UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 1-7677

LSB Industries, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	73-1015226
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma	73116
(Address of principal executive offices)	(Zip Code)

(Registrant's telephone number, including area code) (405) 235-4546

Not applicable

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $.10 Preferred Stock Purchase Rights	LXU N/A	New York Stock Exchange New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒  Yes    ☐  No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

☒  Yes    ☐  No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐  Yes    ☒  No

The number of shares outstanding of the Registrant's common stock was 89,564,162 shares as of April 29, 2022.

FORM 10-Q OF LSB INDUSTRIES, INC.

TABLE OF CONTENTS

	PART I – Financial Information	Page
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	PART II – Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mining Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Information at March 31, 2022 is unaudited)

	March 31,			December 31,
	2022			2021
	(In Thousands)
Assets
Current assets:
Cash and cash equivalents	$	254,299		$	82,144
Short-term investments		89,311			—
Accounts receivable		97,515			86,902
Allowance for doubtful accounts		(463	)		(474	)
Accounts receivable, net		97,052			86,428
Inventories:
Finished goods		25,810			14,688
Raw materials		1,590			1,895
Total inventories		27,400			16,583
Supplies, prepaid items and other:
Prepaid insurance		10,557			14,244
Precious metals		13,945			14,945
Supplies		27,066			26,558
Other		9,805			2,234
Total supplies, prepaid items and other		61,373			57,981
Total current assets		529,435			243,136
Property, plant and equipment, net		850,372			858,480
Other assets:
Operating lease assets		24,829			27,317
Intangible and other assets, net		3,555			3,907
		28,384			31,224
	$	1,408,191		$	1,132,840

(Continued on following page)

3

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Information at March 31, 2022 is unaudited)

	March 31,		December 31,
	2022		2021
	(In Thousands)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	60,649	$	49,458
Short-term financing		9,911		12,716
Accrued and other liabilities		44,913		33,301
Current portion of long-term debt		8,112		9,454
Total current liabilities		123,585		104,929
Long-term debt, net		708,398		518,190
Noncurrent operating lease liabilities		17,542		19,568
Other noncurrent accrued and other liabilities		3,023		3,030
Deferred income taxes		37,455		26,633
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.10 par value; 150 million shares authorized, 91.2 million    shares issued		9,117		9,117
Capital in excess of par value		493,964		493,161
Retained earnings (accumulated deficit)		27,511		(31,255	)
		530,592		471,023
Less treasury stock, at cost:
Common stock, 1.6 million shares (1.4 million shares at December 31, 2021)		12,404		10,533
Total stockholders' equity		518,188		460,490
	$	1,408,191	$	1,132,840

See accompanying notes to condensed consolidated financial statements.

4

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,
	2022			2021
	(In Thousands, Except Per Share Amounts)
Net sales	$	198,981		$	98,116
Cost of sales		108,251			90,056
Gross profit		90,730			8,060
Selling, general and administrative expense		10,935			8,793
Other income, net		(176	)		(263	)
Operating income (loss)		79,971			(470	)
Interest expense, net		9,955			12,372
Non-operating other expense, net		135			395
Income (loss) before provision for income taxes		69,881			(13,237	)
Provision for income taxes		11,115			42
Net income (loss)		58,766			(13,279	)
Dividends on convertible preferred stocks		—			75
Dividends on Series E redeemable preferred stock		—			9,511
Accretion of Series E redeemable preferred stock		—			511
Net income (loss) attributable to common stockholders	$	58,766		$	(23,376	)
Income (loss) per common share:
Basic:
Net income (loss)	$	0.66		$	(0.63	)
Diluted:
Net income (loss)	$	0.65		$	(0.63	)

See accompanying notes to condensed consolidated financial statements.

5

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock Shares		Treasury Stock- Common Shares			Non- Redeemable Preferred Stock		Common Stock Par Value		Capital in Excess of Par Value			Retained Earnings (Accumulated Deficit)			Treasury Stock- Common			Total
	(In Thousands)
Balance at December 31, 2021		91,168		(1,375	)	$	—	$	9,117	$	493,161		$	(31,255	)	$	(10,533	)	$	460,490
Net income														58,766						58,766
Stock-based compensation											803									803
Other				(229	)												(1,871	)		(1,871	)
Balance at March 31, 2022		91,168		(1,604	)	$	—	$	9,117	$	493,964		$	27,511		$	(12,404	)	$	518,188
Balance at December 31, 2020		39,926		(2,075	)	$	3,000	$	3,993	$	197,350		$	(41,487	)	$	(13,213	)	$	149,643
Net loss														(13,279	)					(13,279	)
Dividend accrued on redeemable    preferred stock														(9,511	)					(9,511	)
Accretion of redeemable preferred stock														(511	)					(511	)
Stock-based compensation											713									713
Issuance of restricted stock		250		835					25		(5,335	)					5,310			—
Other				(5	)												(18	)		(18	)
Balance at March 31, 2021		40,176		(1,245	)	$	3,000	$	4,018	$	192,728		$	(64,788	)	$	(7,921	)	$	127,037

See accompanying notes condensed consolidated financial statements.

6

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

	Three Months Ended
	March 31,
	2022			2021
	(In Thousands)
Cash flows from operating activities
Net income (loss)	$	58,766		$	(13,279	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes		10,823			327
Depreciation and amortization of property, plant and equipment		17,197			16,762
Amortization of intangible and other assets		311			315
Other		1,438			(1,058	)
Cash provided (used) by changes in assets and liabilities:
Accounts receivable		(11,707	)		(17,321	)
Inventories		(10,817	)		625
Prepaid insurance		3,687			2,265
Accounts payable		10,003			8,598
Accrued interest		13,618			10,412
Other assets and other liabilities		(7,827	)		5,065
Net cash provided by operating activities		85,492			12,711
Cash flows from investing activities
Expenditures for property, plant and equipment		(8,254	)		(6,133	)
Purchases of short-term investments		(89,311	)		-
Other investing activities		51			198
Net cash used by investing activities		(97,514	)		(5,935	)
Cash flows from financing activities
Net proceeds from 6.25% senior secured notes		200,000			—
Payments on other long-term debt		(6,912	)		(3,353	)
Payments on short-term financing		(2,805	)		(5,419	)
Payments of debt-related costs, including    extinguishment costs		(4,102	)		—
Other financing activities		(2,004	)		(36	)
Net cash provided (used) by financing activities		184,177			(8,808	)
Net increase (decrease) in cash and cash equivalents		172,155			(2,032	)
Cash and cash equivalents at beginning of period		82,144			16,264
Cash and cash equivalents at end of period	$	254,299		$	14,232

See accompanying notes condensed consolidated financial statements.

7

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

The accompanying unaudited interim financial statements and notes of LSB Industries, Inc. (“LSB”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022, as amended by the Form 10-K/A filed on March 25, 2022 (“2021 Form 10-K”). The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s results of operations and cash flows for the three-month periods ended March 31, 2022 and 2021 and the Company’s financial position as of March 31, 2022.

Basis of Consolidation – LSB and its subsidiaries (the “Company,” “we,” “us,” or “our”) are consolidated in the accompanying condensed consolidated financial statements. LSB is a holding company with no significant operations or assets other than cash, cash equivalents, and investments in its subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to current period presentation, including all share and per share information relating to the stock split in the form of a stock dividend on October 8, 2021.

Nature of Business – We are engaged in the manufacture and sale of chemical products. The chemical products we primarily manufacture, market and sell are ammonia, fertilizer grade AN (“HDAN”) and UAN for agricultural applications, high purity and commercial grade ammonia, high purity AN, sulfuric acids, concentrated, blended and regular nitric acid, mixed nitrating acids, carbon dioxide, and diesel exhaust fluid for industrial applications, and industrial grade AN (“LDAN”) and solutions for the mining industry. We manufacture and distribute our products in four facilities; three of which we own and are located in El Dorado, Arkansas (the “El Dorado Facility”); Cherokee, Alabama (the “Cherokee Facility”); and Pryor, Oklahoma (the “Pryor Facility”); and one of which we operate on behalf of a global chemical company in Baytown, Texas.  

Sales to customers include farmers, ranchers, fertilizer dealers and distributors primarily in the ranch land and grain production markets in the United States (“U.S.”); industrial users of acids throughout the U.S. and parts of Canada; and explosive manufacturers in the U.S. and parts of Mexico and Canada.

These interim results are not necessarily indicative of results for a full year due, in part, to the seasonality of our sales of agricultural products and the timing of performing our major plant maintenance activities. Our selling seasons for agricultural products are primarily during the spring and fall planting seasons, which typically extend from March through June and from September through November.

Use of Estimates – The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Short-Term Investments - Investments, which consist of U.S. treasury bills with an original maturities ranging from approximately 17 weeks to 51 weeks, were considered short-term investments. These investments are carried at cost which approximated fair value.

Equity Awards – Equity award transactions with employees are measured based on the estimated fair value of the equity awards issued. For equity awards with service conditions that have a graded vesting period, we recognize compensation cost on a straight-line basis over the requisite service period for the entire award. Forfeitures are accounted for as they occur. We may issue new shares of common stock or may use treasury shares associated with the equity awards.

8

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies (continued)

In January 2022 and March 2022, the compensation committee of our Board of Directors approved the grant of 224,455 shares of time-based restricted stock units and 160,724 shares of performance-based restricted stock units to certain executives and employees under our 2016 Long Term Incentive Plan. A portion of the time-based restricted stock unit shares will vest at the end of each one-year period at the rate of one-third per year for three years and a portion will vest 100% at the end of three years. The performance-based restricted stock units will vest on the third anniversary of the grant date subject to the achievement of certain performance metrics established by the Board of Directors as set out in the grant. Upon the third anniversary the grants may be modified in a range between 0% and 200% based upon achievement of the performance goals. The unvested restricted shares carry dividend and voting rights contingent upon the vesting and lapsing of restriction. Sales of these shares are restricted prior to the date of vesting. Pursuant to the terms of the underlying restricted stock agreements, unvested restricted shares may immediately vest upon the occurrence of a change in control (as defined by agreement), termination without cause or death.

Derivatives, Hedges and Financial Instruments – Derivatives are recognized in the balance sheet and measured at fair value. Changes in fair value of derivatives are recorded in results of operations unless the normal purchase or sale exceptions apply, or hedge accounting is elected.

The fair value amounts recognized for our derivative contracts executed with the same counterparty under a master netting arrangement may be offset. We have the choice to offset or not, but that choice must be applied consistently. A master netting arrangement exists if the reporting entity has multiple contracts with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for the derivative contracts outstanding with a single counterparty results in the net fair value of the transactions reported as an asset or a liability in the balance sheet. When applicable, we present the fair values of our derivative contracts under master netting agreements using a gross fair value presentation.

Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1 - Valuations of contracts classified as Level 1 are based on quoted prices in active markets for identical contracts.

Level 2 - Valuations of contracts classified as Level 2 are based on quoted prices for similar contracts and valuation inputs other than quoted prices that are observable for these contracts.

Level 3 - Valuations of assets and liabilities classified as Level 3 are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

At March 31, 2022 and December 31, 2021, we did not have any financial instruments with fair values materially different from their carrying amounts (which excludes issuance costs, if applicable). The carrying value of our Senior Secured Notes approximates fair value and is classified as a Level 2 fair value measurement. The fair value of financial instruments is not indicative of the overall fair value of our assets and liabilities since financial instruments do not include all assets, including intangibles, and all liabilities.

Recently Issued Accounting Pronouncements

ASU 2020-06 - In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s own Equity (Subtopic 815-40). This ASU addresses the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models. Additionally, the ASU requires entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. This ASU will be effective for us on January 1, 2024; however, early adoption was permitted beginning January 1, 2021. We are currently evaluating the timing and the effect of adoption of this ASU on our consolidated financial statements and related disclosures.

ASU 2020-04 – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates such as LIBOR that are expected to be discontinued. This ASU provides exceptions and optional expedients for applying GAAP to contract modifications, hedging relationships, and other transactions that reference LIBOR or other reference rates to be discontinued as a result of reference rate reform. They do not apply to modifications made or hedges entered into or evaluated after December 31, 2022, unless the hedging relationships existed as of that date and optional expedients for them were elected and retained through the end of the hedging relationship. This ASU became effective upon issuance. We continue to evaluate the effect of this ASU and plan to utilize this relief for our debt agreements that include LIBOR rates.

9

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Income (Loss) Per Common Share

	Three Months Ended
	March 31,
	2022		2021
	(In Thousands, Except Per Share Amounts)
Numerator:
Net income (loss)	$	58,766	$	(13,279	)
Adjustments for basic income (loss) per common share:
Dividend requirements on Series E Redeemable    Preferred		—		(9,511	)
Dividend requirements on Series B Preferred		—		(60	)
Dividend requirements on Series D Preferred		—		(15	)
Accretion of Series E Redeemable Preferred		—		(511	)
Numerator for basic and diluted net income (loss) per common    share	$	58,766	$	(23,376	)
Denominator:
Denominator for basic net income (loss) per common    share - adjusted weighted-average shares (1)		88,421		36,850
Effect of dilutive securities:
Unvested restricted stock and stock units		1,345		—
Dilutive potential common shares		1,345		—
Denominator for diluted net income (loss) per    common share - adjusted weighted-average    shares		89,766		36,850
Basic net income (loss) per common share	$	0.66	$	(0.63	)
Diluted net income (loss) per common share	$	0.65	$	(0.63	)

(1) Excludes the weighted-average shares of unvested restricted stock that are contingently issuable.

The following weighted-average shares of securities were not included in the computation of diluted net loss per common share as their effect would have been antidilutive:

	Three Months Ended
	March 31,
	2022		2021
Restricted stock and stock units		—		2,247,887
Convertible preferred stocks		—		1,191,666
Series E Redeemable Preferred - embedded derivative		—		303,646
Stock options		13,000		107,652
		13,000		3,850,851

10

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Current and Noncurrent Accrued and Other Liabilities

	March 31,		December 31,
	2022		2021
	(In Thousands)
Accrued interest	$	22,015	$	8,397
Current portion of operating lease liabilities		7,293		7,755
Accrued payroll and benefits		6,582		9,794
Accrued death and other executive benefits		2,508		2,514
Accrued health and worker compensation insurance claims		1,103		1,272
Other		8,435		6,599
		47,936		36,331
Less noncurrent portion		3,023		3,030
Current portion of accrued and other liabilities	$	44,913	$	33,301

4. Long-Term Debt

Our long-term debt consists of the following: 

	March 31,		December 31,
	2022		2021
	(In Thousands)
Working Capital Revolver Loan, with a current interest    rate of 4.00% (A)	$	—	$	—
Senior Secured Notes due 2028, with an interest    rate of 6.25% (B)		700,000		500,000
Secured Financing due 2023, with an interest    rate of 8.32% (C)		6,918		7,712
Secured Financing due 2025, with an interest    rate of 8.75