LSB INDUSTRIES, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These include 44 controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures were effective. There were no changes to our internal control over financial reporting during the quarter ended December 31, 20 20 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control system is a process, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework). Based on our assessment, we believe that, as of December 31, 2020, our internal control over financial reporting is effective based on those criteria. ITEM 9B. OTHER INFORMATION None. 45 PART III Item 10, Item 11, Item 12, Item 1 3 and Item 14 are incorporated by reference to our definitive proxy statement which we intend to file with the SEC on or before April 30, 2021. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements The following consolidated financial statements of the Company appear immediately following this Part IV: Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2020 and 2019 F-4 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2020 F-6 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 2020 F-7 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020 F-8 Notes to Consolidated Financial Statements F-10 Quarterly Financial Data (Unaudited) F-37 (a) (2) Financial Statement Schedule The Company has included the following schedule in this report: II - Valuation and Qualifying Accounts F-39 We have omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in our Consolidated Financial Statements, including the notes to those statements. 46 (a)(3) Exhibits Exhibit Number Exhibit Title Incorporated by Reference to the Following 3(i).1 Restated Certificate of Incorporation of LSB Industries, Inc., dated January 21, 1977, as amended August 27, 1987 Exhibit 3(i).1 to the Company’s Form 10-K filed on February 28, 2013 3(ii).1 Amended and Restated Bylaws of LSB Industries, Inc. dated August 20, 2009, as amended February 18, 2010, January 17, 2014, February 4, 2014 and August 21, 2014 Exhibit 3(ii).1 to the Company’s Form 8-K filed August 27, 2014 3(ii).2 Fifth Amendment to the Amended and Restated Bylaws of LSB Industries, Inc., dated as of April 26, 2015 Exhibit 3(ii) to the Company’s Form 8-K filed April 30, 2015 3(ii).3 Sixth Amendment to the Amended and Restated Bylaws of LSB Industries, Inc., dated as of December 2, 2015 Exhibit 3(ii) to the Company’s Form 8-K filed December 8, 2015 3(ii).4 Seventh Amendment to the Amended and Restated Bylaws of LSB Industries, Inc., dated as of December 22, 2015 Exhibit 3(ii) to the Company’s Form 8-K filed December 29, 2015 3.1 Certificate of Designations of Series G Class C Preferred Stock of LSB Industries, Inc., as filed with the Secretary of State of the State of Delaware on July 6, 2020 Exhibit 3.1 to the Company’s Form 8-K filed July 6, 2020 4.1(P) Specimen Certificate for the Company’s Series B Preferred Stock Exhibit 4.27 to the Company’s Registration Statement on Form S-3 No. 33-9848 4.2 Specimen Certificate for the Company’s Series D 6% Cumulative, Convertible Class C Preferred Stock Exhibit 4.3 to the Company’s Form 10-K filed March 3, 2011 4.3 Specimen Certificate for the Company’s Common Stock Exhibit 4.3 to the Company’s Registration Statement on Form S-3 ASR filed November 16, 2012 4.4 Certificate of Designations of Series E Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of December 4, 2015 Exhibit 4.1 to the Company’s Form 8-K filed December 8, 2015 4.5 Certificate of Designations of Series E-1 Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of October 18, 2018 Exhibit 4.1 to the Company’s Form 8-K filed October 19, 2018 4.6 Certificate of Correction to Certificate of Designations of the Series E-1 Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc. Exhibit 4.1 to the Company’s Form 8-K filed November 2, 2018 4.7 Certificate of Designations of Series F Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of December 4, 2015 Exhibit 4.2 to the Company’s Form 8-K filed December 8, 2015 4.8 Certificate of Designations of Series F-1 Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of October 18, 2018 Exhibit 4.2 to the Company’s Form 8-K filed October 19, 2018 4.9 Section 382 Rights Agreement, dated as of July 6, 2020, between LSB Industries, Inc. and Computershare Trust Company, N.A., as rights agent Exhibit 4.1 to the Company’s Form 8-K filed July 6, 2020 4.10 Indenture, dated August 7, 2013, among LSB Industries, Inc., the guarantors named therein and UMB Bank, n.a., as trustee Exhibit 4.1 to the Company’s Form 8-K filed August 14, 2013 4.11 First Supplemental Indenture, dated as of September 7, 2016, by and among LSB Industries, Inc., the guarantors party thereto and UMB Bank, n.a., as trustee and notes collateral agent Exhibit 4.1 to the Company’s Form 8-K filed October 4, 2016. 4.12 Intercreditor Agreement, dated August 7, 2013, by and among Wells Fargo Capital Finance, Inc., as agent and UMB Bank, n.a., as collateral agent, and acknowledged and agreed to by LSB Industries, Inc. and the other grantors named therein Exhibit 99.1 to the Company’s Form 8-K filed August 14, 2013 4.13 Indenture, dated as of April 25, 2018, among LSB Industries, Inc., the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent. Exhibit 4.1 to the Company’s Form 8-K filed April 25, 2018 47 Exhibit Number Exhibit Title Incorporated by Reference to the Following 4.1 4 Form of 9.625% Senior Secured Notes due 2023 (included in Exhibit 4.1). Exhibit 4.2 to the Company’s Form 8-K filed April 25, 2018 4.15(a) Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 10.1* Form of Death Benefit Plan Agreement, dated April 1, 1981 Exhibit 10.2 to the Company’s Form 10-K filed March 31, 2006 10.2* LSB Industries, Inc. Outside Directors Stock Purchase Plan, dated May 24, 1999 Exhibit 99.2 to the Company’s Form 8-K filed October 23, 2014 10.3* LSB Industries, Inc. 2008 Incentive Stock Plan, effective June 5, 2008, as amended by First Amendment, effective June 5, 2014 Exhibit 99.3 to the Company’s Form 8-K filed June 11, 2014 10.4* Form of Restricted Stock Agreement Exhibit 10.3 to the Company’s Form 8-K filed January 8, 2016 10.5* Form of Incentive Stock Option Agreement for 2008 Plan Exhibit 10.8 to the Company’s Form 10-K filed February 29, 2016 10.6* LSB Industries, Inc. 2016 Long Term Incentive Plan Exhibit 4.8 to the Company’s Form S-8 filed June 28, 2016 10.7* Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Stock Option Agreement Exhibit 4.9 to the Company’s Form S-8 filed June 28, 2016 10.8* Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Restricted Stock Unit Agreement (Director Award) Exhibit 4.10 to the Company’s Form S-8 filed June 28, 2016 10.9* Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Restricted Stock Agreement Exhibit 4.11 to the Company’s Form S-8 filed June 28, 2016 10.10* Form of Time-Based Restricted Stock Agreement of LSB Industries, Inc. Exhibit 10.4 to the Company’s Form 8-K filed January 3, 2019 10.11* Form of Performance-Based Restricted Stock Agreement of LSB Industries, Inc. Exhibit 10.5 to the Company’s Form 8-K filed January 3, 2019 10.12* Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Mark Behrman Exhibit 10.12 to the Company’s Form 10-K filed February 26, 2019 10.13 * Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Mark Behrman Exhibit 10.4 to the Company’s Form 10-Q filed October 24, 2018 10.14 * Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Mark T. Behrman Exhibit 10.1 to the Company’s Form 8-K filed January 3, 2019 10.15* Restricted Stock Agreement by and between LSB Industries, Inc. and Mark Behrman, dated as of December 31, 2015 Exhibit 10.17 to the Company’s Form 10-K filed February 29, 2016 10.16 * Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of December 31, 2015 Exhibit 10.1 to the Company’s Form 8-K/A filed January 7, 2016 10.17 * Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell Exhibit 10.3 to the Company’s Form 10-Q filed October 24, 2018 10.18 * Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell Exhibit 10.18 to the Company’s Form 10-K filed February 26, 2019 10.19 * General Release Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of January 14, 2019 Exhibit 10.19 to the Company’s Form 10-K filed February 26, 2019 10.20 * Restricted Stock Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of December 31, 2015 Exhibit 10.2 to the Company’s Form 8-K/A filed January 7, 2016 10.21 * Employment Agreement by and between LSB Industries, Inc. and Michael Foster, dated as of January 5, 2016 Exhibit 10.25 to the Company’s Form 10-K filed February 29, 2016 10.22 * Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Michael J. Foster Exhibit 10.5 to the Company’s Form 10-Q filed October 24, 2018 10.23 * Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Michael J. Foster Exhibit 10.23 to the Company’s Form 10-K filed February 26, 2019 10.24 * Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Michael J. Foster Exhibit 10.3 to the Company’s Form 8-K filed January 3, 2019 48 Exhibit Number Exhibit Title Incorporated by Reference to the Following 10.25* Restricted Stock Agreement by and between LSB Industries, Inc. and Michael Foster, dated as of January 5, 2016 Exhibit 10.26 to the Company’s Form 10-K filed February 29, 2016 10.26* Employment Agreement by and between LSB Industries, Inc. and John Diesch, executed as of July 21, 2016 Exhibit 10.1 to the Company’s Form 8-K filed August 2, 2016 10.27* Employment Agreement by and between LSB Industries, Inc. and John Diesch, executed as of February 8, 2019 Exhibit 10.1 to the Company’s Form 8-K filed February 11, 2019 10.28* Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Cheryl Maguire Exhibit 10.2 to the Company’s Form 8-K filed January 3, 2019 10.29* Employment Agreement, dated December 20, 2019 and to be effective not later than February 3, 2020, between LSB Industries, Inc. and John Burns Exhibit 10.30 to the Company’s Form 10-K filed February 25, 2019 10.30* Severance and Change in Control Agreement, dated April 6, 2020, between LSB Industries, Inc. and Kristy Carver Exhibit 10.1 to the Company’s Form 10-Q filed May 7, 2020 10.31* Form of Retention Bonus Agreement Exhibit 10.28 to the Company’s Form 10-K filed February 29, 2016 10.32 Indemnification Agreement, dated October 14, 2015, by and between the Company and Jack E. Golsen, together with a schedule identifying other substantially identical agreements between the Company and each of the other directors identified on the schedule Exhibit 10.1 to the Company’s Form 8-K filed October 19, 2015 10.33 Indemnification Agreement, dated October 14, 2015 by and between the Company and David M. Shear, together with a schedule identifying other substantially identical agreements between the Company and each of its executive officers identified on the schedule Exhibit 10.2 to the Company’s Form 8-K filed October 19, 2015 10.34 Indemnification Agreement, dated as of December 4, 2015, by and between LSB Industries, Inc. and Jonathan S. Bobb, together with a schedule identifying other substantially identical agreements between the Company and each of the other directors identified on the schedule Exhibit 10.5 to the Company’s Form 8-K filed December 8, 2015 10.35 Asset Purchase Agreement, dated as of December 6, 2002, by and among Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation, Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC Exhibit 2.1 to the Company’s Form 8-K dated December 27, 2002 10.36 Exhibits and Disclosure Letters to the Asset Purchase Agreement, dated as of December 6, 2002, by and among Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation, Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC Exhibit 10.1b to the Company’s Form 10-Q filed August 6, 2010 10.37 Ammonia Purchase and Sale Agreement by and between El Dorado Chemical Company and Koch Fertilizer, LLC, dated as of November 2, 2015 Exhibit 10.49 to the Company’s Form 10-K filed February 29, 2016 CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF A COMMISSION ORDER CF #33502, DATED APRIL 4, 2016, GRANTING REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. 49 Exhibit Number Exhibit Title Incorporated by Reference to the Following 10. 38 Second Amendment to Ammonia Purchase and Sale Agreement Between Koch Fertilizer, LLC and El Dorado Chemical Company, dated as of September 30, 2019 Exhibit 10.1 to the Company’s Form 10-Q filed October 29, 2019 CERTAIN CONFIDENTIAL INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED. 10.39 Urea Ammonium Nitrate Purchase and Sale Agreement dated as of March 3, 2016 and effective as of June 1, 2016 between Coffeyville Resources Nitrogen Fertilizers, LLC and Pryor Chemical Company Exhibit 10.1 to the Company’s Form 10-Q filed August 8, 2016 CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF A COMMISSION ORDER CF #33783. DATED AUGUST 30, 2016, GRANTING REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. 10.40 Stock Purchase Agreement by and among Consolidated Industries L.L.C. The Climate Control Group, Inc., NIBE Energy Systems Inc. and, solely for purposes of Sections 6.8, 6.19 and 11.15 therein, LSB Industries, Inc., and solely for purposes of Section 11.16 therein, NIBE Industrier AB (publ), dated as of May 11, 2016. Exhibit 10.1 to the Company’s Form 8-K filed May 13, 2016 10.41 Contract on the supply of Basic Engineering Package, Detail Engineering Package, Tagged Major Equipment and related Advisory Services, between Weatherly Inc. and El Dorado Chemical Company, dated November 30, 2012 Exhibit 99.2 to the Company’s Form 8-K filed December 6, 2012 10.42 Engineering, Procurement and Construction Agreement, dated August 12, 2013, between El Dorado Ammonia L.L.C. and SAIC Constructors, LLC Exhibit 10.1 to the Company’s Form 8-K filed August 15, 2013 10.43 Construction Agreement-DMW2, dated November 6, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Exhibit 99.1 to the Company’s Form 8-K filed November 12, 2013 10.44 Construction Agreement – NACSAC, dated November 6, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Exhibit 99.2 to the Company’s Form 8-K filed November 12, 2013 10.45 Engineering, Procurement and Construction Agreement, dated December 31, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Exhibit 99.1 to the Company’s Form 8-K filed January 7, 2014 10.46 Engineering, Procurement and Construction Contract, Amendment No. 1 dated October 20, 2015, by and between El Dorado Ammonia LLC and SAIC Constructors, LLC Exhibit 10.1 to the Company’s Form 8-K filed October 26, 2015 10.47 Settlement Agreement, dated April 26, 2015, by and among the Company and Starboard Value LP and its certain affiliates and associates Exhibit 99.1 to the Company’s Form 8-K filed April 30, 2015 10.48 Consent Decree, dated May 28, 2014, by and among, LSB Industries, Inc., El Dorado Chemical Co., Cherokee Nitrogen Co., Pryor Chemical Co., El Dorado Nitrogen, L.P., the U.S. Department of Justice, the U.S. Environmental Protection Agency, the Alabama Department of Environmental Management, and the Oklahoma Department of Environment Quality Exhibit 99.1 to the Company’s Form 8-K filed June 3, 2014 10.49 Second Amended and Restated Loan and Security Agreement, dated December 31, 2013, by and among LSB Industries, Inc., each of its subsidiaries that are signatories thereto, the lenders signatories thereto, and Wells Fargo Capital Finance, LLC Exhibit 4.9 to the Company’s Form 10-K filed February 27, 2014 50 Exhibit Number Exhibit Title Incorporated by Reference to the Following 10.50 Amendment No. 1 to the Second Amended and Restated Loan and Security Agreement, dated as of June 11, 2015, by and among LSB Industries, Inc. its subsidiaries identified on the signature pages thereof, the lenders identified on the signature pages thereof and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent for the Lenders Exhibit 99.1 to the Company’s Form 8-K filed June 17, 2015 10.51 Amendment No. 2 to the Second Amended and Restated Loan and Security Agreement, dated as of November 9, 2015, by and among LSB Industries, Inc., its subsidiaries identified on the signature pages thereof, the lenders identified on the signature pages thereof, and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent for the Lenders Exhibit 10.3 to the Company’s Form 8-K filed November 16, 2015 10.52 Third Amended and Restated Loan and Security Agreement, dated as of January 17, 2017, by and among LSB Industries, Inc., the subsidiaries of LSB Industries, Inc. party thereto, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent. Exhibit 10.1 to the Company’s Form 8-K filed January 20, 2017 10.53 First Amendment to Third Amended and Restated Loan and Security Agreement, dated as of April 16, 2018, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors. Exhibit 10.1 to the Company’s Form 8-K filed April 20, 2018 10.54 Second Amendment to Third Amended and Restated Loan and Security Agreement, dated as of February 26, 2019, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors. Exhibit 4.1 to the Company’s Form 8-K filed February 28, 2019 10.55 Third Amendment to Third Amended and Restated Loan and Security Agreement, dated as of April 20, 2020, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors Exhibit 10.3 to the Company’s Form 10-Q filed May 7, 2020 10.56 Security Agreement dated as of August 7, 2013, among LSB Industries, Inc. and the other grantors identified therein in favor of UMB Bank, N.A. as Collateral Agent Exhibit 10.72 to the Company’s Form 10-K filed February 29, 2016 10.57 Supplement No. 1 to Security Agreement February 12, 2014 among LSB Industries, Inc. and the other grantors identified therein in favor of UMB Bank, N.A., as Collateral Agent Exhibit 10.73 to the Company’s Form 10-K filed February 29, 2016 10.58 Note Purchase Agreement, dated November 9, 2015, by and among LSB Industries, Inc., the guarantors party thereto and LSB Funding LLC Exhibit 10.1 to the Company’s Form 8-K filed November 16, 2015 10.59 Promissory Note, dated November 9, 2015, by LSB Industries, Inc . Exhibit 10.2 to the Company’s Form 8-K filed November 16, 2015 10.60 Joinder Agreement to Intercreditor Agreement, dated November 9, 2015, by and among LSB Funding LLC, Wells Fargo Capital Finance, Inc., as ABL Agent, UMB Bank, N.A., as Notes Agent, LSB Industries, Inc. and the guarantors party thereto Exhibit 10.4 to the Company’s Form 8-K filed November 16, 2015 51 Exhibit Number Exhibit Title Incorporated by Reference to the Following 10.6 1 Amendment No. 1 to Intercreditor Agreement, dated as of April 25, 2018, among Wells Fargo Capital Finance, LLC, UMB Bank, n.a. and Wilmington Trust, National Association, and acknowledged by LSB Industries, Inc. and the subsidiary guarantors party thereto. Exhibit 10.1 to the Company’s Form 8-K filed April 25, 2018 10.62 Joinder Agreement to Security Agreement, dated November 9, 2015, by and among LSB Funding LLC, UMB Bank, N.A., as Collateral Agent, LSB Industries, Inc. and the guarantors party thereto Exhibit 10.5 to the Company’s Form 8-K filed November 16, 2015 10.63 Securities Purchase Agreement by and among LSB Industries, Inc., LSB Funding LLC, and Security Benefit Corporation, dated as of December 4, 2015 Exhibit 10.1 to the Company’s Form 8-K filed December 8, 2015 10.64 Board Representation and Standstill Agreement by and among LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly and the Golsen Holders (as defined therein), dated as of December 4, 2015 Exhibit 10.3 to the Company’s Form 8-K filed December 8, 2015 10.65 Registration Rights Agreement by and between LSB Industries, Inc. and LSB Funding LLC, dated as of December 4, 2015 Exhibit 10.4 to the Company’s Form 8-K filed December 8, 2015 10.66 Letter Agreement, dated as of August 12, 2016, by and among LSB Industries, Inc., LSB Funding LLC and Security Benefit Corporation Exhibit 10.1 to the Company’s Form 8-K filed August 12, 2016 10.67 Securities Exchange Agreement, dated as of October 18, 2018, by and between LSB Industries, Inc. and LSB Funding LLC Exhibit 10.1 to the Company’s Form 8-K filed October 19, 2018 10.68* Transition Agreement dated June 30, 2017 by and between Jack E. Golsen and LSB Industries, Inc. Exhibit 10.1 to the Company’s Form 8-K filed on June 30, 2017 10.69 Amendment, dated October 26, 2017, to the Board Representation and Standstill Agreement by and between LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly, Jack E. Golsen, Barry H. Golsen, Linda Golsen Rappaport, Golsen Family LLC, SBL LLC and Golsen Petroleum Corp., dated as of December 4, 2015 Exhibit 10.1. to the Company’s Form 8-K Filed on October 26, 2017 10.70 Amendment to Board Representation and Standstill Agreement, dated as of October 18, 2018, by and among LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly and the Golsen Holders (as defined therein) Exhibit 10.2 to the Company’s Form 8-K filed October 19, 2018 21.1(a) Subsidiaries of the Company 23.1(a) Consent of Independent Registered Public Accounting Firm 31.1(a) Certification of Mark T. Behrman, Chief Executive Officer, pursuant to Sarbanes-Oxley Act of 2002, Section 302 31.2(a) Certification of Cheryl A. Maguire, Chief Financial Officer, pursuant to Sarbanes-Oxley Act of 2002, Section 302 32.1(b) Certification of Mark T. Behrman, Chief Executive Officer, furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906 32.2(b) Certification of Cheryl A. Maguire, Chief Financial Officer, furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906 101.INS(a) Inline XBRL Instance Document 101.SCH(a) Inline XBRL Taxonomy Extension Schema Document 101.CAL(a) Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF(a) Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB(a) Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE(a) Inline XBRL Taxonomy Extension Presentation Linkbase Document 52 Exhibit Number Exhibit Title Incorporated by Reference to the Following 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Executive Compensation Plan or Arrangement (a) Filed herewith (b) Furnished herewith (P ) Paper copy filed 53 LSB Industries, Inc. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: By: /s/ Mark T. Behrman February 25, 2021 Mark T. Behrman, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: By: /s/ Mark T. Behrman February 25, 2021 Mark T. Behrman, President and Chief Executive Officer (Principal Executive Officer) and Director Dated: By: /s/ Cheryl A. Maguire February 25, 2021 Cheryl A. Maguire, Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated: By: /s/ Harold L. Rieker Jr. February 25, 2021 Harold L. Rieker Jr., Vice President - Financial Reporting (Principal Accounting Officer) Dated: By: /s/ Richard W. Roedel February 25, 2021 Richard W. Roedel, Chairman of the Board of Directors Dated: By: /s/ Jonathan S. Bobb February 25, 2021 Jonathan S. Bobb, Director Dated: By: /s/ Barry H. Golsen February 25, 2021 Barry H. Golsen, Director Dated: By: /s/ Kanna Kitamura February 25, 2021 Kanna Kitamura, Director Dated: By: /s/ Steven L. Packebush February 25, 2021 Steven L. Packebush, Director Dated: By: /s/ Diana M. Peninger February 25, 2021 Diana M. Peninger, Director Dated: By: /s/ Richard S. Sanders Jr. February 25, 2021 Richard S. Sanders Jr., Director Dated: By: /s/ Lynn F. White February 25, 2021 Lynn F. White, Director 54 LSB Industries, Inc. Consolidated Financial Statements And Schedule for Inclusion in Form 10-K For the Fiscal Year ended December 31, 2020 Table of Contents Page Financial Statements Report of Independent Registered Public Accounting Firm F–2 Consolidated Balance Sheets F–4 Consolidated Statements of Operations F–6 Consolidated Statements of Stockholders’ Equity F–7 Consolidated Statements of Cash Flows F–8 Notes to Consolidated Financial Statements F–10 Quarterly Financial Data (Unaudited) F–37 Financial Statement Schedule Schedule II – Valuation and Qualifying Accounts F–39 F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of LSB Industries, Inc . Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LSB Industries, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Adoption of ASU No. 2016-02 (Topic 842) As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in the December 31, 2019 financial statements to reflect the accounting method change due to the adoption of ASU 2016-02 Leases (Topic 842), and the related amendments. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial report. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Pending, threatened, or settled litigation Description of the matter As discussed in Note 8 to the consolidated financial statements, the Company is involved in various claims, legal proceedings, and other disputes that require management to make assessments relating to future outcomes. Based on the Company’s assessment, contingent losses are accrued when such losses are probable and reasonably estimable. If the assessment indicates that a potentially material loss contingency is not probable but reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. Auditing management’s accounting for, and disclosure of, pending, threatened, or settled litigation is challenging because management’s evaluation of the likelihood and amount of potential loss is highly subjective and requires significant judgment. The determination is sensitive to the uncertainties related to the outcome of the contingency, the status and uncertainty of the litigation and/or the appeals process, and the status of any settlement discussions associated with the contingent matter F-2 How we addressed the matter in our audit To test the Company’s legal contingencies and the related disclosures, our audit procedures included, among others, assessing the completeness of the litigation matters, legal claims and other disputes subject to evaluation by the Company, evaluating the Company’s assessment of the probability of outcome, and disclosure of probable and reasonably possible losses. As part of these procedures, we read the minutes of the meetings of the committees of the board of directors, read summaries of rulings and/or settlement agreements, evaluated the responses of internal and external legal counsel confirmation letters, inquired of internal legal counsel to understand developments and progression in potential settlement discussions, requested and obtained written representations from executives of the Company related to contingent matters, and evaluated the Company’s disclosures for consistency with our understanding of the Company’s contingent matters. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1968. Oklahoma City, Oklahoma February 25, 2021 F-3 LSB Industries, Inc. Consolidated Balance Sheets December 31, 2020 2019 (In Thousands) Assets Current assets: Cash and cash equivalents $ 16,264 $ 22,791 Accounts receivable 42,929 40,203 Allowance for doubtful accounts ( 378 ) ( 261 ) Accounts receivable, net 42,551 39,942 Inventories: Finished goods 17,778 21,738 Raw materials 1,795 1,573 Total inventories 19,573 23,311 Supplies, prepaid items and other: Prepaid insurance 12,315 11,837 Precious metals 6,787 5,568 Supplies 25,288 24,689 Other 6,802 2,735 Total supplies, prepaid items and other 51,192 44,829 Total current assets 129,580 130,873 Property, plant and equipment, net 891,198 936,474 Other assets: Operating lease assets 26,403 15,330 Intangible and other assets, net 6,121 5,812 32,524 21,142 $ 1,053,302 $ 1,088,489 (Continued on following page) F-4 LSB Industries, Inc. Consolidated Balance Sheets (continued) December 31, 2020 2019 (In Thousands) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 46,551 $ 58,477 Short-term financing 13,576 9,929 Accrued and other liabilities 30,367 25,484 Current portion of long-term debt 16,801 9,410 Total current liabilities 107,295 103,300 Long-term debt, net 467,389 449,634 Noncurrent operating lease liabilities 19,845 11,404 Other noncurrent accrued and other liabilities 6,090 6,214 Deferred income taxes 30,939 35,717 Commitments and contingencies (Note 8) Redeemable preferred stocks: Series E 14 % cumulative, redeemable Class C preferred stock, no par value, 210,000 shares issued; 139,768 outstanding; aggregate liquidation preference of $ 277,982,000 ($ 242,800,000 at December 31, 2019) 272,101 234,893 Series F redeemable Class C preferred stock, no par value, 1 share issued and outstanding; aggregate liquidation preference of $ 100 — — Stockholders' equity: Series B 12 % cumulative, convertible preferred stock, $ 100 par value; 20,000 shares issued and outstanding; aggregate liquidation preference of $ 3,265,000 ($ 3,025,000 at December 31, 2019) 2,000 2,000 Series D 6 % cumulative, convertible Class C preferred stock, no par value; 1,000,000 shares issued and outstanding; aggregate liquidation preference of $ 1,312,000 ($ 1,252,000 at December 31, 2019) 1,000 1,000 Common stock, $ .10 par value; 75,000,000 shares authorized, 31,283,210 shares issued 3,128 3,128 Capital in excess of par value 198,215 196,833 Retained earnings (accumulated deficit) ( 41,487 ) 57,632 162,856 260,593 Less treasury stock, at cost: Common stock, 2,074,565 shares ( 2,009,566 shares at December 31, 2019) 13,213 13,266 Total stockholders' equity 149,643 247,327 $ 1,053,302 $ 1,088,489 See accompanying notes. F-5 LSB Industries, Inc. Consolidated Statements of Operations Year Ended December 31, 2020 2019 2018 (In Thousands, Except Per Share Amounts) Net sales $ 351,316 $ 365,070 $ 378,160 Cost of sales 334,268 360,085 362,325 Gross profit 17,048 4,985 15,835 Selling, general and administrative expense 32,084 34,172 40,811 Other expense (income), net 499 9,904 ( 1,951 ) Operating loss ( 15,535 ) ( 39,091 ) ( 23,025 ) Interest expense, net 51,115 46,389 43,064 Loss on extinguishment of debt — — 5,951 Non-operating other expense (income), net 10 ( 1,139 ) ( 1,554 ) Loss before provision (benefit) for income taxes ( 66,660 ) ( 84,341 ) ( 70,486 ) Provision (benefit) for income taxes ( 4,749 ) ( 20,924 ) 1,740 Net loss ( 61,911 ) ( 63,417 ) ( 72,226 ) Dividends on convertible preferred stocks 300 300 300 Dividends on Series E redeemable preferred stock 35,182 30,729 26,840 Accretion of Series E redeemable preferred stock 2,026 1,995 3,375 Net loss attributable to common stockholders $ ( 99,419 ) $ ( 96,441 ) $ ( 102,741 ) Basic and diluted net loss per common share $ ( 3.53 ) $ ( 3.44 ) $ ( 3.74 ) See accompanying notes. F-6 LSB Industries, Inc. Consolidated Statements of Stockholders’ Equity 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, 2017 31,281 ( 2,662 ) $ 3,000 $ 3,128 $ 193,956 $ 256,214 $ ( 18,102 ) $ 438,196 Net loss ( 72,226 ) ( 72,226 ) Dividend accrued on redeemable preferred stock ( 26,840 ) ( 26,840 ) Accretion of redeemable preferred stock ( 3,375 ) ( 3,375 ) Stock-based compensation 8,358 8,358 Issuance of restricted stock, net 224 ( 3,852 ) 1,916 ( 1,936 ) Other 2 20 20 Balance at December 31, 2018 31,283 ( 2,438 ) 3,000 3,128 198,482 153,773 ( 16,186 ) 342,197 Net loss ( 63,417 ) ( 63,417 ) Dividend accrued on redeemable preferred stock ( 30,729 ) ( 30,729 ) Accretion of redeemable preferred stock ( 1,995 ) ( 1,995 ) Stock-based compensation 2,220 2,220 Issuance of restricted stock, net 428 ( 3,869 ) 2,920 ( 949 ) Balance at December 31, 2019 31,283 ( 2,010 ) 3,000 3,128 196,833 57,632 ( 13,266 ) 247,327 Net loss ( 61,911 ) ( 61,911 ) Dividend accrued on redeemable preferred stock ( 35,182 ) ( 35,182 ) Accretion of redeemable preferred stock ( 2,026 ) ( 2,026 ) Stock-based compensation 1,761 1,761 Issuance of restricted and unrestricted stock, net 58 ( 379 ) 379 — Acquisition of shares withheld for employee taxes ( 123 ) ( 326 ) ( 326 ) Balance at December 31, 2020 31,283 ( 2,075 ) $ 3,000 $ 3,128 $ 198,215 $ ( 41,487 ) $ ( 13,213 ) $ 149,643 See accompanying notes. F-7 LSB Industries, Inc. Consolidated Statements of Cash Flows Year Ended December 31, 2020 2019 2018 (In Thousands) Cash flows from continuing operating activities Net loss $ ( 61,911 ) $ ( 63,417 ) $ ( 72,226 ) Adjustments to reconcile net loss to net cash provided (used) by continuing operating activities: Deferred income taxes ( 4,778 ) ( 20,895 ) 1,825 Depreciation and amortization of property, plant and equipment 69,581 68,325 70,266 Amortization of intangible and other assets 1,260 1,249 2,361 Loss (gain) on sales of property and equipment 636 678 ( 1,637 ) Loss associated with assets held for sale — 9,701 — Stock-based compensation 1,761 2,220 8,358 Loss associated with commodity contracts 1,613 — — Charge on extinguishment of debt — — 5,951 Other 4,081 2,794 2,098 Cash provided (used) by changes in assets and liabilities (net of effects of discontinued operations): Accounts receivable ( 4,702 ) 8,800 ( 2,167 ) Inventories 3,550 6,092 ( 6,698 ) Other supplies, prepaid items and other 84 ( 934 ) 564 Accounts payable ( 6,561 ) ( 7,987 ) 14,208 Accrued interest 1,578 586 ( 6,919 ) Other current and noncurrent liabilities ( 8,705 ) ( 5,113 ) 1,638 Net cash provided (used) by continuing operating activities ( 2,513 ) 2,099 17,622 Cash flows from continuing investing activities Expenditures for property, plant and equipment ( 30,471 ) ( 36,081 ) ( 37,050 ) Proceeds from vendor settlements associated with property, plant and equipment 1,647 — — Proceeds from sales of property and equipment 394 61 6,660 Proceeds from property insurance recovery associated with property, plant and equipment — — 1,531 Net proceeds from sale of discontinued operations — — 2,730 Other investing activities 4 95 389 Net cash used by continuing investing activities ( 28,426 ) ( 35,925 ) ( 25,740 ) (Continued on following page) F-8 LSB Industries, Inc. Consolidated Statements of Cash Flows (continued) Year Ended December 31, 2020 2019 2018 (In Thousands) Cash flows from continuing financing activities Proceeds from revolving debt facility $ 30,000 $ 5,000 $ 10,000 Payments on revolving debt facility ( 30,000 ) ( 15,000 ) — Net proceeds from 9.625 % senior secured notes — 35,086 390,473 Payments on senior secured notes — — ( 375,000 ) Proceeds from other long-term debt 42,570 20,219 — Payments on other long-term debt ( 21,356 ) ( 14,073 ) ( 9,170 ) Payments of debt-related costs, including extinguishment and modification costs ( 124 ) ( 1,065 ) ( 10,974 ) Proceeds from short-term financing 14,589 12,179 10,865 Payments on short-term financing ( 10,941 ) ( 10,828 ) ( 10,872 ) Taxes paid on equity awards ( 326 ) ( 949 ) ( 2,018 ) Payments of preferred stock modification costs — — ( 2,777 ) Proceeds from exercises of stock options — — 20 Net cash provided by continuing financing activities 24,412 30,569 547 Net decrease in cash and cash equivalents ( 6,527 ) ( 3,257 ) ( 7,571 ) Cash and cash equivalents at beginning of year 22,791 26,048 33,619 Cash and cash equivalents at end of year $ 16,264 $ 22,791 $ 26,048 See accompanying notes. F-9 LSB Industries, Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of Consolidation – LSB Industries, Inc. (“LSB”) and its subsidiaries (the “Company”, “we”, “us”, or “our”) are consolidated in the accompanying 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. 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 (the “Baytown Facility”). 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. Use of Estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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. Cash and Cash Equivalents – Investments, which consist of highly liquid investments with original maturities of three months or less, are considered cash equivalents. Accounts Receivable – Our accounts receivable is stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on accounts receivable balances. Our estimate is based on historical experience and periodic assessment of outstanding accounts receivable, particularly those accounts that are past due (based upon the terms of the sale). Our periodic assessment of our accounts receivable is based on our best estimate of amounts that are not recoverable. Our contract assets consist of receivables from contracts with customers. Our accounts receivable primarily relate to these contract assets and are presented in our consolidated balance sheets. Sales to our customers are generally unsecured. Credit is extended to customers based on an evaluation of the customer’s financial condition and other factors. Customer payments are generally due thirty to sixty days after the invoice date. Concentrations of credit risk with respect to trade receivables are monitored and this risk is reduced due to short-term payment terms relating to most of our significant custom ers . Ten customers (including their affiliates) account for approximately 52 % of our total net receivables at December 31, 2020 . Inventories – Inventories are stated at the lower of cost (determined using the first-in, first-out (“FIFO”) basis) or net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, transportation or disposal. Finished goods include material, labor, and manufacturing overhead costs. Inventory reserves associated with cost exceeding net realizable value were not material at December 31, 2020 and 2019. Property, Plant and Equipment – Property, plant and equipment (“PP&E”) are stated at cost, net of accumulated depreciation, depletion and amortization (“DD&A”). Leases meeting finance lease criteria are capitalized in PP&E. Major renewals and improvements that increase the life, value, or productive capacity of assets are capitalized in PP&E while maintenance, repairs and minor renewals are expensed as incurred. In addition, maintenance, repairs and minor renewal costs relating to planned major maintenance activities (“Turnarounds”) are expensed as they are incurred. All long-lived assets relate to domestic operations. Fully depreciated assets are retained in PP&E and accumulated DD&A accounts until disposal. When PP&E is retired, sold, or otherwise disposed, the asset’s carrying amount and related accumulated DD&A is removed from the accounts and any gain or loss is included in other income or expense. F-10 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) For financial reporting purposes, depreciation of the costs of PP&E is primarily computed using the straight-line method over the estimated useful lives of the assets. No provision for depreciation is made on construction in progress or capital spare parts until such time as the relevant assets are put into service. In general, assets held for sale are reported at the lower of the carrying amounts of the assets or fair values less costs to sell. Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset (asset group) exceeds the estimated undiscounted future cash flows expected to result from the use of the asset (asset group) and its eventual disposition. If assets to be held and used are considered to be impaired, the impairment to be recognized is the amount by which the carrying amounts of the assets exceed the fair values of the assets as measured by the present value of future net cash flows expected to be generated by the assets or their appraised value. In general, and depending on the event or change in circumstances, our asset groups are reviewed for impairment on a facility-by-facility basis (such as the Cherokee, El Dorado or Pryor Facility). In addition, if the event or change in circumstance relates to the probable sale of an asset (or group of assets), the specific asset (or group of assets) is reviewed for impairment. Leases – On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) . We determine if an arrangement is a lease at inception or modification of a contract and classify each lease as either an operating or finance lease based on the terms of the contract. We reassess lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. An operating lease asset represents our right to use the underlying asset as a lessee for the lease term and an operating lease liability represent our obligation to make lease payments arising from the lease. Currently, most of our leases are classified as operating leases and primarily relate to railcars, other equipment and office space. Our leases that are classified as finance leases and other leases under which we are the lessor are not material. Variable payments are excluded from the present value of lease payments and are recognized in the period in which the payment is made. Our current leases do not contain residual value guarantees. Most of our leases do not include options to extend or terminate the lease prior to the end of the term. Leases with a term of 12 months or less are not recognized in the balance sheet. Since our leases generally do not provide an implicit rate, we use our incremental borrowing rate based on the lease term and other information available at the commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the applicable lease term. Concentration of Credit Risks for Cash and Cash Equivalents and Sales – Financial instruments relating to cash and cash equivalents potentially subject us to concentrations of credit risk. These financial instruments were held by financial institutions within the U.S. None of the financial instruments held within U.S. were in excess of the federally insured limits. Net sales to one customer, Koch Fertilizer LLC (“Koch Fertilizer”), represented approximately 10 %, 11 % and 13 % of our total net sales for 2020, 2019 and 2018, respectively. Net sales to one customer, Coffeyville Resources Nitrogen Fertilizer, LLC (“CVR”), represented approximately 13 %, 9 % and 11 % of our total net sales for 2020, 2019 and 2018, respectively. Accrued Insurance Liabilities – We are self-insured up to certain limits for group health, workers’ compensation and general liability claims. Above these limits, we have commercial stop-loss insurance coverage for our contractual exposure on group health claims and statutory limits under workers’ compensation obligatio ns. We also carry umbrella insurance of $ 100 million for most general liability and auto liability risks. We have a separate $ 50 million insurance policy covering pollution liability at our chemical facilities. Additional pollution liability coverage for our other facilities is provided in our general liability and umbrella policies . F-11 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Our accrued self-insurance liabilities are based on estimates of claims, which include the reported incurred claims amounts plus the reserves established by our insurance adjustors and/or estimates provided by attorneys handling the claims, if any, up to the amount of our self-insurance limits. In addition, our accrued insurance liabilities include estimates of incurred, but not reported, claims based on historical claims experience. The determination of such claims and the appropriateness of the related liability is periodically reviewed and revised, if needed. Changes in these estimated liabilities are charged to operations. Potential legal fees and other directly related costs associated with insurance claims are not accrued but rather are expensed as incurred. Accrued insurance claims are included in accrued and other liabilities. It is reasonably possible that the actual development of claims could be different than our estimates. Executive Benefit Agreements – We are party to certain benefit agreements with certain key current and former executives. Costs associated with these individual benefit agreements are accrued based on the estimated remaining service period when such benefits become probable, they will be paid. Total costs accrued equal the present value of specified payments to be made after benefits become payable. Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. We establish valuation allowances if we believe it is more-likely-than-not that some or all of deferred tax assets will not be realized. Significant judgment is applied in evaluating the need for and the magnitude of appropriate valuation allowances against deferred tax assets. In addition, we do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the relevant taxing authorities based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50% likely to be realized. We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense. Income tax benefits associated with amounts that are deductible for income tax purposes are recorded through the statement of operations. These benefits are principally generated from the vesting of restricted stock. We reduce income tax expense for investment tax credits in the period the credit arises and is earned. See Note 7 – Income Taxes discussing the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Contingencies – Certain conditions may exist which may result in a loss, but which will only be resolved when future events occur. We and our legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a loss has been incurred, we would accrue for such contingent losses when such losses can be reasonably estimated. If the assessment indicates that a potentially material loss contingency is not probable but reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred. Loss contingency liabilities are included in current and noncurrent accrued and other liabilities and are based on current estimates that may be revised in the near term. In addition, we recognize contingent gains when such gains are realized or when the contingencies have been resolved (generally at the time a settlement has been reached). Asset Retirement Obligations – In general, we record the estimated fair value of an asset retirement obligation (“ARO”) associated with tangible long-lived assets in the period it is incurred and when there is sufficient information available to estimate the fair value. An ARO associated with long-lived assets is a legal obligation under existing or enacted law, statute, written or oral contract or legal construction. AROs, which are initially recorded based on estimated discounted cash flows, are accreted to full value over time through charges to cost of sales. In addition, we capitalize the corresponding asset retirement cost as PP&E, which cost is depreciated or depleted over the related asset’s respective useful life. We do not have any assets restricted for the purpose of settling our AROs. Redeemable Preferred Stocks – Our redeemable preferred stocks that are redeemable outside of our control are classified as temporary/mezzanine equity. The redeemable preferred stocks were recorded at fair value upon issuance, net of issuance costs or discounts. In addition, certain embedded features included in the Series E Redeemable Preferred required bifurcation and are classified as derivative liabilities. The carrying values of the redeemable preferred stocks are being increased by periodic accretions (including the amount for dividends earned but not yet declared or paid) using the interest method so that the carrying amount will equal the redemption value as of October 25, 2023, the earliest possible redemption date by the holder. The accretion was recorded to retained earnings. However, this accretion will change if the expected redemption date changes. F-12 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) 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. Revenue Recognition and Other Information Revenue Recognition and Performance Obligations We determine revenue recognition through the following steps: • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which we expect to be entitled. Generally, control is transferred when the preparation for shipment of the product to a customer has been completed. Most of our contracts contain a single performance obligation with the promise to transfer a specific product. Most of our revenue is recognized from performance obligations satisfied at a point in time, however, we have a performance obligation to perform certain services that are satisfied over a period of time. Revenue is recognized from this type of performance obligation as services are rendered and are based on the amount for which we have a right to invoice, which reflects the amount of expected consideration that corresponds directly with the value of the services performed. Transaction Price Constraints and Variable Consideration For most of our contracts with customers, the transaction price from the inception of a contract is constrained to a short period of time (generally one month) as these contracts contain terms with variable consideration related to both price and quantity. These contract prices are often based on commodity indexes (such as NYMEX natural gas index) published monthly and the contract quantities are typically based on estimated ranges. The quantities become fixed and determinable over a period of time as each sale order is received from the customer. The nature of our contracts also gives rise to other types of variable consideration, including volume discounts and rebates, make-whole provisions, other pricing concessions, and short-fall charges. We estimate these amounts based on the expected amount to be provided to customers, which result in a transaction price adjustment reducing revenue (net sales) with the offset increasing contract or refund liabilities. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We reassess these estimates on a quarterly basis. The aforementioned constraints over transaction prices in conjunction with the variable consideration included in our material contracts prevent a practical assignment of a specific dollar amount to performance obligations at the beginning and end of the period. Therefore, we have applied the variable consideration allocation exception. Future revenues to be earned from the satisfaction of performance obligations will be recognized when control transfers as goods are loaded and weighed or services are performed over the remaining duration of our contracts. Practical Expedients and Other Information We have applied the following practical expedients: • to recognize revenue in the amount we have the right to invoice relating to certain services that are performed for customers and, not disclosing the value of unsatisfied performance obligations related to such services. • not disclosing the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. • not adjusting the promised amount of consideration for the effects of a significant financing component if we expect the financing time period to be one year or less. • expense as incurred any incremental costs of obtaining a contract if the associated period of benefit is one year or less. F-13 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) All net sales and long-lived assets relate to domestic operations for the periods presented. In addition, net sales to non-U.S. customers were minimal. Recognition of Incentive Tax Credits (Other Than Credits Associated with Income Taxes) – If an incentive tax credit relates to a recovery of taxes (other than income taxes) incurred, we recognize the incentive tax credit when it is probable and reasonably estimable. If an incentive tax credit relates to an amount in excess of taxes incurred, the incentive tax credit is a contingent gain, which we recognize the incentive tax credit when it is realized or when the contingencies have been resolved (generally at the time a settlement has been reached). Amounts recoverable from the taxing authorities, if any, are included in accounts receivable. The same financial statement classification is used for an incentive tax credit as the associated tax incurred. At December 31, 2020 and 2019, our incentive tax credits receivable totaled $ 1.4 million and $ 2.3 million, respectively. Recognition of Insurance Recoveries – If an insurance claim relates to a recovery of our losses, we recognize the recovery when it is probable and reasonably estimable. If our insurance claim relates to a contingent gain, we recognize the recovery when it is realized or when the contingencies have been resolved (generally at the time a settlement has been reached). Amounts recoverable from our insurance carriers, if any, are included in accounts receivable. An insurance recovery in excess of recoverable costs relating to a business interruption claim, if any, is a reduction to cost of sales. Cost of Sales – Cost of sales includes materials, labor and overhead costs, including depreciation, to manufacture the products sold plus inbound freight, purchasing and receiving costs, inspection costs, internal transfer costs, loading and handling costs, warehousing costs, railcar lease costs and outbound freight. Maintenance, repairs and minor renewal costs relating to Turnarounds are included in cost of sales as they are incurred. Precious metals used as a catalyst and consumed during the manufacturing process are included in cost of sales. Recoveries and gains from precious metals and business interruption insurance claims, if any, are reductions to cost of sales. Selling, General and Administrative Expense – Selling, general and administrative expense (“SG&A”) includes costs associated with the sales, marketing and administrative functions. Such costs include personnel costs, including benefits, professional fees, office and occupancy costs associated with the sales, marketing and administrative functions. Also included in SG&A are any distribution fees paid to third parties to distribute our products. Derivatives, Hedges and Financial Instruments – Derivatives are recognized in the balance sheet and are 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 being 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 December 31, 2020 and 2019, we did not have any financial instruments with fair values materially different from their carrying amounts (which excludes issuance costs, if applicable). 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. F-14 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Income (Loss) per Common Share – Net income (loss) attributable to common stockholders is computed by adjusting net income (loss) by the amount of dividends and dividend requirements on preferred stocks and the accretion of redeemable preferred stocks, if applicable. Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, excluding contingently issuable common shares (unvested restricted stock), if applicable. For periods we earn net income, a proportional share of net income is allocated to participating securities, if applicable, determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Certain securities (Series E Redeemable Preferred and restricted stock units) participate in dividends declared on our common stock and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted income per common share during periods of net income. For periods we incur a net loss, no loss is allocated to participating securities because they have no contractual obligation to share in our losses. Diluted loss per common share is computed after giving consideration to the dilutive effect of our potential common stock instruments that are outstanding during the period, except where such non-participating securities would be anti-dilutive. Segment Information - We operate in one principal business segment – our chemical business. 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): 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. ASU 2019-12 – In December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. 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 have adopted this new standard on January 1, 2021, which is not expected to have a material impact on our consolidated financial statements or related disclosures. F-15 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 2. Loss per Common Share The following table sets forth the computation of basic and diluted net loss per common share: 2020 2019 2018 (Dollars In Thousands, Except Per Share Amounts) Numerator: Net loss $ ( 61,911 ) $ ( 63,417 ) $ ( 72,226 ) Adjustments for basic net loss per common share: Dividend requirements on Series E Redeemable Preferred ( 35,182 ) ( 30,729 ) ( 26,840 ) Dividend requirements on Series B Preferred ( 240 ) ( 240 ) ( 240 ) Dividend requirements on Series D Preferred ( 60 ) ( 60 ) ( 60 ) Accretion of Series E Redeemable Preferred ( 2,026 ) ( 1,995 ) ( 3,375 ) Numerator for basic and diluted net loss per common share - net loss attributable to common stockholders $ ( 99,419 ) $ ( 96,441 ) $ ( 102,741 ) Denominator: Denominator for basic and diluted net loss per common share - adjusted weighted-average shares (1) 28,200,983 28,039,625 27,490,717 Basic and diluted net loss per common share $ ( 3.53 ) $ ( 3.44 ) $ ( 3.74 ) (1) All periods exclude 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: 2020 2019 2018 Restricted stock and stock units 1,327,307 832,103 1,183,622 Convertible preferred stocks 916,666 916,666 916,666 Series E redeemable preferred stock - embedded derivative 303,646 303,646 303,646 Stock options 123,886 124,000 175,454 2,671,505 2,176,415 2,579,388 3. Property, Plant and Equipment Average December 31, useful lives (1) 2020 2019 (In Thousands) Machinery, equipment and automotive 25 $ 1,213,359 $ 1,204,695 Buildings and improvements 26 44,123 38,810 Land improvements 34 8,223 8,223 Furniture, fixtures and store equipment 5 1,080 1,122 Construction in progress N/A 18,389 31,575 Capital spare parts N/A 26,894 24,245 Land N/A 4,567 4,575 1,316,635 1,313,245 Less accumulated depreciation and amortization 425,437 376,771 $ 891,198 $ 936,474 (1) Weighted average useful lives as of December 31, 2020. Machinery, equipment and automotive primarily includes the categories of property and equipment and estimated useful lives as follows: processing plants and plant infrastructure ( 15 - 30 years ); certain processing plant components ( 3 - 10 years ); and trucks, automobiles, trailers, and other rolling stock ( 2 - 7 years ). F-16 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 4 . Current and Noncurrent Accrued and Other Liabilities December 31, 2020 2019 (In Thousands) Accrued interest $ 8,669 $ 7,091 Current portion of operating lease liabilities 6,706 4,066 Accrued payroll and benefits 5,837 5,385 Accrued death and other executive benefits 2,539 2,564 Deferred revenue 1,890 3,443 Other 10,816 9,149 36,457 31,698 Less noncurrent portion 6,090 6,214 Current portion of accrued and other liabilities $ 30,367 $ 25,484 5. Asset Retirement Obligations We own the land on which our owned plants operate, limiting asset retirement obligations at our owned chemical facilities. However, we have various legal requirements related to operations at our chemical facilities mainly for the disposal of wastewater generated at certain of these facilities. At December 31, 2020 and 2019, our accrued liability for AROs was $ 100,000 . However, the facilities and some of the water related assets have an indeterminate life and as a result there is insufficient information to estimate the fair value for certain of our AROs. We will continue to review these obligations and record a liability when a reasonable estimate of the fair value can be made. 6. Long-Term Debt December 31, 2020 2019 (In Thousands) Working Capital Revolver Loan, with a current interest rate of 3.75 % (A) $ — $ — Senior Secured Notes due 2023 (B) 435,000 435,000 Secured Promissory Note due 2021, with an interest rate of 5.25 % (C) 1,221 4,746 Unsecured Loan Agreement due 2022, with an interest rate of 1.00 % (D) 10,000 — Secured Financing due 2023, with an interest rate of 8.32 % (E) 10,715 13,476 Secured Loan Agreement due 2025, with an interest rate of 8.75 % (F) 6,834 5,219 Secured Financing due 2025, with an interest rate of 8.75 % (G) 28,636 — Secured Promissory Note due 2023 (G) — 12,705 Other 432 159 Unamortized discount, net of premium and debt issuance costs ( 8,648 ) ( 12,261 ) 484,190 459,044 Less current portion of long-term debt (H) 16,801 9,410 Long-term debt due after one year, net (H) $ 467,389 $ 449,634 F-17 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) (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 December 31, 2020 , our available borrowings under our Working Capital Revolver Loan were approximately $ 41.8 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 . Subject to certain conditions and subject to lender approval, the Maximum Revolver Amount may increase up to an additional $ 10 million, less the outstanding aggregate principal amount of the unforgiven portion (as defined in the agreement) of the PPP loan discussed below within footnote (D). The Working Capital Revolver Loan also provides for a springing financial covenant (the “Financial Covenant”), which requires that, if the borrowing availability is less than 10.0 % of the total revolver commitments, then the borrowers must maintain a minimum fixed charge coverage ratio of not less than 1.00 to 1.00 . The Financial Covenant, if triggered, is tested monthl y. Interest accrues on outstanding borrowings under the Working Capital Revolver Loan at a rate equal to, at our election, either (a) LIBOR for an interest period selected by us plus an applicable margin equal to 1.50 % per annum or 1.75 % per annum, depending on borrowing availability under the Working Capital Revolver Loan, or (b) Wells Fargo Capital Finance’s prime rate plus an applicable margin equal to 0.50 % per annum or 0.75 % per annum, depending on borrowing availability under the Working Capital Revolver Loan. Interest is paid quarterly, if applicable. The Working Capital Revolver Loan contains customary covenants including limitations on asset sales, liens, debt incurrence, restricted payments, investments, dividends and transactions with affiliates. The Working Capital Revolver Loan includes customary events of default. Upon the occurrence of any event of default, the obligations under the Working Capital Revolver Loan may be accelerated and the revolver commitments may be terminated. Obligations under the Working Capital Revolver Loan are secured by a first priority security interest in substantially all of our current assets, including accounts receivable and inventory, subject to certain customary exceptions. (B) On April 25, 2018, LSB completed the issuance and sale of $ 400 million aggregate principal amount of its 9.625 % Senior Secured Notes due 2023 (the “Notes”). The Notes were issued pursuant to an indenture, dated as of April 25, 2018 (the “Indenture”), by and among LSB, the subsidiary guarantors named therein, and Wilmington Trust, National Association, a national banking association, as trustee and collateral agent (the “Notes Trustee”). The Notes were issued at a price equal to 99.509 % of their face value. On June 21, 2019, LSB completed the issuance and sale of $ 35 million aggregate principal amount of its 9.625 % Senior Secured Notes due 2023 (the “New Notes”). The New Notes were issued pursuant to the Indenture (the Notes together with the New Notes, the “Senior Secured Notes”). The New Notes were issued at a price equal to 102.125 % of their face value, plus accrued interest from May 1, 2019 to June 21, 2019. The Senior Secured Notes will mature on May 1, 2023 and rank senior in right of payment to all of our debt that is expressly subordinated in right of payment to the notes and will rank pari passu in right of payment with all of our liabilities that are not so subordinated, including the Working Capital Revolver Loan. LSB’s obligations under the Senior Secured Notes are jointly and severally guaranteed by the subsidiary guarantors named in the Indenture on a senior secured basis. Interest on the Senior Secured Notes accrues at a rate of 9.625 % per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. LSB may redeem the Senior Secured Notes at its option, in whole or in part, subject to the payment of a premium of 3.609 % of the principal amount so redeemed, in the case of any optional redemption prior to May 1, 2022. If LSB experiences a change of control, it must offer to purchase the notes at 101 % of their principal amount, plus accrued and unpaid interest, if any, to but excluding the date of purchase. The Indenture contains covenants that limit, among other things, LSB and certain of its subsidiaries’ ability to (1) incur additional indebtedness; (2) declare or pay dividends, redeem stock or make other distributions to stockholders; (3) make other restricted payments, including investments; (4) create dividend and other payment restrictions affecting its subsidiaries; (5) create liens or use assets as security in other transactions; (6) merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of our assets; and (7) enter into transactions with affiliates. Further, during any such time when the Senior Secured Notes are rated investment grade by each of Moody’s Investors Service, Inc. and Standard & Poor’s Investors Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, certain of the covenants will be suspended with respect to the Senior Secured Notes. F-18 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 6 . Long-Term Debt (continued) The Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Obligations in respect of the Senior Secured Notes are secured by a first priority security interest in substantially all of our fixed assets, subject to certain customary exceptions. As it relates to the issuance of the Notes in April 2018, a portion of the net proceeds from the Notes were used to purchase/redeem the $ 375 million aggregate principal amount of senior secured notes scheduled to mature in 2019 . A portion of the 2018 transaction was accounted for as an extinguishment of debt and a portion was accounted for as a non-substantial debt modification. As a result, approximately $ 0.9 million of fees were expensed, as incurred, and are included in interest expense in 2018. In addition, we recognized a loss on extinguishment of debt of approximately $ 6.0 million in 2018, primarily consisting of a portion of the redemption premiums paid and the expensing of a portion of debt issuance costs associated with the senior secured notes. (C) El Dorado Chemical Company (“EDC”), one of our subsidiaries, is party to a secured promissory note due in March 2021 . Principal and interest are payable in monthly installments. (D) In April 2020, LSB entered into a federally guaranteed loan agreement (“PPP loan”) for $ 10 million with a lender pursuant to a new loan program through the U.S. Small Business Administration (“SBA”) as the result of the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended by the Paycheck Protection Program Flexibility Act of 2020. We applied ASC 470, Debt, to account for the PPP loan. 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 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, 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) During 2019, EDC entered into 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 . A portion of the proceeds from this secured financing arrangement was used to pay off a secured promissory note that was scheduled to mature in 2019. (F) During 2019, EDC entered into an interim 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. Effective February 28, 2020, the Interim Loan Period ended, and the Interim Loan was replaced by a secured loan agreement due in March 2025. Under the terms of the loan, principal and interest will be 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 . F-19 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) ( H) Maturities of long-term debt for each of the five years after December 31, 2020 are as follows (in thousands): 2021 $ 16,893 2022 12,641 2023 446,291 2024 7,427 2025 9,586 Thereafter — Less: Discount, net of premium, and debt issuance costs 8,648 $ 484,190 7. Income Taxes The CARES Act, which was signed into law on March 27, 2020, 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 other provisions. During 2020, no material adjustments were required to the income tax benefit as a result of the enactment of the CARES Act. Provision (benefit) for income taxes are as follows: 2020 2019 2018 (In Thousands) Current: Federal $ ( 4 ) $ — $ 11 State 33 ( 29 ) ( 96 ) Total Current $ 29 $ ( 29 ) $ ( 85 ) Deferred: Federal $ ( 4,631 ) $ ( 14,739 ) $ 1,415 State ( 147 ) ( 6,156 ) 410 Total Deferred $ ( 4,778 ) $ ( 20,895 ) $ 1,825 Provision (benefit) for income taxes $ ( 4,749 ) $ ( 20,924 ) $ 1,740 The current provision for federal income taxes shown above includes regular federal income tax after the consideration of permanent and temporary differences between income for GAAP and tax purposes. The current benefit for state income taxes includes regular state income tax and provisions for uncertain income tax positions, and other similar adjustments. The deferred tax provision (benefit) results from the recognition of changes in our prior year deferred tax assets and liabilities, and the utilization of state NOL carryforwards and other temporary differences. We reduce income tax expense for tax credits in the year they arise and are earned. At December 31, 2020, our gross amount of tax credits available to offset state income taxes was not material. Most of these tax credits do not expire and carryforward indefinitely. The gross amount of federal tax credits was $ 8.1 million. These credits carryforward for 20 years and begin expiring in 2034 . F-20 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued) In 2018, we utilized approximately $ 3.4 million, which includes the impact of changes in tax law, of state NOL carryforwards to reduce tax liabilities (minimal in 2020 and 2019). At December 31, 2020, we have remaining federal and state tax NOL carryforwards of $ 629.3 million and $ 794.4 million, respectively. The federal NOL carryforwards begin expiring in 2033 and the state NOL carryforwards began expiring in 2020 . We considered both positive and negative evidence in our determination of the need for valuation allowances for the deferred tax assets associated with federal and state NOLs and federal credits and in conjunction with the IRC Section 382 limitation. Information evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and tax carrybacks, as well as an evaluation of currently available information about future years. In the second quarter of 2018, we established a valuation allowance on a portion of our federal deferred tax assets. Valuation allowances are reflective of our quarterly analysis of the four sources of taxable income, including the calculation of the reversal of existing tax assets and liabilities, the impact of annual utilization limitations of interest expense and net operating losses and our results of operations. Based on our analysis, we believe that it is more-likely-than-not that a portion of our federal deferred tax assets will not be able to be utilized. In addition, we believe that it is more-likely-than-not that a portion of our state deferred tax assets will not be able to be utilized. Information relating to our valuation allowance are included in the two tables below. In 2018, the provision for income taxes includes a reversal of approximately $ 2.3 million of valuation allowance related to tax law changes in 2018. Deferred tax assets and liabilities include temporary differences and carryforwards as follows: December 31, 2020 2019 (In Thousands) Deferred compensation $ 2,106 $ 2,073 Other accrued liabilities 2,142 1,051 Right-of-use-assets 6,471 3,774 Interest expense carryforward 36,165 23,164 Net operating loss 170,362 163,750 Other 10,255 11,220 Less valuation allowance on deferred tax assets ( 64,655 ) ( 51,589 ) Total deferred tax assets $ 162,846 $ 153,443 Property, plant and equipment ( 183,335 ) ( 182,572 ) Lease liability ( 6,508 ) ( 3,809 ) Prepaid and other insurance reserves ( 3,942 ) ( 2,779 ) Total deferred tax liabilities $ ( 193,785 ) $ ( 189,160 ) Net deferred tax liabilities $ ( 30,939 ) $ ( 35,717 ) All of our loss before taxes relates to domestic operations. Detailed below are the differences between the amount of the provision (benefit) for income taxes and the amount which would result from the application of the federal statutory rate to “Loss before provision (benefit) for income taxes.” 2020 2019 2018 (In Thousands) Benefit for income taxes at federal statutory rate $ ( 13,999 ) $ ( 17,712 ) $ ( 14,802 ) State current and deferred income tax benefit ( 5,094 ) ( 5,282 ) ( 4,089 ) Valuation allowance - Federal 8,758 2,739 14,604 Valuation allowance - State 4,308 2,961 4,112 State tax law changes ( 660 ) ( 4,388 ) — Other 1,938 758 1,915 Provision (benefit) for income taxes $ ( 4,749 ) $ ( 20,924 ) $ 1,740 F-21 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued) A reconciliation of the beginning and ending amount of uncertain tax positions is as follows: 2020 2019 2018 (In Thousands) Balance at beginning of year $ 519 $ 577 $ 618 Additions based on tax positions related to the current year — — — Reductions for tax positions of prior years ( 55 ) ( 58 ) ( 41 ) Balance at end of year $ 464 $ 519 $ 577 We expect that the amount of unrecognized tax benefits may change as the result of ongoing operations, the outcomes of audits, and the expiration of statute of limitations. This change is not expected to have a significant effect on our results of operations or financial condition. For 2020, 2019, and 2018, if recognized, the effect on the effective tax rate from unrecognized tax benefits would be insignificant. We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense. For 2020, 2019 and 2018, the amounts for interest and penalties associated with unrecognized tax benefits were minimal. In addition, the amounts accrued for interest and penalties were minimal at December 31, 2020 and 2019. LSB and certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the 2016-2020 years remain open for all purposes of examination by the U.S. Internal Revenue Service (“IRS”) and other major tax jurisdictions. During 2018, the IRS concluded their examination of our 2015 tax return and there are no changes to our financial position, results of operations or cash flow resulting from the audit. 8. Commitments and Contingencies Purchase and Sales Commitments – We have the following significant purchase and sales commitments. UAN supply agreement – The Pryor Chemical Company (“PCC”) is party to an agreement with CVR. CVR has the exclusive right (but not the obligation) to purchase all the tons of UAN that are produced by PCC with certain limitations. If CVR fails to take delivery of certain tons, PCC pursuant to the terms of the agreement may immediately sell such unpurchased product to a third-party without restriction. The current term of the agreement expires in June 2021 , but includes automatic renewals for one or more additional one-year terms unless terminated by either party. However, CVR may unilaterally terminate the agreement upon 180 days’ advance written notice of termination to PCC; provided, however, that each party’s rights and obligations pertaining to UAN that CVR committed to purchase before such advance notice will survive termination. Additionally, PCC can terminate the agreement upon 90 days’ advance written notice of termination to CVR; provided, however, that each party’s rights and obligations pertaining to UAN that PCC committed to sell prior to such advance notice will survive termination. Ammonia supply agreement – EDC is party to an agreement, as amended, with Koch Fertilizer under which Koch Fertilizer agrees to purchase, with minimum purchase requirements, the ammonia that (a) will be produced at the El Dorado Facility and (b) a portion that is in excess of EDC’s needs as defined. As amended, the term of the agreement expires in June 2022 but automatically continues for one or more additional one-year terms unless terminated by either party by delivering a notice of termination at least nine months prior to the end of term in effect. Nitric acid supply agreement – EDC is party to an agreement with a customer to supply nitric acid. Under the agreement, EDC agreed to supply between 70,000 to 100,000 tons of nitric acid annually. The initial contract term began in 2021 and extends through 2027 but includes automatic one-year renewal terms unless terminated by either party in writing 180 days before the current contract expiration date. Natural Gas Purchase and Other Commitments – Certain of our subsidiaries are parties to contracts to purchase natural gas for anticipated production needs at certain of our facilities. Since these contracts are considered normal purchases because they provide for the purchase of natural gas that will be delivered in quantities expected to be used over a reasonable period of time in the normal course of business and are documented as such, these contracts are exempt from the accounting and reporting requirements relating to derivatives. At December 31, 2020, these natural gas contracts, which qualify as normal purchases under GAAP and thus are not mark-to-market, included volume purchase commitments of approximately 3.8 million MMBtus of natural gas. These contracts extend through March 2021 at a weighted-average cost of $ 2.80 per MMBtu ($ 10.6 million) and a weighted-average market value of $ 2.36 per MMBtu ($ 9.0 million). In addition, we had standby letters of credit outstanding of approximately $ 2.5 million at December 31, 2020. F-22 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 8. Commitments and Contingencies (continued) Wastewater Pipeline Operating Agreement – EDC is party to an operating agreement for the right to use a pipeline to dispose its wastewater. EDC is contractually obligated to pay a portion of the operating costs of the pipeline, which portion is estimated to be $ 100,000 to $ 150,000 annually. The initial term of the operating agreement is through December 2053. Performance and Payment Bonds – We are contingently liable to sureties in respect of certain insurance bonds issued by the sureties in connection with certain contracts entered into by certain subsidiaries in the normal course of business. These insurance bonds primarily represent guarantees of future performance of our subsidiaries. As of December 31, 2020, we have agreed to indemnify the sureties for payments, up to $ 10 million, made by them in respect of such bonds. All of these insurance bonds are expected to expire or be renewed in 2021. Employment and Severance Agreements - We have employment and severance agreements with several of our officers. The agreements, as amended, provide for annual base salaries, bonuses and other benefits commonly found in such agreements. In the event of termination of employment due to a change in control (as defined in the agreements), the agreements provide for payments aggregating $ 8.6 million at December 31, 2020. Also see Note 14-Related Party Transactions. Settlements of Gain Contingencies During 2020, 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 the plant began production in 2016. As a result of the settlements, the vendors paid EDC $ 4.3 million, provided parts totaling $ 0.3 million and have agreed to provide services and parts totaling $ 2.5 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 December 31, 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 2020 includes approximately $ 5.7 million classified as a reduction to cost of sales and approximately $ 1.9 million classified as a reduction to PP&E. During 2018, we and a vendor mediated a settlement relating primarily to a business interruption claim caused by defective work performed by the vendor at our Pryor Facility. As a result of the settlement, the vendor paid us $ 4.0 million. As part of the settlement, we paid the vendor $ 0.5 million to settle $ 1.1 million of invoices that were held in our accounts payable. As a result, we recognized during 2018 a recovery from this settlement totaling $ 4.6 million of which $ 4.4 million was classified as a reduction to cost of sales and the remaining balance of $ 0.2 million classified as a reduction to PP&E. Legal Matters - Following is a summary of certain legal matters involving the Company: A. Environmental Matters Our facilities and operations are subject to numerous federal, state and local environmental laws and to other laws regarding health and safety matters (collectively, the “Environmental and Health Laws”), many of which provide for certain performance obligations, substantial fines and criminal sanctions for violations. Certain Environmental and Health Laws impose strict liability as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety effects of our operations. There can be no assurance that we will not incur material costs or liabilities in complying with such laws or in paying fines or penalties for violation of such laws. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. The Environmental and Health Laws and related enforcement policies have in the past resulted, and could in the future result, in significant compliance expenses, cleanup costs (for our sites or third-party sites where our wastes were disposed of), penalties or other liabilities relating to the handling, manufacture, use, emission, discharge or disposal of hazardous or toxic materials at or from our facilities or the use or disposal of certain of its chemical products. 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. Historically, significant capital expenditures have been incurred by our subsidiaries in order to comply with the Environmental and Health Laws, and significant capital expenditures are expected to be incurred in the future. 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. F-23 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 8 . Commitments and Contingencies (continued) As of December 31, 2020, our accrued liabilities for environmental matters totaled $ 468,000 relating primarily to the matters discussed below. Estimates of the most likely costs for our environmental matters are generally based on preliminary or completed assessment studies, preliminary results of studies, or our experience with other similar matters. It is reasonably possible that a change in the estimate of our liability could occur in the near term. Also, see discussion in Note 5 – Asset Retirement Obligations. 1. Discharge Water Matters Each of our manufacturing facilities generates process wastewater, which may include cooling tower and boiler water quality control streams, contact storm water and miscellaneous spills and leaks from process equipment. The process water discharge, storm-water runoff and miscellaneous spills and leaks are governed by various permits generally issued by the respective state environmental agencies as authorized and overseen by the U.S. Environmental Protection Agency. These permits limit the type and amount of effluents that can be discharged and control the method of such discharge. In October 2017, PCC filed a Permit Renewal Application for its Non-Hazardous Injection Well Permit at the Pryor Facility. Although the Injection Well Permit expired in 2018, PCC continues to operate the injection well pending the Oklahoma Department of Environmental Quality (“ODEQ”) action on the Permit Renewal Application. PCC and ODEQ are engaged in ongoing discussions related to the renewal of the injection well to address the wastewater stream. Our El Dorado Facility is subject to a National Pollutant Discharge Elimination System (“NPDES”) permit issued by the Arkansas Department of Environmental Quality (“ADEQ”) in 2004. In 2010, the ADEQ issued a draft NPDES permit renewal for the El Dorado Facility, which contained more restrictive discharge limits than the previous 2004 permit. In August 2017, ADEQ issued a final NPDES permit with new dissolved mineral limits. EDC filed an appeal in September 2017 and a Permit Appeal Resolution (“PAR”) was signed in July 2018. EDC is in compliance with the revised permit limits agreed upon in the PAR. In November 2006, the El Dorado Facility entered into a Consent Administrative Order (“CAO”) that recognizes the presence of nitrate contamination in the shallow groundwater. The CAO required EDC to perform semi-annual groundwater monitoring, continue operation of a groundwater recovery system, submit a human health and ecological risk assessment, and submit a remedial action plan. The risk assessment was submitted in August 2007. In February 2015, the ADEQ stated that El Dorado Chemical was meeting the requirements of the CAO and should continue semi-annual monitoring. Subsequent to the PAR mentioned previously, a new CAO was signed in October 2018, which required an Evaluation Report of the data and effectiveness of the groundwater remedy for nitrate contamination. 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 December 31, 2020 , in connection with this ADEQ matter. 2. Other Environmental Matters In 2002, certain of our subsidiaries sold substantially all of their operating assets relating to a Kansas chemical facility (the “Hallowell Facility”) but retained ownership of the real property where the facility is located. Our subsidiary retained the obligation to be responsible for, and perform the activities under, a previously executed consent order to investigate the surface and subsurface contamination at the real property, develop a corrective action strategy based on the investigation, and implement such strategy. In addition, certain of our subsidiaries agreed to indemnify the buyer of such assets for these environmental matters . As the successor to a prior owner of the Hallowell Facility, Chevron Environmental Management Company (“Chevron”) has agreed in writing, within certain limitations, to pay and has been paying one-half of the costs of the investigation and interim measures relating to this matter as approved by the Kansas Department of Health and Environment (the “KDHE”), subject to reallocation. During this process, our subsidiary and Chevron retained an environmental consultant that prepared and performed a corrective action study work plan as to the appropriate method to remediate the Hallowell Facility. During 2020, the KDHE selected a remedy of annual monitoring and the implementation of an Environmental Use Control (“EUC”). This remedy primarily relates to long-term surface and groundwater monitoring to track the natural decline in contamination and is subject to a 5-year re-evaluation with the KDHE. The final remedy, including the EUC, the finalization of the cost estimates and any required financial assurances remains under discussion with the KDHE, but continues to be delayed due to the impact from the COVID-19 pandemic. Pending the results from our discussions regarding the final remedy, we continue to accrue our allocable portion of costs primarily for the additional testing, monitoring and risk assessments that could be reasonably estimated, which amount is included in our accrued liabilities for environmental matters discussed above. The estimated amount is not discounted to its present value. As more information becomes available, our estimated accrual will be refined, as necessary. F-24 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 8. Commitments and Contingencies (continued) B. Other Pending, Threatened or Settled Litigation In 2013, an explosion and fire occurred at the West Fertilizer Co. (“West Fertilizer”) located in West, Texas, causing death, bodily injury and substantial property damage. West Fertilizer is not owned or controlled by us, but West Fertilizer was a customer of EDC, and purchased AN from EDC from time to time. LSB and EDC received letters from counsel purporting to represent subrogated insurance carriers, personal injury claimants and persons who suffered property damages informing LSB and EDC that their clients are conducting investigations into the cause of the explosion and fire to determine, among other things, whether AN manufactured by EDC and supplied to West Fertilizer was stored at West Fertilizer at the time of the explosion and, if so, whether such AN may have been one of the contributing factors of the explosion. Initial lawsuits filed named West Fertilizer and another supplier of AN as defendants. In 2014, EDC and LSB were named as defendants, together with other AN manufacturers and brokers that arranged the transport and delivery of AN to West Fertilizer, in the case styled City of West, Texas vs. CF Industries, Inc., et al. , in the District Court of McLennan County, Texas. The plaintiffs allege, among other things, that LSB and EDC were negligent in the production and marketing of fertilizer products sold to West Fertilizer, resulting in death, personal injury and property damage. EDC retained a firm specializing in cause and origin investigations with particular experience with fertilizer facilities, to assist EDC in its own investigation. LSB and EDC placed its liability insurance carrier on notice, and the carrier is handling the defense for LSB and EDC concerning this matter. Our product liability insurance policies have aggregate limits of general liability totaling $ 100 million, with a self-insured retention of $ 250,000 , which retention limit has been met relating to the West Fertilizer matter. In August 2015, the trial court dismissed plaintiff’s negligenc e claims against us, and EDC based on a duty to inspect but allowed the plaintiffs to proceed on claims for design defect and failure to warn. Subsequently, we and EDC have entered into confidential settlement agreements (with approval of our insurance carriers) with several plaintiffs that had claimed wrongful death and bodily injury and insurance companies asserting subrogation claims for damages from the explosion. While these settlements resolve the claims of a number of the claimants in this matter, we continue to be party to litigation related to the explosion. 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 of December 31, 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. (“Global”) of Global’s intention to assert mechanic liens for labor, service, or materials furnished under certain subcontract agreements for the improvement of the new ammonia plant (“Ammonia Plant”) at our El Dorado Facility. Global was a subcontractor of Leidos Constructors, LLC (“Leidos”), the general contractor for EDA for the construction for the Ammonia Plant. Leidos terminated the services of Global with respect to their work performed at our El Dorado Facility. LSB and EDA are pursuing the 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 LSB were served a summons in a case styled Global Industrial, Inc. d/b/a Global Turnaround vs. Leidos Constructors, LLC et al., in the Circuit court of Union County, Arkansas, wherein Global sought damages under breach of contract and other claims. At the time of the summons, our accounts payable included invoices totaling approximately $ 3.5 million related to the claims asserted by Global but such invoices were not approved by Leidos for payment. We have requested indemnification from Leidos under the terms of our contracts, which they have denied. As a result, we are seeking reimbursement of legal expenses from Leidos under our contracts. We also seek damages from Leidos for their wrongdoing during the expansion, including breach of contract, fraud, professional negligence, and gross negligence. On September 25, 2018, the Court bifurcated the case into: (1) Global’s claims against Leidos and LSB , and (2) the cross-claims between Leidos and LSB. Part (1) of the case was tried in the Court during the fall of 2018 and the Court rendered an interim judgment in March 2020 and issued its final judgment on April 23, 2020. In summary, the judgment awarded Global (i) approximately $ 7.4 million (amount includes the $3.5 million discussed above) for labor, service, and materials furnished relating to the Ammonia Plant, (ii) approximately $ 1.3 million for prejudgment interest, and (iii) a claim of lien on certain property and the foreclosure of the lien to satisfy these obligations. In addition, post-judgment interest will accrue at the annual rate of 4.25 % until paid. As a result of the judgment, we accounted for the following: • accrued an additional $ 3.9 million in accounts payable, which offset amount was capitalized as PP&E, since such costs directly related to the construction of the Ammonia Plant; • recognized additional depreciation expense of $ 0.5 million associated with the amount above capitalized to PP&E, which offset amount was a credit to PP&E (accumulated depreciation); • accrued prejudgment and post-judgment interest totaling $ 1.6 million in accrued interest, which offset amount was classified as interest expense. We have filed a notice of intent to appeal and the Court entered a stay of the judgment pending appeal. F-25 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 8. Commitments and Contingencies (continued) LSB intends to vigorously prosecute its claims against Leidos and vigorously contest the cross-claims in Part (2) of the matter. Due to the impact from the COVID-19 pandemic, the Trial date for Part (2) of the matter has been delayed and we are awaiting a new trial date. No liability was established at December 31, 2020 or 2019, in connection with the cross-claims in Part (2) of the matte r, except for certain invoices held in accounts payable. We are also involved in various other claims and legal actions (including matters involving gain contingencies). It is possible that the actual future development of claims could be different from our estimates but, after consultation with legal counsel, we believe that changes in our estimates will not have a material effect on our business, financial condition, results of operations or cash flows. 9. Derivatives, Hedges and Financial Instruments For the periods presented, th e following significant instruments are accounted for on a fair value basis: Natural Gas Contracts During 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 these contracts are not designated as hedging instruments. At December 31, 2020, our natural gas contracts included 7.3 million MMBtu of natural gas and extend through December 2021 (there were none at December 31, 2019). The valuations of the natural gas contracts are classified as Level 2. At December 31, 2020, the valuation inputs included the contractual weighted-average cost of $ 2.65 per MMBtu and the weighted-average market value of $ 2.49 per MMBtu. For 2020, we recognized a $ 1.6 million loss ( none for 2019 or 2018), classified as cost of sales, which amount includes an unrealized loss of $ 1.2 million attributed to natural gas contracts still held at the reporting date. Embedded Derivative As discussed in Note 10, 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 December 31, 2020 and 2019, we had estimated that the contingent redemption features had fair value since we had assessed that it was probable that a portion of the shares of this preferred stock would have been redeemed prior to October 25, 2023. For certain other embedded features, we had estimated no fair value. The fair value of the embedded derivative included 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. At December 31, 2020 and 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 $ 3.39 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. F-26 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 9. Derivatives, Hedges and Financial Instruments (continued) For 2020, 2019 and 2018, we recognized unrealized gains of approximately $ 0.1 million, $ 0.5 million and $ 1.2 million, respectively, due to the change in fair value of the embedded derivative. These unrealized gains are included in non-op erating other income and expense. The following details our assets and liabilities that are measured at fair value on a recurring basis at December 31 , 2020 and 2019: Fair Value Measurements at December 31, 2020 Using Description Total Fair Value at December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (1) Total Fair Value at December 31, 2019 (In Thousands) Assets - Supplies, prepaid items and other: Natural gas contracts $ 80 $ — $ 80 $ — $ — Total $ 80 $ — $ 80 $ — $ — Liabilities - Current and noncurrent accrued and other liabilities: Natural gas contracts $ 1,285 $ — $ 1,285 $ — $ — Embedded derivative $ 1,029 $ — $ — $ 1,029 $ 1,084 Total $ 2,314 $ — $ 1,285 $ 1,029 $ 1,084 (1) There was no Level 3 transfer activity during 2020, 2019 or 2018. 10. Redeemable Preferred Stocks Series E Redeemable Preferred 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. Dividends are payable only when and if declared by our Board of Directors (the “Board”). Pursuant to the terms of the Series E Redeemable Preferred, the annual dividend rate will increase (a) by 0.50 % in April 2021 (b) by an additional 0.50 % in April 2022 and (c) by an additional 1.0 % in April 2023. Additionally, we must declare a dividend on the Series E Redeemable Preferred on a pro rata basis with the common stock. As long as LSB Funding holds at least 10 % of the Series E Redeemable Preferred, we may only declare dividends on Junior Stock unless and until dividends have been declared and paid on the Series E Redeemable Preferred for the then current dividend period in cash. The Series E Redeemable Preferred has a liquidation preference per share of $ 1,000 plus accrued and unpaid dividends plus the participation rights value (the “Liquidation Preference”). The participation rights value is the product of the pro rata number of Series E Redeemable Preferred shares being redeemed and the price of our common stock as of such date. During 2018, in connection with the issuance and sale of the Notes as discussed in Note 6, we entered into a letter agreement with the holder of our Series E Redeemable Preferred. The letter agreement extended the date upon which the holder of the Series E Redeemable Preferred has the right to elect to redeem the Series E Redeemable Preferred shares from August 2, 2019 to October 25, 2023. The letter agreement also provided for the amendment of certain other terms relating to the Series E Redeemable Preferred, including an increase in the per annum dividend rate payable in respect of the Series E Redeemable Preferred as described above. To reflect the changes stated in the letter agreement, we subsequently entered into a securities exchange agreement by and between LSB and the holder and entered into the Certificate of Designations (“COD”)setting forth the rights, preferences, privileges and restrictions currently applicable to the Series E Redeemable Preferred and Series F Redeemable Preferred, as filed with the Secretary of State of the State of Delaware (the “Series E COD” and “Series F COD”). The Series E COD authorizes 139,768 shares of Series E Redeemable Preferred, which is the number of shares outstanding at December 31, 2020 and 2019. The transaction associated with the letter agreement was determined to be a non-substantial modification. As a result, a fee of approximately $ 2.8 million paid to the holder was deferred (reducing the Series E Redeemable Preferred balance) and is periodically accreted using the interest method through October 25, 2023, the earliest possible redemption date by the holder. In addition, the letter agreement included a contingent redemption feature, which was bifurcated from the Series E Redeemable Preferred. F-27 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 10. Redeemable Preferred Stocks With respect to the distribution of assets upon liquidation, dissolution or winding up of LSB, whether voluntary or involuntary, the Series E Redeemable Preferred ranks (i) senior to the common stock, the Series B 12 % Cumulative Convertible Preferred Stock, the Series D 6 % Cumulative Convertible Class C Preferred Stock, the Series 4 Junior Participating Class C Preferred Stock and any other class or series of stock of LSB (other than Series E Redeemable Preferred) that ranks junior to the Series E Redeemable Preferred either or both as to the payment of dividends and/or as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation (the “Junior Stock”); (ii) on a parity with the other shares of Series E Redeemable Preferred and any other class or series of stock of LSB (other than Series E Redeemable Preferred) created after the date of the Series E COD (that specifically ranks pari passu to the Series E Redeemable Preferred) and (iii) junior to any other class or series of stock of LSB created after the date of the Series E COD that specifically ranks senior to the Series E Redeemable Preferred. Generally, the holders of the Series E Redeemable Preferred Shares (the “Series E Holders”) will not have any voting rights or powers, and consent of the Series E Holders will not be required for taking of any action by us. However, the Series E Holders’ consent is required for: • amendments to increase or decrease the authorized amount of Series E Redeemable Preferred, • the creation or increase of any shares of any class or series of capital stock of LSB ranking pari passu with or senior to the Series E Redeemable Preferred, or • any amendment that adversely affect the powers, preferences or special rights of the Series E Redeemable Preferred. At any time on or after October 25, 2023 , each Series E Holder has the right to elect to have such holder’s shares redeemed by us at a redemption price per share equal to the Liquidation Preference of such share as of the redemption date. Additionally, we, at our option, may redeem the Series E Redeemable Preferred at any time at a redemption price per share equal to the Liquidation Preference of such share as of the redemption date. Lastly, with receipt of (i) prior consent of the electing Series E Holder or a majority of shares of Series E Redeemable Preferred and (ii) all other required approvals, including under any principal U.S. securities exchange on which our common stock is then listed for trading, we can redeem the Series E Redeemable Preferred by the issuance of shares of common stock having an aggregate common stock price equal to the amount of the aggregate Liquidation Preference of such shares being redeemed in shares of common stock in lieu of cash at the redemption date. In the event of liquidation, the Series E Redeemable Preferred is entitled to receive its Liquidation Preference before any such distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other Junior Stock. In the event of a change of control, we must make an offer to purchase all of the shares of Series E Redeemable Preferred outstanding. The Series E Redeemable Preferred is redeemable outside of our control and is therefore classified as temporary/mezzanine equity. As a result of an analysis performed on the embedded derivatives within the Series E Redeemable Preferred, certain contingent redemption features were determined to not be clearly and closely related to the debt-like host and also did not meet any other scope exceptions for derivative accounting. Therefore, these redemption features and participation rights value are being accounted for as derivative instruments and the fair value of these derivative instruments were bifurcated from the Series E Redeemable Preferred and recorded as a liability. See discussion in Note 9. Series F Redeemable Preferred The Series F COD authorizes one (1) share of Series F Redeemable Preferred. As of December 31, 2020, the Series F Redeemable Preferred has voting rights (the “Series F 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. With respect to the distribution of assets upon liquidation, dissolution or winding up of LSB, whether voluntary or involuntary, the Series F Redeemable Preferred ranks (i) senior to our common stock and (ii) ranks junior to LSB’s Series B 12 % Cumulative Convertible Preferred Stock, Series D 6 % Cumulative Convertible Class C Preferred Stock, Series 4 Junior Participating Class C Preferred Stock, Series E Redeemable Preferred and any other class or series of stock of LSB after the date of the Series F COD that specifically ranks senior to the Series F Redeemable Preferred. The Series F Redeemable Preferred will be automatically redeemed by LSB, in whole and not in part, for $ 0.01 immediately following the date upon which the Series F Voting Rights have been reduced to zero . In the event of liquidation, the Series F Redeemable Preferred is entitled to receive its liquidation preference of $ 100 before any such distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other stock junior to the Series F Redeemable Preferred. F-28 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 10. Redeemable Preferred Stocks Changes in our Series E and Series F Redeemable Preferred are as follows: Series E Redeemable Preferred Series F Redeemable Preferred Shares Amount Shares Amount (Dollars In Thousands) Balance at December 31, 2019 139,768 $ 234,893 1 $ — Accretion relating to liquidation preference on preferred stock — 943 — — Accretion for discount and issuance costs on preferred stock — 1,083 — — Accumulated dividends — 35,182 — — Balance at December 31, 2020 139,768 $ 272,101 1 $ — 11. Stockholders’ Equity 2016 Long Term Incentive Plan – During 2016, our Board adopted our 2016 Long Term Incentive Plan (the “2016 Plan”), which plan was approved by our shareholders at our annual meeting of shareholders held on June 2, 2016. The effective date of the 2016 Plan is April 19, 2016 and no awards may be granted under the 2016 Plan on and after the tenth anniversary of its effective date. In addition, no further awards will be granted under our 2008 Incentive Stock Plan (the “2008 Plan”) on or after the effective date of the 2016 Plan. Any awards that remain outstanding under the 2008 Plan will continue to be governed by the respective plan’s terms and the terms of the specific award agreement, as applicable. The maximum aggregate number of shares reserved and available for issuance under the 2016 Plan shall not exceed 2,750,000 shares plus any shares that become available for reissuance under the share counting provisions of the 2008 Plan following the effective date of the 2016 Plan, subject to adjustment as permitted under the 2016 Plan. Shares subject to any award that is canceled, forfeited, expires unexercised, settled in cash in lieu of common stock or otherwise terminated without a delivery of shares to a participant will again be available for awards under the 2016 Plan to the extent allowable by law. Under the 2016 Plan, awards may be made to employees, directors and consultants (for services rendered) of LSB or our subsidiaries subject to limitations as defined by the 2016 Plan. The 2016 Plan is administered by the compensation committee (the “Committee”) of our Board. Our Board or the Committee may amend the 2016 Plan, except that if any applicable statute, rule or regulation requires shareholder approval with respect to any amendment of the 2016 Plan, then to the extent so required, shareholder approval will be obtained. Shareholder approval will also be obtained for any amendment that would increase the number of shares stated as available for issuance under the 2016 Plan. The following may be granted by the Committee under the 2016 Plan: Stock Awards, Restricted Stock, Restricted Stock Units, and Other Awards – The Committee may grant awards of restricted stock, restricted stock units, and other stock and cash-based awards, which may include the payment of stock in lieu of cash (including cash payable under other incentive or bonus programs) or the payment of cash (which may or may not be based on the price of our common stock). Stock Appreciation Rights (“SARs”) – The Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2016 Plan or on a stand-alone basis. SARs are the right to receive payment per share of the SAR exercised in stock or in cash equal to the excess of the share’s fair market value, as defined in the 2016 Plan, on the date of exercise over its fair market value on the date the SAR was granted. Exercise of a SAR issued in tandem with stock options will result in the reduction of the number of shares underlying the related stock option to the extent of the SAR exercise. Stock Options – The Committee may grant either incentive stock options or non-qualified stock options. The Committee sets option exercise prices and terms, except that the exercise price of a stock option may be no less than 100 % of the fair market value, as defined in the 2016 Plan, of the shares on the date of grant. At the time of grant, the Committee will have sole discretion in determining when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed 10 years subject to certain conditions. F-29 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 11. Stockholders’ Equity (continued) Stock Incentive Plans - The following information relates to our long-term incentive plans: December 31, 2020 2016 Plan 2008 Plan Maximum number of securities for issuance 2,750,000 Number of awards available to be granted (1) 1,016,951 Number of unvested restricted stock/performance-based restricted stock/restricted stock units outstanding 1,169,527 — Number of options outstanding — 122,000 Number of options exercisable — 122,000 . (1) Includes 2008 Plan shares canceled, forfeited, expired unexercised, which became available for reissuance under the 2016 Plan after the effective date of the 2016 Plan. Restricted Stock and Restricted Stock Units – During 2020, 2019, and 2018, the Committee approved various grants under the 2016 Plan of shares of restricted stock to certain executives and employees. These shares have vesting provisions including vesting at the end of each one-year period at the rate of one-third per year for three years, vesting 100 % at the end of three years, and vesting 100% at the end of one year. The unvested restricted shares carry dividend and voting rights. 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 will immediately vest upon the occurrence of a change in control (as defined by agreement), termination without cause or death. During 2020, the Committee approved the grant of shares of restricted stock and performance based restricted stock (“PBRS”) to a certain executive. These shares are reflected in the 2020 information below. On December 31, 2019, the Committee approved the grant of 275,119 shares of performance-based restricted stock to certain executives. Key information to finalize the performance targets and range of vesting shares was approved by the Board during February 2020, which is the grant date for financial reporting purposes. The terms of this PBRS grant are discussed below and these PBRS shares are reflected in the 2020 information below. On December 30, 2018, the Committee approved the grant of 210,602 shares of PBRS to certain executives. Key information to finalize the performance targets and range of vesting shares was approved by the Board during January 2019, which is the grant date for financial reporting purposes. The terms of this PBRS grant are discussed below and these PBRS shares are reflected in the 2019 information below. During 2020, 2019, and 2018 , the Committee approved the grant of shares of restricted stock units (“RSU”) to our non-employee directors for payment of a portion of their director fees under the 2016 Plan. Each RSU represents a right to receive one share of our common stock following the grant date and are non-forfeitable. Vesting occurs upon the earliest to occur: (i) the director’s separation from service, (ii) the first anniversary of the grant date (for 2020 grants), (iii) the third anniversary of the grant date (for 2019 and 2018 grants), or (iv) the occurrence of a change of control as defined by the agreement. Based on terms of the RSU agreements, the grant date fair value was recognized as stock-based compensation expense (SG&A) on the grant date in each respective year. F-30 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 11. Stockholders’ Equity (continued) A summary of restricted stock activity during 2020 is presented below: Restricted Stock Performance-Based Restricted Stock Restricted Stock Units Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Unvested outstanding beginning of year 618,072 $ 5.42 221,439 $ 7.26 86,340 $ 6.51 Granted 31,138 $ 2.81 306,257 $ 3.20 231,816 $ 1.10 Vested ( 283,418 ) $ 4.90 — $ — ( 18,996 ) $ 9.87 Cancelled or forfeited ( 23,121 ) $ 7.97 — $ — — $ — Unvested outstanding end of year 342,671 $ 4.53 527,696 $ 4.90 299,160 $ 2.11 Restricted Stock 2020 2019 2018 Shares of restricted stock granted 31,138 285,956 369,350 Total fair value of restricted stock granted $ 87,000 $ 1,223,000 $ 2,019,000 Weighted-average fair value per restricted stock granted during year $ 2.81 $ 4.28 $ 5.47 Stock-based compensation expense - Cost of sales $ 62,000 $ 255,000 $ 385,000 Stock-based compensation expense - SG&A (1) $ 1,078,000 $ 1,263,000 $ 7,574,000 Income tax benefit $ ( 279,000 ) $ ( 374,000 ) $ ( 398,000 ) Total weighted-average remaining vesting period in years 1.61 2.18 1.78 Total fair value of restricted stock vested during the year $ 1,389,000 $ 3,371,000 $ 7,355,000 Performance-Based Restricted Stock Performance-Based Restricted Stock 2020 (2) 2019 (2) Shares of PBRS granted 306,257 221,439 Total fair value of PBRS granted $ 980,000 $ 1,608,000 Weighted-average fair value per PBRS granted during year $ 3.20 $ 7.26 Stock-based compensation expense - Cost of sales $ — $ 53,000 Stock-based compensation expense - SG&A $ 218,000 $ 290,000 Income tax benefit $ ( 53,000 ) $ ( 84,000 ) Total weighted-average remaining vesting period in years 1.57 1.85 Total fair value of PBRS vested during the year $ — $ — Restricted Stock Units 2020 2019 2018 Shares of RSU granted 231,816 31,833 35,511 Total fair value of RSU granted $ 255,000 $ 187,000 $ 187,000 Weighted-average fair value per RSU granted during year $ 1.10 $ 5.89 $ 5.28 Stock-based compensation expense - SG&A $ 255,000 $ 187,000 $ 187,000 Income tax benefit $ ( 63,000 ) $ ( 46,000 ) $ ( 34,000 ) Total weighted-average remaining vesting period in years 0.48 1.57 1.75 Total fair value of RSU vested during the year $ 187,000 $ 187,000 $ 125,000 (1) As it relates to 2018, s ee Note 14-Related Party Transactions . (2) The PBRS restricted stock grants are tied to our free cash flow, fixed costs per ton of ammonia measured annually over a three-year period and modified based on our ranking relative to total stockholder return (share price appreciation plus dividends reinvested) (“TSR”) versus the companies in our 2020 and 2019 peer group (“Peer Group”) for the year of grant over a three-year measurement period. The actual number of shares that will vest at the end of the third year will be based on our performance against the metrics set in the awards but are subject to reduction to a minimum (or even zero) for recording less than the targeted performance. The threshold performance for free cash flow is 70 % and for fixed costs per ton of ammonia is 60 % of the targeted improvement with a maximum for each of 120 % of target. The TSR modifier will adjust the overall actual performance up or down by as much as 25 % based on our TSR versus the Peer Group average TSR. We estimate the fair value of each PBRS on the date of grant using a Monte Carlo simulation. F-31 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 11. Stockholders’ Equity (continued) Stock Options – No stock options have been granted under the 2016 Plan during 2020, 2019 or 2018. As it relates to stock options granted under the 2008 plan, the exercise price of the outstanding options granted were equal to the market value of our common stock at the date of grant and vested at the end of each one-year period at the rate of 16.5 % per year for the first five years and the remaining unvested options vested at the end of the sixth year . The fair value for of the stock options granted under the 2008 Plan were estimated, using an option pricing model, as of the date of the grant, which date was also the service inception date. A summary of stock option activity in 2020 is presented below: 2020 Shares Weighted-Average Exercise Price Outstanding at beginning of year 124,000 $ 33.86 Granted — $ — Exercised — $ — Forfeited or expired ( 2,000 ) $ 34.50 Outstanding at end of year 122,000 $ 33.85 Exercisable at end of year 122,000 $ 33.85 2020 2019 2018 Stock-based compensation expense - Cost of sales $ 106,000 $ 122,000 $ 141,000 Stock-based compensation expense - SG&A $ 42,000 $ 50,000 $ 71,000 Income tax benefit $ ( 36,000 ) $ ( 42,000 ) $ ( 54,000 ) Total intrinsic value of options exercised during the year $ — $ — $ — Total fair value of options vested during the year $ 180,000 $ 169,000 $ 169,000 Total intrinsic value of options outstanding at end of year $ — $ — $ — Total intrinsic value of options exercisable at end of year $ — $ — $ — Total weighted-average remaining vesting period in years — 0.49 1.05 Total weighted-average remaining contractual life period in years (options outstanding) 2.64 3.61 4.61 Total weighted-average remaining contractual life period in years (options exercisable) 2.64 3.47 4.31 Stock-based Compensation Expense Not Yet Recognized – At December 31, 2020, the total stock-based compensation expense not yet recognized is $ 2,212,000 , relating to all forms of non-vested equity awards, which we will be amortizing (subject to adjustments for actual forfeitures and performance assessments associated with the PBRS restricted stock) through the respective remaining vesting periods through December 2022. Reserved Shares of Common Stock – As of December 31, 2020, we have reserved 1.6 million shares of common stock issuable upon potential conversion of preferred stocks and equity awards pursuant to their respective terms. 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. The purpose of the NOL Rights Agreement is to facilitate our ability to preserve our NOLs and other tax attributes in order to be able to offset potential future income taxes for federal income tax purposes. Our ability to use these NOLs and other tax attributes would be substantially limited if we experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). A company generally experiences an ownership change if the percentage of the value of its stock owned by certain 5% shareholders, as defined in Section 382 of the Code, increases by more than 50% points over a rolling three-year period. The NOL Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any person (as defined in the NOL Rights Agreement) or group of affiliated or associated persons (“Group”) from acquiring beneficial ownership of 4.9 % or more of our outstanding common shares. The rights issued under the NOL Rights Agreement will expire on the earliest to occur of (i) the close of business on the day following the certification of the voting results of our 2021 annual meeting of stockholders, or other duly held stockholders’ meeting, (ii) the date on which our Board determines in its sole discretion that (x) the NOL Rights Agreement is no longer necessary for the preservation of material valuable NOLs or tax attributes or (y) the NOLs and tax attributes have been fully utilized and may no longer be carried forward and (iii) the close of business on July 6, 2023. F-32 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 11. Stockholders’ Equity (continued) Our Board may, in its discretion, determine that a person, entity or a certain transaction is exempt from the operation of the NOL Rights Agreement or amend the terms of the rights. This summary description of the NOL Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement filed as an exhibit to our Current Report on Form 8-K filed on July 6, 2020. 12. Non-Redeemable Preferred Stock Series Non-Redeemable B Preferred – The 20,000 shares of Series B 12 % cumulative, convertible preferred stock (“Series B Preferred”), $ 100 par value, are convertible, in whole or in part, into 666,666 shares of our common stock ( 33.3333 shares of common stock for each share of preferred stock ) at any time at the option of the holder and entitle the holder to one vote per share. The Series B Preferred provides for annual cumulative dividends of 12% ($ 12.00 per share) from date of issue, payable when and as declared. All of the outstanding shares of the Series B Preferred are owned by the Golsen Holders and an immediate family member . Series Non-Redeemable D Preferred – The 1,000,000 shares of Series D 6 % cumulative, convertible Class C preferred stock (“Series D Preferred”) have no par value and are convertible, in whole or in part, into 250,000 shares of our common stock ( 1 share of common stock for 4 shares of preferred stock ) at any time at the option of the holder. Dividends on the Series D Preferred are cumulative and payable annually in arrears at the rate of 6% per annum ($ 0.06 per share) of the liquidation preference of $ 1.00 per share. Each holder of the Series D Preferred shall be entitled to .875 votes per share . All of the outstanding shares of Series D Preferred are owned by the Golsen Holders and an immediate family member . See discussions concerning dividends on the Series B and D Preferred in Note 14 – Related Party Transactions. Other – At December 31, 2020, we are authorized to issue an additional 230,000 shares of $100 par value preferred stock and an additional 3,860,000 shares of no-par value preferred stock. Upon issuance, our Board will determine the specific terms and conditions of such preferred stock. 13. Executive Benefit Agreement, Employee Savings Plans and Collective Bargaining Agreements We are party to a death benefit agreement (“2005 Agreement”) with Jack E. Golsen (“J. Golsen”), who retired as discussed in Note 14-Related Party Transactions. The 2005 Agreement provides that, upon J. Golsen’s death, we will pay to the designated beneficiary, a lump-sum payment of $ 2,500,000 to be funded from the net proceeds received by us under certain life insurance policies on his life that are owned by us. We are obligated to keep in existence life insurance policies with a total face amount of no less than $2,500,000 of the stated death benefit. The following table includes information about this agreement: December 31, 2020 2019 (In Thousands) Total undiscounted death benefit $ 2,500 $ 2,500 Total accrued death benefit $ 2,539 $ 2,564 The accrued executive benefit under the 2005 Agreement is included in noncurrent accrued and other liabilities. We accrue for such liabilities when they become probable and discount the liabilities to their present value. To assist us in funding the 2005 Agreement and for other business reasons, we purchased life insurance policies on various individuals in which we are the beneficiary. Some of these life insurance policies have cash surrender values that we have borrowed against. The net cash surrender values of these policies are included in other assets. F-33 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 13. Executive Benefit Agreement, Employee Savings Plans and Collective Bargaining Agreements (continued) The following table summarizes certain information about these life insurance policies. December 31, 2020 2019 (In Thousands) Total face value of life insurance policies $ 4,500 $ 4,500 Total cash surrender values of life insurance policies $ 1,796 $ 1,727 Loans on cash surrender values ( 1,703 ) ( 1,629 ) Net cash surrender values $ 93 $ 98 2020 2019 2018 (In Thousands) Cost of life insurance premiums $ 215 $ 215 $ 54 Decreases (increases) in cash surrender values ( 69 ) ( 70 ) 149 Net cost of life insurance premiums included in SG&A $ 146 $ 145 $ 203 Employee Savings Plans - We sponsor a savings plan under Section 401(k) of the Internal Revenue Code under which participation is available to substantially all full-time employees. Beginning in January 2019, we began matching 50 % of an employee’s contribution, up to 6 %, for substantially all full-time employees. Prior to 2019, we did not contribute to this plan except for certain employees. For 2020, 2019 and 2018, the amounts contributed to this plan were $ 1,022,000 , $ 997,000 , and $ 243,000 , respectively. Collective Bargaining Agreements - As of December 31, 2020, we employed 573 persons, 188 of whom are represented by unions under agreements, including agreements being negotiated, that expire in July 2021 through November 2022 . 14. Related Party Transactions During 2020, we entered into a financing arrangement with an affiliate of LSB Funding as discussed in footnote (G) of Note 6, which transaction included debt issuance costs of approximately $ 0.1 million paid to this affiliate. During 2019, we entered into two separate financing arrangements with an affiliate of LSB Funding as discussed in footnotes (E) and (F) Note 6, which transactions included debt issuance costs totaling approximately $ 0.1 million paid to this affiliate. During 2019, we incurred a consent fee of approximately $ 0.3 million from LSB Funding associated with the issuance of the New Notes discussed in footnote (B) of Note 6. During 2018, we sold $ 50.0 million and $ 0.5 million principal amount of notes to an affiliate of LSB Funding and Daniel D. Greenwell, respectively, associated with the issuance and sale of the Notes discussed in footnote (B) of Note 6. As discussed in Note 10, we paid a fee of $ 2.8 million to LSB Funding relating to the letter agreement amending the terms of the Series E Redeemable Preferred. LSB Funding holds all outstanding shares of the Series E and Series F Redeemable Preferred discussed in Note 10. Pursuant to the terms of the Board Representation and Standstill Agreement, our Board includes two directors that are employees of affiliates of LSB Funding. During 2020, 2019 and 2018, we incurred director fees associated with these directors totaling approximately $ 0.3 million for each respective year. Effective December 30, 2018, Daniel D. Greenwell elected not to enter into a new employment agreement and resigned from the Board and his roles as Chairman and our Chief Executive Officer. Subject to the execution of a release agreement, which was executed in January 2019, Mr. Greenwell was entitled to certain severance benefits pursuant to the terms of his employment agreement. As a result, we incurred an expense of approximately $ 2.6 million relating to these severance benefits in 2018. In addition, approximately $ 2.7 million of share-based compensation was incurred in 2018 due to the accelerated vesting of 312,369 shares of restricted stock. At December 31, 2020, accumulated dividends on the Series B and Series D Preferred totaled approximately $ 1.6 million. The Series B Preferred and Series D Preferred are non-redeemable preferred stocks issued in 1986 and 2001, respectively, of which all outstanding shares are owned by the Golsen Holders and an immediate family member. During 2020, 2019 and 2018, we incurred director fees associated with Barry H. Golsen totaling approximately $ 0.1 million for each respective year. F-34 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 14. Related Party Transactions (continued) As the result of J. Golsen informing the Board of his election to retire as Executive Chairman effective December 31, 2017 , we determined not to extend the employment agreement with J. Golsen beyond its then current term that expired on December 31, 2017 (the “Retirement Date”) and, in accordance with the terms his employment agreement, delivered a notice of non-renewal to J. Golsen. Following the Retirement Date, J. Golsen serves as Chairman Emeritus of our Board. During 2017, we entered into a transition agreement (the “Transition Agreement”) with J. Golsen that commenced on January 1, 2018 and ends upon the earlier of his death or a change in control as defined in the Transition Agreement. During the term, J. Golsen will receive an annual cash retainer of $ 480,000 and an additional monthly amount of $ 4,400 to cover certain expenses. In accordance with the terms of the Transition Agreement, we will also reimburse J. Golsen for his cost of certain medical insurance coverage until his death. Effective as of the Retirement Date, the severance agreement that was in force with J. Golsen was terminated. In consideration for his services, including as Chairman Emeritus, we will pay J. Golsen a one-time payment equal to $ 2,320,000 upon the consummation of a change in control should one occur prior to his death. 15. Supplemental Cash Flow Information The following provides additional information relating to cash flow activities: 2020 2019 2018 (In Thousands) Cash payments (refunds) for: Interest on long-term debt and other, net of capitalized interest $ 45,730 $ 42,184 $ 35,719 Income taxes, net $ ( 312 ) $ ( 65 ) $ ( 1,138 ) Noncash investing and financing activities: Accounts receivable, supplies and accounts payable associated with additions of PP&E $ 16,286 $ 18,350 $ 16,484 Dividend accrued on Series E Redeemable Preferred $ 35,182 $ 30,729 $ 26,840 Accretion of Series E Redeemable Preferred $ 2,026 $ 1,995 $ 3,375 16. Net Sales D isaggregated Net Sales As discussed in Note 1, we primarily derive our revenues from the sales of various chemical products. The following table presents our net sales disaggregated by our principal markets, which disaggregation is consistent with other financial information utilized or provided outside of our consolidated financial statements: 2020 2019 2018 (Dollars In Thousands) Net sales: Agricultural products $ 180,036 $ 187,641 $ 187,164 Industrial products 133,024 139,643 148,598 Mining products 38,256 37,786 42,398 Total net sales $ 351,316 $ 365,070 $ 378,160 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 at contract inception, the average remaining expected duration was approximately 17 months at December 31, 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 $ 2.5 million and $ 3.6 million of contract liabilities as of December 31, 2020 and 2019, respectively. During 2020, revenues of $ 1.9 million were recognized and included in the balance at the beginning of the period. F-35 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) 17. Leases Information related to our leases as of December 31, 2020 and 2019 are presented below: 2020 2019 (Dollars In Thousands) Components of lease expense: Operating lease cost $ 7,611 $ 7,270 Short-term lease cost 4,372 2,665 Other cost (1) 75 64 Total lease cost $ 12,058 $ 9,999 Supplemental cash flow information related to leases: Operating cash flows from operating leases $ 7,782 $ 7,677 Operating cash flows from finance leases 15 16 Financing cash flows from finance leases 45 61 Cash paid for amounts included in the measurement of lease liabilities $ 7,842 $ 7,754 Right-of-use assets obtained in exchange for new operating lease liabilities $ 17,064 $ 5,967 Other lease-related information: Weighted-average remaining lease term - operating leases (in years) 4.3 4.6 Weighted-average remaining lease term - finance leases (in years) 4.1 3.8 Weighted-average discount rate - operating leases 8.26 % 8.70 % Weighted-average discount rate - finance leases 8.65 % 8.94 % (1) Includes variable and finance lease costs. Additionally, under ASC 840, expenses associated with our operating leases agreements, including month-to-month leases, were $ 10,235,000 in 2018. At December 31, 2020, future minimum operating lease payments due under ASC 842 are summarized by fiscal year in the table below: Operating Leases (In thousands) 2021 $ 8,585 2022 7,398 2023 6,422 2024 4,799 2025 2,319 Thereafter 1,945 Total lease payments 31,468 Less imputed interest ( 4,917 ) Present value of lease liabilities $ 26,551 As of December 31, 2020, we did not have any executed operating leases with lease terms greater than one year that have not yet commenced. F-36 LSB Industries, Inc. Supplementary Information Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data for 2020 and 2019 are as follows. Three months ended March 31 June 30 September 30 December 31 (In Thousands, Except Per Share Amounts) 2020 Net sales $ 83,411 $ 105,033 $ 73,969 $ 88,903 Gross profit (loss) (1) $ 2,551 $ 19,021 $ ( 1,059 ) $ ( 3,465 ) Net loss (1) (2) $ ( 19,452 ) $ ( 365 ) $ ( 20,402 ) $ ( 21,692 ) Net loss attributable to common stockholders $ ( 28,338 ) $ ( 9,634 ) $ ( 29,874 ) $ ( 31,573 ) Basic and diluted loss per common share $ ( 1.01 ) $ ( 0.34 ) $ ( 1.06 ) $ ( 1.12 ) 2019 Net sales $ 94,152 $ 121,527 $ 75,495 $ 73,896 Gross profit (loss) (1) $ 7,318 $ 19,677 $ ( 9,733 ) $ ( 12,277 ) Net income (loss) (1) (2) $ ( 11,540 ) $ 6,631 $ ( 30,794 ) $ ( 27,714 ) Net loss attributable to common stockholders $ ( 19,367 ) $ ( 1,530 ) $ ( 39,133 ) $ ( 36,411 ) Basic and diluted loss per common share $ ( 0.69 ) $ ( 0.05 ) $ ( 1.39 ) $ ( 1.30 ) F-37 LSB Industries, Inc. Supplementary Financial Data Quarterly Financial Data (Unaudited) ( 1 ) The following income (expense) items impacted gross profit (loss) and net income (loss): Three months ended March 31 June 30 September 30 December 31 (In Thousands) Recovery from settlements with certain vendors 2020 $ — $ 5,664 $ — $ — Turnaround expense: (A) 2020 $ — $ ( 11 ) $ ( 34 ) $ ( 31 ) 2019 $ — $ ( 604 ) $ ( 7,232 ) $ ( 5,374 ) Unrealized gain (loss) on natural gas contracts 2020 $ ( 527 ) $ 396 $ 669 $ ( 1,743 ) ( 2 ) The following income (expense) items impacted net income (loss): Charge associated with assets held for sale 2019 $ — $ — $ — $ ( 9,701 ) Legal fees associated with Leidos matter 2020 $ ( 3,287 ) $ ( 955 ) $ ( 901 ) $ ( 572 ) 2019 $ ( 932 ) $ ( 1,496 ) $ ( 3,330 ) $ ( 3,843 ) Interest expense associated with Global judgment 2020 $ ( 1,327 ) $ ( 79 ) $ ( 80 ) $ ( 80 ) Benefit (provision) for income taxes 2020 $ 339 $ 1,299 $ 1,370 $ 1,741 2019 (B) $ ( 400 ) $ 5,733 $ 483 $ 15,108 (A) Turnaround expenses do not include the impact on operating results relating to lost absorption or reduced margins due to the associated plants being shut down . (B) The deferred tax benefit for the three-month period ended December 31, 2019 is primarily due to federal and state indefinite lived carryforward benefits that can be realized through the reversal of deferred tax liabilities. F-38 LSB Industries, Inc. Schedule II - Valuation and Qualifying Accounts Years ended December 31, 2020, 2019, and 2018 (In Thousands) Description (1) Balance at Beginning of Year Additions- Charges to (Recovery of) Costs and Expenses Deductions- Write- offs/Costs Incurred Balance at End of Year Accounts receivable - allowance for doubtful accounts: 2020 $ 261 $ 141 $ 24 $ 378 2019 $ 351 $ 175 $ 265 $ 261 2018 $ 303 $ 124 $ 76 $ 351 Deferred tax assets - valuation allowance: 2020 $ 51,589 $ 13,471 $ 405 $ 64,655 2019 $ 45,626 $ 8,279 $ 2,316 $ 51,589 2018 $ 26,920 $ 21,042 $ 2,336 $ 45,626 (1) Deducted in the consolidated balance sheet from the related assets to which the reserve applies. Other valuation and qualifying accounts are detailed in our notes to consolidated financial statements. F-39