What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 221 added, 266 removed, 230 unchanged (68% of the section changed)

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See “Special Note Regarding Forward-Looking Statements.”

LSB is headquartered in Oklahoma City, Oklahoma and through its subsidiaries, manufactures and sells chemical products for the agricultural, mining, and industrial markets.

We own and operate facilities in Cherokee, Alabama;

El Dorado, Arkansas;

and Pryor, Oklahoma, and operate a facility on behalf of a global chemical company in Baytown, Texas.

Our products are sold through distributors and directly to end customers throughout the U.S.

LSB is headquartered in Oklahoma City, Oklahoma and through our subsidiaries, we manufacture and sell chemical products for the agricultural, mining, and industrial markets.

We own and operate three multi plant facilities in Cherokee, Alabama, El Dorado, Arkansas and Pryor, Oklahoma, and operate a facility on behalf of Covestro in Baytown, Texas.

Our products are sold through distributors and directly to end customers, primarily throughout the U.S.

and parts of Mexico and Canada.

Key Operating Initiatives for 2022

We believe our future results of operations and financial condition will depend significantly on our ability to successfully implement the following key initiatives:

Continue Focusing on Becoming a “Best in Class” Chemical Plant Operator with respect to Safe, Reliable Operations that Produce the Highest Quality Product.

We believe that high safety standards are critical and a precursor to improved plant performance.

With that in mind, we implemented and are currently managing enhanced safety programs at our facilities that focus on improving our safety culture that will reduce risks and continuously improve our safety performance.

We have several initiatives underway that we believe will improve the overall reliability of our plants and allow us to produce more products for sale while lowering our cost of production.

Those initiatives are focused on, operations excellence through enhancements in the operating procedure program, asset health monitoring optimization and asset care excellence maintenance programs, and product quality programs focused on providing products to the customer that meet the highest quality standards.

Continue Broadening the Distribution of our Products.

To further leverage our plants current production capacity, we are continuing to expand the distribution of our industrial and mining products by partnering with customers to take product into different markets both within and outside the U.S.

In October 2020, we announced a new long-term nitric acid supply contract with a customer.

Under the agreement, we agreed to supply between 70,000 to 100,000 tons of nitric acid per year, with sales beginning the first quarter of 2021.

This contract advances our focus to leverage underutilized nitric acid production capacity at our El Dorado Facility.

We also executed a new contract to capture and sell carbon dioxide out of our El Dorado Facility, where our customer is building a guest plant.

We expect to begin sales under this agreement in the fourth quarter of 2021.

Additionally, early in the second quarter of 2020, we completed a key storage project that will allow us to further maximize our production of HDAN at our El Dorado Facility, which we expect to enable us to achieve higher production, a lower cost per ton and increased sales of that product during periods of more attractive pricing.

Development of a Strategy to Capitalize on Ammonia Opportunities in a Renewable Energy Focused Economy .

As there is a heightened global focus on significantly increasing the use of renewable energy to reduce carbon emissions, we are currently developing a strategy to enter the market for low-carbon or no carbon ammonia, a rapidly emerging trend referred to as “blue-green ammonia.” Many studies have shown that ammonia is the best carrier for hydrogen, given higher energy content and relative ease of storage via hydrogen gas.

Ammonia can also be used as zero carbon fuel in the maritime sector, a carbon free fertilizer and as a coal substitute in energy constrained countries.

If ammonia were to be used for energy consumption globally, this would equate to 5 times the amount of current global annual production of ammonia, or approximately 50 times of the current seaborne trade.

We believe we are well-placed to partake in this opportunity given the ability to retrofit our existing plants rather than the need to invest in greenfield projects thereby reducing the time to market and the upfront capital expenditures which will help the overall economics.

Improving Our Capital Structure and Overall Cost of Capital.

We are actively seeking ways to improve our capital structure and reduce our overall cost of capital.

We believe that continued improvement in operating performance combined with improving fundamentals in the agriculture market and the continued economic recovery from the COVID-19 pandemic will be a benefit in achieving those efforts.

Evaluate A cquisitions of S trategic A ssets or C ompanies.

We are evaluating opportunities to acquire strategic assets or companies, mergers with other companies and investment in additional production capacity where we believe those acquisitions, mergers or expansion of production capacity will enhance the value of the Company and provide appropriate returns.

We expect our future results of operations and financial condition to benefit from following key initiatives:

Investing to improve Environmental, Health &Safety and Reliability at our Facilities to further our Progress Towards Becoming a “Best in Class” Chemical Plant Operator while Supplying our Customers with Products of the Highest Quality.

We believe that our operational progress over the past several years represents proof that high safety standards not only enable us to protect what matters, which is the well-being of our employees, but also translates into improved plant performance.

With that in mind, in 2022 we remain acutely focused on our efforts to further the progress we’ve made in creating a high performing safety culture as we advance the safety programs, we have underway and implement new ones.

Additionally, we will be investing capital at all three of our facilities to further promote safe and reliable operations in order to build upon the success we have had in implementing enhanced safety programs during the last three years.

We have several initiatives currently underway focused on further improving the reliability of our plants which we expect will allow us to produce greater volumes of product for sale, lower our cost of production and increase our overall profitability.

These initiatives are focused on operations excellence through enhancements in leadership at certain of our facilities, bolstering our operating procedures, leveraging the technology investments we’ve made for the purpose of advancing the optimization of our asset health monitoring through asset care excellence maintenance programs.

Additionally, our product quality program continues to focus on providing products to our customers that meet the highest quality standards.

Continue Broadening the Distribution and Optimization of our Product mix.

Over the course of 2021 we were successful in maximizing the production capacity of our plants, and plan to continue to expand the distribution of our products by partnering with customers to take product into different markets while also focusing our efforts to upgrade our margins through the optimization of our product mix.

In the first quarter of 2021, we commenced a new long-term nitric acid supply contract with a customer under which we agreed to supply between 70,000 to 100,000 tons of nitric acid per year.

We progressively ramped the volume of product supplied to the customer over the course of 2021, and in 2022, we will recognize a full year of sales under this agreement putting us in a sold-out position for nitric acid at our El Dorado facility and achieving our objective to fully utilize our production capacity for this product.

We are targeting $10 million to $15 million of capital for margin enhancement projects in 2022 to optimize our storage and distribution capability.

Additionally, we are evaluating opportunities to upgrade more of the ammonia we produce into higher value downstream products in order to capture additional margin.

We also believe we have opportunities to increase our production volume of certain products through debottlenecking projects and will be analyzing the potential returns from these investments over the course of the year.

D evelopment and Implementation of a Strategy to Capitalize on Low Carbon Ammonia and Clean Energy Opportunities .

The reduction of greenhouse gas emissions, particularly related to carbon dioxide, has been, and, we expect will increasingly become a global environmental priority as part of efforts to stem the deleterious effects of climate change.

There is increasing evidence from a variety of industry studies to indicate that ammonia can play a significant role in making meaningful progress towards this objective.

As a result, we are currently in the process of formulating a strategy to become a producer and marketer of blue and green ammonia and other derivative products over the coming years.

Blue ammonia is produced using natural gas and conventional processes but includes the additional stage where the CO2 emissions are captured and permanently stored in deep underground rock formations, resulting in a low carbon emission product that can be sold at a premium to agricultural, industrial, mining, power generation and marine customers seeking to reduce their carbon footprint and potentially capitalize on

government incentives .

Green ammonia is ammonia produced using renewable energy to power electrolyzers that extract hydrogen from water, resulting in the zero-carbon production of ammonia that , we believe can , also be sold at a premium to a variety of industries around the world .

Ammonia has been increasingly emerging as one of the most viable alternatives to serve as a hydrogen-based energy source for a variety of applications given its higher energy density and ease of storage relative to hydrogen gas.

Blue and green ammonia can be used as zero carbon fuel in the maritime sector, a carbon free fertilizer and as a coal substitute in power generation.

If ammonia were to be used for energy consumption globally, some studies have indicated that future demand could equate to five times the amount of current global annual production of ammonia, or approximately 50 times the current seaborne trade.

We believe we are well-positioned to capitalize on this opportunity and be market leaders given our potential to retrofit our existing plants rather than investing in greenfield projects, thereby reducing the time to market and the upfront capital expenditures, enhancing the economic attractiveness to such investments.

With that said, we will also consider investing in greenfield projects that have the potential to offer attractive returns

Pursue Acquisitions of Strategic Assets or Companies.

We are actively engaged in evaluating and pursuing various opportunities to acquire strategic assets or companies (including through mergers), where we believe those acquisitions will enhance the value of the Company and provide attractive returns.

Targets under consideration could provide us with geographic expansion, extend an existing product line, add a new product line, leverage our existing ammonia production capabilities, or complement our existing business lines, among other accretive opportunities.

We are considering options across our agricultural, industrial and mining business.

The opportunities we consider as meeting our investment criteria generally range in value from $200 million to $500 million, although we may consider other attractive opportunities outside of this range.

We are also evaluating investments that would add additional production capacity in business lines where we believe the returns will be attractive.

We may choose to finance any of the foregoing through the incurrence of additional indebtedness (including through loans or the issuance of debt securities) or the issuance of equity, in each case subject to financial analysis that we believe would support an increase to shareholder value and favorable market conditions at the time of issuance.

We may not successfully implement any or all of these initiatives.

In addition, the consummation of any acquisition opportunity is subject to the negotiation of definitive documentation with any counterparties and, if applicable, regulatory approvals, as well as the satisfaction of negotiated closing conditions, none of which can be assured, and there can be no guarantee that any opportunity we choose to pursue will ultimately be consummated.

Even if we successfully implement the initiatives, they may not achieve the results that we expect or desire.

Business Developments-2021

COVID-19 Pandemic

All of the facilities we operate have been designated as essential critical infrastructure based on guidelines issued by the United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency.

Since we produce fertilizer products used by the agriculture industry, as well as chemical products required in a variety of industrial manufacturing processes, LSB has been determined to be a critical service provider, and therefore, our facilities have remained operational despite the government mandated operational limitations or business closings resulting from the federal, state and local government responses to the evolving global health crisis resulting from the COVID-19 pandemic.

Management has taken significant measures to ensure the health and safety of our employees and our business continuity during this challenging situation.

For our personnel at our manufacturing facilities and retail agricultural centers, we have developed plans and procedures that have allowed them to operate in a safe manner in order to protect them, their families, our vendors and our customers.

These include daily health screenings, including temperature checks and questionnaires, use of proper personal protection equipment, regular disinfection and cleaning of equipment and workspaces, social distancing, working from home where appropriate and quarantining of employees according to specific protocols.

We intend to maintain our discipline in this regard for however long the current health risk persists.

The nitrogen chemical industry was under pressure during most of 2020.

As a result of the COVID-19 global economic downturn and the resultant decline in energy prices, industry operating rates globally have risen, resulting in greater supply and lower fertilizer pricing.

Pricing for all major agricultural product categories was impacted by the continued oversupply of ammonia in our primary end markets, along with increased imports of some of our downstream products.

In addition, our industrial and mining sales volume declined as a result of pandemic-related weakness in demand in several of our end markets.

Looking ahead to 2021, while much of the U.S.

economy has a least partially reopened and we have seen a healthy recovery of the economy, we are not yet back to pre-pandemic operating levels and uncertainty still remains for some of our end markets.

With respect to our agricultural business, the corn market has experienced positive indicators beginning during the latter part of 2020.

According to certain industry sources, the estimated corn acres to be planted in 2021 ranges between 92 to 94 million.

Also, the U.S.

Department of Agriculture (the “USDA”) currently estimates the U.S.

ending corn stocks to be approximately 38.2 million metric tons, compared to 48.8 million metric tons relating to the 2020 crop.

In addition, demand from ethanol-related consumption has increased since the second quarter of 2020, although overall demand continues to be lower compared to 2019 due to the stay-at-home orders, we experienced in the U.S.

Increased Chinese import of corn and lower than expected ending corn inventory is currently improving corn pricing and is driving higher fertilizer pricing thus far for the 2021 spring season.

However, improvements in fertilizer pricing could be tempered higher natural gas costs and from additional imported fertilizers.

With respect to our industrial and mining business, we are seeing gradual improvement in demand for nitric acid, industrial ammonia and ammonium nitrate as sectors such as automotive manufacturing, home building, and copper mining have increased activity.

Also see discussion below concerning a new long-term nitric acid supply contract with a customer .

On the liquidity front, as of December 31 , 2020, we had approximately $58.1 million of combined cash and borrowing capacity, which, we believe, provides us with ample liquidity to fund our operations and meet our current obligations .

As discussed in footnotes (D) and (G) of Note 6, in April 2020, we received a $10 million loan through the PPP within the CARES Act stimulus package.

The funds from this loan, along with the decisive action we implemented to defer expenses and capital expenditures, have enabled us to avoid the need to furlough or terminate employees to counteract the lost volume and pricing impacts we have seen or expect as a result of the COVID-19 p andemic.

Also, during August 2020, EDA entered into a $30 million secured financing arrangement with an affiliate of LSB Funding with an interest rate of 8.75%.

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 $30 million 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.

Also see discussions below under “Liquidity and Capital Resources.”

Exchange Transaction and Special Common Stock Dividend

On September 27, 2021, we closed a Securities Exchange Transaction (the “Exchange Transaction”) with LSB Funding LLC (the “Holder”), an affiliate of Eldridge, in which we exchanged the shares of Series E and Series F Redeemable Preferred Stock held by the Holder for shares of our common stock.

In summary, we exchanged the approximately $310 million liquidation preference of preferred stock held by the Holder into our common stock based on an exchange price of $6.16, which was equal to the 30-day volume weighted average price as of the date of the Exchange Agreement.

However, the exchange consideration paid under the Exchange Agreement was reduced by approximately 1.2 million shares, which shares were included in the Special Dividend and received by the Holder.

In connection with the transaction, on October 8, 2021, our common stockholders, including the Holder, received the Special Dividend in the form of 0.30 shares of our common stock for every share owned as of the September 24, 2021, the Special Dividend record date.

The main benefit of the exchange is that it relieved our Company and our common stockholders from the expensive, compounding burden of the preferred stock dividend, improving the current capital structure.

Reduced Cost of Capital through Debt Refinancing

The Exchange Transaction discussed above prompted the major credit rating agencies, Moody’s and S&P, to upgrade their credit ratings on our debt, which combined with the favorable credit markets, enabled us to complete a refinancing of our senior notes on significantly improved terms, reducing our cost of capital, bolstering our liquidity and extending the maturity of our debt.

More specifically, on October 14, 2021, we closed on an offering of $500 million of senior secured notes due 2028, bearing an interest rate of 6.250%, which we used to redeem our $435 million of 9.625% senior notes that were due to mature in 2023, with the balance being used to enhance the liquidity of our balance sheet and for general corporate purposes.

The reduction of the rate of interest on our outstanding notes by more than 300 basis points represents a meaningful reduction in our annual cash interest expense and puts us in a position to more aggressively pursue our key operating initiatives discussed above.

Continued Improvement in Product Sales

Selling prices for all of our major products improved over the course of 2021 as compared to the prior year driven by a combination of supply and demand factors.

With respect to our agricultural business, corn prices for the vast majority of 2021 sat above levels not seen since 2014, and the current prices exceeding $6 per bushel, are significantly above the $4 per bushel level that we believe represents a very favorable level for farmers to earn significant income on their crops.

The strong corn prices over the past year have

been driven, in part, by a rebound in the production of ethanol, a gasoline additive that represents approximately 40% of total U.S.

corn use annually, as miles drive n have returned to near pre-pandemic levels .

Also supporting the strong corn pricing over the past year has been Chinese demand for corn for use as feed for swine as part of the nation’s efforts to rebuild its swine production in the wake of a virus that dramatically reduced its swine population several years ago.

This demand for feed is expected to remain robust as China has moved to large institutional hog farms which consume significant quantities of corn.

Globally, corn supplies have been constrained by drought conditions in South America and the Western U.S., which has served to further bolster corn prices.

Early forecasts point to U.S.

corn acreage to be planted in the 2022-2023 planting season to be approximately 90 to 92 million acres, modestly lower than the 2021-2022 estimate of 93.4 million acres, but still at a very healthy level to support strong demand for fertilizers.

In addition to strong corn pricing, which has prompted farmers to increase fertilizer purchases in order to maximize yields, a series of supply related factors that unfolded over the course of 2021 have served to create a global shortage of ammonia, driving the strong increase in the prices for nitrogen products.

This began in February 2021, as winter storm Uri and the resultant severe cold weather experienced in many areas of the U.S.

caused many nitrogen producers to idle their plants resulting in a tightening in the supply of nitrogen products headed into the spring planting season.

Exacerbating this supply constraint, during the third quarter of 2021 a number of ammonia facilities underwent turnarounds that were originally scheduled for third quarter of 2020 but were postponed due to the COVID-19 pandemic.

Additionally, in late August, Hurricane Ida, a Category 4 storm caused production along the U.S.

Gulf coast to be shut down for a period of time, further reducing production.

Also supporting the strength in fertilizer prices has been the significant increase in the cost of natural gas, the primary feedstock for production of ammonia, which has prompted various producers to cease operations of some facilities, particularly in Europe where natural gas prices have surged to more than $30 per MMBtu, rendering some ammonia plants uneconomical to operate.

The resultant decrease in global production of ammonia has fueled further strength in nitrogen-based fertilizer prices, which have thus far materially outstripped the impact to production costs of rising natural gas prices in the U.S.

The factors discussed above have led to continued strong pricing into the first quarter of 2022, which we expect to support continued favorable pricing levels over the balance of the year.

As for our industrial and mining products, selling prices have continued to improve as the supply of ammonia remains tight due to strong global demand, curtailed global supply due to rising natural gas prices, numerous global unplanned outages and lower than expected product imports.

As a result, the Tampa Ammonia benchmark price increased to, and remains at multi-year high levels, which have translated into higher selling prices for our products as many of our industrial contracts are indexed to this benchmark price.

Demand trends for the industrial products we sell, primarily nitric acid and ammonia, have remained robust despite disruptions to certain end markets, such as auto manufacturing which has been constrained due to a shortage of microprocessors, as activity in other markets, such as homebuilding and power generation has remained strong.

In addition, our sales of nitric acid increased steadily throughout 2021 pursuant to the new long-term nitric acid supply contract discussed above.

Demand for our mining products continues to improve as quarry and construction activity has been elevated due to robust levels of residential, commercial and civil infrastructure buildout along with strong demand for precious metals, including expectations for rising copper production to support the growing domestic production of electric vehicles.

See a more detailed discussion below under “Key Industry Factors.”

Long-Term Nitric Acid Supply Contract

During October 2020, EDC entered into a new long-term nitric acid supply contract with a customer.

Under the agreement, EDC agreed to supply between 70,000 to 100,000 tons of nitric acid annually, with sales beginning in the first quarter of 2021.

contract term extends through 2027 but includes automatic one-year renewal terms unless terminated by either party pursuant to the terms of the contract.

Settlements with Certain Vendors

As discussed in Note 8, in June 2020, EDC and certain vendors mediated settlements totaling $7.6 million for EDC to recover certain costs associated with our new nitric acid plant at our El Dorado Facility.

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

Of the $7.6 million, approximately $5.7 million is classified as a reduction to cost of sales and approximately $1.9 million is classified as a reduction to PP&E.

The recovery amount was applied against the original classification of the underlying costs.

Business Development-February 2021

On February 21, 2021, we began the phased restart of our Pryor Facility, which was taken out of service on February 12, 2021 after extreme cold weather caused a surge in natural gas prices in the region, along with the curtailment of gas distribution by the operator of the pipeline that supplies natural gas to the facility.

As weather across the middle of the country has improved and temperatures have warmed, natural gas prices have normalized and supply volumes have been restored to levels required for full operation of our facilities.

The Pryor Facility is in the process of restarting and we expect the facility to return to pre-shutdown production volume levels as safely and as soon as practicable.

Under the agreement, EDC agreed to supply between 70,000 to 100,000 tons of nitric acid annually, with sales that began in the first quarter of 2021.

The initial contract term extends through 2027 but includes automatic one-year renewal terms unless terminated by either party pursuant to the terms of the contract.

PPP Loan Forgiven

In April 2020, we entered into a federally guaranteed Paycheck Protection Program (“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 PPP established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and amended by the Paycheck Protection Program Flexibility Act of 2020.

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.

2021 Winter Storm Uri, Natural Gas Curtailment and Settlement of Natural Gas Contracts

On February 12, 2021, the Pryor Facility was taken out of service due to extreme cold weather associated with the winter storm Uri that caused a surge in natural gas prices in the region, along with the curtailment of gas distribution by the operator of the pipeline that supplies natural gas to the facility.

On February 21, 2021, this facility began a phased restart and the facility’s ammonia plant was in production shortly thereafter.

Also , as a result of unprecedented cold weather conditions, on February 17, 2021, the primary natural gas supplier to our El Dorado Facility asserted a claim of force majeure and materially restricted the supply of gas to the facility .

However, effective February 23, 2021, the force majeure was lifted and the facility’s ammonia plant is currently in production.

However, effective February 23, 2021 , the force majeure was lifted, and the facility’s ammonia plant was in production shortly thereafter .

As weather across the middle of the country improved and temperatures warmed, natural gas prices normalized, and supply were restored to levels required for full operation of our facilities.

Notably, our Cherokee Facility was not materially impacted by the extreme cold weather and related natural gas price and supply issues and operated at targeted levels throughout February 2021.

In order to mitigate a portion of the commodity price risk associated with natural gas, we periodically enter into natural gas forward contracts and volume purchase commitments that locked in the cost of certain volumes of natural gas.

Prior to this weather event, we had both types of arrangements.

During the first quarter of 2021, we settled all of our natural gas forward contracts and certain volume purchase commitments outstanding at that time.

As a result of the settlement of these natural gas contracts, we were able to significantly mitigate the impact from lost production, lost sales and higher costs resulting from the impact of the natural gas shortage caused by winter storm Uri.

Key Industry Factors

Supply and Demand

See discussion above concerning the COVID-19 pandemic under “Business Developments-2020.”

The price at which our agricultural products are ultimately sold depends on numerous factors, including the supply and demand for nitrogen fertilizers which, in turn, depends upon world grain demand and production levels, the cost and availability of transportation and storage, weather conditions, competitive pricing and the availability of imports.

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For 2021 as noted in the table below, the USDA estimates the number of acres of corn planted in the U.S.

was approximately 91 million acres and U.S ending stocks to be approximately 38 million metric tons, a 22% decrease from a year ago.

was approximately 93 million acres, up 3% compared to the 2020 planting season.

In addition, the USDA estimates the U.S ending stocks for the 2022 Crop will be approximately 39 million metric tons, a 25% increase from the 2021 Crop.

The USDA also is estimating a record yield for the 2022 Crop, up approximately 3% from a year ago.

The following February estimates are associated with the corn market:

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Represents the percentage change between the 2022 Crop amounts compared to the 2020 Crop amounts.

After a challenging 2019 for U.S.

corn farmers, the number of planted corn acres in 2020 increased slightly and corn production increased 4% year over year.

Despite the national restrictions and stay at home orders placed on traveling during 2020, in an attempt to slow the spread of the COVID-19 pandemic, the USDA estimates a slight demand increase in corn for ethanol production compared to last year.

Most gasoline has 10% ethanol content.

The current USDA corn outlook for the U.S.

is for slightly higher production, higher food, seed and industrial use, ethanol and larger ending stocks.

From a demand perspective, corn prices remain well above historical 5-year averages and remain significantly higher

than $4 per bushel, the level that we believe represent a key threshold as it relates to favorable farmer economics.

In addition, domestic corn demand to produce ethanol has rebounded to pre-pandemic levels as the continued roll-out of vaccines has allowed for the re-opening of the vast majority of the U.S.

economy, promoting increased mobility and a return to historical levels of gasoline consumption.

M ost gasoline has 10% ethanol content.

Ethanol is commonly made from corn and ethanol production is the largest user of U.S.

corn, representing roughly 40% of total U.S.

Lastly, due to the overall demand for corn, the USDA significantly decreased the U.S.

ending corn stocks to approximately 38 million metric tons, compared to 49 million metric tons relating to the 2020 crop.

For 2021, this decrease in ending corn stocks has elevated current and projected corn prices not seen in seven years, which may positively impact fertilizer demand and prices for the spring planting season.

On the supply side, given the low price of natural gas in North America over the last several years, North American fertilizer producers have become the global low-cost producers for delivered fertilizer products to the Midwest U.S.

Several years ago, the market believed that low natural gas prices would continue.

That belief, combined with favorable fertilizer pricing, stimulated investment in numerous expansions of existing nitrogen chemical facilities and the construction of new nitrogen chemical facilities.

Following the expansions, global nitrogen fertilizer supply outpaced global nitrogen fertilizer demand causing oversupply in the global and North American markets.

In addition, the new domestic supply of ammonia and other fertilizer products changed the physical flow of ammonia in North America placing pressure on nitrogen fertilizer selling prices as the new capacity was absorbed by the market.

Beginning in late 2019 and into 2020, ammonia pricing was under pressure due to inordinately inclement weather, followed by sluggish industrial demand throughout 2020, as a result of pandemic related weakness, which led to increased supply and resultant lower overall pricing for ammonia.

Also, in 2020, ammonia prices in the Southern Plains market were under additional pricing pressure relating to the closure of the Magellan ammonia pipeline during 2019, which also led to a build-up in ammonia supply in this market.

Beginning in the latter half of 2019 and throughout 2020, UAN prices traded at a discount to urea on a nitrogen equivalent basis, due in part to European anti-dumping duties that were imposed on imports from certain countries, including the U.S., which resulted in increased imports of UAN into the U.S.

primarily from Trinidad and Russia and decreased exports from the U.S., resulting in increased overall supply in the U.S market.

Looking forward to 2021, favorable dynamics for U.S.

agriculture have translated into higher prices to date for a variety of crops, including corn, which has prompted an increase in demand for fertilizers by farmers seeking to maximize yields in the coming spring planting season.

Favorable grower income in 2020, coupled with significant increase in Chinese imports of agricultural commodities, lower ending U.S.

corn inventory levels, and drought conditions in South America have pushed commodity prices, including corn, to their highest level in over seven years.

According to certain industry sources, the estimated corn acres to be planted in 2021 is between 92 to 94 million.

These factors have resulted in a price rally for fertilizers over the last several months, which we expect will continue through the spring planting season.

corn, currently representing roughly 3 6 % of total U.S.

corn demand .

The available U.S.

supply of ammonia and other nitrogen products has tightened in 2021, primarily as the result of higher demand for such products, in addition to the idling of many nitrogen plants in February 2021 due to the severe cold weather and ongoing industry downtime caused the lingering problems of that event coupled with more turnaround activity in 2021 as many companies chose to delay turnarounds in 2020 as a result of the pandemic and lost production from several hurricane events in 2021.

T he significant increase in the cost of natural gas, the primary feedstock for production of ammonia, which has prompted various producers to cease operations of some facilities further reducing supplies, particularly in Europe where natural gas prices have surged to more than $30 per MMBtu, rendering some ammonia plants uneconomical to operate.

As a result of these factors discussed above, we have experienced a price rally for fertilizers during 2021, and we expect these price levels will continue into the 2022 spring planting season.

Industrial and Mining

See discussion above concerning the COVID-19 pandemic under “Business Developments-2020.”

Our industrial products sales volumes are dependent upon general economic conditions primarily in the housi ng, automotive, and paper industries.

According to the A merican Chemistry Council, the U.S.

economic indicators are improving and pointing towards continued improvement despite continuing COVID-19 pandemic related difficulties in the market s we serve.

O ur sales prices generally vary with the market price of ammonia or natural gas, as applicable, in our pricing arrangements with customers.

According to the American Chemistry Council, the U.S.

economic indicators are improving and pointing towards continued improvement in the markets we serve.

Our sales prices generally vary with the market price of ammonia or natural gas, as applicable, in our pricing arrangements with customers.

See discussion above concerning a new long-term nitric acid supply contract under “Business Developments-2021.”

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In our mining markets, our sales volumes are typically driven by changes in the overall North American consumption levels of mining products that can be impacted by weather.

Metals mining prices have seen strong pricing during 2020 which in turn we expect will drive strong demand for our mining products for 2021 as producers push to extract as much as possible.

Also, although U.S.

coal production decreased by 24% during 2020, the EIA is projecting a 12% increase in 2021 because of a forecast 41% increase in natural gas prices for electricity generators, making coal more competitive in the electric power sector.

We believe our plants are well located to support the more stable quarry and construction industries and the metals mining industries.

Farmer Economics

The demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers.

Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources, soil conditions, weather patterns and the types of crops planted.

Natural Gas Prices

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Costs for transporting nitrogen-based products can be significant relative to their selling price.

For example, ammonia is a hazardous gas at ambient temperatures and must be transported in specialized equipment, which is more expensive than other forms of nitrogen fertilizers.

In recent years, a significant amount of the ammonia consumed annually in the U.S.

was imported.

Therefore, nitrogen fertilizers prices in the U.S.

are influenced by the cost to transport product from exporting countries, giving domestic producers who transport shorter distances an advantage.

However, we continue to evaluate the recent rising costs of rail and truck freight domestically.

Additionally, the Magellan ammonia pipeline, which had an annual capacity to transport approximately 900,000 tons per year, most of which was produced in Oklahoma and Texas and delivered via the pipeline in the Midwest has been permanently shut down.

Without the pipeline in place for ammonia transport, producers that relied on the pipeline to transport their ammonia now have to rely on other transportation modes, primarily trucks, but will also include rail and barge transport of ammonia.

Due to increases in demand for ammonia trucks during the spring and fall planting seasons, higher transportation costs have and could continue to impact our margins, if we were unable to fully pass through these costs to our customers.

We continue to evaluate the recent rising costs of rail and truck freight domestically.

Since the Magellan ammonia pipeline was permanently shut down in 2020, certain Oklahoma and Texas producers that relied on the pipeline to transport their ammonia are relying on other transportation modes, primarily trucks, but also rail and barge transport.

As a result of increases in demand for available trucks to transport ammonia, primarily during the spring and fall planting seasons, higher transportation costs have and could continue to impact our margins, if we were unable to fully pass through these costs to our customers.

Additionally, continued truck driver shortages could impact our ability to fulfill customer demand.

As a result, we continue to evaluate supply chain efficiencies to reduce or counter the impact of higher logistics costs.

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Unplanned downtime of our plants typically results in lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our products and increased costs related to repairs and maintenance.

All Turnarounds result in

lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our products, and increased costs related to repairs and maintenance, which repair and maintenance costs are expensed as incurred.

Our Cherokee Facility is currently on a three-year ammonia plant Turnaround cycle with t he next ammonia plant Turnaround planned in the third quarter o f 2021.

Our El Dorado and Pryor Facilities are currently on a three-year ammonia plant Turnaround cycle with the next ammonia plant Turnaround planned in the third quarter of 2022.

All Turnarounds result in lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our products, and increased costs related to repairs and maintenance, which repair, and maintenance costs are expensed as incurred.

Our Cherokee Facility is currently on a three-year ammonia plant Turnaround cycle completing a planned Turnaround during 2021 with t he next ammonia plant Turnaround planned in the third quarter of 2024.

Our El Dorado and Pryor Facilities are currently on a three-year ammonia plant Turnaround cycle with both currently scheduled for their next ammonia plant Turnarounds in the third quarter of 2022 .

Ammonia Production

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Total ammonia production in 2021 was 765,000 tons.

For 2021, we are targeting total ammonia production of approximately 830,000 tons to 850,000 tons despite a 30-day Turnaround at our Cherokee Facility, which will lower ammonia production during the third quarter by approximately 15,000 tons.

For 2022, we are targeting total ammonia production of approximately 780,000 tons to 800,000 tons despite a 30-day Turnaround at our Pryor Facility and a 24-day Turnaround at our El Dorado Facility, which will lower ammonia production during the third quarter by approximately 50,000 tons.

We believe that our focus on continuous improvement in reliability as discussed in key operating initiatives will result in year over year improvement in ammonia production for 2022.

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Our consolidated net sales for 2021 were $556.2 million compared to $351.3 million for 2020.

Our consolidated operating loss was $15.5 million compared to $39.1 million for 2019.

Our consolidated operating income for 2021 was $101.0 million compared to an operating loss of $15.5 million for 2020.

The items affecting our operating results are discussed below and under “Results of Operations.”

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Selling Prices

For 2020, average agricultural selling prices for our ammonia, UAN, and HDAN decreased 29%, 25% and 11%, respectively, compared to 2019.

As discussed above under “Key Industry Factors ,” the COVID-19 economic downturn and the resultant decline in energy prices has led to lower natural gas prices globally.

These factors have led to an increase in operating rates for nitrogen producers around the globe, resulting in greater supply of nitrogen products and lower fertilizer pricing.

This, combined with elevated ammonia inventory levels from the inordinately inclement weather throughout the Midwest in 2019 and the closure of the Magellan ammonia pipeline in September 2019, has led to excess ammonia supply in the Southern Plains market.

Also pricing pressures were driven by the impact of ammonia producers selling ammonia that would otherwise have been sold into the industrial market but was instead sold into the agricultural market due to the pandemic-related slowdown of the industrial market .

UAN prices were negatively impacted by European anti-dumping duties, which resulted in less exports of UAN from the U.S.

and more imports of UAN from Russia and Trinidad into the U.S.

HDAN prices were impacted by the overall decline in agricultural commodity prices.

Our 2020 average industrial selling prices for our products were lower compared to the same period of 2019 as a result of the aforementioned negative impact on the markets we serve from the COVID-19 pandemic and the elevated ammonia inventory levels.

The Tampa Ammonia pricing declined 6% compared to 2019, which led to a decrease in industrial selling prices as many of our industrial contracts are indexed to the Tampa Ammonia benchmark price.

Our 2020 average mining selling prices were lower compared to 2019 primarily as a result of certain mining sales contracts are linked to natural gas indexes and as the cost of natural gas declines, the pricing for these products declines accordingly.

Our 2021 average agricultural selling prices for our ammonia, UAN, and HDAN increased 111%, 87% and 46%, respectively, compared to 2020.

As discussed above under “Business Developments-2021,” increased demand, higher corn prices and tighter supplies of nitrogen products contributed to the improved pricing.

Our 2021 average industrial selling prices for most of our products were also higher compared to the same period of 2020, primarily driven by the $359 per metric ton increase in the Tampa Ammonia benchmark price, as many of our industrial contracts are indexed to the Tampa Ammonia benchmark price.

Turnaround Activities (2021 only)

When a Turnaround is performed, overall results are negatively impacted.

This impact includes lost contribution margin from lost sales, lost fixed cost absorption from lower production, and increased costs associated with repairs and maintenance.

The effects of our Turnaround, exclusive of the impacts due to lost ammonia production during the downtime, are shown below:

Turnaround Expense

Estimated Lost Ammonia Production

2021 Related Period

(In Thousands)

Settlement of Natural Gas Contracts (2021 only)

As discussed above under “Business Developments-2021”, 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 is classified as a reduction to cost of sales.

Change of Control and Special Dividend (2021 only)

As the result of the Exchange Transaction discussed above under “Business Developments-2021” and in Note 2, Eldridge held over 60% of our outstanding shares of common stock on the closing date of the Exchange Transaction.

As a result, a change of control (“CoC”) event occurred as defined in certain agreements, including stock-based awards and cash-based awards.

As a result, additional expense was recognized due to the CoC event.

In addition, pursuant to anti-dilutive terms included in the cash-based awards, the number of units of cash-based awards increased due to the Special Dividend, also resulting in additional expense being recognized.

In summary, we recognized approximately $5.0 million in additional expense, of which $1.2 million is classified as cost of sales and $3.8 million is classified as SG&A.

Net Loss on Extinguishments of Debt (2021 only)

As discussed above under “Business Developments-2021” and in Note 5, we redeemed all of the Senior Secured Notes due 2023 and recognized a loss on extinguishment of debt of approximately $20.3 million.

Partially offsetting this loss was a gain on extinguishment of debt of $10 million associated with the PPP loan that was fully forgiven by the SBA and lender.

Settlements with Certain Vendors (2020 only)

During 2020, EDC and certain vendors mediated settlements totaling $7.6 million for EDC to recover certain costs associated with our new nitric acid plant at our El Dorado Facility.

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

Of the $7.6 million, approximately $5.7 million is classified as a reduction to cost of sales and approximately $1.9 million is classified as a reduction to PP&E.

The recovery amount was applied against the original classification of the underlying costs.

Legal Fees-Leidos

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We are awaiting a new trial date.

Settlements with Certain Vendors (2020 only)

As discussed above under “Business Developments-2020”, EDC and certain vendors mediated settlements for EDC to recover certain costs associated with a nitric acid plant at our El Dorado Facility.

As a result, a recovery from these settlements was recognized which includes approximately $5.7 million classified as a reduction to cost of sales.

Ammonia Plant Turnaround Activities (2019 only)

When an ammonia plant Turnaround is performed, overall results are negatively impacted.

This impact includes lost contribution margin from lost sales, lost fixed cost absorption from lower production, and increased costs associated with repairs and maintenance.

The effects of our ammonia plant Turnarounds, exclusive of the impacts due to lost production during the downtime, are shown below:

Turnaround Expense

Estimated Lost Production

2019 Related Period

(In Thousands)

Pryor Facility

3 rd /4 th Quarter

El Dorado Facility

Charge Associated with Assets Held for Sale (2019 only)

In 2019, we recognized a non-cash charge of $9.7 million associated with assets held for sale, which amount is included in other expense.

Benefit for Income Taxes

For 2020, the benefit for income taxes was $4.7 million, with an effective benefit rate of 7.1%.

The effective tax rate was impacted by adjustments made to our valuation allowances.

For 2019, the benefit for income taxes was $20.9 million and the resulting increase in the effective benefit rate for 2019 was 24.8%, which includes changes to the state deferred tax assets and liabilities resulting from state tax law changes enacted and due to federal and state indefinite lived carryforward benefits that can be realized through the reversal of deferred tax liabilities.

Results of Operations

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Gross profit:

Agricultural products (1)

Industrial and mining products (1)

Adjusted gross profit by market (1)

Adjusted gross profit (1)

Depreciation and amortization (2)

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Selling, general and administrative expense

Other expense, net

Operating loss

Other (income) expense, net

Operating income (loss)

Interest expense, net

Non-operating other expense (income), net

Net loss on extinguishments of debt

Non-operating other expense, net

Benefit for income taxes

Net income (loss)

Other information:

Gross profit percentage (4)

Adjusted gross profit percentage (4)

Property, plant and equipment expenditures

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Represents amount classified as cost of sales.

See discussion above under “Business Developments - 2020.”

Includes interest expense of $1.6 million associated with a litigation judgment issued during 2020 as discussed in footnote (B) of Note 8.

See discussion above under “Items Affecting Comparability of Results.”

As a percentage of total net sales.

The following table provides certain financial information by market (dollars in thousands):

Adjusted gross profit by market (1)

Adjusted gross profit percentage

by market (2)

Represents a non-GAAP measure since the amount excludes depreciation and amortization, Turnaround expenses and a recovery from settlements.

See reconciliation included in the financial information table above.

As a percentage of the respective net sales.

The following tables provide key sales metrics for the agricultural products:

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Gross Average Selling Prices (price per ton)

With respect to sales of industrial products, the following tables indicate key operating metrics of our major products:

With respect to sales of industrial and mining products, the following table indicates key operating metrics of our major products:

Product (tons sold)

Other Industrial Products

AN, Nitric Acid and Other

Tampa Ammonia Benchmark (price per metric ton)

With respect to sales of mining products, the following tables indicate key operating metrics of our major products:

Product (tons sold)

LDAN/HDAN/AN Solution

Agricultural product sales decreased driven by lower selling prices for all of our agricultural products.

The impact from the decline in selling prices was partially offset by an increase in sales volume of all our major agricultural products, including UAN as a result of higher production from the Pryor Facility as a result of the new Urea reactor which was installed in the fourth quarter of 2019.

Industrial products sales decreased primarily from lower selling prices due primarily to lower Tampa Ammonia benchmark pricing.

The average Tampa ammonia pricing was approximately $15 per ton lower compared to 2019.

Additionally, overall sales volumes were slightly higher into markets we serve, as a result of higher production, despite the impact from the COVID-19 pandemic.

Mining products sales increase slightly primarily as the result of overall higher sales volumes as customer demand has recently improved in certain markets we serve partially offset by lower selling prices.

Certain mining sales contracts are linked to natural gas indexes and as the cost of natural gas declines, the pricing for these products declines accordingly.

As noted in the tables above, we recognized a gross profit of $17 million for 2020 compared to $5 million for 2019, or an increase of approximately $12 million.

Overall, our gross profit percentage increased to 4.9% for 2020 compared to 1.4% for 2019.

Our agricultural products adjusted gross profit percentage decreased to 11% for 2020 from 15% for 2019 due primarily to decreased selling prices for all of our agricultural products partially offset by increased sales volumes for all of our major products as discussed above.

Industrial and mining products adjusted gross profit percentage increased for 2020 to 36% from 33% for 2019 primarily driven by a shift of product mix, lower production costs and higher sales volumes of our mining products and certain industrial products partially offset by lower overall Tampa Ammonia pricing, which averaged approximately $233 per metric ton during 2020 compared to approximately $248 per metric ton for 2019 as discussed above.

The net negative effect on gross profit from activity discussed above was offset by approximately $13.9 million in lower natural gas costs per MMBtu and the result of settlements with certain vendors resulting in a recovery of approximately $5.7 million as discussed in Note 8.

Also, during 2019, we incurred Turnaround costs totaling approximately $13.2 million (no Turnarounds were performed during 2020).

Agricultural product sales increased driven primarily by higher sales prices for all of our agricultural products partially offset by lower sales volumes of our products resulting from lower production, including ammonia, due to the February 2021 weather event, the completion of a Turnaround at our Cherokee Facility during 2021, and product mix shifts to our industrial and mining products.

As discussed above under “Business Developments-2021,” increased demand, higher corn prices, and tighter supplies of nitrogen products contributed to the improved pricing.

Industrial product sales increased primarily from higher sales prices due primarily to higher Tampa Ammonia benchmark pricing and higher nitric acid sales volume due in part to sales beginning in 2021 pursuant to the new long-term nitric acid supply agreement, and product mix shifts.

The average Tampa Ammonia pricing was approximately $359 per ton higher compared to the same period in 2020.

Mining products sales improved driven by primarily from increased sales volumes.

Demand for our mining products improved as quarry and construction activity has been elevated due to robust levels of residential, commercial and civil infrastructure buildout along with strong demand for precious metals, including expectations for rising copper production to support the growing domestic production of electric vehicles.

Also, certain mining sales contracts are linked to natural gas indexes and as the cost of natural gas increases, the pricing for these products increase accordingly.

As noted in the table above, we recognized a gross profit of $139 million for 2021 compared to $17 million for the same period in 2020, or a $122 million improvement.

Overall, our gross profit percentage was 25% for 2021 compared to 5% for 2020.

Our adjusted gross profit percentage increased to 39% for 2021 from 23% for 2020.

The increase in gross profit was primarily driven by higher sales prices for our products coupled with an overall increase in sales volume of upgraded industrial and mining products partially offset by lower volumes of our agricultural products.

The improvement in gross profit was also partially offset by the net impact of the February weather disruption and overall higher average natural gas costs, which averaged $3.51 per MMBtu for 2021 as compared to $2.09 per MMBtu for 2020 and the impact of the Turnaround completed at our Cherokee Facility as discussed above under “Turnaround Activities”.

Also, 2020 included settlements with certain vendors resulting in a recovery of approximately $5.7 million.

Selling, General and Administrative

Our SG&A expenses were $32.1 million for 2020, a decrease of $2.1 million compared to 2019.

This net decrease was primarily driven by lower professional fees of $3.3 million, including legal fees discussed above under “Items Affecting Comparability”, partially offset by an increase in compensation-related and other miscellaneous costs of $1.2 million.

Other Expense, net

Other expense for 2019 was $9.9 million primarily relating to a non-cash charge associated with assets held for sale (minimal for 2020).

Our SG&A expenses were $38.0 million for 2021, an increase of $5.9 million compared to 2020.

The net increase was primarily driven by approximately $3.8 million of expense due to CoC and anti-dilutive provisions included in certain agreements as discussed above under “Change of Control and Special Dividend.”, approximately $5.4 million associated with short and long-term compensation incentives and other payroll related costs partially offset by lower professional fees of $4.0 million.

Interest Expense, net

Interest expense for 2021 was $49.4 million compared to $51.1 million for 2020.

The net increase relates primarily to interest expense incurred associated with the issuance of the New Notes in 2019, the Secured Financing due 2023 and the Secured Financing Agreement due 2025 as discussed in Note 6 in addition to a litigation judgment discussed in footnote (B) of Note 8.

The decrease relates primarily to the interest expense incurred in 2020 associated with a litigation judgment discussed in footnote (B) of Note 9.

Net loss on Extinguishments of Debt

As discussed above under “Business Developments-2021” and in Note 5, during 2021, we redeemed all of the Senior Secured Notes due 2023 and recognized a loss on extinguishment of debt of approximately $20.3 million.

Partially offsetting this loss was a gain on extinguishment of debt of $10 million associated with the PPP loan that was fully forgiven by the SBA and lender.

Non-operating Other Expense (Income), net

Non-operating other expense for 2021 was $2.4 million (minimal for 2020).

This change primarily relates to the change in fair value of the embedded derivative included in the Series E Redeemable Preferred prior to its extinguishment through the completion of the Exchange Transaction discussed above under “Business Developments-2021”.

Benefit for Income Taxes

The benefit for income taxes for 2021 was $4.6 million compared to $4.7 million for 2020.

The resulting benefit rate for 2020 was 7.1% compared to 24.8% for 2019.

The resulting effective tax rate for 2021 was (11.7)% on pre-tax income compared to 7.1% for 2020 on pre-tax loss.

For 2021, the negative effective tax rate on pre-tax income was driven by the benefit from the exclusion of PPP Loan forgiveness income from taxable income, tax credits, and the impact of adjustments made to valuation allowances, partially offset by the impact of state law changes.

For 2020, the effective tax rate was impacted by adjustments made to our valuation allowances.

The 2019 effective tax rate was impacted primarily due to changes to the state deferred tax assets and liabilities resulting from state tax law changes enacted during 2019 and due to federal and state indefinite lived carryforward benefits that can be realized through the reversal of deferred tax liabilities.

Also see discussion in Note 8.

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Net Cash Flow from Operating Activities

Net cash used by operating activities was $2.5 million for 2020 compared net cash provided of $2.1 million for 2019, a decrease of $4.6 million.

For 2020, net cash used is the result of a net loss of $61.9 million plus adjustments of $69.6 million for depreciation and amortization of PP&E, and other adjustments of $9.4 million less an adjustment of $4.8 million for deferred taxes and net cash used of approximately $14.8 million primarily from our working capital, including accounts payable, accounts receivable and prepaid deposits.

For 2019, net cash provided is the result of a net loss of $63.4 million plus adjustments of $68.3 million for depreciation and amortization of PP&E, non-cash charge of $9.7 million associated assets held for sale, and other adjustments of $7.0 million less an adjustment of $20.9 million for deferred taxes and net cash provided of approximately $1.4 million primarily from our working capital.

Net cash provided by operating activities was $87.6 million for 2021 compared to net cash used of $2.5 million for 2020, a change of $90.1 million.

For 2021, net cash provided is the result of a net income of $43.5 million plus adjustments of $68.7 million for depreciation and amortization of PP&E, net loss on extinguishments of debt of $10.3 and other adjustments of $8.4 million and net cash used of $43.3 million primarily from our working capital, including accounts receivable.

For 2020, net cash provided is the result of a net loss of $61.9 million plus adjustments of $69.6 million for depreciation and amortization of PP&E, and other adjustments of $9.4 million less an adjustment of $4.8 million for deferred taxes and net cash used of approximately $14.8 million primarily from our working capital, including accounts payable, accounts receivable and prepaid deposits.

Net Cash Flow from Investing Activities

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Net cash provided by financing activities was $12.9 million for 2021 compared to $24.4 million for 2020, a change of $11.5 million.

For 2021, net cash provided primarily consists of proceeds of $500 million from the New Notes, $16.7 million from insurance premium short-term financing partially offset by $435 million redemption of the Old Notes, payments of debt-related costs of $27.3 million, payments on other long-term debt and short-term financing of $28.0 million, payments of costs of $7.4 million related to the Exchange Transaction, and payments of $6.1 million for other financing activities.

For 2020, net cash provided primarily consists of proceeds of $57.2 million from other long-term debt and insurance premium short-term financing partially offset by payments on other long-term debt and short-term financing of $32.3 million and payments of $0.5 million for other financing activities.

For 2019, net cash provided primarily consists of net proceeds of $35.1 million from the New Notes, net proceeds of $7.5 million, net of payments, from other long-term debt and insurance premium short-term financing partially offset by net payments of $10 million on the Working Capital Revolver Loan, and payments of $2.0 million for other financing activities.

Capitalization

The following is our total current cash, long-term debt, redeemable preferred stock and stockholders’ equity:

The following is our total current cash, long-term debt and stockholders’ equity:

(In Millions)

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Senior Secured Notes due 2028 (1)

Secured Promissory Note due 2021

Unsecured Loan Agreement due 2022 (1)

Senior Secured Notes due 2023 (1)

Secured Financing due 2023

Secured Loan Agreement due 2025

Secured Financing due 2025 (1)

Secured Financing Agreement due 2025

Unsecured Loan Agreement due 2022 (1)

Secured Promissory Note due 2021

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Total stockholders' equity

See discussions below under “Loan Agreements and Redeemable Preferred Stock” concerning these financing transactions during 2020.

Liquidation preference of $278.0 million as of December 31, 2020.

See discussion above concerning the COVID-19 pandemic under “Business Developments - 2020.”

See discussions above under “Business Developments-2021 relating to the debt agreement.

See discussion above under “Business Developments-2021” and Note 2 relating to the Exchange Transaction associated with the Series E and Series F redeemable preferred stock.

We currently have a revolving credit facility, our Working Capital Revolver Loan, with a borrowing base of $65 million.

As of December 31, 2021, our Working Capital Revolver Loan was undrawn and had approximately $61.3 million of availability.

In connection with the implementation of our strategy, we may pursue acquisitions of strategic assets or companies (including through mergers), or additional investment in our production capacity, for which we may require additional funds.

We may choose to finance any of the foregoing through the incurrence of additional indebtedness (including through loans or the issuance of debt securities) [or the issuance of equity], in each case subject to market conditions.

We expect capital expenditures to be approximately $65 million for 2022, which includes approximately $15 million for margin enhancement projects.

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As of December 31, 2021, no trigger event had occurred.

Loan Agreements and Redeemable Preferred Stock

Senior Secured Notes due 2023 – LSB has $435 million aggregate principal amount of the 9.625% Senior Secured Notes currently outstanding, as discussed in footnote (B) of Note 6.

Interest is to be paid semiannually on May 1 st and November 1 st , maturing May 1, 2023 .

Secured Promissory Note due 2021 – EDC is party to a secured promissory note due in March 2021.

This promissory note bears interest at the annual rate of 5.25%.

Principal and interest are payable in monthly installments.

Unsecured Loan Agreement due 2022 – As discussed in footnote (D) of Note 6, LSB is a party to an unsecured PPP loan with a lender pursuant to a new loan program through the SBA as the result of the PPP established by the CARES Act and amended by the Paycheck Protection Program Flexibility Act of 2020.

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.

As of December 31, 2020, 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.

Loan Agreements

Senior Secured Notes due 2028 – LSB has $500 million aggregate principal amount of the 6.25% Senior Secured Notes outstanding, as discussed in footnote (B) of Note 7.

Interest is to be paid semiannually on May 15 th and October 15 th .

Due to the redemption of the Old Notes, our interest expense is expected to decrease as compared to 2021.

Secured Financing due 2023 – EDC is party to a secured financing arrangement with an affiliate of 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.

Secured Loan Agreement due 2025 - EDC is party to a secured loan agreement with an affiliate of LSB Funding, which provided for available borrowings (the “Interim Loan”) during the construction of certain equipment (the “Interim Loan Period”), subject to certain conditions.

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

Effective February 28, 2020, the Interim Loan Period ended, and the Interim Loan was replaced by a secured promissory note due in March 2025.

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

Secured Financing due 2025 – As discussed in footnote (G) of Note 6, EDA is party to a $30 million secured financing arrangement with an affiliate of LSB Funding.

Secured Loan Agreement due 2025 - 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.

Secured Financing Agreement due 2025 – EDA is party to a secured financing agreement with an affiliate of LSB Funding.

Principal and interest are payable in 60 equal monthly installments with a final balloon payment of approximately $5 million due in August 2025.

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Also see discussion above under “Compliance with Long-Term Debt Covenants .

Redemption of Series E Redeemable Preferred – At December 31, 2020, there were 139,768 outstanding shares of Series E Redeemable Preferred and the aggregate liquidation preference (par value plus accrued dividends) was $278.0 million.

A t 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 per share of $1,000 plus accrued and unpaid dividends plus the participation rights value (the “Liquidation Preference”).

Additionally, at our option, we 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 at the Liquidation Preference.

Since 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, this accretion has and will continue to affect income (loss) per common share.

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

Also, see discussion in Note 10.

Capital Expenditures – 2021

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However, it is possible that the actual costs could be significantly different than our estimates.

See discussions above under “Business Developments-2021” and Notes 1 and 2 regarding the common stock Special Dividend.

We have not paid cash dividends on our outstanding common stock in many years, and we do not currently anticipate paying cash dividends on our outstanding common stock in the near future.

Dividends on the Series E Redeemable Preferred are cumulative and payable semi-annually (May 1 and November 1) in arrears at the current annual rate of 14% of the liquidation value of $1,000 per share, but such annual rate will increase beginning on April 25, 2021 as discussed in Note 10.

Each share of Series E Redeemable Preferred is entitled to receive a semi-annual dividend, only when

declared by our Board.

In addition, dividends in arrears at the dividend date, until paid, shall compound additional dividends at the current annual rate of 14%, but such annual rate will increase beginning on April 25, 2021 .

The current semi-annual compounded dividend is approximately $ 136.29 per share for the current aggregate semi-annual dividend of $1 9 .

We also must declare a dividend on the Series E Redeemable Preferred on a pro rata basis with our common stock.

As long as the Purchaser holds at least 10% of the Series E Redeemable Preferred, we may not declare dividends on our common stock and other preferred stocks unless and until dividends have been declared and paid on the Series E Redeemable Preferred for the then current dividend period in cash.

As of December 31, 20 20 , the amount of accumulated dividends on the Series E Redeemable Preferred was approximately $ 1 38.2 million.

Dividends on the Series D 6% cumulative convertible Class C preferred stock (the “Series D Preferred”) and Series B 12% cumulative convertible Class C Preferred Stock (the “Series B Preferred”) are payable annually, only when declared by our Board, as follows:

$0.06 per share on our outstanding non-redeemable Series D Preferred for an aggregate dividend of $60,000, and

$12.00 per share on our outstanding non-redeemable Series B Preferred for an aggregate dividend of $240,000.

As of December 31, 2020, the amount of accumulated dividends on the Series D Preferred and Series B Preferred totaled approximately $1.6 million.

All shares of the Series D Preferred and Series B Preferred are owned by the Golsen Holders and an immediate family member.

There are no optional or mandatory redemption rights with respect to the Series B Preferred or Series D Preferred.

See discussion under Notes 12 and 14 regarding the conversion and payment of the accumulated dividends during 2021 relating to the Series D 6% cumulative convertible Class C preferred stock (the “Series D Preferred”) and Series B 12% cumulative convertible Class C Preferred Stock (the “Series B Preferred”).

We believe fertilizer products sold to the agricultural industry are seasonal while sales into the industrial and mining sectors generally are less susceptible.

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Interest payments on long-term debt (1)

Series E redeemable preferred stock (2)

Dividends earned - Series E redeemable preferred stock (2)

Capital expenditures (2)

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The estimated interest payments are based on interest rates at December 31, 2021, which debt is all fixed interest rate debt.

The Series E redeemable preferred stock (including dividends) are assumed to be redeemed and paid on the earliest possible redemption date by the holder (October 25, 2023) and that dividends are accrued until that date.

Capital expenditures include only the budgeted amounts at December 31, 2021.

Our proportionate share of the minimum costs to ensure capacity relating to a gathering and pipeline system.

The future cash flows relating to executive and death benefits are based on estimates at December 31, 2020 .

The participation rights value associated with embedded derivative of our Series E redeemable preferred stock is based on the value of our common stock at December 31, 2020 and is based on the earliest possible redemption date by the holder, October 25, 2023.

The future cash flows relating to the death benefit is based on estimates at December 31, 2021.

New Accounting Pronouncements

Refer to Note 1 for recently issued accounting standards.

Refer to Note 1 for recently adopted and issued accounting standards.

Critical Accounting Policies and Estimates

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In addition, we recognize contingent gains when such gains are realized or realizable and earned.

We are involved in various legal matters that require management to make estimates and assumptions, including costs relating to the lawsuit styled City of West, Texas v CF Industries, Inc., et al, discussed under “Other Pending, Threatened or Settled Litigation” of Note 8.

We are involved in various legal matters that require management to make estimates and assumptions as discussed in Note 9.

It is reasonably possible that the actual costs could be significantly different than our estimates.

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We are involved in various environmental matters that require management to make estimates and assumptions, including matters discussed under footnote A of Note 9.

At December 31, 2020 and 2019, liabilities totaling $0.5 million and $0.2 million, respectively, have been accrued relating to these matters.

At December 31, 2021 and 2020, liabilities totaling $0.5 million have been accrued relating to these matters.

It is also reasonably possible that the estimates and assumptions utilized as of December 31, 2021 could change in the near term.

5 unchanged sentences

At December 31, 2021 and 2020, our valuation allowance on deferred tax assets was $47.0 million and $64.7 million, respectively.

Redeemable Preferred Stocks – Our outstanding Series E and F Redeemable Preferred are redeemable outside of our control and are classified as temporary/mezzanine equity on our consolidated balance sheet.

In addition, certain embedded features (the “embedded derivative”) included in the Series E Redeemable Preferred required bifurcation and are classified as derivative liabilities.

Currently, the carrying values of the redeemable preferred stocks are being increased by periodic accretions (recorded to retained earnings and included in determining income or loss per share) 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.

Approximately $37 million of accretion (including the amount for earned dividends) was recorded to retained earnings in 2020.

At December 31, 2020, the carrying value of these redeemable preferred stocks was $272.1 million.

For the embedded derivative, changes in fair value are recorded in our statement of operations.

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.

At December 31, 2020 and 2019, the fair value of the embedded derivative was $1.0 million and $1.1 million, respectively, primarily relating to the participation rights based on the equivalent of 303,646 shares of our common stock at $3.39 and $4.20 per share, respectively.

The valuation is classified as Level 3.

Management’s judgment and estimates in the above areas are based on information available from internal and external resources at that time.

Actual results could differ materially from these estimates and judgments, as additional information becomes known.

Series E and Series F Redeemable Preferred - As discussed in Note 1, the Series E and Series F Redeemable Preferred Stocks, prior to their redemption as discussed in Note 2, were redeemable outside our control and therefore were historically classified as temporary/mezzanine equity.

These 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 were classified as derivative liabilities.

The carrying values of the redeemable preferred stocks were 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 would equal the redemption value as of the earliest possible redemption date by the holder (October 25, 2023).

The accretion was recorded to retained earnings.

As discussed in Note 2, in July 2021, we entered into the Exchange Agreement with the Holder, an affiliate of Eldridge, which Exchange Agreement was voted on and approved by our stockholders at the Special Meeting held in September 2021.

Pursuant to the terms of the Exchange Agreement, the Holder exchanged all of the shares of the Series E and Series F Redeemable Preferred into our common stock based on the Liquidation Preference and 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.

The Liquidation Preference primarily consists of $1,000 per share of Series E Redeemable Preferred plus accrued and unpaid dividends plus the participation rights value.

However, the exchange consideration paid under the Exchange Agreement would be reduced by approximately 1.2 million shares, which shares were included in the Special Dividend and received by the Holder.

On September 27, 2021, the closing of the Exchange Agreement occurred, and the Exchange Transaction was consummated.

Pursuant to the terms of the Exchange Agreement, the Holder exchanged all of the shares of the Series E and Series F Redeemable Preferred for approximately 49.1 million shares of our common stock.

The total fair value of the approximately 49.1 million shares of common stock issued was approximately $531.1 million (based on the average per share price on the date of closing).

The fair value of the common stock issued was in excess of the Ser ies E and Series F Redeemable Preferred carrying amount, net of the bifurcated embedded derivative and unamortized issuance costs, by approximately $231.8 million and is treated as a deemed dividend.

Because we were in an accumulated deficit position on the closing date, the deemed dividend was charged to capital in excess of par value .

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

What changed 10-K

Item 7. Management’s Discussion and Analysis