LSB Industries Inc (LXU) 2005 Q2 法說會逐字稿

Good morning. Welcome to the second-quarter results conference call for August 23, 2005. Your host for today will be Carol Oden. Ms. Oden, please go ahead.

Good morning and welcome to the LSB Industries, Inc. conference call. Today, LSB's management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President; and Tony Shelby, Chief Financial Officer.

This conference call is being broadcast live over the Internet and is also being recorded. An archive of the webcast will be available shortly after the call on our Web site at www.LSB-okc.com and will be accessible for one month. An echo playback will be available at 888-509-0082 until September 23. International callers can dial in to 416-695-5275.

After comments by management, a question-and-answer session will be held. Instructions for asking questions will be provided at that time.

Information reported on this conference call speaks only as of today, August 23, 2005. Therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

We will not make any projections of future results as to revenues, income or earnings per share of the Company during this conference call. However, comments today may contain certain forward-looking statements, including but not limited to statements as to alternatives to the chemical business, improved results in both the climate control and chemical businesses during the remainder of 2005, and receipt of business interruption insurance due to losses in the chemical business. The current EBITDA as used in this presentation is net income plus interest expense, depreciation, amortization, income taxes and certain non-cash charges, unless otherwise described. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to GAAP measurement.

When we discuss the climate control business, excluding MultiClima, please refer to our 2004 10-K for MultiClima results. All statements, as in statements of historical fact, are forward-looking as more fully discussed in our 10-Q for the second quarter 2005 under special notes regarding forward-looking statements. A more comprehensive listing of risk factors, which could cause results do vary from any forward-looking statements made during this conference call, is also included in the Company's 10-Q for the second quarter 2005 under special notes regarding forward-looking statements. We will post, on our Web site, a reconciliation to GAAP of any EBITDA numbers discussed during this conference call.

Now, I will turn the conference call over to Jack Golsen, the Company's Board Chairman.

Good morning. This is Jack Golsen, the CEO of LSB Industries. Thank you for joining our conference call this morning. With me on this conference call are Tony Shelby, our Chief Financial Officer, and Barry Golsen, our President.

Today, we're going to review the second-quarter and the first six-month results and try to bring you up-to-date on what is going on in our markets. I will approach my discussion as an overview of the entire company. Tony and Barry will go into more specific details about our climate control and chemical businesses.

Our sales for the second quarter of 2005 were 5% higher than last year, and our first-half sales were 4% higher than last year's first six months. This was due to increased sales in both our climate control and chemical businesses. Our operating income this year was up 59% for the quarter and up 2.5 times over the first six months of last year. Our net income for the second quarter was 2.1 million, or $0.10 per share, compared to 1.7 million or $0.08 per share last year. Our EBITDA for the second quarter was 8 million, as compared to 6.6 million last year. For the six months, EBITDA was 15 million compared to 11.1 million last year.

During the second quarter, both our climate control business and our chemical businesses improved over last year. For the six months, the climate control business operating income was down from last year due in part to some one-time expenses, although it gained ground in the second quarter and is recovering from the round the steel, copper and other cost increases that occurred in 2004.

In our chemical businesses, there are significant changes taking place. Just recently, Air Products, a producer of agricultural-grade ammonium nitrate, announced that their Florida plant, which was damaged by a hurricane, would not reopen and is now for sale. Previously, (indiscernible) announced that it was discontinuing production of ammonium nitrate. This leaves the United States with two producers of agricultural-grade ammonium nitrate, our El Dorado Chemical Company and Terra Nitrogen, which acquired Mississippi Chemical. There have traditionally been approximately 2 million tons of ammonium nitrate used in the United States agriculture industry per year. Terra and El Dorado have combined production of approximately 1.1 million tons of agricultural-grade ammonium nitrate.

In the future, some ammonium nitrate users will commit to use other products. There will also be imports to fill some of the void between production and the market demand. These imports usually move by barge on our river systems from ocean ports to inland ports. However, it has become more difficult to barge nitrate on our USA river systems because of new government safety requirements. Many river ports are opting not to install required equipment and procedures and will not allow ammonium nitrate to unload through them. This is somewhat of a barrier to entry for imports. However, they still can ship by rail at a cost disadvantage to them. All of this is leading to a tight supply of ammonium nitrate in the United States. In the past six years, supply has exceeded demand, depressing prices for this product.

At this time, we believe demand exceeds supply for the first time in recent years. Although this only affects part of our chemical business, it is a part that has been a problem for us in recent years. It has been the wild-card in our chemical business.

As a result of the closure of ammonium nitrate plants that have led to this market condition, we have become more freight-logical to almost the entire United States. We are adding customers in markets that were not previously -- we were not previously able to service. We've expanded our market into the Great Plains and Northwest and are adding new business in the Southeast.

So what could go wrong? Natural gas prices are our main concern. Natural gas is our feedstock. We use 500,000 mmBtu of gas per month as a raw material. September gas futures on NYMEX are approximately $9.75 today. October through February, futures are above $10.50. There is an unanswered question of whether or not the market will except the pricing of our end-products that we produce that will be necessary for us to make a profit with $9 and $10 gas.

Our climate control business is in the process of rebounding from the cost increases that it incurred in 2004. Bookings of new orders are up approximately 15% over last year. We continue to produce award-winning, super-efficient new heat pump models, and we are expanding our production capacity to meet demand for these new products.

Thank you. I'm going to turn the conference over now to Tony Shelby, our Chief Financial Officer.

Thank you.

During this press conference, we will assume that everyone has had access to the second-quarter 2005 10-Q and the August 5 press release of our second-quarter results.

For the second quarter, due to the seasonality of our nitrogen chemical business and to a lesser extent the seasonality of the climate control business, the second quarter is generally the best quarter in terms of operating income. However, the second-quarter year-to-date 2005 results were affected by the lost production from the Weatherly acid unit at our El Dorado plant facility, which didn't come back on line until June of 2005.

Sales for the three months ended June 30 '05 were 109 million, an increase of 5.4 million. Chemical was up 3.8 and climate control was up 1.6 million, both as compared to the same period last year. As Jack indicated, for the three months ended June 30, 2005, we reported a net income of 2.1 million compared to net income of 1.7 million last year. Net income applicable to common stock was 1.5 million fully diluted, compared to net income of 1.2 million applicable to common stock for the same period last year.

Chemical's operating results for the second quarter -- operating profit for the second quarter was 2.9 million compared to 2.2 million last year. Climate control's operating profit for the second quarter was 3.7 million compared to 3.3 million last year. There was higher interest expense related to the refinancing of the financing agreement, which we described in detail in our footnotes to the 2004 10-K audited financials. We will address results for climate control and chemical in detail later in the conference call.

For the second quarter of 2005, cash provided by operations from consolidated net income plus depreciation and amortization, less other non-cash items, was approximately $4.7 million. Additional cash provided by operations of approximately $8.5 million was primarily seasonal reductions in inventories and other current working capital items.

The second-quarter capital expenditures were 4.6 million, of which 3.6 million was in the chemical business. Working capital borrowing was paid down by 7.6 million as a result of the cash provided by operations.

Beginning with the pretax income and adding interest, depreciation, amortization, the non-cash MultiClima losses of 1.4 million and non-cash loss provisions of 737,000, EBITDA for the trailing 12 months ended June 30, 2005 was $27 million compared to $25.5 million at March 31, 2005. So we are comparing the last 12 months of June 30 '05 versus the last 12 months of March 31, '05.

For the second quarter of 2005, EBITDA was 8 million. This was an increase of 1.4 million over EBITDA for the 2004 second quarter. Currently, at the date of this conference call, the amount available under the Company's working capital revolver for additional borrowings is approximately $14 million. The borrowing is approximately $32 million. The interest rate is 200 basis points over LIBOR. We have in place an interest rate cap on $30 million of estimated average borrowing that caps LIBOR increases.

At June 30, the Company's total interest rate and debt was $109 million, including the $50 million senior secured note due in 2009, the 13.3 million of senior unsecured notes due in '07, the working capital borrowings of 30.5 million, and various mortgages and equipment loans of approximately 15 million.

With the review of the consolidated results as background, Barry will review the climate control business.

Thanks, Tony.

To give those of you who are new to LSB some basic information about us, our climate control companies design, manufacture and market a broad range of high-quality air-conditioning, heating and heat pump products, which are used in commercial, industrial and residential climate control systems.

During the first half of 2005, about 87% of the sales volume of the climate control business came from two companies; that's ClimateMaster and International Environmental Corporation. Our ClimateMaster manufactures and markets commercial water source heat bumps and geothermal heat pumps, which are used in commercial, institutional and residential applications, and International manufactures and markets hydronic fan coil units and small air handlers, which are also used in commercial and institutional applications.

Besides ClimateMaster and International, we also manufacture and market large custom air-handling units used in commercial and industrial applications, modular water chillers, which are used in central HVAC systems, and coaxial heat exchangers, which were used as components in our water source heat bumps and various other products. We also complete large-scale geothermal installations throughout the United States.

We've five plants and they're all located in Oklahoma City totaling over 500,000 square feet. Our product are used in many different types of buildings, which include hotels, motels, resort, apartments, condos, single-family residences, dorms, hospitals, extended-care facilities, retirement centers, schools, universities, office buildings, industrial and high-tech manufacturing facilities, pharmaceutical and food-processing plants, and many others.

We have millions of units installed in thousands of buildings throughout the U.S. and around the world. We are considered to be the U.S. market leader for hydronic fan coils, water source heat pumps and geothermal heat pumps with the leading marketshares in these segments. During 2004, our market share for fan coils was approximately 41%, and our market share for heat pump products was approximately 32%. This is based on numbers that were reported by the Air-Conditioning and Refrigeration Institute. So far, in 2005, our market share is slightly higher in both of these products.

Second-quarter results -- during the second quarter, sales in the climate control business were $40 million as compared to 38.4 million in 2004. Operating profit was 3.7 million in the second quarter, as compared to 3.3 million 2004. EBITDA for the second quarter was 4.2 million as compared to 3.7 million in 2004. The bottom line is that, for the second quarter, our sales were up approximately 4% over the same period last year with EBITDA up by $0.5 million or approximately 13.5%.

For the first six months, sales in the climate control business were 75.5 million versus 70 million in 2004. Operating profit was $6.3 million in the first half, compared to 7 million in 2004, and EBITDA in the first half was 7.2 million compared to 7.9 million in 2004.

For the first half, our sales were up by approximately 8% over the same period last year with EBITDA down by 7 million -- excuse me, by $700,000. As I reported to you during the last conference call, operating income and EBITDA were impacted by the material and freight price increases we incurred last year. These were the largest we've seen in several years, and we weren't fully able to pass through to our customers all of these during the first or second quarter. The climate control companies were able to pass many of the increased costs through to customers in the form of price increases. However, there have been delayed timing factors that impacted our margins during 2004, particularly during the fourth quarter and continued into the first half of 2005. As I also reported during the last conference call, we expected the effects of these material price increases to continue to impact our profitability through the second quarter of 2005. We have taken a series of price increases. We will continue to closely monitor our cost structure and implement price increases as required and to the extent marketing conditions allow us to do so. As always, overall cost reduction is a very important part of the culture of our business; it's something that our companies work on continuously.

Bookings were very strong during 2004, and this trend has continued through the first half of 2005. New orders for the climate control products during first half were up approximately 15.4% over the first half of last year. Backlogs at the end of the second quarter were up 24% compared to the same time last year and up 22% compared to 2004 year-end.

Our strong level of incoming business is higher, slightly, than the general pick-up in construction activity, which has been reported by recent census data. According to McGraw-Hill's Construction Market Forecasting Service, all nonresidential construction, which are our primary markets, are forecast to be up about 8% in 2005.

I'd like to review now a few issues with you that we discussed during the last conference call and update you on some recent developments. As we previously discussed, we have a number of new product lines and activities that have not yet achieved profitability. The operating losses of those activities are contained in the overall reported numbers for the climate control business. During 2004 calendar year, the negative impact was approximately 2.6 million EBITDA from those activities. During the second quarter of 2005, the negative impact was approximately $600,000 EBITDA, and during the first half of 2005, the negative impact was approximately 1.2 million at EBITDA. We believe that these new product lines and activities are investments in the future growth of this business segment, and we expect to see improvements in these areas as we go forward.

Our Tranquility 27 heat pump product line, which is the most energy-efficient HVAC product available on the worldwide market today, continues to do very well. During 2004, we released the residential version of this product family and we introduced the commercial version during the first quarter of 2005. This state-of-the-art product continues to garner industry awards and is the flagship of our water source heat pump and geothermal product lines.

Related to this is a very important recent event. As you know, President Bush recently signed into law the U.S. Energy Bill. This law provides for over $11 billion of tax credits and other financial incentives for the installation of products which are highly energy-efficient or that use renewable energy. We believe that this should have a positive effect on the sales of our residential geothermal and high-efficiency commercial products, but we can't quantify the exact degree at this time.

I reported to you last quarter that our ClimateMaster operation recently received ISO 9001 certification. In our effort to continue to improve quality, we are in the process of installing an automated quality-assurance and testing system on all ClientMaster assembly lines that don't already have this feature. This should be completed during the second half of the year.

One of our new products is a line of modular water chillers that are used in central HVAC systems. This product is primarily targeted to the replacement and retrofit market to replace old chillers that have non-environmentally friendly refrigerants. Those refrigerants have been phased out. Previously, we outsourced the production of this equipment but during July, we completed our first pilot reduction prototypes of these units, and we will be producing these chillers in Oklahoma City facilities going forward.

During the second quarter, we shipped products to -- there are too many construction products to list entirely here. However, just to give you an idea of the type of customers and projects we have, a few of note were the New York University Med School, Duke University Med School, Georgia Tech, Rutgers Eli Lilly, Monsanto, General Mills, several Erickson Retirement communities, the 350 West 42 Street luxury condo near the New York Port Authority, the MGM residences in Las Vegas, the Fairmont hotel in Cancun, and the Ritz-Carlton in the Grand Caymans.

To sum up, both our climate control business' second-quarter sales and income were up over 2004. Results were still somewhat impacted by the cost increases we incurred last year. The general construction level is up, and our incoming order level is strong. We continue to have leading marketshares in our water-source heat pump and fan coil businesses.

That's about it for the climate control business. As to prepare comments -- and I will turn this back over to Tony, who will talk about the chemical business with you.

Thank you.

The second quarter sales for the chemical business were $118 million, compared to 115 million in '04. EBITDA was 5.1 million compared to 4.2 million for the second quarter a year ago. The improvement in chemicals' operating results reflects a general improvement in nitrogen markets, offset by the negative effect on earnings resulting from the downtime of the DM (ph) weather-related (ph) nitric acid plant at our El Dorado plant. This plant that has been under repair since early October of 2004 was returned to production in early June of 2005. We estimate that the lost production adversely affected the second quarter 2005 by approximately 1.5 to $2 million. The business interruption losses from this lost production in 2004 and 2005 were insured beginning after the first 45 days. We will record the business interruption recovery when we receive the proceeds.

Approximately 65 to 70% of the chemical business sales are products sold pursuant to pricing arrangements that provide for the pass-through of the cost of natural gas and our ammonia feedstock costs. The remaining 30 to 35% of sales is primarily nitrogen fertilizer. It's seasonal and is sold at spot price in effect at time of sale. Currently, all of the plants are running well and demand for the Company's nitrogen product is at a good level.

Following are certain operating statistics for our three nitrogen production facilities in Cherokee, Alabama, Maytown, Texas and El Dorado, Arkansas, that collectively are the chemical business. First, the Baytown, Texas plant consumes approximately 125,000 tons of anhydrous ammonia per year. 100% of production is sold pursuant to long-term contract that provides for the pass-through of all costs, including the anhydrous ammonia costs plus a profit. This operation is consistently and predictably profitable on a quarterly and annual basis.

Second, Cherokee -- the Cherokee, Alabama plant is currently scheduled at full capacity with approximately 75% of sales pursuant to pricing formulas that transfer the commodity risk of natural gas and cost to the customer. This plant consumes 5 to 6 million mmBtus of production gas annually and produces and sells approximately 300,000 tons of product. Currently, the sales by product line are as follows -- 20% ammonia, primarily industrial users such as utilities; 40% nitrogen solutions sold to industry; and 40% UAN, accounting for 100% of production. The UAN -- the 40% of UAN can also be committed to high-density ammonium nitrate. The Cherokee plant has the capacity to produce 155,000 tons of high-density ammonium nitrate. However, currently, all of the ammonia production otherwise available for UAN production is allocated to the UAN plant. Cherokee's 2005 year-to-date sales in tons were 170,000 tons or slightly higher than the 155 tons sold last year in the same period. Natural gas is continuing to reach historical highs, as Jack indicated. Cherokee's weighted average natural gas cost, including delivery costs of roughly $0.45, was approximately $6.80 for the first quarter of 2005 and $7.25 for the second quarter. Currently, Cherokee's spot delivered price is over $9.50.

Third, the El Dorado, Arkansas plant -- the El Dorado Arkansas plant produces and sells approximately 4 to 500,000 tons of nitrogen products per year from approximately 200,000 tons per year of purchased ammonia. Approximately 55% of products sold in the first half of 2005 were sold pursuant to the pricing arrangements that transfers the ammonia cost to the customer. The balance of the output was agricultural product sold at spot prices in effect at the time of shipment. Although we are in between seasonal demands, the pricing of ammonium nitrate is continuing to hold. Demand for agricultural-grade ammonium nitrate remains strong and supplies remain tighter than in previous years, due in part to fewer producers and lower imports. Annualized sales by product line include 70,000 tons of nitrate and mixed acids ranging from 56 to 98% concentrations, 200,000 tons of agricultural-grade ammonium nitrate, and 200,000 tons of industrial-grade ammonium nitrate. The plant also produces roughly 125,000 tons of sulfuric acid per year, which generates export streams to the nitrogen operations.

EDC sales for the second quarter of 2005 were approximately 160,000 tons compared to approximately 180,000 tons last year's second quarter. The lower sales in terms of tons were primarily attributable to less available product due to the loss of production from the Weatherly acid unit. The current average sales price, after deducting outbound freight costs of agricultural ammonium nitrate, is approximately $230 per ton wholesale in our Arkansas plant, compared to approximately $180 at the same time last year. The wholesale price at our distribution centers primarily located in Texas is $265.

The ammonia feedstock is purchased pursuant to a contract pricing formula. EDC's 2005 weighted average cost of purchased ammonia, including delivery costs, were, for January and February, $245; March through June, $295; for July and August, $250 for an average year-to-date cost of $276 delivered. Currently, all of the trade publications are forecasting rising costs for the near term.

To summarize, on an annual basis, Companywide, we consumed approximately 475,000 tons per year of ammonia. From this 475,000 tons, we sell 50,000 tons as ammonia; we convert the remaining tons into 530,000 tons of ammonium nitrate, 146,000 tons of UAN, and 420,000 tons of nitric acids, for a total of 1.1 million tons of upgraded product. There are many variables in the market and the production process that affect the results achieved by our nitrogen chemical business. The Baytown plant produces consistent results. The Cherokee, Alabama and El Dorado, Arkansas plants results, on the other hand, are affected by the relationship of market price at the input costs and the supply and demand of product produced, and the ability to produce optimum production levels consistently every month. Although the current costs of natural gas and ammonia are very high and weather is all always a consideration, the current market conditions for our nitrogen products appear to be good.

That concludes our prepared remarks for our chemical business. We will now open the conference call for questions.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Kent McCarthy of Jayhawk, President.

Tony, Jack, Barry, it's a great overview. I have a question about the inventories at the end of June. As the season continued on, are you in a comfortable level right now with the ag side in terms of sales?

Then second question is with the business interruption proceeds and improved results, you're in a better cash position than you have been. Can you outline your balance sheet goals, maybe with respect to this 13 million in debt that's due in '07, etc., etc.?

Let me answer the question on inventories first, then I will let Jack address the other.

Currently, we are in a good position with our raw material feedstock with respect to the El Dorado plant for the continuation of the ag season. We have a significant amount of ammonia purchased at lower prices than today's replacement cost. So yes, the answer to that, we are in good shape with inventories as far as the ag season is concerned.

This is Jack. Thanks for calling in. As far as the question on business interruption, could you relate that to the 13.3 million bonds that are outstanding?

More of a broader question -- with pricing improving and hopefully some proceeds on the insurance, are you maybe intending to self-fund this 13 million in debt, or are you looking to refinance it? You know, just -- with hopefully improved cash flows looking out over the next 18 months?

We could go either way. We're trying to determine now the best approach to that. We're trying to come up with a plan as to how we're going to deal with that 13.3 million. At this time, we're not going to wait until it's due to try to scramble around and figure out how to pay it. I don't think that we will generate enough cash internally to pay it off -- (technical difficulty) -- operation because although we are sitting there with a better cash position than we've had in the past, when you're running a $400 million business, that's not a lot between you and no availability.

Okay, thank you.

Mark Fleischhauer of Jayhawk.

Sort of just following up on Kent's question there, in terms of -- maybe we can just talk quickly about the HVAC business, Barry. I guess you've mentioned some sales numbers. It's up about 15% if you take out the MultiClima last year. Is that right?

Yes, those are -- actually, as far as sales numbers, those include MultiClima.

Okay, so if we strip out, it's up about 15% apples-to-apples?

Yes, it's maybe up -- well, those are bookings numbers that I was giving you, not sales numbers.

Just looking at the top line, though, if we take out the -- (multiple speakers).

I think -- (multiple speakers).

I did give you some bookings numbers. Would you like me to repeat -- I mean some sales numbers. Would you like me to repeat those?

I think have them. I know what you're saying.

What I was trying to basically get across was the fact that the market and our sales are in an upward trending position. In fact, our bookings have been stronger than our increased sales so far, which usually happens when you are in an upward trend.

That's great. Then are you seeing -- I noticed, in your 10-Q, you had mentioned that it looks like the fan coil business is starting to show -- starting to join the geothermal and heat pump business with an upswing, too. Can you comment on that?

Well, as you know, it was impacted the most adversely after 9/11 for a couple of years because it's a very strong participant in the hospitality sector, okay? Hotels are one of our big markets. They probably account for 25 to -- (technical difficulty) -- percent to a third of the business for fan coils, and that is on the rebound and projected to be up significantly. As a matter of fact, if you look at the Dodge forecast for next year, the sector that's forecast to be up the largest amount in a percentage increase is the hospitality sector, so that's contributed to their rebound.

Great. Then in terms of the new products that are still in the red on the operating line, what is the approximate sales there? What's sort of the timeframe for -- that you sort of expect those -- (multiple speakers) -- contributing positively?

Well, I really can't -- you know, we've made the decision that, from a policy standpoint, we're not going to give any forward-looking statements with regard to when we think we're going to achieve any specific results. So I can't really answer that question. I mean, I'd like to but it's just -- we've just made the decision we're not going to do that.

But it's safe to say that the trend is going in the right direction there?

We believe the trend is going in the right direction.

I'm just looking at the loss from last year to this year; it continues to go down.

It's about the same as last year. The improvement is not material.

Okay. Then in terms of the expansion for the new products and the CapEx there, is CapEx going to increase in the HVAC or is most of this --?

Yes, CapEx -- there are certain bottlenecks that we have to unbottle in order to go to the next level of production, and we're in the process of doing that now.

So that's just a function of the increase, the sales growth and the -- (multiple speakers)?

Right.

Great. Finally, just on the chemical side of the business, I noticed that Tony had mentioned that you are somewhat flexible on the Cherokee converting UAN to ammonium nitrate, potentially. What sort of -- how flexible are you in terms of how late in the season can you convert that production, how is -- how are you evaluating potentially longer-term that decision?

Well, I don't think we intended to convey that we can switch -- just switch from one product to another. We've made a decision, based on contracts that we have, to produce UAN. That decision required that we not produce ammonium nitrate, so in solid form. So, that decision -- we've got the plant set now to produce UAN. If, for some reason, the UAN production or UAN market changed, then we could always turn off the UAN and convert back to making ammonium nitrate. But we have no intention of doing that now. Right now, we are shipping ammonium nitrate from our El Dorado operation into the territories that were selling ammonium nitrate that were traditionally the Cherokee territories.

Okay.

You have the capacity there to go either way and from time to time, I am -- (indiscernible) for the last couple of years, it's been UAN.

If, for some reason, the market changed and UAN was too much of an undermarket, the pricing wasn't right or something, some other reason that we felt we were better off producing ammonium nitrate, we would do it.

Excellent, I appreciate it. Good quarter.

Adam Ritzer (ph) of CRT Capital. Please go ahead.

I guess a couple of questions. On the climate-control side, I know things look like they're going great there. Is the second half typically better, worse than the first half? Can you comment on that?

Well, typically, when you say better or worse, it's typically about 55% of our sales are concentrated in the second and third quarter of the year, and 45% of our sales are focused -- are in the first and the last quarter.

Okay, so it's about the same?

Well, yes, it's about the same, pretty much the back side, the flip the front side.

I got you. You mentioned that you've taken some price increases in the business. I don't know exactly when or if it's been throughout the year. Are those holding? What's the response from your customers about the price increases?

Well, that's a very good question and it's not a simple question to answer, but I will try to answer it simply. There are -- part of our business is what I will call non-negotiated business for the most part, in other words products that are sold in small quantities through certain distribution channels where you don't, on a job-to-job basis, negotiate the price. All of those price increases have held. Also, the OEM sector of our business is (indiscernible) set price schedule, and so we come to an agreement with those OEMs as to price increases, and those have held.

Then there's a sector of our business where we are selling to the marketplace on large projects that are very competitive, and on a job-to-job basis, those are negotiated. In some cases, our price increases have held and in other cases, they haven't. It just depends on the competition on the particular job.

I got you. So would it be fair to say at least half or maybe a little better is holding?

Yes.

Okay, good. I guess, on the chemical side, you guys mentioned that the Air Products plant is now up for sale. When did they actually put that up for sale?

About three weeks ago -- there was a hurricane in Florida and they decided -- that's not their main business. Air Products is a well-known company.

(inaudible).

The plant was damaged, and I'm not sure the extent of the damage; it was damaged in a hurricane. They just decided not to rebuild it or fix it -- (multiple speakers) -- insurance proceeds and running.

Do you have any idea what they're trying to sell it for and how that would compare to some of the plants and valuations you see out in the market for your assets?

First of all, they have a small plant. They only produce a maximum of 250,000 tons of agricultural-grade ammonium nitrate a year. They don't have any ammonia production, and they produce -- they have two acid plants and a (indiscernible) tower, so it's not comparable to the big op (ph) plant that doesn't have an ammonia plant; it has a concentrated nitric acid plant plus three other nitric acid plants plus a sulfuric acid plant -- (multiple speakers) -- towers. I mean, it's a whole different -- it can't compare.

Okay, fine.

They are not well-located in Florida.

I got you. When did Agrium decide to discontinue their ammonium nitrate business?

About a month ago, they announced it.

About a month ago, okay.

They closed their last plant producing nitrate; it was in Nebraska.

I got you. So I guess the price increases out there -- is it still too early to tell if they're going to be accepted, or how has that been going in the last few weeks now what these guys are out of the market?

Well, so far they are accepting it.

Do they have a choice, really?

Well, I don't know. It's up to them.

Okay. I mean, do they -- you said there's 2 million tons a year of demand and the production is about half of that.

Remember, last year was 2.2 million but in prior years, it's been as low as 1.8 million. So, in my mind, it's a 2 million -- 2 million-ton market. But, those people can -- some people just don't want to go through the trouble to handle it, and they will drop ammonium nitrate because of government regulations. You know, you have to document who you sell it to, and you have to have certain security on your plants and on your storage facilities; you have to guards, cameras, all kinds of paperwork that the government requires. Some people don't want to do it, so they just will go to some other product. There is some crops where ammonium nitrate is absolutely superior to anything else that's on the market. Those people will probably persist in using ammonium nitrate, and we've gotten calls from all over the country and have followed up on it and made sales in places where, previously, we didn't think we could sell because of the price factors.

Okay. I guess the last part of my questions here -- you know, you guys have been talking about and I guess trying to achieve a point where you get the cost-plus business up to, well, let's say greater than where it is at now, and then efforts to spin-off the chemical business from the climate-control business. Can you give us a brief update of where that stands? You know, what else is needed out there?

Adam, I thought I put to bed that we weren't going to spin it off now; we were not looking to -- we were going to improve the chemical business and then we will decide what we're going to do.

Okay. Well, let's put it another way. We have a stock price right now of $6.60. You have a climate business that looks like it's doing very well, getting better, putting on price increases, big orders. It looks like similar things are brewing on the chemical side. Yet, we are still sitting with a $6.60 stock. What are we going to do to increase shareholder value if the market doesn't recognize this and try and be a little more aggressive on it?

Well, we have never done anything to directly affect the price of the stock. I mean, that's not the way we run the Company. We run the Company trying to do what we think is, in our minds, best for the shareholders to build value. Now, there's a question. If you take a look at the numbers, divide the Company in half right now, what do you have left? You know? Unless we can -- of course, as a public company, anything we have I guess you would say is for sale at the right price. The question is, what is the right price? Our shareholders that we talked to are looking for a pretty high price for the Company, and we are in agreement with that. We think that it's too (ph) a high price. So, it's hard for us to say with what's going on now.

Now, the whole picture, as you can see, has changed in the last six months, the chemical business. So, the values and the expectations should also change. We don't know if they've changed yet, so it's hard for us to say what we will do at this time but we will try to do what's best for the shareholders.

Great. Okay, thanks very much, guys.

(multiple speakers) -- go in above 70%. We have a tremendous amount of demand for the agricultural-grade ammonium nitrate during the season, so it's difficult for us to go much beyond the 70%, unless we were to find an ag customer that would want to lock-in on a long-term contract, or if we diverted that to some other product. We're continuing to do that, but the ag business is profitable, and there's a lot of demand, so it's possible that we get above the 70%. For the time being, we're looking at probably 70%.

Okay, to answer your question, we have not stopped trying to do -- get agreements that will allow us to pass through the costs -- (technical difficulty). I mean, we still -- we have a couple of prospects that we're working on now, but it's too early to even talk about.

I understand. Okay, thanks a lot.

Thank you. (OPERATOR INSTRUCTIONS). Mr. Shelby, Mr. Golsen, there are no further questions at this time, sir.

Okay, thank you all for participating.

This concludes today's conference call. Please disconnect your lines, and thank you for your participation.