LSB Industries Inc (LXU) 2014 Q4 法說會逐字稿

Greetings. Welcome to LSB Industries Incorporated Fourth-Quarter 2014 conference call.

(Operator Instructions)

As reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carol Oden. Thank you, Miss Oden, you may now begin.

Well, good morning. Welcome to the LSB Industries Inc. fourth quarter 2014 conference call.

Today, LSB's management participants are Barry Golsen, President and Chief Executive Officer; and Tony Shelby, Executive Vice President and Chief Financial Officer. Jack Golsen, LSB's Executive Chairman; and Mark Behrman, LSB's Senior Vice President for Corporate Development and designated successor to Tony Shelby as CFO will also join the Q&A session after the prepared comments.

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 and instructions for asking questions will be provided at that time. And now, I will turn the call over to Mr. Barry Golsen.

Good morning. Thank you for joining our conference call today, and please turn to page 3 of the presentation.

To start, let me provide some financial highlights from the fourth quarter and full year 2014. For the fourth quarter of 2014 compared to the fourth quarter of 2013, net sales increased 21.7% to $181 million. Net income applicable to common shareholders was $700,000, or $0.03 per diluted share compared to net income of $37.3 million or $1.58 per diluted share.

Excluding certain items, primarily insurance recoveries recognized in the fourth quarter of 2013, adjusted net income applicable to common shareholders was $2.1 million, or $0.09 per diluted share, compared to an adjusted net loss of $9.5 million or a $0.42 loss per diluted share in 2013. For full-year 2014 compared to full-year 2013, net sales increased 7.8% to $733 million.

Net income applicable to common shareholders was $19.3 million or $0.83 per diluted share, compared to $54.7 million or $2.33 per diluted share. Again, excluding certain items, primarily insurance recoveries, adjusted net income applicable to common shareholders was $3.4 million or $0.14 per diluted share in 2014, compared to an adjusted net loss of $3.4 million, or a $0.15 loss per diluted share in 2013.

Excluding the benefit of insurance recoveries in 2013 and 2014, our fourth quarter and full-year results showed year-over-year improvement. Our Chemical Business delivered strong growth in sales and adjusted operating income for the full year reflecting the progress we're making to achieve higher onstream rates at our Pryor, Cherokee, and El Dorado facilities, and the resulting improved overhead absorption from those operations.

Our Pryor facility is in the best condition since we brought the facility online, and produced almost twice as much ammonia in 2014 than 2013. With that said, our Chemical Business did experience various headwinds throughout the year.

In addition to lower selling prices for our agricultural products and higher overall feedstock costs, we did experience some unplanned downtime at our Pryor and Cherokee facilities. These maintenance issues have been resolved, and both plants have been producing at targeted rates.

Additionally, profitability at our El Dorado facility has been depressed by the relatively high price of purchased ammonia, the primary feedstock for El Dorado's end products rather than producing its own ammonia using natural gas as we do at our Pryor and Cherokee facilities. We expect this cost disadvantage to continue through 2015, and to be eliminated once the construction of the ammonia plant at El Dorado is completed and starts production in 2016.

The El Dorado ammonia plant expansion project is expected to substantially enhance the plant's profitability, reduce costs, increase capacity, and improve product balance. Importantly, this project along with the enhancement of the facilities nitric acid capacity, remains on budget and on schedule and we expect significant incremental operating profit beginning in 2016 as a result of these investments. Despite historically high stock to use ratios and the expectation that corn acres planted in 2015 will be slightly lower than last year, agricultural market fundamentals remain favorable, and the industrial chemical markets we serve should continue to benefit from the improving economy.

Turning to our Climate Control Business. Full-year 2014 sales were essentially flat with 2013, excluding the reduction in sales related to the previously disclosed termination of our agreement with Carrier to supply them heat pumps. Despite lower sales in the first half of 2014 resulting from severe weather throughout the US in early 2014, bookings for the full year reached their highest level since 2008, 9% higher than 2013. These solid bookings reflect a significant increase in demand in the second half of 2014, primarily for large custom air handlers and hydronic fan coils.

We believe we have a strong opportunity here, and are taking actions to enhance our position in this business. This includes a strong backlog at year end 2014; the recently announced change in leadership at ClimateMaster, which accounts for nearly two-thirds of our Climate Control Business sales; and upgrading and expanding our product offerings across the entire Climate Control portfolio; and the continued benefit from our LEAN operational excellence initiatives. Taken together, we believe that these initiatives will enable us to capitalize on the positive outlook for growth in both the commercial institutional and residential markets that we serve and will position the Climate Control Business to generate increased sales and profits and 2015 and future years.

Although our overall earnings during 2014 were certainly not at a level we're satisfied with, we are putting strong emphasis on projects and initiatives that should greatly enhance our earnings and create value for shareholders in the years to come. I will cover those initiatives in greater detail later. Finally, we see good momentum in each of our businesses and anticipate delivering improved results in 2015, with a substantial improvement expected in 2016.

Now I'll turn this call over to Tony, who will go into more detail about our financial performance.

Thank you, Barry.

As Barry indicated, excluding the benefit of insurance recoveries, we achieved year-over-year improvement in our fourth-quarter and full-year 2014 results. This improvement is largely a result of improved onstream rates in our chemical plants.

For a comparison of fourth-quarter 2014 results compared to fourth quarter 2013, please turn to page 4 of the presentation.

Consolidated net sales were $181 million, an increase of $32 million or 21.7%, driven primarily by our Chemical Business. Gross profit was $31.4 million compared to $30.6 million or $20.4 million in the 2013 quarter, excluding business interruption insurance recoveries of $10.2 million.

Incidentally, as a side note, during this review of financial highlights, I will reference adjusted results. The are financial tables on pages 33 and 34 of the slides that reconcile all the reported results to adjusted results.

Operating income was $4.9 million compared to operating income of $70.2 million in 2013. Excluding insurance recoveries of $76.2 million in 2013 and a $2.2 million unrealized loss on forward natural gas purchase commitments in 2014, adjusted operating income for 2014 quarter was $7 million, compared to an adjusted operating loss of $6 million for the 2013 fourth quarter.

Interest expense for the quarter was $4.1 million, net of $4.9 million capitalized interest, compared to $7.3 million net of $1.8 million capitalized interest. After a provision for income taxes, net income was $700,000 or $0.03 per share, compared to net income of $37 million or $1.58 per share last year.

EBITDA for the quarter was $14 million, compared to $79 million. Excluding the $2.2 million unrealized loss on gas commitments in 2014 and the $76.2 million insurance recoveries in 2013, adjusted EBITDA was $16.6 million, an increase of $14.3 million over 2013, and adjusted EBITDA of $2.3 million.

The full year 2014 net sales were $733 million or $53 million higher than in 2013. Chemical sales increased $74 million, and Climate Control sales were $20 million lower. However, Climate Control sales excluding Carrier heat pumps in 2013 were essentially flat, primarily due to the weather-related slow start to the first half of the year.

Operating income was $53 million, including $28 million of insurance recoveries, a $2.1 million unrealized loss on forward natural gas commitments, compared to $105 million last year, including $94 million of insurance recoveries. Excluding those items, adjusted operating income was $28 million in 2014, an increase of $17 million over adjusted operating income of $11 million in 2013.

Interest expense was $22 million, net of $14 million capitalized interest. After a provision for income taxes at an effective rate of 39%, net income applicable to common stock was $19 million or $0.83 per diluted share, compared to $55 million or $2.33 per diluted share.

EBITDA was $90 million versus $133 million in 2013. Adjusting EBITDA for the same items as discussed for operating income, adjusted EBITDA was $64 million, an increase of $26 million over the adjusted EBITDA for 2013 of $38 million.

On page 5 is a brief summary of our capital structure at year end 2014, compared to year end 2013. Cash and investments at December the 31st totaled $273 million, or $162 million lower than at year end 2013, reflecting our investments in our Chemical Business operations, particularly the expansion of the El Dorado facility.

Total capitalization was $891 million, and debt to capital was 51%. This additional leverage is consistent with our long-term growth plan. We expect to reduce our debt level based upon our expectation of a significant increase in free cash flow after the expansion projects are complete and operational. Concluding the discussion of our financial position, our $100 million working capital revolver remains undrawn, with approximately $71 million availability at year end.

On page 6 is an analysis of cash flow for the 12 months ended December 31, 2014. As shown, free cash flow consists of net cash provided by operations of $67 million, less capital expenditures of $220 million, other cash increase of $3.3 million, resulting in free cash flow of a negative $150 million.

After net payments on the current long-term debt of $12 million, cash investments declined $162 million. The reduction in cash investments is attributable to the planned capital spending of $220 million in 2014. The total cash investments will continue to decline through 2015 as we complete construction of the El Dorado expansion projects.

Moving to page 7, this page is a summary of our estimated capital expenditures for 2015. Total capital expenditures for this year will be between $283 million and $346 million, including capital expenditures for the El Dorado expansion projects of between $225 million and $260 million. It also includes upgrades to our plants to maintain compliance with environmental requirements, any guidelines, as well as other anticipated renewal and improvement projects.

The planned capital spending is being funded by our cash investments, as shown on the year-end balance sheet; internally generated cash flow and certain third-party financing for approximately $50 million. With respect to the table reflecting the El Dorado expansion projects, the planned spending is presented as a range to provide for certain unplanned delays in its construction and other contingencies.

As of this call, 93% of the planned scope of work is under contract. The planned cash spending in 2015 as shown in this schedule is $25 million higher than was disclosed in the third-quarter reports in a conference call. This difference is due primarily to timing and payments during the fourth quarter of 2014 versus our previous estimates. The lower cash disbursements in the fourth quarter will move into 2015, resulting in no change of spending, nor to the planned completion dates of the various components of the El Dorado expansion projects.

Turning to page 8 for a review of Chemicals fourth-quarter 2014 results compared to fourth quarter of 2013. Sales were $109 million, an increase of $31.5 million or 41%. The increase in sales was due to higher agricultural product volumes as a result of higher onstream rates at the Pryor facility, offset by unplanned maintenance at the Cherokee facilities ammonia plant during late November and in December.

The facility was out of production for 33 days during the fourth quarter, returning to its full production rate on December the 28th. The outage resulted in a loss of 30,000 tons of salable product. The estimated cost of the Cherokee outage was approximately $8 million, including lost contribution margin $6.6 million, maintenance costs $600,000, and costs related to product purchased to satisfy customer's sales commitments $800,000.

For the fourth quarter, the Chemical Business reported operating income of $4.5 million, compared to operating income of $67.5 million reported in the fourth quarter of 2013, or a loss of $8.7 million excluding insurance recoveries of $76.2 million in 2013. The fourth quarter of 2014 operating income of $4.5 million was negatively affected by the lost contribution margin and extra costs incurred during the 33 days of lost production at the Cherokee facility and the $2.2 million of unrealized losses of forward natural gas purchase commitments.

Also affecting the fourth-quarter operating results was the negative effect of producing Ag grade ammonium nitrate for the purchased ammonia to El Dorado, which leaves little or no contribution as compared to producing for natural gas. This disadvantage along with the reduced nitric acid capacity will continue until we complete the El Dorado expansion projects.

On page 9, the bar chart compares total Chemical sales by quarter for 2013 and 2014. The full year of 2014 sales at $455 million and the fourth-quarter sales at $109 million, were both higher than 2013. But as I mentioned earlier, sales were impacted by the extended planned and unplanned downtime in the third and fourth quarters of 2014. The lower half of the page compares the sales mix for the quarter, with the full-year sales mix reflecting approximately the same mix in the fourth quarter as compared to the full year.

Turning to page 10 for overall Chemical sales by product. Fourth-quarter agricultural product sales increased due to improved onstream rates at Pryor, as well as increased demand and pricing for agricultural grade ammonium nitrate. Industrial assets and mining product sales increased due to increase in ammonia costs, which are passed through to customers on contractual sales agreements based upon the amount of ammonia content in the product.

Turning to page 11 for Agricultural sales by product line. UAN and ammonia sales increased in the fourth quarter of 2014 compared to 2013, due to improved onstream rates at Pryor. Ammonium nitrate sales volumes and pricing increase due to improved agricultural market conditions.

Industrial assets and Mining sales are on page 12. Fourth-quarter sales of nitric acid and industrial and ammonium nitrate report increases in tons shipped at 7% and 4% respectively and a disproportionately higher increase in dollar sales, due to the increase of purchased ammonia which is a pass-through in the pricing arrangements with customers. The fourth quarter increase of tons of nitric acid sold is due to increased demand by [their] material science at the Baytown facility. The increase in tons of industrial AN was attributable to an increase in times shipped to Orica.

Now turning to page 13 for a review of Climate Control results for the fourth quarter of 2014 compared to 2013. Climate Control reported net sales of $69 million, which had increased of $1.3 million or 2%. Sales increased despite a $7 million decline in heat pump sales to Carrier compared to Q4 of 2013.

Offsetting the decline in heat pump sales, were increases in sales of other product lines, including fan coils and large customer air handlers and modular chillers. This increase was driven by growth in hospitality and multi family residential markets for fan coils, and healthcare and military markets for air handlers.

Gross profit and gross profit margins were $20.8 million, and a 30.2% margin, compared to $22.4 million and 33.2% last year. The $1.6 million and 3 percentage point decline in gross margin was primarily due to product and customer mix, as C pump margins carry a higher gross profit margin than the other products.

Operating income was $4.3 million or 6.3% of net sales, compared to $6 million or 8.9% last year due primarily to product and customer mix. Fourth quarter EBITDA was $5.5 million, as compared to $6.8 million in the fourth quarter of 2013.

On page 14 is a summary of Climate Control sales by market sector. In both the quarter and the year to date, commercial institutional sales were 84% of total sales and single-family residential, which is all geothermal, was 16% of total sales.

Turning to page 15. Fourth-quarter 2014 sales by product line compared to 2013, reflect increases in sales of fan coils and growth in sales occurring in the other categories which include custom air handlers, modular chillers, and our engineering and construction services business. The reduction in the heat pump sales resulted from the loss of the Carrier business in 2014, as we previously discussed.

That concludes the financial review. We've addressed our results of operations and capital resources in greater detail in the 10-K filed this morning, and suggest that you review that document for a more detailed analysis.

Thank you for your time. I'll now turn it back to Barry to discuss the outlook for both our Chemical and Climate Control Businesses, and the progress is of our key initiatives.

Thanks, Tony. Now, focusing on the Chemical Business, please turn to page 16.

During 2014, prices of natural gas and anhydrous ammonia were generally higher, while the selling prices of urea, ammonium nitrate and ammonium nitrate fertilizer declined. Since year end, both natural gas and anhydrous ammonia prices have declined significantly, which benefits all of our production facilities, except for those products which we sell on a cost-plus basis.

Focusing on the general outlook for the agricultural markets we serve, page 17 lists several indicators for our agricultural products, many of which continue to be favorable. Even though grain stock to use ratios, both worldwide and in the US, are currently at or above 10-year averages, planting levels are expected to remain generally high although slightly lower than the recent past.

Industry expectations are that approximately 88 million to 89 million acres of corn will be planted in the upcoming season, about 3% less than the previous season. Weather shortened the Fall ammonia application season, and we expect that ammonia and UAN applications will now be strong through the upcoming planting season, as wholesalers look to increase their inventories. In addition, natural gas prices remain at relatively low levels.

Market prices for corn and wheat are slightly lower than a year ago, but yields per acre are up. So planting continues to be profitable for farmers. To achieve higher yields, nitrogen fertilizers must be applied.

North American nitrogen fertilizer producers, including our Chemical Business, currently have the lowest delivered cost to North America relative to foreign producers. Therefore, we believe if there is less demand for nitrogen fertilizer in the upcoming season, it will affect importers before it affects domestic producers.

At this time, weather conditions are generally favorable for the next planting season with better moisture conditions than a year ago. While certain parts of Texas, Oklahoma, and Western United States are in extreme drought conditions, the majority of the markets we serve appear to have good planting conditions.

Finally, although Chinese urea is subject to lower export tariffs, prices have currently stabilized. Chinese urea export rates accelerated through 2014, and imports of Chinese urea into North America are expected to continue in 2015 at a similar rate to 2014, as tariffs are expected to remain low.

Also, there's the potential to see lower Chinese coal prices, a primary feedstock for Chinese urea. These factors could exert downward pressure on all nitrogen fertilizer projects. Overall, we continue to be optimistic about the fundamentals of our Agricultural business.

Focusing on our Industrial and Mining products, please turn to page 18. Most indicators in this area forecast growth over the next few years.

As we advised previously, our contract with [Foreca] ends on April 9, 2015. Our strategy is to commence selling industrial grade AN directly to the explosive market at that time.

So far, we are pleased to have signed agreements to supply approximately 140,000 tons per year, over 60% of our annual production capacity of industrial grade AN volume, beginning on April 10, 2015. We are currently in negotiations with other potential customers of industrial grade AN for most of the balance of our production capacity.

Page 19 is an update on the status of each of our chemical facilities. Cherokee is currently operating at its historical rates of approximately 500 tons per day of ammonia. Pryor is operating at its targeted rate of approximately 650 tons per day of ammonia, and the Baytown operation is performing at targeted production levels.

At El Dorado, our focus remains on our expansion products, where we successfully completed at one week outage in December to allow for tie-ins of certain items that will service the new ammonia and acid plants under construction. With regard to planned maintenance at each of the facilities, we have a turnaround at Pryor scheduled for late June or July 2015.

In addition to enhancing our Pryor operation with the new senior management, we have and are continuing to implement facility reliability improvements. Including engineering support, extensive monitoring, and control equipment, remanufacture of certain key pieces of equipment, and use of industry expert consultants. We have also increased our capital spares at this location.

The combination of these improvements is intended to improve plant onstream rates by reducing the risk of unplanned downtime. At Cherokee, as previously disclosed, with the work completed in 2014, we are transitioning Cherokee to a two-year cycle for major turnarounds, and don't expected to perform a turnaround at Cherokee in 2015. The Cherokee facility has made continued progress toward improved reliability, and resources have been committed to ensure that reliability goals are met.

Page 20 details the status of the El Dorado ammonia plant expansion project. As we have stated in the past, this project will significantly reduce El Dorado's cost of ammonia, as the cost spread between purchased and manufactured ammonia is substantial. It will also produce additional ammonia that will be available for sale or which can be upgraded to other products for sale.

The engineering effort is now substantially complete, and the project timeline is now driven by executing the construction process. Pilings and foundations are substantially complete. A large part of the underground piping and structural steel is complete, and a majority of major equipment has been installed.

The cooling towers are also complete, while the piping installation is now under way. Whereas we have outlined the major milestones for this project in the past, we have changed the presentation of this slide to give more clarity to the timing of certain of these key events and milestones.

Turning to page 21, we show a 3-D CAD rendering of the ammonia plant on the top of the page, and a current photo of the site below. You can see in the bottom picture that foundations, concrete pads, and many large vessels have been installed. Structural steel and the cooling tower are also effectively complete, as is the demineralized water tank.

Work is progressing well on the primary former, and we have installed one of three compressors with the other two compressors ready for delivery and installation. Most of the piping is on-site, inspected, and being prepared for installation.

Please turn to page 22. In addition to the ammonia plant being constructed at El Dorado, we're adding a 65% Weatherly nitric acid plant and concentrator to replace the direct strong nitric acid plant that was destroyed in 2012, while also adding additional capacity. At this time, the nitric acid concentrator is mechanically complete, with control systems to be installed over the next several months, and the nitric acid plant is progressing on schedule.

On page 23, you can see a recent photo of the 65% nitric acid plant and concentrator. The equipment and building foundations for the nitric acid plant are complete, and steel fabrication and erection is also almost complete. 100% of the equipment for this plant is on-site, and most is installed, including the absorber towers and compressor train.

The cooling tower installation is complete. Piping installation is underway, as well as electrical systems.

At this time, we expect the El Dorado expansion projects to be completed on time and on budget. Also at this time, we have the costs for approximately 93% of the planned scope of work under contract.

We expect the acid plant and concentrator to be completed, and to begin production in the third quarter of 2015. And the ammonia plant construction and commissioning to be completed by the end of 2015. With ammonia production start up and ramp up during the first quarter of 2016.

Turning to our Climate Control Business. On page 24, you'll note that incoming orders for the fourth quarter were slightly behind those of the prior year in both commercial, and institutional, and single-family residential sectors of our business. However, in the aggregate, and excluding the lost Carrier heat pump business which we discussed previously, incoming orders in the fourth quarter were 10.8% above those in 2013.

For the full year 2014, commercial and institutional incoming orders were 12% above the prior year, however, single-family residential incoming orders were 7% low the prior year. Again, excluding the lost Carrier heat pump business, incoming orders for 2014 for commercial, institutional, and residential sectors were up 18% and 15% respectively over 2013.

In addition, there was a dramatic increase in the ending backlog as of December 31, 2014. The year end backlog was $65 million, up 63% over the 2013 ending backlog. We are pleased that all of our Climate Control Businesses had backlog increases year-over-year.

Moving onto the indicators related to commercial and institutional construction. On page 25, we show the Dodge Data & Analytics expects our markets will continue to increase in the near-term.

They most recently forecasted that the key commercial and institutional sectors we serve are expected to grow approximately 26% from 2014 until 2017. During 2014, the Architectural Billing Index indicated growth in 10 out of 12 months, another strong indicator that business will continue to strengthen in the near-term.

On page 26, you can see the Dodge forecast for single-family residential construction starts, these are expected to increase 65% from 2014 to 2017. In summary, the general consensus of most economists and construction industry experts is that construction recovery will continue. This is a positive indicator for our Climate Control Business.

Turning to our expectations for the Chemical Business. We have included a chart on page 27, which contains a range of anticipated chemical product volumes for the first quarter of 2015.

I'd like to switch focus now to the vision for LSB's future. As we've described to you over the past several conference calls, we are focused on value drivers, projects, and initiatives that we have the potential to be transformative for the Company. We expect these initiatives to significantly increase our earnings, and create substantial value for LSB shareholders.

We have received many requests from shareholders and analysts to create a roadmap of what our targets are for the Company following the completion of our chemical expansion projects and the implementation of reliability enhancements across all our chemical plants and given the multiple initiatives that we have in our Climate Control Business, combined with the expected increase in commercial and institutional construction.

We believe it is important for our shareholders to understand our targets regarding revenue and earnings growth and also to understand the key elements of our plan to achieve these targets. Since our growth plan is a multi-year effort, on the following pages we have compared 2014 actual results to our targets for 2017.

By 2017, we will have completed our chemical expansion projects, and have a full year of operation of those new plants. At the same time, we will be further into the improved construction cycle, the primary driver for our Climate Control Business.

On page 28, we've summarized our Chemical and Climate Control key targets for 2017, which include financial metrics for both businesses, annual chemical plant reduction, and key initiatives. Regarding our Chemical Business, we are targeting EBITDA and operating margins of 30% and 20% respectively for 2017, that is an increase from adjusted EBITDA and operating margins of 12% and 6% in 2014. In our Climate Control Business, the targets for EBITDA and operating margins are 15% and 14% respectively versus 10% and 8% that we achieved in 2014.

The next several slides will provide color on the drivers of growth for each of our businesses. Page 29 provides an EBITDA transition for our Chemical Business from 2014 actual to targeted 2017. You will see that the three big drivers of incremental EBITDA are; first, the ammonia and nitric acid plants commencing production, which allows us to reduce the cost of ammonia, while providing additional ammonia to sell or upgrade to other nitrogen products; second, improved onstream rates, primarily at Pryor; and third, reduced expenses from less unplanned downtime.

The chart on page 30 attempts to provide some color as to the Chemical Business' EBITDA sensitivity to a change in natural gas prices and ammonia prices based on our targets for 2017, with ammonia being a proxy for both UAN and AN pricing. As the analysis points out, movements in our primary feedstock costs and in selling prices have a material effect on our financial results.

Page 31 provides an EBITDA transition for our Climate Control Business from 2014 actual to targeted 2017. The three main drivers of growth in this business will be; first, operating leverage from increase in sales, as we are currently covering our fixed overhead costs and can handle any anticipated growth in our existing manufacturing facilities with no significant capital investment; second, planned performance improvements in our custom air handler, modular chiller, and construction services businesses, all of which we report as other in our public filings, as they gain increased scale; and finally, LEAN initiatives that we began implementing in 2013, which we expect to result in an increase in gross margins.

On page 32 are the key value drivers that we're focused on, and which we expect will increase LSB's value in the near and mid term. We have reviewed these with you in detail before, so they are here only for reference. We expect all of these initiatives to drive the improved performance, enhanced profitability and shareholder value creation that we have just discussed.

Summing up, we expect that our efforts over the past several years to strengthen our operations and expand our production capabilities will yield substantial improvement in sales and profits and ultimately, increase shareholder value. We look forward to reporting our progress to you.

Before we conclude the call, I want to switch gears briefly to discuss the press release we issued this morning regarding the Strategic Committee's review and recommendation. As you know, the Strategic Committee, which is comprised of four independent Directors, was established in accordance with the Company's April 2014 settlement agreement with Starboard Value, one of our largest shareholders.

The Strategic Committee's mandate included a thorough evaluation of potential strategic alternatives for the Company with the assistance of independent, financial, legal, and tax advisors. In particular, the Strategic Committee considered separating the Climate Control Business through a spinoff; selling the Climate Control Business; placing some or all of the Company's Chemical Business into a master limited partnership, or MLP structure; and continuing to execute the Company's strategic plan.

As announced this morning, the Strategic Committee and Board of Directors have unanimously determined that the continued execution of the Company's strategy to drive profitable growth and create sustainable shareholder value is in the best interest of LSB and its shareholders at this time. The Strategic Committee and Board also determined that a potential spin or sale of its Climate Control assets from the Chemical Business may be a step for consideration once the expansion projects at the Company's chemical facilities are complete. And the Strategic Committee will continue to reevaluate this alternative over the next 12 to 18 months.

In coming to its recommendation, the Strategic Committee noted that LSB has been taking actions that should enhance the long-term reliability and performance of the Chemical Business facilities. The El Dorado expansion projects are on schedule, and within budget and once complete, should deliver substantial value to shareholders. And management's plan to grow the Climate Control Business is expected to generate significant margin improvement over the next several years.

The Strategic Committee will now focus its near-term attention on providing oversight and additional recommendations as appropriate to assist management in the execution of the Company's plan to lower production costs, improve manufacturing efficiency, drive sales growth and enhance profitability, with a particular emphasis on completing the expansion projects at our El Dorado facility. I encourage everyone to read the press release we issued this morning that goes into much more detail about the Strategic Committee's process, considerations, and ultimate recommendations.

On a final note, I'd like to mention that we will be presenting on March 16th in New York at the Sidoti Annual Equity Conference, and on March 18th in Boston at the BofA SMid Cap Conference. We hope to see some of you there.

We will now go to Q&A. Operator?

(Operator Instructions)

Dan Mannes, Avondale Partners.

Hey. Good morning everyone.

Hey, Dan.

A lot to go over. I'll ask a couple questions now, and then probably jump back in the queue. First, just focusing on the quarter real quick, can you talk maybe a little bit about the pricing environment at Chemical?

I guess we were little surprised by the realized pricing, both in terms of what you received. You were a good deal below both industry markers and peers.

And then secondly, about your purchases. The purchase of ammonia was dramatically higher than what you're selling at. So, if you can walk us through maybe the pricing environment, that would be helpful.

Well, the -- Dan, our UAN shipments out of Pryor and out of Cherokee are from the factory. And you were comparing our prices to prices coming out of terminal locations from our competitors, and geographically located plants within the corn belt. With respect to -- and also, keep in mind out of the Pryor, we haven't offtake agreement which gives us a net lower price after the distribution fee.

It also though provides us with ability to ship during the off-season without storage. So it's an advantage, but it does give us a slightly lower price there.

With respect to ammonia, we're purchasing ammonia off the pipeline at different times than were selling. And we're also selling at a location, the same as UAN, we're selling out if a factory location versus CF and Agrium that shipping out of terminal locations. And if you net that difference out, we're pretty close.

So the difference between the purchase and the sale are pretty much unrelated. Because we're purchasing at different times, and we're shipping at different times during the period. And keep in mind what happened during the quarter, where you had a significantly increased [tempa] metric at 650, and you had earlier ammonia shipments prior to the increase.

So there's -- a lot of it's timing.

Tony, wouldn't you say our prices are more comparable to Terra?

Even at CVR partners. I think you were below them, and their-- Coffeyville is not too far away from you.

Right. Typically though, we're very comparable to Terra versus [terminals].

Okay. Then, real quick on a similar note, can you talk at all about maybe you're hedging plan going into the first and second quarter? How much, if at all, have you hedged either in terms of sale price or in terms of natural gas?

We have -- for 2015, we have close to 80% of our gas hedged. We took a mark-to-market unrealized loss on four purchase commitments. So for our gas purchases for 2015, we've got about 80% of it hedged. We marked it to market based on future prices at the end of the year.

And as far as overselling, there hasn't been a significant amount of forward selling. But we do have some firm sales commitments at the end of the year. El Dorado's got about $15 million, and we have about $6 million in ammonia sales, but very little in the way of UAN sales on firm sales commitments.

Okay. Switching over real quick to Climate, I think the thing that stuck out for us this quarter was clearly the margins. Now you highlighted, obviously, a greater mix to both fan coils and your other group from out of the heat pump business.

And we understand there's a mix difference. But number one, the margin decline was pretty stark. And I guess I'm trying to understand, you announced a new President of ClimateMaster. Is there a margin issue at ClimateMaster as well?

Or I guess I'm just trying to understand the impact of the mix shift versus if there's anything else going on. Because again, the drop in margin was pretty notable.

Well, it was related to mix. And I would say, is there a margin problem at ClimateMaster in general? The answer is no. It was related to mix of other products, versus lower sales of ClimateMaster relative to the total.

Okay.

I'd say there is one slight shift in the margin at ClimateMaster, and that relates to the fact that our residential products are lower as a percentage of its total sales than they have been historically, which we've been tracking the last few quarters and talking about. And residential products tended to have a significantly higher margin then our commercial products.

Okay. And then, lastly, I want to touch on the financing plan, and then I'll drop back in the queue.

I think you noted you have what, $270 million, $280 million of cash, and $70 million of availability under your revolver, which is slightly above the high end of your guidance range in terms of capital spend. Can you walk us through any other flexibility you may have?

Just as we've seen a couple of your competitors who were going through expansions may have run into some cost overruns. And while I don't anticipate that will happen for you guys, you obviously you need to be prudent in planning.

Well the -- we've got a pretty wide range there on the remaining spending. But according to our forward look and our forward projections, we've got adequate liquidity, including internally generated cash flow to more than cover our spending. And as we've also disclosed, we're planning to finance three pieces of discrete equipment for in the range of $50 million to supplement what's already on the balance sheet.

Okay. Any other flexibility in the capital plan? Including, for instance, the gas properties where I can't imagine the economics are super compelling right now?

They're not super compelling. That's always an option.

Okay. Thanks.

Thanks, Dan.

Roger Spitz, Bank of America.

Thank you very much. Regarding your 2015 CapEx range, if all goes to plan of what you'd like to do, what would be the CapEx spend within this band? And what would be the pacing of the CapEx -- the 2015 CapEx within the year? Meaning is it evenly weighted over the four quarters? Is it front-end loaded, backend loaded? Thank you.

It's first six months loaded. The majority of it's spent in the first six months of 2015, and to a lesser extent in the third quarter, and then to a lesser extent in the fourth quarter.

Okay. And do you -- if all goes to plan, would you be at the closer to the $346 million versus $283 million? I'm also trying to understand why the band is still largest given where you are on those two timelines.

Well, we've continued to leave that contingency in there. Although the ammonia plant is pretty much -- the costs there are pretty much fixed, but you still have some contracts that are time and material for the nitric acid and concentrator and you have weather issues. So we're keeping that range there, although, we feel like that we've got adequate contingencies there.

Can you give us some heads up on what 2016 CapEx might look like if everything goes to plan in 2015?

I think we normally are looking -- have suggested and looking forward at $40 million to $50 million of maintenance CapEx per year, the majority of that being Chemical. I think Climate Control may be in the $3 million to $8 million range.

By that, you mean that if all goes to plan, you will be completely finished with your CapEx for these new projects, particularly El Dorado and therefore in 2016 going forward, unless anything falls over into the new year, 2016 going forward, your back to your $30 million to $50 million maintenance CapEx. Did I understand that correctly?

That's correct, Roger.

Thank you. I'll pass it on.

Joe Mondillo, Sidoti & Company.

Hello, everyone. Good morning.

Hello, Joe.

I had a question on the 2017 targets that you're suggesting. So there's a lot of moving pieces here I know. But in terms of the 20%, I guess, plus operating margins that you're looking at, can you talk to us how you think about worst-case scenario?

Or you've put 20% plus, so how much upside is there if you're running at utilizations higher than the 95% than I guess you suggest? And considering pricing where it is today.

Is it right around 20%? Or is there more upside? You put that plus sign in there, so I'm just wondering.

Hey, Joe. How are you?

Regarding that target. Good. How you doing?

Good. So look, when we think about the five-year plan that we put together, which is really the basis for some of the targets that we put out there. I think we're comfortable with a 20% plus operating margin.

I don't think we're going to sit here and speculate as to how much upside there is, or if we're at higher onstream rates than what that translates to. Clearly, if the onstream rates are higher, that would translate to a higher operating margin.

Okay. I guess, one of the reasons why I bring it up was in 2013, which I think pricing was a little bit more favorable back then. But I think in the back half of the year, it was very comparable to the back half of 2014. You guys excluded a lot of one-time type stuff related to the downtime of the plants, and also I think there was some insurance involved in that.

And if you exclude all that stuff, I got to a 23% operating margin. I guess the reason why I'm just asking the question is I always thought that potentially, even at the pricing where we're at today, that that operating margin of the chemical segment would be higher than 20%.

Well, I would tell you that the spreads between selling prices and feedstock costs have compressed today versus 2013.

Okay. Another question. In terms of your ammonia nitrate high density capacity, which is all coming from El Dorado.

I believe in 2014, you guys sold upwards of -- I have I think over 200,000 tons, and the capacity that you're showing on your investor presentations, recent ones, show a little over 100,000 tons of ammonia nitrate. Am I reading that wrong?

Yes, I think so. I think when we think about ammonium nitrate at El Dorado, you have to add the low density and the high density. When we think about ammonium nitrate, we think about it as one product, because it basically goes down the line as one product and then at the last minute, really, we can determine whether we want it to be high density or low density.

Okay. So in terms of the agriculture ammonium nitrate that you're going to be selling, should it be higher this year than last year? In terms of tonnage?

I think we're thinking that it should be slightly higher than last year.

Okay. And then, just in terms of the Climate Control. Just wondering if you could provide some more detail on these initiatives that you see as an opportunity over the next couple years that's going to expand the operating margin 250 to 300 basis points? And how that plays out over the next couple years?

Do we -- is it more 2016 weighted in terms of the benefit from those? Or is it evenly spread throughout? Or just any more color on that, that would be great.

Well, as we've described in the past, what we've undertaken are LEAN operational excellence initiatives. And there's various phases of this type of endeavor, and there's different ways and methodologies to approach it.

The methodology that we have chosen in the Climate Control Business is to thoroughly train our entire management team, and even down to operators at the floor level. In the techniques and philosophy and culture involved around LEAN OpEx, which involves things like daily problem solving, root cause analysis, constant improvement, rapid improvement events, all of these various things which are components.

The first year of an initiative, which was 2013, we really started it in mid-2013. And for the first 12 months or so, you're spending a lot of time and effort on training. And you actually using outside consultants, and you have increased costs in an operation during that period of time.

Then, what you're also during that period of time is assessing the long-term potential of your operations. And by long-term, I would say typically the horizon on a project like this is somewhere 4 to 5 years to achieving ultimate potential.

In year 2, you start to do some implementation of various selected projects. And then in your 3 through 4 or 5, you continue to implement and see benefits. So I would say it's pretty evenly spread in years 3 through 5 is when you really see the benefits.

Okay., great. Thanks a lot. I'll hop back in the queue. Thanks.

Thanks, Joe.

Keith Maher, Singular Research.

Good morning. I had a question also on the guidance, but more on the growth -- the top line growth you're guiding to.

I didn't know if you could maybe provide a little more color as to how it breaks out over the next couple of years? And what I mean is on Climate Control, you had a slight contraction this year. So to get to 10% comp on annual growth over 2014 to 2016, you're going to have to see faster than 10% growth compound for at least the next two years.

Chemicals, you grew about 20% this year. So if you're going to get to 20% over the next couple compound, then you could maybe break that out a bit? Is 2016 a little bit more higher growth than 2015 in the Chemical Business, just with the new plants coming online?

Hey, Keith. So look, we put out targets for 2017, they're certainly not guidance, these are things that we're shooting for, just to be clear. Second, I don't think we're going to sit here and break it out by year. But what I would tell you on the Chemical side is that clearly, there's going to be a faster increase in sales, because we're bringing on 155,000 tons of additional ammonia capacity with the new ammonia plant, so were going to have a big bump in sales there, whether it's in upgraded products or ammonia itself.

And then we get to the Climate Control side, and I think that we've talked about some of the drivers of that business, including the rebounding of commercial and institutional construction and some new product introductions. And I think you're just going to -- we're going to get our fair share along with that, so I think we feel really comfortable with the growth rates. But at this point, we're not going to speculate or certainly put out to the marketplace what 2015 and 2015 will look like.

Okay. Great. Thanks. Question just about the longer term goal of 95% onstream rates by 2017.

And in light of -- obviously you've had some issues in the past year or two with a number of your chemical plants, how do get to that rate? Just given the history, what are you doing and what are you putting in place so that happens?

I'll just give you sort of a top line of view of it, and then Barry can go into some more detail on the specifics.

But when we think about an overall 95% onstream rate for ammonia, let's take each of the plants. In a non-turnaround year, Cherokee should run at 95% plus. 2017 is a non-turnaround year for that plants, and it's been at that rate before.

When it comes to Pryor, we've continued to make improvements at that plant. And as Barry mentioned earlier in his comments, ammonia production almost doubled from 2013 to 2014, and we expect that to continue into 2015. So we are targeting 95% plus for that facility as well.

El Dorado we just would've come online in 2016, so we should be performing again at those rates. Barry, do want to give a little bit more detail on --?

Well, what I can really do is I think you've covered it in a nutshell. But I think to just put some color on that, as to some of the steps we've taken. Off the top of my head, we've increased the corporate staff to implement oversight in a more constant, comprehensive overall reliability policies and systems throughout the entire Chemical Business.

In addition to that, we increased staff at the various plants, and most of those increases have been targeted toward focused in the areas of risk and mechanical reliability. We've increased the technical staff to support risk and reliability measures at all of our plans, particularly Pryor. And more at Pryor than in the other ones.

We had new management at Pryor. And as I said a second ago, a new engineering staff, which is focused on that.

We've added new monitoring equipment at Pryor and other places that let us know in advance when we should be watching the plant more carefully to avoid unplanned downtimes. And we've also increased capital spares at many of our plants, and will continue to increase capital spares. Which means that when there is a problem, and they do occur from time to time, we'll be able to get back up and running much quicker.

We've utilized various industry experts and consultants to review and make recommendations, and we'll continue to do that. And we currently have a task force at Cherokee that's working on reliability there. So those are some of the things specifically that we've done to enhance reliability.

Okay. Yes, thanks. That was really helpful. And one final question before I jump back in the queue.

With regard to the industrial grade AN that you used to sell to Orica, or that you're still selling but that ends shortly. You mentioned, you'd covered 60% of that with new contracts. I guess you've got about five weeks or so to go and you're hoping to cover the final bit, the 40%.

What would happen if you don't get new contracts in place? What would you do with that product?

Well, you have limited capacity for different products. We've got capacity there for 220,000, 240,000 tons. As Barry indicated, we've got 60% of that placed.

We've got a very aggressive marketing program in place to fill up the remaining 40%. So there's a lot of -- going forward once we have the ammonia plant, in 2016 we can sell the ammonia. But currently, there will possibly be a gap from April the 9th forward until we fill that other 40% in. So you'll buy less ammonia, and you'll produce less product.

Okay. And those are all costs plus --

And to add to that, I think it's important to stress that we are having significant dialogue with many potential customers in that we feel confident that we will continue to fill up that plant as we go forward.

Just not necessarily at April 9th.

Yes.

Okay. And those are cost plus contracts?

Correct.

Okay. Thank you.

Dave Deterding, Wells Fargo.

Good morning, guys. This is Tyler Gately on for David this morning.

Good morning.

I had most of my questions answered here, but I just wanted to touch on the potential split of the business that you guys discussed earlier. Can you talk about what your plans would be for the notes in that case?

Well, I think that if you read the release that we put out in detail, it discusses that. And it discusses it in the context of the future, not at this time.

Sure.

So I think that's one of the things that the Strategic Committee has taken into consideration.

Tyler, I think that at the end of the day, Barry touched on it that it may make sense of the future. So I don't think we're in a position to comment on what we'd do with it the notes, since it's not a definite whether we do it or not.

Understood. Great. Thanks, guys.

Brent Rystrom, Feltl and Company.

Yes. This is Shannon Richter on for Brent. Just a couple of questions for him.

What exposure do you have to the mining and oil and gas industries from the industrial Chemical businesses? And if any, are you seeing any changes in these businesses?

What's the question?

What exposure do we have to industrial and mining, and are we see any changes.

And oil and gas. This is Barry speaking.

We do not have a lot of exposure to the oil and gas industry. Other than natural gas prices affecting as a feedstock, affecting our cost of our product. I assume -- I'm obviously assuming you were talking about on the sales side of our product.

Yes.

Of course, our AN product, explosive product, that is used to manufacture explosives, is primarily used for mining and quarrying. But that primary coal mining, so we do have exposure on that side of the business.

Okay. And are you seeing any changes in these?

Well, obviously, the coal business is under a lot of pressure with the strong dollar and cheap gas. But there's still a lot of demand out there for this product. And we've talked about that in terms of how we expect to replace the Orica business.

And so we feel very confident that we have the product and the expertise in that area that we'll continue to build -- we'll continue to have the same volume in that business once we replace the Orica volume.

As far as industrial, we're one of the few merchant marketers of nitric acid. That business is very strong, and we have an increasing volume there based upon our market share.

Okay, great. And then, fertilizer pricing in the corn belt seems remarkably strong. How is it holding up on your markets?

How is fertilizer pricing holding up? There's a lot of pressure on Ag grade ammonium nitrate due to the cheap imports on urea. But from a UAN standpoint, prices are firming up at $2.75 or $2.80 range.

Perfect. Thank you so much.

Gregg Hillman, First Wilshire Security.

Good morning, gentlemen. First of all, could you talk about the interest expense? I think it was $4 million in the quarter.

And where it will be like next year? And basically, can you just walk me through the opportunities for refinancing and paying down the debt over the next 3 to 4 years?

Well, with respect to the interest rate, we will continue under GAAP -- we're required to capitalize interest based upon the amount of construction and progress on the expansion projects and a few other projects. As soon as those construction projects process construction progress projects are turned over to full production, you'll quick capitalize the interest. So at the end of the construction period, rather than capitalizing the interest, you're going to -- we're going to be expensing the 7.75% on the [425%] bonds on a regular monthly, quarterly basis.

So you'll see a significant difference in the presentation once we move these out of construction progress into depreciable assets, operating assets. Now with respect to financing, I'm going to turn to Mark on that for kind of a brief overview of what he sees in the market a year or two out.

I think, as we sit here today, if we can get the plants up and running on time and on budget, and get some operating performance behind us, our first call date is August 2016. So I think at that time, we'll review what the market conditions are and I think we'll have multiple options to refinance if that makes the most sense.

Is your intent to refinance or to pay down debt?

We can't pay down debt until our first call date, which is in August of 2016. But clearly, from a leverage standpoint, one of the first things we'd like to do with our free cash flow is to reduce our debt loads.

Okay, great. And then, a question of the capacity in the United States for ammonia plant. Barry, maybe you could talk about your new capacity coming on in the United States, planned and what you think will get done. Can you shed some light on that, please?

Well, we know that -- it start off with a general overview. There's somewhere between 20 million and 21 million tons of ammonia that are used a year in North America. That historically north of 40% have been imports. We know that there are about 5.5 million tons of capacity that is under construction at this time.

We also know that there's some -- been some discussion about and there's been some announcements about some potentially other capacity that might be coming online. We -- or the general consensus in the industry is that, with the realistically the cost that has escalated to bring on new capacity. That probably what will happen will be, a worse case scenario would be, that we will displace the exports and that we will -- the imports, excuse me, and that we could be slightly shy or about at the full level of capacity when this all shakes out.

Okay. And then finally, a question about the tax rate going forward. Tony, could you comment upon that? The go-forward tax rate for the Company?

The rate that we've had the last couple of years have been in the 39% to 40% range. We have certain tax credit manufacturing credits and other credits that we continue to pursue.

So I wouldn't expect the tax rate to change materially going forward, as a percent of operating income, taxable income, reported operating income, -- excuse me.

And what would be the magnitude of the tax credits that you're talking about?

Well, it's not significant enough to change the rate.

No.

Okay.

There are multiple credits, but some are much more significant than others like the manufacturers credit.

Okay.

You'll see a lot of [Congress] coming forward also.

Okay. Thanks very much. I appreciate your comments. Also, it was a very good presentation too, and the slides were great.

Thank you.

Diffar Sindman, Wallhausen.

I had a question on the Orica contract that's running off. It sounded like that was a very big offtake contract. Does it make sense intuitively if we're splitting up that same amount of business over customers that are taking smaller amounts that the cost-plus type benefit to us is better than the previous contract?

I think at this point, all we can tell you is that the business that we put on this far would be comparable. Going forward, it may or may not be. A lot of it depends, as Barry indicated, a lot of it's geared to the coal industry which is under pressure right now. So I would expect to at least sustain that and look forward to possibly improving it, but I couldn't indicate that at this point.

Okay. And this one may be a little bit further out. But I think a couple years ago, we had mentioned there was a handful or maybe one or two mothball pneumonia plants at Pryor.

I know the engineering team is really focused on getting that plant running optimally. If they achieve that goal, is there any thought in looking at whether those mothballed units at Pryor are viable as a potential new project further down the road?

I think that, at this time, we brought a completely new management team and new technical team on board at Pryor. And our current thinking is that in looking at the economic cost of bringing those up to an acceptable level of reliability and output, versus spending the same amount of money on the base plant, that we can probably get a net better result by focusing on the main plant.

And at this time, that's what they're doing. It's possible that at sometime in the future, we will revisit that. But at this point in time, we've tabled it and we don't have any specific plans.

Right.

Okay. Thank you. That was helpful.

And then my last question is just, I think it was either last quarter or the quarter before that we talked about using some rail to transport ammonia from Pryor to El Dorado. Is that something we're continuing to do? Or does that not make sense economically at this point in time?

It doesn't make a lot of sense economically if you have a sell forward at the factory location. From time to time, we will do that to make sure that we have adequate supply to fulfill our sales commitments. But for the most part, it's not a big part of the going forward program.

Okay. Thank you.

Dan Mannes, Avondale.

Thanks, guys. A quick follow up, as it relates to El Dorado. I was looking at the chart where you talk about the key items, and it looks like you've already started staffing up there.

Can you talk about maybe the cost of the current staffing levels at El Dorado? Is that a capitalized or expense number?

And can you give us an idea of how impactful that's been the last few quarters, and if that's going to ramp up or not? Or are you already at steady-state?

Dan, we're not at steady-state in the third or fourth quarter. That will start to increase during the first quarter of 2015. But we do have a fairly significant number in the fourth quarter, but I don't think it's a number that I am prepared to disclose.

But something the range of $100,000, $200,000, I don't have a real number at this point. But that will not be capitalized if it's costs that are currently on board that are not dedicated to the project in terms -- in other words, if you've got people on training and a lot of support staff come in on consultants that are training people, those are not capitalizable costs.

I would just add that probably through 2015, the costs will be somewhat significant as we bring on the staff way ahead of time, and make sure they're trained so that there are no issues when we start up the plant.

That's correct. And we'll try -- we'll consider on our next conference call to disclose that number.

Got it. And then the one other question is in terms of your long-term target from Climate business, can you talk at all about maybe the mix at that point? Are you -- do expect to be able to get the kind of margin expansion you've targeted even with the current mix? Or do you need maybe more of a recovery towards a bigger contribution from ClimateMaster to be able to get to your target margins?

Well, we've looked at -- I had a feeling that someone was going to ask me that question. So --

I'm glad to do it.

So I really -- I took a look at the mix in the fourth quarter and what we expect it to be. And I think that on a longer horizon basis, you're going to see the mix and the margin more normalized toward what our previous levels have been.

And I guess, the one follow-on there is, especially since you said the single-family is the highest margin piece. What impact, if any, do you think about the potential rolloff of the 30% tax credit? Does that also play into that?

Well, that would -- that could impact that definitely. But I'm looking at the expected margin expansion in some of our other products as we achieve more critical mass and more volume, and get operating leverage. So I think that taking everything into consideration, I would expect to see a margin of that's more in line with what we've historically achieved.

Okay. Got it. Thank you.

Thanks, Dan.

Roger Spitz, Bank of America.

Hello. This is Chris Ryan sitting for Roger. Just the first question, how quickly will the El Dorado nitric acid plant ramp to full run rate EBITDA when it's started up in Q3 2015? And is Q3 2015 going to be lower from the expense of the ramp up?

Multi-part question. How quickly will ramp up? I think that it won't ramp up to full production in 2015, until we have the ammonia production capacity coming on.

And as we continue to build up the industrial grade ammonium nitrate and industrial grade nitric acid capacity that was lost after we lost that DSN plant. So it'll take some time. What was the second part of the question?

The second part is, just do you think Q3 2015 EBITDA will be lower from the expense of the ramp up?

You could be carrying some expenses related to the ammonia plants that obviously we're not producing out of that plant yet. So we're going to incur expenses ahead of that plant, as we discussed earlier it's going to be people, training, things like that.

Okay. And, for the El Dorado ammonia plant, how quickly can that ramp up? If it's on schedule for Q1 2016 startup, will we likely see the three run rate quarters or just second half 2016?

You saw the charts that Mark had in there, where we're commissioning in the fourth quarter. So we should be at pretty much ready to be at full speed in the early part of the first quarter.

Yes. I would say, when we think about the startup of that plant, internally, we think that we'll have a full quarter of startup and then we've got three quarters of 2016 of fairly full production. Could it happen earlier than that? Possibly, but we're internally planning on a full quarter of startup.

Okay. And, do you see much of a working capital outflow, or maybe even an inflow from the El Dorado nitric acid and/or ammonia startups?

No.

No outflow?

Right. No, nothing significant.

Okay. And then just lastly, for relative to 2014 SG&A costs of $104 million, how should we think about 2015 SG&A?

As a consolidated -- are you talking about consolidated SG&A?

Yes. Consolidated.

Let me take a look at that.

I think it would be fairly similar.

You have some variable SG&A obviously, so that would be consistent with sales. And the fixed SG&A, we have, as you noticed in the corporate costs, we had some increases this year -- significant increases due to the advisors that we have. And there will continue to be advisory professional costs as we continue -- as the Strategic Committee continues, but other than that the businesses should be pretty consistent with 2014.

Okay. Thank you. Great. I'll jump back in the queue.

At this time, I would like to turn the floor back to management for closing comments.

Well, we'd like to -- this is Barry. We'd like to thank everyone for your interest, continued interest and support. Hope that we've answered all your questions today, and given you a little more insight about where we're going in the future.

I'd like to turn it over to Carol Oden, who has some important comments to make about some of the statements that were made today. Carol?

Information reported on this call speaks only as of today, March 2, 2015. You are advised that time-sensitive information may no longer be accurate at the time of any replay.

The comments today and the information contained in the presentation materials contain forward-looking statements. All these statements other than statements of historical fact are forward-looking statements. Statements that include the words expect, enhance, plan, believes, projects, anticipates, estimates or similar expressions or statements of the future of forward-looking statements nature identify forward-looking statements. Including but not limited to all statements about or in references to the architectural building index, or eDodge status and analytics, or Dodge construction green outlets, any references to future natural gas costs and ammonia costs and outlet for the Chemical Refinement Control business.

The forward-looking statements include but are not limited to the following statements; cost disadvantages continuing through 2015 as the result of purchase date ammonia in lieu of producing such; impact of construction of the ammonia plant at El Dorado and the production start date; incremental operating profit beginning in 2016 as the result of these new investments as a culture in the industrial mining market fundamentals; market demand in 2015; outlook for growth in the Climate Control Business market; increased sales and profits includes results in 2015 and 2016; long-term growth plans, and expects to reduce debt levels; cash flow after completion and operation of expansion projects; planned capital spending, planned cash investments; El Dorado expansion project; fertilizer demand; China urea [Intech]; optimistic about fundamentals of agriculture business planned maintenance; turnaround schedules; completion and of production dates for acid plant concentrator and ammonia plants; cost of El Dorado expansion projects; construction recovery will continue; vision for LSB's future; expect initiatives to significantly increase our earnings and create substantial value for the shareholders; targets regarding revenue and earnings growth; climate, and chemical control key targets for 2017; targets for 2017 EBITDA targets; operating margin targets; drivers of growth for businesses; EBITDA drivers; continued execution of capital strategy; significant margin improvement over the next several years; activities of the Strategic Committee.

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 the result of a number of important factors. We incorporate the risks and uncertainties being discussed under the headings Risk Factors, and the special note regarding forward-looking statements in our Form 10-K for the physical year ended December 31, 2014, which contains a discussion of a variety of factors which could cause the future outcome to differ materially from the forward-looking statements discussed in this conference call and contained in the presentation materials. We undertake no duty to update the information contained in this conference call or the presentation materials.

The term EBITDA as used in this presentation is net income plus interest expense, depreciation, amortization, income tax for 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 the GAAP measurement. The reconciliation of GAAP in any EBITDA numbers discussed during this conference call are included on the Tier 4 2014 conference call presentation which is posted on our website.

Thank you and this concludes our conference call.

You may now disconnect your lines at this time. Thank you for your participation.