The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our September 30, 2009 condensed consolidated financial statements. Certain statements contained in this MD&A may be deemed forward-looking statements. See "Special Note Regarding Forward-Looking Statements".

Overview

General

We are a manufacturing, marketing and engineering company, operating through our subsidiaries. Our wholly-owned subsidiary, ThermaClime, through its subsidiaries, owns a substantial portion of our following core businesses:

· Climate Control Business manufactures and sells a broad range of air conditioning and heating products in the niche markets we serve consisting of geothermal and water source heat pumps, hydronic fan coils, large custom air handlers and other related products used to control the environment in commercial and residential new building construction, renovation of existing buildings and replacement of existing systems. For the first nine months of 2009, approximately 50% of our consolidated net sales relates to the Climate Control Business.

· Chemical Business manufactures and sells nitrogen based chemical products produced from three plants located in Arkansas, Alabama and Texas for the industrial, mining and agricultural markets. Our products include industrial and fertilizer grade ammonium nitrate ("AN"), urea ammonium nitrate ("UAN"), nitric acid in various concentrations, nitrogen solutions and various other products. For the first nine months of 2009, approximately 49% of our consolidated net sales relates to the Chemical Business.

Certain of our other subsidiaries outside of ThermaClime own facilities and operations, including the Pryor Facility, within our above described core businesses.

Our project to begin production of ammonia and UAN at our previously idled Pryor Facility located in Pryor, Oklahoma is still underway despite certain delays being experienced. The start-up delays, which includes extended lead times to refurbish certain major equipment items that were identified during the initial start-up production phase, resulted in significant increases in our previous estimates of the third quarter start-up costs. We previously indicated that the Pryor Facility would probably be producing UAN in September and that the remaining start-up costs were estimated to be approximately $4.0 million. In October 2009, we reported that we were experiencing delays and based upon the estimated time to make required plant adjustments, we anticipated that production would begin in November barring unforeseen circumstances. Due to the delayed start-up, the expenses for the third quarter increased to $7.1 million, including an unrealized embedded loss of $1.0 million on firm sales commitments at September 30, 2009, as the result of increases in natural gas costs and due to product we expected to produce but will be unable to produce at the Pryor Facility because of the unforeseen delays. The embedded loss is a

current estimate of the cost to acquire and/or produce product at a cost that exceeds our net sales price on those tons sold by the Pryor Facility at firm sales prices pursuant to the Urea Ammonium Nitrate Purchase and Sale Agreement ("Koch Agreement") with Koch Nitrogen Company, LLC ("Koch"). The estimate of the embedded loss is based upon numerous factors including the estimated date that production begins and the market price of UAN and natural gas subsequent to September 30, 2009. Due to the start-up delays of the Pryor Facility, we entered into an amendment to the Koch Agreement with Koch in October 2009. The amendment provides for (a) an adjustment to the product pricing for the first 300,000 tons of UAN made available to Koch from the Pryor Facility, (b) the waiver of Koch's and our early termination right if commercial quantities of UAN are not produced by November 30, 2009, and (c) Koch's waiver of any minimum marketing fees for the period prior to the Pryor Facility becoming fully operational.

The Pryor Facility's monthly operating start-up costs are approximately $1.6 million per month, excluding any variable costs (e.g. natural gas and electricity) associated with initial start-up production phase. We will continue to expense operating start-up costs until the plant is in a successful production mode. We currently expect to be in production in December 2009, barring further delays. Additional information about this project is discussed below under "Liquidity and Capital Resources - Pryor Facility".

Economic Conditions

In our view, the economy continues to create significant uncertainty relative to the industrial, construction and agricultural markets that we serve. Through the first three quarters of the year, both our Climate Control and Chemical Businesses, not including the start-up costs of the Pryor Facility, have performed well in a very difficult national economic environment. Since we serve several diverse markets, we consider market fundamentals for each market individually as we plan our production levels.

Third Quarter of 2009

Net sales for the third quarter of 2009 were $127.8 million compared to $210.9 million for the 2008 third quarter. The sales decrease of $83.1 million includes a decrease of $15.9 million in our Climate Control Business and a decrease of approximately $64.8 million in our Chemical Business. The Climate Control decrease is due primarily to lower customer orders received. The Chemical Business' decrease is primarily due to steep declines in our raw material costs resulting in lower selling prices.

For the third quarter of 2009, our operating income was $4.3 million compared to $8.7 million for the same period in 2008. The decrease in operating income of $4.4 million was primarily the result of the $5.2 million decrease in our Chemical Business operating results including the following variances from 2008:

   Increase
  (Decrease)


  (In Millions)


Expenses - Pryor Facility                           $ (6.6 )
Gross profit margins - Agricultural products          (6.5 )
Timing of planned major maintenance                   (1.2 )
Reduced Losses - Natural gas contracts                 6.5
Improvement in production efficiencies                 2.7
Other                                                 (0.1 )
Effect of variances on Chemical's operating results $ (5.2 )

Net income was $1.1 million for the third quarter of 2009 compared to $4.2 million for the same period of 2008. The net decrease of $3.1 million includes, among other items, the variances relating to the Chemical Business of $5.2 million discussed above partially offset by an increase in Climate Control's operating income and changes in our provision for income taxes. However, our resulting effective income tax rate for the third quarter of 2009 was approximately 55%, which includes an additional provision relating to the adjustments reconciling the 2008 federal income tax return to the 2008 estimated tax provision and the impact of other taxable income limitations on the domestic manufacturer's deduction.

Climate Control Business

As reported above our Climate Control sales for the third quarter 2009 were $67.4 million or 19% below 2008. Based upon published industry statistics documenting significant declines in both commercial and residential construction, and based upon our recent order level, we expect lower sales volumes for most of our Climate Control products for the remainder of 2009, as compared to 2008 and to the first half of 2009. As a result, we believe Climate Control's results for the first nine months of 2009 are not sustainable in the fourth quarter of 2009 and possibly into early 2010.

We continue to closely follow the contraction and volatility in the credit markets and have attempted to assess the impact on the commercial and residential construction sectors that we serve, including but not limited to new construction and/or renovation of facilities in the following sectors:

· Multi-Family (apartments and condominiums)

· Single-Family Residential

· Lodging

· Education

· Healthcare

· Offices

· Manufacturing

During the first nine months of 2009, 79% of our Climate Control Business' sales were to the commercial construction market, and the remaining 21% were sales of geothermal heat pumps ("GHPs") to the single-family residential market. Total new orders for the first three quarters of 2009 were 36% below the same period in 2008. The net decrease in year-to-date 2009 new orders includes a decrease of approximately 22% in new orders for residential GHPs.

Orders received for all Climate Control products in the third quarter of 2009 were $49.1 million compared to $101.0 million in the third quarter of 2008 and compared to $54.7 million for the second quarter of 2009. Our backlog was $68.5 million at December 31, 2008, $49.5 million at June 30, 2009 and $39.4 million at September 30, 2009. The backlog consists of confirmed customer purchase orders for product to be shipped at a future date. We expect to ship substantially all of the orders in our backlog within the next twelve months. Through the fourth quarter and beyond, the potential sales level remains uncertain. For October 2009, our new orders received were approximately $18.8 million and our backlog was approximately $40.2 million at October 31, 2009.

Our GHPs, use a form of renewable energy and can reduce energy costs up to 80%, under certain conditions. The recently enacted American Recovery and Reinvestment Act of 2009 ("Act") provides a 30% tax credit for homeowners who install GHPs. For businesses that install GHPs, the Act includes a 10% tax credit, 50% first year depreciation and five year accelerated depreciation for the balance of the system cost.

Although we expect to see continued slowness in our Climate Control Business' results in the short-term, we are significantly increasing our sales and marketing efforts for all of our Climate Control products. Over time, we believe that the recently enacted federal tax credits for GHPs should have a positive impact on sales of those highly energy efficient and green products.

Chemical Business

Our Chemical Business currently operates three chemical production facilities:
the El Dorado Facility, the Cherokee Facility and a nitric acid manufacturing plant located in Baytown, Texas (the "Baytown Facility"). The El Dorado and Baytown Facilities produce nitrogen products from anhydrous ammonia that is delivered by pipeline, and the El Dorado Facility also produces sulfuric acid from recovered elemental sulfur delivered by truck and rail. The Cherokee Facility produces anhydrous ammonia and nitrogen products from natural gas that is delivered by pipeline. In addition, we are taking all the necessary steps to begin production from our previously idled Pryor Facility. Initially, we plan to produce anhydrous ammonia and UAN from natural gas.

Our Chemical Business' primary markets are industrial, mining and agricultural. The sales in all three sectors for the remainder of the year will continue to be affected by the overall economic conditions.

As reported above, our Chemical Business' sales for the third quarter 2009 were $59.7 million or 52% below 2008. The decrease in sales dollars is primarily attributable to steep declines in commodity prices including the selling prices for our products produced at our facilities accompanied by steep declines in our raw material feedstock costs and lower tons sold in our mining markets.

We are continuing to be affected by the weaker agricultural and industrial nitrogen products selling prices and volumes related to the overall economic slowdown. Nitrogen fertilizer product demand is also being affected by a reluctance of distributors to place orders to restock inventory for the spring season.

Our primary raw material feedstocks (anhydrous ammonia, natural gas and sulfur) are commodities subject to significant price fluctuations, and are generally purchased at prices in effect at the time of purchase. During the third quarter of 2009, the average prices for those commodities compared to the same period last year were as follows:

  Third Quarter


  2009   2008


Natural gas average price per MMBtu based     $ 3.50      $ 10.80
upon Tennessee 500 pipeline pricing point
Ammonia average price based upon low          $  267      $   773
Tampa metric price per ton
Sulfur price based upon Tampa average         $   10      $   617
quarterly price per long ton

The substantial decline in the cost of the commodities was accompanied by similar declines in selling prices of our products.

Our Chemical Business continues to focus on growing our non-seasonal industrial customer base with an emphasis on customers accepting the risk inherent with raw material costs, while at the same time, maintaining a strong presence in the seasonal agricultural sector. An exception is the Pryor Facility which will initially sell into the agricultural sector. A significant percentage of the costs to operate process plants, other than costs for raw materials and utilities, are fixed costs. Our long-term strategy includes optimizing production efficiency of our facilities, thereby lowering the fixed cost of each ton produced.

Approximately 56% of our Chemical Business sales for the first nine months of 2009 were in the industrial and mining markets consisting of:

· nitric acid, sulfuric acid and anhydrous ammonia sold to industrial customers; and

· industrial grade AN and nitrogen solutions sold to mining customers.

Most of these sales were pursuant to sales contracts and/or pricing arrangements on terms that include the cost of raw material feedstock as a pass through component in the sales price.

During the first nine months of 2009, approximately 75% of our sales into the industrial and mining markets were to customers that have contractual obligations to purchase a minimum annual quantity, or their requirements, or allow us to recover our costs plus a profit, irrespective of the volume of product produced. We expect that many of these mining and industrial customers will take less volume in the remainder of 2009 than in the same period of 2008 due to the downturn in electrical generation, housing, automotive, mining, and other sectors.

For the first nine months of 2009, approximately 44% of our Chemical Business sales were agricultural products, primarily nitrogen fertilizer sold in the agricultural markets including:

· AN produced at our El Dorado Facility from purchased anhydrous ammonia,

· UAN produced at our Cherokee Facility from natural gas, and

· Other fertilizer products sold through our agricultural distribution centers.

The agricultural product sales, unlike the majority of our industrial and mining sales, are sold at the market price in effect at the time of sale or at a negotiated future price.

The percentage change in sales (volume and dollars) for the first nine months of 2009 compared to the same period in 2008 is.

    Percentage Change of


  Tons   Dollars


                   Increase (Decrease)
Chemical products:


Agricultural                    8  %   (28 )%
Mining                        (16 )%   (47 )%
Industrial acids and other    (17 )%   (42 )%
Total weighted-average change  (9 )%   (38 )%

The disproportionate percentage change relating to tons compared to sales dollars for agricultural and mining products is due primarily to declines in prices for most commodities, including natural gas and anhydrous ammonia, as compared to the same period in 2008, resulting in lower selling prices per ton of product sold. The decline in sales dollars for industrial acids is generally due to lower unit selling prices resulting from lower raw material costs and the pass through of lower costs in the sales price pursuant to the supply agreement associated with the Baytown Facility. The reduction in tons sold into the industrial and mining markets is due to a decline in customer demand as the result of the economic downturn. Until the economy begins to rebound, our volume of industrial products will probably remain at the current lower levels.

We produce AN and UAN fertilizers for the agricultural markets. For the first nine months of 2009, demand for fertilizer grade AN was strong resulting in a 40% increase in tons sold. Conversely, the demand for UAN was relatively weak resulting in a 22% decrease in tons sold as compared to the same period in 2008. We believe that the lower shipments of UAN were due to market conditions, including poor weather conditions, a reluctance of distributors to build inventory due to pricing concerns and possibly less nitrogen applied to corn during the spring.

We believe that global demand for corn, wheat and other grains will continue to be the fundamental drivers of nitrogen demand and that, for 2010, the supply and demand fundamentals for nitrogen fertilizer are favorable.

We expect that volumes and margins for UAN will be weak in the fourth quarter of 2009 compared to 2008 and that there will be a resurgence of demand in the spring of 2010, which should provide for improved margins. Profitability is also contingent upon producing at certain volume levels.

Irrespective of our assumptions, the actual results for agricultural products will depend upon the global and domestic demand for nitrogen fertilizer in addition to traditional seasonal factors. Therefore, we will continue to make changes to our controllable cost structure, as conditions dictate.

The lower tons shipped to the mining sector is a direct result of a decline in mining activity which we expect to continue for the near term. However, the majority of our mining sales are sold pursuant to a contract that provides for annual minimum tons.

Liquidity and Capital Resources

The following is our cash and cash equivalents, total interest bearing debt and
stockholders' equity:

  September 30,   December 31,
      2009            2008
         (In Millions)


Cash and cash equivalents  $  60.2   $  46.2
Short-term investments (1)    10.0         -
                           $  70.2   $  46.2

Long-term debt:
2007 Debentures due 2012   $  30.4   $  40.5
Secured Term Loan due 2012    50.0      50.0
Other                         23.1      14.7
Total long-term debt       $ 103.5   $ 105.2

Total stockholders' equity $ 153.2   $ 130.0

(1) These investments consist of certificates of deposit with a maturity of 13 weeks.

We believe our capital structure and liquidity reflect a reasonably sound financial position. At September 30, 2009, our cash, cash equivalents and short-term investments totaled $70.2 million and our $50 million Working Capital Revolver Loan was undrawn and available to fund operations, if needed, subject to the amount of our eligible collateral and outstanding letters of credit. At September 30, 2009, the ratio between long-term debt, before the use of cash on hand and short-term investments to pay down debt, and stockholders' equity was approximately 0.7 to 1 as compared to 0.8 to 1 at December 31, 2008.

For the remainder of 2009, we expect our primary cash needs will be for working capital and capital expenditures. We and our subsidiaries plan to rely upon internally generated cash flows, cash and short-term investments on hand, secured property and equipment financing, and the borrowing availability under the Working Capital Revolver Loan to fund operations and pay obligations. We continue to monitor the effects upon our internally generated cash flows of possible declines in expected sales volumes resulting from the uncertainty relative to the current economic downturn and start-up delays of the Pryor Facility.

The 2007 Debentures bear interest at the annual rate of 5.5% and mature on July 1, 2012. Interest is payable in arrears on January 1 and July 1 of each year. As of September 30, 2009, we have acquired $29.6 million aggregate principal amount of these debentures including $10.1 million during the first nine months of 2009 as discussed below under "Authorization to Repurchase 2007 Debentures and Stock." The repurchases of these debentures were funded by our working capital.

The Secured Term Loan matures on November 2, 2012 and accrues interest at a defined LIBOR rate plus 3%, which LIBOR rate is adjusted on a quarterly basis. The interest rate at September 30, 2009 was approximately 3.48%. The Secured Term Loan requires quarterly interest payments with the final payment of interest and principal at maturity. The Secured Term Loan is secured by the real property and equipment located at the El Dorado and Cherokee Facilities.

ThermaClime and certain of its subsidiaries are subject to numerous covenants under the Secured Term Loan including, but not limited to, limitation on the incurrence of certain additional indebtedness and liens, limitations on mergers, acquisitions, dissolution and sale of assets, and limitations on declaration of dividends and distributions to us, all with certain exceptions.

ThermaClime's Working Capital Revolver Loan is available to fund its working capital requirements, if necessary, through April 13, 2012. Under the Working Capital Revolver Loan, ThermaClime and its subsidiaries (the "Borrowers") may borrow on a revolving basis up to $50.0 million based on specific percentages of eligible accounts receivable and inventories. At September 30, 2009, we had approximately $49.2 million of borrowing availability under the Working Capital Revolver Loan based on eligible collateral and outstanding letters of credit.

The Working Capital Revolver Loan and the Secured Term Loan have financial covenants that are discussed below under "Loan Agreements - Terms and Conditions". The Borrowers' ability to maintain borrowing availability under the Working Capital Revolver Loan depends on their ability to comply with the terms and conditions of the loan agreements and their ability to generate cash flow from operations. The Borrowers are restricted under their credit agreements as to the funds they may transfer to the Company and their non-ThermaClime affiliates and certain ThermaClime subsidiaries. This limitation does not prohibit payment to the Company of amounts due under a Services Agreement, Management Agreement and a Tax Sharing Agreement. Based upon our current projections, we believe that cash, short-term investments and borrowing availability under our Working Capital Revolver Loan is adequate to fund operations during the remainder of 2009.

Although we do not have any current plans to offer or sell any securities, on September 16, 2009, we announced that we filed a universal shelf registration statement on Form S-3, with the SEC. The shelf registration statement, when declared effective by the SEC, would give us the ability to offer and sell up to $200 million of our securities consisting of equity, debt (senior and subordinated), warrants and units, or a combination thereof.

Income Taxes

The utilization of the NOL carryforwards reduced our income tax liabilities in prior years. We utilized our remaining federal NOL carryforwards during 2008. As a result, we are recognizing and paying federal income taxes at regular corporate tax rates, which we expect to continue during the remainder of 2009.

The federal tax returns for 1994 through 2004 remain subject to examination for the purpose of determining the amount of tax NOL and other carryforwards. With few exceptions, the 2006-2008 years remain open for all purposes of examination by the IRS and other major tax jurisdictions.

The estimated annual effective tax rate for 2009 is 39.3%. The tax provision for the third quarter 2009 was $1.3 million, or 55% of pretax income. The tax provision for the third quarter was disproportionately high as a percentage of pretax income primarily due to the impact of filing the federal income tax return during the third quarter of 2009 and the related adjustments necessary to reconcile the completed and filed return with the 2008 estimated tax provision. Additionally, as a result of lower projected taxable income for 2009, we will be limited in the amount of a manufacturing deduction that can be utilized. In 2008, we received the full benefit of this deduction, which resulted in a lower effective tax rate.

Capital Expenditures

General

Cash used for capital expenditures during the first nine months of 2009 was $22.2 million, including $3.2 million primarily for production equipment, and other upgrades for additional capacity in our Climate Control Business, and $18.6 million for our Chemical Business, primarily for process and reliability improvements of our operating facilities, including $6.6 million associated with the Pryor Facility. These capital expenditures were primarily funded from working capital and from secured financing totaling $8.6 million obtained by refinancing certain existing assets.

As discussed below, our current commitment for the remainder of 2009 is approximately $7.2 million. Other capital expenditures for 2009 are believed to be discretionary. In addition, although not approved or committed, we are considering numerous capital expenditures related to both our Chemical and Climate Control Businesses that would utilize a portion of our existing cash on hand, if not separately financed.

Current Commitments

At September 30, 2009, we had committed capital expenditures of approximately $7.2 million for the remainder of 2009. The expenditures included $5.3 million for process and reliability improvements in our Chemical Business, including $2.2 million relating to the Pryor Facility (see discussion below regarding our expected costs to complete the activation of the Pryor Facility). In addition, our commitments included $1.9 million primarily for facilities expansion and upgrades and production equipment in our Climate Control Business. We plan to fund these expenditures from working capital, which may include utilizing our Working Capital Revolver Loan, and financing arrangements.

In addition to committed capital expenditures, at September 30, 2009, we had planned capital expenditures for the remainder of 2009 in our Chemical Business of approximately $1.9 million and in our Climate Control Business of approximately $2.0 million. These planned expenditures are subject to economic conditions and approval by senior management. If these capital expenditures are . . .