Greetings and welcome to the LSB Industries Inc. Fourth Quarter 2015 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, Kristy Carver, Vice President and Treasurer of LSB Industry. Thank you. You may begin.

Thank you. Please note that today's call it will include forward-looking statements and because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance and a variety of factors could cause actual results to differ materially. As this call will include references to non-GAAP result, please reference this morning's press release in the Investors section of lsbindustries.com for further information regarding forward-looking statements and reconciliations of non-GAAP result to GAAP result. At this time, I would like to go ahead and turn the call over to Dan for opening remarks.

Thank you, Kristy and good morning everyone. Thank you for joining this morning's 2015 fourth quarter conference call. I will first review the permanent management changes during the quarter and then provide further information on the operating status of our chemical plants as well as an update on the El Dorado construction progress. We’ll then discuss the climate control operations and provide a summary of our key objectives for 2016. I’m moving onto slide 3, as most of you know I became President and CEO in late December and Mike Foster joined the company in January as our new General Counsel. Mike’s an excellent partner and has hit the ground in full stride. He’s a great addition to our executive team. During the fourth quarter, we secured financing to allow for the completion of the El Dorado expansion. As you know we also added three new board members. It’s been a very smooth process. We’ll continue to review our board size and may seek ways to become more efficient and cost effective. The new Nitric acid plant in El Dorado became operational during the quarter and we also completed the co-generation plant. These are state of the art facilities and will be very efficient and will compliment the new Ammonia plants when it becomes operational. We’ve previously reported the Ammonia plant is on schedule and we are planning to initiate ammonia production early in the second quarter. We remain on that schedule and assume the weather pattern is normal. We also reconfirmed that our aggregate cost for the El Dorado expansion will be in the range of $831 million to $855 million. Included in those estimates are $46 million related to a general contingency estimate that we’ve previously reported. We’ll be surprised if we have to use more than 50%…

Thanks, Dan. As Dan indicated, our fourth quarter results were disappointing compared to last year and what we expect going into the quarter. On page six of the presentation, we provide a consolidated summary statement of the operations for the fourth quarter of 2015 and the full year of 2015. Total net sales were down for the quarter driven by lower chemical sales, which contributed to the lower gross profit. I will go into some detail in the next few slides. Overall, SG&A increased $3.4 million for the quarter versus the fourth quarter of 2014. That increase was primarily driven by higher SG&A at our chemical business of approximately $1.1 million related to additional training expenses at El Dorado which we expect to end when the ammonia plant is in operation. Increased amortization cost related to the implementation of a new ERP system and increased compensation expense at El Dorado related to the overtime associated with the start up of the Nitric acid plant. In addition to that, we had higher corporate expenses arising primarily from one time severance cost of approximately $600,000 an increase in compensation and restricted stock award expense, the non allocation of certain executive salaries to the operating businesses that have been done in 2014 and increase in legal and professional fees related to various financing alternatives that were explored during the quarter, an increase direct to compensation. I want to point out that included in the fourth quarter of 2015 is $3.5 million write down of certain ammonia assets at our Pryor facility. Adjusted operating loss, adjusted net loss and adjusted EPS roll down for the quarter versus the fourth quarter of 2014 due to the decrease in sales and gross profit margins and the increase in SG&A that I just discussed. Page seven provides…

Thanks Mark. On page 13 you can see the operational status of our chemical facilities. We discussed the El Dorado status earlier in the call and we remain on point. Pryor is running well and we’ve been performing detailed inspections, repairs, modifications and we continue to install additional equipment instrumentation to improve our on stream rates. We’ll continue this activity and we expect to initiate turnaround activities in late summer. We may move it to a later date in early fall if market conditions and our production rates provide the opportunity to move this data out. Cherokee continues to run well after the hick up in late December. We are planning a late summer turnaround. Baytown as usual continues to operate well. Turning to page 14, the remaining work to be performed on the El Dorado ammonia plant includes finalizing the commissioning activities, completing the instrumentation, preparing installations for the heat affected areas, activating the catalyst and the initial start up activities. We have an operations team that has been through rigorous training and many team members have prior ammonia plant experience. Assuming that the weather corporate with us, we should see initial ammonia production early in the second quarter. Mark and I will discuss the chemical product sales volumes outlook for 2016 on page 15.

Thanks, Dan. During 2015 on each earnings call, we provided a forward look on the next quarter’s projected sales volume for our major chemical products. We’ve changed our policy and will now provide annual projected sales volumes for our major chemical products. Those are presented on page 15. As we progress through the year we will update the projected sales volumes if necessary. Sales volumes for all Ag products in 2016 are expected to increase over 2015 Ag sales volumes with overall industrial and mining sales volumes for 2016 expected to increase over 2015 as well. The expected increase in 2016 sales volumes are been driven by higher on stream rates at our Pryor facility and, as a result of the completion of the expansion project at El Dorado which lowers our cost of ammonia and increases our production capacity. Looking to page 16, we have updated our 2017 chemical EBITDA sensitivity analysis to reflect the range of natural gas and ammonia prices that is more representative of the current markets. This table is intended to provide an idea of how the movements in natural gas and ammonia affect our results, but is more directional as it based on assumptions that are outlined at the bottom of the page. What you will see is that each $0.50 movement in the price of an MMbtu of natural gas has an approximate $10 million effect on EBITDA. In each $50 per ton movement in Tampa ammonia price assuming the Tampa ammonia price is used as a proxy for the movements in other products selling prices has an approximate $27 million effect on EBITDA. The takeaway here is twofold. First, those changes of both natural gas and selling prices of a product have a significant impact on our financial results. And second that our chemical business has significant earnings power depending on the feedstock costs and the selling prices of our products. Now, I’ll turn it back over to Dan to wrap up and discuss our focus for 2016.

Thanks Mark. On slide 17, provides a quick outline of our focus. As we look forward for the remainder of 2016 we have five major objectives to accomplish. First, we believe we are on-track to complete El Dorado ammonia plant on time and within the estimates we’ve provided. We believe we’ll start initial production in April. It will likely take us a couple of months to ramp up the full nameplate production capacity of 1150 tons per day. Our operations team is gearing up and they’re ready to run the plant. Second, we’re fully engaged in detailed activities to improve our chemical plant on stream rates. Clearly we see this as a critical process and we are strongly committed to make meaningful improvements from 2015. We have several stumbles in 2015 that we want to avoid in 2016. We now have the right team in place to tackle this issue. Richard Sanders will be leading this effort. Third, we want to continue to expand our OpEx activities in the climate control business. We have already seen some of the initiative positive impact in the fourth quarter of 2015 and early in 2016 and we anticipate this progress will accelerate throughout 2016. We’re taking the right steps and the climate control management team have a short focus to keep this rolling. Fourth, we plan to consolidate certain production and warehouse footprints in the climate control business and this is now under way. We should have this completed in the second half of 2016. Fifth, we believe our capital structure is costly and we anticipate refinancing our secured debt and preferred stock to obtain a lower cost of capital. We anticipate this could be accomplished toward the end of 2016. Management and our Board as previously announced will continue to review our strategic alternatives for our business in order to maximize long-term shareholder value. These alternatives may include asset sales and/or separation of our two businesses. That concludes our prepared remarks. Melissa, we can now open the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Dan Mannes with Avondale Partners. Please proceed with your questions.

Thanks. Good morning, guys.

Good morning, Dan.

A couple of questions, first, obviously on El Dorado, as I go back and I look at your third quarter call, I think you commented at that point, you’re only looking to spend 70 million in 2016? Now you still have kind of 100 to 150 left. I’m wondering if maybe there were some delays in terms of the financing. Is there change in schedule, and how if it all that impact the schedule?

Well, I think as what we said is, you’re right, we had $70 million to $75 million left, but we also had a higher spend in the fourth quarter. We clearly had a lower spend in the fourth quarter and we will complete the project on time as we said which means, that we’re compacting more construction and more activities in a short period of time, whether its second shifts, Sunday shifts or additional people on site to get it done on time.

Well, I mean the natural follow-up question there is, are you taking more risk in the startup and as you look through the steps between here and full production where are the risks, the things going to run – I look at things like installing insulation. That doesn’t seem as scary, but I’m wondering if there are some other things that are maybe more critical past?

No, Dan, we’re not increasing the risk, in fact we’re doing just the opposite. We’re making sure that we’re going through very detailed pre-commissioning, commissioning activities, all of the work associated with that. I mean, the welding is done. The mechanical completion indicates that we are done with the construction. What we’re now is making sure, testing steam cleaning and testing the lines, so forth and so on. The heavy work is done. The cranes are disappearing off the site, things like that. But there is still the installation of the instruments and the insulation. And insulation itself is not a difficult task. It just a normal process you go through. So, the risk of completion I think is reasonably low. However, in startup you do have some risk. We think we’ve got to mitigate it. But there are some risks in startup as you bring everything up to full temperatures and full pressures throughout the entire system, both the front-end of the plant where you higher temperatures and the backend of the plant where you have pressure, so over 200 pounds of pressure. So there are risks associated with that. But we think we’ve got an ops team who by the way has run ammonia plants before. Our team we have on board has run ammonia plants in particularly run a sister plant to this. So, we feel pretty good about the team. We feel pretty good about what we’re doing. And there are other startup risks. I think it’s not risk of capital, significant capital and the startup. It’s a risk of time, not a capital risk. So, that’s how we view it right now.

Got it. If I could just ask real quick about the fourth quarter, a couple of things that stuck out. Can you maybe comment were kind of the losses at the existing El Dorado plant; were they maybe worst than what you’d experienced in prior quarters? And secondly, I noticed the purchase natural gas costs as 3.00, which seems inordinately high. Did you have a bunch of presale in the fourth quarter and why was that so high?

Yes. So from an EBITDA perspective just to give you some perspective, in 2014 we lost about $6 million at El Dorado in that fourth quarter. In the fourth quarter of 2015 we lost $11.5 million. So, clearly we were impacted by two things at El Dorado. As I said in the prepared comments, losing the Orica contract and having less volume and low density ammonium nitrate, it’s really hit us pretty hard, but also we had about the same volume in sales of high density ammonium nitrate, but the price drop from 318 a ton to 255 a ton, so we had pretty significant loss from selling prices. Also from an SG&A standpoint, we still had some training expenses that we’re not able to capitalized, and so they’re running through SG&A

And on the gas side?

Well, on the gas side, I’d like to tell you that we weren’t forward purchasing but as you know we have some pretty significant forward purchases throughout the year and clearly no one expected gas prices to drop to the levels that they were, so we were locked in on gas for a large portion of our exposed gas usage position and unfortunately the prices dropped.

So, I guess – hopefully you'll indulge me with the last question and I'll let on for someone else. As you look out for the balance of the year, where are you in terms of your gas position and also in terms of presale activity on UAN for the spring?

Yes. As of today we have approximately 6.2 million MMbtu, so about 40% of our forecasted expose natural gas usage forward purchase at an average cost of 275.

Okay. And on the UAN presales?

I don’t know how heavily you’re presold.

I mean it’s in normal course as you know it started out slow; buyers won’t able to come to the market. We’re now seeing that volume pickup. But our presales are relatively low. So we did not lock in low UAN prices in the fourth quarter and in early January. So, we have a fairly open book. Now that we’re starting to see presales come in and play pretty heavily right now.

Sounds good. Thanks for all the color guys.

Thanks.

Thank you. Our next question comes from the line of Joe Mondillo with Sidoti & Company. Please proceed with your questions.

Good morning, guys.

Hi, Joe.

My first question, just hoping to get a little more color on how you’re looking at profitability for the year, in terms of that 2017 guidance that you provided the sensitivity analysis, can we assume a similar sort of run rate starting in mid second quarter when you get that El Dorado plant up and running?

I don’t know that that's a good assumption. I mean, I think that, as Dan indicated, we are building up volumes on the low density side throughout the year. So depending on how we are able to build that up and build up our HDAN sales as well, we will depend on whether you could annualize the second half for the fourth quarter but it’s pretty seasonal. So it’s kind of hard to annualize. As far as where we will be in ’17, the only think I would say is this. We put the sensitivity table together. I think, as I said, it is directional but it’s fairly representative within a range of where we think we will be. So, you’ve got to pick your own natural gas price and where you think it will be for ’17 and where you think ammonia prices will be. But clearly, people don’t think that where the expectation out in the marketplace is that the price of natural gas probably won’t be north of $3. So just looking down that $3 column, we’ve got a lot of opportunity to really hit that $200 million in EBITDA that we had targeted and ammonia probably has to be a little over $400 or Tampa ammonia has to be around $400 and we will probably get there. But given where prices are moving around, I don’t think it would be prudent for us to sit here and try and pick prices.

Right. No, understandable. I guess, keeping in mind about the seasonality and such, what you have in the model for say the back half of 2017, should it be a similar sort of look or picture in the back half of 2016, or is there a dynamic regarding ramping up the El Dorado plant that makes it a little bit different than 2017?

I think, as I said in our prepared comments, it will take us a couple of months of get El Dorado ramped up. We also indicated that the mining sector is going through some pretty tough times right now, so we are not expecting volumes to rebound in the short-term for that. We are taking some initiatives in that area with low density and for that fact or for that matter in the high density for agriculture. We want to expand our agricultural reach for high density ammonium nitrate. We’ve got some good initiatives underway right now. Obviously, it probably won’t yield true to here in the first half of the year. Some of it may a little bit but we are really focused on that for the latter half and then on ’17. So, we don’t want to give guidance for ’16. We are just describing what we’ve presented in some of the things we are taking action on.

All right. If I can ask about pricing then, in terms of the chemicals that you provide for the guidance, I assume all the agricultural chemicals are based on spot like they have been historically. Could you just walk through the industrial chemicals, are they all based on -- I'm assuming they are not all based on cost plus just given that Orica contract that fell off and you’ve talked about how you may get some of that back based on spot basis? In terms of some of those industrial chemicals ramping up, what kind of pricing contracts do you within those?

Well, a lot of the industrial contracts are cost plus. But keep in mind, as this new ammonia plant ramps up in El Dorado excess ammonia, which is going to be approximately 50% of the ammonia output, will be pushed into the pipeline at what we call the current market price or a market Tampa plus or minus concept. So, most of that excess ammonia will go in as spot prices, monthly prices based on ammonia, based on Tampa ammonia as adjusted. So, I think our industrial products are largely indexed cost plus except for the excess ammonia.

Okay. And is all that increase in the industrial ammonia essentially excess from El Dorado?

Yes. I mean, I said about 50%, roughly 50%. Once El Dorado is in full operational status, approximately 50% of the ammonia output from that will go into the pipeline. But as I said, we are trying to expand. We are taking initiatives to expand our agricultural ammonium nitrate. We want to be a player long-term in the industry. We want to continue producing it and as well we’ve got some positions, some aggressive positions we want to take in the low density market as well.

Yes. So, Joe, if you look at our full year sales volumes and you go down to industrial mining and other ammonia, the difference between what we did this year and what we are giving an outlook for 2016, or what we give for ’15 and what we are giving an outlook for this year is almost all of the free ammonia that we are selling into the pipeline at El Dorado.

And obviously that’s in the latter half. That’s in the latter part of the year, latter half of the year.

All right. Okay. Sure. And then in terms of the Pryor plant, you’ve talked about how capacity there is 300 plus UAN, 85,000 ammonia. In terms of the guidance that you put out there, just because Pryor has been so volatile and there has been a lot of unplanned downtime over the years including in 2015. In terms of that maximum capacity where are you seeing Pryor being in 2016, knowing that there could be unplanned events there? Can you elaborate?

We see it better than ’15. I will say that, we see ’16 being better than ’15. We got hit with some fairly unfortunate activities in ’15. We don’t see those recurring. As I said, we’ve got several quite a few initiatives to improve the operational status and this turnaround that we are planning we’ve got a pretty robust process. I mean, as far as giving you plant-by-plant volumes or expectations, I don’t think we want to do that. We’ve given it here on an aggregate basis but we really don’t want go down on a plant-by-plant basis.

Okay. And then last question for me. Just regarding the Climate Control business, I think a couple years ago you were doing similar revenue and margins were in the double digits. Just wondering if you could comment on the profitability there and how quick can you get back up to double digits, does it take a lot of volume growth to get there or just talk about the profitability of that segment where it’s been historically and where it’s going?

Well. Sure. I mean, obviously, the loss of the carrier business had a significant impact and we’ve seen some fairly substantial improvements in air handling components. When we started that up, the sales increased dramatically and we probably weren’t manned as well as we should have been. We took a lot of overtime and some inefficiencies. We’ve now rectified that. So, we see pretty significant margin improvements. I think the OpEx initiatives that we’ve undertaken are really going to leave some pretty good benefit this year. We are expecting some significant savings through consolidation of facilities, through further consolidation of purchasing, through more efficient line layout, more efficient labor utilization, things like that. So while 2015 has seen quite a few changes and I call it some headwinds, we see 2016 being stronger than ’15. As far as the date, giving you an exact date on when margins are going to be at what level, I’m not going to provide an exact date but we certainly expect 2016 profitability to be much improved over 2015.

Okay. Great. Thanks a lot.

Thank you. Your next question comes from the line of Brent Rystrom with Feltl. Please proceed with your question.

Thank you. Good morning.

Hey, Brent. How are you?

Good. Thank you. Just couple of quick questions. EBITDA in Climate Control in 2015, was it about $25 million?

Yes.

Okay. When you look at page 15 and you look at the various volumes that you are looking at for the year, can you give us a sense, not necessarily absolutely precise but what portion of those volumes are related to the ramp up of El Dorado?

If you look at the product volumes, we are in the HDAN market today. So the HDAN market will pick up margin by producing ammonia versus purchasing ammonia. We are selling ammonia already. Most of that’s coming at a Pryor. So, I mean that’s nothing related to EDC. We don’t sell you UAN at EDC. So then you get down to really AN, which is the low density AN under industrial mining and that certainly, we are going to see improved volumes of low density AN but not where we’d like them to be and that’s certainly attributable to EDC. And then obviously, industrial ammonia, as I said to Joe earlier, most of the improvements or the increase in the forecasted ammonia is related to the free ammonia that we will have or the excess ammonia that we will have at EDC that we are going to sell into the pipeline.

I mean the biggest profitability improvement, obviously is manufacturing the ammonia versus purchasing the ammonia based upon the Tampa price. During prior years, we’ve been purchasing ammonia Tampa plus transportation, if you want to call it that. And you’ve seen the volatility and the price swings on that and that will be producing ammonia. So the biggest value generator, the biggest profitability improvement is we will switch from a purchased raw material to a produced raw material and that will have a pretty meaningful impact.

Can you guys give us a sense of what the -- post the completion of the project and normalization of the spend, what will corporate, general corporate expense look like? Is it a low $20 million, a mid $20 million run rate? Where would you characterize it?

I mean, I think maintenance CapEx.

Based on the SG&A.

Are you talking about SG&A?

Yes. So, SG&A at corporate, I’d say it’s low 20s, as we sit here today. But I will caveat that with, we do expect, we view most of the experiences that we have at corporate this year with an eye towards reducing that below $20 million.

That will be a key focus for us, is to get some of those corporate expenses that have been layered in over time to take those and reduce it.

On Page 16, looking at the EBITDA estimates that you have in that chart, does that reflect any corporate overhead or is that without allocation to corporate?

This is just chemical.

Okay. And then my final question. We're up in the Midwest here, and we are having an unusually warm end to winter. Starting on Sunday, it's going to be in the 50s or higher here. Normally it would be about 30. So we have what's called road bans and affect now which means the frost is coming out of the ground, which implies we're going to have a very early application season for planting fertilizers at time of planting and post planting. Does that present any issues or opportunities from the perspective of where you are positioned right now as far as that season going fast and early?

Well. I mean I think clearly, we saw a slow fall season, so everybody had a little bit more inventory and buyers were hesitant to buy. A fast application or an early application for us is beneficial. I mean, we’ve seen an impact of that already here in the first quarter. So in our view, early application is positive from our perspective and as I said, we are seeing that already both in volumes and in pricing.

All right. Thank you.

Thank you. Our next question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.

All right. Yes. This is Chris Ryan sitting in for Roger today. Thanks for taking my questions.

Sure.

My first question relates to the 2016 cash interest guidance. Could you give the 2016 cash interest guidance, net of capitalized interest and how much is that capitalized interest?

Yes. So if you go to Page 12 in our presentation, so cash on senior secured notes is $39 million and then other payments are probably about $6 million. So, you got a total of $45 million of interest, cash interest. And as far as capitalization and how much of that will be capitalized during the first three or four months, I’d have to get back to you on that.

Okay. Thank you. And do you have a minimum liquidity requirement?

Not really. I mean, we’d love to run with maximum liquidity but as long as we’ve got -- if we had an unused revolver of $60 plus million, I think we would be really comfortable running the business with that as a flex in working capital. So, I wouldn’t say that we’ve got to minimum that we need to have in liquidity.

Okay. Thank you. And would you be able to give us a run rate SG&A expense?

Well, you mean for corporate or for overall SG&A?

Overall SG&A if you could.

Yes. So, I’d probably say we were $112 million in total SG&A for the year. We actually -- if you look in our 10-k, we actually reclass some expenses. They are in there now. So, we’ve got about a $112 million in overall SG&A and I would say that on a normalized run rate, we are probably at a $105 million.

As I said earlier, we are targeting SG&A reductions in 2016 to get some of the expenses that have been layered in, get them out of the business and I think we accomplished a large piece of that at the end of 2015 or started the process and we will see that continue during 2016.

Yes. I just want to go back to that. So, we had about a $113 million, of which this year due to a lot of unusual items, we had about $33 million in corporate, about $16.5 million in Chemical and about $62.5 million of Climate Control. I mean the Climate Control number is a number that they are looking to reduce but I don’t know how much we will see as a reduction in Climate Control SG&A. Chemical, we did have a lot of training expenses and a lot of other expenses related to that but we couldn’t capitalize that were related to the EDC expansion project. So, you should see that come down. And then I just told you earlier that that $33 million in corporate really should be in the low 20s.

Okay. Thank you. And how should we think about 2017 CapEx?

Probably in the -- I will call maintenance CapEx probably in the $45 million range. We see that as sort of an annual rate for maintenance CapEx and that’s probably what we will end up. $45 million to $50 million is in the range.

Yes. I’d say $45 million for chemical and $50 or so for Climate Control.

Right. So, $45, $50 million. Yes.

Okay. Thank you. That’s all my questions.

Thanks.

Thank you. Our next question comes from the line of David Deterding with Wells Fargo. Please proceed with your question.

Hey guys. Thanks for taking my question. First off, just want to talk about the Climate Control business and you talked about the backlog being up slightly from last year but down quarter-over-quarter. Can you just talk about -- have you seen the backlog changed commercial versus residential and would you expect that backlog to change anymore in ’16 versus what we saw in ’15?

Good. So, we’ve seen the backlog for commercial to move up. As I indicated earlier, we’ve got air handler and other chillers. That business is robust and the backlog is moving up on them. And we are seeing that in ’16 as well. So that’s been a strong piece of the business. As you know, the residential side of things, low natural gas prices doesn’t business stimulate a lot of demand. So, I think we are modest and actually down a little bit in that area. But overall, we are up, I think we are 3% or so. But I’d say the commercial institutional business is moving in an upward trend.

Okay. And then in just regards to the Zena loan that came due February 1st and you’ve moved it to April. I mean what are your -- when you say refinance that what are your options there and is that loan with the people that you purchased the natural gas leasehold with?

The loan is with a third-party lender and we’ve outlined in our liquidity analysis, the full repayment of that. But we are updating our reserve analysis and our PV-10 analysis and calculations to really sit down with the bank and see if there is an opportunity to refinance some of that, so that we don’t have to make the full payment to pay off the full balance of the loan.

Okay. And then the last piece I’ve got. Just reading through some of the new covenants, it looks like on the preferred equity investment. It looks like our read of it is that before you could take out the preferred equity, you would have to pay down the senior secured notes. Is that your understanding as well and if there was a sale of the business say the Climate Control or split as you talked about earlier, those notes would have to come out as well? If you could just comment on that?

Well. Sure. Essentially, all of our assets are pledged to security under the notes. So, secured debt holders, obviously want to be repaid first prior to unsecured preferred. So, I think that is -- you reading is correct and that’s our understanding that to the extent that we repaid a debt preferred, it would go towards the secured debt first. In the hypothetical, you gave, that would be a similar case.

Yes. As I think, we discussed earlier, a little bit different treatment whether we spun-off one of our businesses or we sold one of our businesses right under spin-off, we would have to figure out a way to refinance the notes out and more than likely the preferred as well. On a sale of the business, it’s a pretty traditional clause in that, we need to actually -- the preferred updates the indenture and any sale of assets would go to repayment of debt.

Great. Thank you, guys.

Thank you. Our next question comes from the line of Gregg Hillman of First Wilshire Securities. Please proceed with your question.

Yes. Hey, Mark. On the interest due for the redeemable preferred, what are the dates for that and the amounts and your plans and whether you’re going to pick it or not?

Yes. So, as I’ve said earlier, we do plan for 2016 to pick or accrue those dividends. It’s a May and November dividend payment dates. And the total amount was 14% on 210 million, so that’s $29 million non-compounded and obviously slightly higher since it’s a compounding if we accrue it.

Okay. And then hopefully you’ll refinance that, so you won’t have that necessarily in 2017?

A real focus for 2016 and would be our expectation.

Okay. Thanks Mark.

Thank you. [Operator Instructions] Our next question comes from the line of Dan Mannes with Avondale Partner. Please proceed with your questions.

Thanks. I just had a couple of quick follow-ups. First, as it relates to the climate segment, you did show some margin improvement year-over-year. I guess I was expecting a little bit more. Can you talk about maybe any benefits you got for lower raw costs or maybe some of that was given back through pricing?

Well, I mean, we expect more of that to roll through in 2016 as contracts come up in this current year. So, we did get a little bit of -- but we did get a little bit in the fourth quarter we expect quite a bit more in the first quarter and beyond in 2016. And we’ve got some labor improvements in the fourth quarter as well. As I said we expect to get further efficiencies. And we’re going to consolidate some footprint in later half of 2016 as well. So I think the run rate you saw on the fourth quarter is sort of a start of it. We fully expect more of those initiatives in savings impact to show up here in the first quarter and in the remaining quarters. But there are certain products we had to be competitive with respect to pricing and particularly as it relates to residential, we have to be competitive, we intent to be competitive and we’ll have to see other market turns up, we may have to give up a little bit on pricing. We hope not. But we want to participate in the market and we will participate in the market. So there maybe a little bit of that along the way.

I think one of the things to add what Dan said is, product mix has lot to do with our margins. We start out at residential geothermal heat pumps having the highest margins for us as far as products, and then you work your way down to some of our other products. And so, we’d like to see the margin improve, the overall gross margin percentage improve every quarter. Some of that does have to do with product mix. We could find ourselves in the position where we’ve got a really growing air handler business and generally speaking air handlers tend to have lower gross margins in a residential geothermal heat pump. So, it’s great that the business is growing and we get more absolute gross margin dollars, but we wind up seeing our gross margin percentage a little bit lower.

But it does impact mix from quarter-to-quarter.

Yes.

And some little bit of seasonality depending on time of the year.

Okay. And then one quick follow-up, you did mentioned you’re continuing to kind of having an ongoing review on strategic alternatives. I just wanted to kind of square that with your commentary as it relates to your current financing and taking that out. Does that kind of leaves the door open that you’re not going – that you don’t necessarily need to wait until El Dorado is complete to potentially do something with climate, because we’ve kind of assumed you wouldn’t do anything for second half of the year. Is it incorrect to rule that out?

No. I think we’ve said in the prepared statements, we along with the board are continuing to review all of our alternatives for the business to focus on long-term shareholder value. I mean, as we said, this may include the sales of assets, may include separation of the business. I mean with respect to financing, refinancing, we believe that lenders will want to see that their plant is up in running before they lend against it and in fact we think our best opportunity for rate is when that’s demonstrated to them that it is running. So, to the extent you can get it running and show them that it’s running well according to the design capacity, I think you are going to get much more attractive rate in the market versus doing it pre operational status. So, I think in our minds we want to get the lowest possible rate and we’re probably going to have to wait just a little bit until we get it up in running. So that would be as I said likely to be in the latter part of the year.

Understood. Thanks.

Well thank you very much for participating in our call today. We really appreciate your time and thank you for your interest and hope everyone has a great day. Thanks so much.

Thank you. And this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.