What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-02 · 143 added, 417 removed, 315 unchanged (64% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(Information at September 30, 2021 is unaudited)

September 30,

(Information at March 31, 2022 is unaudited)

(In Thousands)

1 unchanged sentence

Cash and cash equivalents

Short-term investments

Accounts receivable

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CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Information at September 30, 2021 is unaudited )

September 30,

(Information at March 31, 2022 is unaudited )

(In Thousands)

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Commitments and contingencies (Note 6)

Redeemable preferred stocks:

Series E 14 % cumulative, redeemable Class C preferred stock, no par value,

no shares issued or outstanding at September 30, 2021;

( 210,000 shares

139,768 outstanding;

aggregate liquidation preference

$ 278 million at December 31, 2020)

Series F redeemable Class C preferred stock, no par value, no shares

issued or outstanding at September 30, 2021;

( 1 share issued and

aggregate liquidation preference of $ 100

at December 31, 2020)

Stockholders' equity:

Series B 12 % cumulative, convertible preferred stock, $ 100 par value;

shares issued and outstanding;

aggregate liquidation preference

of $ 3.4 million ($ 3.3 million at December 31, 2020)

Series D 6 % cumulative, convertible Class C preferred stock, no par value;

1,000,000 shares issued and outstanding;

aggregate liquidation preference

of $ 1.4 million ($ 1.3 million at December 31, 2020)

Common stock, $ .10 par value;

150 million shares authorized, 91.2 million

shares issued ( 75 million shares authorized, 40 million shares issued

at December 31, 2020)

shares issued

Capital in excess of par value

Accumulated deficit

Retained earnings (accumulated deficit)

Less treasury stock, at cost:

1 unchanged sentence

Total stockholders' equity

See accompanying notes.

See accompanying notes to condensed consolidated financial statements.

LSB INDUSTRIES, INC.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In Thousands, Except Per Share Amounts)

Cost of sales

Gross profit (loss)

Selling, general and administrative expense

Other expense, net

Other income, net

Operating income (loss)

Interest expense, net

Gain on extinguishment of debt

Non-operating other expense (income), net

Income (loss) before provision (benefit) for income taxes

Provision (benefit) for income taxes

Non-operating other expense, net

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

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Accretion of Series E redeemable preferred stock

Deemed dividend on Series E and Series F

redeemable preferred stocks

Net loss attributable to common stockholders

Basic and dilutive net loss per common share

See accompanying notes.

Net income (loss) attributable to common stockholders

Income (loss) per common share:

Net income (loss)

See accompanying notes to condensed consolidated financial statements.

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Earnings (Accumulated Deficit)

Retained Earnings (Accumulated Deficit)

(In Thousands)

Balance at December 31, 2021

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Issuance of restricted stock

Balance at March 31, 2022

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Issuance of unrestricted stock

Balance at June 30, 2021

Issuance of common stock in exchange

for redeemable preferred stocks

Deemed dividend on redeemable

preferred stocks

Dividend accrued on redeemable

preferred stock prior to exchange

Accretion of redeemable preferred

stock prior to exchange

Stock-based compensation

Issuance of restricted and unrestricted stock

Balance at September 30, 2021

Balance at December 31, 2020

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Stock-based compensation

Issuance of restricted stock

Balance at March 31, 2021

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Balance at June 30, 2020

Dividend accrued on redeemable

preferred stock

Accretion of redeemable preferred stock

Stock-based compensation

Balance at September 30, 2020

See accompanying notes.

See accompanying notes condensed consolidated financial statements.

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In Thousands)

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Deferred income taxes

Gain on extinguishment of debt

Depreciation and amortization of property, plant and equipment

Amortization of intangible and other assets

Stock-based compensation

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

3 unchanged sentences

Accrued interest

Accrued payroll and benefits

Other assets and other liabilities

2 unchanged sentences

Expenditures for property, plant and equipment

Proceeds from vendor settlements associated with

property, plant and equipment

Purchases of short-term investments

Other investing activities

1 unchanged sentence

Cash flows from financing activities

Proceeds from revolving debt facility

Payments on revolving debt facility

Proceeds from other long-term debt

Net proceeds from 6.25 % senior secured notes

Payments on other long-term debt

Payments of debt-related costs

Payments on short-term financing

Payments of costs to exchange redeemable preferred

stocks for common stock

Payments of debt-related costs, including

extinguishment costs

Other financing activities

Net cash provided (used) by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

See accompanying notes.

See accompanying notes condensed consolidated financial statements.

LSB INDUSTRIES, INC.

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Summary of Significant Accounting Policies

For a complete discussion of our significant accounting policies, refer to the notes to our audited consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021.

Basis of Consolidation – LSB Industries, Inc.

(“LSB”) and its subsidiaries (the “Company,” “we,” “us,” or “our”) are consolidated in the accompanying condensed consolidated financial statements.

The accompanying unaudited interim financial statements and notes of LSB Industries, Inc.

(“LSB”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S.

GAAP have been omitted.

The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022, as amended by the Form 10-K/A filed on March 25, 2022 (“2021 Form 10-K”).

The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s results of operations and cash flows for the three-month periods ended March 31, 2022 and 2021 and the Company’s financial position as of March 31, 2022.

Basis of Consolidation – LSB and its subsidiaries (the “Company,” “we,” “us,” or “our”) are consolidated in the accompanying condensed consolidated financial statements.

LSB is a holding company with no significant operations or assets other than cash, cash equivalents, and investments in its subsidiaries.

All material intercompany accounts and transactions have been eliminated.

Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to current period presentation, including all share and per share information relating to the stock split in the form of a stock dividend discussed below.

Nature of Business – We are engaged in the manufacture and sale of chemical products.

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and parts of Mexico and Canada .

In our opinion, the unaudited condensed consolidated financial statements of the Company as of September 30, 2021 and for the three and nine months ended September 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.

Our selling seasons for agricultural products are primarily during the spring and fall planting seasons, which typically extend from March through June and from September through November.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.

These condensed consolidated financial statements should be read in connection with our audited consolidated financial statements and notes thereto included in our 2020 Form 10-K.

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

Use of Estimates – The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Increase in Authorized Shares of Common Stock and a Stock Dividend - During the third quarter of 2021, LSB held a Special Meeting of Stockholders (the “Special Meeting”).

At the Special Meeting, our stockholders approved:

the issuance and sale of up to approximately 60.4 million shares of common stock of the Company upon the exchange of all of the outstanding shares of Series E and Series F Redeemable Preferred (see discussion of the exchange transaction (“Exchange Transaction” in Note 2);

amending our restated certificate of incorporation to increase the number of authorized shares of our common stock to 150 million shares of common stock;

amending the certificate of designations of the Series E Redeemable Preferred to revise the preferential rights of holders of shares of Series E Redeemable Preferred to eliminate the right to participate in connection with the declaration of the proposed common stock dividend with respect to our common stock.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

In August 2021, our Board of Directors (“Board”) declared a common stock dividend (“Special Dividend”) contingent on the closing of the Exchange Transaction (as defined below).

As a result of the stockholders’ approval and the closing of the Exchange Transaction, such Special Dividend was effected in the form of a stock dividend of 0.3 shares of our common stock, for each outstanding share of common stock (exclusive of common stock held in the treasury and the common shares issued as part of the Exchange Transaction ), but the Special Dividend was contingent upon the stockholders’ approval of the proposals noted above.

As the result of the stockholders’ approval, the Special Dividend was paid through the issuance of approximately 9.1 million shares of common stock on October 8, 2021 to holders of record of common stock, including certain stock-based awards, on September 24, 2021 (the “Record Date”).

Our common stock began trading on a stock dividend-adjusted basis on October 13, 2021.

See additional discussion in Note 13 – Sub sequent Events .

For financial reporting purposes, the Special Dividend is accounted for as a stock split in the form of a stock dividend.

As a result, all share and per share information herein has been retroactively adjusted to reflect the Special Dividend.

In addition, pursuant to anti-dilution terms included in outstanding cash-based awards, the number of units of cash-based awards increased due to the Special Dividend.

As a result, additional expense was recognized due to the Special Dividend.

In summary, we recognized approximately $ 1.3 million expense, of which $ 0.5 million is classified as cost of sales and $ 0.8 million is classified as SG&A.

See additional discussion relating to these cash-based awards in Note 2.

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

The redeemable preferred stocks were recorded at fair value upon issuance, net of issuance costs or discounts.

In addition, certain embedded features (“embedded derivative”) 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 since issuance 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.

The accretion was recorded to retained earnings/accumulated deficit.

However, during the third quarter of 2021, our redeemable preferred stocks were exchanged into our common stock as discussed in Note 2.

As a result, the change in classification of the redeemable preferred stocks from temporary/mezzanine equity to permanent equity was considered an extinguishment.

In conjunction with the extinguishment of the redeemable preferred stocks, the then current fair value of the bifurcated embedded derivative was applied to the carrying value of the redeemable preferred stocks at the time of the extinguishment.

Short-Term Investments - Investments, which consist of U.S.

treasury bills with an original maturities ranging from approximately 17 weeks to 51 weeks, were considered short-term investments.

These investments are carried at cost which approximated fair value.

Equity Awards – Equity award transactions with employees are measured based on the estimated fair value of the equity awards issued.

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

In January 2021, the compensation committee of our Board of Directors approved the grant of 799,499 shares of time-based restricted stock and 284,810 shares of performance-based restricted stock to certain executives under our 2016 Long Term Incentive Plan.

The number of shares has been retroactively adjusted to reflect the Special Dividend as discussed above.

The time-based restricted stock shares will vest at the end of each one-year period at the rate of one-third per year for three years, vesting 100% at the end of three years .

See Note 2 concerning performance-based restricted stock awards .

The unvested restricted shares carry dividend and voting rights contingent upon the vesting and lapsing of restriction.

Sales of these shares are restricted prior to the date of vesting.

Pursuant to the terms of the underlying restricted stock agreements, unvested restricted shares may immediately vest upon the occurrence of a change in control (as defined by agreement), termination without cause or death.

See additional discussion relating to equity awards in Note 2.

Income Taxes – Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date.

We establish valuation allowances if we believe it is more-likely-than-not that some or all of deferred tax assets will not be realized.

Significant judgment is applied in evaluating the need for and the magnitude of appropriate valuation allowances against deferred tax assets.

In addition, we do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the relevant taxing authorities based solely on the technical merits of the associated tax position.

If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50% likely to be realized.

We reduce income tax expense for investment tax credits in the period the credit arises and is earned.

LSB INDUSTRIES, INC.

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Summary of Significant Accounting Policies (continued)

Contingencies – Certain conditions may exist which may result in a loss, but which will only be resolved when future events occur.

We and our legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.

If the assessment of a contingency indicates that it is probable that a loss has been incurred, we would accrue for such contingent losses when such losses can be reasonably estimated.

If the assessment indicates that a potentially material loss contingency is not probable but reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred.

Loss contingency liabilities are included in current and noncurrent accrued and other liabilities and are based on current estimates that may be revised in the near term.

In addition, we recognize contingent gains when such gains are realized or when the contingencies have been resolved (generally at the time a settlement has been reached).

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

In January 2022 and March 2022, the compensation committee of our Board of Directors approved the grant of 224,455 shares of time-based restricted stock units and 160,724 shares of performance-based restricted stock units to certain executives and employees under our 2016 Long Term Incentive Plan.

A portion of the time-based restricted stock unit shares will vest at the end of each one-year period at the rate of one-third per year for three years and a portion will vest 100% at the end of three years.

The performance-based restricted stock units will vest on the third anniversary of the grant date subject to the achievement of certain performance metrics established by the Board of Directors as set out in the grant.

Upon the third anniversary the grants may be modified in a range between 0 % and 200 % based upon achievement of the performance goals.

The unvested restricted shares carry dividend and voting rights contingent upon the vesting and lapsing of restriction.

Sales of these shares are restricted prior to the date of vesting.

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

Changes in fair value of derivatives are recorded in results of operations unless the normal purchase or sale exceptions apply, or hedge accounting is elected.

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A master netting arrangement exists if the reporting entity has multiple contracts with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract.

Offsetting the fair values recognized for the derivative contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the balance sheet.

Offsetting the fair values recognized for the derivative contracts outstanding with a single counterparty results in the net fair value of the transactions reported as an asset or a liability in the balance sheet.

When applicable, we present the fair values of our derivative contracts under master netting agreements using a gross fair value presentation.

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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 September 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).

At March 31, 2022 and December 31, 2021, we did not have any financial instruments with fair values materially different from their carrying amounts (which excludes issuance costs, if applicable).

The carrying value of our Senior Secured Notes approximates fair value and is classified as a Level 2 fair value measurement.

The fair value of financial instruments is not indicative of the overall fair value of our assets and liabilities since financial instruments do not include all assets, including intangibles, and all liabilities.

Revenue Recognition

Revenue Recognition and Performance Obligations

We determine revenue recognition through the following steps:

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract;

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

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which we expect to be entitled.

Generally, control is transferred when the preparation for shipment of the product to a customer has been completed.

Most of our contracts contain a single performance obligation with the promise to transfer a specific product.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Most of our revenue is recognized from performance obligations satisfied at a point in time, however, we have a performance obligation to perform certain services that are satisfied over a period of time.

Revenue is recognized from this type of performance obligation as services are rendered and are based on the amount for which we have a right to invoice, which reflects the amount of expected consideration that corresponds directly with the value of the services performed.

Transaction Price Constraints and Variable Consideration

For most of our contracts with customers, the transaction price from the inception of a contract is constrained to a short period of time (generally one month) as these contracts contain terms with variable consideration related to both price and quantity.

These contract prices are often based on commodity indexes (such as NYMEX natural gas index) published monthly and the contract quantities are typically based on estimated ranges.

The quantities become fixed and determinable over a period of time as each sale order is received from the customer.

The nature of our contracts also gives rise to other types of variable consideration, including volume discounts and rebates, make-whole provisions, other pricing concessions, and short-fall charges.

We estimate these amounts based on the expected amount to be provided to customers, which result in a transaction price adjustment reducing revenue (net sales) with the offset increasing contract or refund liabilities.

These estimates are based on historical experience, anticipated performance and our best judgment at the time.

We reassess these estimates on a quarterly basis.

The aforementioned constraints over transaction prices in conjunction with the variable consideration included in our material contracts prevent a practical assignment of a specific dollar amount to performance obligations at the beginning and end of the period.

Therefore, we have applied the variable consideration allocation exception.

Future revenues to be earned from the satisfaction of performance obligations will be recognized when control transfers as goods are loaded and weighed or services are performed over the remaining duration of our contracts.

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 (including the deemed dividend discussed in Note 2) 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 prior to the Exchange Transaction and restricted stock units) participate in dividends declared on our common stock and are therefore considered to be participating securities.

Participating securities have the effect of diluting both basic and diluted income per common share during periods of net income.

For periods we incur a net loss, no loss is allocated to participating securities because they have no contractual obligation to share in our losses.

Diluted loss per common share is computed after giving consideration to the dilutive effect of our potential common stock instruments that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Recently Adopted Accounting Pronouncement

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

Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes.

The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes.

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

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.

Recently Issued Accounting Pronouncements

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This ASU will be effective for us on January 1, 2024;

however, early adoption is permitted beginning January 1, 2021.

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

however, early adoption was permitted beginning January 1, 2021.

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Redeemable Preferred Stocks Exchanged for Common Stock

Series E and Series F Redeemable Preferred Exchanged for Common Stock

In July 2021, we entered into a Securities Exchange Agreement (the “Exchange Agreement”) with LSB Funding (the “Holder”), an affiliate of Eldridge Industries, LLC and other affiliates (together “Eldridge”), which Exchange Agreement was voted on and approved by our stockholders at the Special Meeting as discussed in Note 1.

Pursuant to the terms of the Exchange Agreement, the Holder would exchange all of the shares of the Series E and Series F Redeemable Preferred into our common stock based on the liquidation preference (“Liquidation Preference”), at the time of the exchange, 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 and the participation rights value.

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 .

Changes in our Series E and Series F Redeemable Preferred (including the bifurcated embedded derivative discussed in Note 7) are as follows:

Series E Redeemable Preferred

Series F Redeemable Preferred

Redeemable preferred stocks

Accrued Liability-Embedded Derivative

Redeemable preferred stocks

(Dollars In Thousands)

Balance at December 31, 2020

Accretion relating to liquidation

preference on preferred stock

Accretion for discount and

issuance costs on preferred

Accumulated dividends

Change in fair value of

embedded derivative

Costs relating to exchange

Exchange of preferred stock

for common stock

Balance at September 30, 2021

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Redeemable Preferred Stocks Exchanged for Common Stock (continued)

Change of Control

As the result of the Exchange Transaction discussed above, Eldridge held over 60 % of our outstanding shares of common stock on the closing date.

As a result, a change of control (“CoC”) event occurred as defined in certain agreements, including the following:

Performance-Based Restricted Stock

Pursuant to the terms of the performance-based awards outstanding as of the CoC event, approximately 300,000 shares of restricted stock were issued including the satisfaction of certain performance conditions above the target performance level.

Such restricted stock is subject to the time-based vesting conditions set forth in the applicable award agreement and the 2016 Long Term Incentive Plan.

Due to the issuance of the restricted stock, we recognized an additional $ 1.7 million of stock-based compensation (classified as SG&A).

Cash-Based Awards

Pursuant to the terms of the cash-based awards outstanding as of the CoC event, all such awards immediately vested.

As a result of the vesting, we recognized an additional $ 2.0 million expense, of which $ 0.7 million is classified as cost of sales and $ 1.3 million is classified as SG&A.

At September 30, 2021 and December 31, 2020, our liability for these cash-based awards was approximately $ 5.4 million and $ 0.4 million, respectively.

Loss Per Common Share

Income (Loss) Per Common Share

Three Months Ended

Nine Months Ended

September 30,

(Dollars In Thousands, Except Per Share Amounts)

(In Thousands, Except Per Share Amounts)

Net income (loss)

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Dividend requirements on Series E Redeemable

Deemed dividend on Series E and Series F

Redeemable Preferred

Dividend requirements on Series B Preferred

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Accretion of Series E Redeemable Preferred

Numerator for basic and diluted net loss per common

Denominator for basic and diluted net income (loss) per

Numerator for basic and diluted net income (loss) per common

Denominator for basic net income (loss) per common

share - adjusted weighted-average shares (1)

Effect of dilutive securities:

Unvested restricted stock and stock units

Dilutive potential common shares

Denominator for diluted net income (loss) per

common share - adjusted weighted-average

Basic and diluted 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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loss Per Common Share (continued)

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

Three Months Ended

Nine Months Ended

September 30,

Restricted stock and stock units

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Stock options

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Current and Noncurrent Accrued and Other Liabilities

September 30,

(In Thousands)

Accrued interest

Accrued payroll and benefits

Current portion of operating lease liabilities

Accrued payroll and benefits

Accrued death and other executive benefits

Deferred revenue

Series E Redeemable Preferred - embedded derivative

Accrued health and worker compensation insurance claims

Less noncurrent portion

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Our long-term debt consists of the following:

September 30,

(In Thousands)

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rate of 8.32 % (C)

Secured Loan Agreement due 2025, with an interest

rate of 8.75% (D)

Secured Financing due 2025, with an interest

rate of 8.75% (E)

Unsecured Loan Agreement due 2022 (F)

Secured Promissory Note due 2021

rate of 8.75 % (D)

Secured Loan Agreement due 2025 (E)

Unamortized discount, net of premium and debt issuance

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Long-term debt due after one year, net

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt (continued)

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

At September 30, 2021 , our available borrowings under our Working Capital Revolver Loan were approximately $ 48.2 million , based on our eligible collateral, less outstanding letters of credit and loan balance.

(A) O ur revolving credit facility, as amended (the “Working Capital Revolver Loan”), provides for advances up to $ 65 million (the “Maximum Revolver Amount”), based on specific percentages of eligible accounts receivable and inventories and up to $ 10 million of letters of credit, the outstanding amount as of March 31, 2022 was $ 2.6 million, which reduces the available for borrowing under the Working Capital Revolver Loan.

At March 31, 2022 , our available borrowings under our Working Capital Revolver Loan were approximately $ 62.4 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 .

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The Financial Covenant, if triggered, is tested monthl y.

Also, the lender provided LSB a consent to close the Exchange Transaction discussed in Note 2 and to allow for a payment of dividends not to exceed $ 2 million to the holders of the Series B and Series D Preferred, if and when declared by the Board.

(B) The Senior Secured Notes were scheduled to mature on May 1, 2023 ;

however, on September 29, 2021, we distributed a notice of redemption, which notice was contingent to the closing of the new senior secured notes, with a redemption date of October 29, 2021 , and such redemption occurred with the closing of new senior secured notes as discussed in Note 13 – Subsequent Events.

Because the Senior Secured Notes were redeemed with the proceeds from the new senior secured notes and such redemption occurred prior to the issuance of these condensed consolidation financial statements, the carrying amount of the Senior Secured Notes remains classified as noncurrent.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt (continued)

(B) On October 14, 2021, LSB completed the issuance and sale of $ 500 million aggregate principal amount of the Notes of its 6.25 % Senior Secured Notes due 2028 (the “Notes”), pursuant to an indenture (the “Indenture”), dated as of October 14, 2021.

The Notes were issued at a price equal to 100 % of their face value.

On March 8, 2022, LSB completed the issuance and sale of an additional $ 200 million aggregate principal amount of the Notes (the “New Notes”), which were issued pursuant to the Indenture (the Notes together with the New Notes, the “Senior Secured Notes”).

The New Notes were issued at a price equal to 100 % of their face value, plus accrued interest from October 14, 2021 to March 7, 2022.

The Senior Secured Notes mature on October 15, 2028 .

Interest is to be paid in arrears on May 15 and October 15.

As it relates to the issuance of the Notes in October 2021, most of the proceeds from the Notes were used to purchase/redeem the previously outstanding $ 435 million aggregate principal amount of senior secured notes scheduled to mature in 2023 .

The remaining net proceeds were primarily used to pay related transaction fees.

This transaction was accounted for as an extinguishment of debt.

As a result, we recognized a loss on extinguishment of debt of approximately $ 20.3 million in 2021, primarily consisting of a portion of the contractual redemption premium paid and the expensing of unamortized debt issuance costs associated with the senior secured notes purchased/redeemed.

(C) El Dorado Chemical Company (“EDC”), one of our subsidiaries, 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 .

(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.

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

(D) 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.

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 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 during the second quarter of 2021 .

(E) During the first quarter of 2022 EDC’s secured loan agreement with an affiliate of LSB Funding was paid off resulting in a minimal loss on extinguishment of debt.

Commitments and Contingencies

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

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” i n Note 7 and is classified as a reduction to cost of sales.

At September 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 4.8 million MMBtus of natural gas.

These contracts extend through February 2022 at a weighted-average cost of $ 3.84 per MMBtu ($ 18.4 million) and a weighted-average market value of $ 5.55 per MMBtu ($ 26.6 million).

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

Settlements of Gain Contingencies - During 2020, EDC and certain vendors mediated settlements for EDC to recover certain costs associated with a nitric acid plant at our El Dorado Facility.

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

As a result, the recovery from these settlements recognized during 2020, includes approximately $ 5.7 million classified as a reduction to cost of sales and approximately $ 1.9 million classified as a reduction to PP&E.

During 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 at that time and recognized a realized gain of approximately $ 6.8 million, which includes the realized gain classified as a reduction to cost of sales .

At March 31, 2022, certain of our natural gas contracts qualify as normal purchases under GAAP and thus are not mark-to-market.

These contracts included volume purchase commitments with fixed costs of approximately 1.8 million MMBtus of natural gas.

Further, the contracts extend through April 2022 at a weighted-average cost of $ 5.06 per MMBtu ($ 9.2 million) and a weighted-average market value of $ 4.97 per MMBtu ($ 9.1 million).

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

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We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

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

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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 September 30, 2021, our accrued liabilities for environmental matters totaled approximately $ 0.5 million relating primarily to the matters discussed below.

As of March 31, 2022, our accrued liabilities for environmental matters totaled approximately $ 0.5 million 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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Environmental Protection Agency.

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

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

In 2017, the Pryor Chemical Company (“PCC”) filed a Permit Renewal Application for its Non-Hazardous Injection Well Permit at the Pryor Facility.

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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.

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

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

No liability has been established at March 31, 2022, in connection with this ADEQ matter.

Other Environmental Matters

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In addition, certain of our subsidiaries agreed to indemnify the buyer of such assets for these environmental matters.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

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.

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Our product liability insurance policies have aggregate limits of general liability totaling $ 100 million, with a self-insured retention of $ 250,000 , which retention limit has been met relating to the West Fertilizer matter.

In 2015, the trial court dismissed plaintiff’s negligenc e claims against us, and EDC based on a duty to inspect but allowed the plaintiffs to proceed on claims for design defect and failure to warn.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

In August 2015, the trial court dismissed plaintiff’s negligenc e claims against us, and EDC based on a duty to inspect but allowed the plaintiffs to proceed on claims for design defect and failure to warn.

Subsequently, we and EDC have entered into confidential settlement agreements (with approval of our insurance carriers) with several plaintiffs that had claimed wrongful death and bodily injury and insurance companies asserting subrogation claims for damages from the explosion.

While these settlements resolve the claims of a number of the claimants in this matter, we continue to be party to litigation related to the explosion.

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

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

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

As of March 31, 2022, no liability reserve has been established in connection with this matter.

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

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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 nine 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;

prejudgment and post- judgment interest expense totaling $ 1.4 million.

This judgement was accrued for at the time of the ruling.

We have filed a notice of intent to appeal, and the court entered a stay of the judgment pending appeal.

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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 September 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.

No liability was established at March 31, 2022 or December 31, 2021, in connection with the cross-claims in Part (2) of the matter, except for certain invoices held in accounts payable.

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

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Derivatives, Hedges and Financial Instruments

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

Natural Gas Contracts

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

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 6.

At September 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 fair value of the natural gas contracts included approximately $ 0.1 million (classified as a current asset) and approximately $ 1.3 million (classified as a current liability).

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.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivatives, Hedges and Financial Instruments (continued)

For the nine months ended September 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 nine months ended September 30, 2020, we recognized a $ 0.5 million gain and a loss of $ 0.2 , respectively .

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

Embedded Derivative

As discussed in Note 2, the Series E Redeemable Preferred was exchanged for our common stock during September 2021.

As a result, certain bifurcated embedded redemption features and participation rights value (“embedded derivative”) included as a part of the terms of the Series E Redeemable Preferred were extinguished.

P rior to the completion of the E xchange Transaction, the embedded derivative was classified as a liability.

At December 31, 2020, the fair value of the embedded derivative was approximately $ 1.0 million (classified as a noncurrent liability).

We estimated that the contingent redemption features had fair value since we estimate that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023, the earliest redemption date by the holder.

For certain other embedded features, we estimated no fair value based on our assessment that there was a remote probability that these features would 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 estimated redemptions during the same period and applying the effective dividend rate of the Series E Redeemable Preferred.

A t 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 $ 3.39 per share.

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

This derivative was 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 and nine months ended September 30, 2021, we recognized a loss of approximately $ 1.1 million and $ 2.3 million (including a realized loss of $ 3.3 million), respectively, due to the change in fair value of the embedded derivative through the date of the Exchange Transaction.

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

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

There was no Level 3 transfer activity for the nine months ended September 30, 2021.

Provision (benefit) for income taxes is as follows:

At March 31, 2022 and December 31, 2021, we had no outstanding natural gas contracts.

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

For the three months ended March 31, 2021, we recognized a gain of $ 2.7 million (includes a realized gain of $ 1.5 million), ( no ne for the three months ended March 31, 2022).

The gain is classified as a reduction of cost of sales.

Provision for income taxes is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In Thousands)

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Total Deferred

Provision (benefit) for income taxes

For the three and nine months ended September 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.

Provision for income taxes

For the three months ended March 31, 2022 and 2021, 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.

LSB INDUSTRIES, INC.

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Income Taxes (continued)

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.

Our estimated annual effective rate for 2022 includes the impact of permanent tax differences, limits on deductible compensation, valuation allowances and other permanent items.

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

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Valuation allowances are reflective of our quarterly analysis of the four sources of taxable income, including the calculation of the reversal of existing tax assets and liabilities, the impact of financing activities and our quarterly results.

Based on our analysis, we currently believe that it is more-likely-than-not that a portion of our federal deferred tax assets will not be able to be utilized.

However, we estimate a $ 7.9 million reduction in the related valuation allowance associated with these federal deferred tax assets will be recorded during 2021.

We have also determined it is more-likely-than-not that a portion of our state deferred tax assets will not be able to be utilized.

However, we estimate a $ 5.9 million reduction in the related valuation allowance associated with these state deferred tax assets will be recorded during 2021.

Based on our analysis, we currently believe that it is more-likely-than-not our federal deferred tax assets will be able to be utilized.

Thus, we estimate a $ 12.7 million reduction in the related valuation allowance associated with these federal deferred tax assets will be recognized throughout the year as part of the estimated annual effective tax rate applied to ordinary income.

We have determined it is more-likely-than-not that a portion of our state deferred tax assets will not be able to be utilized.

However, we estimate a $ 7.2 million reduction in the related valuation allowance associated with these state deferred tax assets will be recognized throughout the year as part of the estimated annual effective tax rate applied to ordinary income.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets.

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

The tax benefit for the nine months ended September 30, 2021 was $ 0.2 million ( 15 % benefit on pre-tax income).

The negative effective tax rate is primarily due to near break-even pre-tax book income and permanent tax differences including but not limited to PPP loan forgiveness and limits on deductible compensation, state tax law changes, and valuation allowances.

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

The effective tax rate is less than the statutory tax rate primarily due to the impact of the valuation allowances.

The tax provision for the three months ended March 31, 2022 was $ 11.1 million ( 15.9 % provision on pre-tax income).

The tax provision for the three months ended March 31, 2021 was minimal.

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

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

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With few exceptions, the 2018-2021 years remain open for all purposes of examination by the U.S.

Internal Revenue Service and other major tax jurisdictions.

Internal Revenue Service (“IRS”) and other major tax jurisdictions.

Additionally, the 2013-2017 years remain subject to examination for determining the amount of net operating loss and other carryforwards.

Non-Redeemable Preferred Stock

Series Non-Redeemable B Preferred – The 20,000 shares of Series B 12 % cumulative, convertible preferred stock (“Series B Preferred”), $ 100 par value, are convertible, in whole or in part, into 866,666 shares of our common stock ( 43.3333 shares of common stock for each share of preferred stock ) at any time at the option of the holder and entitle the holder to one vote per share.

The Series B Preferred provides for annual cumulative dividends of 12% ($ 12.00 per share) from date of issue, payable when and as declared.

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

Series Non-Redeemable D Preferred – The 1,000,000 shares of Series D 6 % cumulative, convertible Class C preferred stock (“Series D Preferred”) have no par value and are convertible, in whole or in part, into 325,000 shares of our common stock ( 0.325 share of common stock for 1 share of preferred stock ) at any time at the option of the holder.

Dividends on the Series D Preferred are cumulative and payable annually in arrears at the rate of 6% per annum ($ 0.06 per share) of the liquidation preference of $ 1.00 per share.

Each holder of the Series D Preferred shall be entitled to .875 votes per share .

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

See discussions concerning dividends on the Series B and Series D Preferred in Note 11 – Related Party Transactions.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated Net Sales

As discussed in Note 1, we primarily derive our revenues from the sales of various chemical products.

The following table presents our net sales disaggregated by our principal markets, which disaggregation is consistent with other financial information utilized or provided outside of our condensed consolidated financial statements:

We primarily derive our revenues from the sales of various chemical products.

The Company’s net sales disaggregation is consistent with other financial information utilized or provided outside of our condensed consolidated financial statements.

With our continued focus on optimizing our commercial strategy and product mix going forward we will report revenue by product as opposed to the end market.

Accordingly, this approach is reflected in disaggregated net sales, mirroring how the Company manages its net sales by product through contracts with customers.

The following table presents our net sales disaggregated by our principal product types :

Three Months Ended

Nine Months Ended

September 30,

(In Thousands)

Agricultural products

Industrial acids and other chemical products

Mining products

AN & Nitric Acid

Urea ammonium nitrate (UAN)

Total net sales

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net Sales (continued)

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 12 months at September 30, 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 $ 1.7 million and $ 2.5 million of contract liabilities as of September 30, 2021 and December 31, 2020, respectively.

For the three and nine months ended September 30, 2021, revenues of $ 0.6 million and $ 2.2 million, respectively, were recognized and included in the balance at the beginning of the respective period.

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

We had approximately $ 1.8 million and $ 1.6 million of contract liabilities as of March 31, 2022 and December 31, 2021, respectively.

For the three months ended March 31, 2022 and 2021, revenues of $ 1.4 million and $ 1.0 million, respectively, were recognized and included in the balance at the beginning of the respective period.

At March 31, 2022, we have remaining performance obligations with certain customer contracts, excluding contracts with original durations of less than one year and for service contracts for which we have elected the practical expedient for consideration recognized in revenue as invoiced.

The remaining performance obligations totals approximately $ 74 million, of which approximately 37 % of this amount relates to 2022 through 2024, approximately 30 % relates to 2025 through 2026, with the remainder thereafter.

Related Party Transactions

As discussed in Note 2, as the result of the stockholders’ approval, the closing of the Exchange Agreement occurred, and the Exchange Transaction was consummated on September 27, 2021.

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

As discussed in Note 1, our Board declared the Special Dividend that was paid through the issuance of approximately 9.1 million shares of common stock in October 2021, which amount included approximately 1.2 million shares to LSB Funding and approximately 0.7 million shares to the Golsen Holders.

In addition, pursuant to the anti-dilution terms of the Series B and Series D Preferred, the conversion ratio of the Series B Preferred increased to 43.3333 to 1 from 33.3333 to 1 and the Series D Preferred increased to 0.325 to 1 from 0.25 to 1 as discussed in Note 9.

The Golsen Holders and an immediate family member hold all outstanding shares of the Series B and Series D Preferred, which accumulated dividends on such shares totaled approxim ately $ 1.8 million at September 30, 2021 .

After considering the Special Dividend, LSB Funding holds approximately 54.4 million shares of our outstanding common stock, or 60 % of our outstanding common stock.

As of September 30, 2021, we have three separate outstanding financing arrangements by an affiliate of LSB Funding as discussed in footnotes (D), (E) and (F) of Note 5.

Also, an affiliate of LSB Funding held $ 50 million of our Senior Secured Notes discussed in footnote (B) of Note 5, which Senior Secured Notes were redeemed with the proceeds from the new senior secured notes as discussed in Note 13.

A n affiliate of LSB Funding holds $ 30 million of the new senior secured notes .

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2022, we have two separate outstanding financing arrangements by an affiliate of LSB Funding as discussed in footnotes (C) and (D) of Note 4.

An affiliate of LSB Funding holds $ 30 million of the New Notes.

Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:

Nine Months Ended

September 30,

Three Months Ended

(In Thousands)

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of property, plant and equipment

Series E and Series F Redeemable Preferred and related

dividends, accretion, and embedded derivative exchanged

for common stock, net of related costs in accounts payable

Extinguishment of PPP loan

Accounts payable associated with debt-related costs

Subsequent Events

Special Dividend

During October 2021, LSB paid the Special Dividend through the issuance of approximately 9.1 million shares of common stock as discussed in Note 1.

Senior Secured Notes due 2028

On October 14, 2021, LSB completed a private offering of $ 500 million in aggregate principal amount of its 6.250 % Senior Secured Notes due 2028 (the “Notes”).

The Notes were issued at a price equal to 100 % of their face value and pursuant to an indenture, dated as of October 14, 2021 (the “Indenture”), by and among the LSB, the subsidiary guarantors named therein, and a trustee and collateral agent.

In addition, the Notes were issued in a transaction exempt from the registration requirements under the Securities Act of 1933 (the “Securities Act”) and are being resold to eligible purchasers in reliance on Rule 144A under the Securities Act and to non-U.S.

persons in accordance with Regulation S under the Securities Act.

The Notes will mature on October 15, 2028 and rank senior in right of payment to all of our debt that is expressly subordinated in right of payment to the notes, and will rank pari passu in right of payment with all of our liabilities that are not so subordinated, including the Working Capital Revolver Loan .

LSB’s obligations under the Notes are jointly and severally guaranteed by the subsidiary guarantors named in the Indenture on a senior secured basis.

Interest on the Notes accrues at a rate of 6.250% per annum and is payable semi-annually in arrears on May 15 and October 15 of each year, beginning on May 15, 2022, to the holders of record on the immediately preceding May 1 and October 1.

LSB INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events (continued)

Pursuant to the Indenture, LSB may redeem the Notes at its option, in whole or in part, at certain redemption prices, including a “make-whole” premium, as set forth in the Indenture but also includes redemption requirements associated with a change of control.

In addition, the Indenture contains customary covenants that limit, among other things, LSB and certain of its subsidiaries’ ability to engage in certain transactions and also provides for customary events of default (subject in certain cases to customary grace and cure periods).

Generally, if an event of default occurs and is continuing, the trustee or holders of at least 25 % in principal amount of the then outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable.

This summary description of the Indenture and Notes does not purport to be complete and is qualified in its entirety by reference to the Indenture and the form of the Notes included as exhibits to our Current Report on Form 8-K, filed on October 15, 2021.

The net proceeds from the Notes were used to redeem $ 435 million in aggregate principal amount of the Senior Secured Notes, representing all of the Senior Secured Notes outstanding, to pay related transaction fees, expenses and premiums and, to the extent of any remaining net proceeds, will be used for general corporate purposes.

On September 29, 2021 , LSB issued a conditional notice of redemption to redeem all of the Existing Notes (the “Redemption”), conditioned on the closing of the offering of the Notes, which condition was satisfied as of October 14, 2021.

Also on October 14, 2021, LSB satisfied and discharged its obligations under the indenture governing the Senior Secured Notes by irrevocably depositing with the trustee for the Senior Secured Notes funds sufficient to redeem the Senior Secured Notes in full and to pay related fees and expenses.

The Redemption was completed by the trustee on October 29, 2021 .

We are currently evaluating the impact on our financial statements as the result of the debt financing transaction discussed above.

Dividends accrued on Series E Redeemable Preferred

Accretion of Series E Redeemable Preferred

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

What changed 10-Q

Item 1. Financial Statements