LSB INDUSTRIES, INC. 10-Q

Item 4. Controls and Procedures The Company maintains disclosure controls and procedures as defined in Rule 13a-15 under the Exchange Act designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2022. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022, at the reasonable assurance level. 29 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained within this report may be deemed “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933 (as amended, the “Securities Act”) and Section 21E of the Securities Exchange Act. All statements in this report other than statements of historical fact are Forward-Looking Statements that are subject to known and unknown risks, uncertainties and other factors which could cause actual results and performance of the Company to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “may,” “could” and similar expressions identify Forward-Looking Statements. Forward-Looking Statements contained herein include, but are not limited to, the following: • the impact of LSB Funding and its affiliate Eldridge holding a majority of our common stock; • our ability to invest in projects that will generate the best returns for our stockholders; • the impact from the COVID-19 pandemic; • our future liquidity outlook; • the outlook of our chemical products and related markets; • the amount, timing and effect on the nitrogen market from the recent nitrogen expansion projects; • the effect from the lack of non-seasonal volume; • our belief that competition is based upon service, price, location of production and distribution sites, and product quality and performance; • our outlook for the industrial and mining industries; • the availability of raw materials; • our ability to broaden the distribution of our products, including our ability to leverage our nitric acid production capacity at our El Dorado Facility; • our ability to develop a strategy to capitalize on ammonia opportunities; • changes in domestic fertilizer production; • the increasing output and capacity of our production facilities; • on-stream rates at our production facilities; • our ability to moderate risk inherent in agricultural markets; • the sources to fund our cash needs and how this cash will be used; • the ability to enter into the additional borrowings; • the anticipated cost and timing of our capital projects; • certain costs covered under warranty provisions; • our ability to pass to our customers cost increases in the form of higher prices; • our belief as to whether we have sufficient sources for materials and components; • annual natural gas requirements; • compliance by our facilities with the terms of our permits; • the costs of compliance with environmental laws, health laws, security regulations and transportation regulations; • our belief as to when Turnarounds will be performed and completed; • expenses in connection with environmental projects; • the effect of litigation and other contingencies; • the increase in interest expense; • our ability to comply with debt servicing and covenants; • our ab ility to meet debt maturities or redemption obligations when due; and • our beliefs as to whether we can meet all required covenant tests for the next twelve months. While we believe the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance such expectations will prove to have been correct. There are a variety of factors which could cause future outcomes to differ materially from those described in this report, including, but not limited to, the following: • changes in the ownership percentage of Eldridge and its affiliate, LSB Funding, resulting in them no longer holding a majority of our outstanding common stock; • changes associated with the COVID-19 pandemic and governmental and related responses; • changes in general economic conditions, both domestic and foreign; • material reductions in revenues; 30 • material changes in interest rates; • our ability to collect in a timely manner a material amount of receivables; • increased competitive pressures; • adverse effects on increases in prices of raw materials; • changes in federal, state and local laws and regulations, including environmental regulations, or in the interpretation of such; • changes in laws, regulations or other issues related to climate change; • releases of pollutants into the environment exceeding our permitted limits; • material increases in equipment, maintenance, operating or labor costs not presently anticipated by us; • the requirement to use internally generated funds for purposes not presently anticipated; • the inability to secure additional financing for planned capital expenditures or financing obligations due in the near future; • our substantial existing indebtedness; • material changes in the cost of natural gas and certain precious metals; • limitations due to financial covenants; • changes in competition; • the loss of any significant customer; • changes in operating strategy or development plans; • our inability to adequately evaluate potential acquisitions of strategic assets or companies; • an inability to fund the working capital and expansion of our businesses; • our inability to improve our capital structure and overall cost of capital; • changes in the production efficiency of our facilities; • adverse results in our contingencies including pending litigation; • unplanned downtime at one or more of our chemical facilities; • changes in production rates at any of our chemical plants; • an inability to obtain necessary raw materials and purchased components; • material increases in cost of raw materials; • material changes in our accounting estimates; • significant problems within our production equipment; • fire or natural disasters; • an inability to obtain or retain our insurance coverage; • difficulty obtaining necessary permits; • difficulty obtaining third-party financing; • risks associated with proxy contests initiated by dissident stockholders; • changes in fertilizer production; • reduction in acres planted for crops requiring fertilizer; • decreases in duties for products we sell resulting in an increase in imported products into the U.S.; • adverse effects from regulatory policies, including tariffs; • volatility of natural gas prices; • weather conditions; • increases in imported agricultural products; and • other factors described in “Risk Factors” in our Form 10-K for the year ended December 31, 2021, as amended by the Form 10-K/A filed on March 25, 2022 . Given these uncertainties, all parties are cautioned not to place undue reliance on such Forward-Looking Statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the Forward-Looking Statements contained herein to reflect future events or developments. 31 The following is a list of terms used in this report. ADEQ - The Arkansas Department of Environmental Quality. AN - Ammonium nitrate. ASU - Accounting Standard Update. CAO - A consent administrative order. Cherokee Facility - Our chemical production facility located in Cherokee, Alabama. Chevron - Chevron Environmental Management Company. COVID-19 - The novel coronavirus disease of 2019. EDA - El Dorado Ammonia L.L.C. EDC - El Dorado Chemical Company. El Dorado Facility - Our chemical production facility located in El Dorado, Arkansas. Eldridge - Eldridge Industries, LLC, an affiliate of LSB Funding Environmental and Health Laws - Numerous federal, state and local environmental, health and safety laws. EUC - Environmental Use Control. FASB - Financial Accounting Standards Board. Financial Covenant - Certain springing financial covenants associated with the working capital revolver loan. Global - Global Industrial, Inc., a subcontractor asserting mechanics liens for work rendered to LSB and EDC. Hallowell Facility - A chemical facility previously owned by two of our subsidiaries located in Kansas. HDAN - High density ammonium nitrate prills used in the agricultural industry. Holder - LSB Funding L.L.C., the holder of all of the shares of the Series E and Series F Redeemable Preferred. Indenture - The agreement governing the 6.25% senior secured notes. KDHE - The Kansas Department of Health and Environment. LDAN - Low density ammonium nitrate prills used in the mining industry. Leidos - Leidos Constructors L.L.C. LSB - LSB Industries, Inc. LSB Funding - LSB Funding L.L.C. MD&A - Management’s Discussion and Analysis of Financial Condition and Results of Operations. New Notes - The senior secured notes issued March 8, 2022 with an interest rate of 6.25%, which mature in October 2028. Note - A note in the accompanying notes to the condensed consolidated financial statements. Notes - The senior secured notes issued on October 14, 2021 with an interest rate of 6.25%, which mature in October 2028. NPDES - National Pollutant Discharge Elimination System. ODEQ - The Oklahoma Department of Environmental Quality. PAR - Permit Appeal Resolution. PCC - Pryor Chemical Company. PP&E - Plant, property and equipment. Pryor Facility - Our chemical production facility located in Pryor, Oklahoma. SEC - The U.S. Securities and Exchange Commission. Secured Financing due 2023 - A secured financing arrangement between EDC and an affiliate of LSB Funding L.L.C. which matures in June 2023. Secured Financing due 2025 - A secured financing arrangement between EDA and an affiliate of LSB Funding L.L.C. which matures in August 2025. Senior Secured Notes - The Notes and New Notes, taken together due on October 15, 2028 with a stated interest rate of 6.25%. SG&A - Selling, general and administrative expense. Turnaround - A planned major maintenance activity. UAN - Urea ammonium nitrate. 32 U.S. - United States. U.S. GAAP - U.S. Generally Accepted Accounting Principles. USDA - United States Department of Agriculture. WASDE - World Agricultural Supply and Demand Estimates Report. West Fertilizer - West Fertilizer Company. Working Capital Revolver Loan - Our secured revolving credit facility. 2020 Crop - Corn crop marketing year (September 1 - August 31), which began in 2019 and ended in 2020 and primarily relates to corn planted and harvested in 2019. 2021 Crop - Corn crop marketing year (September 1 - August 31), which began in 2020 and ended in 2021 and primarily relates to corn planted and harvested in 2020. 2022 Crop - Corn crop marketing year (September 1 - August 31), which began in 2021 and will end in 2022 and primarily relates to corn planted and harvested in 2021. 33 PART II OTHER INFORMATION