What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 169 added, 105 removed, 462 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(Information at March 31, 2021 is unaudited)

(Information at June 30, 2021 is unaudited)

(In Thousands)

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CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Information at March 31, 2021 is unaudited )

(Information at June 30, 2021 is unaudited )

(In Thousands)

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Three Months Ended

Six Months Ended

(In Thousands, Except Per Share Amounts)

1 unchanged sentence

Selling, general and administrative expense

Other income, net

Operating loss

Other expense (income), net

Operating income

Interest expense, net

Gain on extinguishment of debt

Non-operating other expense (income), net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Income (loss) before benefit for income taxes

Benefit for income taxes

Net income (loss)

Dividends on convertible preferred stocks

1 unchanged sentence

Accretion of Series E redeemable preferred stock

Net loss attributable to common stockholders

Basic and dilutive net loss per common share

Net income attributable to participating securities

Net income (loss) attributable to common stockholders

Income (loss) per common share:

Net income (loss)

See accompanying notes.

8 unchanged sentences

Stock-based compensation

Issuance of restricted stock, net

Issuance of restricted stock

Balance at March 31, 2021

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Issuance of unrestricted stock

Balance at June 30, 2021

Balance at December 31, 2019

4 unchanged sentences

Balance at March 31, 2020

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Balance at June 30, 2020

See accompanying notes.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In Thousands)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Deferred income taxes

Gain on extinguishment of debt

Depreciation and amortization of property, plant and equipment

3 unchanged sentences

Prepaid insurance

Precious metals

Accounts payable

1 unchanged sentence

Other assets and other liabilities

Net cash provided (used) by operating activities

Net cash provided by operating activities

Cash flows from investing activities

4 unchanged sentences

Proceeds from revolving debt facility

Payments on revolving debt facility

Proceeds from other long-term debt

3 unchanged sentences

Net cash provided (used) by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

9 unchanged sentences

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.

10 unchanged sentences

and parts of Mexico and Canada .

In our opinion, the unaudited condensed consolidated financial statements of the Company as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 include all adjustments and accruals, consisting of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods.

In our opinion, the unaudited condensed consolidated financial statements of the Company as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 include all adjustments and accruals, consisting of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods.

These interim results are not necessarily indicative of results for a full year due, in part, to the seasonality of our sales of agricultural products and the timing of performing our major plant maintenance activities.

29 unchanged sentences

However, this accretion will change if the expected redemption date changes.

Also, see discussion in Note 12 – Subsequent Events.

Derivatives, Hedges and Financial Instruments – Derivatives are recognized in the balance sheet and are measured at fair value.

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

At March 31, 2021 and December 31, 2020, we did not have any financial instruments with fair values materially different from their carrying amounts (which excludes issuance costs, if applicable).

At June 30, 2021, and December 31, 2020, 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.

3 unchanged sentences

We may issue new shares of common stock or may use treasury shares associated with the equity awards.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

In January 2021, the compensation committee of our Board of Directors approved the grant of 614,999 shares of time-based restricted stock and 219,084 shares of performance-based restricted stock to certain executives under our 2016 Long Term Incentive Plan.

4 unchanged sentences

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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Revenue Recognition

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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.

Recently Adopted Accounting Pronouncements

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 and dilutive, 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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

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.

Recently Adopted Accounting Pronouncement

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

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On January 1, 2021, we adopted ASU 2019-12, which did not have a material impact on our condensed consolidated financial statements or related disclosures.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Recently Issued Accounting Pronouncements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loss Per Common Share

Income (loss) Per Common Share

Three Months Ended

Six Months Ended

(Dollars In Thousands, Except Per Share Amounts)

Adjustments for basic net loss per common share:

Net income (loss)

Adjustments for basic net income (loss) per common share:

Dividend requirements on Series E Redeemable

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Accretion of Series E Redeemable Preferred

Numerator for basic and dilutive net loss per common

share - net loss attributable to common stockholders

Denominator for basic and dilutive net loss per

Net income attributable to participating securities

Numerator for basic net income (loss) per common

share - net income (loss) attributable to common

Dividends on Series B and Series D Preferred

assumed to be converted, if dilutive

Numerator for diluted net income (loss) per common

Denominator for basic net income (loss) per common

share - weighted- average shares (1)

Effect of dilutive securities:

Convertible preferred stocks

Unvested restricted stock and stock units

Dilutive potential common shares

Denominator for diluted net income (loss) per

common share - adjusted weighted-average

Basic and dilutive net loss per common share

Basic net income (loss) per common share

Diluted net income (loss) per common share

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

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

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

Three Months Ended

Six Months Ended

Restricted stock and stock units

2 unchanged sentences

Stock options

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Current and Noncurrent Accrued and Other Liabilities

1 unchanged sentence

Accrued interest

Current portion of operating lease liabilities

Accrued payroll and benefits

Current portion of operating lease liabilities

Accrued death and other executive benefits

Series E Redeemable Preferred - embedded derivative

Deferred revenue

1 unchanged sentence

Current portion of accrued and other liabilities

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

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Senior Secured Notes due 2023 (B)

Unsecured Loan Agreement due 2022, with an interest

rate of 1.00 % (C)

Secured Financing due 2023, with an interest

rate of 8.32 % (D)

rate of 8.32% (C)

Secured Loan Agreement due 2025, with an interest

rate of 8.75 % (E)

rate of 8.75% (D)

Secured Financing due 2025, with an interest

rate of 8.75 % (F)

rate of 8.75% (E)

Unsecured Loan Agreement due 2022 (F)

Secured Promissory Note due 2021

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(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 March 31, 2021 , 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.

At June 30, 2021 , our available borrowings under our Working Capital Revolver Loan were approximately $ 50.3 million , based on our eligible collateral, less outstanding letters of credit and loan balance.

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

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 (C).

Subject to certain conditions and subject to lender approval, the Maximum Revolver Amount may increase up to an additional $ 10 million.

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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt (continued)

(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”), pursuant to an indenture (the “Indenture”), dated as of April 25, 2018.

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Interest is to be paid semiannually in arrears on May 1 st and November 1 st .

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt (continued)

(C) 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 eight weeks or 24 weeks after disbursement of the loan.

In April 2021, we submitted the PPP loan forgiveness application to the lender.

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.

(D) El Dorado Chemical Company (“EDC”), one of our subsidiaries, is party to a secured financing arrangement with an affiliate of LSB Funding L.L.C.

(C) El Dorado Chemical Company (“EDC”), one of our subsidiaries, is party to a secured financing arrangement with an affiliate of LSB Funding L.L.C.

(“LSB Funding”).

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

(E) EDC is party to a secured loan agreement with an affiliate of LSB Funding.

(D) EDC is party to a secured loan agreement with an affiliate of LSB Funding.

Principal and interest are payable in 60 equal monthly installments through March 2025.

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

(E) 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.

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

(F) 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.

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

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

In April 2021, we submitted the PPP loan forgiveness application to the lender.

In June 2021, the PPP loan was fully forgiven by the SBA and lender.

As a result, we recognized a gain on extinguishment of debt of $ 10 million for the three months ended June 30, 2021.

Commitments and Contingencies

4 unchanged sentences

During the first quarter of 2021, as a result of the extreme conditions previously described, we settled all of our natural gas forward contracts and certain volume purchase commitments and recognized a realized gain of approximately $6.8 million, which includes the realized gain discussed under “Natural Gas Contracts” in Note 6 and is classified as a reduction to cost of sales.

At March 31, 2021, certain of our natural gas contracts qualify as normal purchases under GAAP and thus are not mark-to-market, which contracts included volume purchase commitments with fixed costs of approximately 9.0 million MMBtus of natural gas.

At June 30, 2021, certain of our natural gas contracts qualify as normal purchases under GAAP and thus are not mark-to-market, which contracts included volume purchase commitments with fixed costs of approximately 4.7 million MMBtus of natural gas.

These contracts extend through December 2021 at a weighted-average cost of $ 2.75 per MMBtu ($ 13.1 million) and a weighted-average market value of $ 3.40 per MMBtu ($ 16.1 million).

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

Settlements of Gain Contingencies - In June 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, the recovery from these settlements recognized during the three months ended June 30, 2020, includes approximately $ 5.7 million classified as a reduction to cost of sales and approximately $ 1.9 million classified as a reduction to PP&E.

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

4 unchanged sentences

In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety effects of our operations.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

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.

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

As of March 31, 2021, our accrued liabilities for environmental matters totaled $ 468,000 relating primarily to the matters discussed below.

As of June 30, 2021, our accrued liabilities for environmental matters totaled $ 467,000 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.

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These permits limit the type and amount of effluents that can be discharged and control the method of such discharge.

In 2017, PCC filed a Permit Renewal Application for its Non-Hazardous Injection Well Permit at the Pryor Facility.

In 2017, the Pryor Chemical Company (“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.

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EDC is in compliance with the revised permit limits agreed upon in the PAR.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

In 2006, the El Dorado Facility entered into a Consent Administrative Order (“CAO”) that recognizes the presence of nitrate contamination in the shallow groundwater.

4 unchanged sentences

During 2019, the Evaluation Report was submitted to the ADEQ and the ADEQ approved the report.

No liability has been established at March 31, 2021 , in connection with this ADEQ matter.

No liability has been established at June 30, 2021 , in connection with this ADEQ matter.

Other Environmental Matters

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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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

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.

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LSB and EDC placed its liability insurance carrier on notice, and the carrier is handling the defense for LSB and EDC concerning this matter.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

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.

3 unchanged sentences

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

As of March 31, 2021, no liability reserve has been established in connection with this matter.

As of June 30, 2021, no liability reserve has been established in connection with this matter, except for the unpaid portion of the settlement agreements discussed above.

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

(“Global”) of its 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”) 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 intend to pursue recovery of any damage or loss caused by Global’s work performed through their contract with Leidos at our El Dorado Facility.

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

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 seeks damages under breach of contract and other claims.

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.

2 unchanged sentences

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

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

During 2018, the court bifurcated the case into:

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In addition, post-judgment interest will accrue at the annual rate of 4.25 % until paid.

During the first quarter of 2020, this judgment impacted our condensed consolidated statement of operations as follows:

During the first six months of 2020, this judgment impacted our condensed consolidated statement of operations as follows:

additional depreciation expense of $ 0.5 million classified as cost of sales;

3 unchanged sentences

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 March 31, 2021 or December 31, 2020, in connection with the cross-claims in Part (2) of the matte r, except for certain invoices held in accounts payable.

No liability was established at June 30, 2021, or December 31, 2020, 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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivatives, Hedges and Financial Instruments

4 unchanged sentences

At December 31, 2020, our natural gas contracts included 7.3 million MMBtu of natural gas, that extended through December 2021, but these contracts were settled during the first quarter of 2021, primarily due to the weather event discussed in Note 5.

As a result, we had no outstanding natural gas contracts at March 31, 2021.

At June 30, 2021, we had no outstanding natural gas contracts.

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 the three months ended March 31, 2021 and 2020, we recognized a gain of $ 2.7 million (includes a realized gain of $ 1.5 million) and a loss of $ 0.7 million (includes a realized loss of $ 0.2 million), respectively.

For the six months ended June 30, 2021, we recognized a gain of $ 2.7 million (including a realized gain of $ 1.5 million), all of which was recognized in the first quarter.

For the three and six months ended June 30, 2020 , we recognized a minimal gain and a loss of $ 0.7 , respectively .

The gain is classified as a reduction of cost of sales and the loss is classified as cost of sales.

1 unchanged sentence

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

At March 31, 2021 and December 31, 2020, we estimate that the contingent redemption features have fair value since we estimate that it is probable that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023.

At June 30, 2021, and December 31, 2020, we estimate that the contingent redemption features have fair value since we estimate that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023.

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

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

In addition, at March 31, 2021 and December 31, 2020, 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 $ 5.13 and $ 3.39 per share, respectively.

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

In addition, at June 30, 2021, and December 31, 2020, 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 $ 6.05 and $ 3.39 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.

For the three months ended June 30, 2021, and 2020, we recognized an unrealized loss of approximately $ 0.7 million and an unrealized gain of approximately $ 0.1 million, respectively, due to the change in fair value of the embedded derivative.

For the six months ended June 30, 2021, and 2020, we recognized an unrealized loss of approximately $ 1.2 million and an unrealized gain of approximately $ 0.8 million, respectively, due to the change in fair value of the embedded derivative.

The unrealized gain and loss are included in non-operating other income and expense.

LSB INDUSTRIES, INC.

1 unchanged sentence

Derivatives, Hedges and Financial Instruments (continued)

For the three months ended March 31, 2021 and 2020, we recognized an unrealized loss of approximately $ 0.4 million and an unrealized gain of approximately $ 0.6 million, respectively, due to the change in fair value of the embedded derivative.

The unrealized gain and loss are included in non-operating other income and expense.

The following details our assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 :

The following details our assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021, and December 31, 2020 :

Fair Value Measurements at

March 31, 2021 Using

June 30, 2021 Using

Quoted Prices

7 unchanged sentences

Embedded derivative

There was no Level 3 transfer activity for the three months ended March 31, 2021 or 2020.

Provision (benefit) for income taxes is as follows:

There was no Level 3 transfer activity for the six months ended June 30, 2021.

Benefit for income taxes is as follows:

Three Months Ended

Six Months Ended

(In Thousands)

1 unchanged sentence

Total Deferred

Provision (benefit) for income taxes

Benefit for income taxes

LSB INDUSTRIES, INC.

1 unchanged sentence

Income Taxes (continued)

For the three months ended March 31, 2021 and 2020, the current provision (benefit) for state income taxes shown above includes regular state income tax, provisions for uncertain state income tax positions, the impact of state tax law changes and other similar adjustments.

Our estimated annual effective tax rate for 2021 includes the impact of permanent tax differences including but not limited to limits on deductible compensation, and valuation allowances.

For the three and six months ended June 30, 2021, and 2020, the current provision (benefit) for state income taxes shown above includes regular state income tax, provisions for uncertain state income tax positions, the impact of state tax law changes and other similar adjustments.

Our estimated annual effective tax rate for 2021 includes the impact of permanent tax differences including but not limited to PPP loan forgiveness, limits on deductible compensation, state tax law changes, and valuation allowances.

We considered both positive and negative evidence in our determination of the need for valuation allowances for deferred tax assets.

7 unchanged sentences

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

The tax provision for the three months ended March 31, 2021 was minimal and the tax benefit for the three months ended March 31, 2020 was $ 0.3 million ( 2 % benefit on pre-tax loss).

The tax benefit for the six months ended June 30, 2021 was $ 0.2 million ( 2 % benefit on pre-tax income) and the tax benefit for the six months ended June 30, 2020, was $ 1.6 million ( 8 % benefit on pre-tax loss).

For both periods, the effective tax rate is less than the statutory tax rate primarily due to the impact of the valuation allowances.

4 unchanged sentences

Additionally, the 2013-2016 years remain subject to examination for determining the amount of net operating loss and other carryforwards.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Redeemable Preferred Stocks

Series E and Series F Redeemable Preferred

As of March 31, 2021, the Series E Redeemable Preferred had a 14 % annual dividend rate and a participating right in dividends and liquidating distributions equal to 303,646 shares of common stock (participation rights value).

As of June 30, 2021, the Series E Redeemable Preferred had a 14.5 % 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.

Pursuant to the terms of the Series E Redeemable Preferred, the annual dividend rate increased 0.50 % in April 2021 and will increase (a) by an additional 0.50 % in April 2022 and (b) by an additional 1.0 % in April 2023.

Pursuant to the terms of the Series E Redeemable Preferred, the annual dividend rate will increase (a) by an additional 0.50 % in April 2022 and (b) by an additional 1.0 % in April 2023.

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

As of March 31, 2021 , the Series F Redeemable Preferred has voting rights to vote as a single class on all matters which the common stock have the right to vote and is entitled to a number of votes equal to 456,225 shares of our common stock.

Also, see discussion in Note 12 – Subsequent Events.

As of June 30, 2021 , the Series F Redeemable Preferred has voting rights to vote as a single class on all matters which the common stock have the right to vote and is entitled to a number of votes equal to 456,225 shares of our common stock.

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

7 unchanged sentences

Accumulated dividends

Balance at March 31, 2021

Balance at June 30, 2021

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated Net Sales

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Three Months Ended

Six Months Ended

(In Thousands)

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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 18 months at March 31, 2021 .

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 $ 2.7 million and $ 2.5 million of contract liabilities as of March 31, 2021 and December 31, 2020, respectively.

For the three months ended March 31, 2021 and 2020, revenues of $ 1.0 million and $ 0.5 million, respectively, were recognized and included in the balance at the beginning of the respective period.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We had approximately $ 1.2 million and $ 2.5 million of contract liabilities as of June 30, 2021 and December 31, 2020, respectively.

For the three and six months ended June 30, 2021, revenues of $ 1.0 million and $ 1.6 million, respectively, were recognized and included in the balance at the beginning of the respective period.

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

Related Party Transactions

As of March 31, 2021, we have three separate outstanding financing arrangements with an affiliate of LSB Funding as discussed in footnotes (D), (E) and (F) of Note 4.

As of June 30, 2021, we have three separate outstanding financing arrangements with an affiliate of LSB Funding as discussed in footnotes (D), (E) and (F) of Note 4.

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

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

The Golsen Holders and an immediate family member hold all outstanding shares of the Series B Preferred and Series D Preferred, which accumulated dividends on such shares totaled approxim ately $ 1.7 million at March 31, 2021 .

Also, see discussion in Note 12 – Subsequent Events.

Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:

Three Months Ended

Six Months Ended

(In Thousands)

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Noncash continuing investing and financing activities:

Accounts receivable, supplies and accounts payable

associated with additions of property, plant and

Accounts receivable, supplies, other assets, accounts

payable and accrued liabilities associated with additions

of property, plant and equipment

Dividends accrued on Series E Redeemable Preferred

Accounts payable associated with financing professional fees

Accretion of Series E Redeemable Preferred

Extinguishment of PPP loan

Subsequent Events

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On July 19, 2021, we entered into a Securities Exchange Agreement (the “Exchange Agreement”) with LSB Funding LLC (the “Holder”), an affiliate of Eldridge.

Pursuant to the terms of the Exchange Agreement, the Holder has agreed with us to exchange all of the shares of our Series E and Series F Redeemable Preferred Stock held by it for shares of our common stock.

Under the terms of the Exchange Agreement, LSB would exchange, at the closing, approximately $ 300 million of preferred stock held by Eldridge into an equivalent value of our common stock based on an exchange price of $ 6.16 , which is equal to the 30-day volume weighted average price as of the date of the Exchange Agreement.

In connection with the transaction, our common stockholders will receive a special dividend in the form of 0.30 shares of our common stock for every share owned as of the record date and any such amount received by the Holder will reduce the exchange consideration otherwise payable under the Exchange Agreement.

Completion of the exchange transaction is subject to a number of customary closing conditions, including receipt of stockholder approval from the holders of a majority of the shares of our outstanding common stock not held by Eldridge or any of its affiliates.

This summary description of the Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the Exchange Agreement included as exhibit 10.2 in this Form 10-Q.

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What changed 10-Q

Item 1. Financial Statements