Lsb Industries Inc. (LXU)

LXU 
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LSB Industries, Inc. (LXU)

Q4 2008 Earnings Call

March 12, 2009 5:15 pm ET

Executives

Carol Oden – Investor Relations

Jack E. Golsen - Chairman of the Board & Chief Executive Officer

Tony M. Shelby - Chief Financial Officer, Executive Vice President, Finance & Director

Barry H. Golsen - Vice Chairman of the Board, President & President, Climate Control Business

Analysts

Steve Denault – Northland Securities

Eric Prouty – Canaccord Adams

Richard Hoss – Roth Capital Partners, LLC.

Daniel Mannes – Avondale Partners, LLC

Steve Burns – Merrill Lynch

Gregg Hillman – First Wilshire Securities

Michael Coleman – Sterne, Agee & Leach

Presentation

Operator

Welcome to the LSB Industries, Inc. fourth quarter 2008 conference call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen only mode. I will now turn the conference over to Carol Oden.

Carol Oden

Welcome to the LSB Industries fourth quarter 2008 conference call. Today LSB’s management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President; and Tony Shelby, Chief Financial Officer. This conference call is being broadcast live over the Internet and is also being recorded. An archive of the webcast will be available shortly after the call on our website at www.LSB-OKC.com and will be accessible for one month.

After comments by management a question-and-answer session will be held. Instructions for asking questions will be provided at that time. Information reported on this call speaks only as of today, March 12th, 2009 and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Comments today may contain certain forward-looking statements.

All statements other than statements of historical facts are forward-looking statements. Statements that include the words expect, intend, plan, believe, project, anticipate, estimate and similar statements of a future or forward-looking nature identify forward-looking statements including but not limited to start up of Pryor, Oklahoma chemical plant and the amount of capital expenditures to begin operations at the Pryor plant, amount of production at the Pryor plant, the effects of the current recession on our businesses during 2009.

Our future depends on the return of some stability in the credit and capital markets, sales of our chemical products to power plants expected to increase, we have liquidity and available credit needed to continue with investments required for our planned long term growth, minimized controllable or variable costs during downturns, initiatives we have begun that we will not curtail during the economic downturn such as start up of the Pryor chemical plant and expansion of the geothermal heat pumps as they represent long term growth potential, borrowing availability under our working capital revolver, amount of capital expenditures related to our chemical and climate control businesses, outlook for and effects on the commercial and residential construction due to the recession, effect of Stimulus Package on our sales of geothermal heat pumps and certain other products produced by our climate control business, lower sales in 2009 and our chemical control business and 2008 sales of geothermal heat pumps, optimistic about long range growth potential for our geothermal products, sales of products by our chemical business during 2009, prospects for growing our climate control business over the long term and long term outlook for our chemical business.

You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors.

These factors include but are not limited to a decline in general economic conditions, interest rate changes, competitive pressures, changes in working capital and the risks and uncertainties discussed under the heading Special Note Regarding Forward-Looking Statements in our annual report on Form 10-K for the fiscal year ended December 31st, 2008 and the reports we file from time to time with the Securities and Exchange Commission.

We do not intend to and undertake no duty to update the information contained in this conference call. The term EBITDA as used in this presentation is net income plus interest expense, depreciation, amortization, income taxes and certain non-cash charges unless otherwise described. EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to GAAP measurement.

We will post on our website a reconciliation to GAAP of any EBITDA numbers discussed during this conference call. Now I will turn the conference call over to Mr. Jack Golsen, the company's Board Chairman.

Jack E. Golsen

Welcome to LSB’s fourth quarter year end 2008 conference call. Today our Chief Financial Officer and Executive Vice President, Tony Shelby, will review our overall financial results for the year, then our President and Chief Operating Officer, Barry Golsen, will discuss both of our businesses. After these presentations Tony, Barry and I will be available to answer your questions.

First I would like to make a few general comments. We continuously get questions about the economy. We do not have any special knowledge about our economy. However we can give you information on what we are experiencing in our markets at this time. Stating the obvious future growth in some of our businesses depend on the return of some stability in the credit and capital markets.

However there are some exceptions to this. In addition to our geothermal heat pump sales our chemical company sales to power plants of products which are used by them to abate objectionable emissions are expected to increase. Some of the chemicals we produce our helping to clean up the environment. This is a small but growing market segment for us and is expanding beyond power plants into cleaning the exhaust from diesel engines.

All indications are the general level of future activity in the near term will be less than it has been in certain areas. At this time we believe that the short term general economy will be negative but we also believe that we’re doing the right things to position LSB to improve and grow as the current economy and markets allow and just as importantly prepare for the business opportunities ahead once the economy turns around.

We also believe that we have the liquidity and available credit we need to continue with the investments required for our planned long term growth. We reported our fourth quarter and year end results in a news release this afternoon and I believe we’ve already filed our 10-K in the last few minutes, haven’t we Tony?

Tony M. Shelby

We should momentarily, yes.

Jack E. Golsen

If we haven’t it should be coming over the wire now. In previous years there were tax benefits that reduced our income tax expense. In 2008 our earnings were taxed at regular corporate rates. Hitting the high points our sales for 2008 were $749 million with the highest pre-tax operating profit and EBITDA in company history. Our diluted earnings per share were $1.58.

Since we have used up our net operating loss carry forward we are now a taxpayer so our earnings per share were lower than the $1.84 in 2007. Tony and Barry will fill you in on the details about the fourth quarter and the full year. Chemicals operating income in 2008 was adversely affected by approximately $7.2 million due mainly to unprecedented volatile commodity markets during the year.

Tony will also discuss this in more detail. We previously disclosed that we were consider activating a portion of the Pryor plant subject to securing a sales agreement with a strategic customer to distribute the majority of the planned UAM production. We have now received the necessary permits to operate the plant.

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