What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-06 compared with 2020-07-31 · 123 added, 109 removed, 474 unchanged (33% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(Information at June 30, 2020 is unaudited)

(Information at September 30, 2020 is unaudited)

September 30,

(In Thousands)

19 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Information at June 30, 2020 is unaudited )

(Information at September 30, 2020 is unaudited )

September 30,

(In Thousands)

32 unchanged sentences

Capital in excess of par value

Retained earnings

Retained earnings (accumulated deficit)

Less treasury stock, at cost:

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In Thousands, Except Per Share Amounts)

Cost of sales

Gross profit (loss)

Selling, general and administrative expense

Other income, net

Operating income

Other expense, net

Operating loss

Interest expense, net

Non-operating other income, net

Income (loss) before benefit for income taxes

Non-operating other expense (income), net

Loss before benefit for income taxes

Benefit for income taxes

Net income (loss)

Dividends on convertible preferred stocks

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Earnings (Accumulated Deficit)

(In Thousands)

10 unchanged sentences

Balance at June 30, 2020

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Balance at September 30, 2020

Balance at December 31, 2018

9 unchanged sentences

Balance at June 30, 2019

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Balance at September 30, 2019

See accompanying notes.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(In Thousands)

4 unchanged sentences

Amortization of intangible and other assets

Stock-based compensation

Cash provided (used) by changes in assets and liabilities:

1 unchanged sentence

Prepaid insurance

Precious metals

Accounts payable

4 unchanged sentences

Expenditures for property, plant and equipment

Proceeds from vendor settlements associated with

property, plant and equipment

Other investing activities

6 unchanged sentences

Payments on other long-term debt

Payments of debt-related costs

Payments on short-term financing

Taxes paid on equity awards

Other financing activities

Net cash provided by financing activities

3 unchanged sentences

See accompanying notes.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

17 unchanged sentences

and parts of Mexico.

In our opinion, the unaudited condensed consolidated financial statements of the Company as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 include all adjustments and accruals, consisting of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods.

In our opinion, the unaudited condensed consolidated financial statements of the Company as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 include all adjustments and accruals, consisting of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods.

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.

16 unchanged sentences

See Note 7 regarding the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

7 unchanged sentences

In June 2020, one of our subsidiaries, El Dorado Chemical Company (“EDC”), and certain vendors mediated settlements for EDC to recover certain costs associated with a nitric acid plant at our El Dorado Facility.

The construction of this plant was completed and began production in 2016.

As a result of the settlements, the vendors owe EDC $ 4.3 million (amount included in accounts receivable at June 30, 2020 and received in July) and provide services and parts totaling $ 2.8 million, which amount, or portion thereof, may be paid in cash at the option of the vendors (amount included in noncurrent accounts receivable, which is classified as a noncurrent other asset at June 30, 2020).

As part of the settlements, EDC owes the vendors $ 2.7 million (which amount was paid in July) to settle $ 3.2 million of invoices that are held in our accounts payable.

As a result, the recovery from these settlements recognized during the three months ended June 30, 2020 includes approximately $ 5.7 million classified as a reduction to cost of sales and approximately $ 1.9 million classified as a reduction to property, plant and equipment (“PP&E”).

The construction of this plant was completed and the plant began production in 2016.

As a result of the settlements, the vendors paid EDC $ 4.3 million and will provide services and parts totaling $ 2.8 million, which amount, or portion thereof, may be paid in cash at the option of the vendo rs (amount included in noncurrent accounts receivable, which is classified as a noncurrent other asset at September 30, 2020).

As part of the settlements, EDC paid the vendors $ 2.7 million to settle $ 3.2 million of invoices that were held in our accounts payable.

As a result, the recovery from these settlements recognized during the nine months ended September 30, 2020 includes approximately $ 5.7 million classified as a reduction to cost of sales and approximately $ 1.9 million classified as a reduction to property, plant and equipment (“PP&E”).

Redeemable Preferred Stocks – Our redeemable preferred stocks that are redeemable outside of our control are classified as temporary/mezzanine equity.

16 unchanged sentences

Recognition of revenue when, or as, we satisfy a performance obligation.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

17 unchanged sentences

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 is permitted beginning January 1, 2021.

We are evaluating the timing and the effect of our pending adoption of this ASU on our consolidated financial statements and related disclosures at this time.

ASU 2020-04 – In March 2020, the FASB issued ASU 2020-04 , Reference Rate Reform (Topic 848):

3 unchanged sentences

This ASU became effective upon issuance.

We continue to evaluate the effect of this ASU and plan to utilize this relief for our debt agreement that include LIBOR rates.

We continue to evaluate the effect of this ASU and plan to utilize this relief for our debt agreements that include LIBOR rates.

ASU 2019-12 – In December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740):

2 unchanged sentences

The ASU removes certain exceptions to the general framework and also seeks to simplify and/or clarify accounting for income taxes by adding certain requirements that would simplify GAAP for financial statement preparers.

We plan to adopt this new standard on January 1, 2021.

We continue to evaluate the effect of our pending adoption of this ASU on our consolidated financial statements and related disclosures at this time.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We plan to adopt this new standard on January 1, 2021, which is not expected to have a material impact on our consolidated financial statements or related disclosures.

Loss Per Common Share

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars In Thousands, Except Per Share Amounts)

Net income (loss)

Adjustments for basic net loss per common share:

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Restricted stock and stock units

3 unchanged sentences

Current and Noncurrent Accrued and Other Liabilities

September 30,

(In Thousands)

2 unchanged sentences

Current portion of operating lease liabilities

Deferred revenue

Accrued death and other executive benefits

Deferred revenue

Less noncurrent portion

Current portion of accrued and other liabilities

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

Our long-term debt consists of the following:

September 30,

(In Thousands)

6 unchanged sentences

rate of 1.00 % (D)

Secured Promissory Note due 2023, with a current interest

rate of 4.43 % (E)

Secured Financing due 2023, with an interest

rate of 8.32 % (F)

rate of 8.32 % (E)

Secured Loan Agreement due 2025, with an interest

rate of 8.75 % (F)

Secured Financing due 2025, with an interest

rate of 8.75 % (G)

Secured Promissory Note due 2023 (G)

Unamortized discount, net of premium and debt issuance

1 unchanged sentence

Long-term debt due after one year, net

(A) O ur revolving credit facility (the “Working Capital Revolver Loan”), as amended, provides for advances up to $ 65 million (the “Maximum Revolver Amount”), based on specific percentages of eligible accounts receivable and inventories and up to $ 10 million of letters of credit, the outstanding amount of which reduces the available for borrowing under the Working Capital Revolver Loan.

At June 30, 2020 , our available borrowings under our Working Capital Revolver Loan were approximately $ 12.6 million , based on our eligible collateral, less outstanding letters of credit and loan balance.

(A) O ur revolving credit facility, as amended (the “Working Capital Revolver Loan”), provides for advances up to $ 65 million (the “Maximum Revolver Amount”), based on specific percentages of eligible accounts receivable and inventories and up to $ 10 million of letters of credit, the outstanding amount of which reduces the available for borrowing under the Working Capital Revolver Loan.

At September 30, 2020 , our available borrowings under our Working Capital Revolver Loan were approximately $ 36.3 million , based on our eligible collateral, less outstanding letters of credit and loan balance.

The maturity date of the Working Capital Revolver Loan is on the earlier of (i) the date that is 90 days prior to the earliest stated maturity date of the Senior Secured Notes (unless refinanced or repaid) and (ii) February 26, 2024 .

11 unchanged sentences

Principal and interest are payable in monthly installments.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt (continued)

2 unchanged sentences

We applied ASC 470, Debt, to account for the PPP loan.

We plan to use most, if not all, of the proceeds from the PPP loan for payroll, rent, utilities, and other specified costs that qualify for loan forgiveness.

We have used all or substantially all of the proceeds from the PPP loan for payroll, rent, utilities, and other specified costs that qualify for loan forgiveness.

Under the current terms of the PPP loan, loan forgiveness applications are due within 10 months after the end of the loan forgiveness covered period, which period began on the date the PPP loan was disbursed and ends either 8-weeks or 24-weeks after disbursement of the loan.

Once the SBA notifies the lender the amount of approved loan forgiveness, the lender will determine the date that the equal monthly principal and interest payments will begin for the remaining loan balance, if any.

Once the SBA notifies the lender the amount of the loan which has been approved for forgiveness, the lender will determine the date that the equal monthly principal and interest payments will begin for the remaining loan balance, if any.

Currently, the loan matures in April 2022 , which term may be extended to April 2025 if mutually agreed to by the parties.

As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded.

(E) El Dorado Ammonia L.L.C.

(“EDA”), one of our subsidiaries, is party to a secured promissory note due in May 2023 .

Principal and interest are payable in equal monthly installments with a final balloon payment of approximately $ 6.1 million.

(F) EDC is party to a secured financing arrangement with an affiliate of LSB Funding L.L.C.

As for the potential loan forgiveness, once the PPP loan is, wholly or partially, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded.

(E) EDC is party to a secured financing arrangement with an affiliate of LSB Funding L.L.C.

(“LSB Funding”).

Principal and interest are payable in 48 equal monthly installments with a final balloon payment of approximately $ 3 million due in June 2023 .

(G) EDC is party to a secured loan agreement with an affiliate of LSB Funding, which provided for available borrowings (the “Interim Loan”) during the construction of certain equipment (the “Interim Loan Period”), subject to certain conditions.

(F) EDC is party to a secured loan agreement with an affiliate of LSB Funding, which provided for available borrowings (the “Interim Loan”) during the construction of certain equipment (the “Interim Loan Period”), subject to certain conditions.

During the Interim Loan Period, interest only was payable in monthly installments.

1 unchanged sentence

Under the terms of the note, principal and interest are payable in 60 equal monthly installments.

(G) In August 2020, El Dorado Ammonia L.L.C.

(“EDA”), one of our subsidiaries, entered into a $ 30 million secured financing arrangement with an affiliate of LSB Funding.

Beginning in September 2020, principal and interest are payable in 60 equal monthly installments with a final balloon payment of approximately $ 5 million due in August 2025 .

This financing arrangement is secured by an ammonia storage tank and is guaranteed by LSB.

A portion of the proceeds from this secured financing arrangement was used to pay off the Secured Promissory Note that was scheduled to mature in May 2023 .

Commitments and Contingencies

Natural Gas Purchase Commitments – At June 30, 2020, certain of our natural gas contracts qualify as normal purchases under GAAP and thus are not mark-to-market, which contracts included volume purchase commitments with fixed costs of approximately 6.5 million MMBtus of natural gas.

These contracts extend through December 2020 at a weighted-average cost of $ 1.98 per MMBtu ($ 12.9 million) and a weighted-average market value of $ 1.72 per MMBtu ($ 11.2 million).

Natural Gas Purchase Commitments – At September 30, 2020, certain of our natural gas contracts qualify as normal purchases under GAAP and thus are not mark-to-market, which contracts included volume purchase commitments with fixed costs of approximately 4.3 million MMBtus of natural gas.

These contracts extend through February 2021 at a weighted-average cost of $ 2.46 per MMBtu ($ 10.6 million) and a weighted-average market value of $ 2.48 per MMBtu ($ 10.7 million).

Legal Matters - Following is a summary of certain legal matters involving the Company:

8 unchanged sentences

Further, a number of our facilities are dependent on environmental permits to operate, the loss or modification of which could have a material adverse effect on their operations and our financial condition.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

1 unchanged sentence

We will also be obligated to manage certain discharge water outlets and monitor groundwater contaminants at our facilities should we discontinue the operations of a facility.

As of June 30, 2020, our accrued liabilities for environmental matters totaled $ 245,000 relating primarily to the matters discussed below.

As of September 30, 2020, our accrued liabilities for environmental matters totaled $ 183,000 relating primarily to the matters discussed below.

It is reasonably possible that a change in the estimate of our liability could occur in the near term.

18 unchanged sentences

In February 2019, the Evaluation Report was submitted to the ADEQ and the ADEQ approved the report in August 2019.

No liability has been established at June 30, 2020 , in connection with this ADEQ matter.

No liability has been established at September 30, 2020 , in connection with this ADEQ matter.

Other Environmental Matters

9 unchanged sentences

The change in the use of the site, from active manufacturing to a closed facility, may impact the selected remedy and remains an open item to be discussed with the KDHE.

Pending the negotiation of the final remedy and any impact based on operational changes at the site, we accrued our allocable portion of costs primarily for the additional testing, monitoring and risk assessments that could be reasonably estimated, which is included in our accrued liabilities for environmental matters discussed above.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Pending the negotiation of the final remedy and any impact based on operational changes at the site, we continue to accrue our allocable portion of costs primarily for the additional testing, monitoring and risk assessments that could be reasonably estimated, which is included in our accrued liabilities for environmental matters discussed above.

Commitments and Contingencies (continued)

18 unchanged sentences

We continue to defend these lawsuits vigorously and we are unable to estimate a possible range of loss at this time if there is an adverse outcome in this matter as to EDC.

As of June 30, 2020 , no liability reserve has been established in connection with this matter.

As of September 30, 2020 , no liability reserve has been established in connection with this matter.

In 2015, we and EDA received formal written notice from Global Industrial, Inc.

3 unchanged sentences

LSB and EDA intend to pursue recovery of any damage or loss caused by Global’s work performed through their contract with Leidos at our El Dorado Facility.

In March 2016, EDC and we were served a summons in a case styled Global Industrial, Inc.

In March 2016, EDC and LSB were served a summons in a case styled Global Industrial, Inc.

d/b/a Global Turnaround vs.

4 unchanged sentences

We also seek damages from Leidos for their wrongdoing during the expansion, including breach of contract, fraud, gross negligence, professional negligence and gross negligence.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

10 unchanged sentences

LSB intends to vigorously prosecute its claims against Leidos in Part (2) of the matter.

Due to the impact from the coronavirus (“COVID-19”) pandemic, the Trial date for Part (2) of the matter has been delayed and we are awaiting a new Trial date.

Due to the impact from the coronavirus disease (“COVID-19”) pandemic, the Trial date for Part (2) of the matter has been delayed and we are awaiting a new trial date.

We are also involved in various other claims and legal actions (including matters involving gain contingencies).

1 unchanged sentence

Derivatives, Hedges and Financial Instruments

For the periods presented, the following significant instruments are accounted for on a fair value basis:

For the periods presented, th e following significant instruments are accounted for on a fair value basis:

Natural Gas Contracts

During the first six months of 2020, we entered into certain forward natural gas contracts (“natural gas contracts”), which are accounted for on a mark-to-market basis.

During the first nine months of 2020, we entered into certain forward natural gas contracts (“natural gas contracts”), which are accounted for on a mark-to-market basis.

We are utilizing these natural gas contracts as economic hedges for risk management purposes but are not designated as hedging instruments.

At June 30, 2020, our natural gas contracts included 1.8 million MMBtu of natural gas and extend through January 2021 (there were none at December 31, 2019).

At September 30, 2020, our natural gas contracts included 1.0 million MMBtu of natural gas and extend through January 2021 (there were none at December 31, 2019).

The valuations of the natural gas contracts are classified as Level 2.

At June 30, 2020, the valuation inputs included the contractual weighted-average cost of $ 2.01 per MMBtu and the weighted-average market value of $ 1.94 per MMBtu.

For the three and six months ended June 30, 2020 , we recognized a minimal gain and a loss $ 0.7 million (classified as cost of sales), respectively (none for the t hree and six months ended June 30, 2019), which includes an unrealized gain of $ 0.4 million and a minimal unrealized loss, respectively, attributed to natural gas contracts still held at the reporting date.

At September 30, 2020, the valuation inputs included the contractual weighted-average cost of $ 2.01 per MMBtu and the weighted-average market value of $ 2.53 per MMBtu.

For the three and nine months ended September 30, 2020, we recognized a $ 0.5 million gain and a $ 0.2 million loss (classified as cost of sales), respectively (none for the three and nine months ended September 30, 2019), which includes an unrealized gain of $ 0.8 million and $ 0.6 million, respectively, attributed to natural gas contracts still held at the reporting date.

Embedded Derivative

As discussed in Note 8, certain embedded features (“embedded derivative”) relating to the redemption of the Series E Redeemable Preferred, which includes certain contingent redemption features and the participation rights value have been bifurcated from the Series E Redeemable Preferred and recorded as a liability.

At June 30, 2020 and December 31, 2019, we estimate that the contingent redemption features have fair value since we estimate that it is probable that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023.

At September 30, 2020 and December 31, 2019, we estimate that the contingent redemption features have fair value since we estimate that it is probable that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023.

For certain other embedded features, we estimated no fair value based on our assessment that there is a remote probability that these features will be exercised.

The fair value of the embedded derivative was valued using discounted cash flow models and primarily based on the difference in the present value of estimated future cash flows with no redemptions prior to October 25, 2023 compared to certain redemptions deemed probable during the same period and applying the effective dividend rate of the Series E Redeemable Preferred.

In addition, at June 30, 2020 and December 31, 2019, the fair value of the embedded derivative included the valuation of the participation rights, which was based on the equivalent of 303,646 shares of our common stock at $ 1.16 and $ 4.20 per share, respectively.

In addition, at September 30, 2020 and December 31, 2019, the fair value of the embedded derivative included the valuation of the participation rights, which was based on the equivalent of 303,646 shares of our common stock at $ 1.61 and $ 4.20 per share, respectively.

The valuations of the embedded derivative are classified as Level 3.

This derivative is valued using market information, management’s redemption assumptions, the underlying number of shares as defined in the terms of the Series E Redeemable Preferred, and the market price of our common stock.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivatives, Hedges and Financial Instruments (continued)

For the three months ended June 30, 2020 and 2019, we recognized an unrealized gain of approximately $ 0.1 million and $ 0.7 million, respectively, due to the change in fair value of the embedded derivative.

For the six months ended June 30, 2020 and 2019, we recognized an unrealized gain of approximately $ 0.8 million and $ 0.5 million, respectively, due to the change in fair value of the embedded derivative.

These u nrealized gains are included in non-operating other income.

The following details our liabilities that are measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 :

For the three months ended September 30, 2020 and 2019, we recognized an unrealized gain and unrealized loss of approximately $ 0.1 million and $ 0.4 million, respectively, due to the change in fair value of the embedded derivative.

For the nine months ended September 30, 202 0 and 2019, we recognized an unrealized gain of approximately $ 0.6 million and $ 0.1 million, respectively, due to the change in fair value of the embedded derivative.

These unrealized gains are included in non-operating other income.

The following details our assets and liabilities that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 :

Fair Value Measurements at

June 30, 2020 Using

September 30, 2020 Using

September 30,

Quoted Prices

1 unchanged sentence

(In Thousands)

Assets - Supplies, prepaid items and other:

Natural gas contracts

Liabilities - Current and noncurrent accrued and

other liabilities:

Natural gas contracts

Embedded derivative

There was no Level 3 transfer activity for the six months ended June 30, 2020.

There was no Level 3 transfer activity for the nine months ended September 30, 2020.

Other Financial Instruments

At June 30, 2020 and December 31, 2019, we did not have any financial instruments with fair values significantly different from their carrying amounts (which excludes issuance costs, if applicable), except for the Senior Secured Notes as shown below.

June 30, 2020

At September 30, 2020 and December 31, 2019, we did not have any financial instruments with fair values significantly different from their carrying amounts (which excludes issuance costs, if applicable), except for the Senior Secured Notes as shown below.

September 30, 2020

December 31, 2019

1 unchanged sentence

Senior Secured Notes (1)

(1) Based on a quoted price of 97.0 at June 30, 2020 and 103.25 at December 31, 2019 .

(1) Based on a quoted price of 98.0 at September 30, 2020 and 103.25 at December 31, 2019 .

The Senior Secured Notes valuations are classified as Level 2.

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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 27, 2020, the President of the U.S.

1 unchanged sentence

The CARES Act provides relief to corporate taxpayers by permitting a five year carryback of 2018-2020 net operating losses (“NOLs”), removing the 80% limitation on the carryback of those NOLs, increasing the Section 163(j) 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerates refunds for minimum tax credit carryforwards, along with a few other provisions.

During the three and six months ended June 30, 2020, no material adjustments were required to the income tax benefit as a result of the enactment of the CARES Act.

During the three and nine months ended September 30, 2020, no material adjustments were required to the income tax benefit as a result of the enactment of the CARES Act.

On July 28, 2020, the U.S.

Treasury Department released final regulations, which are effective January 1, 2021, and proposed regulations with guidance on the business interest expense limitation under Section 163(j).

Currently, we are in the process of evaluating the effect of these regulations on our consolidated financial statements and related disclosures.

Income Taxes (continued)

Benefit for income taxes is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In Thousands)

2 unchanged sentences

Benefit for income taxes

For the three and six months ended June 30, 2020 and 2019, the current provision (benefit) for state income taxes shown above includes regular state income tax, provisions for uncertain state income tax positions, the impact of state tax law changes and other similar adjustments.

For the three and nine months ended September 30, 2020 and 2019, the current provision (benefit) for state income taxes shown above includes regular state income tax, provisions for uncertain state income tax positions, the impact of state tax law changes and other similar adjustments.

Our estimated annual effective rate for 2020 includes the impact of permanent tax differences, limits on deductible compensation, valuation allowances and other permanent items.

7 unchanged sentences

Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.

The tax benefit for the six months ended June 30, 2020 was $ 1.6 million ( 8 % benefit on pre-tax loss) and the tax benefit for the six months ended June 30, 2019 was $ 5.3 million ( 3 % provision on pre-tax loss excluding the impact of state tax law changes).

For the six months ended June 30, 2020 and 2019, the effective tax rate is less than the statutory tax rate primarily due to the impact of the valuation allowances.

The tax benefit for the nine months ended September 30, 2020 was $ 3.0 million ( 7 % benefit on pre-tax loss) and the tax benefit for the nine months ended September 30, 2019 was $ 5.8 million ( 14 % benefit on pre-tax loss).

For the nine months ended September 30, 2020 and 2019, the effective tax rate is less than the statutory tax rate primarily due to the impact of the valuation allowances.

LSB and certain of its subsidiaries file income tax returns in the U.S.

2 unchanged sentences

Internal Revenue Service and other major tax jurisdictions.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Redeemable Preferred Stocks

Series E and Series F Redeemable Preferred

As of June 30, 2020, the Series E Redeemable Preferred has a 14 % annual dividend rate and a participating right in dividends and liquidating distributions equal to 303,646 shares of common stock (participation rights value).

As of September 30, 2020, the Series E Redeemable Preferred has a 14 % annual dividend rate and a participating right in dividends and liquidating distributions equal to 303,646 shares of common stock (participation rights value).

Dividends accrue semi-annually in arrears and are compounded.

1 unchanged sentence

The Series E Redeemable Preferred contains redemption features and a participation rights value that are being accounted for as derivative instruments and have been bifurcated from the Series E Redeemable Preferred as discussed in Note 6.

As of June 30, 2020 , the Series F Redeemable Preferred has voting rights to vote as a single class on all matters which the common stock have the right to vote and is entitled to a number of votes equal to 456,225 shares of our common stock.

As of September 30, 2020 , the Series F Redeemable Preferred has voting rights to vote as a single class on all matters which the common stock have the right to vote and is entitled to a number of votes equal to 456,225 shares of our common stock.

Changes in our Series E and Series F Redeemable Preferred are as follows:

7 unchanged sentences

Accumulated dividends

Balance at June 30, 2020

Balance at September 30, 2020

Disaggregated Net Sales

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars In Thousands)

4 unchanged sentences

Other Information

Although most of our contracts have an original expected duration of one year or less, for our contracts with a duration greater than one year, the average remaining expected duration was approximately 13 months at June 30, 2020 .

Although most of our contracts have an original expected duration of one year or less, for our contracts with a duration greater than one year at contract inception, the average remaining expected duration was approximately 10 months at September 30, 2020 .

Liabilities associated with contracts with customers (contract liabilities) primarily relate to deferred revenue and customer deposits associated with cash payments received in advance from customers for volume shortfall charges and product shipments.

We had approximately $ 2.8 million and $ 3.6 million of contract liabilities as of June 30, 2020 and December 31, 2019, respectively.

For the three and six months ended June 30, 2020 revenues of $ 1.5 million and $ 1.0 million, respectively, were recognized and included in the balance at the beginning of the respective period.

For the three and six months ended June 30, 2019, revenues of $ 3.0 million and $ 2.5 million, respectively, were recognized and included in the balance at the beginning of the respective period.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We had approximately $ 2.1 million and $ 3.6 million of contract liabilities as of September 30, 2020 and December 31, 2019, respectively.

For the three and nine months ended September 30, 2020 revenues of $ 0.6 million and $ 1.5 million, respectively, were recognized and included in the balance at the beginning of the respective period.

For the three and nine months ended September 30, 2019, revenues of $ 1.2 million and $ 3.2 million, respectively, were recognized and included in the balance at the beginning of the respective period.

Related Party Transactions

As of June 30, 2020, we have two separate outstanding financing arrangements with an affiliate of LSB Funding as discussed in footnotes (F) and (G) of Note 4.

As of September 30, 2020, we have three separate outstanding financing arrangements with an affiliate of LSB Funding as discussed in footnotes (E), (F) and (G) of Note 4.

Also, an affiliate of LSB Funding holds $ 50 million of our Senior Secured Notes discussed in footnote (B) of Note 4.

In addition, LSB Funding holds all outstanding shares of the Series E and Series F Redeemable Preferred discussed in Note 8.

The Golsen Holders hold all outstanding shares of the Series B Preferred and Series D Preferred, which accumulated dividends on such shares totaled approxim ately $ 1.4 million at June 30, 2020 .

The Golsen Holders hold all outstanding shares of the Series B Preferred and Series D Preferred, which accumulated dividends on such shares totaled approxim ately $ 1.5 million at September 30, 2020 .

Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:

Six Months Ended

Nine Months Ended

September 30,

(In Thousands)

2 unchanged sentences

Noncash continuing investing and financing activities:

Accounts receivable, supplies and accounts payable

associated with additions of property, plant and

Supplies and accounts payable associated with

additions of property, plant and equipment

Dividends accrued on Series E Redeemable Preferred

Accretion of Series E Redeemable Preferred

Accounts payable associated with debt issuance costs

incurred relating to senior secured notes

Subsequent Events

NOL Rights Agreement

On July 6, 2020, we entered into the Section 382 Rights Agreement (the “NOL Rights Agreement”), dated as of July 6, 2020, between LSB and Computershare Trust Company, N.A., as rights agent.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements