LSB Industries Inc (LXU) 2013 Q3 法說會逐字稿

Greetings and welcome to the LSB Industries third-quarter 2013 earnings 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, Kristy Carver. Please go ahead.

Thank you. Good morning. Welcome to the LSB Industries Inc. third-quarter 2013 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, Executive vice president and 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.LSBindustries.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, 2013. 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 posted on our website at www.LSBIndustries.com in the Webcasts and Presentations section of the investors 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.

Thank you Kristy. Thank you for joining our third-quarter 2013 conference call today.

In the third quarter, while improving in some areas, we fell short of expectations that we had going into the quarter for a combination of reasons. We share our fellow shareholders' frustration with the most recent disruption at our Pryor facility, which had been operating at close to design capacity through much of the third quarter but experienced periodic production issues as the quarter progressed.

From a positive perspective, the diagnostic systems that we installed at Pryor earlier this year served their purpose, enabling us to curtail production gradually, preventing further complications. We expect to have the facility back in operation during November.

Now, the performance of Pryor has been erratic. Over the past year, we made progress towards the goal of sustained production levels through the upgrade of equipment and systems, the strengthening of our facilities management team, the implementation of new processes and procedures with the help of outside industry experts to supplement our internal engineering staff. All of this has required significant time and investment. And although the result has not been an immediate linear improvement, we remain confident that our actions will ultimately enable this facility to deliver sustained production and substantial profitability.

Our other chemical facilities are operational with the exception of the 20% of El Dorado's premade 2012 metric asset capacity that we are in the process of replacing with a new acid plant and a concentrator. The initial phases of this project, along with the ammonia plant we are installing at El Dorado, are underway while we await permit approval. We expect to have the plants fully installed and operating by late 2015. When fully operational, these projects will provide El Dorado with expanded capacity, improved efficiency, product mix flexibility, and should result in significant reduction for our feedstock costs at that operation.

We finalized, additionally, in the quarter, we finalized our insurance claim for El Dorado which would be recorded in the fourth quarter. We are still in discussions with our insurance carriers regarding claims at Cherokee, Alabama.

As we move toward the end of 2013, we look back at the challenges we faced and the progress we have made and continue to make with our chemical business, and feel confident about our ability to achieve greater throughput and reliability from our facilities. While agricultural prices have weakened over the past year, fundamentals remain historically strong and we intend to capitalize on these favorable dynamics in the coming quarters.

Turning to our Climate Control business, our Climate Control business continues to experience modest improvement driven largely by the commercial institutional end markets, while the residential segment we serve remain sluggish. Although geothermal systems are a green alternative to conventional HVAC systems and are advantageous considering total lifecycle costs, low natural gas prices extend the payback period and make a financial investment in geothermal heat pumps a less compelling alternative to traditional heating and cooling systems in markets that use natural gas for heating.

Overall, our Climate Control business' strong market shares in our primary product categories positions us to generate more meaningful growth when the construction cycle strengthens. We believe our actions will lead to a significantly improved financial performance for 2014.

I want to thank you. Now I want to turn the rest of this call over to Tony, who will then turn it over to Barry. Tony will give you the details that some of you have indicated you would like to hear about the chemical business and our other businesses.

Okay, thank you Jack. Before reviewing the 2013 financial results in detail, a few comments about the third quarter. Although below our expectations during the quarter, our consolidated operating income of $23 million was better than the third quarter of 2012. The improvement was primarily due to the Pryor and Cherokee facilities returning to production during the latter part of the second quarter partially offset by much lower selling prices for nitrogen fertilizers and higher natural gas prices. Also included in the quarter were insurance and precious metals recoveries of approximately $9 million.

Below the operating line was the cost of the early extinguishment of debt and higher interest expense reflecting the senior secured note financing that we closed in August 7 to fund the extensive expansion underway within our chemical business.

For a review of comparative third-quarter consolidated results, please turn to Page 4 of the PowerPoint presentation. Net sales were $177 million or 3% below 2012. Operating income was $23 million compared to $12 million. Interest expense was $5.4 million compared to $1.5 million. The increase included interest on the $425 million senior notes sold on August 7. More about this later.

After costs, early extinguishment of debt and provision for income taxes, we reported net income of $10 million, or $0.43 per share, compared to net income of $7 million or $0.28.

EBITDA was $29 million versus $17 million.

Continuing on Page 4, for the first nine months of 2013 compared to the first nine months of 2012, net sales were $530 million, or 9% below. Operating income was $35 million compared to $77 million. After interest expense and taxes, net income was $18 million, or $0.75 per diluted share, compared to $47 million or $2.00 per diluted share. EBITDA was $54 million compared to $93 million. The significant decline in consolidated operating income and net income is primarily due to the lost production in the chemical business during the first half of 2013 and to a lesser degree the effect on gross profit margins of lower nitrogen fertilizer sales prices and higher natural gas costs partially offset by increased sales and profitability in our Climate Control business.

Please turn to Page 5 of the presentation to review chemicals results. For the third quarter of 2013 compared to the third quarter of 2012, net sales were $104 million, $6 million lower. Operating income was $18 million compared to $8 million. EBITDA was $23 million compared to $11 million. The $10 million increase in operating income is primarily due to the return of the Pryor and Cherokee facilities to production in the quarter, and includes the impact of insurance recoveries and precious metal recoveries and the effect of unplanned downtime for the quarter.

To be more specific, comparing 2012 to 2013 third quarter, chemicals operating income for the 2013 quarter, as we said, was $18 million and for 2012 was $8 million. Adjusted for downtime of $23 million in 2012 and $7 million in 2013, the operating income, as adjusted, would be $25 million in 2013 compared to $30 million in 2012, a difference of $5 million. This $5 million difference includes lower market prices in 2013 of $7 million, higher natural gas costs in 2013 of $3 million, higher maintenance and repair costs in 2013 of $1 million, higher SG&A costs in 2013 of $2 million, offset by in 2013 insurance recoveries of $4 million and casualty recoveries of $5 million, a net of $5 million. So we will address this further in the Q&A, but that will give you an idea of how the 2013 quarter compares to the year-ago quarter.

Please turn to next -- okay. Continuing with chemical, net sales, gross profit, operating income and EBITDA are well below the levels achieved in the prior year as a result of lost production in three of our facilities during the first half of 2013. Excuse me, we are on Page 5 talking about the nine months.

The Pryor facility's primary ammonia plant and the Cherokee ammonia plant were both out of operation for the entire first quarter and most the second quarter. The effect of the downtime at Pryor and Cherokee facilities are particularly significant since these facilities. Unlike the El Dorado and Baytown, both use natural gas as a raw material feedstock and thereby capture the significant gross margin between the cost of natural gas and the market price for ammonia. As a result, Pryor and Cherokee are normally the most profitable facilities in our chemical business and therefore have the biggest negative impact on financial results when the ammonia plants are not in operation.

Based on market conditions during the nine months of 2013 after recognizing $18 million of business interruption insurance recoveries as a reduction of cost of sales, we estimate the negative effect on the chemical business operating income resulting from downtime will be approximately $61 million to $74 million for the nine months.

All of the chemical facilities were operational during the third quarter. However, the El Dorado facility's nitric acid production capacity will continue to be limited to approximately 80% of historical capacity until 2015, when construction of the new nitric acid plant concentrator is scheduled to be completed.

The El Dorado and Cherokee downtime events that occurred in 2012 were unplanned and were insurable events. The El Dorado insurance claim for losses and damages was finalized in October 2013 for $113 million, which consisted of $60 million previously paid and $53 million to be paid within 30 days. As a result, an insurance recovery of $76 million, including $23 million that was a deferred gain at September 30, 2013, would be recognized as income in the fourth quarter.

The Cherokee claim has not yet been resolved. The insurers have advanced $15 million of which $13 million was credited to income in previous quarters and $2 million was recorded as deferred in the September financial statements. We expect to finalize the Cherokee claim during the fourth quarter of 2013, although there are no assurances.

Turning to the results of our Climate Control business, please go to Page 6. For the third quarter of 2013 as compared to the third quarter of 2012, Climate Control reported net sales of $70 million, 3% over 2012. Gross profit was $20 million -- $23 million, an increase of $3 million. Gross profit as a percent of sales was $33 million compared to 30% -- 33% compared to 30%. And operating income increased to $9 million compared to $7 million.

For the nine months, Climate Control sales were $217 million, an increase of $19 million or 10%. Gross profit increased 16%. Gross margin was 32%, as compared to 31%. Operating income increased 22%.

For a review of our liquidity and capital resources at September 30, please turn to Page 7. Our balance sheet reflects the additional leverage and related cash investment resulting from the sale of the $425 million senior secured notes. After costs of insurance, net proceeds were $418 million. After using $67.2 million to pay the balance due on the secured term loan, including an early termination fee, the net proceeds are invested in highly rated money markets, certificates of deposit and U.S. Treasury bills pending application of net proceeds to the construction of the El Dorado facility and other disclosed uses. So it's the planned use of proceeds from the sale of secured notes, including constructive assets over an extended period stretching into 2015, we classified certain of the cash investments as nonrecurring.

At September 30, cash and cash equivalents balance was $140 million, noncurrent cash and investments was $280 million, for a combined total of $420 million.

Other significant cash flow during the quarter included cash provided by operations, $38 million, capital expenditures $40 million, and insurance proceeds of $10 million. Concurrent with the closing of the issuance of the senior secured notes, our working capital revolver loan facility was increased from $50 million to $100 million with current availability of approximately $63 million. At September 30, the $100 million working capital revolver loan facility was undrawn and remains so today.

For a brief review of our capital spending plan, please turn to Page 8. We previously announced capital spending plans through 2015. Included amounts invested to date for the various projects are as follows -- $250 million to $300 million for the construction of the ammonia plant at the El Dorado facility; $120 million for the new 65% nitric acid plant and concentrator also at the El Dorado facility; improvement of reliability, mechanical integrity, environmental upgrades and safety at all of our chemical facilities, and normal maintenance and growth CapEx at the chemical Climate Control business.

In addition, during the construction period and until the completion of the construction, interest will be capitalized on the accumulated cost for the major projects. The planned capital spending will be funded by noncurrent restricted cash and investments, working capital, internal cash flow and insurance proceeds. We have addressed our results from operations and financial commitments in greater detail in the 10-Q and suggest that you review these disclosures and discussions for additional information analyses.

I will now turn the call over to Barry to discuss the market drivers and outlook for both of our business segments.

Thanks Tony. I'm going to focus on sales activity, order levels, product backlogs where pertinent, and market drivers as we see them at this time. I will also give you an update on progress with the major capital projects at our El Dorado facility which we refer to as EDC.

To start, please turn to Page 9, which shows you our 2013 year-to-date sales mix by the markets we serve. This is a change from historical sales mix due to the downtime at certain operations that we've discussed with you many times.

On Page 10, we've also included the sales mix for the full year of 2012 which is probably more typical of our sales mix with normalized chemical operations.

Focusing first on our chemical business, please go to Page 11. Although we have included data about our third-quarter and year-to-date sales on this and the next two pages, comparisons to 2012 for the most part are not meaningful because all facilities were not fully operating during a large part of the first half of 2013 and a portion of the third quarter.

Having said that, total sales for the chemical business during the third quarter were $104 million, down 5% from the third quarter of 2012. During the third quarter of 2013, agricultural products sales were higher than the same quarter a year ago. Natural gas sales are new this year, so there is no relevant basis of comparison. All other major product category sales were down relative to the third quarter of 2012.

Total sales during the first nine months of 2013 were $303 million, down 19% from a year ago. All year-to-date product sales were down compared to the first nine months of 2012.

Now please turn to Page 12 for sales of our key agricultural products. During the third quarter, tons shipped were up for all agricultural products as compared to the third quarter of 2012. This was due to less plant downtime in the current third quarter than a year ago in conjunction with increased seasonal buying patterns. However, market prices for all products were lower than a year ago, which resulted in lower sales increases than product volume increases for UAN and pneumonia, and a decrease in sales dollars for AN.

For the first nine months of 2013, both tons shipped and sales were lower for all fertilizer products than the first nine months of 2012 as a result of both plant downtime and lower market prices for our products. Domestic market prices have primarily been driven downward by low priced imported urea.

Turning to our industrial and mining products on Page 13, for the third quarter, nitric acid tons shipped were up. However, sales were lower due to lower ammonia feedstock costs which are a pass-through component of the sales price. Industrial grade AN, or ammonium nitrate tons -- nitrate, tons shipped and sales were both down due to lower demand for mining products. A portion of our mining sales decline did not impact gross profit due to a certain supply agreement with a customer that includes a contractual obligation to purchase a minimum quantity and allows us to recover our costs plus a profit irrespective of the volume of product sold.

On Page 14 are some of the price trends for both the feedstock we use and the key ag products we sell. The cost of natural gas continues to be relatively low in a broad historical perspective, currently about $3.46 per MMBtu, plus transportation costs, but higher than a year ago. Higher natural gas prices have increased our cost at Cherokee and Pryor facilities which use natural gas as their primary feedstock.

The cost of anhydrous ammonia, the feedstock we use at El Dorado and the Baytown, Texas facility, has continued to decline. In October, it was $485 per metric ton compared to $715 per metric ton a year earlier. Currently, ammonia is priced at approximately $480 per metric ton at Tampa.

Most of the products we produce at Baytown and most of the industrial and mining products produced at El Dorado are sold on a cost-plus basis. So changes in ammonia costs don't impact our profitability on those sales. However, ag grade ammonium nitrate also produced at El Dorado is sold at spot market prices.

Turning to other fertilizer products, prices for UAN have fluctuated over the past year and are lower at this time than they were a year ago. If you look at the chart on the lower left, you can see that Southern Plains price of UAN decreased from $340 per ton in October of 2012 to $275 per ton in October of 2013. Based on market indicators, we believe that current Southern Plains UAN pricing is approximately $260 to $280 per ton depending on the distribution point location. UAN prices have been impacted by low cost urea imports, and generally lower market prices for nitrogen product.

Looking forward, we have presold substantially all of the UAN production from our Cherokee facility for the balance of the year, and through January 2014 at an average price of approximately $260 per ton. We have also locked in gas prices for the pre-sold UAN at Cherokee through January.

In October of 2013, the Southern Plains price for high density ag-grade ammonium nitrate, or HDAN, or AGAN, was $345 per ton compared to $390 per ton 12 months earlier. Current pricing is approximately $300 per ton.

Focused on the outlook for the chemical markets we serve, Page 15 lists several macro indicators for our agricultural products, most of which continue to be favorable. Grain stock to use ratios, both worldwide and in the US, continue to be low, although projected high yields in the current planning season should cause these to increase. Corn planting levels next spring are expected to be somewhat lower than this year, but still relatively high at over 90 million acres. At the same time, an increase in nitrogen-consuming wheat acres is expected.

Market prices for corn and wheat, although having recently declined, remain favorable to growers, so farmers have an incentive to maximize yields. All of this should continue to create demand for nitrogen fertilizers. As previously mentioned, we have presold our Cherokee production for the balance of 2013 and through January of 2014.

Finally, relatively low natural gas prices have reduced the cost to manufacture many of our ag products relative to previous years -- to past years. North American produced nitrogen fertilizers are currently the lowest cost, factoring in the total cost of production, freight, and distribution. The industry consensus is that the positive fundamentals for the ag business, although not quite as strong as they were a year ago, given the movement in market prices, should continue in the near to midterm.

Despite general industry drivers, weather can have a significant impact on the fertilizer part of our business. At this time, weather conditions are generally favorable for planting.

There has been some recent discussion about the possibility of lowering the ethanol mandate. At this time, there have been no new policy decisions. However, if the current 18.1 billion gallons mandate is reduced to 15.2 million, which is a number that's been bandied about, and using the current estimate of 155 bushels per acre corn yield, this ethanol reduction would equate to approximately 6.5 million fewer acres of corn. But, as we said, there have been no decisions at this time, or new policy.

Please turn to Page 16. Our industrial products are sold primarily to large customers pursuant to contractual cost plus and/or minimum take arrangements. The two charts on this page indicate the shift that's occurred in our sales mix in 2013 from the full-year 2012. In reality, very little mix change. And the shift from agricultural products to industrial this year was primarily driven by plant downtime.

A very significant part of our business continues to be the industrial and mining parts. Page 17 contains some of the market indicators for this area of the business. Most of these indicators forecast growth for the next few years.

Coal production in the United States has declined as a result of low natural gas prices and environmental issues. However, a substantial amount of our mining business is pursuant to agreements with minimum annual quantity requirements and take or pay provisions.

Please go to Page 18 to view the current status of our various chemical production facilities. El Dorado's nitric acid capacity is approximately 80% of its pre-May 2012 levels and will continue at that level until we complete construction of a new Weatherly 65% acid plant and concentrator during 2015.

Cherokee resumed production in May 2013 and is currently operating at historical levels. The Baytown facility is operating at optimum production levels.

Pryor resumed production during late April 2013, and although it encountered some post-startup mechanical issues, it operated at near design production rates for much of the third quarter. However, intermittent mechanical issues which were detected by our recently installed diagnostic systems indicated we should reduce production rates. We subsequently decided to perform certain unplanned maintenance activities which required us to temporarily curtail production. This was done during the second week of October. This maintenance activity is expected to be complete in November.

Moving on, Page 19 lists our chemical business strategy and some of our key initiatives going forward. Our primary focus is on plant safety, reliability, and key capital projects.

Focusing on large capital projects, please turn to Page 20. As we previously mentioned, we plan to add a 375,000 ton per year ammonia plant to our EDC facility. EDC has historically used approximately 220,000 tons per year of purchased ammonia to satisfy its production needs for the other product it produces. The planned ammonia plant should lower EDC's cost of production and provide approximately 155,000 tons per year of ammonia capacity above EDC's historical usage. Part of that additional ammonia will be used to convert to other products at EDC and part will be sold as ammonia.

The chart on this page shows you the historical differential between purchasing and producing ammonia for the past three years. At today's market conditions, the differential would be approximately $300 per ton.

The current status of the ammonia project is as follows. We have applied for a permit that will cover both the ammonia plant and the new nitric acid plant with concentrator. A draft permit has been issued for both public and EPA comments. Both comment periods have expired. We anticipate issuance of the permit in the near future. To the extent allowed before actually receiving these permits, engineering work is underway. We have ordered certain long leadtime items. We have executed an agreement with Leidos, formerly known as SAIC, is an EPC firm to construct the ammonia plant. As soon as the permit is issued, we will begin physical activities on the El Dorado site that will lead to the ammonia plant construction. We plan to have the ammonia plant construction and in operation during the latter part of 2015.

We also plan to replace the DSN, direct strong nitric acid plant at EDC with a state-of-the-art 65% nitric acid plant and concentrator. The engineering work is in progress on that project as well. Major equipment has been ordered and we expect the plant to be operational also in the latter part of 2015. We will also engage Leidos to complete the construction of this project. The new nitric acid plant will have a capacity of approximately 375,000 tons per year as compared to 90,000 tons per year from the old plant that it is replacing, increasing EDC's nitric acid capacity by approximately 280,000 tons per year.

In addition to these projects, we continue to place a very high emphasis on safety, the environment and plant reliability.

Turning now to our Climate Control business, please turn to Page 21. You can see sales by the major product categories we report on this page. Total sales for the third quarter were $70 million, an increase -- a slight increase of 3% over the third quarter of 2012. Compared to the 2012 third quarter, sales of heat pumps were up 12%, fan coils were up 3%, while sales of our other products, which is a category that combines several products, were down 35%. Within the category of other products, chiller sales actually increased while sales of our large custom air handlers and engineering and construction services declined.

Total sales for the first nine months were approximately $217 million, an increase of 10% over the same period in 2012. Compared to 2012 year-to-date, sales for heat pumps and fan coils were up 12% and 15% respectively whereas the third-quarter shortfall in sales of our large custom air handlers and engineering and construction services resulted in a 6% drop in sales of other products for the nine months as compared to a year ago.

On Page 22, you can see that the third-quarter sales of products used in commercial and institutional buildings were up 1% and sales of our residential products were up 10% compared to last year's third quarter. Sales of commercial and institutional products were impacted by the decline in large custom air handlers and engineering and construction services during the quarter.

On a year-to-date basis, sales of products used in commercial and institutional buildings were up 12%, whereas sales of our residential products were flat with the expectations that sales of residential products will remain flat through the balance of 2013.

Total bookings during the third quarter of 2013 were 2% below the 2012 third quarter with both commercial bookings and residential bookings down. Year-to-date, our orders were up 1% over 2012 with commercial bookings up 1% and residential bookings up 2%. Excluding orders for custom air handlers, year-to-date bookings for all other commercial products, fan coils, water source, heat pumps and chillers, were actually up 3.4% as of 9-30-2013 compared to the same period in 2012.

The backlog of product orders at September 30, 2013 was $46.3 million, 10% lower than reported a year ago and 17% off the backlog at year-end. The decline in backlog is related primarily to our large customer air handler products. Total new orders in October were $25.5 million and our backlog of product orders at October 31 was $47.6 million.

As mentioned in previous conference calls, the commercial recovery has been slower than previously anticipated. And the market for our residential products continues to be soft. However, we continue to maintain our leading market shares for our geothermal and water source heat pumps and for hydronic fan coils.

The next few pages of our presentation deals with the market outlook for construction. On Page 23, there's a graph that shows McGraw-Hill's most recent construction forecast for certain commercial and institutional building types. These are the building types that are the most important to us as they comprised approximately 63% of our Climate Control business sales last year, 2012. As you can see from the graph, these sectors are all forecasted to grow over the next six years but it should be noted that McGraw-Hill has slightly downgraded their out-year estimates since the last forecast. In the aggregate, these sectors are expected to grow by approximately 7% during 2013, and a total of 63% through 2017. Three months ago, the same McGraw-Hill forecast indicated that in the aggregate these markets were expected to increase by 66% through 2017.

Clearly, the indications are for growth, but how much and when it will materialize is difficult to pin down.

In addition to monitoring construction forecast by sector, we also track the Architectural Billing Index, which is considered to be an indicator for non-residential construction spending 9 to 12 months in the future. On Page 24, there is a graph of the ABI. September's score was 54.3. It's the second-highest of the year. With billings accelerating every month since the beginning of the summer.

We believe that the general consensus of most economics and construction industry experts is that the recovery in commercial and institutional new construction will continue, albeit at a slower pace than originally predicted.

While new construction remains the greater part of our business, approximately 70% of Climate Control business sales is to renovation, retrofit of existing buildings, or replacement products. And we think this will continue to be an important market for us. Fortunately, all of our Climate Control business products are well suited for this part of the market as well as new construction.

Through the first nine months of 2013, 16% of our Climate Control business sales were geothermal heat pumps used in single-family residential applications. Page 25 shows McGraw-Hill's forecast for single-family residential construction starts. And they forecast that housing starts will increase from about 516 in 2012 to 635 in 2013, a 23% increase. slightly off from their last forecast and more than doubling to over 1.0 million in 2016. If this growth occurs, it should benefit our residential geothermal business. However, we do believe that much of the recent gains in residential construction were in tract housing, or lower-priced housing, a sector where first cost is a major consideration and not a sweet spot for our geothermal products.

In addition, we believe that low and relatively stable energy prices, gas prices particularly, continue to dampen the consumer enthusiasm for energy savings alternative, particularly in markets that use natural gas as a heat source or as a heating fuel.

An encouraging positive trend is the increase in green construction that's occurred in the past few years. Now on Page 26 there is a graph that depicts the Dodge green construction outlook published by McGraw-Hill. Now, we've included this in the last conference call, but for people who are new to the call this quarter, I included it again. It forecasts that the green construction markets will grow from approximately $85 billion in 2012 to somewhere between $204 billion and $248 billion in 2016. And this should benefit the sale of our highly energy-efficient products.

Turning to Page 27, we've listed our Climate Control business strategy and some key initiatives. Our focus includes the introduction of several new products and a concentration on lean operational excellence projects intended to reduce cost, eliminate waste, streamline processes and improve quality.

That concludes the prepared portion of the call. I'd like to request that, during the Q&A, you please limit your questions to two primary questions plus perhaps one follow-up if necessary so that others have a chance to participate. If you have more questions, you can get back in the queue, and ask them later. Operator, please poll for questions.

(Operator Instructions). Dan Mannes, Avondale.

Thanks. Good afternoon everybody. A couple of questions, obviously centered around the chemical business. First, if we can start out on the downtime incurred both in the third quarter and then into the fourth, can you maybe give us a little bit of a better understanding of what actually occurred at Pryor? Number one, did this relate to maybe some of the equipment you'd recently replaced or previously replaced, or was this downstreamer impacted? Just a little more color on what actually caused the intermittent output and then ultimately your decision to take the plant down. That would be helpful.

I think that's a good question, and I'm going to try to answer it as concisely as I can. You know, just to remind those that maybe weren't listening before or that aren't quite as focused on this as you are, we installed a new ammonia converter and we had the plant down from I believe November to April for that ammonia converter installation. And the primary reason was to increase the production rate because we had determined that was a bottleneck in the plant.

Since returning to operation, after the -- also, let me also remind you that during that period, we installed some new diagnostics, monitoring equipment, vibration monitoring equipment, and diagnostic software to help us control the plant better and to get earlier warnings when things were getting out of tolerance at the plant.

Since we returned to operation after installing the new ammonia converter, our synthesis gas compressor had experienced a vibration in its second stage rotor bundle. There are three stages in that synthesis gas compressor. We were constantly monitoring that vibration. It was detected by our newly installed vibration and monitoring software and diagnostic software. And as a result of those diagnostics, we knew that we were going to probably have to replace that second stage rotor bundle, and we ordered a new one and we got it in and we had it online. And the plan was to keep it as a spare or to change it out fairly quickly. And it's normal to have these on hand for this type of equipment. Our original intention was to have a relatively short outage around the arrival date of that spare rotor bundle to install it while continuing to monitor the ongoing vibration until that time to ensure that it didn't reach critical levels.

Separately, and apart from that, we have a large motor that drives the syngas compressor that we've known was approaching its end-of-life, which is something you monitor on all components in a chemical plant. They come in, they are new, they have an expected life, and you constantly are monitoring them to determine when you think the end-of-life of that component or that piece of equipment is.

In fact, we had purchased a replacement motor, and our plan was to install that motor during the next planned maintenance event or turnaround, which was going to happen sometime next year. Since we had the compressor down for the rotor bundle change-out that I mentioned a minute ago, we took advantage of that opportunity and we performed an internal inspection of the old motor. Our inspection detected that a level of deterioration that was really beyond our previous expectations. And we decided it wasn't prudent to continue to operate with that motor. We felt that it was unlikely that the motor would actually make it to the next planned turnaround. And so rather than operate the motor until it failed, which could have some significant downstream consequences and repercussions throughout the plant, we made the decision at the time of the inspection to go ahead and replace that motor with the brand-new motor that was on standby that we had previously ordered.

Now, I am going to mention, by the way, this motor change out is not a simple matter. It is a huge motor. It costs $1.5 million. It is a 14,000 horsepower motor and it's about as big as a freight container. Okay?

The motor change-out, when we made the decision to do that, significantly increased the length of the maintenance event. We knew that, but it was something we felt that we needed to do. It was the safe and it was the reliable thing to do for the plant.

So following a standard practice at chemical plants, while we were down anyway to do the rotor bundle and then subsequently the motor change-out, we also took the opportunity to perform some other maintenance activities, including things like changing catalysts, cleaning heat exchangers, installation of some new instrumentation, and various other inspections and small other items.

So summing up, without specific knowledge of the extent of the deterioration of that syngas motor, our expectation was initially for a very short outage. And those outages occur in plants all the time and are not announcement-worthy or press release-worthy. But when we realized the duration of the outage would be longer than expected, we issued a press release. And that's kind of the most concise way that I can sum up the events that led to the outage and the press release at Pryor.

If I can just make three quick clarifications. Number one, it sounds like all of the stuff that you're ultimately replacing, number one, were unrelated to the major replacement that you did last year or that you started in late 2012 on your (inaudible). This is a completely separate set of agreement, number one. Number two --

That's true.

Number two, the second clarification was were these issues that you subsequently replaced, were those the reasons for the intermittency during the third quarter?

To some extent, it turned out yes because we had some what we'd call electrical trips that subsequently we think were probably related to some of the deterioration in the motor that we discovered when we took the motor apart.

And the third clarification on this is the time when you did PR that you were going to take the plant down at some point in October until November, was there a reason why at that point you didn't disclose the intermittency that occurred during the third quarter?

Well, we knew we had the conference call coming up, and we felt that rather than give a cursory explanation, that we were going to go into it in much detail in this conference call, so we left it for the call.

All right. And then my second question -- sorry, that was all one question. My second question relates actually to the chemical performance during the third quarter. And I appreciate Tony's attempt at maybe walking us through a year-over-year bridge, which is helpful. But I wanted to maybe delve into that a little deeper. At a high level, when we look at the numbers, if you back out the precious metal gains and the insurance, it look like you were up maybe $1 million or so year-over-year in spite of much stronger production. So I'm wondering if you start from those points, I guess $8 million last year versus give or take $9 million this year excluding insurance and precious metals, can you sort of walk between the difference in those two numbers? Because it sounds like maybe maintenance costs and D&A and things like that were kind of bigger items this year that maybe we realized.

We had, as I indicated, much lower selling prices on the product that we did produce and sell. We had higher natural gas costs. SG&A costs were higher. And due to the downtime, we had higher maintenance and repair costs. So what we tried to do was equalize the effect of the downtime and account for that difference. So, if you add back the estimate of the negative impact of the downtime in both years, you have effectively accounted for the fact that the production -- you've equalized the production level in both years.

So although 2013 third quarter was disappointing, even after that adjustment, we got some market conditions here that we -- everybody is aware of, that's driven by the fact that you've got a -- you're in the third quarter, you're in the off-season. You've got the USDA forecasting major improvements in the stock use ratio. So people, for the most part, are reluctant to commit to a price. Sellers are reluctant to commit, and buyers are reluctant to commit. Our marketing department thinks that is going to break loose pretty soon. But when the real significant restocking get started, that we elected to go ahead and move the product.

And keep in mind, last year, in the third quarter, we had almost $14 million of firm sales commitments going into the quarter. This year, because of the downtime in the first half of the year, we didn't have much in the way of firm sales commitments. So there are a lot of market conditions here that we don't believe are true indicators of the long-term -- our long-term view on the spread between our costs and the selling prices.

Tony, I'm sorry. Because you went through it kind of quickly in your prepared comments. Can you walk back through that math again real quick just so I make sure I have it, in terms of the comparison from Q3 to Q3? You went through it kind of quickly original.

What we did is we said, okay, operating income in the 2013 quarter was $17.7 million, call it $18 million; $17.5 million last year, call it $18 million versus $8 million for a $10 million difference. If you add back the $23 million to 2012 and the $7 million to 2013, you basically have $25 million versus $30 million adjusted for downtime. That's a $5 million difference.

So, the difference was a result of a number of things which tended to offset down -- to net down to $5 million. You had $7 million in lower selling prices for nitrogen, primarily UAN and ammonia in the fertilizer markets. You had higher natural gas costs, which cost about -- affected the operating income by about $3 million. Then you had the other miscellaneous higher maintenance repair and higher SG&A.

By the way, the higher SG&A is a result of all the outside engineering expertise that we brought in to help us get these diagnostics in and to scheduling and preventative maintenance. So, we've done a lot of -- we spent a lot of money that's not necessarily going to be recurring costs in the future, but they were in this third quarter and probably some in the fourth quarter also.

So if you add the $7 million, the $3 million, the $1 million and the $2 million, that basically offsets the $8 million to $9 million that we had favorable in there for the insurance recovery of $4 million or the catalyst recovery of about $5 million. As you'll recall, from time to time, we have those catalyst recoveries and they are essentially an adjustment of the burn-off of previous years of catalysts.

Right. So one last question here, just a clarification and then a comment. How much of the increase in costs was D&A? I was just looking through it and it looked like D&A for the segment crept up almost $2 million year-over-year. How much does that play into these numbers?

Depreciation?

Yes, D&A looked like it was a good bit higher year-over-year.

It has an impact. Obviously, we are spending. Now, the construction projects will not be depreciated until we turnkey the projects, but we have invested over $70 million in this plant since we began three years ago, so that depreciation does have some impact.

You're talking about Pryor?

I'm talking about Pryor.

Just the whole chemical segment showed about $2 million up year-over-year in terms of D&A.

And so D&A will continue to increase as we go.

Right. So one comment and, again, thanks for walking through that. Going forward, this might be really helpful for me and other investors if you could provide to us sales volumes by ton and production volumes by ton of your major products, as well as average realized pricing. I think that would make it a lot easier for us to kind of reconcile results from period to period. I know that's kind of a best practice for a lot of the other chemical companies. Thanks.

I've noticed that a lot of the larger companies do that. We have an issue with disclosing average prices on our contractual business because that's confidential. We could consider that for agricultural in the future.

In other words, to kind of -- let me restate what he just said.

(multiple speakers) competition.

We have very specific individual contracts with customers that have confidentiality clauses that preclude us from disclosing specifics of those contracts, including the pricing of the products that are sold. Also, from a competitive standpoint and a marketing standpoint, it doesn't make so much sense for us to publish to the world the pricing that we have on our very specific contracts that we have in place that are not at market price necessarily. Okay? And so on the ag side of the business, it's sold at spot market. Everybody knows what spot market is. There's no big mysteries there. But on half of our business, it's difficult for us to disclose that information because of the nature of the business and the relationships we have.

Unless you want to tell your competitors what you're doing.

So we'll take it under advisement what you've suggested on the ag side. But we have that issue that we have to deal with. Just so you understand.

Thanks.

All good questions. Thank you.

You sign a confidentiality agreement.

Joe Mondillo, Sidoti and Company.

Hi guys. Good morning. I think, in terms of what Dan was saying the ag volume, that alone would be extremely helpful. So I'd also relay that.

But my question has to do with in terms of -- I'm just trying to figure out exactly what happened in the quarter at Pryor. And it seemed like the production that you disclosed in terms of ammonia production was actually pretty good, actually, in terms of expectations and utilization rates. So my question is how much of that translated into sales versus I guess quarter-end inventory? And so I guess if you could just talk about sort of the operating performance of the plant outside of the initial production of ammonia, that would be helpful.

We talked in the 10-Q about the production level of 45 million tons, excuse me, 45,000 tons. Part of that gets converted into other products at Pryor and part of it gets sold as ammonia. So as I indicated, going into Q3, we didn't have much in the way of inventory and we didn't have much in the way of firm sales commitments. But from a production standpoint, inventories increased about 8000 tons, but not much. So we pushed a lot of product into the market at the lower prices. So we had an increase of about 7000 tons of UAN inventory during the quarter.

What about inventory of ammonia? I guess what I'm getting at is the 45,000 tons of ammonia, regardless of the lower prices and maybe the slightly higher prices in nat gas, it seemed like the plant should have been more profitable and should've boosted the earnings. And I think that maybe is why maybe people's expectations were a little higher. So I'm just trying to reconcile that.

Essentially, you get down to the other items that we talked about, and that's the lower pricing and higher natural gas costs, and --

We spend a lot of extra money on SG&A and (multiple speakers) bringing in experts.

I'm just looking here at a chart that showing some -- comparing year-over-year cost of the key things that impact it, and for example, ammonia, which we sell out of that plant, compared to 2012, 2013, was over $200 -- the general reported market numbers are about $220 a ton less for ammonia.

Nitrogen costs are down 30% from last [quarter].

And of course gas was up $1. That translates to about $13 a ton, okay, at the UAN level. And UAN selling prices compared to a year ago were down about $65. So, you've got about an $80 spread differential on UAN. I'm just roughing it out here, not doing an exact calculation. Over a $200 selling price reduction in ammonia. So you've got some -- with an increase in gas costs. On ammonia, it's not $13 a ton. It's more like $26 -- or it's more like $31 a ton differential in cost due to the increased ammonia gas cost. So you had a lot of fundamentals shift around on us that had the effect of compressing the potential margin on these products.

Okay. And you also mentioned that 8000 tons of UAN was stored in inventory, so that's essentially 16 -- roughly 16,000 tons of ammonia of the 45,000, so essentially all the 45,000 wasn't really translated into sales, per se.

The increase in inventory I talked about was on UAN. So there's about 0.42 tons of ammonia and 1 ton of UAN. So it would have been about half of that as far as the ammonia content of the UAN.

Okay, right, I'm sorry. The second question I just had was the $160 million of other CapEx related to maintenance and other things, I was wondering how much of that has been spent already, and if it's a significant amount left over in the future, what is that sort of being budgeted for?

We didn't disclose what our exact spending was. What we talked about is the fact that these plans are for the most part as previously announced, as far as what we're going to spend, and the spending is consistent with the percentage of completion. Barry mentioned we are waiting on permitting. So what we are doing is we are monitoring the spending, keeping it in line with our projected costs and our total costs over the three-year period. So I think probably the best way to address that is we are right on target as far as our spending versus our plan. We can't get too far ahead here. We can't move certain expenditures until we have our permit. So, I don't think the amount we spent to date is as meaningful as the fact that we are on target and the spending is consistent with the percentage of completion.

We do cover our FX in each period in the cash flow segment.

And if you notice in the current cash and the non-current investments, we have a significant amount of cash and capabilities there to complete the plans.

Right. I Guess the point that I'm sort of trying to get at is the $160 million, it looked like it had a lot to do with maintenance and revamping the plans. And I guess my question of how much of that $160 million we've spent already, I'm trying to get an idea of where we are in terms of your budgeting for revamping Pryor and updating it, and putting in these diagnostics. And I was just trying to get how much of that $168 million you've spent already to date, or where we are in terms of just where we are, I guess.

I think we're going to have get back to you on that, because I don't think we have a workpaper in front of us. I would just hate to wing it. (multiple speakers)

That's fine.

-- look at our Qs and see that. But we'll be glad to do that.

Okay. No problem. Thank you. I'll hop back in queue.

Keith Maher, Singular Research.

Good morning. Question, and this is specifically about insurance recoveries in Q4. I'm just trying to understand how much of that is going to flow through the income statement and where that is going to show up.

As we indicated, we've got an additional $53 million to receive, and we deferred $24 million. At 9-30, there was $24 million deferred. So the $24 million and the $53 million will flow through when we receive the cash in the third quarter -- fourth quarter as agreed.

And I know some of that is, what, a reduction cost of goods sold. Where else would it show up?

Lost profits.

It will be other income.

Lost profit.

That's as relates to the recent settlement on the issues at El Dorado. Now, if we come to a conclusion in the fourth quarter for the Cherokee claim, there will be some additional impact. So when Tony is talking about that, that's what we know of today based on the actual settlement, but we also have the additional potential if we resolve the Cherokee claim.

We'll have an additional settlement agreement on the Cherokee claim. They've already paid $15 million. Of course we deferred $2 million on the September balance sheet date. I don't believe we have disclosed what we anticipate on that at this point.

Okay, fair enough. So basically El Dorado will all get taken care of this quarter, then Cherokee could potentially see some effect going.

It could very potentially happen before year-end.

It could also push out to the first quarter, because we are not in total control of the timing on these things.

Okay. Then I had a question about SG&A. You've mentioned obviously you've had some elevated expenses this year just with all the extra work that's had to have been done. I mean, next year, could you give us just some guidance on where you think the SG&A levels could be? Could they kind of drop back to where they were, say, in 2012?

Let me just say this. I can't -- I'm not prepared at this point to give you total SG&A guidance, but with regard to the things that have to do with beefed-up reliability at these plants and programs that we've implemented and personnel that we have either hired or plan to hire, you could see on an ongoing basis somewhere in the neighborhood of north of $2 million a year increased costs on a going forward basis. We had initially more than that the first year because we had some one-time consulting services that won't repeat, but it will reduce on a going-forward basis. But based on the personnel that we either have currently -- from when we started the program to beef-up the programs, between the personnel and some ongoing outside services that will be required, some inspection services and some consulting services, it is probably going to be north of $2 million a year.

And that's basically engineering people.

Engineering resources, reliability resources, some maintenance resources. We're focused on reliability throughout the plants. Basically, it was about a 14 headcount total increase by the time we were done, and it came out to about $1.5 million a year in total on headcount. And then you've got other consulting services and outside services. And that could range from $0.5 million to $1 million a year for a while. So that's why I'm saying it is going to be north of a couple million dollars in total, but I'm not sure of exactly what the numbers will be. And then in addition to that, you've got the phase-in and timing of these various (multiple speakers)

That assumes there are no more government regulations that require more.

Yes, that's a good point.

Okay. That was helpful. And just one question on the Climate Control business. You touched in particular on the residential side, and you touched on this in the prepared remarks. But it does seem like there's -- starting to see a bit of a rebound in the mid to higher-end housing, which is obviously more of a target for your geothermal products. You think you're starting to see that? Obviously, the residential orders have been a little bit better I guess so far this year.

We are seeing a lot of activity. But I always hate to talk about activity before it materializes into actual results. But we are seeing definitely more activity in that area.

Okay. Thanks. That's all I had.

David Deterding, Wells Fargo.

Good afternoon guys. I just had a quick question on the CapEx spending a little bit just to delve in. It looks like year-to-date you've spent about $114 million, and you've laid out about $650 million here. Assuming we get the permits in the fourth quarter, which I think you guys the assumption is, how do you think about capital spending in 2014? How much of the $650 million would be spent in 2014, and then obviously the fourth quarter this year? I'm just trying to get the capital budget kind of laid out over the next couple of years.

The ammonia plant, we are uncertain as to when that's going to be completed. Then we can really accelerate the spending. But that aside, the majority of it will be spent in 2014.

The majority of what we are spending on the nitric acid plant and the concentrator, the OSBL will be spent in 2014. Some of the spending on the chemical plant -- excuse me, ammonia plant, we will probably push out into 2015.

Okay. So we can think about most of this as being pretty heavily 2014 weighted.

I think so.

Okay.

(inaudible)

Right. And then can we just talk about mining a little bit? You talked about some minimum take or pay arrangements. Does mining still have another leg down here? Are we kind of at a low point volume-wise that you guys think you will continue and we'll see a pickup, or how are you thinking about the mining segment going forward?

The majority of our business is concentrated in surface coal. Everything you read is that coal production is down in all areas of the country. Demand is starting to pick up a bit. Barry indicated in the overview that we have -- most of our business is based on minimum quantities. But that doesn't affect -- that doesn't help us on the top line because you have certain fixed costs and profits paid for irrespective if they take or not. But we believe the demand in 2013 is going to continue to be relatively low.

The only area that's really doing well is out West.

If you look -- I'm going to refer you back to Page 17 in the presentation, in the PowerPoint presentation that we put out on the website. Now I'm going to start off with a disclaimer in that these are not our numbers and we don't take responsibility for these numbers. But they are published numbers. So the Department of Energy, the Energy Information Agency, every year they publish an outlook for various types of fuels and energy, and coal is one of them. And in the upper left-hand corner of that page, you can see what the long-term outlook is for coal. And they've subdivided it into Appalachia, the West and total. So there is -- they're projecting kind of a bottoming out here around, say, 2016 it looks like and then some pickup in the West. They are showing Appalachia is kind of declining and then leveling out, but the West picking up, and total picking up. And that's where most of our market is. So I don't know if this will come to pass. This is a changing fluid situation. But I'll just point those statistics out to you.

A lot of the western in coal is exported.

Right.

Great, thank you. Just lastly, we are hearing about some dumping of urea from the Chinese onto the US market. Are you seeing any impact on your business from the urea flowing into the US?

Yes, we mentioned that in the call. We kind of went over it quickly. But it is a nitrogen product, although not the same nitrogen products as the one that we typically sell. We produce it but we don't sell it as an end product at this time. And it has definitely had the effect of depressing the price of other nitrogen products, including UAN, okay, and to some extent AN. So that has definitely had an impact.

Today's paper said the Chinese shut it off again. They shut off their export.

They tend to do that.

They do it from time to time.

There is some sort of a tariff that's invoked or not invoked, and that impacts (inaudible) export versus their internal usage.

But from our standpoint, it's hard for us to predict what they're going to do going forward with that.

Sure. Thank you guys.

It's not hard. It is impossible actually.

Rob Longnecker, Jovetree.

Hi guys. How are you doing? Just in terms of Pryor, obviously a lot has gone on over the past year. I wonder if you could take a step back and give us kind of a big picture overview of what's been fully replaced, if there's anything major left that hasn't been fully replaced, and kind of help us understand where we stand on I guess basically effectively like a full refurb of that plant.

When we first started putting the plant together, we had a -- we basically replaced the reformer. Then we ultimately replaced the liner of the urea plant, which was essentially -- that was like a complete rebuild, so it's essentially it's like a new urea plant because the liner is what's critical in that plant. As you recall, we had that. We then we replaced last year the ammonia converter which was replaced. We have added a lot of instrumentation. We have added -- there's a lot of small things throughout the plant that are not major vessels but that are valves and various things throughout the plant that have been replaced. What am I not thinking about?

I would given the background of that. That's important because we're replacing all this stuff.

Yes, so, gradually what we've done is we worked through the plant, and where we've had issues we've replaced these various -- we've either upgraded or refurbed or replaced these various components. We have plans going forward to continue to upgrade the automation of that plant, and this is a process you can't do overnight. It takes a while to convert it. But this plant had old instrumentation, and we are upgrading it with new state-of-the-art digital instrumentation and sensors. We added the GE manufactured Bently Nevada vibration systems and information gathering that tells you, on several of the large pieces of equipment, that give you a heads up as to vibration that is either within or without the normal vibration range at the operation.

So on -- we've been -- and we are always doing things like, for example, we put this new brand-new 14,000 horsepower motor in. That, you know, that happens just in the life of a plant. As things get to the end of their life, you replace them with new parts. Typically with a plant that over -- it's kind of like an airplane that you fly in. You're getting on 50 and 60-year-old airplanes and flying them all the time, which probably doesn't give you much comfort. But they've been in for maintenance and the whole thing has been -- the engines have been replaced several times, the instrumentation has been replaced several times, etc. And that's the way these chemical plants are. Over time, you end up replacing and refurbing pretty much the whole plant.

I think you've got to go back to the fact that when we bought this plant --

It was shut down.

-- that it was shut down. We had to re-staff it and we had to start it up, and we did --

I know a little bit about the history. But I guess is there major stuff that is still kind of done that you guys are expecting to do in the next couple of years, or at this point do you feel like the major stuff has been replaced and is done?

We think that the major pieces of equipment have been replaced or brought up to speed. There are things that we can further do to enhance reliability that we will continue to do, but they aren't replacing major pieces of equipment.

That we know of.

Yes. That we know of at this time.

I think, you know --

And we'll have the ability to diagnose what needs to be done and get it done during the turnarounds hopefully going forward.

Yes, I think this raises an issue that I think is kind of the elephant in the room about Pryor, which is we've had a lot of these trials and tribulations with Pryor. And everyone is wondering are we ever going to get Pryor up to speed. Everyone is wondering is it ever going to be reliable. Everyone is very frustrated. And there's no one more frustrated than we are here.

By the way, one other thing that we have done is we have really invested heavily in increasing the capital spares at Pryor so that when we do have an issue, we can deal with it quickly -- more than it had before. But coming back to the elephant in the room or the big picture of Pryor, I think that, with the benefit of hindsight and with knowing now what we knew then and recognizing that Pryor was a different case than any of our other plants, when we acquired El Dorado, it was an up and running plant. It had its issues and we improved it over time, but it was up and running and fundamentally sound, and it had been running for many years. The same situation with Cherokee.

The plant in Baytown was a brand-new state-of-the-art plant when we put it in. But Pryor was a plant that, history-wise, was out of commission for 10 years, and we I think underestimated what it would take to get it up and running.

If I had to do this thing all over again, and it was three years ago, and a shareholder was asking me while we were having a conference call about what the expectations are for Pryor, what I would've said was we've got a great diamond in the rough here, a terrific value with a lot of potential. We are going to need to upgrade it as we go, and it's going to be difficult to predict exactly how long that's going to take. And it's going to be bumpy until we get it finally up to speed. And that's kind of where we are, but I think we've pretty much been through most of the plant at this time.

What we have is something that we trust (multiple speakers)

Yes, that's right. We have a total investment in this plant now of somewhere I think in the mid-$80s million, if you net out from that the retained earnings from the profits we've made, we probably have a net investment in that thing in the mid-$60s million. And based on the plants that are going in now and recent with the quotes that we've gotten for plants that we are working on, including all of the other ancillary equipment, etc., you're looking at a plant that, if we had to replicate it, would be somewhere between $600 million and $750 million. And so we think that even though it has been unreliable so far, and it hasn't achieved our expectations yet or its potential, that when we get there, that it is going to be a very valuable asset.

So what inning do you guys think it's in now, if you had to guess?

What?

What inning.

You have the three years of hindsight, as you said. It's going to be -- whatever it's going to take to get us to where it's kind of running smoothly, and now you guys have done all this work. Do you think you are in the seventh inning, and it's just kind of fine-tuning from this point on, or is it still too early to tell?

I'm not much of a baseball fan, but that --

Me neither. You can use a percentage if you want.

It's hard to exactly quantify it. But I can say this. Besides all of the pieces of equipment that we've replaced or refurbed, we've got now three years of operating history with the staff that we had to bring in, so the staff is much more well trained. We've run in not only -- we've increased our own internal engineering staff and we've brought in some outside experts, industry experts, to help us improve and install systems that didn't exist in the plant that we had before that are key systems that are geared to reliability. For example a computerized maintenance management system which that plant did not have. Our other plants do, but that one did not have it initially.

It worked on this last one.

Yes. So anyway, and the new ammonia converter, all the things that we have done that we've talked about, we are significantly down the road and we are much closer to being there. I hate to try to quantify it specifically based on history. I have learned one lesson through this process, and that's not try to put an exact time sense on this process.

It looks like you're making -- the diagnostic (technical difficulty) is obviously opening, so (technical difficulty)

That's a big step forward because I think if that same situation had occurred two years ago before the diagnostics, the plant would have run until it crashed. And then it would've been a much longer outage and it would've cost much more.

Are you guys going to put out a release when it's back up and running, or is that just going to be something that we're going to hear about in the next call?

I think if it's -- we haven't really discussed that yet.

If we do, it will after we've sustained it and are very comfortable with it. Because (multiple speakers) when you're coming up, you have ups and downs as you're coming up, it takes a few days. It takes a while (multiple speakers)

From my perspective, it would be nice. If you guys get it up and running and back to normal, I'd appreciate a release because that's [publicly] how we learn about these things.

We understand, and we appreciate that comment.

Thank you.

Thanks for your questions.

We have reached the end of the question-and-answer session. I would now like to turn the call back over for closing comments.

Okay. I'd like to turn the call -- we'd like to thank everybody here for having an interest in LSB and your participation today, and we appreciate that. If you'll stay on the line, Kristy Carver will review certain very important information about the content of our presentation. So Kristy, would you please present that?

I will. Thanks, Barry. We'd like to thank everybody for listening today.

The comments today contain certain forward-looking statements. All of the statements other than statements of historical fact are forward-looking statements. Statements that include the words expect, intend, plan, believe, project, anticipate, estimate, and similar statements of a future nature identify forward-looking statements. These are including but not limited to all statements about or any references to the Architectural Billings Index or any McGraw-Hill forecasts, including those pertaining to commercial, institutional, and residential building for investor growth and McGraw-Hill forecasts regarding the total green, retrofit, renovation markets and energy efficiency markets, any references to coal production, polyurethane production capacity growth, US pipe production or basic and organic chemical trends.

The forward-looking statements include but are not limited to the following statements. Our actions will ultimately enable this facility to deliver sustained production and substantial profitability. We expect to have the plants fully installed and operating by late 2015. Pryor is expected to be in production during November 2013. Projects will provide El Dorado with expanded capacity, improved efficiency, product mix flexibility, and should result in a significant reduction of feedstock costs. We believe our actions will lead us to a significantly improved financial performance for 2014; our capital spending plan, positive fundamentals, and favorable indicators for the ag business; effective lowering the ethanol mandate or corn production; El Dorado's nitric acid capacity will continue at current level until we complete construction of a new Weatherly 65% acid plant and concentrator during 2015. We anticipate issuance of the permit in the near future.

We plan to have the ammonia plant constructed and in operation during the latter part of 2015. We plan to replace the DSN, direct strong nitric acid plant in EDC level of industrial and mining sales; timing and/or completion of plant initiatives, capacities, savings and/or efficiencies expected from capital projects. Recovery in commercial and institutional new construction will continue. Increase in green construction should benefit the sale of our highly energy-efficient products.

You should not rely on the 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 Notes Regarding Forward-Looking Statements" in our annual report Form 10-K for the fiscal year ended December 31, 2012, and for Form 10-Q for the periods ending March 31, 2013, June 30, 2013, and September 30, 2013. 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 measurements. The reconciliation of GAAP and any EBITDA numbers discussed during this conference call are included in the Q3 2013 conference call presentation, which is posted on our website.

Thank you again, and this ends our conference call.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.