LSB Industries Inc (LXU) 2012 Q3 法說會逐字稿

Greetings and welcome to the LSB Industries Incorporated third quarter 2012 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Carol Oden, Executive Assistant. Thank you. Ms. Oden may begin.

Thank you. Again, we would like to say welcome to the LSB Industries Inc 2012 third quarter conference call. Today LSB's management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President and Chief Operating Officer; and Tony Shelby, our 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 website at www.lsb-okc.com.

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 call speaks only as of today, November 6, 2012, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. After the Q&A, I will have some important comments and disclaimers about forward-looking statements and our references to EBITDA. We encourage you to view the PowerPoint PDF that is present on her website at www.lsb-okc.com in the webcast section of the investor Information tab. Please note that the presentation starts on page 3 of the PowerPoint. And now, I will turn the call over to Mr. Jack Golsen

Thanks, Carol. Good afternoon. Before starting our call today, we want to -- we want our friends in the Northeast to know that you have been in our thoughts throughout the storm and its aftermath. I understand there is another storm heading your way and I hope it misses you, but that is yet to be determined.

Okay, now I'm going to start the conference call. Thanks for joining our call today. This afternoon we released our 2012 nine months and third quarter earnings report, and we also filed our 10-Q for the quarter. Net income for the first nine months was $47 million, or $2 per diluted share, on $582 million sales. Net income for the third quarter was $6.7 million, or $0.28 per share, on sales of $182 million. Third quarter our net income per share wer, youe roughly in line with last year's third quarter, although 2012 third quarter sales were slightly higher than 2011. As previously reported, our third quarter 2012 results were impacted by lower ammonium production at our Pryor, Oklahoma chemical facility. We estimate this reduced our income by $14 million. That is in the quarter.

At Pryor, we are installing a single large Kellogg ammonium converter to replace the six small converters at this plant. We believe this single large converter will allow us to significantly increase ammonia output in 2013. Also, we estimate the severe damage to a 98% nitric acid plant, also known as the DSN plant, at the El Dorado facility in El Dorado, Arkansas, and the collateral damage to our acid plants at the El Dorado site caused by the explosion in mid-May have reduced our third quarter profits by an additional $9 million. Most of these lost profits are expected to be recovered by insurance proceeds in a future period.

The repairs of our El Dorado plants have been made in a remarkably short time. Most of the collateral damage has been repaired. Three of our nitric acid plants are up and running, and the sulfuric acid plant should be operational later this quarter, and probably this month. The DSN plant, which produced about 20% of the nitric acid manufactured at El Dorado, will not be repaired. Instead, we are replacing that plant.

The feedstock for two of our chemical operations is natural gas. The price of natural gas has historically been volatile. To companies like LSP that use large quantities of natural gas, are always looking for ways to fix at a low price their future costs of natural gas. This is usually done by some kind of a hedge.

On October 31, which was last month, a subsidiary of our Chemical Business purchased an interest in the Marcellus gas field as a hedge to fix the future cost of a meaningful portion of future gas purchases. This acquisition includes potential gas reserves equal to approximately 20% of our current annual natural gas requirements over the next eight years at an estimated present value of approximately $2.30 per MCF, including development and operating costs. The current price of gas is approximately $3.40 per MCF, and is expected to increase in the next few years as the country converts vehicles and power plants to natural gas.

Our climate control business has been impacted by the recovery in construction, taking longer than previously anticipated. Right now, the market is still soft. We have capacity to respond to the market as it improves. Meanwhile, we continue to develop new products which we believe will have a positive impact on future results. Barry will discuss the market situation and outlook in more detail. For 2012 third quarter was not an indicative reporting period for us, and we expect a much improved fourth quarter in 2012, and further improvement in 2013.

Before turning the call over to Tony, I'm proud to report that once again LSB was named as one of America's 100 best small companies by Forbes Magazine published on October 22, 2012. Forbes looks at return on equity, and revenues, and earnings growth over the past year and over five years among companies doing under $1 billion in revenues. Finally, since this is our last conference call for the year, the entire LSB team wants to wish all of you the very best for the holiday season and the coming year. Now I will turn this call over to Tony Shelby, our CFO. Thank you.

Thanks, Jack. Before I review the specifics and general comment, historically our third quarter is the lowest quarter in terms of sales and earnings since it is in between agricultural seasons with low demand for our fertilizer products. We scheduled most plant turn-around maintenance during this lower demand period. In addition to the seasonally lower sales gross profit, lower overhead absorption plus turn-around expenses for the quarter, there were also certain other significant events in the Chemical Business that affected the level of earnings in the third quarter. I will describe these events in detail when we turn to the business segment discussions. Our results for the third quarter and nine months ended September 30 are summarized on page 4 of the PowerPoint presentation.

Comparing the third quarter 2012 to the third quarter 2011, consolidated sales were $182 million, an increase of $5.6 million or 3%. Fully diluted earnings per share were $0.28 compared to $0.27. Operating income was $12 million, a decrease of $600,000, or approximately the same as last year but for different reasons. After interest expense and an effective tax rate of 36%, net income was $6.7 million compared to $6.3 million. The effective tax rate was lower than the combined federal and state statutory rates due to Section 199 allowable domestic manufacturers' deductions and other tax credits.

Also note on this page, cash flow from operations was $17 million after cash for capital expenditures of $29 million, payment on current and long-term debt and another offsetting items of $3 million, net cash and short-term investments decreased $15 million for the quarter. The decrease in cash for the quarter was due to seasonal sources and uses of working capital, consistent with third quarter 2011. At September 30, 2012 our cash balance was $134 million. EBITDA for the quarter was $17 million, or approximately the same as 2011. Turning to page 5, in Chemical, Chemicals third quarter sales were $110 million versus $103 million last year, an increase of $7 million or 7%.

By product line, agricultural sales were $33 million compared to $30 million, industrial and mining product sales were a combined $77 million compared to $73 million in 2011. Operating income for the chemical business for the third quarter was $7.5 million compared to $7.1 million last year. In addition to the fact that the third quarter is typically a lower than average quarter, there's certain operating conditions that exist in each quarter that require explanation. In last year's 10-Q we explained the third quarter of '11 so I will cover that again this year. Regarding Chemicals, 2012 third quarter, beginning on page 31 of our 10-Q is a full discussion of operating issues and circumstances at our Pryor and El Dorado facilities during the third quarter of 2012, that caused operator results to be less than otherwise would be expected.

It also lists steps we are taking to return to normalized operating results. To summarize, during the third quarter, Pryor's rate of ammonia production was only approximately 50% of the quarterly -- of the target rate of 600 tons per day during the quarter, due to continued problems with the ammonia conversion process. We estimate that as a result of the lower production of ammonia, and based on market prices of ammonia and UAN during the period, third quarter operating income was $14 million lower than it could have been. Further, as previously reported, the El Dorado facility was damaged on May 15, 2012. This caused third quarter sales to be lower than otherwise would have been expected, resulting in a lost overhead absorption and gross profit margins.

We also recorded losses on nitric acid and sulfuric acid purchases we made and negatively spread to provide uninterrupted service to certain customers that rely upon existing supply agreements. The lower profit margin, lower fixed overhead absorption, both combined with the negative spread on purchases had an estimated $9 million negative effect on El Dorado's third quarter operating results. Our insurance policy provides business interruption coverage after the first 30 days of the insured event, which we believe will cover these lost profits and extra expenses. However, we don't expect to receive the first installment of business interruption proceeds earlier than first quarter of 2013. As a result, the business interruption insurance offset these losses was not recognized in the third quarter. The insurance recovery will be recognized as a reduction of cost of sales in the quarter that the claim is paid.

To recap, the combined effect of lower ammonia production at Pryor, lower acid production at El Dorado, and the losses on purchase assets at El Dorado was to lower our third quarter operating income by approximately $23 million. After tax, this is roughly equivalent to $14 million net income, or $0.60 per share. Finally, during the third quarter our Cherokee facility was out of production during planned maintenance turn-around for most of August, significantly affecting its operating results for the quarter. I might add this is standard for the third quarter for these type turn-arounds.

Regarding the outlook for the 2012 fourth quarter. Today ammonia production at Pryor has stabilized at 80% of the 600 tons per day target rate for the quarter, and Pryor's net backs sales prices are higher than in the third quarter. If these trends continue throughout the quarter, the increase in production and processing should offset most of Pryor's lost margin experienced in the third quarter. And we expect Cherokee to be in full production during the fourth quarter of 2012. El Dorado is producing at approximately a 20% lower rate than before the May the 15 event. The losses on nitric acid and sulfuric acid purchase made a negative gross margin to provide service to these certain customers during -- will be much less during the fourth quarter.

Although we do have business interruption insurance, we will continue to experience a timing delay between the effects of that interruption and associated interest recovery until we complete construction of the new nitric acid plant at El Dorado in 2015. Barry will provide an update and current status of both Pryor and El Dorado, as well as the business conditions for all of our Chemical Business markets in the business overview. Reflected in the chart on page 6 is a quarter-by-quarter comparison of Pryor's operating income for the periods beginning in the fourth quarter of 2010 when the facility reached a sustained production. This graph illustrates Pryor's earnings potential.

Certain quarters after 2010 have been impacted by mechanical issues, due to our restart at Pryor, which has been out of production for over a decade. We believe we have addressed those issues, and we expect that when the ammonia converter is replaced in early 2013, the Pryor facility should be better able to realize its potential. Continuing with the quarter over quarter comparison by business segment, please refer to page 7. Climate Control sales were $68 million, or $3.8 million lower than a year ago. Climate Control's gross profit as a percent of sales was 30.1%, compared to 31.8%, and operating income was $6.9 million compared to $8.7 million in the third quarter of 2011. Generally, the decline in sales and operating income in 2012 reflects the continued softness in construction activities in the markets we serve. Barry will review Climate Control quarterly results and current market conditions in greater detail.

Turning to page 8, a summary of our liquidity position at September 30, 2012, cash was $134 million, total funded debt was $74 million, and stockholders' equity was $342 million. Capital expenditures during the quarter, total capital expenditures were $29 million, including $27 million from the Chemical Business. As noted on page 38 of the 10-Q, at September 30, we had committed capital expenditures, primarily in the Chemical segment, in a range of $170 million to $180 million. The committed capital expenditures include $110 million to $120 million for the new 65% nitric acid plant and concentrated for El Dorado to replace the damaged DSN plant, which should substantially be funded by insurance proceeds. The remaining committed expenditure of $60 million is primarily for increased capacity and production efficiencies.

In addition, we disclosed on the same table additional planned, but not yet committed, expenditures at September 30 of $102 million to $112 million, including $90 million to $95 million, primary for the planned acquisition of, and development over time of the working interest in certain natural gas properties, located within the Marcellus Shale. Two of our chemical plants, Pryor and Cherokee, use natural gas as their feedstock. Our investment in this working interest was made as an economical hedge against possible future rising prices of natural gas. The acquisition was completed on October 31. The closing price was $49 million. The additional $38 million to $40 million will be further development of the leasehold, and we expect this will be funded by the cash generated by this investment.

And finally, as Jack mentioned and Barry will discuss further, we are considering the possible addition of an anhydrous ammonia production plan at the El Dorado facility, which will cost in the range of $250 million to $300 million, and is estimated to require 24 to 36 months to complete. We expect to finance some of the planned capital expenditures with a new long-term loan, priced at a fixed rate over LIBOR. However, the terms will depend upon market conditions at the time. That concludes an overview of our results for the quarter, our liquidity and capital resources at the end of the period, and certain planned expenditures subsequent to this quarter-end. We've addressed our results of operations for the quarter and the comparisons to 2011 in the quarter in greater detail in the MDMA of the 10-Q, which we filed earlier today, and we suggest that you review these disclosures and discussions for additional analysis. I'll now turn the call over to Barry to discuss both businesses for the quarter and the outlook going forward.

Thanks, Tony. I'm going to focus on our sales activity, product backlogs where pertinent, and market drivers. I'll also give you an update on activities at our Pryor and El Dorado facilities.

To start, please turn to page 9, which shows our 2012 sales mix by the markets we serve. For the first nine months of 2012, our sales mix continues to be approximately two-thirds Chemicals and one-third Climate Control. In the Chemical Business, about 48% of sales were nitrogen based agricultural fertilizers and associated products. The other 52% were industrial and mining products. In our Climate Control business, approximately 82% were sales of various heating, ventilation, and air conditioning products to commercial and institutional markets. The remaining 18% was the sale of geothermal heat pumps for single-family residential applications.

Focusing first on our Chemical Business, please go to page 10. Third quarter sales were $110 million, 7% above the third quarter of 2011. Agricultural products sales were up 10% over the 2011 level, with industrial and mining sales up 5% and 7% respectively. Increased ag product sales were due to more ammonium nitrate sales than in the third quarter of 2011, while increased industrial and mining sales were primarily caused by high ammonia prices that were passed through to our customers, resulting in higher sales prices for many of our products.

Please turn to page 11 for sales of our key agricultural products. During the third quarter, tons shipped of urea ammonium nitrate, or UAN, were 27% lower than during the 2011 third quarter, while net sales decreased 28%. The decrease in tons sold of UAN was the result of limited ammonia available to produce UAN, primarily due to lower than expected ammonia production at Pryor during the quarter, but also due to firm sale commitments for anhydrous ammonia we were committed to satisfy. UAN shipments from our Cherokee facility also decreased during the third quarter compared to last year, due to an extended turnaround at Cherokee. Tons shipped of agricultural grade high-density ammonium nitrate, or HDAN, were 14% higher in the third quarter of 2011, and sales were 26% higher. Higher shipments of HDAN were driven by generally better weather conditions than the previous year, but had the effect of extending the period ranchers applied fertilizers to forage areas. Tons shipped of ammonia to agricultural markets increased 152%, resulting in 141% increase in ammonia sales compared to 2011. This was a result of having more ammonia available to sell.

Turning to our industrial and mining products on page 12, sales of nitric acid and industrial ammonium nitrate increased 14% and 7% respectively, whereas sales of sulfuric acid declined by 36%. Lower sulfuric acid sales were a result of the explosion and subsequent downtime at El Dorado. On page 13 are some price trends for both the feedstocks we use and the key ag products we sell. The cost of natural gas, although about $0.50 higher than in its recent low point, continues to be low. This is benefiting margins at our Cherokee and Pryor facilities which use natural gas as their primary feedstock. The cost of anhydrous ammonia, the feedstock we use at are El Dorado, Arkansas and Baytown, Texas facilities, continues to be high compared to previous years, and has recently increased to $720 per metric ton.

High ammonia prices have increased production costs at our El Dorado and Baytown facilities. The chart on the lower right shows pricing for ag grade HDAN. In October of 2012, Southern Plains prices for HDAN dropped to $380 per ton, compared to $405 per ton 12 months earlier. It currently remains at about $380 per ton. This is the time of the year that we traditionally see a soft market. We also believe that higher imports of urea are putting price pressure on HDAN. If you look at the chart on the lower left, you can see that the Southern Plains price of UAN was $330 a ton this October, compared to $380 per ton in October of 2011. Today's pricing is about $320 to $330 per ton.

Focusing on the outlook for the chemical markets we serve, page 14 lists several indicators for our agricultural products. Most of these are favorable. Grain stock-to-use ratios both worldwide and in the US continue to be low. Planting levels are expected to be high for both corn and wheat. Market prices for corn and wheat remain high as well, so farmers are incentivized to plant and sell more. All of this is creating strong continuing demand for the fertilizers that we produce.

Finally, low natural gas prices have reduced the cost to manufacture UAN and ammonia at our plants that use natural gas as a feedstock. Factoring in the total cost of production plus freight and distribution, North America is the low-cost producer of nitrogen fertilizers. The industry consensus is that the positive fundamentals for the ag business should continue. In addition to general industry drivers, weather can have a significant impact on fertilizer use, demand, and prices. Although in last summer, many areas were affected by drought, many of the areas we serve have had more favorable moisture conditions through the fall, with the exceptions of Kansas, Nebraska Missouri, and West Texas. As we predicted in our last call, lower crop yields last season should result in higher fertilizer demand next season. ¶ Corn production for the ethanol industry is a subject that we are frequently asked about. Although a major reduction of ethanol production could hypothetically affect the demand for corn and its demand for fertilizer, so far we have not felt any meaningful impact from the current level of reduced ethanol production. We believe that with corn stock so low, reduced usage of that for ethanol has and will continue to be overshadowed by strong general worldwide demand for corn. Taking all of these factors into consideration, we continue to be optimistic about our ag business.

Now if you turn to page 15, you can see from the chart on this page that despite lower sales caused by the explosion and subsequent downtime at El Dorado, more than 50% of our business continues to be industrial and mining products. They are sold primarily to large customers, and most are sold pursuant to contractual cost plus and/or minimum take arrangements. Page 16 contains some market indicators for this area of our business. Most of these indicators forecast growth for the next few years.

Before turning to the Climate Control Business, I'd like to take a few minutes to update you on progress at our Pryor and El Dorado operations. On page 17, there is an update on Pryor. During our last conference call we reported to you that repairs to Pryor's urea reactor were successful. That reactor continues to operate as expected. We also advised you during that call that we had received permits to increase ammonia production at Pryor by 60,000 tons per year, and we are in the debugging process on two smaller ammonia plants. That process continues and we've started limited production.

As reported during our last call and subsequent communications, we continue to have considerable problems with the ammonia conversion process the prior during the third quarter. We also advised you that to correct those problems we are installing a Kellogg ammonia converter, replacing catalysts that at the end of the useful life and installing a new chiller to lower high temperatures that reduce production capacity in hot weather. Those plans are underway, and we expect those changes to occur in early 2013 during a scheduled plant turn-around. We believe that all of these measures should allow us to achieve ammonia production rates at Pryor of approximately 600 to 700 tons per day.

Turning to our El Dorado facility, please go to page 18. On May 15, there was an explosion at the DSN 98% strong nitric acid plant at El Dorado, which we refer to as DSN. El Dorado is referred to as EDC, excuse me. We believe the DSN plant was damaged beyond feasible repair. The sulfuric acid plant was seriously damaged, and there was less serious damage to the other three nitric acid plants and other ancillary equipment. As Jack noted, since May 15 we have made substantial progress with the repairs at EDC, and the entire facility is back in operation, except the DSN plant and the sulfuric acid plant. The sulfuric acid plant should be brought back online before the end of the year, this year, 2012.

However, as Tony pointed out, approximately 20% reduced nitric acid production will continue to affect EDC's output until we add acid capacity to replace the DSN plant. During the last conference call we advised you that we believe the DSN strong nitric acid plant was damaged too seriously to repair, and would be replaced with the new 65% plant and concentrator. This will take at least two years to complete, could cost over $100 million. At that time, we believed the cost would be substantially covered by insurance. Although we continue to believe the DSN plant should be replaced rather than repaired, recent comments from the engineering firm representing our insurance carriers indicate a preliminary determination that the DSN plant was not totally destroyed and is repairable. The cost to repair, which we believe may be the basis of our insurance claim, is not yet known, but it's expected to be in the range of $50 million to $70 million. This does not include business interruption insurance proceeds, which are a separate issue. We will advise you when this situation is resolved.

Finally, with regard to EDC, although a final decision has not been made, we are considering the addition of an ammonia production plant at that location. Since EDC uses purchased ammonia as a feedstock, it is at a competitive disadvantage to facilities that produce ammonia from natural gas. The proposed plant would cost between $250 million and $300 million, and would take from 24 to 36 months to complete, and would be funded with long-term debt. When we make a final decision about this plant, we will advise you as well.

Moving on, page 19 contains some strategies and some of our key initiatives for 2012 for the Chemical Business. We reviewed most of these with you on previous conference calls. This page is here for you to reference and review later, or for those of you who were not on those calls. So I'm not going to go over the details at this time.

Turning to our Climate Control Business, on page 20 you can see sales by major product categories. Total sales were approximately $68 million, a decrease of 5% compared to the third quarter of 2011. Compared to third quarter 2011, sales of heat pumps were down 11%, fan coil sales were down 1%, and sales of other products were up 14% due to increases in sales of our custom air handlers and modular chillers, which are included in this other category.

On page 21, you can see that sales of products sold for use in commercial and institutional buildings were down 1%, while sales of our residential products, all geothermal heat pumps, were down 21% lower than last year's third quarter. Total bookings during the third quarter were $66 million, on par with the third quarter of last year. Commercial bookings were up 8%, while bookings of residential products continue to lag, down 25% to the 2011 third quarter. Our backlog of product orders at September 30, 2012 was $51 million, 6% higher than one year earlier, and approximately 50% -- 15% higher than the $45 million backlog at December 31, '11. Total new orders in October were approximately $28 million, and our backlog of product orders at October 31 was approximately $59 million.

Simply stated, the markets we serve continue to be soft. Commercial and institutional construction appears to be recovering at a slower rate than previously anticipated. The specific markets we serve for residential products have been severely impacted by low levels of construction and low levels of investment in existing homes. The continuing low cost of natural gas which is used as fuel for heating about 60% of the homes in the United States has extended the payback period for our residential geothermal products in those markets that use natural gas. We believe that this has impacted our sales of residential heat pumps. We continue to hold a market leadership position with our geothermal products.

The next few pages of the PowerPoint deal with the market outlook for construction. On page 22 there's a graph that shows McGraw-Hill's most recent construction forecast for certain commercial and institutional building types. These are the sectors or building types that are the most important to us, and comprise 61% of our total Climate Control business sales in 2011. McGraw-Hill is forecasting that, in the aggregate, they will decrease by approximately 7% in 2012, which is a dramatic change from the 3% increase forecast just six months ago, reflecting the uncertainness of the economic recovery. However, these sectors are forecast to increase approximately 7% in 2013 and 78% through 2017. If this future growth materializes, it should benefit all of our commercial and institutional product sales.

In addition to watching construction forecast by sector, we also track the architectural building index, which is considered to be an indicator for non-residential construction spending 9 to 12 months in the future. On page 23 is a graph of the ABI. Any score above 50 indicates growth in billings, while any score below 50 indicates a decline in billings. This indicator was below 50 for most of 2011, finally breaking into positive ground last November. However, after five months in positive territory, it dipped below 50 again in April of this year, and remain there through July. Through August and September the ABI indicated growth. Obviously, there is no consistent trend, and we believe that the general consensus of most economists and construction industry experts is that the recovery in commercial and institutional new construction will be slower than previously forecast. One bright spot is that there appears to be a strengthening in the multi-family housing sector, which historically has been one of our strongest markets.

Moving onto sales of geothermal heat pumps used in single-family residential applications. Page 24 shows McGraw-Hill's forecast for single-family residential construction starts. McGraw-Hill is currently forecasting that housing starts will increase from about 413,000 in 2011 to 490,000 this year, 2012, to 610,000 in 2013, and to over 1 million per year in 2015. If this future growth occurs, it should benefit our residential geothermal business. However, much of the benefit remains uncertain, and we believe depends, to a certain extent, upon the cost of energy.

Turning to page 25, we've listed our Climate Control Business' strategies and some key initiatives. Again, these are repeated from previous calls, and I will not review them again with you now. Before opening this up for questions, I would like to thank you for listening, and I would like to request that each of you please limit yourself to three, or maybe four, questions so that others will have a chance to ask some questions as well. If you've got more questions, you can get back in the queue and ask them later on during the Q&A session. Operator, you can please poll for questions now.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session.

(Operator Instructions)

Joe Mondillo, Sidoti & Company.

I know you guys don't generally talk numbers in terms of plant by plant, but I was wondering if you could at least give us an idea where we are on the El Dorado plant compared to a year ago, in terms of, are we even break-even at this point? Or just give us an idea of what the profitability is at El Dorado in the third quarter, and what you expect going forward?

Joe, as you correctly pointed out, we don't give profitability by individual plant facility. However, I will tell you that El Dorado is traditionally profitable, and it is somewhat seasonal because the high density of ammonium nitrate during the fertilizer season, but it is typically always profitable on a quarter-over-quarter basis. However, it is being impacted, as we indicated, by the 20% lower sales, and a few of the other activities which we -- in the second quarter we told you that it had a $7 million impact. In the third quarter -- talking about the explosion and the aftermath.

In the third quarter we mentioned it had a $9 million impact, and we are telling you that it is going to be substantially less than that going forward, probably in the $4 million to $6 million range as the impact. So, I won't attempt to disclose what the profitability is at El Dorado, except to tell you that it is generally profitable, and as Barry has told you, it's been challenged by cost of ammonia. So, it is not as profitable as Pryor and Cherokee; however, it is profitable and it is being impacted by the May 15 event.

Okay --.

I would like to add one thing to that. One thing that will improve it on a going-forward basis, even before we replace the nitric acid capacity out in 2015, is when we get that nitric acid plant up and running during the fourth quarter, and we won't have to -- I mean, the sulfuric acid.

Sulfuric acid.

Excuse me, and we won't be buying and reselling sulfuric acid.

And that's the reason it'll drop from the $8 million, $9 million range to the $4 million to $6 million.

Yes.

(Multiple speakers) the impact.

So, you are going to see some improvement in the fourth quarter.

Okay, and, I guess, in terms of the $9 million, are there any random costs associated with that, or is that just the lost production and the leverage on that lost production?

Primarily the lost overhead absorption and the lost margin. Now keep in mind, Joe, we will recover that in subsequent periods as the business interruption claim is collected. So, that will be -- the business interruption claims will be recorded as a reduction of cost of sales in the quarter that they are received/approved. And I think once the first installment is received, we should receive an installment every quarter thereafter. So, it will tend to wash itself out at some point.

Okay, and then I guess remaining on a similar theme, but moving to Cherokee, could you talk about, or just give a little more color in terms of -- you talked that the downtime, the seasonal turnaround was a little more than usual, or more than last year. Could you talk about that, and what the profits look like on a year-over-year basis at that plant?

Well, Cherokee had a turnaround in the third quarter last year; they had one this year. This one was about eight days longer. So, it impacted the absorption and the profitability by a certain amount. But Cherokee did not have any unusual problems, they just had more work to do this time.

So, on a year-over-year comparison, are we seeing any benefit on the pricing side? And then maybe offset by the longer turnaround, or was it down year over year? Just trying to get an idea, because certainly it seems like that El Dorado and Cherokee is where, at least in terms of my expectations, came a little under expectations.

I'm not sure what the question was, except that --

I guess I'm just trying to determine -- was the profits at Cherokee down on a year-over-year basis?

They were somewhat lower by about one week. If they were down three weeks in last year, they would've been more like closer to four weeks this year.

Okay, and then last question, and I'll jump back in queue. The industrial and mining sales compared to the second quarter on a sequential basis, seemed like they jumped up pretty good. Could you just give some color on that side of the business and what you are seeing?

I think Barry covered that in the majority of the -- we did have some higher [tolerance], but I think also it was mostly the higher cost of ammonia that was passed through in the pricing.

Remember, most of that businesses is on a cost-plus basis. And it is usually a certain amount per ton that gets added, not a percent. So, that is a somewhat counterintuitive part of our business, because even though the tons can increase, and -- excuse me, not the tons. The volume can -- the sales dollars can increase due to increased raw material costs. You don't necessarily see an increased profit.

Okay. Okay, thanks.

On the same tonnage. On the same tonnage, you don't see an increased profit.

Dan Mannes, Avondale Partners.

I've got a couple questions on Pryor, then I'll probably hop back in queue, because then I have some more on other topics. First, on Pryor, just based on your dialogue, it doesn't sound like there was an official turnaround in either Q3 or Q4, or am I mistaken? Any planned turnaround?

That is correct. I think we are going to push the turnaround into the first few weeks of January.

And how long do you expect that to be? A normal two, three weeks, for planning purposes?

I think that turnaround will probably be -- this is Barry speaking --.

Yes.

-- a little bit longer than usual. Normally you would think of a turnaround as being two to three weeks in a plant like that, but it is probably going to be three, maybe four weeks or a month. And the reason is, we have more equipment to install, as I -- just to refresh your memory, we've got that new ammonia converter, which is going in. We've got some cooling equipment that is going in. We are doing a few other things that were too small to mention, but they take time to do.

The other thing we are a little bit concerned about is, January is a tough time of the year. You can get some weather that -- you could see a week push out on it. So, we think that it's prudent to give ourselves some slack from a timing standpoint when we are thinking about a turnaround in January.

Okay. No, that makes a lot of sense.

Okay.

In terms of the current output, you said you're at 80% of the 600-ton-per-day target. What has changed in the last few weeks? Were you able to kind of patch it, just to ride it out until the new ammonia converters are online, or what changed to enable that?

Dan, the problem is, you cannot see inside of this converter, and as Jack and Barry mentioned, there is a series of conversion steps through that, and you can't see in. Sometimes it's clear -- there's more gas being pushed through then at other times. So, at this point, probably the third quarter was a very low point in the year, and it is improved back to a little bit higher level.

But it sounds like just given that up and down nature, it might make sense for us to be a little bit conservative on the output. There is no guarantee it's going to be at 80% for the whole quarter?

That is true.

Is that --?

We feel like it is stabilized at this point, but November, December, there still is a question of --. (multiple speakers)

This is why we are still planning to proceed with the change-outs, because we have seen sometimes where the current ammonia converter has produced at very high, actually on a day-to-day basis, at or near targeted rates. And we've seen -- but it's been somewhat unreliable, and we've seen dates when it's -- times when we couldn't. And this is what we explained to you in the last conference call. That it has been unreliable and inconsistent. So, the reason for the change-out is to put a single piece of equipment that is more current in there, that we believe will be significantly more reliable than the six smaller, older converters that are there now.

There is another big factor that affects every one of these plants all around the country. And that is the temperature. We have had hellacious summers, and you cannot get production in the summer unless you add cooling, which is what we're doing in this turnaround. We are adding a big -- a giant cooling unit to try to get the same kind of production during the summer that we get during the cooler weather. Hopefully, we will be successful.

Okay. Two last quick ones on Pryor, then I'll jump back in queue. As it relates to the third quarter and the $14 million deviation from plan, any way you can break that out between the lost production margin side, and loss absorption and one-time costs? That would help me out, because that is where I'm having some trouble reconciling this quarter.

Are you referring to Pryor now?

Yes, I'm still on Pryor, sorry.

The only thing I can tell you, Dan, is what we've always talked about before in these conference calls, is that there is a conversion of something in the range of 30 MCF of gas on a ton of ammonia.

Yes.

So, if the -- and the selling price of ammonia and UAN are -- no, I wouldn't say historically high, but they are very high right now, so you've got a big spread. So, if our production level is less than 600 tons, for every ton you blow, you're losing the spread on the one ton of ammonia, and so you've got 31 MCF of gas, let's say, at $3.50, and you've got $100 more or less to convert to a ton of cost to convert. So, you've got 30 times 3. You got $200 cost in a ton of ammonia. So, you can sort of figure that out for yourself, the spread there on one ton versus the number of tons that were down. That's about as much guidance as I can give you.

Yes, it's just tough because we don't know the exact tons produced, and that's why I'm wondering if there was -- (multiple speakers)

Well, I think we disclosed what level we were producing in the third quarter. I'll have to double-check that, but I think we told you at what level -- what percent of 600 tons per day we were producing.

Yes.

We said about 50%.

About 50%.

So, if you look at it just in gross terms, they're kind of illustrative of what Tony said. If your ideal rate is at 600 tons per day, the gas costs are still about the same, but the overhead cost per ton would double at 300 tons per day.

Yes.

Now, that was offset to a certain extent -- no, I think I've said enough.

Well, you did mention in your discussion, you mentioned that we had about 15,000 tons of firm sales commitments.

Right.

At a price below market. So, that offset some of that.

Yes.

Okay, and then last one on Pryor, and then I'll jump back. The 60,000 ton expansion, it sounds like that is underway. Can you maybe give us any color on what you've encountered during the start-up, and a reasonable expectation of when that comes up, or given your experience with the balance of Pryor, maybe you want to lay off given expectations along that line?

We are not going to -- we said before that we don't want to give a definite date as to when they will be in full production, okay? But they are in limited production now. So, what goes on during limited production is that you turn them on, you've done everything you think you need to do to get them in shape. You turn them on and you run them, and then you encounter some mechanical issues.

And at the same time you are -- these plants have not been run in over 10 years, maybe longer, and so you've got operators on these plants that are not used to the plants. And so, they have to be trained and they have to get used to the equipment, and the idiosyncrasies and characteristics of equipment. Some of the initial blips that you have are when an operator makes a mistake, and hopefully he makes it once and he learns from that. But this is what happens when you've got an old piece of equipment and you don't have an operator that is an experienced operator that has been running it.

Okay.

Be experienced on that particular piece of equipment.

All right, I hear you. Let me hop back in queue and let someone else have a shot.

(Operator Instructions)

Keith Maher, Singular Research.

I have another question about Pryor as well. When you complete these improvements that you have planned for early next year, weren't you talking about raising your target to 700 tons of ammonia per day? I think we talked about that previously.

Yes, you're right.

Okay, just wanted to clarify. Also, on the El Dorado expansion, or the potential addition of an ammonia line at the El Dorado facility, I think you said this, but I was just curious. When would you be making that decision, and also, what is kind of the gating factor in getting that -- if you did decide to go ahead and do it, I mean, what is it that, I don't know if I should say it takes a long time, but is it the permitting process, is it lead times and equipment, just to kind of understand how long it takes to get that facility up and --?

Well, we are in the decision-making process now. We are still gathering information that is required to make that decision, and we don't want to put a specific time fence on when we are going to make that decision at this time. But we are working on it, and we are working on it hard.

As far as the gate, there are several factors. You do have the permitting process, you've got the ordering certain equipment and the lead times that are involved, and -- excuse me? And some engineering work that has to be done as well. So, there is -- and then you've got the construction process itself when it's finally -- when you finally start the construction process. So, those are the four basic things that have to happen.

Okay, that is helpful. Also, since you didn't mention it, the diesel exhaust fluid business, is there any color you could give there, or is it just too small at this point to really make a big difference?

Too small to talk about.

Okay.

We continue to make it and sell everything we make. We have a contract with Yara on that, and they take everything we make.

Okay, and maybe one final question on the Climate Control Business. Are you doing anything, like specifically, say, advertising or any programs that help go out and kind of promote these -- the green features of the products?

No --.

Or is it just --?

Well, we do, and it depends on which part. The program is different for the commercial side of our business, which is roughly 80% of our business, than it is for the residential, which is about 20% of the business. So, in the commercial side of the business, remember, that business is sold -- it is a business-to-business type of a situation. You're not dealing with consumers, per se. So, the food chain on that is if someone decides to build a building or renovate a building, then they'll hire an engineering firm typically to do the design of the mechanical equipment. And then ultimately they will pick a contractor and the contractor will choose subcontractors.

So, what we do is we get involved in the early stages with owners, with engineers, to try to develop a preference for our equipment. We have a very extensive network of independent manufacturers' representatives all over the country in every major market. They are calling on most, if not all, of the major design engineering firms, plus owners, plus all the contractors in their local markets, and they are constantly visiting with them, and they're keeping track of all the projects that are going on. This is very much a hands-on, people-to-people, business-to-business type of a situation. So, our goal is to develop specification. By that I mean that our product is listed as the basis of spec in a building that is designed.

And the alternative to that, there's still in the commercial side of the business, there is a large part of the business that is not planned spec bids. It is what we refer to in the industry as design-build, and these are projects that never go out for bid, or they very rarely go out for bid, and that is where a team is formed with a contractor that someone has confidence in, engineer, and a vendor or group of vendors, and they try to work out a project that never goes out to bid. Everyone feels comfortable that they are trying to get the most optimum situation. So, our reps, again, are working with, in the design-to-build type situation.

On the -- flipping now to the residential side of the business, we go to market. It's a two-step process where we sell our products to distributors that stock, and they resell those products to installing contractors, contractor/dealers. Those would be the type of contractor that will do service on your house, or install a new unit when your unit finally fails and can't be restarted, or does an installation in new construction. So, we have extensive programs with those dealer development programs to incentivize them to push our products. We do some national advertising. We do a lot of regional and local advertising with co-op ad programs with the dealers and the distributors in those markets. We are out doing significant training with installers, how to train our products. We do training with drillers -- how to drill geothermal loops. We have trainers that are out there and train the training programs.

In addition to that, we run schools constantly. We bring people here and we do them out around the country. We've had several events this year that we call geofarms, where we have a day or two days of drilling examples, where they actually go out into a location and they do installations, where we get a lot of contractors, and they bring customers and distributors that come to those. We've had several of those this year. I know there's something I'm missing here. We have a website, a consumer website, that is geared to targeting and generating leads. So, we have quite an extensive program that goes on constantly in that side of the business.

Okay, great. Thanks a lot, I appreciate it.

Wayne Archambo, Monarch Partners.

Thank you, good afternoon. In light of the multiples afforded to publicly-traded nitrogen MLPs such as Terra, CVR, and Rentech, are you actively exploring the possibility of placing your Pryor facility into an MLP structure? And in such a structure, given where this potential peer group is trading, would it be unreasonable to think it alone could be valued at the level equal to the current stock price today?

Excuse me, I could not hear your name, sir, because they said it so fast. Who am I speaking to?

Yes. This is Wayne Archambo, Monarch Partners, a current institutional shareholder of your stock.

Okay, thank you very much, Wayne. We have looked at and continue to look at MLPs, at the structure of MLPs, and the companies that have put part of, or all of, their holdings into MLPs. At this time, we have not made a decision to do an MLP. We have no plans at this time to do an MLP.

Could you just explore with us why you wouldn't explore that, if it has significant --?

Well, there's a couple of reasons. We said in last conference calls that we think that there are several pros but also several cons to MLPs, and we've discussed those on previous conference calls. And we still think the same pros and the same cons hold. In addition, right now our focus is really on substantial growth in this Company, and right now getting into a structure where we would be committed to a distribution is counter to what our needs are in terms of funding growth on a going-forward basis.

I mean, I'll just pass on. Obviously, if you've discussed this and looked at this. We think there is significant value to be unlocked, and at the end of the day, it's your job, as well as the Board of Directors' job to enhance shareholder value, and we think this structure should be considered. And I don't know to what extent you've looked into this, but we think it has significant value -- it is a hidden value in your Company.

Wayne, thank you. We appreciate your input, and we will take your opinion under consideration.

Thank you.

Gregg Hillman, First Wilshire Securities.

On that -- the anhydrous ammonia front end that you are [studying] for El Dorado --

Yes.

You mentioned the potential cost, but what would be the output of that plant in tons of ammonia?

Well, we are looking at -- right now the most likely scenario that we are considering is one that produces about 1,100 tons per day of ammonia.

Okay. So, that would be --?

Well, you can't take that times 365.

330 days.

Yes, about --

We're looking in the range of 375 on annual, and keep in mind, we've got -- the El Dorado plant uses about 220,000 tons a year.

And we use -- we buy the rest. We are buying --

Would that plant be more efficient than what you are proposing to do in Pryor with the Kellogg format and the chiller?

It would be a more updated plant. It would be more -- wouldn't it be more updated than that plant? I think that the conversion factor would probably be slightly better.

Okay. Thanks very much.

Dan Mannes, Avondale Partners.

I figured I'd be the one asking the MLP question, but I reserve the right to ask another one. Well, first I want to talk about the natural gas purchase. I can't speak for other people, but it was a bit of a surprise to me. Can you maybe give us a little bit of the background of when you started thinking about buying physical gas assets, or working interest in gas, as a hedge, rather than just financial hedges? Because this was sort of a new venture, at least as I was concerned.

Well, it is not a new venture. It is just a new source of gas. We started maybe three or four years ago looking for ways to control the price of gas, and keep it from getting out of hand so that our plants would be operated on an economically feasible basis. And we have approached many major companies from Exxon, to Chesapeake, to a lot smaller --

Devon.

Devon, over the years to have conversations with them about selling us gas directly, so that we wouldn't be subject to the financial curves and costs that buying forward would carry with them. Because what they do is they factor in the future costs. I mean, nothing is for nothing.

So, you can't say -- okay, gas today is $2 or $3, and I want to buy an eight-year supply for $3, because I think it's going up to $5 or $6. You can't do that. You have to -- you can buy what they -- based on what they think the price will be over the time period that you are going to use it. And so, if they think it's going up to $6 or $8, that is factored into what you pay.

So, we turned a long time to finding our own supply of gas, but we have never been successful. We finally found one in the most prolific gas field in the United States today, in the Marcellus field, where they've drilled the biggest gas wells, and they have the biggest reserves of anyplace else in the United States, and we worked out a deal where our price to buy the gas was $2.40 delivered to the pipe.

Approximately.

Yes, and it could be a little less.

And that is dependent on the production levels, et cetera?

Yes, depending on production levels.

Yes, that's correct.

And we had -- we've consulted with the top-notch engineering firms, the top-notch geologists, the top-notch engineers, we've had EY go through the economics. We've had our outside attorneys look at our deal, and we came to the conclusion that this was a good deal for us. And so, this was the way we bought our gas.

Now, we are buying it now. We're just buying it from a different place. And we are buying it now subject to whatever the gas company wants to charge us, and whatever the prices are out there, and this fixes our cost. But it is only on 20% of our usage.

Today's usage. (multiple speakers)

And was this one of a multiple of gas production assets that you looked at potentially participating in, or was this a stand-alone one that, for whatever reason, you found and met your needs?

No, I've looked all over. I've looked at the Bakken, I've looked at Texas gas, I've looked at Marcellus gas, but generally it's not available. A deal like this is not available. Companies like Procter & Gamble are in the deal along with us. They are one of the working capital --

Working interest.

Working interest to [holders] with us. This is a good deal, and so we took it.

Okay, and the last thing is, this is 20% of your ballpark, and I realize that it won't be identical, but 20% of your current usage.

Yes.

Is this where you want to be, or would you look actually at more assets like this?

Well, we probably would look at more assets like this, but something like this requires upfront cash, the same as a futures deal if you did it on a financial deal requires upfront cash. So, we just have to look at it in the future. We want to see how this works out, and as our needs go up, we might do some more. It depends on what the situation is, what the price of gas is in the future.

When we look at this is -- we discounted this present value at 10% on the engineering reports, plus we took additional haircuts on each category of gas that we were buying, some up to 50%, some at 30%, some at 10%, after the 10% present value discount. So, we bought it right, and I think it's a good deal for the Company.

Okay. Quickly on the potential El Dorado ammonia addition, are you considering that in the context of the number of announced fertilizer plants that would come online in a similar timeframe?

Dan, this is Barry. Jack mentioned to you that a substantial amount of that production, we would be using internally. So, our choice is to buy gas on -- continue to buy gas, excuse me, ammonia on the market, or to manufacture it ourselves.

We internally can use about between 270 and 300 tons of ammonia a year.

Thousand.

Thousand a year -- between 280,000 and 300,000 tons of ammonia a year.

Yes, Dan. We are very aware of all these announcements. We happen to be in a position where we can have a real safety net because we've got that internal consumption of ammonia, and we're -- happen to be strategically located for being on the pipeline. So, we think that it is a very safe investment for us. And there is an awful lot of additional capacity come in, and we are aware of that.

All right. No, I was just wondering in the context of both the availability of equipment, because most of them will be building ammonia plants as well. And then also you'll be displacing some existing ammonia, which would then hit the market, and maybe depress prices elsewhere, again, in the context of all these plants that have been proposed, many of which probably won't get built.

The effect on ammonia prices long term is anybody's guess. First thing that will happen probably is it'll offset a lot of the imports that are coming in. And as long as North America's a low-cost producer, that will have one effect, but you're talking about 2015, 2016. We can't see that far ahead right now.

What we can see happening, if all of these companies would become producers, is we would be exporting ammonia.

Yes.

That is one thing we can see.

As a country.

As a country, I'm talking about.

Yes. Okay, one last one, and this is my quick one on the MLP. In the consideration of the MLP, because obviously you understand the issue and you've at least looked at it, whether you're going to move forward or not, we will see. But would, for instance, both the El Dorado expansion, which would then look MLP-able, not to mention Cherokee given these gas assets, does any of that make sense in the context of that discussion? Is that also part of the consideration?

I think the answer is exactly the same as my previous answer to you a quarter ago, which I think I should probably tape-record since you are probably going to be asking me the same question every quarter on a going-forward basis. I don't say that lightly, but the answer is the same. We are constantly looking at this, we're constantly considering this, we are keeping an open mind about it like everything else. As Jack said on our last conference call, you always have to be looking at what is out there, and you always have to be willing to change your mind if you think the situation is the best.

And our goal in the long run, in the long term, is to do what we think is best for the shareholders. And the key words there are long run. So, we are looking out and we are thinking about things that as a Company we want to do strategically going out, and we are considering those things along with this when we make the decisions we make.

It is never completely off the table, Dan, but we are always looking at.

Understood. Thanks for the color.

Dan, one further thing on the gas I'd just like to comment on this. We are not asserting that this is a fixed, this $2.30, $2.40 is a fixed number. It is based upon very, very conservative risk-weighted reserve estimates that have been looked at by a number of -- so, it will move around some, depending on the operating costs and the amount of reserves that are actually there. So, it's an estimated amount, but we think it's a very well-thought-out, and we've had a significant due diligence process where we have calculated this number, which we think is a very conservative number.

It is lower than the current price, and it is substantially lower than what gas is selling for on the curve, if you look out a few years on the curve.

It is subject to a few variables, quite a few variables.

Understood. Thank you very much.

Pessimistically, it is $1 less than the market now.

Yes.

Joe Mondillo, Sidoti & Company.

I understand this call is getting a little long here, but I just had one follow-up question that I was hoping that you could answer. I was wondering if you could just give a 30,000-foot -- your thoughts on the perspective of where we are at Pryor. Obviously, this year there has been some hiccups, some speed bumps. Just trying to get an idea of what your guys' thoughts are? How close are we to being a little more consistent with production, and your expectations with -- can this maybe be one final thing that we are going through in early next year? And then we can take advantage of the strong ag markets? Just trying to get a bigger picture, your thoughts?

Okay, I got the gist of your question, Joe. Let me give you our perspective. As we said before, and for callers that -- for people that are listening who have not been on previous calls, or are new to this story, we acquired this plant now about 13 years ago, more or less, and it sat idle for 10 years. And we did not have any operating history on this. So, when we started to renovate it, we brought in some outside experts, we used our own engineers, and we surveyed it. And short of tearing every piece of equipment down, and dismantling it and putting it back together, which is not feasible, we made all the repairs that we thought were probably required before we started the plant. But you never know when you start a plant like this that has been gone for so long.

In addition to that, we had to hire -- there is about 100 people at that location, 140 people at that location now, and we had three or four people there before we started. So, we had to hire in, and some of those were experienced operators and some of those had to be trained. So, we now have two years of operating history under our belts. We finally got into sustained production in the fourth quarter of 2010, and here we are starting the fourth quarter of 2012.

So, despite the fact that before we ran it, we thought that we had probably covered most items that we could detect without a full, complete dismantling, like I said. We discovered there are several problems, and we have -- I'm not going to recap those for you now, but we've had several things that have made the plant hiccup, all the way to shut it down. As we have encountered those problems, we've gone in and we've done -- either replaced or significantly repaired most of the major -- most of the equipment in the plant. We think after two years of operating it at this point that we have probably uncovered most of the major issues in the plant. Now, we can't give you any guarantee on a going-forward basis, but we think that we have. In addition to that, we've now got a workforce there that has got two years of history.

Also, on a going-forward basis, one of the things that we are doing is we're in the process of installing a more updated control system at this plant. Now, this is not something that happens instantaneously, but it is over the next two to three years we will be replacing an old type control system with a new up-to-date state-of-the-art control system.

So, between all of the replacements that we've made of parts and change-outs, and now running it for two years, now having a much more experienced workforce there of operators and engineers who have learned the idiosyncrasies of this plant, and with the improvement that will go forward even more with the control systems, and particularly with the change-out we are making in the first quarter, we think and we believe that this plant will be more reliable going forward than it has been looking backward.

I want to add a little bit to that. When we originally acquired this plant, it was closed down. The banks had it, and we didn't want somebody else to buy it and start producing product, because the prior owner was a price cutter, and he would produce product and take it down into Arkansas, Texas, Oklahoma and Louisiana, and cut the price ridiculously. And he wouldn't listen to -- he had no idea what his costs were, and he went busto. We were afraid that somebody else would get this plant and do the same thing, because it is very tempting -- if you can generate the volumes to take any price you can get it. So, our intent was not to have that plant ever operate again.

So, we sat there and we tried to sell it overseas, and we had four or five deals, but none of them materialized. China, to Russia, to Romania, to a couple other countries, to the Middle East, and meanwhile the market situation changed, and we took a look at it and said -- we think we can make this into a business. And so we took the shot. And we did exactly what Barry said, we called in experts, top engineering firms, everybody looked it over. We showed them what we planned to do. They thought that that was adequate at the time, and so we turned on the plants and we made those changes.

And as we have gone, we've corrected the problems that have arisen. Like some of them have to do with pipe that is in the ground that rusted, for example. Nobody knew it, nobody could tell. It just did, and it caused a problem. That is a typical kind of a thing that happened.

And so, this plant, our equity in this plant -- this plant has paid for itself at least 2 times over in two years. So, that is the way we look at it, and we think if we can get it really operating, then it will be probably the most profitable plant in the United States, barring the new plants that have been announced for billions of dollars.

On a return-on-investment standpoint.

Yes, from a return-on-investment standpoint. But we are not there yet.

Yes. So, I hope that gave you a little more color on it. I think we are feeling good about where we will be after the end of the first quarter when we get this complete.

Great, thank you very much for that explanation.

Okay.

Just lastly, could I get the Pryor sales for the third quarter?

I don't think we --

We don't break that out, Joe.

But you give out the profitability of the plant?

No, we do give the -- we said what the operating income was, which was -- I can't remember exactly what it was. It is in the --

Yes, it was $5.7 million. I was just wondering if I could get the sales on what --?

I don't think we've disclosed that.

You mean on Pryor?

Yes, we don't disclose specific plant-by-plant sales.

No.

I can tell you that --

It's just such a big part of the story and a big part of the earnings.

I know, but we are not going to set that precedent now, because our plan is, at some point in time when we get this plant to the point that it is reliable, it will just blend in with the other plants as far as reporting the different business segments.

And keep in mind, while the ammonia production was limited, we really couldn't go out very far, as far as sales commitments in the third quarter.

Okay.

Some days you're selling UAN, some days you're selling ammonia.

Okay. All right, thanks, guys.

Thanks, Joe.

We have no further questions at this time. I would like to turn the floor back over to management for closing remarks.

We just want to thank you for tuning in. And I'd like to turn the call over to Carol Oden who has some very important comments that she'd like to make for you about the statements we've made today. So, Carol, would you please start?

I will do that. This presentation and the comments being made today contain certain forward-looking statements. All statements other than statements of historical fact are forward-looking statements within the meanings of the Federal Securities Laws. Statements that include the words expect, intend, plan, believe, project, anticipate, estimate, and similar statements of the future or forward-looking statement nature identify forward-looking statements, including but not limited to all statements about or any references to the Architectural Billing Index or any McGraw-Hill forecast, including those pertaining to commercial, institutional, and residential building increases or industry growth.

The forward-looking statements include, but are not limited to, the following statements. We don't expect El Dorado to receive the first installment of business interruption insurance until the first quarter of 2013. We expect that the $38 million to $40 million investment in further development of the natural gas working interest recently purchased will be funded by the cash generated by this investment. An anhydrous ammonia production plant, if built at the El Dorado facility, will cost in the range of $250 million to $300 million, and require 24 to 36 months to complete. We expect to finance planned capital expenditures with a new long-term loan at a fixed rate over LIBOR. The single large Kellogg ammonia converter replacing the six small converters, the catalyst replacement, and the addition of the new chiller will allow us to significantly increase ammonia output in 2013 at our Pryor, Oklahoma facility.

Our sulfuric acid plant is expected to come back online this year. We continue to develop new products, which we believe will have a positive impact on future results. The price of natural gas is expected to increase in the next few years. The indicators for our agricultural products (inaudible - technical difficulties). [Planting] at levels are expected to be high for both corn and wheat. We expect continued strong demand for fertilizers. We expect to begin production at the two smaller ammonia plants at our Pryor, Oklahoma facility by the end of the year.

You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. We incorporate the risks and uncertainties being discussed under the heading, Special Note Regarding Forward-Looking Statements, in our annual report Form 10-K for the fiscal year ended December 31, 2011, and Forms 10-Q for the periods ending March 31, 2012, June 30, 2012, and September 30, 2012. We undertake no duty to update the information contained in this conference call.

The term 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. We will post on our website reconciliation to GAAP of any EBITDA numbers discussed during this conference call.

Thank you for listening today.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.