LSB Industries, Inc. (LXU) Q4 2013 Earnings Report, Transcript and Summary

Greetings and welcome to the LSB Industries Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Carol Oden. Thank you. Go ahead.

Good morning. Thank you and welcome to the LSB Industries, Inc. 2013 fourth quarter conference call. Today LSB’s management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President and Chief Operating Officer; and Tony Shelby, our Chief Financial Officer. This conference call is being broadcast live over the Internet and is also being recorded. An archive of the webcast will be available shortly after the call on our website at www.lsbindustries.com. After comments by management, a question-and-answer session will be held. Instructions for asking questions will be provided at that time. Information reported on this call, speaks only as of today, February 27, 2014, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. After the question-and-answer session, I will have some important comments and disclaimers about forward-looking statements and our references to EBITDA. We encourage you to view the PowerPoint PDF that is posted on our website at www.lsbindustries.com in the Webcast and Presentation section of Investors tab. Please note that the presentation starts on Page 3 of the PowerPoint. Now, I will turn the call over to Mr. Jack Golsen.

All right. Thank you, Carol. Thank you all for joining our 2013 fourth quarter year-end conference call today. I would like to start today by providing on top and bottom line financial results. LSB sales for the fourth quarter were $149 million resulting in fully diluted earnings of $1.65 per share. LSB sales for the full year was $679 million resulting in fully diluted earnings per share of $2.37. Although fourth quarter profitability benefited from insurance recoveries it was a challenge quarter – challenging quarter for LSB. There are number of reasons why the performance of the business did not meet our expectations, which we will describe on today’s call. The greatest impact was that the Pryor plant was not operational during much of the fourth quarter. On behalf of the Board and management team and as one of the companies largest shareholders, I assure you that we share your frustration with the operational issues, LSB has experienced at our Pryor facility. We expected to have the facility back in operation during November, while we had a few days of uptime in December, performance continued to be impacted by specific issues that develop. We believe we have a very valuable asset and the substantial upgrades that we have made and continue to make will reward shareholders over time. We are investing in plant reliability enhancements and environmental and safety upgrades at all of our chemical facilities, specifically at Pryor, these changes includes, hiring which no facility General Manager bringing in additional engineering support personnel dedicated to safety and reliability and gauging outside experts in several areas to help us assess our operations and reduce risks. The installation of extensive monitoring and control equipment to enhance plant reliability with the remanufacturing of certain key pieces of equipment and expanded spare parts…

Thanks Jack. As Jack indicated the fourth quarter was changing for a number of reasons, the most obvious being the life of production from the Pryor Facility, where we’ve also challenging as far as comparability to a normalize result due to the number of factors it require explanation. During this financial review we will discuss those factors and contracts results for quarter and the year to more normal expectation assuming ordinary plan operation with our exceptional unplanned downtime. In that regard, please note that we will frequently discuss the effective insurance recoveries, unplanned downtime that are affect with our reported numbers, in order to reduce reputation during the financial highlights, the phrase insurance recovery is recognized will be shortly insurance. An unplanned downtime will be refer to as downtime. Included in this financial review or separate tables they summarize the insurance claims and recoveries and the impact of downtime. For a comparison of fourth quarter 2013 results to 2012, please turn to Page 4. Net sales were $149 million or 16% lower. Operating income was $70 million, included $76 million of insurance compared to $18 million, included $7 million of insurance in the prior year. Sales and operating income were significantly lower than otherwise would been expected due to the downtime at the Pryor Facility. In addition, margins in our Chemical Business segment will lower due primarily to market conditions in the nitrogen fertilizer sector. Sales and operating income Climate Control Business segment approximately same as in 2012. Interest expense were $7.3 million, net of $1.8 million capitalized during the development and our construction of our capital projects compared to only 437,000 in 2012. This increase reflects the higher level of debt incurred to financially capital expansion underway. After provision for income taxes of approximately 40%, net income was $37…

I think before I address the operational initiatives Jack had another quick comment that he wanted to make.

Yes, I did when I opened my – the conference I was reading the wrong column and I got the wrong numbers on our results for the quarter and for the year. They were $1.58 per share where I said $1.65 and they were $2.33 per share where I said $2.37. So I would like to correct that.

Okay thanks Jack. I’m going to focus on our sales activity product backlogs were pertinent, and the market drivers as we see them and also during this presentation I would like to review the status of our chemical operations, the major capital projects in our chemical business and initiatives that we believe will increase tell us these value going forward. To start please turn to Page 12 in the presentation, which shows our 2013 sales mix by the markets we serve. The overall mix shifted significantly towards the climate control business during the year reflecting the lower sales of our chemical operations due to unplanned downtime in the first half of the year at our Cherokee facility and throughout the year at our Pryor facility. We do not believe that 2013 was typical and expected our future sales mix will become more heavily weighted towards our chemical business as the operations increase uptime and our new investments come online. Please turn to Page 13. Total sales for our chemical business in the fourth quarter and full year were $78 million and $381 million respectively compared to $105 million and $478 million in the prior year. Sales of all three of our principal product categories were lower than 2012 primarily due to plant downtime as a result and as a result comparison from period to period is really not meaningful. Turn to Page 14 for sales of our key Ag products in the fourth quarter and full year. Again, comparisons to be between periods is not particularly meaningful due to downtime at our plants in 2013. In addition to lower volumes caused by downtime, market prices were lower driven by high Chinese urea exports during their low tariff period before firming later in the year. I will cover market pricing later.…

(Operator Instructions) And our first question comes from the line of Joe Mondillo with Sidoti. Please proceed with your question. Joe Mondillo – Sidoti & Company: Hi, good morning guys.

Good morning, Joe.

Good morning, Joe. Joe Mondillo – Sidoti & Company: So my first question is following, a lot of information to digest, is my interpretation of Pryor overall, is that obviously you’ve done a lot. And lot has gone over the last six months to 18 months to 24 months. And it sounds like, with your prepared remarks and going through sort of the pictures and the maps that you’ve shown, it seems like, you had every single part of that, property, you seem like highlighted, whether it was repaired or for it was brand new equipment. It seems like the plant it’s nearly brand new at this point almost. My question is your best guess, knowing that there is always a chance of a step back, especially considering last two years. What is your sort of best guess, when talking to especially talking to this new manager of the plant, where we are in terms of getting to consistent production.

First of all, I don’t want to you misinterpret there. I know we present a lot of information to you, we presented it quickly, and if we get the impression at the entire plant was new that was not our intention, significant parts of the plant have been replaced and upgraded and refurbished and there are some new components in the plant. So it is still a plant, that is an over plant, that was significant improvements and investments that we made over the past three years. Moving on our strategy has been to we believe we are close as we said to achieving reliability. At this time, and in the past, we have been asked about specific rates, when do you expect to see – achieve X rate or Y rate. At this time we are not going to do that, we are not going to speculate, we’ve instructed our plant management to take it slow, distressed, safety, stress reliability and that’s what they are doing and over the next few weeks, or maybe even months, that will be monitoring very, very carefully, every aspect of the plant along with helps from outside experts that we brought in and we will bring it up in due course. As we believe to achieve that reliability and at this time, that’s the best guidance I can give you on that. And really don’t want to attempt to throughout a specific time. Joe Mondillo – Sidoti & Company: Okay, fair enough, just to clarify where exactly we are, the plant is now being slowly brought up the speed at a very slow rates and they are going to continue to solely do that over the next several months is that essentially…

As we are operating at a reasonable rate now, that we are going to be, when you are bringing up a plant, there could be some – there could be some increase in rates, there could be some decrease in rates, while they monitor it to make sure that everything is working according to the way it supposed to work. And so that will occur in due course and we’ll keep you apprise of that and when we believe that it’s achieved sustained production that’s when operating long enough to feel confident, we will certainly advise our shareholders of that. Joe Mondillo – Sidoti & Company: Okay. And how long is that been sort of operating, as it been just a couple of weeks or?

Yes, it’s been brought up recently within the last week. Joe Mondillo – Sidoti & Company:

Well, Joe, we don’t want to drill down too far on specifics. But in the downtime numbers that I reviewed with you in the conference call, we include those extra rate maintenance costs. Now the comments that we made about the first quarter of 2014, we have consultants there that are working with the management team, and so those will be temporary. But for the most part once we achieve this reliability and sustain production, those costs will go back to normal. Joe Mondillo – Sidoti & Company: Okay. So I guess my follow-up to that would be the $23 million to $29 million, if you add that back and subtract the insurance, I’m sorry, if you only add back the insurance, you get to a negative $9 million number. So if Pryor is completely shutdown and you add back the insurance, the overall Chemical business at negative $9 million? So does that imply the rest of your plants El Dorado and Cherokee are running at a negative profitability?

No, that’s not correct. If you look at the downtime that we had in 2013, we’ve had downtime in the Cherokee plant in the first half and throughout the year at Pryor with a lot of additional costs. But the Cherokee plant as we indicated in the prepared remarks has run very efficient at normal levels and efficiently and is converting natural gas and capturing that spread. So the only difference between the normalized numbers that you see on that, I think is in page 11, page – we gave you a calculation normalized results if you add back to them. Joe Mondillo – Sidoti & Company: Right, right.

I mean that pretty much is a normal calculation and the difference between 2013 and 2012 is – are the – as a result of the primarily the product sales, market prices of ammonia, UAN, and ammonium nitrate in the agriculture sector. Joe Mondillo – Sidoti & Company: I guess the only thing that I’m confused is on Slide number 9, if you take that $18 million, take out the $26 million. So assuming Pryor is completely shutdown, you get to a negative $9 million, which assumes, I’m interpreting that Cherokee, that’s the rest of the plants Cherokee, El Dorado. So that negative $9 million is related to Cherokee and El Dorado and such, and I guess maybe some corporate costs on top of that, that’s where I’m just so little confused.

Thank you. The only difference there is that you’ve got a very – are you talking about the fourth quarter? Joe Mondillo – Sidoti & Company: Yes, the fourth quarter.

You had a very late start to the ammonia application season, in fact, it hasn’t really started yet. So you had a fairly significant market conditions in the fourth quarter, but the other – the Baytown plant and the Cherokee plants are operational and profitable. Joe Mondillo – Sidoti & Company: Okay, all right.

The El Dorado plant as you know is buying ammonia for the pipeline and converting it into nitrogen products. So there because of the lower capacity that we are running out now before we rail the new asset plant and the ammonia plant, they are running at pretty much at break-even right now in the fourth quarter. Joe Mondillo – Sidoti & Company: Okay, all right. Good enough and I will hop back in queue.

Thank you. And our next question comes from the line of Dan Mannes with Avondale. Please proceed with your question. Dan Mannes – Avondale Partners LLC: Thanks. First of all good afternoon, secondly, appreciate all the detailed insight on Pryor, and El Dorado, as well as the disclosed pricing volume on the [Indiscernible], so thanks for doing that. And then secondly, I wanted to follow-up on Joe’s question, I guess I want to phrase it little differently, so when you look at the $24 million for Pryor in the fourth quarter, that is just the profit on the plant, that’s also a recovery on unabsorbed overhead. So just to make sure I understand, when you’re looking at EBITDA effectively being flat in the Chemical business in the fourth quarter, part of that when you add back the insurance recoveries, I assume that’s because Cherokee and El Dorado and Baytown are positive, while at the same time Pryor has some amount of unabsorbed overhead given that briefly didn’t do anything in the quarter, am I thinking about that correctly?

That’s correct, Dan. Dan Mannes – Avondale Partners LLC: Okay. So that $24 million is both recovery of the absorbed overhead as well as positive margin of some amount during the quarter.

Yes. Dan Mannes – Avondale Partners LLC: Okay, got it. So, as we look forward, we don’t have a comp of operating history on Pryor in the last couple of years, in the last period we’re operating really well with the early part of 2011, can you talk about maybe any changes in the operating cost structure, how much high will cost be if at all going forward both G&A and O&M or maybe given some of the efficiencies maybe that won’t be as big of an issue?

Well, we haven’t increased the staff at Pryor significantly in the engineering and reliability areas. However, we believe that the improved reliability has achieved well more than overcome those to result in improved bottom line. Dan Mannes – Avondale Partners LLC: Okay. The next question also in chemical, you probably saw one of your competitors signed a long-term agreement with Orca for supplying ammonium nitrate, it’s certainly greater than what I think you supplied at El Dorado. I’m wondering if that has any impact or is it all related to maybe what you’re going to do with El Dorado going forward post the ammonia expansion?

Well, we currently – on Orca, we currently have a contract with them that runs through April of 2015. And one of the characteristics of that contract as historically been that it is an exclusive, in other words, we are limited to exclusively selling that product to them. Although we – as you know, we use to sell directly into that market before we had that arrangement. And we have – we are approached by customers on a continual basis wanting product, wanting to set up arrangements, but because of the limited capacity we’ve had in the past and that exclusive arrangement with Orca, we have to decline to move forward with any of those. However, we expect, we’re not sure exactly what arrangement we will have with Orca after the end of the contract, but if it’s not an exclusive arrangement that satisfies our volume requirements, we expect throughout and build this business and with those other customers that are available out there in the market and that’s the approach that we are taking to it. Dan Mannes – Avondale Partners LLC: So you don’t view this as a competitive threat, you feel like there is more than – there is ample demand for either ammonium nitrate to that end market or whatever end market you decide to sell to?

And diversifying the existing products.

That is correct. Dan Mannes – Avondale Partners LLC: Okay. And then my last question on the Climate segment this is a little bit kind of a newer opportunity, but one of your large competitors on geothermal heat pumps are emerging better as Bosch signing arrangement with basically utility that would own the geothermal heat pumps and they are looking to expand utilization through that route. It is an exclusive agreement, but I imagine this is just the front end, I wondered if you looked at things like that is way to fray or reduce the installation costs to the end users is the way to get broader utilization of this type of product or is it maybe too immature for you at this point to look at?

We'll always look at anything that we think will increase our markets. Now we actually tried something similar to this about two to three years ago. And it did not really have the positive impact that we expected. However as I said we are always hoping to looking for ways to increase our market and as you know our products are the most efficient in the industry and it could easily be used in such an arrangement with these of that company if they have an exclusive there are other companies that is essentially financing arrangement for the product and we would – we are willing to exploit that and we will exploit that. Dan Mannes – Avondale Partners LLC: But do you review that as a way to maybe break open the market to create more ubiquity for this, I am contrasting perhaps with solar which given the advent of solar leasing by people like Solar City you are seeing much more mass adoption of a product and I am wondering if this might break the log jam a little for geothermal?

I think that is possible and as we – but I think a prognostic head on that, but as we get into it and explore it, I have more information. I mean, I hate to forecast or give guidance on what I think the market will do as a result of this because I do know that in the past this was attempted and as I said there wasn’t kind of traction that we expected at the time. Dan Mannes – Avondale Partners LLC: Got it. Thank you very much.

Okay.

Thank you. And our next question comes from the line of Roger Spitz with Bank of America. Please proceed with your question. Roger Spitz – Bank of America/Merrill Lynch: Thanks good afternoon.

Roger. Roger Spitz – Bank of America/Merrill Lynch: Starting at – looking at Page 9 the normalized earning page, you have given us the fourth quarter of 2013 of the El Dorado, Cherokee and Pryor downtime we have Q1 is it possible to get the Q2 and Q3 do you have that and by any chance or can be provided at some point?

Roger, I would add to refer you back to our previous filings, I don’t have a summary of that in front of us for this particular call, but we outlined that in our quarterly financials. We have outlined in each one of the first three quarters, the insurance recoveries have been recognized and the downtime effect our earnings. Roger Spitz – Bank of America/Merrill Lynch: Okay. that’s I will…

I will be happy as why that to you own a separate spreadsheets since its public acknowledge.

Roger, this will remind you when you are looking at this and comparing to the filings, Tony mentioned us before for purposes of this page, this slide to simplify we took the midpoint of the ranges. And you are going to see range because when you look back at those filings…

But I would be happy to prepare something insure to since its public data. Roger Spitz – Bank of America/Merrill Lynch: Thank you for that. Looking at Page 11, at the capital spending, the planned – additional planned column is that would that all occur in 2015 and beyond or some of that occur in 2014? So do you just sort of give a range of what 2014 and 2015 CapEx that we should just plug into our model?

We didn’t have that handy right now.

Well, I think that we will not spend that money unless it is a payback. Roger Spitz – Bank of America/Merrill Lynch: Okay.

We are subject to the additional plant is subject to review and approval specific AFEs. Roger Spitz – Bank of America/Merrill Lynch: Okay.

I think he is asking for a number.

Understand. But..

I don’t think we have that breakout right in front of us right now. Roger Spitz – Bank of America/Merrill Lynch: We will come back to that or we can go with what you have on this Page. I guess lastly am I correct that subject post January 2014 $28 million insurance coverage for Cherokee all the insurance proceeds that might come in door have now come in doors that is right or is there something else?

The $28 million that is coming in the first quarter I think concludes the..

It’s in already.

It’s in already. It concludes the reinsurance insurance recoveries. Roger Spitz – Bank of America/Merrill Lynch: Thank you very much.

Roger I will tell you that I believe that board approval and majority of the additional plant will occur in 2014 and 2015. Roger Spitz – Bank of America/Merrill Lynch: Okay. Thank you for that.

Bruce M. Zessar – Advisory Research, Inc.: Yes thanks. I had a couple of questions first on Pryor, I know you don’t want to pin yourself down to a time when you think normalized production will happen again but is it fair to say that you are confident that you will reach normal production at Pryor sometime in 2014?

Yes.

Yes and Bruce I think it is also I think you should also assume that when you bring a plant like this up, there is a normal flow of products through a plant that is efficient level of production. And from that point forward then you are bringing up to the higher level, so you could assume that we are running the plant when it is running it is running at efficient level. Bruce M. Zessar – Advisory Research, Inc.: I want to turn back to capital spending, I guess tab 11 and I was also looking at Page 35 of the 10-K and there is a line item in there for El Dorado that wasn’t favorable for which is other support infrastructure for outside battery limits. And I am just wondering why that $50 million to $60 million is getting added in now and wasn’t there before?

Outside battery limits consists of tankage and pipeline connections primarily and those connect to the pipeline and to have sufficient storage capacity.

I think if you look at this schedule it was in the current 10-K that we filed yesterday and the one that is in this schedule they are consistent, we have expanded the disclosure in the current 10-K more we have had in previous 10-Ks and been more I think the definition has changed somewhat in terms of the way we show the planned and additional planned, but it’s consistent with all the information that we’ve had in our investor presentation during the road show that’s on our website.

And it doesn’t achieve… Bruce M. Zessar – Advisory Research, Inc.: Well, let me just ask you though, because I’m looking at your third quarter 10-Q and I’m comparing the disclosure in that, you can look at Page 11 of the presentation or Page 35 of the 10-K, and the total amount of CapEx committed in planned capital expenditures in the third quarter 10-Q was $465 million to $520 million. And now the number is $511 million to $594 million, which is an increase of $46 million to $74 million. And most of it seems to fall into that new line items for support infrastructure to El Dorado. And I’m just asking why it is in the last three months that that suddenly getting added to the bottom line on CapEx, because it wasn’t there in your third quarter disclosure. And it was significant, that’s why I’m asking.

I don’t know that it’s broken out, I don’t know that is not included in the third quarter. I would have to check back with the way we calculate it. But I think it’s more definitional in total, I think it’s more of a total number that it is a OSBL, because the OSBL has been in our planned and approved spending since day one as far as the infrastructure at El Dorado.

Bruce, why don’t we pull those after the call, pull those out and look at them, and look at the work papers specifically and get back to you with a more specific answer after we have a chance to study them. Bruce M. Zessar – Advisory Research, Inc.: Yeah, I would just tell you, just write this down, look at Page 40 of our third quarter 10-Q and then look at Page 35 of the 10-K or Page 11 of the presentation. And there is a difference there an increase of $46 million to $74 million, most of it is in that OSBL line that wasn’t there before.

We’ll reconcile that for you and come back to you. Bruce M. Zessar – Advisory Research, Inc.: Okay. All right, thanks. That’s everything I have for now, thanks.

Thanks, Bruce.

Thank you. And our next question comes from the line of Keith Maher with Singular Research. Please go ahead with your question. Keith Maher – Singular Research: Good morning. I had a question of – just a quick follow-up on that insurance recovery in Q1, in addition to the $28 million with that $13.4 million in the insurance receivable also becoming through gap I mean?

I think we collected that in 2013. Keith Maher – Singular Research: Okay. I’m sorry, go ahead.

It just did not flow through as income was charged against the receivable. Keith Maher – Singular Research: Okay, got it. Also you had mentioned that you invested $67 million in Pryor, was that kind of an all in number over the years, and does that just include, investing in physical infrastructure.

I’m sorry, I didn’t understand the question. Keith Maher – Singular Research: You had mentioned, I think to make the case that Pryor, if you build it from scratch and cost affiliates and yet you’ve currently invested like as you mentioned $57 million. And I was just trying to understand what that $57 million included?

I can tell you that’s on or across from the day we acquired it till 12/31. Keith Maher – Singular Research: Our net cost.

Net cost.

That’s net of income that’s been generated by the operations to-date. So in another words, since we – since we’ve been repairing at as we went and encountered issues and made additional capital investments, that was offset by income that was being generated at the operation from time to time, so that’s a – at today that’s our net investment. Keith Maher – Singular Research: Okay, fair enough. And in terms of I mean the IRR the 15% to 17% you are mentioning for the other area expansion. The one assumption looking – and you are going to share would be just a timeframe for that and I assume it’s pretty long timeframe – assets have a long life?

That’s correct. Keith Maher – Singular Research: Could you again tell me how long?

We can, you are talking about the terminal value calculation? Keith Maher – Singular Research: Yes, yes and that has…

He is asking about the terms, the calculation of terminal value. Keith Maher – Singular Research: Yes.

I believe that’s 20 years or 30 years I’m going to take a look at it. Keith Maher – Singular Research: Okay, all right. And final question just on the climate control business and I understand your backlog that provides you with kind of visibility, but it look like I mean the trends for 2013 it seem to be declining orders and then obviously backlog was following that. Should we read anything into that I mean in terms of what was causing that?

Well I think if you look at the orders quarter-by-quarter through the third quarter we were approximately leveled with 2012 and where we saw the big fall off in orders was in the fourth quarter and lot of that we believe was impacted by the winter weather conditions and so that that we don’t believe that any one quarter necessarily indicates trend. Okay, now what I also mentioned at the call was that when we look at our year-to-date of new orders that we’ve actually booked plus that what we call in our business which are orders that are being processed through that haven’t officially hit the backlog yet and which varies up and down from time-to-time, that is on par with last when you add those two things together that the order levels on par with last year. And that we have a nice pipeline of business that our sales team is looking at and they feel good about that pipeline of business. Keith Maher – Singular Research: Okay, thanks. That’s all I have.

Okay.

Thank you. And our next question comes from the line of Gregg Hillman with First Wilshire Securities. Please go ahead with your question.

Good morning Gregg.

Okay. So our next question comes from the line of David Deterding with Wells Fargo. Please go ahead with your question. David K. Deterding – Wells Fargo Securities LLC: Hey, good morning guys.

Hi, David. David K. Deterding – Wells Fargo Securities LLC: Just a couple of quick ones from me, it looks like in your last presentation that you had in Q3, you had roughly $40 million to be spent kind of on a go forward basis in a climate control business and now you’re down to $5 million to $11 million. It looks like in the presentation here on Page 11, can you just kind of talk about what got cut out of there and is that $5 million to $11 million is that really pretty much just a maintenance level of CapEx there?

Dave on climate control in a previous presentation we had close to $40 million in plant spending and this one it’s $5 million. He was asking what might have been cut out.

I don’t think we have…

Yes, we did, but one of the things is we had a plant addition that was earlier plant that we have cut out because we believe that through our lean efforts that we will be able to get more utilization out of our existing facilities. So that’s been taking out from previous and as far as the – that’s the major item, that’s the major item. David K. Deterding – Wells Fargo Securities LLC: Okay, perfect. And then it looks like going through the K that you had some spending on natural gas, working interest in the fourth quarter, can you just kind of comment on that will we see any more of that going forward in 2014 or 2015?

We had an opportunity to increase our working interest percentage in the Marcellus Shale and those working interest that we’ve already in, and we took advantage of it recovery package working out to be a very efficient hedge for us. David K. Deterding – Wells Fargo Securities LLC: Okay. And then my final question is just, it with respect to $90 million to $100 million in incremental EBITDA, could you just kind of breakdown the mix as you guys think about that $90 million to $100 million versus Ag versus mining versus asset.

I think is – I think is probably more Ag related that it is industrial and mining, but it’s actually a benefit coming from the nitric acid capacity as well as the ammonia because we’ve able to upgrade and diversify our product mix. And we’ll have more product that available to upgrade versus where we had in the past. So as the combination of stronger margins in the Ag business, because we’re able to capture that spread between natural gas and the purchase price of ammonia that we’ve been, having to bypass because we’re buying the ammonia. On the other hand a lot of the ammonia that we have excess will later be able to upgrade it or sell it on to the into the pipeline to a couple of large customers. So we expect if that would be a significant part of it also and that will be either, that we’ll classify that is industrial, but it go to Ag. David K. Deterding – Wells Fargo Securities LLC: When you think about the plant currently, if you were running a full capacity would you say that’s 50% Ag and how would breakout the rest?

The rest operated in the past is about 40% Ag, 40% mining and 20% assets. But that product mix will change overtime with the additional capacity that we have for ammonia and nitric acid. David K. Deterding – Wells Fargo Securities LLC: That’s all from me guys. Thank you.

Thanks David.

Thank you. And our next question comes from the line of Bruce Zessar with Advisory Research. Please go ahead with your question. Bruce M. Zessar – Advisory Research, Inc.: Yeah, I just add a quick follow up question, looking at the assumptions on the payback the IRR 15% to 17% where you are assuming for the sake of modeling ammonia at $500 per metric ton and $5 dollar natural gas. Did you model it out assuming say ammonia $400 per metric ton with $5 dollar natural gas and what kind of IRR that generated?

I really can’t disclose a lot of different internal rate of return, but Bruce we model ammonia down to $400. We also model higher natural gas and in every case we still had a reasonable internal rate of return. We do a number of models with a lot of different assumptions and the range I’ve given you is one that we feel very comfortable with that is conservative there are model from both sides. And but all the modelling we did taking ammonia down to $400 and gas up to $5 still gave us the reasonable return.

And we also did some models that actually have higher internal rates of returns as Tony said, we currently can find the range to what we felt was more of a logical range.

There is one other very factor the prices that you are hearing are not the prices that we go on our market because you have high transportation costs, that have to be added to the price that you see in the market, depending on where they are, so our ammonia sales for more here. And that markets that we’re in because of the transportation, so 460, 450 price on ammonia is $5 here or maybe a little more, I’m kept up with the – changes were occurred lately.

Short answer to your question, yes we didn’t do the model at that level Bruce. Bruce M. Zessar – Advisory Research, Inc.: All right, fair enough. One other question, turning to the balance sheet, I mean since you’ve issued that debt, you had a relatively modest amount of net debt because lot of the cash just on the balance sheet, but have you modeled out, looking out, say 12 to 18 months, when you put out a lot of your money invested in these project, but they haven’t come online, where does your net debt position get to at that point in time?

I think the models that I’ve looked at and we run a continuous model on this is that we continue to have an undrawn revolver and we have roughly $50 million cash on the balance sheet. Bruce M. Zessar – Advisory Research, Inc.: So that’s kind of a, that’s the low point before you bring these projects online and they start generating cash.

Within $50 million to $75 million, I mean there are lot of variables, but we’d run it, we’d run a number of models, in some cases, we have an undrawn revolver some time we’re going partially against the revolver. Bruce M. Zessar – Advisory Research, Inc.: Okay, that’s everything I had thank you.

Thank you.

Okay, so I like to jump in here. This is Barry again. We’ve been at this an hour and a half now, and the call has been very long, and much longer than usual. Yes, I think at this point, we are going to cutoff questions. I know that some of you probably have more questions and we’ll be glad to talk to you on an individual basis. And we can arrange one on one calls afterwards. But we appreciate your participation today. And we appreciate your continued interest in LSB. At this time I’m going to turn the call over to Carol Oden, who is going to give you some important Safe Harbor language.

Thank you, Barry. Information reported on this call, speaks only as of today, February 27, 2014. And therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. The comments today and information contained in the presentation materials contain certain forward-looking statements. All the statements other than statements of historical fact are forward-looking statements. Statements that include the words expect, intend, plan, believe, project, anticipate, estimate and similar statements of the future of forward-looking statement nature identify forward-looking statements. Including, but not limited to all statements about or any references to the Architectural Billings Index or any McGraw-Hill forecasts, any references to natural gas cost, ammonia cost, fundamentals of the Ag business and basic inorganic chemical trend. The forward-looking statements include, but are not limited to the following statements, substantial upgrades to reward shareholders over time, achieving Pryor potential, expected timing to have the acid plant to new ammonia plant fully installed and operating. Elimination of our need to purchase ammonia as the pipeline should result in reduction of feedstock costs, production of excess ammonia which we will be able to sell into the pipeline projects – at projects that El Dorado will contribute approximately $90 million to $100 million of incremental annual EBITDA. We will continue to execute our three-year plans, plans to fund high capital expenditures over the next two years. Our future sales mix, UAN prices, demand for our fertilizers achieving liability at Pryor uses as most of the new ammonia that we produced, inventory order level at Pryor. We expected that the total cost of these projects will be between $420 million and $490 million. We expecting to generate from $90 million to $100 million of incremental annual EBITDA. We also estimate the interim rate of return…

Thank you for your participation, ladies and gentlemen. You may disconnect your lines at this time and have a wonderful day.