Carol Oden - Investor Relations Jack Golsen - Chairman and Chief Executive Officer Tony Shelby - Executive Vice President and Chief Financial Officer Barry Golsen - President and Chief Operating Officer.

Dan Mannes - Avondale Partners Joe Mondillo - Sidoti & Company Roger Spitz - Bank of America David Deterding - Wells Fargo Keith Maher - Singular Research David Kaiser - Robotti & Company Gregg Hillman - First Wilshire Securities Management.

Greetings, and welcome to the LSB Industries Incorporated First Quarter 2014 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 Carol Oden, Assistant to the Chairman and CEO of LSB Industries. Thank you. You may begin..

(Technical Difficulty) first quarter 2014 conference call. Today, LSB’s management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President and Chief Operating Officer; and Tony Shelby, Executive Vice President and Chief Financial Officer.

This conference call is being broadcast live over the Internet and is also being recorded. An archive of the webcast will be available shortly after the call on our website at www.lsbindustries.com. After comments by management, a question-and-answer session will be held and instructions for asking questions will be provided at that time.

Information reported on this call speaks only as of today, May 8, 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 Webcasts and Presentations section of the Investors tab. Please note that the presentation starts on Page 3 of the PowerPoint. And now, I will turn the call over to Mr. Jack Golsen..

Thank you, Carol. Good morning and thanks for listening to our 2014 first quarter earnings call.

Last night, we released our 2014 first quarter earnings release followed by (Technical Difficulty) my statements in our press release of yesterday (Technical Difficulty) Barry and Tony will go into some details on our financial and operational performance for the quarter.

(Technical Difficulty) improving and we will continue to make improvements in our existing operations. A big change for us will come in 2016 on our nitric acid plant and nitric acid concentrator and ammonia plant are online adding significant additional production capacity and captive anhydrous ammonia production facing purchased ammonia.

Those two projects are big changes for our company. The big news for the quarter is that by the end of the quarter, our prior plant achieved consistent production of ammonia at targeted levels. And subsequent to the quarter, began producing urea and UAN.

Beginning in March and continue in April and May and to-date, our prior plant has broken its previous record for anhydrous ammonia production.

There are still upgrades to be completed in this plant as we finish the installation of anti-surge equipment, monitoring equipment, and automation controls, but they are not significant and will not impede production. They will further add to the reliability of the plant.

In addition, the expansion projects at our El Dorado facility are going well and remain on time and on budget to-date. The completion of these projects is expected to have a major positive impact on our EBITDA.

To sum it up, we remain focused on our three-year capital and operating plan for both of our businesses as we believe that this would create significant shareholder value. Thanks. And I am going to turn this over now to Tony Shelby..

Thanks, Jack. Our results for the first quarter of 2014 and ‘13 were not necessarily indicative of a normalized result for a number of reasons that require explanation, including operational issues and insurance recoveries in both quarters and non-recurring professional fees expenses in the first quarter of 2014.

During this financial review, we will discuss these and other factors that affected results for both quarters as well as variances between quarters. For a comparison of first quarter 2014 results to 2013, please turn to Page 4. Net sales were $179 million, an increase of $28 million.

Consolidated net sales include an increase of $38 million in the Chemical Business, a decrease of $10 million in the Climate Control Business. Although sales increased in the first quarter of 2014 versus last year, they continue to be impacted by downtime at the prior facility for most of the 2014 quarter.

As Jack indicated, the facility is now in full production. Consolidated operating income was $26 million compared to an operating loss of $237,000 in the 2013 quarter.

The increase in operating income included an increase of $33 million in Chemical, a decrease of $2 million in Climate Control, and increase in our general corporate expenses of $4.5 million over the same period of 2013.

This increase in corporate expense was due to fees and expense of $4.2 million incurred in evaluating and in analyzing proposals received from certain shareholders and negotiating a settlement with those shareholders.

Also to be considered in the comparison of first quarter operating results were unplanned downtime and insurance recoveries in the Chemical Business for both periods. Interest expense was $6.7 million net of $2.3 million capitalized during the development and/or construction of capital projects compared to interest expense of $731,000 in 2013.

The increase in interest expense this year is directly attributable to the interest on the $425 million senior secured notes due in 2019, which use of proceeds were primarily to fund our Chemical Business capital expansion program.

Keep in mind, that until the El Dorado expansion projects are completed and additional revenue is realized from the added capacity, earnings will continue to be affected by the burden of the interest cost on the debt of these projects.

After provision for income taxes of approximately 40%, net income was $11.6 million or $0.49 per share compared to a net loss of $68,000 or $0.02 per share last year. EBITDA was $35 million compared to $6.5 million last year. Turning to Page 5. On Page 5, there is a brief summary of our capital structure at March 31, 2014 compared to year end 2013.

As noted, cash at the end of March was $409 million or $26 million lower than at year end. The net change in cash for the quarter of approximately $26 million included capital expenditures of $45 million, scheduled debt payments $6 million, and other cash uses of $3 million partially offset by $28 million of insurance proceeds.

In addition, our $100 million working capital revolver facility, loan facility remains undrawn. The amount available to borrower was subject to the amount of eligible collateral, which is currently approximately $80 million. At March 31, 2014, total interest bearing debt was $462 million compared to stockholders’ equity of $424 million.

Our debt to equity ratio was 1.1 to 1 and our debt to capital was 52%. EBITDA was $35 million for the quarter and $161 million for the trailing 12 months ended March 31, 2014 including insurance recoveries for both periods of $28 million and $112 million respectively.

At March 31, EBITDA to insurance recoveries for the trailing 12 months was 6.2 times. Interests in this calculation include all interests incurred, including the $2.3 million capitalized.

On Page 6, beginning with EBITDA is a calculation of the free cash flow for the two quarters ended March 31, ‘14 and ‘13 reflecting a use of cash of $26.3 million and $29.6 million for the two quarters respectively driven primarily by capital expenditures pursuant to the capital expansion program.

We expect that we will continue to have negative cash flow until the El Dorado expansion projects are completed and producing. Moving to Page 7 shown on this page is a summary of our first quarter capital expenditures along with planned capital spending for the remainder of 2014 and for 2015.

During and after the fourth quarter conference call, we received a number of questions regarding the detail behind our planned capital spending. Based upon the nature of these questions, we added more clarity and detail to these disclosures.

Chemical spending for the first quarter was $43.4 million and included $28.5 million for the El Dorado expansion projects, $5 million for environmental compliance upgrades, $4 million for normal upkeep and $3 million for the development of natural gas leaseholds.

The planned expenditures ranging from $461 million to $572 million for the remainder of 2014 and the full year 2015 include the El Dorado expansion project as set out separately in the tables, upgrades to our plants to satisfy environmental requirements as well as other anticipated renewal and improvement projects.

The ranges of spending are purposely wide to provide for contingencies. These projects are subject to a change as new information is obtained or circumstances change.

The capital spending will be funded by current cash and investments, internally generated cash flow, third party financing and if necessary borrowing under the working capital revolver loan facility.

Turning to Page 8 for a review of chemicals first quarter results, sales were $115 million or 49% higher than the first quarter of 2013, operating income was $29 million including $28 million of insurance recovery, compared to a loss of $3.8 million including $10.8 million of insurance in 2013.

Results are significantly below what we would otherwise expect due primarily to the Pryor facility being out of operation for most of the 2014 quarter and the Pryor and Cherokee facilities both out of operation in the 2013 quarter.

The summary in the lower left of this page adjusts operating income as reported to reflect the impact of the downtime and insurance recoveries to arrive at a non-GAAP normalized number, as though neither were included in either period.

The variance in normalized operating income in 2014 is due to lower selling prices for agricultural ammonia and UAN in the 2014 quarter and to a lesser degree higher natural gas costs in that same quarter as compared to last year.

The specific operational issues resulting in a downtime and lost production are disclosed in detail in our current 10-Q and previous quarterly filings. It should be noted that since the repairs were complete in the second quarter of 2013, Cherokee has operated efficiently and at normal rates of production.

And as we recently announced the ammonia plant at Pryor facility assumed production in late February 2014 has consistently been producing since that time. Chemical sales by product line are shown on Page 9. Agricultural sales for the 2014 quarter were $60 million compared to $33 million, an increase of 83%.

Industrial acids increased 30% and mining products were flat. Sales on this chart are in dollars, not in tons, for a review of agricultural products, please turn to Page 10.

Agricultural sales by product is shown on this page reflected significant increases in all products with a ton showing significantly higher increases than dollar increases due to lower selling prices in the 2014 quarter compared to 2013.

The increase in tons sold of all agricultural products was due to the Cherokee facility returning to production, the reduction of ammonia production at the Pryor facility in late February 2014 and improved market conditions for ammonium nitrate. Industrial and mining sales results are on Page 11.

The same conditions as in the agricultural sector were prevalent here, i.e. tons sold were significantly higher quarter versus quarter, while sales in dollars reflect much different results. The sales price per ton is lower in the current quarter as a result of lower feedstock cost pursuant to cost plus pricing arrangements.

Now turn to Page 12 for a review of Climate Control results. For the first quarter Climate Control reported net sales of $60 million compared to $70 million in the first quarter of 2013, a 14% decline.

Commercial and institutional sales accounted for 84% of net sales and single family residential, which is all – excuse me and single family residential which is all geothermal water source heat pumps, accounted for the remaining 16%. So we had 84% commercial and 16% residential. Gross margin was 31.9% compared to 31.3% last year.

Operating income and EBITDA were lower by $2.1 million and $1.7 million, respectively. And Page 13 is a summary of Climate Control’s sales by product line for two quarters. Geothermal and water source heat pumps were $38 million or 13% lower than 2013. Fan coil sales were $15 million, an increase of 6%.

And other product sales were $7 million or 44% lower than 2013. Barry will discuss the market drivers and outlook for both our Chemical and Climate Control businesses later in the call. That concludes our prepared remarks for the financial review.

We have addressed our results of operation and capital resources in greater detail in the 10-Q which we filed last evening and suggest that you review that document for more detail and analysis. Thank you for your time. I will now turn it over to Barry to discuss our operations and key initiatives..

Thanks Tony. Today I will cover what’s going on in the markets we serve, update you on major initiatives underway and review the key value drivers we are focused on. Before discussing the markets we serve in our Chemical Business, it’s important to understand cost and pricing trends for the feedstock we use and the products we sell.

Please turn to Page 14, the cost of natural gas continues to be relatively low on a historical basis, but has been exceptionally volatile caused by the extreme cold weather this past winter. The Tennessee 500 pricing point first of month index for April 2014 was $4.55 per mmBtu, about $0.57 above April of 2013.

However, as you can see on the top left chart during the first quarter of 2014 the first of month prices spiked as high as $5.57. The May 2014 index price is $0.20 over April at $4.75. Natural gas prices affect production costs at our Cherokee and Pryor facilities, which use natural gas as their primary feedstock to produce ammonia.

The conventional wisdom is that with the exception of extreme seasonal weather spikes, continuously increasing shale gas production will not allow natural gas prices to increase substantially for some time. The current spot price for natural gas is $4.75 per mmBtu and NYMEX gas price futures for the remainder of 2014 are in the $4.75 range.

The cost of anhydrous ammonia, the feedstock we use at our El Dorado and Baytown facilities declined steadily during 2013 and into the first quarter of 2014, but rose significantly in March and continued that trend into April. April 2013 and 2014 Tampa prices were $5.97 per metric ton and $5.80 per metric ton respectively.

Currently ammonia is still $5.80 per metric ton at Tampa.

The recent increase raised production cost at our facilities that use ammonia as a feedstock, although most of the products we produce at Baytown and most of the industrial mining products produced at El Dorado are sold on cost plus basis, so ammonia cost fluctuations do not impact our profitability on those sales.

However, agricultural grade ammonium nitrate or AN produced at El Dorado is sold at spot market prices, so higher ammonia costs impact margins for AN.

We believe that increased ammonia prices during the end of the first quarter were caused by a combination of temporarily tightened import supplies at the same time the ammonia application season was starting. As the ammonia application season ends and the world market supply stabilizes, prices should decline.

Turning to ag products we sell, Southern Plains prices for urea, ammonium nitrate or UAN fluctuated over the past year and are lower than a year ago.

If you look at the chart on the lower left you can see that the green markets price of UAN decreased from $380 per ton in April of 2013 to $315 per ton in April 2014 but of – but have been as low as $270 per ton.

Based on current market indicators, we believe that prices will range from $295 to $325 per ton and will remain at this level during the current planting season, this compares to a range of $345 to $380 a year ago. In April 2014 green market prices for high density AN or HDAN were $405 per ton compared to $390 per ton 12 months earlier.

AN is currently still approximately $405 per ton and our outlook for AN, this season is more or less the same as UAN. At this time the demand for all our fertilizer products is strong.

Summing up this page and reinforcing Tony’s earlier financial review, over the past year prices of natural gas have increased and the market prices of our gas based UAN fertilizer products have declined resulting in significantly reduced margins per ton for this product.

Focusing on the general outlook for the agricultural markets we serve, Page 15 lists several indicators for our agricultural products, most of which continue to be favorable. Planting levels are generally high, although slightly lower than the past few years.

Market prices for corn and wheat remain favorable to growers, so farmers have an incentive to plant. Grain stock to use ratios both worldwide and in the U.S. although higher than the past few years, are at or below historic levels.

We believe all of this is creating strong continuing demand for fertilizers while North American produced nitrogen fertilizers currently have the lowest delivered cost. The industry consensus is that the positive fundamentals of the ag business should continue in the near to mid-term.

Despite general industry drivers, weather can have a significant impact on the fertilizer part of our business. Although the moisture level in the corn belt has generally improved, recent weather conditions have delayed this year’s planting season for corn.

The most recent USDA Crop Progress Reports published Monday for acres planted as of May 4 indicate 29% of corn was planted compared to the last 5-year average of 42% for the same point in the year. There should still be enough time for all and tendered acres to be planted. The western half of the wheat belt has extreme drought conditions.

However, this will not affect our current outlook as we are past the fertilizer application for winter wheat. The spring wheat season, primarily in northern areas, has also had a late start with only 26% planted, compared to the 5-year average of 41% at this time.

Finally, China urea imports in North America could continue to exert downward price pressure on all nitrogen fertilizer products. Overall, we continue to be optimistic about our ag business. During 2013 and the first cap quarter of 2014, our industrial and mining product sales were 56% and 48% respectively of our total chemical business sales.

Our industrial and mining products are sold primarily to large customers pursuant to contractual cost plus and/or minimum take arrangements. Page 16 contains some market indicators for these areas of our Chemical Business. And most of these indicators forecast growth for the next few years.

One thing of note that occurred during the quarter was that on March 31 we sent the required one year advanced notice to our industrial AN customer, Orica, that we will not be renewing the exclusive ammonia nitrate supply agreement after the term ends on April 9, 2015.

As previously disclosed our strategy was to proactively notify Orica of our intent to let our agreement expire and beginning in the second quarter of 2015 to commence selling industrial grade ammonia nitrate directly to the explosives market. This is a market in which we have participated previously and have many years of experience.

On Page 17, we discussed the status of each of our chemical facilities. El Dorado continues to run well with the exception of the capacity lost in May 2012 that will be replaced later with the expansion projects. Cherokee is also operating well. The Baytown operation is performing at optimum levels.

During the last conference call on February 27, we updated you on the many measures we have taken to improve Pryor’s reliability and performance and advised you that our Pryor facility was in a startup mode at that time, although producing ammonia at lower-than-targeted rates.

As recently disclosed, during March the ammonia plant was gradually brought up to the targeted rate of approximately 650 tons per day and it averaged that rate for the entire month of April and so far in May. This week we also resumed production of urea and UAN at Pryor.

We have made substantial progress at Pryor and we believe we are now on a path of consistent production at that facility.

Based on our current plans for the balance of 2014, we have scheduled plant turnarounds at Cherokee during July, which will last approximately 30 days and intermittent maintenance at El Dorado’s acid plants during the second half of the year. We have three plants there they will each be down approximately 7 to 10 days at staggered times.

So, the overall plant will not be shutdown during those maintenance periods. We also plan to install the balance of the synthesis gas compressor anti-surge equipment at Pryor during the third quarter, which should take approximately one week.

This additional anti-surge equipment was not available earlier due to vendor lead times as we notified you on the last call. Last quarter, we reviewed in great detail our plans for the major expansion projects we have underway at our El Dorado facility.

If you missed that call, you can view those plans on the PowerPoint, which is located on our website. Today, we will update you on the progress we have made on those projects. Please turn to Page 18 which details the ammonia plant project.

As we have expressed in the past, this project will increase El Dorado’s capacity and should lower its production costs significantly since the cost spread between purchased and manufactured ammonia is substantial.

El Dorado currently purchases the ammonia that it requires at a much higher cost than the estimated cost of production with an ammonia plant.

We expect that we will use a substantial amount of the new ammonia that we produce to satisfy our agricultural, industrial and mining customers and we will also sell some via the pipeline that’s connected to El Dorado. The El Dorado ammonia project construction began in November of 2013 after the Arkansas air permit was issued.

The project is currently on schedule. Over 800 steel pilings have been installed as part of the foundations. Concrete caps and bases are over 50% complete. Underground piping and vertical structural steel will start as planned in the second quarter of this year.

Setting of equipment is planned for the third quarter and the initial installation of mechanical piping is planned for the fourth quarter. The table on this page shows the major phases in milestones for the project with the current status of each.

On the bottom left of the page is a 3D CAD drawing of the planned ammonia plant and on the right is a panoramic photo of the project taken earlier this week. Please turn to Page 19.

In addition to the ammonia plant, we are adding a 65% Weatherly nitric acid blends and concentrator to replace the direct strong nitric acid blend that was destroyed in 2012 while also adding additional capacity. Construction for the acid projects also began in November 2013.

Both building and equipment foundations for the nitric acid concentrator are complete and steel erection is underway. Setting of equipment should begin in July of this year followed by piping, electrical and instrumentation in the third and fourth quarters of this year.

The equipment and building foundations for the 65% nitric acid blend are nearing completion. Steel fabrication is underway and erection will start toward the end of this month. The majority of equipment is onsite with the absorber columns already set in place.

Most of the equipment will be set in the third quarter of this year, followed by piping installation to start in the late third quarter or fourth quarter of this year. Again, the table gives major phases, milestones and current status of each.

From left to right, the photos are the 65% acid absorption columns, which are 12 feet in diameter and 127 feet tall approximately 13 storeys, foundations and structural steel supports for the nitric acid concentrator. At this time, we expect the El Dorado expansion projects to be completed on time and on budget.

Although completion of projects of this magnitude is dependent on many suppliers and contractors, today we do not know of anything that will prevent on-time completion. Again, please keep in mind that there is always a ramp up of production during the commissioning phase when a plant is brought online.

We expect the acid plant and concentrator to be complete and ready for startup in mid-2015 and the ammonia plant construction to be completed by the end of 2015 with ammonia production ramp up during the first quarter of 2016. We will keep you advised of the status of these projects on future calls.

Turning to Page 20 and switching to our Climate Control Business, there is a graph showing order sales and backlog. As we pointed out on our last earnings call, our fourth quarter 2013 bookings were soft. First quarter 2014 bookings were $63 million, which improved over the 2013 fourth quarter but were slightly lower than the first quarter of 2013.

Both the fourth quarter of 2013 and first quarter of 2014 were impacted by extremely harsh weather conditions particularly in the Northeast, which is typically a very strong market for our Climate Control products.

As the weather improved, we saw the effects as April new orders rebounded to $33 million for the month bringing our year to date new orders to $96 million at the end of April, 4% higher than the same period in 2013.

Considering orders in-house and being processed that are not actually counted as backlog yet, we are actually about 7% ahead of last year. Our backlog at April 30 was $59 million compared to $40 million at December 31, 2013 indicating improving trends in our core markets.

We continue to maintain leading market shares for our geothermal and water source heat pumps and hydronic fan coils. Demand for our Climate Control business products is primarily driven by new construction, on Page 21 are indicators relating to commercial and institutional construction.

McGraw-Hill expects construction starts in 2014 will increase 11% over 2013 in the major vertical markets we serve and double digit growth in both 2015 and 2016 in those markets. Their most recent thinking is that the key markets we serve are expected to grow by 46% through 2018.

Keep in mind that there is a lag between construction starts and the delivery of the HVAC products that we sell. Also on Page 21 is the most recent release of the architectural billings index by the American Institute of Architects, which is the leading economic indicator for non-residential construction spending expected in the next 9 to 12 months.

The March ABI was 48.8, indicating a decline. This index has fluctuated greatly over the past year with eight months indicating growth and four months indicating decline, not necessarily in that order, but it’s going back and forth throughout the year. Kermit Baker, the AIA’s chief economist, commented on the March index.

And he said, “Hopefully some of this can be attributed to severe weather conditions over the past winter. We will have a better sense if there is a reason for more serious concern over the next couple months.” Page 22 shows McGraw-Hill’s forecast for single-family residential construction starts.

Residential products generally account for approximately 16% to 18% of our Climate Control sales. McGraw-Hill’s currently forecasting that housing starts will grow 76% from 2013 to 2016, which should benefit our residential geothermal business.

Another positive trend is the increase in green construction that has occurred the past few years and is expected to continue, also shown on Page 22. We have shown you this graph before, but it’s worth reminding you again.

This is a summary of the 2013 green construction outlook which is also published by McGraw-Hill, it forecasts that the green construction market will grow substantially from approximately $85 billion in 2012 to between $204 billion and $248 billion in 2016.

We believe that this should benefit the sale of our highly energy efficient products including our geothermal heat pumps. In summary, the general consensus of most economists and construction industry experts is that a construction recovery will be forthcoming, although the timing is by no means certain or easily determined.

At this time single-family residential construction seems to be rebounding faster than commercial and institutional, however, we believe there will be a strengthening in most of the major sectors we serve. Page 23 addresses our Climate Control businesses operational excellence or OpEx strategy.

Operational excellence is a long-term journey that focuses on understanding the needs of our customers and integrating quality and speed into our customer interfaces and our manufacturing processes.

We do this through identifying barriers to quality and speed that exist in our company, developing skills and abilities in our employees to engage them in eliminating those barriers through continuous improvement and improved operating efficiencies.

During 2013 we primarily focused on training our organization in the disciplines and skills required to implement OpEx. During 2014 we have several specific initiatives planned which should result in improvements. This page lists, just for your reference some of the basic elements of OpEx.

During our last call we covered in detail the key value drivers that we are focused on and which we expect will increase LSB’s value in the near and mid-term. They are recapped on Page 24.

We are comprehensively upgrading our Chemical Business’ reliability systems, equipment and personnel to improve safety, plant up time and minimize unplanned interruptions. We have made significant investments to improve Pryor and we believe we have made important progress.

We have major capital projects underway at El Dorado that will improve its profitability substantially. We will support the growth of our Climate Control business as the construction markets it serves grow over the coming years and expect to achieve operating leverage as that occurs.

And we are striving to increase efficiency and reduce operating costs in our Climate Control business through operational excellence initiatives including lean manufacturing techniques.

Before opening this up for questions I would like to thank you for listening today and I would like to request that each of you please limit yourself to three questions so that others will have a change to ask some questions as well. If you have more questions you can get back in the queue and ask them later on during the session.

Operator, please open it up for questions..

Thank you. At this time we will be conducting a question-and-answer session. (Operator Instructions) Our first question is from Dan Mannes of Avondale Partners..

Hello?.

Hey Barry, can you hear me?.

Yes..

Well, first congrats on getting Pryor back up and running.

It sounds like your tone on it is that this feels much more sustainable than maybe what we have heard over the last couple of quarters?.

Well, we certainly hope so and we worked hard there. We made a lot of improvements. So we believe that we have made substantial progress..

Got it.

Let me just ask a couple questions, one of the things that I guess I am struggling a little bit to reconcile with is I guess the profitability of the Chemical Business in the first quarter, when you do all the puts and takes and you remove the insurance and you add back the $14.5 million estimate, the number just doesn’t seem as compelling as maybe we had hoped and I realize the Chemical – the pricing environment isn’t perhaps as robust as it was last year, but I was wondering if you could talk to anything maybe in terms of the remaining cost structure either at Pryor or Cherokee or any ongoing costs you are continuing to incur there as you improve operations because I guess we just expected it would look a little bit better?.

Well Dan, are you primarily comparing the first quarter of this year versus last year or are you just talking about the quarter standalone.

The quarter standalone is below what we would anticipate significantly because Pryor was down we had a lot of extra costs there and instead of – in the prior period we were producing a lot of ammonia at a high price and we were bringing this plant up slowly and not pushing it at all.

We have got a lot of extra overhead costs there for the time being as Barry indicated that we are spending time and money to make sure that this plant can sustain the production. So we took it very easy. And I think that going forward in the second quarter and subsequent quarters we are going to continue to have very reliable results.

But in the first quarter we had to tweak that plant a numerous times during March, it was down all of January and February. We were putting a lot of additional overhead costs in there in terms of engineering and analysis work that are not necessarily downtime costs.

And we also had commitments that we made to customers that we couldn’t provide – that we couldn’t ship because of lack of production.

So there were number of things in there that we didn’t add to the reconciliation, because we are really trying to just show you what the effect of pulling the insurance out and pulling it in, adding back downtime, but if we did a more aggressive calculation on the downtime assuming full production and high costs we would have gotten a different number.

But when you look at the comparison to the prior quarter, in the prior quarter, the downtime calculation we made was a significant amount of ammonia sold at a very high price versus this year, the ammonia sales price was much lower.

So, there were number of mechanical things there in terms of financial engineering that could make it look differently, but we tried to give you the picture of what it looked like without those two elements in there. And we have a little more clarity in the 10-Q regarding some of those other items..

It sounds good. I will definitely take a look through that before I follow up.

The next question really is a little bit on the second quarter, given that Pryor is now operating consistently, did you build any inventory in anticipation of Q2 sales? Do you have any presales? And can you just give us an idea of what normal sales volumes look like in the second quarter versus the first, because it’s been a while since we have kind of seen their clean second quarter?.

Well, we did build some UAN inventory – excuse me, some ammonia inventory at Pryor. So, we built some inventory that will get shipped in the second quarter. So, it gives us a running start. And we decided not to start producing UAN until early part of May.

So, we won’t have a lot of UAN to ship although we do have some forward sales on UAN at a lower price than today’s market, because you have to do – in order to capture the volume you have to start doing some forward selling.

So, we have got some fairly significant sales at the end of March 31 at firm sales commitments, a bit below the current price, because nitrogen fertilizer prices have increased fairly significantly in the last three, four, or five weeks..

Got it. I will ask one last question before I drop back in the queue. On the Climate Business, obviously a little bit softer in the first quarter. You guys talked about maybe some of the pull forward into the fourth.

This maybe a stretch, but any impact to the pending separation of Carrier on the heat pump sales or is that completely unrelated?.

It really has not impacted our sales in the first quarter in any meaningful way..

Got it. I just wonder we will see maybe more in subsequent quarters..

I will say it was a de minimis impact..

It sounds good. Thanks a lot..

Thanks, Dan..

Our next question is from Joe Mondillo of Sidoti & Company..

Good morning, guys..

Hello, Joe..

Good morning. Good morning, Joe..

Couple questions that I have regarding some of the capacity. So at Pryor, congrats on getting that initial capacity finally up and running and it sounds like you feel a lot better with that.

I was just wondering with that additional 60K of ammonia that we still have there, that I know you sort of put to the backburner, while trying to get all this other capacity up and running, are there any sort of thoughts now how to go about with that if you are trying to eventually try to start that up or how are you thinking about that?.

Well, I think we are still thinking about that exactly the way we have said we were thinking about it on the last two calls. And that is that we are focusing on the primary, larger part of the production at that facility. And we have put those on the back – that on the backburner.

And we are not – we do not have a definite schedule at this time for taking it off the backburner and getting them going. And when we feel comfortable with the rest of the plant on a sustained basis, we will turn our efforts to that.

Now, the same resources that are used to deal with the plant – the part of the plant that’s running now, which is most of the plant would be the resources that we would need to use to work on getting those other smaller ammonia plants going. And so we really don’t want to take those resources and divert them at this time..

Okay, understandable.

Would it take 6 months or 12 months of sustainability at the original capacity or what sort of timetable would you think?.

There is no specific timetable. It’s just an all facts and circumstances evaluation by the management onsite of when they are ready to go. And so I really don’t want to put a specific timetable on that..

Okay, good enough.

In terms of all these additional costs that you are sort of taking on to try to get this thing up and going and it sounds like over time a significant amount of costs will fall off, is that fair to say? And if so is there any way to sort of quantify sort of this sort of maybe temporary costs that are associated with making sure that everything is going well and getting it up and running?.

Well, we believe that we have during these outages experienced some one-time costs or not – well, let’s call them non-recurring costs that we have had to expense off and not capitalize to deal with some of the issues. And that those will become less and less as time goes on.

However, we will – we have increased our engineering staff and our maintenance support staff at those operations, but we do think that, as you said, that some of the higher bumps in costs that we have seen will go down. I just can’t – I am not in a position to quantify that specifically at this time..

Okay. And then in terms of the El Dorado expansion, so you stated that the nitric acid capacity should on line sometime second quarter of ‘15. And as I understand this, a lot of that capacity or some of that capacity is going to be used to support the additional ammonia capacity that’s coming online by the end of the year.

So, if that’s the case, that additional nitric acid capacity, how is that going to work? Are you going to be able to sell that by the end of – in the meantime before the ammonia capacity comes online?.

Joe, first of all, it’s not going to come on in the second quarter, it’s going to come on in the second half of the year. And yes, we do have a – we are considered....

Nitric acid?.

Nitric acid is going to be beginning at the full production in the second, after the end of the second quarter, not during the second quarter..

Okay.

But so the ammonia is coming on line at the end of the year, is that right?.

Yes. No, what we said was to clarify is that we would have the nitric acid and concentrate are done during the first half of the year and then start the ramp up and then we would have the ammonia plant done by the end of the year and start the commissioning and ramp up at the beginning of 2016..

Okay..

Now, back to your question, Joe, we have more than – we will have one more – more than one acid plant there. So, some of the older plants in order to accommodate the production of the new plant in the first half of 2015, we will probably turn those plants down and run this one almost full out.

So, we will be able to run this plant at a very optimum level and we have the flexibility of pulling the other ones up when we have more ammonia..

Okay.

So, there won’t be sort of any additional temporary revenue in the second half of ‘15 regarding that nitric acid?.

I wouldn’t – I would not indicate that at this point..

Okay. Just lastly, the Climate Control Business, it sounds like you are doing a lot there. You have highlighted several different bullets that you are sort of trying to improve efficiencies.

Is there any way to quantify any sort of the efficiency benefits on a cost savings perspective?.

We have some internal estimates of what we think we will be able to do over say a 2-year to 5-year period, because this is a, as I said, a continuing process, but we are not prepared at this time to give any financial guidance on that..

Okay. Alright, thanks a lot..

Thanks, Joe..

Our next question is from Roger Spitz from Bank of America..

Thanks. Good morning.

What is the minimum cash and/or liquidity that you require to run your business?.

Roger, this is Tony. Can you give me a little bit more of color on that question? In other words, we have internal cash flow that up to this point has allowed us to keep our revolver undrawn. And so our internal cash flow base, starting with EBITDA, excluding capital expenditures is sufficient to fund our working capital.

Now, on the capital expenditures, on the expansion program, we have the cash sitting on the balance sheet.

And as I indicated in the financial review, we expect the – once we start to get the benefit of this, that we will continue to have internal cash flow but in the meantime we feel like that our cash that we have put on the balance sheet at this point is sufficient to carry us through on capital expenditures.

And there may be some pieces of this capital expansion program that we might finance with third party lease or finance, but did that answer your question?.

Well, it helped.

What I am trying to think about is this, you have got the big CapEx plans, you need a certain amount to operator your business and so let’s say that’s you have got $80 million available now on your working capital revolver, maybe you feel you need – I don’t know what the answer is but maybe you say, well I need another $40 million of cash and I need $125 million or something like that.

So what I would do is say okay, this is how much CapEx, you have a lot of cash and investments and liquidity but I would say look, I would take $125 million or whatever the right number, that’s the number I am looking for, off of that and say that’s the delta of the hole that needs to be filled either with cash flow from operations going forward or tapping the capital markets, that’s the genesis of the question is just saying or another way to say it is once everything is done and on line, the ammonia, nitric acid plants are all on line in mid-2016, what would you say would be the liquidity you would like to simply run your business?.

We have said in the past that we – our objective is to keep $100 million in cash available and keep our working capital revolver undrawn except for seasonal needs..

That’s perfect answer I was looking for.

And on Chemicals, in terms of thinking about this on raw material margins perhaps, adjusted for all the downtime insurance, is the right way to look at this from a 20,000 foot basis is margins were down sequentially and year-on-year because of higher natural gas prices and lower ammonia and UAN prices?.

Yes..

Perfect.

You are in the process of starting up Pryor UAN and urea, would it be fair to say that if all goes to plan that Q3 might be a fully clean quarter to look at Pryor or would some of these startup, ramp up operations sort of carry over into Q3?.

Well, actually at this time we are in full production of urea and UAN there. So we are past the startup point on that. So assuming that the plant continues to operate for the balance of the quarter that’s a true statement what you just said..

And the other thing, Roger, to keep in mind is that we are getting a late start to the UAN part of the season, so it’s a little difficult now to determine whether we are going to be running full our on the UAN in the third quarter because usually that’s the softer quarter before they start building up stock for the fall season.

But yes, I think we will be third quarter in terms of production capacity and capabilities will be a good clean quarter, question is what will the demand be for fertilizer?.

Excuse me for jumping in here but I think he was asking about the second quarter..

No, the answer was perfect. That’s exactly what I was looking for. And thank you, Tony for recognizing that there is a demand side of it too, you are right I was referring to the operations. So thank you very much for your help..

There is another factor I would like to add to that. And that’s that we have a very large storage capacity for UAN at Pryor. I think we have 60,000 tons and two large tanks, so even if the season is off, we will be able to build up, I mean we will be able to build up when the season is off for sales when the season is on.

So I don’t think we will be shutting down the plants or slowing them down this year anyway..

Unless you have the off take agreement..

Yes. And we have an off take agreement for all that we can make. So I don’t think that we are going to be in that position this year, year-to-year things change..

Perfect. Thank you very much..

Sure..

Thanks, Roger..

Our next question is from David Deterding from Wells Fargo. Please state your question..

Hi guys. Good morning..

Good morning..

Just have a couple of quick ones, on the volumes that you are going to replace out of Orica, are those I guess are you confident that you would be able to replace all those into the explosives market?.

We feel confident, yes, that we will probably be able to replace all or most into the explosives market..

Okay.

And can you just talk about those contracts, are they annual or are they cost plus read contracts, are they very similar to what you are selling to Orica or just kind of the nature of those contracts?.

Well the contracts – you want me to take it..

Sure, take it..

The contracts are usually multi-year contracts from three to five years and you have to catch the cycle. That was one of the motivations of us giving Orica notice, because we want to be able to when those contracts come up in 2015, we wanted to be able to pick some of those contracts up.

So if we had, if we had let it go for another year and then Orica you know signed a contract with CF, if they had stopped taking, we would have been – we wouldn’t have any place to go to sell it, to sell to big customers. So I think that these new contracts will be multi-year contracts.

There may be a few one year contracts but I don’t think that that would be the big picture..

And are those costs plus contracts similar to what the way you were selling to Orica?.

Probably, we are producing the ammonia at El Dorado and so likely there will be gas plus contracts..

Okay.

And then my second question is I noticed you said you have new senior management at Pryor, can you just anecdotally talk about is there been a change I mean obviously we have learned in April and May record production, has there anecdotally been a change in philosophy there with new management coming in?.

Yes, there has been a significant change in philosophy which was the reason for the change in the management. I would say to characterize the change in philosophy with new management is taking a more holistic view of the plant and the end net output as opposed to trying to push the plant to its maximum output on any given day.

So for example, at 650 per day if you sustain production every single day of the month you end up producing a lot more and if you would try to push it to 700 or slightly over 700 but it pushed the machinery to its limits and you have breakdowns. So our – the management philosophy is to try to optimize total production over the long haul.

In addition to that they are much more focused on preventive and projected maintenance on a more focused best practices approach to running the business and generally liability. The high focus is reliability..

Great. Thank you, guys. That’s perfect. Thank you so much..

Thanks David..

Our next question is from Keith Maher from Singular Research..

Good morning.

When I first saw that the growing season had been delayed because of the weather I thought that might benefit you, but it sounds like with just now getting UAN production up in prior, that’s probably not been the case, would you say?.

What did he say, I didn’t understand it..

Would you repeat the question?.

Yes. Sure.

I was just wondering with the delay in the growing season, the planting season, because of the weather I thought that may benefit you with Pryor being down, but it sounds like you still just recently brought the UAN production up at Pryor, so perhaps you have kind of missed the sweet spot here in the spring?.

We might have from a volume standpoint but prices have improved and we have the off-take agreement. So as Jack indicated earlier, Pryor will continue to produce UAN and the part that they are able to ship immediately will be a benefit from the higher cost.

And we can either store it up to a point, but we have an off-take agreement for all we can produce. So, we will be able to run. And as you know the economics of a process manufacturing like this is most of your costs are fixed.

So, we will be in a position to be able to run the plant pretty much at an optimal level since we have the off take agreement and we have the storage capabilities..

Okay, that was helpful. And on just OpEx, I mean, you did call out the $4.2 million in the quarter related just to dealing with the activist shareholders. So, I am kind of assuming that, that is going away.

And I didn’t know if there is any of some of the other kind of one-time investment you have made just in third-party consultants for safety and reliability reasons over the past year.

Is some of that also potentially going away?.

Yes. We spent somewhere – I don’t recall the exact number now. Well, we have probably spent between $1.5 million to $2 million on consultants last year. Actually, now that I think about it, we probably spent between $2 million and $2.5 million on consultants last year.

And although we will continue to have some consulting additional outside consulting fees on an as needed basis, there will be nothing near that on a going forward basis..

Okay, thanks. And a question for Tony just on the tax rate, I know it’s been a little bit higher the last few quarters.

I am not sure what’s causing that and what should we think about the tax rate going forward?.

What was the question?.

Tax rate..

The accrual – well, we have had some. In the first three quarters of last year, we took some benefit for some credits that are being delayed at this point until we get Pryor back up and have better results. So, there – it’s really dependent upon some of the manufacturing tax credits and other things that we will sort of have to wait and see.

But for the most part, 40% is a good provision..

Okay. Alright, thanks. That’s all I had..

Our next question comes from David Kaiser of Robotti & Company..

Hi.

How are you guys doing?.

Hi, David..

I just want to talk about the Climate Control Business for a minute. First off, I want to make sure that I understand Slide 20 when you say bookings year-to-date April were $96 million, 4% higher than 2013.

Are you referring to Q1 of 2013 or again December 31 as you are in the next line?.

No, I am talking about comparing it to the same period last year..

Okay, thank you..

And then I also made the comment, did not put it on the slide, but we have order – what we call backlog is when we have the purchase order in hand and all the internal processing is completely finished. And then at that point we officially enter it in backlog.

So, this number here refers to the official backlog, but in addition to what’s officially in the backlog, we always have over at our climate and master operation because of the mechanics of the operation, we have a queue of orders that are in house and in process and about 98% of those always enter the backlog.

And that is actually running higher this year substantially about double what it was last year. So, if you take into consideration, the orders in process that are in-house, that will eventually be backlogged were running about 7% ahead of last year..

Okay, I appreciate that color.

And then the other question is with the drivers for green construction certainly being favorable, is there concern of added competition? Are there people coming into the market? Are you seeing anything like that?.

We see the same players basically at this time in the business..

So, you say it’s not a concern that you are comfortable..

Well, I mean the competitors are always a concern. And that’s why we try to have the best technology and we are continuing to invest in our marketing and the sales side of our business, but we haven’t seen any significant new technology or significant new players in the market..

Okay, thank you guys. I appreciate that and have a good day..

Thanks, David..

Thanks, Dave..

(Operator Instructions) Our next question is a follow-up from Joe Mondillo from Sidoti..

Hi, guys. I just have a quick couple of follow-up questions. First off, profitability obviously at Chemical is one of the biggest uncertainties just given the inconsistencies with the production. I was wondering if there is any way you can – and I don’t know if you have this number on hand.

If you take out Pryor, what kind of operating margins would you have seen in the first quarter at Chemical?.

Well, we have the Baytown plant, which is a captive plant at the location there. But as far as the El Dorado plant, they are in a position right now where there is very difficult for them to create a very strong margin, because they are buying the ammonia off the pipeline. So, you have got Pryor and Cherokee that produce some natural gas.

And Cherokee’s margins and production were very good during the quarter. And as we talked about Pryor, they were down for the biggest part of the quarter..

But we don’t have a specific number that we can give you..

Okay. And then also I have gone back in the history of your company and working capital cash needs has been quite low. But obviously, with Pryor ramping up and everything, it’s sort of uncertain.

So, I was just – any guidance you can give sort of what your cash needs are on an annual basis for working capital?.

Well, yes, we showed you in our PowerPoint presentation what it looked like in the first quarter. And we have from a EBITDA standpoint, you have depreciation and – so our internal cash flow for the most part recently has covered our internal cash flow base. We haven’t had to use our asset base revolver..

And so in the first quarter, you saw an inflow of $5 million? Is that correct of working capital?.

Page?.

Page 6, I think..

That’s correct..

So, I mean, when we get production up and running and everything, are you going to see an outflow or?.

The only time we will see a significant outflow would be as we when we ramp sales up substantially, but at this point you have seasonality, where you build up inventory the one part of the year and you sell that, you build up receivables.

And so it tends to from an internal cash flow standpoint to be covered that way, but since you were talking about Pryor specifically, with Pryor, we expect to see less seasonality than in our other ag products, even though it is an ag plant or primarily an ag plant. And the reason is because we have that off take agreement.

And our customer has a lot of storage capability. So, we don’t expect it to be quite as seasonal as you would see in the other plant in Cherokee, for example..

And if you look at our....

Okay. I guess I am just trying to look at it on a normal year working capital cash needs and it sounds like the cash outflow for working capital is not too significant for the whole entire company.

Is that fair to say?.

Joe, if you look back at our statement of cash flows, you can see the cash flow from operations each quarter and sometimes it’s a positive, sometimes it’s negative, but it tends – considering the seasonality, the change in working capital tends to balance itself out..

Okay. Good enough.

And then just lastly that off take agreement, was wondering if you could update us on when the expiration on that is?.

Which one are you referring to?.

The coke..

The coke agreement?.

Well, coke is a 15-year agreement..

‘15? 2015 or 15 years?.

15 years, but it has outs for both parties under certain circumstances..

Okay, okay. Thanks a lot, guys..

Thanks, Joe..

Our next question is a follow-up from Keith Maher of Singular Research..

Was I wrong on that?.

Hi, hi.

I really appreciate all the details that you have given on the El Dorado expansion, just wondering and it does look like everything is on schedule, but is there anything right now that you are kind of concerned about that may delay you guys meeting those dates you have laid out for 2015?.

No..

Okay. Thanks..

Our next question is from Gregg Hillman from First Wilshire Securities Management. Please state your question..

Yes. Hi, gentlemen.

Yes, Barry could you talk a little bit more about China, what’s going on there with urea exports and the regulations there and whether producers there are able to circumvent regulations and export more to the United States?.

I am not – I can’t speak intelligently about circumvention in China, but I do know that they tend to regulate the export on a seasonal basis, do you recall what the season is where they cut off exports or they have pay duties on?.

Yes, I don’t recall exactly. It’s pretty well documented though. But the China – China really drove down the price of urea this last year and they will continue to do that, but there is, like Barry indicated, there is a cut-off date when their export tariff kicks in..

Yes and so essentially....

Do you know what that is?.

Essentially I mean our ag folks are focused on that because they deal with that when it occurs, I just don’t recall the dates. But....

We will have – we will get that information and send it to you..

Okay. That will be great and just one other question, when you did the bond road show I think you said the earnings power of the company was $200 million in EBITDA.

I think that’s without the additional capacities that you are adding right now and I was wondering, in the documents do they give all the assumptions for that in terms of pricing for fertilizer and natural gas prices in the SEC filings, is that out there somewhere and what are all the assumptions are for that?.

Say that again, please. I am sorry..

Just the assumptions for – in the bond road show I think you said you could do $200 million normalized for EBITDA and I was wondering the assumptions behind that in terms of natural gas prices and fertilizer prices, are they laid out clearly in the SEC filings somewhere?.

I don’t recall what we have specifically laid out in those presentations that we made which would have been filed in 8-Ks, I believe, weren’t they, weren’t those presentations filed?.

I think they are out there..

Yes. They are out there, but let me just recall how we created that bridge at the time, okay. If you will recall, what we did was there were two parts of the bridge.

The part of that bridge we took our actual earnings and we took the effective downtime, and this was back in 2012, 2013 and we added back the income that would have been generated at the time of the downtime with the market conditions that existed at that time, which were more favorable than they are today with a much bigger spread per ton.

In addition to that we did include the effect in that $200 million of the additional capacity that we were bringing online that was included in there. And so if you were going to go back and redo that today, the question really would be what would that bridge look like in today’s – with today’s market conditions. So it would look somewhat different.

It would be somewhat less than that, and I don’t have the exact number at the end as we speak here, but it would be less than it was at that time as a result of the changing market conditions..

I think – but to answer your question, Gregg, I think the assumptions were there. Mostly everything we had in that presentation was based upon a certain set of market conditions and assumptions and so you can look back at that and see what they were at the time..

Okay.

But that didn’t include the additional 60,000 tons at Pryor, I believe, did it?.

I have to look back..

Yes. Okay. Well, I will check it..

At that point we were still – I think at that point we were still at the point that we didn’t want to commit on those (Technical Difficulty)..

Yes, yes, I think to give you a specific question we need to pull up the presentation and review it and get back to you..

Okay, that would be great. Thanks..

Thanks, Gregg..

This does conclude the Q&A portion of the conference. I would now like to turn it back to Carol Oden..

Thank you, again. I would like to go over forward-looking statements. Information reported on this call speaks only as of today May 8, 2014 and therefore 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 certain forward-looking statements. All these statements, other than statements of historical facts are forward-looking statements.

Statements that included the words expect, intend, plan, believe, project, anticipate or making similar statements of the future or forward-looking statements nature are identified as forward-looking statements.

Including, but not limited to all statements about or in references to the architectural building index or any McGraw-Hill forecast, any references to natural gas costs, ammonia costs and fundamentals of the Chemical or Climate Control business. The forward-looking statements included, but are not limited to the following statements.

We will continue to have negative cash flow until the El Dorado expansion projects are completed and producing.

Plans, capital expenditures at El Dorado, funding of capital expenditures, ammonia prices, strong continuing demand for fertilizers, optimistic about our add business, consistent production at the Pryor facility, plant turnaround, installation of equipment at Pryor, impact of El Dorado expansion on ammonia capacity and cost of ammonia, timing of completion and budget for the El Dorado expansion project, completion dates and startup dates for acid plant and concentrator and ammonia plant, Climate Control Business 2014 operational excellence initiative value drivers.

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

We incorporate the risks and uncertainties being discussed under the heading special note regarding forward-looking statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and Form 10-Q for the period ending March 31, 2014. We undertake no duty to update the information contained in this conference call.

The term EBITDA as used in this presentation is net income plus interest expense, depreciation, amortization, income taxes and certain non-cash charges unless otherwise described. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to GAAP measurements.

The reconciliation to GAAP and any EBITDA numbers discussed during this conference call are included on the Q1 2014 conference call presentation, which is posted on our website. Thank you. That ends our conference call..

Ladies and gentlemen, thank you for your participation..