss) from
continuing operations (31,646) 2,439 (12,056) (8,677)
Loss from discontinued
operations (18,121) (4,359) (13,722) (746)
Net loss $(49,767) $(1,920) $(25,778) $(9,423)
Gross profit by industry segments represents net sales less cost of sales.
Operating profit (loss) by industry segments represents gross profit less
operating expense before deducting general corporate expenses, interest
expense, provisions for losses on purchase commitments and impairment on
longer-lived assets and before gain on sale of Tower in 1998.