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LSB Industries, Inc. Reports Improved Operating Results for the 2017 First Quarter

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LSB Industries, Inc. (NYSE:LXU) ("LSB" or the "Company") today announced
results for the first quarter ended March 31, 2017.

First Quarter Highlights

  • Net sales from continuing operations of $123.3 million for the first
    quarter of 2017, an increase of $24.4 million from $98.9 million for
    the first quarter of 2016
  • Net loss from continuing operations of $6.0 million for the first
    quarter of 2017, an improvement of $9.8 million from a loss of $15.8
    million for the first quarter of 2016
  • Adjusted EBITDA(1) from continuing operations of $20.0
    million for the first quarter of 2017, an increase of $11.7 million,
    from $8.3 million for the first quarter of 2016

(1) This is a Non-GAAP measure. Refer to the Non-GAAP
Reconciliation section.

"We have made positive improvements that are reflected in our first
quarter 2017 results," stated Daniel Greenwell, LSB's President and CEO.
"As anticipated, pricing for our agricultural products, although
slightly improved from the fourth quarter of 2016, remained well below
prior year levels. However, our performance improved compared to the
first quarter of 2016 as a result of stronger operations at our three
primary chemical manufacturing facilities, enhanced by the incremental
output from the new ammonia plant at El Dorado, which entered service in
May of 2016.

"Our Cherokee and Pryor ammonia plants operated at on-stream rates of
approximately 99% and 96%, respectively, throughout the first quarter,
and have continued their strong performance thus far in April. El
Dorado's ammonia on-stream rate continued to improve with the first
quarter of 2017 increasing over the fourth quarter of 2016. On-stream
rates for the first quarter of 2017 rose to approximately 90% and, for
the month of March, achieved 100% while consistently producing at rates
in excess of 1,300 tons per day, which is significantly higher than the
plant's nameplate capacity of 1,150 tons per day. We expect this to
continue throughout 2017."

Mr. Greenwell continued, "Demand for our agricultural products for
spring applications has been strong, with the UAN production capacity at
both our Pryor and Cherokee facilities sold out through the middle of
May. Additionally, our previously outlined strategy to increase sales of
high density ammonium nitrate (HDAN) has been successful. Sales of HDAN
were up significantly in the first quarter versus the same period last
year and we are currently working off a significant HDAN order book. We
anticipate that HDAN sales will continue to grow and we plan to position
product in our storage facilities later this year in anticipation of
that increase in demand in 2018. Finally, demand for the nitric acid and
ammonia for industrial markets is increasing and we expect this trend to
continue."

Mr. Greenwell concluded, "We are encouraged about our prospects for
continued year-over-year performance improvement for the balance of
2017. The refinancing actions we completed in the third quarter of 2016
enhanced our financial position, and will result in a meaningful
reduction in full year interest expense versus last year. Anticipated
sales of non-core assets in the first half of this year will further
strengthen our balance sheet and provide us with greater financial
flexibility."

  Three Months Ended March 31,
2017   2016  
(Dollars in millions)
 

Sector

 

Sector

%

Sales by Market Sector

Sales

Mix

Sales

Mix

Change

Agricultural $

63.3

 

51 % $

49.8

 

50 % 27 %
Industrial, Mining and Other $ 60.0   49 % $ 49.1   50 % 22 %
$ 123.3   $ 98.9   25 %
 

Comparison of 2017 to 2016 periods:

  • Net sales of agricultural products increased driven by increased sales
    volumes for ammonia, UAN and HDAN, which were higher by 21%, 67% and
    67%, respectively. Stronger sales volumes for ammonia, UAN and HDAN
    resulted from healthier demand environment relative to the first
    quarter of 2016 when there was excess inventory in the distribution
    channel and customers were reluctant to place orders due to a
    declining price environment. Focused marketing and distribution
    efforts also led to rising HDAN sales compared to the first quarter of
    2016. The significant increase in industrial ammonia sales reflected
    the incremental benefit of the new ammonia plant at the El Dorado
    facility. Stronger sales volumes were partially offset by lower
    selling prices across our key products, relative to the first quarter
    of 2016, as indicated in the table below.
  • EBITDA from continuing operations increased compared to the prior year
    primarily due to the aforementioned higher sales volumes, coupled with
    lower plant costs. These factors were partially offset by the
    previously discussed declines in sales prices across our key products.
    Additionally, the increase in operating income from continuing
    operations relative to the first quarter of 2016 was constrained by
    higher depreciation related to the expansion of the El Dorado Facility.

The following tables provide key sales metrics for our Agricultural
products:

  Three Months Ended March 31,

Product (tons sold)

2017

 

2016

  % Change
Urea ammonium nitrate (UAN)

157,784

94,306 67 %
High density ammonium nitrate (HDAN) 91,171 54,548 67 %
Ammonia 44,242 36,644 21 %
Other   4,912     4,738   4 %
  298,109     190,236   57 %

 

Average Selling Prices (price per ton) (A)

UAN $ 152 $ 180 (16 ) %
HDAN $ 182 $ 247 (26 ) %
Ammonia $ 305 $ 337 (10 ) %
 

(A) Average selling prices represent "net back" prices which are
calculated as sales less freight expenses divided by product sales
volume in tons

The following table indicates the volumes sold of our major Industrial,
Mining and Other Chemical products:

  Three Months Ended March 31,

Product (tons sold)

2017

 

2016

  % Change
Nitric acid 29,128 16,029 82 %
Nitric acid – Baytown 129,589 124,501 4 %
LDAN 20,214 19,562 3 %
AN solution 12,304 22,427 (45 ) %
Ammonia   43,924     7,673   472 %
  235,159     190,192   24 %

Input Costs

Average purchased ammonia cost/ton N/A $ 328 N/A
Average natural gas cost/MMBtu $ 3.15 $ 2.21 43 %
 

Financial Position and Capital Additions

As of March 31, 2017, our total cash position was $45.0 million.
Additionally, we had approximately $44.9 million of borrowing
availability under the Working Capital Revolver. There were no
borrowings under the Working Capital Revolver at March 31, 2017.

Total long-term debt, including the current portion was $417.3 million
at March 31, 2017 compared to $420.2 million at December 31, 2016. The
aggregate liquidation value of the Series E Redeemable Preferred at
March 31, 2017, inclusive of accrued dividends of $27.6 million, was
$167.3 million.

Interest expense, net of capitalized interest, for the first quarter of
2017 was $9.4 million compared to $1.4 million for the same period in
2016. The capitalization of interest related to capital additions made
to the El Dorado Facility ceased when the Facility's new ammonia plant
went into service in May 2016. For the full year of 2017, we expect
interest expense to be approximately $30 million to $35 million plus
approximately $3.0 million of non-cash amortization of discount and debt
issuance costs.

Capital additions were approximately $8.0 million in the first quarter
of 2017. Planned capital additions for the second quarter of 2017, are
estimated to be approximately $12.0 million. For the full year of 2017,
total capital additions which are related to maintaining and enhancing
safety and reliability at our facilities are expected to be between $30
million and $35 million.

Conference Call

LSB's management will host a conference call covering the first quarter
results on April 25, 2017 at 10:00 a.m. ET/9:00 a.m. CT to discuss these
results and recent corporate developments. Participating in the call
will be President and CEO Daniel Greenwell, Executive Vice President and
CFO Mark Behrman, and Executive Vice President, Chemical Manufacturing,
John Diesch. Interested parties may participate in the call by dialing
(201) 493-6739. Please call in 10 minutes before the conference is
scheduled to begin and ask for the LSB conference call. To coincide with
the conference call, LSB will post a slide presentation at www.lsbindustries.com
on the webcast section of the Investor tab of our website.

To listen to a webcast of the call, please go to the Company's website
at www.lsbindustries.com
at least 15 minutes prior to the conference call to download and install
any necessary audio software. If you are unable to listen live, the
conference call webcast will be archived on the Company's website. We
suggest listeners use Microsoft Explorer as their web browser.

LSB Industries, Inc.

LSB Industries, Inc., headquartered in Oklahoma City, Oklahoma,
manufactures and sells chemical products for the agricultural, mining,
and industrial markets. The Company owns and operates facilities in
Cherokee, Alabama, El Dorado, Arkansas and Pryor, Oklahoma, and operates
a facility for a global chemical company in Baytown, Texas. LSB's
products are sold through distributors and directly to end customers
throughout the United States. Additional information about the Company
can be found on its website at www.lsbindustries.com.

Forward-Looking Statements

This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements generally are identifiable by use of
the words "may," "believe," "expect," "intend," "plan to," "estimate,"
"project" or similar expressions, and include but are not limited to:
financial performance improvement; view on sales to mining customers;
estimates of consolidated depreciation and amortization and future
turnaround expenses; our expectation of production consistency and
enhanced reliability at our Facilities; our projections of trends in the
fertilizer market; improvement of our financial and operational
performance; our planned capital additions for 2017; reduction of SG&A
expenses; and volume outlook.

Investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties.
Though we believe that expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such
expectation will prove to be correct. Actual results may differ
materially from the forward-looking statements as a result of various
factors. These and other risk factors are discussed in the Company's
filings with the Securities and Exchange Commission (SEC), including
those set forth under "Risk Factors" and "Special Note Regarding
Forward-Looking Statements" in our Form 10-K for the year ended December
31, 2016 and, if applicable, our Quarterly Reports on Form 10-Q and our
Current Reports on Form 8-K. All forward-looking statements included in
this press release are expressly qualified in their entirety by such
cautionary statements. We expressly disclaim any obligation to update,
amend or clarify and forward-looking statement to reflect events, new
information or circumstances occurring after the date of this press
release except as required by applicable law.

LSB Industries, Inc.

Financial Highlights

Three Months Ended March 31,

 
  Three Months
2017   2016
(In Thousands, Except Per Share Amounts)
 
Net sales $ 123,344 $ 98,972
Cost of sales   111,729     105,136  
Gross profit (loss) 11,615 (6,164 )
 
Selling, general and administrative expense 10,545 10,894
Other expense (income), net   (1,251 )   251  
Operating income (loss) 2,321 (17,309 )
 
Interest expense, net 9,358 1,350
Non-operating other expense, net   231     1,956  
Loss from continuing operations before
benefit for income taxes (7,268 ) (20,615 )
Benefit for income taxes   (1,282 )   (4,850 )
Loss from continuing operations (5,986 ) (15,765 )
 

Income from discontinued operations, net of taxes

      824  
Net loss (5,986 ) (14,941 )
 
Dividends on convertible preferred stocks 75 75
Dividends on Series E redeemable preferred stock 5,536 7,350
Accretion of Series E redeemable preferred stock   1,599     2,243  
Net loss attributable to common stockholders $ (13,196 ) $ (24,609 )
 
Loss per common share:
Basic and diluted
Loss from continuing operations $ (0.48 ) $ (1.11 )

Income from discontinued operations, net of taxes

      0.03  
Net loss $ (0.48 ) $ (1.08 )
 

LSB Industries, Inc.

Consolidated Balance Sheets

 
  March 31,   December 31,

2017

2016

(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 45,037 $ 60,017
Accounts receivable, net 75,284 51,299
Inventories:
Finished goods 17,323 19,036
Raw materials 3,698   3,903  
Total inventories 21,021 22,939
Supplies, prepaid items and other:
Prepaid insurance 8,191 11,217
Precious metals 7,463 8,648
Supplies 24,983 24,100
Prepaid and refundable income taxes 1,078 1,193
Other 2,966   1,733  
Total supplies, prepaid items and other 44,681   46,891  
Total current assets 186,023 181,146
 
Property, plant and equipment, net 1,068,892 1,078,958
 
Intangible and other assets, net 9,584   10,316  
 
$ 1,264,499   $ 1,270,420  
 

LSB Industries, Inc.

Consolidated Balance Sheets (continued)

 
  March 31,   December 31,

2017

2016

(In Thousands)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 53,338 $ 54,246
Short-term financing 5,428 8,218
Accrued and other liabilities 52,779 44,037
Current portion of long-term debt   11,752     13,745  
Total current liabilities 123,297 120,246
 
Long-term debt, net 405,520 406,475
 
Noncurrent accrued and other liabilities 10,431 12,326
 
Deferred income taxes 91,529 93,831
 
Commitments and contingencies
Redeemable preferred stocks:

Series E 14% cumulative, redeemable Class C preferred stock, no
par value, 210,000 shares issued; 139,768 outstanding; aggregate
liquidation preference of $167,324,000 ($161,788,000 at December
31, 2016)
Series F redeemable Class C preferred stock, no par
value, 1 share issued and outstanding; aggregate liquidation
preference of $100



152,164



145,029

 
Stockholders' equity:

Series B 12% cumulative, convertible preferred stock, $100 par
value; 20,000 shares issued and outstanding

2,000 2,000

Series D 6% cumulative, convertible Class C preferred stock, no
par value; 1,000,000 shares issued and outstanding

1,000 1,000

Common stock, $.10 par value; 75,000,000 shares authorized,
31,280,685 shares issued

3,128 3,128
Capital in excess of par value 192,433 192,172
Retained earnings   302,240     314,301  
500,801 512,601
Less treasury stock, at cost:

Common stock, 2,875,582 shares (3,004,855 shares at December 31,
2016)

  19,243     20,088  
Total stockholders' equity   481,558     492,513  
$ 1,264,499   $ 1,270,420  
 

LSB Industries, Inc.
Non-GAAP Reconciliation

This news release includes certain "non-GAAP financial measures" under
the rules of the Securities and Exchange Commission, including
Regulation G. These non-GAAP measures are calculated using GAAP amounts
in our consolidated financial statements.

EBITDA Reconciliation

EBITDA is defined as net income (loss) plus interest expense, provision
for impairment, depreciation, depletion and amortization of property
plant and equipment (which includes amortization of other assets and
excludes interest included in amortization), less benefit for income
taxes and income from discontinued operations, net of taxes. We believe
that certain investors consider EBITDA a useful means of measuring our
ability to meet our debt service obligations and evaluating our
financial performance. EBITDA has limitations and should not be
considered in isolation or as a substitute for net income, operating
income, cash flow from operations or other consolidated income or cash
flow data prepared in accordance with GAAP. Because not all companies
use identical calculations, this presentation of EBITDA may not be
comparable to a similarly titled measure of other companies. The
following table provides a reconciliation of net income (loss) to EBITDA
for the periods indicated.

 

Three Months Ended

March 31,

2017   2016

($ in millions)

 
 
 
Net loss $ (6.0 ) $ (14.9 )
Plus:
Interest expense 9.4 1.4
Depreciation and amortization 17.6 11.0
Benefit for income taxes (1.3 ) (4.8 )
Income from discontinued operations       (0.8 )
EBITDA $ 19.7   $ (8.1 )
 

LSB Industries, Inc.
Non-GAAP Reconciliation (continued)

Adjusted EBITDA

Adjusted EBITDA is reported to show the impact of a one-time consulting
fee, start-up/commissioning costs, derecognition of a death benefit
accrual, certain fair market value adjustments, non-cash stock based
compensation, Delaware unclaimed property liability, and life insurance
recovery. We believe that the inclusion of supplementary adjustments to
EBITDA is appropriate to provide additional information to investors
about certain items. The following tables provide reconciliations of
EBITDA excluding the impact of the supplementary adjustments.

 

Three Months Ended

March 31,

2017   2016
 
EBITDA: $ 19.7 $ (8.1 )
Consulting Fee- Negotiated property tax savings at El Dorado 12.1
Stock based compensation 1.2 0.9
Start-up/ Commissioning costs at El Dorado 1.3
Derecognition of death benefit accrual (1.4 )
Loss on sale or disposal of assets 0.5
Fair market value adjustment on preferred stock embedded derivatives 2.5
Delaware unclaimed property liability 0.3
Life insurance recovery       (0.7 )
Adjusted EBITDA $ 20.0   $ 8.3  
 

Agricultural Sales Price Reconciliation

The following table provides a reconciliation of total agricultural
sales as reported under GAAP in our consolidated financial statement
reconciled to "net" sales which is calculated as sales less freight
expenses. We believe this provides a relevant industry comparison among
our peer group.

 

Three Months Ended

March 31,

2017

 

2016

 
Agricultural Sales ($ in millions) $ 63.3 $ 49.8
 
Less Freight:   5.6     3.2  
 
Net Sales $ 57.7   $ 46.6  

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