LSB Industries Inc (LXU) 2016 Q2 法說會逐字稿

Greetings, and welcome to the LSB Industries second-quarter 2016 conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Kristy Carver, Vice President and Treasurer of LSB Industries. Thank you, Ms. Carver. You now have the floor.

Thank you Chris. Please note that today's call will include forward-looking statements. And because these statements are based on the Company's current intent, expectations, and projections, they are not guarantees of future performance, and a variety of factors could cause actual results to differ materially. As this call will include references to non-GAAP results, please reference this morning's press release in the Investors section of lsbindustries.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.

At this time, I'd like to go ahead and turn the call over to Dan for opening remarks.

Thank you, Christy, and good morning, everyone. Thank you for joining this morning's 2016 second-quarter conference call. I'll first review the key events during the quarter, and provide an update on the markets we serve, and then discuss the operational status of our manufacturing facilities. Mark will lead a discussion of our financial results and capital structure, and then we'll discuss our key objectives for the remainder of 2016.

The second quarter of 2016 was a critical quarter for LSB, and the strategic path forward is now being realized. We finalized construction, commissioned, and then started production of ammonia at our El Dorado, Arkansas, facility during the quarter. We now have an ammonia plant at an operating rate at or above nameplate capacity. Over the next several months, we expect to increase the operating rates to 110% to 115% of nameplate capacity on a consistent basis.

Another key strategic milestone was the sale of the Climate Control Business, which closed on July 1. We are currently exploring options to utilize net sale proceeds to reduce our total leverage and our total capital costs. However, today we are not in a position to provide a detailed specifics on the repayment of debt, redemption of preferred shares, or a combination of both. We are considering multiple options to deleverage the Company, and are in various stages of exploring those options.

As we noted in our press release late yesterday afternoon, our second-quarter ammonia on-stream rates at our Cherokee and Pryor plants were excellent. Cherokee operated at 100% on-stream, and Pryor achieved 96% on-stream rate. The operational initiative we've been implementing yielded strong performance in the second quarter. During the first half of 2016, Cherokee operated at a 96% on-stream rate, while Pryor was at 94%. These are strong improvements from a year ago.

Currently, Cherokee is undergoing a 3.5-week turnaround with some substantial additions to incoming electricity transformers that were 50 years old and at end-of-life service, as well as a new cooling tower and other key process improvement activities. We anticipate restart of the facility next week.

We plan to initiate the Pryor turnaround on September 10. We estimate this turnaround will last approximately 3 weeks. During these planned turnarounds, we will be making further process and equipment enhancements to ensure our on-stream rates improve.

In addition, as we earlier announced, we commenced our with our new Pryor UAN agreement with Coffeyville Resources during early June. We are pleased with progress to date.

Our sales for the quarter were approximately $110 million, and were largely impacted by price declines despite the excellent on-stream rates we noted earlier. As you likely know, we incurred significant startup expenses associated with El Dorado during the quarter, and Mark will provide color around the startup amounts our financial discussion.

Part of our immediate task is to review our historical corporate operations and remove excess costs that are not needed, now that we are a pure play nitrogen company. This may also include sale of excess properties in Oklahoma City, and footprint consolidation of administrative activities.

As we indicated in the two most recent conference calls, we believe, in the near-term, there will likely be periods when new production capacity comes online and provides a surge of product to the market which may lead to sales price fluctuations. During the second quarter, we felt the impact of that lower pricing in the agricultural and selected industrial markets.

We believe this modest price environment will continue, as additional North American capacity is brought online throughout the remainder of 2016 and during 2017.

Our expanded distribution initiatives for agricultural ammonium nitrate are progressing well. We believe the market has shown that alternative suppliers for ammonium nitrate are welcomed. We want to increase our agricultural sales for this product form in 2017. We believe our plants are in key market locations and have a strong presence in those areas.

We plan to utilize the existing storage dome at our Cherokee facility to position ammonium nitrate for the surrounding markets. This dome has been idle for the past several years. It is ready to go.

Additionally, we are readying an existing dry bulk warehouse at our Pryor facility to distribute ammonium nitrate into that market. This facility has been vacant for the past several years. It is an excellent facility for us to distribute product. We believe these actions will increase our volumes; and so far, we've seen positive response from customers.

Natural gas that supplies our plants should remain reasonable, and should allow competitive product cost as compared to imported products. We anticipate chemical product volumes to the mining sector will remain low in the near-term, while other agricultural and industrial chemical products and volumes and pricing remains positive. Overall, we remain positive for product volumes into the market we serve. We do expect to see modest improvement in pricing as we move into 2017, as demand for fertilizer is expected to grow.

Turning to page 7, as we noted earlier, our operating rates at Cherokee and Pryor were excellent during the second quarter. Baytown also performed a selected turnaround in April, and resumed operations as scheduled. Our Baytown turnarounds are coordinated with the site's key customer plant downtime and their turnarounds, and we have another selected turnaround planned for October.

Our El Dorado ammonia facility is back to full operational mode, and we expect the nitric acid plant will resume production at the end of this month.

In summary, we believe we will continue to make the operational improvements to increase our safety record, increase on-stream rates, and lower our overall production cost. We have the plant teams in place. And with the recent addition of John Diesch as our Executive Vice President of Manufacturing, we will continue to improve our plant operations. This is a key goal of ours for the remainder of 2016 and into 2017.

And now I'd like to turn it over to Mark Behrman.

Thanks, Dan. Turning to page 8 of the presentation, it provides a consolidated summary statement of operations for the second quarter of 2016 as compared to second quarter of 2015. Beginning this quarter, we have classified our Climate Control Business as a discontinued operation. And those results, combined with any transaction costs related to the sale of that business that were incurred in the first six months of this year, and any tax implications related to the sale of the business, are shown in net income from discontinued operations.

The structure of the Climate Control Business sale allows for additional tax basis to be recovered than was previously recorded as a deferred tax asset. This tax benefit was recorded in discontinued operations during the second quarter, consistent with the period that the Climate Control Business was determined to be held for sale.

Keep in mind that we closed the sale of the Climate Control Business on July 1; and, therefore, any gain on the sale and all remaining costs associated with the transaction will be included in the third-quarter results.

In reviewing our continuing operations, as Dan stated, total net sales and gross profit were down for the quarter, as selling prices across our key agricultural product groups all declined. Gross profit also declined as we incurred startup costs at our El Dorado facility, and increased depreciation expense related to the El Dorado expansion as compared to the second quarter of last year.

While we benefited from lower feedstock cost during the quarter, those costs did not decline as sharply as product selling prices. I'll go into this a bit more in the next slide.

Consolidated SG&A was down approximately $3.6 million as compared to the second quarter of 2015, primarily from the absence of activist shareholder expenses, in addition to lower incentive compensation expenses. We'll be focusing on rationalizing overall SG&A now that we have sold our Climate Control Business, and given the tough ag and selling price environment that we are currently operating in.

Adjusted operating loss, adjusted net loss, and adjusted EPS were all down for the quarter versus the second quarter -- versus Q1 2015 due to the decrease in sales and gross profit margins that I just discussed. Please refer to our reconciliation of non-GAAP measures, beginning on slide 16, for further information on one-time costs incurred during the period.

Lastly, income from discontinued operations from the sale of the Climate Control Business of $22 million resulted primarily from the tax benefit I just discussed earlier.

In order to give further clarity on the results of the quarter, page 9 bridges our consolidated adjusted EBITDA for Q2 2015 to Q2 2016. Lower selling prices for HDAN, UAN, and ammonia negatively impacted EBITDA by more than $16 million compared to the second quarter of 2015. That was partially offset by a pickup of approximately $8 million in EBITDA from lower average cost of natural gas and purchased ammonia. So the bad news is, pricing had a negative impact on EBITDA for the quarter of almost $9 million.

However, there is some good news. Improved on-stream rates and production, primarily at our Pryor facility, allowed us to sell approximately 32,000 tons of additional UAN versus Q2 2015. That generated almost $4 million in additional EBITDA. We are very pleased with the operational progress being made at our Pryor facility, and expect that to continue.

Additionally, since we put our ammonia plant at El Dorado into operation during the quarter, we produced approximately 28,000 tons of ammonia during the back end of the quarter. Even in today's low price environment, that added an additional $4 million in EBITDA as compared to the second quarter of 2015.

Additionally, at current ammonia prices, we continue to have an approximate $125 to $150 benefit from producing ammonia versus purchasing ammonia. The remaining improvements in EBITDA relate primarily to lower SG&A costs, which I covered earlier.

To sum it up, when comparing the two quarters on an apples-to-apples basis, assuming that selling prices of our products and our feedstock costs were the same in the second quarter of 2016 as they were in the second quarter of 2015, EBITDA would have been $20 million for the second quarter of 2016 versus $8 million for the second quarter of 2015.

Moving to page 10, we outline our free cash flow. While net income for the first six months ended June 30 was marginal, we did have positive operating cash flow. However, we continued to have significant capital expenditures during the period, with the majority being spent on completing the expansion project at El Dorado. That resulted in negative free cash flow for the quarter.

Going forward, we expect a significant reduction in capital expenditures, now that the expansion project at El Dorado is complete; and, we believe, an improvement in operating results at our El Dorado facility, both contributing to an improvement in overall cash flow.

Page 11 outlines our capital structure as of 6-30-2016. At June 30, total cash was approximately $23 million, and we had approximately $31 million outstanding on our ABL facility, with $38 million of availability. As you will see on the next slide, the outstanding balance of our ABL was repaid on July 1.

Total debt at the end of the quarter was approximately $565 million, excluding the unamortized discount and issuance costs associated with our debt. And we had outstanding preferred stock of $210 million, with approximately $17.3 million in accrued and unpaid dividends.

As you know, this does not include the proceeds from the sale of our Climate Control Business, which closed on July 1.

Please turn to page 12, where we'll discuss the proceeds from our sale of the Climate Control Business. This page walks the gross sales price of $364 million down to what we believe is an appropriate amount of cash available after obligations. It does not include any EBITDA that will be generated in the second half of the year.

As Dan stated earlier, regarding the selling price environment, we expect the low level of product selling prices to continue into 2017. As a result, when we think about our plans for the use of the net proceeds from the sale of our Climate Control Business, our first priority is to ensure that we have ample liquidity to run our business and avoid becoming capital-constrained as it relates to our working capital needs. However, we do intend to use a significant portion of the cash available after obligations to repay debt, redeem preferred stock, or a combination of both.

We are currently reviewing all of our options to deleverage, with the goal of reducing our overall cost of capital and fixed charges while maintaining maximum flexibility for the repayment of all of our debt, should we decide to do that in the future. We will be providing an update on our progress when appropriate.

Page 13 outlines sales volumes for the second half of 2016, and some key financial metrics for the year. Our sales volume outlook for the second half and full year of 2016 is outlined. For the full year, UAN sales are expected to be approximately 50,000 tons higher than original guidance, primarily related to higher on-stream rates at Pryor. Ammonia sales are expected to be lower by approximately 30,000 tons, as the new ammonia plant at El Dorado started production slightly later than originally planned, coupled with downtime associated with the power outage in July.

The rest of the page outlines some key financial metrics. Depreciation expense is expected to be $62 million to $65 million (sic - see press release, "$60 million to $65 million") this year, and $70 million to $75 million in 2017. Continuing operations SG&A expenses are expected to be approximately $44 million for 2016. Going forward, capitalized interest will be minimal; and, therefore, at current debt levels, interest expense will run approximately $11 million per quarter.

Turnaround expenses at Cherokee and Pryor are expected to be approximately $8 million in total for the third quarter. That is in addition to approximately $8 million of capital being spent during the turnaround.

And then finally, capital expenditures are expected to be approximately $30 million in the second half of 2016, including $8 million of capital being spent during the two turnarounds that I just mentioned. Going forward, we anticipate maintenance CapEx to run between $40 million to $50 million per year.

Now I'll turn it back over to Dan to discuss the Company's goals for 2016.

Thanks, Mark. Page 14 describes our focus for the remainder of 2016. We have a very strong desire to improve our operating results. Reducing unplanned downtime is a key metric for our Company. We want to build on our first-half-of-the-year progress. In this current tough operating environment, we are also looking at cost reductions in all aspects of our business. We plan on reducing our corporate costs since we sold the Climate Control Business. We are now a pure play nitrogen company.

We believe there are growth opportunities with expanded distribution sites without the need of significant capital spending. This enhanced distribution footprint should strengthen our marketing capability and increase our netback margins. Further, we'll continue to review our capital structure in order to maximize long-term shareholder value. This will continue to evolve over the next couple of months.

Lastly, we will be in the Midwest, visiting with investors this month. And will be attending both the KeyBanc Basic Materials Conference on the Credit Suisse High Yield Conference in September.

That concludes our prepared remarks this morning. And at this point, I would ask Chris, our operator, to open the call up for questions.

Chris?

(Operator Instructions). Joe Mondillo, Sidoti & Company.

So I just want to clarify one thing. In terms of the SG&A guidance that you provided, is there any one-time items maybe in the first quarter, but maybe also in the second quarter? Because it seems like the numbers that I'm looking at -- which I guess are GAAP numbers for the first half of the year -- you are at about $37 million, $38 million; and you are calling for $44 million for the full year. Is that correct?

Yes, on continuing operations, we run about $11 million a quarter. So that continuing operations would include SG&A from our chemical business, plus corporate.

I see. Okay. So the continuing operations is about $11 million a quarter. The next thing I just wanted to ask you was just obviously pricing has been the biggest issue here, with not only your Company but the industry overall. Just wondering if you could provide some color or some insight in what your thoughts are relative to demand and supply, and what you've seen with pricing, and how you are thinking about the overall industry and pricing.

From a demand perspective, we continue to believe that demand is going to be there. So we don't see any decline in demand. In fact, we are pretty pleased with our volumes, and I think other folks in the industry see things similarly.

With respect to the pricing, we are in a pricing environment right now. Historically, the third quarter is the slowest quarter of the fertilizer season, and we are in it right now. We expect that to continue this quarter, and maybe early into the fourth quarter. I think with the additional capacity coming online, and with imports still coming in, you're going to see a very modest pricing environment for the rest of 2016.

We do anticipate, though, going into the fertilizer season with some slight improvements -- I wouldn't say aggressive improvements -- I would say slight improvements to the pricing in that market. But from a demand perspective, we expect to sell everything that we can manufacture.

Okay. And then just last question from me. Just relative to -- the stock obviously has not received a valuation multiple relative to the peer group overall, and sort of relative to sort of the EBITDA guidance that you guys have given in terms of long-term potential, do you think that just takes more? What are your thoughts on that? Is that just going to take more execution on your part?

Or it just seems to me no one is really giving you full credit on, quite frankly, I think a pretty good job in terms of getting operations up to on-stream rates of over 95%, and pretty consistently over the last several quarters, at least. Just wondering what your thoughts are on where the stock is trading.

Well, Joe, I think that's a really good question. I think you have also hit it on the head. Consistent performance over a period of time is what folks are likely looking for. And we want to get our El Dorado facility up and running and performing well for a couple of quarters. I think at that point in time, we'll see something reflected.

In addition to that, we have two key turnarounds that are -- one of them is ongoing right now. We'll be starting up the Pryor turnaround in early September. So I think we want to get through those and get the facilities up and running. And I think the proof is in the pudding. And as you said, we did have good operating rates. We are very proud of those. The guys have done an excellent job. And we just need to continue that track record.

I think that's what we are focused on. And we believe valuations will move up and it will be reflected in our stock price as we execute. And we are really focused on that, as I said earlier. So I think it will take care of itself as we perform, and that's what we intend to do as we go forward.

All right, great. Thanks a lot. Appreciate it.

Brent Rystrom, Feltl.

So, from a kind of thinking from a market perspective, with the summer fill season kind of going slower than normal, I guess the easiest way to look at the fall and spring seasons would be that you are more exposed to the spot market. The opportunity of that is if the volumes are there, it's going to force more intense spot market purchases -- a greater volume in both of the fall and spring seasons. And in theory, that should help balance out the weaker summer fill market. Is that a reasonable way to think about that?

I think that's fair. I think you are seeing prices right now in the market, as you said, are fairly low. There isn't a lot of product moving at the moment, although we are moving our fair share of it. But I think that's probably a reasonable summary. We do expect to position product differently this year for the spring than we have in prior years, as we've talked about with the ammonium nitrate. We are also engaging more in agricultural ammonia from El Dorado, which we really haven't been able to do in the past, since we were purchasing ammonia; and go forward a bit more on some sales.

So I think our sales approach and our marketing strategy is going to be different going into this winter and this spring than it has been the past, looking at things a little bit longer. And we are seeing really positive response from customers in that aspect. Because in the past, we haven't been able to go long on sales out of El Dorado just due to the fact that we were purchasing ammonia. Now, we can lock down the gas, and go forward on some sales which will change the -- our marketing dynamic from what we have done in the past. So we are fairly positive about it, but I think your synopsis is a reasonable one.

Thank you. To follow on with that, Mark, you had mentioned the benefit of an ammonia at EDC right now is still $125 to $150 a ton production versus purchase. I'm assuming that's the cash benefit.

Yes.

And then I'm assuming you are using the price to make that benefit somewhere near $275.

Actually it's at -- if you think about Tampa, at $270.

$270. Okay. And then can you give us a little granularity, Mark, as you guys build out the ammonium nitrate, how does the gross margin at present look on that compared to -- gross margin rate compared to ammonia?

Brent, this is Dan. I'll jump in on that. We historically haven't separated individual gross margin rates. But what I can tell you is that our ammonium nitrate margin should definitely be higher than selling ammonia into the pipeline, which is something that we do obviously out of El Dorado.

So our desire is to upgrade as much of that product as we can, and then that's the push. So while we aren't providing the individual gross margin of the product lines, what we can tell you is it's a better -- a much higher margin than selling it onto the pipeline.

Okay. Can you give us a little more clarity on some of the benefits of the CVR relationship? I know you are looking to get better netbacks in your freight. Can you give us a little more clarity on that?

As you know, CVR is engaged heavily in the UAN market, in that market area; and they sell well over 1 million tons, 1.25 million tons. And so our positioning with them -- and they will sell our tons just like they sell their tons, and they have a real familiarity and a deep bench of knowledge and experience in that UAN market. So I think it just improved net backs. Probably some better freight rates that they are able to get with moving that kind of volume of UAN. And you know overall, it's just -- we think it's a positive relationship. And as I made in my prepared remarks, to date it's going very well.

(multiple speakers) Sorry.

I was going to say, we might want to mention, we pay a distribution fee to distribute that product. And we did negotiate a bit of distribution fee with CVR.

Ending result is a better netback to LSB.

All right. And then can you give us some thoughts -- on your final slide, prior to the appendix, you look at cost control -- cost reduction and expense control. So when we think about that $44 million run rate for SG&A in 2016, should we think the implication is that it should be lower than that in 2017? Should it be about the same, but on a bigger business? How should we think about SG&A in 2017?

That's a great question. I think that we have a goal of reducing that $44 million by $4 million to $5 million annually. We hope that we can begin the year in 2017 with that in place.

That's great news. Congratulations on hiring John. That's all I've got, guys, thank you.

Dan Mannes, Avondale Partners.

A couple quick follow-ups. First on El Dorado: can you maybe just give us a little bit more color around the impacts of the downtime on the third quarter, just given what you lost maybe a week or two. I don't know if you can talk maybe about the production and cost impact from that (multiple speakers) sorry, in the third quarter.

We did lose some downtime from the power outage that we had. I would probably say that that's probably a $2 million impact to EBITDA.

Got it. And that's all-in? That includes unabsorbed overhead, any repair costs, et cetera?

Yes.

Got it. Okay. On the SG&A -- and I don't mean to dig in too far; but in your second-quarter disclosures, it looks like you are still picking up some strategic type costs, ones that I guess didn't relate to the sales climate. Can we assume those are going to go away over time? Or are those going to be there for a while, just given the multitude of things you guys are looking at?

No. I think you should see some reduction in that.

Got it. But on the other hand, you also had a reduction in variable comp. And I'm assuming that was basically a two-quarter reduction, because you were backing off for the first quarter, as well. So, I'm assuming the benefit of the variable comps ought to be less in future quarters.

Correct.

Got it. Okay. As it relates to the balance sheet, it doesn't sound like you are going to give us much more. I don't know if you can scope out either more broadly some of the things you are looking at, or maybe some of the constraints you are leading to. I would've thought we would've already seen you guys making the offer for the seniors under the indenture. Has that already happened, or do you still have more time there? Just any more color you can give us would be helpful.

Dan, I think on page 12 of the materials that we put out shows a walk from the sale proceeds to net cash remaining after obligations, as we described it on there. I think there are a lot of different options that are available to us out there. We are currently exploring all those options to delever.

But as we did say earlier, we are really not in a position to go into the detail on exactly how we will use the net sale proceeds to delever. But we are actively involved in the process. And as soon as we come to a conclusion with our approach, we'll definitely communicate it to you. We want to. But I think, right now, it's just a little bit premature to do that. But as soon as we have our approach, and I said within the next reasonable period of time here, we should have that picture clarifying.

Understood. On the product sales side, you obviously gave a lot of disclosure as it relates to both volumes and pricing on ag sales. On the industrial side, you gave us the volume side. And I realize nitric acid maybe tough because of Baytown. But can we assume, number one, ammonia pricing on the industrial side is similar to what you are doing on the ag side? And, two, I don't know if you can maybe describe for us maybe any difference in pricing on the AN side, for industrial versus ag.

Ammonia pricing for the industrial market does have some dissimilarities as compared to the ag market. Some of our ammonia contracts on the industrial side are Tampa-based or gas-based indices, so to speak. So the pricing is different. And our ammonia price -- right now, our ammonia prices for industrial are generally higher.

The reason we don't disclose pricing is some of them are sole customer, or largely one or two customer-driven; and we're just not able to provide that without providing effectively the general terms of the contract. So, that's why we're not doing it.

But in general, our industrial business, we are pleased with. I think the only area that we've said over the last couple of quarters that we would like to see improvement would be in the mining sector. But I think the reality of it is, that's not going to happen in the short term, or even intermediate-term. But on the pricing side of things, we feel pretty comfortable with our industrial pricing.

What about the pricing on AN? Is it fairly similar? I realize you are selling a different density product. Again, we are just trying to firm up the modeling side. And this is something obviously we can touch on later, if this is the wrong forum.

Typically AN on the industrial side is a gas-based type of index.

Got it. That's helpful.

I would say in thinking about it, volumes are -- pricing and margins are really volume-sensitive. So, all things being equal in a more normalized market, the volume or the margins that we make on our HDAN product are fairly similar to the ones that we would make on our AN product. But as Dan said, because the low density AN product is down now, and our volumes are pretty low, clearly the margins on that are going to be lower than what we could make on HDAN.

Understood. And my final question, it sounded like you are considering some more rationalization. I don't know if you can scope out -- are there material other assets that can be sold off, or footprint that can be reduced? Or is this -- is that maybe more modest? I'm just trying to think through if there is another kind of big chunk of capital -- or cash you guys can raise.

I think what we are suggesting in our comments is there's other buildings and properties that we can sell. I don't think it's fair to say that it's a material amount. But we are trying to clean up our balance sheet, and get things off the balance sheet that we no longer need, or don't anticipate using in the future, and really cleaning it up. So that's really our process and that's our message that we are sending. But I don't think there are material proceeds that we are going to be able to get from disposal of those type of assets.

Understood. That's helpful. Thanks, guys.

(Operator Instructions). David Deterding, Wells Fargo.

Just a quick question on -- it looked like you paid down the revolver -- you had $38 million of availability paid down. It looks like roughly $32 million. But you still have $38 million of availability. Did the size of the revolver actually change with the asset sale, or is it still the same size?

Right now, the size is still $100 million. We are in conversations with Wells Fargo to determine whether we are going to reduce that or not. No point in paying an unused revolver fee on availability that we'll never get to.

Right. And then in terms -- you did a nice job of breaking out continued operations on a three-month and six-month basis for us, year-over-year. Can you bridge us to what an LTM EBITDA from continuing ops might be?

No. We don't give out that information.

Okay. And then you said that -- I think you said that 28,000 tons of ammonia were produced versus bought during the quarter, at a little over a $4 million benefit. Is it fair to assume that if -- that seems like about one-third of the volumes that you can produce there. Is it fair to say that on an apples-to-apples kind of comparison, that we would see about 3 times that benefit going forward on the cost versus -- or the cost of making it versus buying it?

Keep in mind that that 28,000 tons was in a real stub period for the quarter. It was only a partial piece. But as we said, we have a nameplate capacity of approximately 1,150 tons a day out of El Dorado. We do expect that to improve over the next several months, increasing that to between 110%, 115% consistently. But that -- like I said, over the next several months. So we can kind of work the math. Purchasing versus manufacturing; and clearly the manufacturing is providing significant cost advantage to us.

I would say that you are correct. 28,000 tons is for a partial period during the quarter. Given where pricing moves -- and I think that's the one caveat here, because we can't really account for the movement in pricing -- but all things being equal, taking $4 million and multiplying it by 3 is probably fair to do.

Great. And then just last question. It looks like the rating agencies haven't moved on you guys really since last year. And one of them has you on negative outlook. Obviously big multiple, 14-plus times for the Climate Control Business; a lot of cash on the balance sheet. Have you had any conversations with them about potential positive rating actions?

We talk to both S&P and Moody's frequently. And so I'm not going to comment on certainly what their thoughts are on movements. But we'd certainly like to see some positive movement in our ratings.

I think the reality of it is, we need to get our capital structure settled, and then we'll have a chance to revisit those discussions at that point in time.

Got it.

Ladies and gentlemen, there are no further questions at this time.

I'll turn the call back over to management for any closing remarks.

Well, thank you very much for participating in this morning's call. We do appreciate your interest in LSB. And we look forward to providing you updates on our refinancing and capital structure actions over the next period of time. And then we'll look forward to speaking with you again at the third-quarter conference call. Thanks so much, and have a great day.

Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation, and you may disconnect your lines at this time. Have a wonderful rest of the day.