LSB Industries
Annual Report 2021

Plain-text annual report

2021 ANNUAL REPORT 2021 President’s Letter to Shareholders Dear Fellow Shareholders, As we report one of the most significant years in the history of LSB Industries, it’s critical for us to pause for a moment and reflect on the life-changing events taking place around the world. Many have suffered, or are suffering greatly, whether through the horror of war, the tragedy of the COVID pandemic, the devastation of a natural disaster or some other catastrophic event. While we remain diligently focused on doing the work of the company for the benefit of all our stakeholders, we are also cognizant of our interconnectedness with the world around us and our thoughts and prayers are with all who have been affected by these events. As we concluded 2020, we felt very optimistic, as it did to most of the country, that the worst of the COVID pandemic was behind us. It wasn’t long, however, before the Delta and Omicron variants made it clear that COVID was going to remain a major concern throughout 2021. The difficulties of the pandemic were further complicated by new supply chain issues and contractor labor shortages. By all counts, 2021 was yet another year where the business environment in which we operate was anything but normal. In the face of these challenges, the LSB team once again rose above the difficulties brought on by the pandemic. For a second consecutive year, our teams met the challenge of operating our plants safely and efficiently in a COVID environment, enabling us to capitalize on the favorable pricing trends for our products that unfolded in our end markets and deliver record profitability for the year. Further, we executed a series of transactions in the fourth quarter that simplified our previously expensive capital structure and alleviated a significant constraint to our growth, which has proven immediately transformative to our Company. Looking forward through the balance of 2022, market fundamentals are expected to remain strong across our agricultural, industrial and mining end markets, which, combined with several company-specific growth initiatives we have underway, and our significantly improved balance sheet, leads us to anticipate another year of strong bottom-line improvement. 2021 Results Safety is our Top Priority. Over the past several years, LSB has undergone a fundamental evolution in the way our entire team thinks about safety and operations. In our pursuit of excellence, we are committed to best-in-class performance and in 2021, we were successful on several fronts. First and foremost was our continued response to the ongoing COVID pandemic. Our Environmental, Health & Safety and Human Resources teams worked diligently throughout the year to provide strong, consistent guidance and oversight to employees across all our locations. They effectively managed the execution of our programs and protocols to ensure we kept our teams as safe as possible, allowing us to keep our facilities staffed and running. Our total recordable incident rate for 2021 was 1.15 incidents per 200,000-man hours. While this is slightly better than the industry average, our goal will always be zero. Our entire team has embraced the cultural change required to be successful with our “Goal Zero” initiative. We want all our employees and contractors to go home safe every day and are committed to providing a safe and healthy workplace by implementing high standards to minimize potential risks to our people, communities, and the environment. Safety performance is typically indicative of how effectively and efficiently a manufacturing company operates its facilities. A best-in-class safety culture and performance will typically translate into a best-in-class manufacturing performance. We know it can be done. Our Baytown, Texas facility, which we operate for a large chemical producer, has recently surpassed the six-year mark without a recordable safety incident. This achievement represents a best-in-class model and is what we’re working toward with our three LSB-owned facilities. In addition, our agricultural retail sites are approaching two years without a recordable event, a reflection of the diligence of our teams in those locations. There’s no question I am proud of what our team has accomplished over the past several years. When it comes to safety and the health and well-being of the lives we touch every day, however, there is no finish line, there is just the daily effort to be perfect, which is what we will always be continually pursuing. Financial Performance Overview We delivered record results in 2021. Our net sales were $556.2 million with adjusted EBITDA(1) of $191.0 million, compared to $351.3 million and $65.5 million in 2020, respectively. Additionally, we generated adjusted earnings per share of $0.85 as compared to a loss of $1.37 in 2020. Our strong performance reflects a confluence of positive factors including favorable trends in selling prices across all of our products and end markets coupled with our success in operating our facilities reliably and selling everything we produced thanks to the substantial enhancements we made to our commercial efforts to start off the year. Adjusted EBITDA(1) s n o i l l i m $ $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $- $69 $65 $67 $111 $84 $191 Expect continued growth in adjusted EBITDA in 2022 driven by strong product demand and pricing, continued operational improvements and margin enhancement projects FY2019 FY2020 TTM 3/31/21 TTM 6/30/21 TTM 9/30/21 FY2021 FY2022E (1) This is a Non-GAAP measure. Refer to the Non-GAAP reconciliation section. 2021 Highlights Include: Increased Product Sales Our product sales increased significantly compared the prior year, due largely to strong year-over-year increases in the selling prices of all our products. This, despite a 40-day turnaround at our Cherokee facility, as compared to 2020 when we had no turnarounds at any of our plants. With respect to our agricultural business, the price of corn traded at or above eight-year highs for much of the year. The robust corn pricing reflected multiple factors which have constricted global corn supplies. The attractive corn prices acted as an incentive for farmers to plant as much corn as possible, translating into nearly 93 million acres planted in 2021, according to USDA estimates and significant demand for nitrogen fertilizers in order to maximize the yield of those acres. For 2022 we’re expecting a similar, albeit modestly lower level of plantings of between 90 million and 92 million acres, which should continue to support strong demand for fertilizers given the continuing high prices for corn that we’re seeing thus far in 2022. 5 Year Corn Prices $8 $6 $4 $2 $0 Feb-17 Feb-18 Feb-19 Feb-20 Feb-21 Feb-22 (1) Sources: USDA, Federal Reserve Economic Data Along with the strong corn market fundamentals that emerged in 2021, nitrogen prices were driven to multi-year highs by constraints on global ammonia production resulting from a variety of factors including weather related events, the delay of facility turnarounds from 2020 to 2021 and sharp increases in the price of natural gas, which prompted cuts to production at a number of facilities across Europe. While gas prices in the U.S. increased significantly over the past year, domestic prices have only seen a minor increase relative to the inflation that Europe has experienced, creating an advantage for North American nitrogen producers. As of the writing of this letter, the spread in natural gas prices between the U.S. and Europe has widened further, which we expect to result in persistent strong pricing for nitrogen products through 2022 and into 2023. $60 $50 $40 $30 $20 $10 $0 International Natural Gas Benchmarks - Front Month ($/MMBtu) Henry Hub TTF NBP 0 2 - n a J 0 2 - b e F 0 2 - r a M 0 2 - r p A 0 2 - y a M 0 2 - n u J 0 2 - l u J 0 2 - g u A 0 2 - p e S 0 2 - t c O 0 2 - v o N 0 2 - c e D 1 2 - n a J 1 2 - b e F 1 2 - r a M 1 2 - r p A 1 2 - y a M 1 2 - n u J 1 2 - l u J 1 2 - g u A 1 2 - p e S 1 2 - t c O 1 2 - v o N 1 2 - c e D 2 2 - n a J Our industrial business was also a meaningful source of our growth in sales and profits in 2021. This was due in large part to the increase in sales volumes of our nitric acid as we ramped up a sizeable multi-year contract with a large chemical company that began at the beginning of the year. Key drivers to demand for nitric acid include the homebuilding sector which has seen housing starts near 15-year highs, as well as the auto and power generation markets. US New Housing Starts (1) (thousands) 1800 1600 1400 1200 1000 800 600 400 2 1 - c e D 3 1 - r p A 3 1 - g u A 3 1 - c e D 4 1 - r p A 4 1 - g u A 4 1 - c e D 5 1 - r p A 5 1 - g u A 5 1 - c e D 6 1 - r p A 6 1 - g u A 6 1 - c e D 7 1 - r p A 7 1 - g u A 7 1 - c e D 8 1 - r p A 8 1 - g u A 8 1 - c e D 9 1 - r p A 9 1 - g u A 9 1 - c e D 0 2 - r p A 0 2 - g u A 0 2 - c e D 1 2 - r p A 1 2 - g u A 1 2 - c e D Monthly Starts 12-Month Rolling Avg. 1 Housing starts obtained from Federal Reserve Economic Data As it relates to our mining products, production of construction aggregates – including crushed stone – has increased over the past decade driven by infrastructure repair, upgrade and expansion and increased commercial and residential development. Additionally, copper prices sit near all-time highs above $4.75 per pound as a result of rising demand from various end markets, including electric vehicle (EV) production. This should translate into increased copper mine production in the coming years as demand for EV’s continues to grow. U.S. Crushed Stone Production (2) s n o T c i r t e M n o i l l i M 1,600 1,500 1,400 1,300 1,200 1,100 1,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2 Crushed stone production obtained from USGS.gov The Conference Board is forecasting full year 2022 GDP expansion of approximately 3.0%, which represents a healthy rate of economic growth, resulting in what we expect will be continued strong demand for our products. Our industrial business tends to be cost-plus and contract-based, which gives us good visibility into our sales for upcoming quarters and insulates us from input cost inflation, particularly for natural gas and enabling us to maintain our favorable margins. Significantly Improved Capital Structure Toward the end of 2021, we completed a series of steps that transformed the financial foundation of our Company and positioned LSB to enter a new phase of growth and value creation. In late September, we closed on a transaction with Eldridge Industries, the former holder of $310 million of LSB Series E preferred stock, to exchange those preferred shares for shares of our common stock. Upon the removal of this liability from our balance sheet, we received credit rating upgrades from the major rating agencies which enabled us to proceed in refinancing our debt through an offering of new senior notes. Both transactions have helped us significantly reduce our cost of capital and bolster our liquidity. We recently followed this up with an additional debt offering in March, securing another $200 million at very attractive rates. We now have the flexibility to pursue earnings and cash flow growth opportunities through both organic initiatives and accretive acquisitions. Looking Ahead As we progress into 2022, we find ourselves better positioned and with more opportunity to grow than we have at any time in our Company’s history. We believe the favorable trends in end market demand and pricing for our products to continue through all of this year and into next year. Our significantly improved balance sheet affords us with the ability to make investments that can help us increase our production volume and expand the profitability of the products we sell. In order to capitalize on this broad range of opportunity, we have established four priorities for 2022. • Advancing safety programs already underway and implementing new ones • Investing capital to promote safe, reliable operations and expand production volume . • Evaluating Blue Ammonia projects to sequester CO2, with attractive economics • Assessing Green Ammonia projects to produce ammonia using zero CO2 feedstock and energy Becoming Best in Class Operator Optimizing Product Mix • Full year sold-out position in nitric acid • Investing $10-$15 million for margin enhancement projects to optimize storage and distribution • Evaluate de-bottlenecking Pursuing Accretive Acquisitions Advancing Low CO2 and Clean Energy Strategy • Geographic expansion • Extend existing product line • Leverage existing ammonia capacity Becoming a Best-in-Class Operator The guiding principle in the way we run our company is to protect what matters, and what matters most are our people. The health and safety of our employees is and will always be paramount to everything we do, and in 2022 we’re taking our efforts to the next level as we advance the safety programs that we have currently underway, implement new ones, and invest capital at all three of our facilities to promote safe and reliable operations. We have several plant reliability initiatives underway that we expect will enable us to produce greater volumes of product, lower our cost of production and increase our profitability. These initiatives include enhancing our leadership at the facility level, continuing to mature our operating and maintenance procedures, and leveraging the technology investments we’ve made so we can better monitor our equipment and plant performance. As part of these efforts, we will conduct a 24-day turnaround at our El Dorado facility and a 30-day turnaround at our Pryor facility during the third quarter of the year which we expect to lead to improved operating performance at both sites. Two-Year Rolling Average Annual Ammonia Production (1) 800,000 790,000 780,000 770,000 s n o T 760,000 750,000 740,000 730,000 720,000 2019 averages impacted by turnarounds at each location including an extensive 67-day turnaround at our Pryor facility 2018 2019 2020 2021 Two-Year Period Ended 12/31 (1) 2 – Year rolling average annual ammonia production is the total tons produced of the stated year and preceding year. Optimizing our Product Mix The continued strategic distribution and optimization of our product mix provides an excellent opportunity to expand our profitability in 2022. Our 2021 results benefitted from our ramping up on the sizeable nitric acid contract we commenced during the first quarter. This year we will recognize a full year of sales under this agreement, which puts us in a sold-out position for nitric acid at our El Dorado facility – an advantageous situation from a margin perspective given the operating leverage inherent in our business model. In addition, we’re targeting approximately $15 million of capital investment for margin enhancement projects to optimize our storage and distribution capabilities, as well as to upgrade additional ammonia into higher value downstream products. Lastly, during the year we plan to evaluate potential debottlenecking projects at our facilities that would expand our production capacity and increase our sales volumes. We believe through debottlenecking, we have the ability to increase production at our plants between 20% - 40%, depending on the plant. Pursuing Accretive Acquisitions In addition to expanding volumes and profits from our existing portfolio of facilities, we will pursue accretive M&A opportunities that have overlap to our existing business and where we would expect to be able to realize operating synergies. I believe that our current leadership team and the systems we have in place can effectively manage a meaningfully larger business. ESG - Advancing Low Carbon Ammonia and Clean Energy At LSB, we strongly believe our industry is on the threshold of becoming a major contributor to the global effort to reduce carbon emissions. Through the production of Blue Ammonia, which involves capturing and storing CO2 emissions from the ammonia manufacturing process, and Green Ammonia, which is emerging as one of the most feasible sources of hydrogen for use as a zero-CO2 emission energy source. Many new applications for ammonia are currently being evaluated by a variety of industries, including its use as a fuel source for the marine industry. The marine industry, a major emitter of CO2, currently consumes tremendous quantities of diesel, marine gasoil and bunker fuel in their large cargo ships and other vessels. Ammonia can help the industry significantly reduce the CO2 emissions of the tens of thousands of these ships, that are crossing our oceans at any given time. The economic opportunity for Blue and Green ammonia is significant and our existing knowledge in ammonia manufacturing, handling, storage and logistics position us extremely well to become a significant player in this arena. We are convinced of our ability to create long-term value, both socially and financially as we help create a more sustainable, environmentally friendly world. Our current focus is on performing feasibility studies at our facilities to determine the infrastructure and plant modifications needed to produce either Blue or Green ammonia in support of both our clean energy strategy and medium and long-term sustainability objectives. We anticipate the commencement of one or more feasibility studies, after which we will present our plans to our Board of Directors with approval targeted by the end of the second quarter of this year. In Conclusion 2021 was a pivotal year in the life of our Company. Our enhanced operational discipline, more reliable manufacturing facilities and the actions we took to recapitalize our balance sheet, combined with a historically strong market for our products translated into record financial results for the Company. With the free cash flow generated in 2021 and our significantly lower cost of capital, we are extremely excited to have the financial flexibility to pursue a number of earnings and cash flow growth opportunities in the form of further improvement of our operating rates and margin and volume enhancement investments along with the acquisition of new businesses and/or assets. In addition, in 2022 we will intensify our focus on planning and implementing our decarbonization activities, including the production of low carbon/no carbon ammonia. Putting all of this together, we believe we have the opportunity to deliver continued strong growth in profitability in 2022 and increased value for our shareholders, while at the same time, making a positive impact on our environment and the lives of our employees and the communities in which we operate. Mark Behrman President & Chief Executive Officer, April 2022 Forward-Looking Statements Statements in this letter that are not historical are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance including the effects of the COVID-19 pandemic and anticipated performance based on our growth and other strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or actual achievements to differ materially from the results, level of activity, performance or anticipated achievements expressed or implied by the forward-looking statements. Significant risks and uncertainties may relate to, but are not limited to, business and market disruptions related to the COVID-19 pandemic, market conditions and price volatility for our products and feedstocks, as well as global and regional economic downturns, including as a result of the COVID-19 pandemic, that adversely affect the demand for our end-use products; disruptions in production at our manufacturing facilities; and other financial, economic, competitive, environmental, political, legal and regulatory factors. These and other risk factors are discussed in the Company’s filings with the Securities and Exchange Commission (SEC). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Unless otherwise required by applicable laws, we undertake no obligation to update or revise any forward-looking statements, whether because of new information or future developments. LSB Industries, Inc. Non-GAAP Reconciliations This news release includes certain “non-GAAP financial measures” under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our consolidated financial statements. EBITDA and Adjusted EBITDA Reconciliation EBITDA is defined as net income (loss) plus interest expense, less gain (loss) on extinguishment of debt, plus depreciation and amortization (D&A) (which includes D&A of property, plant and equipment and amortization of intangible and other assets), plus provision (benefit) for income taxes. Adjusted EBITDA is reported to show the impact of one time/non-cash or non-operating items-such as, loss (gain) on sale of a business and/or other property and equipment, one-time income or fees, certain fair market value (FMV) adjustments, non-cash stock- based compensation, and consulting costs associated with reliability and purchasing initiatives (Initiatives). We historically have performed turnaround activities on an annual basis; however, we have moved towards extending Turnarounds to a two or three-year cycle. Rather than being capitalized and amortized over the period of benefit, our accounting policy is to recognize the costs as incurred. Given these Turnarounds are essentially investments that provide benefits over multiple years, they are not reflective of our operating performance in a given year. We believe that certain investors consider EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. In addition, we believe that certain investors consider adjusted EBITDA as more meaningful to further assess our performance. We believe that the inclusion of supplementary adjustments to EBITDA is appropriate to provide additional information to investors about certain items. EBITDA and adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to EBITDA and adjusted EBITDA for the periods indicated. Adjusted EBITDA margin is calculated by taking adjusted EBITDA divided by Net Sales. Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per share have been adjusted for the impact of the closing of the Exchange Transaction on September 27, 2021 as well as the one time/non-cash or non-operating items referred to in the above section relating to Adjusted EBITDA. LSB Industries, Inc. Non-GAAP Reconciliations (continued) Net Income (loss) Plus: Interest expense Depreciation and amortization Loss on extinguishment of debt Benefit for income taxes EBITDA Stock-based compensation Unrealized loss (gain) on commodity contracts Legal fees (Leidos) Loss on disposal of assets Fair market value adjustment on preferred stock embedded derivatives Consulting costs associated with reliability and purchasing initiatives Change of Control Turnaround costs Adjusted EBITDA Twelve Months Ended December 31, 2021 2020 (In Thousands) $ 43,545 ($61,911) 49,378 69,943 10,259 51,115 70,841 — (4,556) (4,749) $168,569 $ 55,296 5,516 (1,205) 1,894 823 2,258 — 3,223 9,953 1,761 1,205 5,715 921 (55) 558 — 76 $191,031 $ 65,477 Twelve Months Ended December 31, 2021 2020 (In Thousands, Except Per Share Amounts) Numerator: Net income (loss) attributable to common stockholders $(220,002) $(99,419) Adjustments for Exchange Transaction: Dividend requirements on Series E Redeemable Preferred Deemed dividend on Series E and Series F Redeemable Preferred Accretion of Series E Redeemable Preferred Adjusted net income (loss) attributable to common stockholders, excluding Exchange Transaction Other Adjustments: Stock-based compensation Change of control Noncash loss (gain) on natural gas contracts Legal fees (Leidos) Loss on disposal of assets FMV adjustment on preferred stock embedded derivative Consulting costs associated with reliability and purchasing initiatives Turnaround costs Net loss on extinguishments of debt 29,914 35,182 231,812 — 1,523 2,026 43,247 (62,211) 5,516 3,223 (1,205) 1,894 823 2,258 — 9,953 10,259 1,761 — 1,205 5,715 921 (55) 558 76 — Adjusted net income (loss) attributable to common stockholders, excluding Exchange Transaction and other adjustments $ 75,968 $(52,030) Denominator: Adjusted weighted-average shares for basic net income (loss) per share and for adjusted net income (loss) per share, excluding Exchange Transaction (1) 49,963 36,664 Adjustment: Unweighted shares, including unvested restricted stock subject to forfeiture 39,830 1,187 Outstanding shares, net of treasury, at period end for adjusted net income (loss) per share, excluding Exchange Transaction and other adjustments 89,793 37,851 Basic net income (loss) per common share Adjusted net income (loss) per common share, excluding Exchange Transaction Adjusted net income (loss) per common share, excluding Exchange Transaction and other adjustments $ $ $ (4.40) $ (2.71) 0.87 $ (1.70) 0.85 $ (1.37) (1) Excludes the weighted-average shares of unvested restricted stock that are subject to forfeiture [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] 2021 FORM 10-K [THIS PAGE INTENTIONALLY LEFT BLANK] (cid:56)(cid:49)(cid:44)(cid:55)(cid:40)(cid:39) (cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:54) (cid:54)(cid:40)(cid:38)(cid:56)(cid:53)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54) (cid:36)(cid:49)(cid:39) 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is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:4) (cid:60)es (cid:3) No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:4) (cid:60)es (cid:3) No Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (cid:3) (cid:60)es (cid:4) No Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ((cid:134) 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports submit such files). (cid:3) (cid:60)es (cid:4) No Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer (cid:3) (cid:4) Non-accelerated filer (cid:4) Smaller reporting company Emerging growth company (cid:3) (cid:4) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4) Indicate by check mark whether the registrant has filed a reportrr on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firmrr that prepared or issued its audit report. (cid:3) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:4) (cid:60)es (cid:3) No The aggregate market value of the Registrant’s voting common equity held by non-affiliates of the Registrant, computed by reference to the price at which the voting common stock was last sold as of (cid:45)une 30, 2021, was approximately $141 million. As a result, the Registrant is an accelerated filer as of December 31, 2021. For purposes of this computation, shares of the Registrant’s common stock beneficially owned by each executive officer and director of the Registrant and LSB Funding LLC were deemed to be owned by affiliates of the Registrant as of (cid:45)une 30, 2021. Such determination should not be deemed an admission that such executive officers, directors or entity of our common stock are, in facff iates of the Registrant or affiliates as of the date of this Form 10-K. t, affilff qq ff As of February 18, 2022, the Registrant had 89,564,162 shares of common stock outstanding. DOCUMENTS INCORPORATED B(cid:60) REFERENCE Portions of the Registrant’s proxy statement for its annual meeting of stockholders will be filed with the Securities and Exchange Commission within 120 days after the end of its 2020 fiscal year, are incorporated by reference in Part III. Auditor Firm Id(cid:29) 00042 Auditor Name(cid:29) Ernst (cid:9) (cid:60)oung LLP Auditor Location(cid:29) Oklahoma City, OK, United States Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART I PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. (cid:62)RESER(cid:57)ED(cid:64) Item 7. Management(cid:10)s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 9C. Disclosure Regarding Foreign (cid:45)urisdictions that Prevent Inspections PART III (Items 10, 11, 12, 13, and 14) The information required by Part III, shall be incorporated by reference from our definitive proxy statement to be filed pursuant to Regulation 14A which involves the election of directors that we expect to be filed with the Securities and Exchange Commission not later than 120 days after the end of its 2021 fiscal year covered by this report. r Item 15. Exhibits and Financial Statement Schedules PART I(cid:57) Page 3 9 24 25 26 26 26 26 27 42 42 42 43 44 44 45 45 2 (cid:44)(cid:55)(cid:40)(cid:48) (cid:20)(cid:17) (cid:37)(cid:56)(cid:54)(cid:44)(cid:49)(cid:40)(cid:54)(cid:54) (cid:50)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90) (cid:51)(cid:36)(cid:53)(cid:55) (cid:44) All references to “LSB Industries,” “LSB,” “the Company,” “we,” “us,” and “our” refer to LSB Industries, Inc. and its subsidiaries, except where the context makes clear that the reference is only to LSB Industries, Inc. itself and not its subsidiaries. Notes referenced throughout this document refer to consolidated financial statement footnote disclosures that are found in Item 8. The Company was formed in 1968 as an Oklahoma corporation and became a Delaware corporation in 1977. We manufacture and market chemical products for the agricultural, industrial and mining markets. We own and operate three multi plant facilities in El “Cherokee Facility”), and Pryor, Oklahoma (the “Pryor Dorado, Arkansas (the “El Dorado Facility”), Cherokee, Alabama Facility”), and we operate a facility on behalf of Covestro LLC (“Covestro”) in Baytown, Texas (the “Baytown Facility”). Our products are sold through distributors and directly to end customers throughout the United States and parts of Mexico and Canada. (thet a (cid:50)(cid:88)(cid:85) (cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) Our business manufactures products for three principal markets(cid:29) • • • Agricultural Markets: ammonia, fertilizer grade ammonium nitrate (“AN” and “HDAN”) and urea ammonia nitrate (“UAN”)(cid:30) Industrial Markets: high purity and commercial grade ammonia, high purity AN, sulfuric and regular nitric acid, mixed nitrating acids, carbon dioxide, and diesel exhaust fluid (“DEF”)(cid:30) and ff acids, concentrated, blended Mining Markets: industrial grade AN (“LDAN”) and AN solutions. The products we manufacture at our facilities are primarily derived from natural gas (a raw material feedstock). Our facilities and production processes have been designed to produce products that are marketable at nearly each stage of production. This design has allowed us to develop and deploy a business model optimizing the mix of products to capture the value opportunities in the end markets we serve with a focus on balancing our production. The chart below highlights representative products and applications in each of our end markets. (cid:40)(cid:81)(cid:71) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) (cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) Agricultural UAN, HDAN and ammonia Industrial Nitric acid, metallurgical and commercial grade ammonia, sulfuric acid, diesel exhaust fluid and other urea solutions, Specialty E-2 ammonium nitrate and CO2 Mining LDAN, AN solution and HDAN Fertilizer and fertilizer blends for corn and other crops(cid:30) NPK fertilizer blends Semi-conductor and polyurethane intermediates, ordnance(cid:30) Pulp and paper, alum, water treatment, metals and vanadium processing(cid:30) Power plant emissions abatement, water treatment, refrigerants, metals processing(cid:30) Exhaust stream additive, horticulture (cid:18) greenhouse applications(cid:30) refrigeration Ammonium nitrate fuel oil (ANFO) and specialty emulsions for mining applications, surface mining, quarries, and construction 3 The following table summarizes net sales information relating to our products(cid:29) Percentage of consolidated net sales(cid:29) Agricultural products Industrial products Mining products (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) 48% 42% 10% 100% 51% 38% 11% 100% For information regarding our net sales, operating results and total assets for the past three fiscal years, see the Consolidated Financial Statements included in this report. (cid:50)(cid:88)(cid:85) (cid:54)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92) We pursue a strategy of balancing the sale of product as fertilizer into the agriculture markets at spot prices or short duration pre-sales and developing industrial and mining customers that purchase substantial quantities of products, primarily under contractual obligations and(cid:18)dd or pricing arrangements that generally provide for the pass through of some raw material and other manufacturing costs. We believe this product and market diversification strategy allows us to have more consistent levels of production compared to some of our competitors and helps reduce the volatility risk inherent in the prices of our raw material feedstock and(cid:18)dd or the changes in demand for our products. The strategy of developing industrial and mining customers helps to moderate the risk inherent in the agricultural markets where spot sales prices of our agricultural products may not have a correlation to the natural gas feedstock costs but rather reflect market conditions for like and competing nitrogen sources. This volatility of sales pricing in our agricultural products may, from time to time, compromise our ability to recover our full cost to produce the product. Additionally, the lack of sufficient non-seasonal agricultural sales volume to operate our manufacturing facilities at optimum levels can preclude us from balancing production and storage capabilities. Looking forward, we remain focused on upgrading margins by maximizing downstream production. Our strategy calls for further development of industrial customers who assume the volatility risk associated with the raw material costs and mitigate the effects of seasonality in the agricultural sector. rr Our strategy also includes evaluating and pursuing acquisitions of 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. (cid:46)(cid:72)(cid:92) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:44)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86) (cid:73)(cid:82)(cid:85) (cid:21)(cid:19)(cid:21)(cid:21) As discussed in more detail under “Key Operating Initiatives for 2022” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD(cid:9)A”) contained in Item 7 of this report, we believe our future results of operations and financial condition will depend significantly on our ability to successfully implement the following key initiatives(cid:29) • Investing in Safety and Reliability at our Facilities to further our Progress Towards Becoming a “Best Plant Operator Supplying our Customers with Products of the Highest Quality. Continue Broadening the Distribution and Optimization of our Product mix. • • Development and Implementation of a Strategy to Capitalize on Low Carbon Ammonia and Clean Energy Opportunities. • Pursue Acquisition of Strategic Assets or Companies. “ in Class” Chemical As for our liquidity, we had approximately $143.5 million of combined cash and borrowing capacity at the end of 2021, which we believe provides us with ample liquidity to fund our operations and meet our current obligations. Also see discussions under “Liquidity and Capital Resources” of our MD(cid:9)A. (cid:50)(cid:88)(cid:85) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72) (cid:54)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:86) (cid:54)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92) (cid:47)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71) (cid:38)(cid:75)(cid:72)(cid:80)(cid:76)(cid:70)(cid:68)(cid:79) (cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:38)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86) Our business benefits from highly advantageous locations with logistical and distribution benefits. We have access to the Nustar ammonia pipeline from the U.S. Gulf at our El Dorado Facility, which provides low-cost transportation to distribution points. The El Dorado Facility also has rail access providing favorable freight logistics to our industrial and agricultural customers and cost advantaged when selling a number of our products West of the Mississippi River. Our Cherokee Facility is located east of the Mississippi River, allowing it to reach customers that are not freight logical for others. Our Cherokee Facility sits adjacent to the Tennessee River, providing barge receipt and shipping access, in addition to truck and rail delivery access. Our Pryor Facilitytt is located in the heart of the Southern Plains with close proximitytt to the Port of Catoosa along with strategic rail and truck delivery access. 4 (cid:36)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:71) (cid:53)(cid:68)(cid:90) (cid:48)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79) (cid:38)(cid:82)(cid:86)(cid:87) (cid:51)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) We produce ammonia at our El Dorado, Cherokee and Pryor Facilities, which allows us to take advantage of the spread between producing and purchasing ammonia at those facilities. (cid:39)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71) (cid:54)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86) (cid:82)(cid:73) (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72) Our business serves a broad range of end markets, which we believe diminishes the cyclicality of our financial performance. Ouruu business serves the agricultural, industrial and mining markets. The flexible nature of our production process and storage capability allows us the abia lity to shift our product mix based on end market demand. rr (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:48)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:43)(cid:76)(cid:74)(cid:75) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) (cid:38)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92) We operate our business through several facilities. Operating multiple facilities diversifies the risk and impact of operational issues that may occur at a single plant, which gives us a strategic advantage over competitors that operate their company through a single facility. Additionally, our competitive production capacity of our combined plants allows us to decrease manufacturing costs, helping us to achieve enhanced margins. dd (cid:36)(cid:74)(cid:85)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) As discussed in more detail under “Key Industry Factors” of MD(cid:9)A, 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. Additionally, expansions or upgrades of competitors’ facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics. These factors can affect, in addition to selling prices, the level of inventories in the market which can cause price volatility and affect productdd margins. ff Looking forward to 2022, corn prices for the vast majority of 2021 remained above levels not seen since 2014, and at current prices exceeding $6 per bushel, are significantly above the $4 per bushel level that we believe represents a very favorable level for farmff ers 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 driven 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. (cid:36)(cid:74)(cid:85)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) fertilizers. We sell these agricultural products to We produce and sell UAN, HDAN and ammonia, all of which are nitrogen-based farmers, ranchers, fertilizer dealers and distributors primarily in the ranch land and grain production markets in the U.S. Our nitrogen- based fertilizers are used to grow food crops, biofuel feedstock crops, pasture land for grazing livestock and forage production. We maintain long-term relationships with wholesale agricultural distributors and retailers and also sell directly to agricultural end-users through our network of wholesale and retail distribution centers. ff t 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. Additionally, expansions or upgrades of competitors’ facilities combined with international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics. These factors can affect, in addition to selling prices, the level of inventories in the market which can cause price volatility and affect product margins. rr We develop our market position in these areas by emphasizing high quality products, customer service and technical advice. In addition, we have an agreement with a third-party purchaser, Coffeyville Resources Nitrogen Fertilizers, LLC, (“C(cid:57)R”), to market and sell a portion of our UAN. Demand for sales under this agreement is based on the expected needs of the purchaser’s customers. The agreement provides the exclusive right (but not the obligation) to purchase, at market prices, substantially all of the UANAA produced at our Pryor Facility. The term of the agreement runs through (cid:45)une 2022, with automatic one-year extensions, subject to a a 180-day advance notice of termination from C(cid:57)R or a 90-day advance notice from us. We sell most of our agricultural products at the current spot market price in effect enter into forward sales commitments for some of these products. ff at the time of shipment, although we periodically 5 (cid:44)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:48)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) As discussed in more detail under “Key Industry Factors” of MD(cid:9)A, in our industrial markets, our sales volumes are typically driven by changes in general economic conditions, energy prices, metals market prices and our contractual arrangements with certain large customers. 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. Additionally, changes in natural gas prices and demand in renewable power sources, such as wind and solar in the electrical generation sector, will impact demand for our mining products and impact competition within the other sectors of this market. Looking forward to 2022, 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 has 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 below. Demand for our mining products continues to improve as quarryrr 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 electronic vehicles. a r (cid:44)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:48)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) We manufacture and sell industrial acids and other chemical products primarily to the polyurethane intermediates, paper, fibers, emission control, and electronics industries. In addition, we produce and sell blended and regular nitric acid and industrial and high purity ammonia for many specialty applications, including the reduction of air emissions from power plants. d Sales of our industrial and mining products are generally made to customers pursuant to sales contracts or pricing arrangements on terms that include the cost of the primary raw materials as a pass-through component in the sales price. These contractual sales t of commodity cost changes and fluctuations in demand for these products due to the cyclicality of the end markets. stabilize the effecff During 2020, one of our subsidiaries, El Dorado Chemical Company (“EDC”) entered into a contract with a customer to supply nitrictt acid. Under the agreement, EDC will supply between 70,000 to 100,000 tons of nitric acid annually. The initial contract term began in (cid:45)anuaryrr 2021 and extends through 2027 and includes automatic one-year renewal terms. In addition, EDC and Koch Fertilizer LLC (“Koch Fertilizer”) are parties to an ammonia purchase and sale agreement, under which Koch Fertilizer agreed to purchase, with minimum purchase requirements, a portion of the ammonia that is in excess of EDC’s internal needs. The term of the agreement runs until (cid:45)une 2023, with annual renewal options thereafter. We operate the Baytown Facility on behalf of Covestro and we believe it is one of the largest and most technologically advanced nitric of this acid manufacturing units in the U.S. We operate and maintain this facility pursuant to a long-term operating contract. The termrr agreement runs until October 2029 with options for renewal. Our industrial products sales volumes are dependent upon general economic conditions primarily in the housing, automotive, and paper industries. Our sale prices generally vary with the market price of ammonia, sulfur or natural gas, as applicable, in our pricing arrangements with customers. Our industrial business competes based upon service, price and location of production and distribution sites, product quality and performance and provides inventory management as part of the value-added services offered to certain customers. We also produce and sell LDAN, HDAN and AN solution to the mining industry, which are primarily used as AN fuel oil and specialty emulsions for usage in the quarry and the construction industries, for metals mining, and to a lesser extent, for coal mining. We have signed long-term contracts with certain customers that provide for the annual sale of LDAN, which a portion include various natural-gas-based pricing arrangements. One of our customers has a plant located at our El Dorado Facility. (cid:53)(cid:68)(cid:90) (cid:48)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86) The products we manufacture at our facilities are primarily derived from natural gas. This raw material feedstock is a commodity and subject to price fluctuations. Natural gas is the primary raw material for producing ammonia, UAN, nitric acid and acid blends and other products at our El Dorado, Cherokee and Pryor Facilities. For 2021, we purchased approximately 28.3 million MMBtus of natural gas. The chemical facilities’ natural gas feedstock requirements are generally purchased at spot market price. Periodically, we enter into volume purchase commitments and(cid:18)dd or forward contracts to lock in the cost of certain of the expected natural gas requirements primarily to match quantities needed to produce product that has been sold forward. At December 31, 2021, we had natural gas contracts of approximately 5.4 million MMBtus, at an average cost of $4.53 per MMBtu. These contracts extend through March 2022. 6 See further discussion relating to the outlook for our business under “Key Industry Factors.” (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) We operate in a highly competitive market with many other larger chemical companies, such as Austin Powder Company, CF Industries Holdings, Inc., Chemtrade Logistics L.L.C.(cid:30) Cornerstone Chemical, Eco Services Operation Corp., a subsidiary of PQ Holding Group, OCI Partners N(cid:57), Dyno Nobel, a subsidiary of Incitec Pivot Limited, The Gavilon Group, Helm AG, Koch Industries, Norfalco, Nutrien, Orica Limited(cid:30) Praxair, Inc., Quad Chemical Corporation, Southern States Chemical, Trammo Inc. and (cid:57)eolia North America (some of whom are our customers), many of whom have greater financial and other resources than we do. We believe that competition within the markets we serve is primarily based upon service, price, location of production and distribution sites, and product quality and performance. (cid:43)(cid:88)(cid:80)(cid:68)(cid:81) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) As of December 31, 2021, we employed 545 persons, 180 of whom are represented by unions under agreements, including agreements being negotiated, that expire in (cid:45)uly 2022 through (cid:45)uly 2024. We believe we have good relationships with our employees. (cid:50)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:74)(cid:75)(cid:87) (cid:9) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) Our success depends on the capabilities and strength of our workforce. Our Human Resources Director is responsible for developing and executing our human capital strategy. This strategy includes the acquisition, development, and retention of talent to deliver on our overall strategy. Our Chief Executive Officer (“CEO”) regularly updates our Board of Directors (“Board”) on the operation and status of these human capital activities including(cid:29) • • Training & Development (cid:177) We are committed to the continued development of our employees. Quarterly reviews of operations and talent occur across all operational business units and corporate functions. It is the responsibility of the CEO to review talent data on an annual basis and plan development actions to ensure succession and and the executive staffff continuous improvement and growth. Engagement (cid:177) We believe that we have favorable relations with our employees. Approximately 33% of our employees are represented under collective bargaining agreements. We take proactive measures, such as conducting employee surveys to to ensure that understand and drive employee engagement. Additionally, we conductd any changes to benefits are improvements or add value for employees. Each of our business units conducts roundtable discussions to develop action plans to improve the work environment. We have continued to increase our communication efforts with employees, which our workforce has recognized favorably. benefit surveys annually in an effff ort ff • Health and Safety (cid:177) Our Health and Safety Management System continues to build to establish a consistent approach to enhance the work environment, culture and compliance at each business unit. This system is guided by a newly formed executive committee that provides focus and priority to compliance and industry best practices that protect our employees while performing work within our operations. Each business team is responsible for evaluating its unique operations and risk. We use leading and lagging metrics, such as near applying the defined controls to engage employees and manage injury miss tracking, assigning potential risk consequences to events, incident tracking, and releases to monitor our performance and effff eff ctiveness across our operations and individual business teams. Events are investigated based on risk using root cause analysis tools and corrective actions are tracked to ensure prevention. In addition, the management system includes periodic third-party audits and internal self-assessment to continuously improve. n a Like many other companies, we have experienced challenges resulting from the CO(cid:57)ID-19 pandemic and have focused energy dand effort on protecting our employees and their families from potential virus exposure while continuing safe and compliant operations. Since the beginning of the pandemic, we established detailed plans and protocols, executed remote work arrangements, and increased d communication to employees. To date, our focused actions, which have aligned with the guidance from the Centers for Disease Control and Prevention, have not resulted in any work stoppage . (cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87) (cid:47)(cid:68)(cid:90)(cid:86) (cid:68)(cid:81)(cid:71) (cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) Our facilities and operations are subject to numerous federal, state and local laws and regulations, including matters regarding environmental, health and safety, many of which provide for certainrr performance obligations, substantial fines and criminal sanctions liability as well as joint and several liability for costs required to for violations. Certain of these laws and regulations impose strict remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. We may be r required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received of others or from consequences waste generated by our operations regardless of whether such contamination resulted from the conductd of our own actions that were in compliance with all applicable laws at the time those actions were taken. a tt There can be no assurance that we will not incur material costs or liabilities in complying with such laws or in paying fines or penalties for violation of such laws. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. These laws and regulations (including enforcement policies thereunder) have 7 in the past resulted, and could in the future result, in significant compliance expenses, cleanup costs (for our sites or third-party sites where our wastes were disposed of), penalties or other liabilities relating to the handling, manufacture, use, emission, discharge or disposal of hazardous or toxic materials at or from our facilities or the use or disposal of certain of its chemical products. Historically, our subsidiaries have incurred significant expenditures in order to comply with these laws and regulations and are reasonably expected to do so in the future. We will also be obligated to manage certain discharge water outlets and monitor groundwater contaminants at our chemical facilities should we discontinue the operations of a facility. ff Also see discussions concerning our risk factors under Item 1A of this report. (cid:36)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) We make available free of charge through our Internet website (www.lsbindustries.com) or by calling Investor Relations (405) 510- 3550 our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition to the reports filed or furnished with the SEC, we publicly disclose material information from time to time in press releases, at annual meetings of stockholders, in publicly accessible conferences and investor presentations, and through our website. The information included in our website does not constitute part of this Annual Report on Form 10-K. Section 16(a) of the Exchange Act requires our directors, officers, and beneficial owners of more than 10% of our common stock to file with the SEC reports of holdings and changes in beneficial ownership of our stock. Based solely on a review of copies of the Forms 3, 4 and 5 furnished to us with respect to 2021, or written representations that no Form 5 was required to be filed, we believe that during 2021 all our directors and officers and beneficial owners of more than 10% of our common stock timely filed their required Forms 3, 4, or 5. 8 (cid:44)(cid:55)(cid:40)(cid:48) (cid:20)(cid:36)(cid:17) (cid:53)(cid:44)(cid:54)(cid:46) (cid:41)(cid:36)(cid:38)(cid:55)(cid:50)(cid:53)(cid:54) (cid:20)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:50)(cid:88)(cid:85) (cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92) (cid:58)(cid:72) (cid:80)(cid:68)(cid:92) (cid:81)(cid:82)(cid:87) (cid:69)(cid:72) (cid:68)(cid:69)(cid:79)(cid:72) (cid:87)(cid:82) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72) (cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87) (cid:70)(cid:68)(cid:86)(cid:75) (cid:87)(cid:82) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:82)(cid:88)(cid:85) (cid:71)(cid:72)(cid:69)(cid:87) (cid:68)(cid:81)(cid:71) (cid:80)(cid:68)(cid:92) (cid:69)(cid:72) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71) (cid:87)(cid:82) (cid:87)(cid:68)(cid:78)(cid:72) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:87)(cid:82) (cid:86)(cid:68)(cid:87)(cid:76)(cid:86)(cid:73)(cid:92) (cid:87)(cid:75)(cid:72) (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:82)(cid:88)(cid:85) (cid:71)(cid:72)(cid:69)(cid:87) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:80)(cid:68)(cid:92) (cid:81)(cid:82)(cid:87) (cid:69)(cid:72) (cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:17) Our ability to make scheduled payments on our debt obligations depends on our financial condition and operating performance, prevailing economic and competitive conditions, and certain financial, business and other factors, some of which may be beyond our control. We may not be able to maintain a level of cash flows sufficient to pay the principal and interest on our debt, including the $500 million principal amount of our 6.250% Senior Secured Notes due 2028 (the “New Notes”). If cash flows and capital resources are insufficient to fund ouru debt obligations, we could face substantial liquidity problems and will need to seek additional capital through the issuance of debt, the issuance of equity, asset sales or a combination of the foregoing. If we are unsuccessful, we will need to reduce or delay investments and capita l expenditures, or to dispose of other assets or operations, seek a additional capital, or restructure or refinance debt. These alternative measures may not be successful, may not be completed on economically attractive terms, or may not be adequate for us to meet our debt obligations when due. Additionally, our debt agreements limit the use of the proceeds from many dispositions of assets or operations. As a result, we may not be permitted to use the proceeds from these dispositions to satisfy our debt obligations. If we cannot make scheduled payments on our debt, we will be in default and the outstanding principal and interest on our debt could be declared to be due and payable, in which case we could be forced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt obligations. In such an event, we may not have sufficient assets to repay all of our debt. Further, if we suffer or appear to suffer from a lack of availablea liquidity, the evaluation of our creditworthiness by counterparties and rating agencies and the willingness of third parties to do business with us could be materially and adversely affected. In partirr cular, our credit ratings could be lowered, suspended or withdrawn entirely at any time by the rating agencies. Downgrades in our long-term debt ratings generally cause borrowing costs to increase and the potential pool of investors and funding sources to decrease and could trigger liquidity demands pursuant to the terms of contracts, leases or other agreements. Any future transactions by us, including the issuance of additional debt, the sale of any operating assets, or any other transaction to manage our liquidity, could result in temporary or permanent downgrades of our credit ratings. (cid:50)(cid:88)(cid:85) (cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87) (cid:82)(cid:88)(cid:85) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15) (cid:68)(cid:81)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:87)(cid:82) (cid:76)(cid:81)(cid:70)(cid:88)(cid:85) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) (cid:71)(cid:72)(cid:69)(cid:87) (cid:87)(cid:82) (cid:73)(cid:88)(cid:81)(cid:71) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:17) We currently have a substantial amount of indebtedness. As a result, this level could, among other things(cid:29) • • • • • • • require us to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities(cid:30) make it more difficult for us to satisfy our obligations, including our repurchase obligations(cid:30) limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all(cid:30) limit our ability to adjust to changing economic, business and competitive conditions(cid:30) place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing(cid:30) make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions(cid:30) and make us more susceptible to changes in credit ratings, which could affect our ability to obtain financing in the future and increase the cost of such financing. Any of the foregoing could adversely affect our liquidity, operating results and finff ancial condition. (cid:50)(cid:88)(cid:85) (cid:71)(cid:72)(cid:69)(cid:87) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72) (cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81) (cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:87)(cid:75)(cid:68)(cid:87) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87) (cid:82)(cid:85) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87) (cid:82)(cid:88)(cid:85) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) (cid:36) (cid:69)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75) (cid:82)(cid:73) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72) (cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86) (cid:82)(cid:85) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87) (cid:76)(cid:81) (cid:68)(cid:81) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87) (cid:82)(cid:73) (cid:71)(cid:72)(cid:73)(cid:68)(cid:88)(cid:79)(cid:87) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:82)(cid:81)(cid:72) (cid:82)(cid:85) (cid:80)(cid:82)(cid:85)(cid:72) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:71)(cid:72)(cid:69)(cid:87) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:82)(cid:85) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86) (cid:68)(cid:87) (cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81) (cid:82)(cid:88)(cid:85) (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74) (cid:68)(cid:86) (cid:68) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87) (cid:82)(cid:73) (cid:70)(cid:85)(cid:82)(cid:86)(cid:86) (cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:85) (cid:71)(cid:72)(cid:73)(cid:68)(cid:88)(cid:79)(cid:87) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) Our debt agreements and the Exchange Agreement contain various covenants and other restrictions that, among other things, limit flexibility in operating our businesses. A breach of any of these covenants or restrictions could result in a significant portion of our debt becoming due and payable or could result in significant contractual liability. These covenants and other restrictions limit our ability to, among other things(cid:29) • • • • incur additional debt or issue preferred shares(cid:30) pay dividends on, repurchase or make distributions in respect of capital stock, make other restricted payments(cid:30) make investments or certain capital expenditures(cid:30) sell or transfer assets(cid:30) 9 • • • • • • • create liens on assets to secure debt(cid:30) engage in certain fundamental corporate changes or changes to our business activities(cid:30) make certain material acquisitions(cid:30) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets(cid:30) enter into transactions with affiliates(cid:30) designate subsidiaries as unrestricted subsidiaries(cid:30) and repay, repurchase or modify certain subordinated and other material debt. The Working Capital Revolver Loan also contains certain affirmative charge coverage ratio (as defined Revolver Loan) falls below a certain level. aa in the Working Capital Revolver Loan) if their excess availability covenants and requires the borrowers to comply with a fixed (as defined in the Working Capital a ff These covenants and restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. Additionally, our ability to comply with these covenants may be affected by events beyond our control, including general economic and credit conditions and industry downturns. ff r under In addition, certain failures to make payments when due on, or the acceleration of, significant indebtedness constitutes a default some of our debt instruments, including the indenture governing the notes. Further, a breach of any of the covenants or restrictions in a debt instrumen t could result in an event of defaff ult under such debt instrument. Upon the occurrence of an event of default under one of these debt instruments, our lenders or noteholders could elect to declare all amounts outstanding under such debt instrument to be immediately due and payable and(cid:18)dd or terminate all commitments to extend further credit. Such actions by those lenders or noteholders could cause cross defaults or accelerations under our other debt. If we were unable to repay those amounts, the lenders or noteholders could proceed against any collateral granted to them to secure such debt. In the case of a default under debt that is guaranteed, holders of such debt could also seek to enforce the guarantees. If lenders or noteholders accelerate the repayment of all borrowings, we would likely not have sufficient assets and funds to repay those borrowings. Such occurrence could result in our or our applicable subsidiary going into bankruptcy, liquidation or insolvency. u u ff (cid:55)(cid:75)(cid:72) (cid:68)(cid:74)(cid:72) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:70)(cid:75)(cid:72)(cid:80)(cid:76)(cid:70)(cid:68)(cid:79) (cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74) (cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86) (cid:87)(cid:75)(cid:72) (cid:85)(cid:76)(cid:86)(cid:78) (cid:73)(cid:82)(cid:85) (cid:88)(cid:81)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71) (cid:71)(cid:82)(cid:90)(cid:81)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:80)(cid:68)(cid:92) (cid:69)(cid:72) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:17) Our business is comprised of operating units of various ages and levels of automated control. While we have continued to make significant annual capital improvements, potential age or control related issues have occurred in the past and may occur in the future, which could cause damage to the equipment and ancillary facilities. As a result, we have experienced and may continue to experience additional downtime at our chemical facilities in the future. The equipment required for the manufacture of our products is specialized, and the time for replacement of such equipment can be lengthy, resulting in extended downtime in the affected unit. In addition, the cost for such equipment could be influenced by changes in regulatory policies (including tariffs) of foreign governments, as well as the U.S. laws and policies affecting foreign trade and investment. Although we use various reliability and inspection programs and maintain a significant inventory of spare equipment, which are intended to mitigate the extent of production losses, unplanned outages may still occur. As a result, these planned and unplanned downtime events at our chemical facilities have in the past and could in the future adversely affect our liquidity, operating results and financial condition. ff (cid:47)(cid:54)(cid:37) (cid:76)(cid:86) (cid:68) (cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) (cid:68)(cid:81)(cid:71) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:86)(cid:15) (cid:76)(cid:81) (cid:79)(cid:68)(cid:85)(cid:74)(cid:72) (cid:83)(cid:68)(cid:85)(cid:87)(cid:15) (cid:82)(cid:81) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80) (cid:76)(cid:87)(cid:86) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86) (cid:87)(cid:82) (cid:73)(cid:88)(cid:81)(cid:71) (cid:82)(cid:88)(cid:85) (cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) LSB is a holding company with no significant operations or material assets other than the equity interests it holds in its subsidiaries and conducts all of its operations through its subsidiaries. As a result, LSB’s ability to meet its obligations depends, in largea part, on the operating performance and cash flows of its subsidiaries, which will be affected by general economic, industry, financial, competitive, operating and other factors beyond our control, and the ability of its subsidiaries to make distributions and pay dividends to LSB. Each of LSB’s subsidiaries is a separate and distinct legal entity and, under certain circumstances, legal and contractual restrictions, as well as the financial condition and operating requirements of such subsidiaries, may limit LSB’s ability to obtain cash from its subsidiaries. Any payment of dividends, distributions, loans or advances to LSB by its subsidiaries could also be subject to taxes or restrictions on dividends or transfers under applicable local law in the jurisdictions in which LSB’s subsidiaries operate. (cid:21)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:50)(cid:88)(cid:85) (cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:51)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:86) (cid:82)(cid:85) (cid:71)(cid:76)(cid:86)(cid:72)(cid:68)(cid:86)(cid:72) (cid:82)(cid:88)(cid:87)(cid:69)(cid:85)(cid:72)(cid:68)(cid:78)(cid:86)(cid:15) (cid:86)(cid:88)(cid:70)(cid:75) (cid:68)(cid:86) (cid:38)(cid:50)(cid:57)(cid:44)(cid:39)(cid:16)(cid:20)(cid:28)(cid:15) (cid:75)(cid:68)(cid:89)(cid:72) (cid:68)(cid:81)(cid:71) (cid:80)(cid:68)(cid:92) (cid:76)(cid:81) (cid:87)(cid:75)(cid:72) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17) CO(cid:57)ID-19 has evolved into a global pandemic and the full extent of its impact will depend on future developments that are uncertain and cannot be accurately predicted, including new information that may emerge concerning the CO(cid:57)ID-19 pandemic and the actions to contain the CO(cid:57)ID-19 pandemic or treat its impact. Currently, all of the facilities we own and operate have been designated as 10 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, and therefore, our facilities are remaining in operation despite the evolving global health crisis resulting from the CO(cid:57)ID-19 pandemic. However, if additional mandatory closures of businesses are imposed by the federal, state and local governments to control the spread of the virus, these closures could disrupt the operations of our management, business and finance teams. In addition, a significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for a portion or all our products. Legislative, regulatory, influences related to the CO(cid:57)ID-19 pandemic may affect our financial pperformance and our ability to conductd judicial or social our business. ff An extended period of remote work arrangements due to the CO(cid:57)ID-19 pandemic could exacerbate cybersecurity risks. Our business adata depends on the proper functioning and availability of our information rr pprocessing systems. We are also required to effect electronic transmissions with third parties including clients, vendors and others with whom we do business, and with our Board. We believe we have implemented appropriate security measures, controls and procedures to safeguard our information technology systems and to prevent unauthorized access to such systems and any data processed or sto dred in such systems, and we periodically evaluate and test the adequacy of such systems, measures, controls and procedures and perform third-party risk assessments(cid:30) however, there can be no guarantee that such systems, measures, controls and procedures will be effective, that we will be able to establish secure capabil ities with all of third parties, or that third parties will have appropriate controls in place to protect the confidentiality of our information. Security breaches could expose us to a risk of loss or misuse of ourr information, litigation and potential liability. technology platform, including communications and a ff The Omicron variant of CO(cid:57)ID-19 began to spread rapidly across the globe in the fourth quarter of fiscal year 2021 and began to affect our business, as well as our customers’ and suppliers’ business in similar ways as the initial surge of CO(cid:57)ID-19. In addition, inflation and supply chain disruptions, in part exacerbated by the spread of the Omicron variant, have impacted companies dand consumers in the United States. We have begun to experience increased inventory shipping costs and could see annual price increases from some of our vendors. In light of these trends, our management has taken, and will continue to take, a number of steps aimed to mitigate the impact of the Omicron variant, supply chain disruptions and inflation. As the CO(cid:57)ID-19 pandemic continues to impact communities, our business operations could be disrupted or delayed, and our business, financial condition, and results of operations could be adversely affected. 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We cannot predict further terrorist attacks and natural disasters in the U.S. and elsewhere. These attacks or natural disasters have contributed to economic instability in the U.S. and elsewhere, and further acts of terrorism, violence, war or natural disasters could affect the industries where we operate, our ability to purchase raw materials, our our business, results of operations and financial condition. In addition, terrorist attacks and natural disasters may directly affect physical facilities, especially our chemical facilities, or those of our suppliers or customers and could affect our sales, our production capability and our ability to deliver products to our customers. In the past, hurricanes affecting the Gulf Coast of the U.S. have negatively affected our operations and those of our customers. As previously noted, some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. If any such effects, whether anthropogenic or otherwise, were to occur in areas where we or our clients operate, they could have an adverse effect on our business, financial condition and results of operations. ff (cid:36) (cid:80)(cid:68)(cid:77)(cid:82)(cid:85) (cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74) (cid:87)(cid:75)(cid:72) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:75)(cid:76)(cid:74)(cid:75) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79) (cid:82)(cid:73) (cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71) (cid:73)(cid:82)(cid:85) (cid:82)(cid:88)(cid:85) (cid:81)(cid:76)(cid:87)(cid:85)(cid:82)(cid:74)(cid:72)(cid:81)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71) (cid:73)(cid:72)(cid:85)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:85) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) (cid:76)(cid:86) (cid:87)(cid:75)(cid:72) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:72)(cid:87)(cid:75)(cid:68)(cid:81)(cid:82)(cid:79)(cid:17) (cid:36) (cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:76)(cid:81) (cid:72)(cid:87)(cid:75)(cid:68)(cid:81)(cid:82)(cid:79) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:85) (cid:68)(cid:81) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:76)(cid:81) (cid:72)(cid:87)(cid:75)(cid:68)(cid:81)(cid:82)(cid:79) (cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:75)(cid:68)(cid:89)(cid:72) (cid:68) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:81) (cid:82)(cid:88)(cid:85) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) (cid:82)(cid:73) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:87)(cid:82) (cid:80)(cid:68)(cid:78)(cid:72) (cid:70)(cid:68)(cid:86)(cid:75) (cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) A major factor underlying the solid level of demand for our nitrogen-ba sed fertilizer products is the production of ethanol in the tt United States and the use of corn in ethanol production. Ethanol production in the United States is highly dependent upon a myriad of federal statutes and regulations and is made significantly more competitive by various federal and state incentives and mandated usage of renewable fuels pursuant to the federal renewable fuel standards (“RFS”). To date, the RFS has been satisfied primarily witht fuel ethanol blended into gasoline. However, a number of factors, including the continuing “food versus fuel” debate and studies showing that expanded ethanol usage may increase the level of greenhouse gases in the environment as well as be unsuitable for small engine use, have resulted in calls to reduce subsidies for ethanol, allow increased ethanol imports and to repeal or waive (in whole or in part) the current RFS, any of which could have an adverse effect on corn-based ethanol production, planted corn acreage and fertilizer demand. Therefore, ethanol incentive programs may not be renewed, or if renewed, they may be renewed on terms significantly less favorable to ethanol producers than current incentive programs. Therefore, a decrease in ethanol production or an increase in ethanol imports could have a material adverse effect on our overall business, results of operations, financial condition and liquidity. 11 (cid:58)(cid:72) (cid:68)(cid:85)(cid:72) (cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:81)(cid:87) (cid:82)(cid:81) (cid:68) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71) (cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) (cid:82)(cid:73) (cid:78)(cid:72)(cid:92) (cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17) Our nitrogen production is concentrated in four separate complexes. The suspension of operations at any of these complexes could adversely affect our ability to produce our products and fulfill our commitments and could have a material adverse effect on liquidity, financial condition, results of operations and business. (cid:54)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92) (cid:70)(cid:68)(cid:81) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) If seasonal demand is less than we expect, we may be left with excess inventory that will have to be stored (in which case our results of operations will be negatively affected by any related increased storage costs) or liquidated (in which case the selling price may be below our production, procurement and storage costs). The risks associated with excess inventory and product shortages are exacerbated by the volatility of natural gas and nitrogen fertilizer prices and the relatively brief periods during which farmers can apply nitrogen fertilizers. If prices for our products rapidly decrease, we may be subject to inventory write-downs, adversely affecting our operating results. If seasonal demand is greater than we expect, we may experience product shortages, and customers of ours may turn to our competitors for products that they would otherwise have purchased from us. ff (cid:58)(cid:72)(cid:68)(cid:87)(cid:75)(cid:72)(cid:85) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) by The products (primarily agricultural) produced and sold by us have been in the past, and could be in the future, materially affected adverse weather conditions (such as excessive rain or drought) in the primary markets for our fertilizer and related agriculturau l products. In addition, weather can cause an interruption to the operations of our chemical facilities. Many scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. These climate changes might also occur as the result of other phenomena that human activity is unable to influence, including changes in solar activity and volcanic activity. Regardless of the cause, if any of these unusual weather events occur during the primary seasons for sales of our agricultural products (March-(cid:45)une and September-November), this could have a material adverse effect on our agricultural sales and our financial condition and results of operations. u ff t (cid:38)(cid:79)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:80)(cid:68)(cid:92) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86). Over the course of the past several years, global climate conditions have become increasingly inconsistent, volatile and unpredictable. Many of the regions in which we do business have experienced excessive moisture, cold, drought and(cid:18)dd or heat of an unprecedented nature at various times of the year. In some cases, these conditions have either reduced or obviated the need for our products, particularly in the agriculture space, whether pre-plant, at-plant, post-emergent or at harvest. Due to the unpredictable nature of these conditions, growers and distributors appear to have become increasingly conservative in procurement practices and the accumulation of inventory. Further, the random nature of climactic change has made it increasingly difficult to forecast market demand and, consequently, financial performance, from year-to-year. There is no guarantee that climate change will abate in the near future, and it to forecast sales performance with accuracy and otherwise adversely is possible that such change will continue to hinder our abilitytt affect our financial performance. (cid:50)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86) (cid:68)(cid:85)(cid:72) (cid:86)(cid:72)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72) (cid:87)(cid:82) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72) (cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70) (cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:86)(cid:17) Our business can be affected by cyclical factors such as inflation, currency exchange rates, global energy policy and costs, regulatory policies (including tariffs), global market conditions and economic downturns in specific industries. Certain sales are sensitive to the level of activity in the agricultural, mining, automotive and housing industries. Therefore, substantial changes could adversely affect al resources. our operating results, liquidity, financial condition and capita (cid:55)(cid:75)(cid:72)(cid:85)(cid:72) (cid:76)(cid:86) (cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:86)(cid:72) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:76)(cid:81) (cid:87)(cid:75)(cid:72) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86) (cid:90)(cid:72) (cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:17) Substantially all of the markets in which we participate are highly competitive with respect to product quality, price, distribution, service, and reliability. We compete with many companies, domestic and foreign, that have greater financial, marketing and other resources. Competitive factors could require us to reduce prices or increase spending on product development, marketing and sales, which could have a material adverse effect on our business, results of operation and financial condition. We compete with many U.S. producers and producers in other countries, including state-owned and government-subsidized entities. Some competitors have greater total resources and are less dependent on earnings from chemical sales, which make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive position could suffer to the extent we are not able to expand our own resources sufficiently either through investments in new or existing operations or through acquisitions, joint ventures or partnerships. An inability to compete successfully could result in the loss of customers, which could adversely affect our sales and profitability. (cid:36)(cid:81) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:82)(cid:73) (cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71) (cid:68)(cid:74)(cid:85)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:73)(cid:73) (cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) Russia, Ukraine and Trinidad have substantial capacity to produce and export fertili below-market prices for natural gas, due to government regulation and other factors. ff zers. Producers in these countries also benefit from In addition, producers in China have substantial capacity to produce and export urea. Depending on various factors, including prevailing prices from other exporters, the price of coal, and the price of China’s export tariff, higher volumes of urea from China 12 could be imported into the U.S. at prices that could have an adverse the nitrogen products we manufacture and sell. d effect on the selling prices of other nitrogen products, including (cid:36) (cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79) (cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86) (cid:76)(cid:86) (cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87) (cid:88)(cid:83)(cid:82)(cid:81) (cid:68) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71) (cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) (cid:82)(cid:73) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17) For 2021, ten customers accounted for approximately 47% of our consolidated net sales. The loss of, or a material reduction in purchase levels by, one or more of these customers could have a material adverse effect on our business, results of operations, financial condition and liquidity if we are unable to replace a customer with other sales on substantially similar terms. (cid:36) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:76)(cid:81) (cid:87)(cid:75)(cid:72) (cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72) (cid:82)(cid:73) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) (cid:87)(cid:75)(cid:68)(cid:87) (cid:82)(cid:88)(cid:85) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86) (cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72) (cid:82)(cid:81) (cid:68) (cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71) (cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:15) (cid:82)(cid:85) (cid:87)(cid:75)(cid:72) (cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86) (cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72) (cid:87)(cid:75)(cid:68)(cid:87) (cid:76)(cid:86) (cid:86)(cid:82)(cid:79)(cid:71) (cid:87)(cid:82) (cid:82)(cid:88)(cid:85) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86) (cid:82)(cid:81) (cid:68) (cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71) (cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:15) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:82)(cid:88)(cid:85) (cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72) (cid:87)(cid:82) (cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:76)(cid:81) (cid:82)(cid:88)(cid:85) (cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87) (cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) (cid:82)(cid:73) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17) d products from us on a forward basis at prices and delivery u We offer our customers from time-to-time, the opportunity to purchase dates we propose. Under our forward sales programs, customers generally make an initial cash down payment at the time of order and pay the remaining portion of the contract sales under their usual invoice terms when the performance obligation is satisfied. Forward sales improve our liquidity due to the cash payments received from customers in advance of shipment of the product and allow us to g and planning and the utilization of our manufacturing and distribution assets. Any cash payments improve our production schedulin received in advance from customers in connection with forward sales are reflected on our consolidated balance sheets as a current liability until the related performance obligations are satisfied, which can take up to several months. We believe the ability to purchase products on a forward basis is most appealing to our customers during periods of generally increasing prices for nitrogen fertilizers. Our customers may be less willing or even unwilling to purchase products on a forward basis during periods of generally decreasing or stable prices or during periods of relatively high fertilizer prices due to the expectation of lower prices in the future or limited capital resources. In periods of rising fertilizer prices, selling our nitrogen fertilizers on a forward basis may result in lower profit margins than if we had not sold fertilizer on a forward basis. Conversely, in periods of declining fertilizer prices, selling our nitrogen fertilizers on a forward basis may result in higher profit margins than if we had not sold fertilizer on a forward basis. In in advance of their ultimate delivery to customers, typically causes our addition, fixing the selling prices of our products, often monthst reported selling prices and margins to differ from spot market prices and margins available at the time the performance obligation is satisfied. (cid:38)(cid:82)(cid:86)(cid:87) (cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72) (cid:79)(cid:68)(cid:70)(cid:78) (cid:82)(cid:73) (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:82)(cid:73) (cid:85)(cid:68)(cid:90) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:68)(cid:81)(cid:71) (cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:17) u to considerable price volatility, and recent global suppl Our sales and profits are heavily affected by the costs and availability of primary raw materials. These primary raw materials are typically subject y chain disruptions and increased inflation in the United States u have led to further heightened volatility. Historically, when there have been rapid increases in the cost of these primary raw materials, we have sometimes been unable to timely increase our sales prices to cover all of the higher costs incurred. While we periodically enter into futures(cid:18)forward contracts to economically hedge against price increases in certain of these raw materials, there cana be no assurance that we will effectively manage against price fluctuations in those raw materials. Natural gas represents the primary raw material feedstock in the production of most of our chemical products. Although we enter into contracts with certain customers that provide for the pass-through of raw material costs, we have a substantial amount of sales that do not provide for the pass-through of raw material costs. Also, the spot sales prices of our agricultural products may not correlate to the cost of natural gas but rather reflect market conditions for similar and competing nitrogen sources. This lack of correlation can compromise our ability to recover our full cost to produce the products in this market. As a result, in the future, we may not be able to pass along to all of our customers the full amount of any increases in raw material costs. Future price fluctuations in our raw materials may have an adverse effect on our business, financial condition, liquidity and results of operations. Additionally, we depend on certain vendors to deliver natural gas and other key components that are required in the production of our products. Any disruption in the supply of natural gas and other key components could result in lost production or delayed shipments. The price of natural gas in North America and worldwide has been volatile in recent years and had declined on average due in part to the development of significant natural gas reserves, including shale gas, and the rapid improvement in shale gas extraction techniques, such as hydraulic fracturing and horizontal drilling. However, recent disruptions in the global supply chain and increased inflaff tion in the United States have led to reduced availability and increased prices of natural gas in the fourth quarter of fiscal year 2021, and they may continue to have an impact in the near term in fiscal year 2022. Future production of natural gas from shale formations could be reduced by regulatory changes that restrict drilling or hydraulic fracturing or increase its cost or by reduction in oil exploration and development prompted by lower oil prices and resulting in production of less associated natural gas. Additionally, increased demand for natural gas, particularly in the Gulf Coast Region, due to increased industrial demand and increased natural gas exports could result in increased natural gas prices. We have suspended in the past, and could suspend in the future, production at our chemical facilities due to, among other things, the high cost or lack of availability of natural gas and other key components, which could adversely affect our competitiveness in the markets we serve. Accordingly, our business, financial condition, liquidity and results of operations could be materially affected in the future by the lack of availability of natural gas and other key components and increase costs relating to the purchase of natural gas and other key components. 13 (cid:50)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:76)(cid:86) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87) (cid:87)(cid:82) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86) (cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74) (cid:71)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72) (cid:85)(cid:76)(cid:86)(cid:78) (cid:87)(cid:75)(cid:68)(cid:87) (cid:82)(cid:88)(cid:85) (cid:75)(cid:72)(cid:71)(cid:74)(cid:76)(cid:81)(cid:74) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:80)(cid:76)(cid:74)(cid:75)(cid:87) (cid:81)(cid:82)(cid:87) (cid:69)(cid:72) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:17) We may utilize natural gas derivatives to hedge our financial exposure to the price volatility of natural gas, the principal raw material used in the productd ion of nitrogen-based products. We may use futures, financial swaps and option contracts traded in the over-the- counter markets or on exchanges to hedge our risk. Our use of derivatives can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives that do not qualify for, or to which we do not apply, hedge accounting. To the extent that our derivative positions lose value, we may be required to post collateral with our counterparties, adversely affecting our liquidity. We have also used fixed-price, physical purchase and sales contracts to hedge our exposure to natural gas price volatility. Hedging arrangements are imperfect and unhedged risks will always exist. In addition, our hedging activities may themselves give rise to various risks that could adversely affect us. For example, we are exposed to counterparty credit risk when our derivatives are in a net asset position. The counterparties to our derivatives are multi-national institutions or large energy companies. Our liquidity could be negatively impacted by a commercial banks, major financial counterparty default on settlement of one or more of our derivative financial instruments or by the trigger of any cross-default provisions or credit support requirements. Additionally, the International Swaps and Derivative Association master netting arrangements for most of our derivative instruments contain credit-risk-related contingent features, such as cross-default and(cid:18)dd or acceleration provisions and credit support requirements. In the event of certain defaults or a credit ratings downgrade, our counterparty may request early termination and net settlement of certain derivative trades or may require us to collateralize derivatives in a net liability position. At other times we may not utilize derivatives or derivative strategies to hedge certain risks or to reduce the financial exposure of price volatility. As a result, we may not prevent certain material adverse impacts that could have been mitigated through the use of derivative strategies. (cid:50)(cid:88)(cid:85) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:85)(cid:72)(cid:79)(cid:92) (cid:82)(cid:81) (cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:16)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87) (cid:88)(cid:86) (cid:87)(cid:82) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86) (cid:68)(cid:81)(cid:71) (cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86) (cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71) (cid:82)(cid:88)(cid:85) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79) (cid:87)(cid:75)(cid:68)(cid:87) (cid:80)(cid:68)(cid:92) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) We rely on railroad, trucking, pipeline and other transportation service providers to transport raw materials to our manufacturing facilities, to coordinate and deliver finished products to our storage and distribution system and our retail centers and to ship finished products to our customers. These transportation operations, equipment and services are subject to various hazards, including adverse operating conditions, extreme weather conditions, system failures, work stoppages, equipment and personnel shortages, delays, accidents such as spills and derailments and other accidents and operating hazards. u In the event of a disruption of existing transportation or terminaling facilities for our products or raw materials, alternative transportation and terminaling facilities may not have sufficient capacity to fully serve all of our customers or facilities. An extended interrupr on facilities u could adversely affect tion in the delivery of our products to our customers or the supply of natural gas, ammonia or sulfur to our producti sales volumes and margins. d ff These transportation operations, equipment and services are also subject to environmental, safety, and regulatory oversight. Due to concerns related to accidents, terrorism or increasing concerns regarding transportation of potentially hazardous substances, local, provincial, state and federal governments could implement new regulations affecting the transportation of raw materials or our finished products. If transportation of our products is delayed or we are unable to obtain raw materials as a result of any third party’s failure to operate properly or the other hazards described above, or if new and more stringent regulatory requirements are implemented affecting transportation operations or equipment, or if there are significant increases in the cost of these services or equipment, our revenues and cost of operations could be adversely affected. In addition, we may experience increases in our transportation costs, or changes in such costs relative to transportation costs incurred by our competitors. ff (cid:41)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:70)(cid:68)(cid:79) (cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) Future technological innovation, such as the development of seeds that require less crop nutrients, or developments in the application of crop nutrients, if they occur, could have the potential to adversely affect the demand for our products and results of operations. (cid:38)(cid:92)(cid:69)(cid:72)(cid:85) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) As we continue to increase our dependence on information technologies to conduct our operations, including as a result of remote work environments due to CO(cid:57)ID-19, the risks associated with cyber security also increase. We rely on our enterprise resource planning software (“ERP”) and other information systems, among other things, to manage our manufacturing, supply chain, accounting and financial functions. Additionally, third parties on whose systems we place significant reliance for the conduct of our business are also subject to cyber security risks. We are significantly dependent upon internet connectivity and a third-party cloud hosting vendor. We have implemented security procedures and measures in order to protect our information from being vulnerable to theft, loss, damage or interruption from a number of potential sources or events. Although we believe these measures and procedures are appropriate, we may not have the resources or technical sophistication to anticipate, prevent, or recover from rapidly evolving types of cyber-attacks. Compromises to our information systems could have an adverse effect on our business, results of operations, liquidity and financial condition. b 14 (cid:58)(cid:72) (cid:80)(cid:68)(cid:92) (cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72) (cid:76)(cid:81) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81) (cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:80)(cid:68)(cid:92) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) An important part of our business strategy is the acquisition of strategic assets or companies. Our management is currently evaluating and pursing certain such opportunities, and from time to time separately provides indications of interest in respect of similar transactions, which may be significant. Any such discussions may or may not result in the consummation of a transaction, and we may not be able to identify or complete any of these potential acquisitions. We cannot predict the effect, if any, that any announcement or consummation of a transaction would have on the price of our securities. While the documents governing our indebtedness include certain restrictions on our ability to finance any acquisitions of new assets, such restrictions contain various exceptions and limitations. There is no guarantee that any such transactions will be successful or, even if consummated, improve our operating results. We may incur costs, breakage fees or other expenses in connection with any such transactions or may not be able to obtain the necessary financing for such transactions on acceptable terms. Accordingly, any such transactions may ultimately have a material adverse effect on our operating results. In addition, any future ff acquisitions could present a number of risks, including(cid:29) • • • • the risk of using management time and resources to pursue acquisitions that are not successfully completed(cid:30) the risk of incorrect assumptions regarding the future results of acquired operations or business(cid:30) the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely(cid:30) and the risk of diversion of management’s attention from existing operations or other priorities. If we are unsuccessful in integrating acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected. (cid:22)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:47)(cid:72)(cid:74)(cid:68)(cid:79)(cid:15) (cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72) (cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) (cid:50)(cid:88)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:75)(cid:68)(cid:81)(cid:71)(cid:79)(cid:76)(cid:81)(cid:74) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86) (cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86) (cid:68)(cid:81)(cid:71) (cid:75)(cid:68)(cid:93)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17) Our operations are subject to hazards inherent in the manufacture, transportation, storage and distribution of chemical products, including some products that are highly toxic and corrosive. These hazards include, among other things, explosions(cid:30) fires(cid:30) severe weather and natural disasters(cid:30) train derailments, collisions, vessel groundings and other transportation and maritime incidents(cid:30) leaks and ruptures involving storage tanks, pipelines and rail cars(cid:30) spills, discharges and releases of toxic or hazardous substances or gases(cid:30) deliberate sabotage and terrorist incidents(cid:30) mechanical failures(cid:30) unscheduled plant downtime(cid:30) labor difficulties and other risks. Some of these hazards can cause bodily injury and loss of lifeff , severe damage to or destruction of property and equipment and environmental damage and may result in suspension of operations for an extended period of time and(cid:18)dd or the imposition of civil or criminal penalties and liabilities. We periodically experience minor releases of ammonia related to leaks from our equipment. Similar events may occur in the future. As a result, such events could have a material adverse effect on our results of operations and financial condition. ff (cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:82)(cid:85) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:80)(cid:68)(cid:92) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87) (cid:76)(cid:81) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:15) (cid:70)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86) (cid:68)(cid:81)(cid:71) (cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92) (cid:82)(cid:85) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:75)(cid:68)(cid:89)(cid:72) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:86) (cid:82)(cid:81) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) Our business is subject to numerous health, safety, security and environmental laws and regulations. The manufacture and distribution of chemical products are activities that entail health, safety and environmental risks and impose obligations under health, safety and environmental laws and regulations, many of which provide for substanti al fines and potential criminal sanctions for violations. Although we believe we have established processes to monitor, review and manage our businesses to comply with the numerous health, safety and environmental laws and regulations, we previously were, and in the future, may be, subject to fines, penalties and sanctions for violations and substantial expenditures for cleanupn costs and other liabilities relating to the handling, manufacture, use, emission, discharge or disposal of effluents at or from our chemical facilities. Further, a number of our chemical facilities are dependent on environmental permits to operate, the loss or modification of which could have a material adverse effect on their operations and our results of operation and financial condition. These operating permits are subject to modification, renewal and revocation. In addition, third parties may contest our ability to receive or renew certain permits that we need to operate, which can lengthen the application process or even prevent us from obtaining necessary permits. We regularly monitor and review our operations, procedures and policies for compliance with permits, laws and regulations. Despite these compliance efforts, risk of noncompliance or permit interpretation is inherent in the operation of our business. u r There can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be differeff to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of compliance. nt from the amounts we currently anticipate. We tryrr Changes to the production equipment at our chemical facilities that are required in order to comply with health, safety and environmental regulations may require substantial capital expenditures. 15 Explosions and(cid:18)dd or losses at other chemical facilities that we do not own (such as the April 2013 explosion in West, Texas) could also result in new or additional legislation or regulatory changes, particularly relating to public health, safety or any of the products manufactured and(cid:18)dd or sold by us or the inability on the part of our customers to obtain or maintain insurance as to certain products manufactured and(cid:18)dd or sold by us, which could have a negative effect on our revenues, cash flow and liquidity. ff In summary, new or changed laws and regulations or the inabilitytt of our customers to obtain or maintain insurance in connection with any of our chemical products could have an adverse effect on ouru operating results, liquidity and financial condition. (cid:58)(cid:72) (cid:80)(cid:68)(cid:92) (cid:81)(cid:82)(cid:87) (cid:75)(cid:68)(cid:89)(cid:72) (cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72) (cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17) While we maintain liability, property and business interruption insurance, including certain coverage for environmental contamination, it is subject to coverage limits and policies that may exclude coverage for some types of damages. Although there may currently be sources from which such coverage may be obtained, the coverage may not continue to be available to us on commercially reasonable terms or the possible types of liabilities that may be incurred by us may not be covered by our insurance. In addition, our insurance carriers may not be able to meet their obligations under the policies, or the dollar amount of the liabilities may exceed our policy limits. Even a partially uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our business, results of operations, financial condition and liquidity. ff Furthermore, we are subject to litigation for which we could be obligated to bear legal, settlement and other costs, which may be in excess of any available insurance coverage. If we are required to incur all or a portion of the costs arising out of any litigation or investigation as a result of inadequate insurance proceeds, if any, our business, results of operations, financial condition and liquidity could be materially adversely affected. For further discussion of our litigation, please see “Other Pending, Threatened or Settled Litigation” in Note 9 to the Consolidated Financial Statements included in this report. (cid:58)(cid:72) (cid:80)(cid:68)(cid:92) (cid:69)(cid:72) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71) (cid:87)(cid:82) (cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:92) (cid:82)(cid:85) (cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71) (cid:82)(cid:88)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:87)(cid:82) (cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79) (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) (cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87) (cid:76)(cid:81) (cid:82)(cid:85)(cid:71)(cid:72)(cid:85) (cid:87)(cid:82) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:92) (cid:90)(cid:76)(cid:87)(cid:75) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) The chemical industry in general, and producers and distributors of ammonia and AN specifically, are scrutinized by the government, industry and public on security issues. Under current and proposed regulations, we may be required to incur substantial additional costs relating to security at our chemical facilities and distribution centers, as well as in the transportation of our products. These costs could have a material effect on our results of operations, financial condition, and liquidity. The cost of such regulatory changes, if significant, could lead some of our customers to choose other products over ammonia and AN, which may have a significant adverse effect on our business. aa ff The “Secure Handling of Ammonium Nitrate Act of 2007” was enacted by the U.S. Congress, and subsequently the U.S. Department of Homeland Security (“DHS”) published a notice of proposed rulemaking in 2011. This regulation proposes to require sellers, buyers, their agents and transporters of solid AN and certain solid mixtures containing AN to possess a valid registration issued by DHS, keep certain records, report the theftff or unexplained loss of regulated materials, and comply with certain other new requirements. We and others affected by this proposal have submitted appropriate comments to DHS regarding the proposed regulation. It is possible that ff DHS could significantly revise the requirements currently being proposed. Depending on the provisions of the final regulation to be promulgated by DHS and on our ability to pass these costs to our customers, these requirements may have a negative effect on the profitability of our AN business and may result in fewer distributors who are willing to handle the product. DHS has not finalized this rule, and has indicated that its next action, and the timing of such an action, is undetermined. On August 1, 2013, U.S. President Obama issued an executive order addressing the safety and security of chemical facilities in response to recent incidents involving chemicals such as the explosion at West, Texas. The President directed federal agencies to enhance existing regulations and make recommendations to the U.S. Congress to develop new laws that may affect our business. In (cid:45)anuary 2016, the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) released its final report on the West, Texas incident. The CSB report identifies several federal and state regulations and standards that could be strengthened to reduce the risk of a similar incident occurring in the future. While the CSB does not have authority to directly regulate our business, the findings in this report, and other activities taken in response to the West, Texas incident by federal, state, and local regulators may result in additional regulation of our processes and products. In (cid:45)anuary 2017, the U.S. Environmental Protection Agency (“EPA”) finalized revisions to its Risk Management Program (“RMP”). The revisions include new requirements for certain facilities to perform hazard analyses, third-party auditing, incident investigations and root cause analyses, emergency response exercises, and to publicly share chemical and process information. Compliance with u many of the rule’s new requirements will be required beginning in 2021. The EPA temporarily delayed the rule’s effeff ctive date however, the delay was subsequently vacated with an immediate effective date. On December 3, 2018, the EPA published a final rule ff that incorporates amendments to the RMP under 40 CFR Part 68. However, on November 21, 2019, EPA finalized its Risk Management Program Reconsideration Rule which rescinded third-party auditing, incident investigation and root cause analysis, and the public sharing of specific chemical and process information. The passage of the Reconsideration Rule has reduced the potential negative effect on the profitability of our AN business compared to the (cid:45)anuary 2017 RMP amendments. The Occupational Safety and Health Administration (“OSHA”) is likewise considering changes to its Process Safety Management standards. In addition, DHS, the 16 EPA, and the Bureau of Alcohol, Tobacco, Firearms and Explosives updated a joint chemical advisory on the safe storage, handling, and management of AN. While these actions may result in additional regulatory requirements or changes to our operators, it is difficult to predict at this time how these and any other possible regulations, if and when adopted, will affect our business, operations, liquidity or financial results. (cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71) (cid:68)(cid:81)(cid:71) (cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74) (cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:79)(cid:68)(cid:90)(cid:86) (cid:68)(cid:81)(cid:71) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:74)(cid:85)(cid:72)(cid:72)(cid:81)(cid:75)(cid:82)(cid:88)(cid:86)(cid:72) (cid:74)(cid:68)(cid:86) (cid:68)(cid:81)(cid:71) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:68)(cid:76)(cid:85) (cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86) (cid:80)(cid:68)(cid:92) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86) (cid:87)(cid:82) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:81)(cid:72)(cid:90) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:82)(cid:81) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:80)(cid:68)(cid:92) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17) Our chemical manufacturing facilities use significant amounts of electricity, natural gas and other raw materials necessary for the production of their chemical products that result, or could result, in certain greenhouse gas emissions into the environment. Federal and state legislatures and administrative agencies, including the EPA, are considering the scope and scale of greenhouse gas or other air emission regulation. Legislation and administrative actions have been considered that would regulate greenhouse gas emissions at some point in the future for our facilities, and existing and possible actions have already affected certain of our customers, leading to closure or rate reductions of certain facilities. In response to findings that emissions of carbon dioxide, methane and other greenhouse gases present an endangerment to public health and the environment, the EPA adopted regulations pursuant to the federal Clean Air Act to reduce greenhouse gas emissions from various sources. For example, the EPA requires certain large stationary sources to obtain preconstruction and operating permits for pollutants regulated under the Prevention of Significant Deterioration and Title (cid:57) programs of the Clean Air Act. Facilities required to obtain preconstruction permits for such pollutants are also required to meet “best available control technology” standards that are being established by the states. These regulatory requirements could adversely affect our operations and restrict or delay our ability to obtain air permits for new or modifiedff sources. Although greenhouse gas regulation could(cid:29) increase the price of the electricity and other energy sources purchased by our chemical facilities(cid:30) increase costs for natural gas and other raw materials (such as ammonia)(cid:30) potentially restrict access to or the use of certain raw materials necessary to produce our chemical products(cid:30) and require us to incur substantial expenditures to retrofit our chemical facilities to comply with the proposed new laws and regulations regulating greenhouse gas emissions. Federal, state and local governments may also pass laws mandating the use of alternative energy sources, such as wind power and solar energy, which may increase the cost of energy use in certain of our chemical and other manufacturing operations. For instance, the EPA published a rule, known as the Clean Power Plan, to limit greenhouse gases from electric power plants. The EPA is currently reviewing the Clean Power Plan however, it could result in increased electricity costs due to increased requirements for use of alternative energy sources, and a decreased demand for coal-generated electricity. ff (cid:47)(cid:68)(cid:90)(cid:86)(cid:15) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:82)(cid:85) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:87)(cid:82) (cid:70)(cid:79)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:75)(cid:68)(cid:89)(cid:72) (cid:68) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:81) (cid:88)(cid:86)(cid:17) If we, or other companies with which we do business become subject to laws or regulations related to climate change, it could have a material adverse effect on us. The United States may enact new laws, regulations and interpretations relating to climate change, including potential cap-and-trade systems, carbon taxes and other requirements relating to reduction of carbon footprints and(cid:18)dd or greenhouse gas emissions. Other countries have enacted climate change laws and regulations, and the United States has been involved in discussions regarding international climate change treaties. The federal government and some of the states and localities in which we operate have enacted certain climate change laws and regulations and(cid:18)dd or have begun regulating carbon footprints and greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effect on us to date, they could result in substantial costs, including compliance costs, monitoring and reporting costs and capital. Furthermore, our reputation could be damaged if we violate climate change laws or regulations. We cannot predict how future laws and regulations, or future interprr etations of current laws and regulations, related to climate change will affect our business, results of operations, liquidity and financial condition. Lastly, the potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages and changing temperatures. Any of these matters could have a material adverse effecff t on us. t (cid:23)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:39)(cid:72)(cid:69)(cid:87) (cid:39)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72) (cid:82)(cid:88)(cid:85) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86) (cid:82)(cid:73) (cid:71)(cid:72)(cid:69)(cid:87)(cid:15) (cid:90)(cid:72) (cid:80)(cid:68)(cid:92) (cid:86)(cid:87)(cid:76)(cid:79)(cid:79) (cid:76)(cid:81)(cid:70)(cid:88)(cid:85) (cid:80)(cid:82)(cid:85)(cid:72) (cid:71)(cid:72)(cid:69)(cid:87) (cid:85)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74) (cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85) (cid:82)(cid:85) (cid:72)(cid:84)(cid:88)(cid:68)(cid:79) (cid:76)(cid:81) (cid:85)(cid:76)(cid:74)(cid:75)(cid:87) (cid:82)(cid:73) (cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87) (cid:90)(cid:76)(cid:87)(cid:75) (cid:82)(cid:88)(cid:85) (cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74) (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:71)(cid:72)(cid:69)(cid:87)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:90)(cid:82)(cid:88)(cid:79)(cid:71) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:87)(cid:75)(cid:72) (cid:85)(cid:76)(cid:86)(cid:78)(cid:86) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71) (cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:17) limit but do not prohibit our ability to incur additional debt, The agreements relating to our debt, including the Senior Secured Notes Indenture and the credit agreement governing our Working Capital Revolver Loan, including additional secured debt. Notwithstanding the fact that the Senior Secured Notes Indenture and the credit agreement governing our Working Capital Revolver Loan limit our ability to incur additional debt or grant certain liens on our assets, the restrictions on the incurrence of additional indebtedness and liens are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks that we now face could intensify. 17 (cid:37)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:82)(cid:88)(cid:85) (cid:58)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:53)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:85) (cid:47)(cid:82)(cid:68)(cid:81) (cid:69)(cid:72)(cid:68)(cid:85) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87) (cid:68)(cid:87) (cid:68) (cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72) (cid:85)(cid:68)(cid:87)(cid:72)(cid:15) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86) (cid:88)(cid:86) (cid:87)(cid:82) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87) (cid:85)(cid:68)(cid:87)(cid:72) (cid:85)(cid:76)(cid:86)(cid:78) (cid:68)(cid:81)(cid:71) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:70)(cid:68)(cid:88)(cid:86)(cid:72) (cid:82)(cid:88)(cid:85) (cid:71)(cid:72)(cid:69)(cid:87) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72) (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:87)(cid:82) (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:17) All of our borrowings under our Working Capital Revolver Loan are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount borrowed remained the same. Although we may enter into interest rate swaps to reduce interest rate volatility, we cannot provide assurances that we will be able to do so or that such swaps will be effective. ff (cid:24)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:43)(cid:88)(cid:80)(cid:68)(cid:81) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:47)(cid:82)(cid:86)(cid:86) (cid:82)(cid:73) (cid:78)(cid:72)(cid:92) (cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:81)(cid:72)(cid:79) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) of our principal executive officers. We cannot ensure Our performance has been and will continue to be dependent upon the efforts that our principal executive officers will continue to be available. Although we have employment agreements with certain of our principal executive officers, including Mark T. Behrman and Cheryl A. Maguire, we do not have employment agreements with all of our key personnel. The loss of any of our principal executive officers could have a material adverse effect on us. We believe that our future success will depend in large part on our continued ability to attract and retain highly skilled and qualified personnel. ff (cid:58)(cid:72) (cid:68)(cid:85)(cid:72) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87) (cid:87)(cid:82) (cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72) (cid:69)(cid:68)(cid:85)(cid:74)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:90)(cid:76)(cid:87)(cid:75) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:17) Approximately 33% of our employees are covered by collective bargaining agreements. We may not be able to renew our collective bargaining agreements on terms similar to current terms or renegotiate collective bargaining agreements on terms acceptable to us. The prolonged failure to renew or renegotiate a collective bargaining agreement could result in work stoppages. Additionally, if a collective bargaining agreement is negotiated at higher-than-anticipated cost, absorbing those costs or passing them through to customers in the form of higher prices may make us less competitive. (cid:25)(cid:17) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86) (cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79) (cid:68) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15) (cid:68)(cid:81)(cid:71) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:70)(cid:82)(cid:81)(cid:73)(cid:79)(cid:76)(cid:70)(cid:87) (cid:90)(cid:76)(cid:87)(cid:75) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86) (cid:82)(cid:73) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17) LSB Funding LLC (“LSB Funding”), our largest voting shareholder, owned approximately 54 million shares of our common stock, which represent approximately 61% of the voting power of our common stock as of December 31, 2021, an aggregate of approximately 50 million shares of which were issued to LSB Funding in connection with the Exchange Transaction and the Special Dividend. As a result, LSB Funding could significantly influence our business and affairs if it chooses to use its significant voting power to do so. For instance, LSB Funding would be able to significantly affect most matters brought before the stockholders, including the election of all directors and the approval of mergers and other business combination transactions. Pursuant to a Board Representation and Standstill Agreement, as amended, LSB Funding has the right to designate three directors on our Board, subject to reducd tion in certain circumstances. This is in addition to their ability to vote generally in the election of directors. As a result, LSB Funding has significant influence over the election of directors to our Board. The interests of LSB Funding may conflict with interests of other stockholders. As a result of the voting power and board designation rights of LSB Funding, the ability of other stockholders to influence our management and policies could be limited. ff (cid:58)(cid:72) (cid:68)(cid:85)(cid:72) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87) (cid:87)(cid:82) (cid:68) (cid:89)(cid:68)(cid:85)(cid:76)(cid:72)(cid:87)(cid:92) (cid:82)(cid:73) (cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86) (cid:87)(cid:75)(cid:68)(cid:87) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:85)(cid:68)(cid:74)(cid:72) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80) (cid:68)(cid:87)(cid:87)(cid:72)(cid:80)(cid:83)(cid:87)(cid:76)(cid:81)(cid:74) (cid:87)(cid:82) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72) (cid:88)(cid:86)(cid:17) Our certificate of incorporation provides for a staggered Board and, except in limited circumstances, a two-thirds vote of outstanding voting shares to approve a merger, consolidation or sale of all, or substantially all, of our assets. In addition, we have entered into severance agreements with our executive officers and some of the executive officers of certain subsidiaries that provide, among other things, that if, within a specified period of time after the occurrence of a change in control of LSB, these officers are terminated, other than for cause, or the officer terminates his employment for good reason, the officer would be entitled to certain severance benefits. Certain of our preferred stock series and debt instruments also provide special rights in a change of control, including in some cases the ability to be repaid in full or redeemed. We have authorized and unissued (including shares held in treasury) approximately 60.2 million shares of common stock and approximately 5.2 million shares of preferred stock as of December 31, 2021. These unissued shares could be used by our management to make it more diffff iff cult, and thereby discourage an attempt to acquire control of us. The foregoing provisions and agreements may discourage a third-party tender offer, proxy contest, or other attempts to acquire control of us and could have the effect of making it more difficult to remove incumbent management. In addition, LSB Funding and the Golsen Holders have significant voting power and rights to designate board representatives, all of which may further discourage a third-party tender offer, proxy contest, or other attempts to acquire control of us. ff 18 Delaware has adopted an anti-takeover law which, among other things, will delay for three years business combinations with acquirers of 15% or more of the outstanding voting stock of publicly-held companies (such as us), unless(cid:29) q • • • • prior to such time the Board of the corporation approved the business combination that results in the stockholder becoming an invested stockholder(cid:30) the acquirer owned at least 85% of the outstanding voting stock of such company prior to commencement of the transaction(cid:30) two-thirds of the stockholders, other than the acquirer, vote to approve the business combination after approval thereof by the Board(cid:30) or the stockholders of the corporation amend its articles of incorporation or by-laws electing not to be governed by this provision. (cid:58)(cid:72) (cid:75)(cid:68)(cid:89)(cid:72) (cid:81)(cid:82)(cid:87) (cid:83)(cid:68)(cid:76)(cid:71) (cid:70)(cid:68)(cid:86)(cid:75) (cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86) (cid:82)(cid:81) (cid:82)(cid:88)(cid:85) (cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78) (cid:76)(cid:81) (cid:80)(cid:68)(cid:81)(cid:92) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:17) 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. Our Board of Directors (the “Board”) has not made a decision whether or not to pay dividends on our common stock in 2022. In addition, there are certain limitations contained in our loan agreements that may limit our ability to pay dividends on our outstanding common stock. (cid:41)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) (cid:76)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86) (cid:82)(cid:85) (cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79) (cid:76)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78) (cid:82)(cid:85) (cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:87)(cid:75)(cid:72) (cid:83)(cid:85)(cid:76)(cid:70)(cid:72) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78) (cid:68)(cid:81)(cid:71) (cid:82)(cid:88)(cid:85) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:87)(cid:82) (cid:85)(cid:68)(cid:76)(cid:86)(cid:72) (cid:73)(cid:88)(cid:81)(cid:71)(cid:86) (cid:76)(cid:81) (cid:81)(cid:72)(cid:90) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78) (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72) (cid:87)(cid:75)(cid:72) (cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83) (cid:82)(cid:85) (cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74) (cid:83)(cid:82)(cid:90)(cid:72)(cid:85) (cid:82)(cid:73) (cid:82)(cid:88)(cid:85) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17) Future sales of substantial amounts of our common stock, preferred stock or equity-related securities in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could dilute the value of common stock held by our existing stockholders. No prediction can be made as to the effect, if any, that future sales of common stock, preferred stock, or equity-related securities, or the availability of shares of common stock for future sale will have on the trading price of our common stock. Such future sales could also significantly reduce the percentage ownership and voting power of our existing common stockholders. ff (cid:26)(cid:17) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) (cid:53)(cid:76)(cid:86)(cid:78) (cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86) (cid:39)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:68)(cid:81)(cid:71) (cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71) (cid:75)(cid:68)(cid:89)(cid:72) (cid:68) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87) (cid:82)(cid:81) (cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) (cid:82)(cid:73) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:17) A slowdown of, or persistent weakness in, economic activity caused by a deterioration of global market and economic conditions could adversely affect our business in the following ways, among others(cid:29) conditions in the credit markets could impact the ability of our customers and their customers to obtain sufficient credit to support their operations(cid:30) the failure of our customers to fulfill their purchase obligations could result in increases in bad debts and affect our working capital(cid:30) and the failure of certain key suppliers could increase our exposure to disruptions in supply or to financial losses. We also may experience declining demand and falling prices for some of our products due to our customers’ reluctance to replenish inventories. The overall impact of a global economic downturnu or reduced overall global trade on us is difficult to predict, and our business could be materially adversely impacted. In addition, conditions in the international market for nitrogen fertilizer significantly influence our operating results. The international market for fertilizers is influenced by such factors as the relative value of the U.S. currency and its impact on the importation of fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets and other regulatory policies (including tariffs) of foreign governments, as well as the U.S. laws and policies affecting foreign trade and investment. 19 (cid:54)(cid:51)(cid:40)(cid:38)(cid:44)(cid:36)(cid:47) (cid:49)(cid:50)(cid:55)(cid:40) (cid:53)(cid:40)(cid:42)(cid:36)(cid:53)(cid:39)(cid:44)(cid:49)(cid:42) (cid:41)(cid:50)(cid:53)(cid:58)(cid:36)(cid:53)(cid:39)(cid:16)(cid:47)(cid:50)(cid:50)(cid:46)(cid:44)(cid:49)(cid:42) (cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:54) 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(cid:29) our ability to invest in projects that will generate best returns for our stockholders(cid:30) rr • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • our ability to invest in projects that will generate the best returns for our stockholders our future liquidity outlook(cid:30) the outlook our chemical products and related markets(cid:30) the amount, timing and effect on the nitrogen market from the current nitrogen expansion projects(cid:30) ff the effect from the lack of non-seasonal volume(cid:30) our belief that competition is based upon service, price, location of production and distribution sites, and product quality (cid:30) and performance ff our outlook for the coal industry(cid:30) the availability of raw materials(cid:30) the result of our product and market diversification strategy(cid:30) changes in domestic fertilizer production(cid:30) the increasing output t and capacity of our existing production facilities(cid:30) production volumes at our production facilities(cid:30) our ability to moderate risk inherent in agricultural markets(cid:30) the sources to fund our cash needs and how this cash will be used(cid:30) the ability to enter into the additional borrowings(cid:30) the anticipated cost and timing of our capital projects(cid:30) certain costs covered under warranty provisions(cid:30) our ability to pass to our customers cost increases in the formff of higher prices(cid:30) our belief as to whether we have sufficient sources for materials and components(cid:30) annual natural gas requirements(cid:30) compliance by our facilities with the terms of our permits(cid:30) the costs of compliance with environmental laws, health laws, security regulations and transportation regulations(cid:30) our belief as to when Turnarounds will be performed and completed(cid:30) expenses in connection with environmental projects(cid:30) ff the effect of litigation and other contingencies(cid:30) the increase in interest expense(cid:30) our ability to comply with debt servicing and covenants(cid:30) our ability to meet debt maturities or redemption obligations when due(cid:30) ff the effects of the ongoing CO(cid:57)ID-19 pandemic and related response(cid:30) and our beliefs as to whether we can meet all required covenant tests for the next twelve months. 20 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(cid:29) • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • changes in general economic conditions, both domestic and foreign(cid:30) material reductions in revenues(cid:30) material changes in interest rates(cid:30) our ability to collect in a timely manner a material amount of receivables(cid:30) increased competitive pressures(cid:30) adverse effects of increases in prices of raw materials(cid:30) changes in federal, state and local Reinvestment and Recovery Act, or in the interpretation of such(cid:30) laws and regulations, especially environmental regulations or the American changes in laws, regulations or other issues related to climate change(cid:30) releases of pollutants into the environment exceeding our permitted limits(cid:30) material increases in equipment, maintenance, operating or labor costs not presently anticipated by us(cid:30) the requirement to use internally generated funds for purposes not presently anticipated(cid:30) a the inability to secure additional financing for planned capital expenditures or financing obligations due in the near future(cid:30) our substantial existing indebtedness(cid:30) material changes in the cost of natural gas and certain precious metals(cid:30) limitations due to fiff nancial covenants(cid:30) changes in competition(cid:30) the loss of any significant customer(cid:30) increases in cost to maintain internal controls over financial reporting(cid:30) changes in operating strategy or development plans(cid:30) a an inability to fund the working capital a and expansion of our businesses(cid:30) changes in the production efficiency of our facilities(cid:30) adverse results in our contingencies including pending litigation(cid:30) unplanned downtime at one or more of our chemical facilities(cid:30) changes in production rates at any of our chemical plants(cid:30) a an inability to obtain necessary raw materials and purchased components(cid:30) material increases in cost of raw materials(cid:30) material changes in our accounting estimates(cid:30) significant problems within our production equipment(cid:30) fire or natural disasters(cid:30) a an inability to obtain or retain our insurance coverage(cid:30) difficulty obtaining necessary permits(cid:30) difficulty obtaining third-party financing(cid:30) risks associated with proxy contests initiated by dissident stockholders(cid:30) changes in fertilizer production(cid:30) reduction in acres planted for crops requiring fertilizer(cid:30) 21 • • • • • • • • • decreases in duties for products we sell resulting in an increase in imported products into the U.S.(cid:30) adverse effects from regulatory policies, including tariffs(cid:30) volatility of natural t gas prices(cid:30) price increases resulting from increased inflation(cid:30) weather conditions, including the effecff ts of climate change(cid:30) increases in imported agricultural products(cid:30) global supply chain disruptions(cid:30) other factors described in the MD(cid:9)A contained in this report(cid:30) and other factors described in “Risk Factors” contained in this report. 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. (cid:39)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71) (cid:55)(cid:72)(cid:85)(cid:80)(cid:86) The following is a list of terms used in this report. (cid:36)(cid:39)(cid:40)(cid:52) (cid:36)(cid:49) (cid:36)(cid:53)(cid:50) (cid:36)(cid:54)(cid:38) (cid:36)(cid:54)(cid:56) - The Arkansas Department of Environmental Quality. - Ammonium nitrate. - Asset retirement obligation. - Accounting Standard Codification. - Accounting Standard Update. (cid:37)(cid:68)(cid:92)(cid:87)(cid:82)(cid:90)(cid:81) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) - The nitric acid production facility located in Baytown, Texas. (cid:37)(cid:82)(cid:68)(cid:85)(cid:71) (cid:38)(cid:36)(cid:50) (cid:38)(cid:36)(cid:53)(cid:40)(cid:54) (cid:38)(cid:40)(cid:50) - Board of Directors - A consent administrative order. - Coronavirus Aid, Relief, and Economic Security Act. - Chief Executive Officer. (cid:38)(cid:75)(cid:72)(cid:85)(cid:82)(cid:78)(cid:72)(cid:72) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) - Our chemical production facility located in Cherokee, Alabama. (cid:38)(cid:75)(cid:72)(cid:89)(cid:85)(cid:82)(cid:81) (cid:38)(cid:82)(cid:38) (cid:38)(cid:82)(cid:89)(cid:72)(cid:86)(cid:87)(cid:85)(cid:82) (cid:38)(cid:50)(cid:57)(cid:44)(cid:39)(cid:16)(cid:20)(cid:28) (cid:38)(cid:57)(cid:53) (cid:39)(cid:9)(cid:36) (cid:39)(cid:40)(cid:41) (cid:39)(cid:43)(cid:54) (cid:40)(cid:39)(cid:36) (cid:40)(cid:39)(cid:38) (cid:40)(cid:39)(cid:49) (cid:40)(cid:44)(cid:36) - Chevron Environmental Management Company. - Change of Control - Covestro L.L.C. - The novel coronavirus disease of 2019. - Coffeyville Resources Nitrogen Fertilizers, L.L.C. - Depreciation and amortization. - Diesel Exhaust Fluid. - The U.S. Department of Homeland Security. - El Dorado Ammonia L.L.C. - El Dorado Chemical Company. - El Dorado Nitrogen L.L.C. - U.S. Energy Information Administration (cid:40)(cid:79) (cid:39)(cid:82)(cid:85)(cid:68)(cid:71)(cid:82) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) - Our chemical production facility located in El Dorado, Arkansas. (cid:40)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75) (cid:47)(cid:68)(cid:90)(cid:86) - Numerous federal, state and local environmental, health and safety laws. (cid:40)(cid:51)(cid:36) - The U.S. Environmental Protection Agency. 22 (cid:40)(cid:56)(cid:38) - Environmental Use Control. (cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) - A Securities Exchange Agreement between LSB Funding L.L.C. and affiliate of Eldridge L.L.C. and LSB. (cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81) - The exchange of shares of the Series E and Series F Redeemable Preferred for shares of common stock pursuant to the Exchange Agreement. (cid:41)(cid:36)(cid:54)(cid:37) - Financial Accounting Standards Board. (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:38)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87) - Certain springing financial covenants associated with the working capital revolver loan. (cid:42)(cid:36)(cid:36)(cid:51) (cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79) (cid:42)(cid:82)(cid:79)(cid:86)(cid:72)(cid:81) (cid:43)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86) - U.S. Generally Accepted Accounting Principles. - Global Industrial, Inc., a subcontractor asserting mechanics liens for work rendered to LSB and EDC. - (cid:45)ack E. Golsen, Barry H. Golsen and certain of their related parties, as defined in the Board Representation and Standstill Agreement, as amended. (cid:43)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:72)(cid:79)(cid:79) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) - A chemical facility previously owned by two of our subsidiaries located in Kansas. (cid:43)(cid:39)(cid:36)(cid:49) (cid:43)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72) (cid:45)(cid:17) (cid:42)(cid:82)(cid:79)(cid:86)(cid:72)(cid:81) (cid:46)(cid:39)(cid:43)(cid:40) - High density ammonium nitrate prills used in the agricultural industry. - LSB Funding L.L.C., the holder of all of the shares of the Series E and Series F Redeemable Preferred. - The agreement governing the 6.25% Senior Secured Notes. - (cid:45)ack E. Golsen. - The Kansas Department of Health and Environment. (cid:46)(cid:82)(cid:70)(cid:75) (cid:41)(cid:72)(cid:85)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:85) - Koch Fertilizer L.L.C. (cid:47)(cid:39)(cid:36)(cid:49) (cid:47)(cid:72)(cid:76)(cid:71)(cid:82)(cid:86) - Low density ammonium nitrate prills used in the mining industry.rr - Leidos Constructors L.L.C. (cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:73)(cid:73) - The Series E Redeemable Preferred liquidation preference of $1,000 per share plus accrued and unpaid dividends plus the participation rights value. (cid:47)(cid:54)(cid:37) (cid:47)(cid:54)(cid:37) (cid:41)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:48)(cid:39)(cid:9)(cid:36) - LSB Industries, Inc. - LSB Funding L.L.C. - Management’s Discussion and Analysis of Financial Condition and Results of Operations found in Item 7 of this report. (cid:49)(cid:72)(cid:90) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86) - The senior secured notes issued on October 14, 2021 with an interest rate of 6.250%, which (cid:49)(cid:50)(cid:47) (cid:49)(cid:82)(cid:87)(cid:72) (cid:49)(cid:51)(cid:39)(cid:40)(cid:54) (cid:49)(cid:51)(cid:46) (cid:50)(cid:39)(cid:40)(cid:52) (cid:50)(cid:79)(cid:71) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86) (cid:51)(cid:36)(cid:53) (cid:51)(cid:37)(cid:53)(cid:54) (cid:51)(cid:38)(cid:38) (cid:51)(cid:51)(cid:9)(cid:40) (cid:51)(cid:51)(cid:51) (cid:51)(cid:85)(cid:92)(cid:82)(cid:85) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:39)(cid:68)(cid:87)(cid:72) (cid:53)(cid:41)(cid:54) mature in October 2028. - Net Operating Loss. - A note in the accompanying notes to the consolidated financial statements. - National Pollutant Discharge Elimination. - Compound fertilizer products which are a solid granular fertilizer product for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. - The Oklahoma Department of Environmental Quality. - The notes issued on April 28, 2018 with an interest rate of 9.625%, which mature in May 2023. - Permit Appeal Resolution - Performance-based restricted stock. - Pryor Chemical Company. - Plant, property and equipment. - Paycheck Protection Program - Our chemical production facility located in Pryor, Oklahoma. - Date of retirement of (cid:45)ack E. Golsen as Executive Chairman of the Board, December 31, 2017. - Federal renewable fuel standards. 23 (cid:53)(cid:48)(cid:51) (cid:53)(cid:54)(cid:56) (cid:54)(cid:37)(cid:36) (cid:54)(cid:40)(cid:38) - Risk Management Program. - Restricted stock unit. - U.S. Small Business Administration. - The U.S. Securities and Exchange Commission. (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:22) - A secured financing arrangement between EDC and an affiliate of LSB Funding L.L.C. which matures in (cid:45)une 2023. (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:24) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:47)(cid:82)(cid:68)(cid:81) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:24) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:51)(cid:85)(cid:82)(cid:80)(cid:76)(cid:86)(cid:86)(cid:82)(cid:85)(cid:92) (cid:49)(cid:82)(cid:87)(cid:72) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:20) - A secured financing arrangement between EDA and an affiliate of LSB Funding L.L.C. which matures in August 2025. - A secured loan agreement between EDC and an affiliate of LSB Funding L.L.C. which matures in March 2025. - A secured promissory note between EDC and a lender which, matured in March 2021. (cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86) - Senior secured notes with a stated interest rate of 9.625%, which were redeemed in October 2021. (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:37) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:39) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) - The Series B 12% cumulative convertible Class C Preferred stock. - The Series D 6% cumulative convertible Class C preferred stock. (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:40) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) - The 14% Series E Redeemable Preferred stock with participating rights and liquidating distributions based on a certain number of shares of our common stock. (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:41) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) - The Series F Redeemable Preferred stock with one share to vote as a single class on all matters (cid:54)(cid:42)(cid:9)(cid:36) (cid:54)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71) (cid:54)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79) (cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74) with our common stock equal to 456,225 shares of our common stock. - Selling, general and administrative expense. - A stock split in the form of a common stock dividend declared by our Board. - Meeting of our stockholders held during the third quarter of 2021. (cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) - An agreement between (cid:45)ack E. Golsen and LSB, dated (cid:45)une (cid:45) 30, 2017. (cid:55)(cid:88)(cid:85)(cid:81)(cid:68)(cid:85)(cid:82)(cid:88)(cid:81)(cid:71) - A planned majora maintenance activity. (cid:56)(cid:36)(cid:49) (cid:56)(cid:17)(cid:54)(cid:17) (cid:56)(cid:54)(cid:39)(cid:36) (cid:58)(cid:36)(cid:54)(cid:39)(cid:40) - Urea ammonia nitrate. - United States. - United States Department of Agriculture. - World Agricultural Supply and Demand Estimates Report. (cid:58)(cid:72)(cid:86)(cid:87) (cid:41)(cid:72)(cid:85)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:85) - West Fertilizer Company. (cid:58)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:53)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:85) (cid:47)(cid:82)(cid:68)(cid:81) - Our secured revolving credit facility. (cid:21)(cid:19)(cid:19)(cid:24) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) - A death benefit agreement with (cid:45)ack E. Golsen. (cid:21)(cid:19)(cid:19)(cid:27) (cid:51)(cid:79)(cid:68)(cid:81) (cid:21)(cid:19)(cid:20)(cid:25) (cid:51)(cid:79)(cid:68)(cid:81) (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:85)(cid:82)(cid:83) (cid:21)(cid:19)(cid:21)(cid:20) (cid:38)(cid:85)(cid:82)(cid:83) (cid:21)(cid:19)(cid:21)(cid:21) (cid:38)(cid:85)(cid:82)(cid:83) - The 2008 Incentive Stock Plan. - The 2016 Long Term Incentive Plan. - 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. - 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. - 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. 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(cid:44)(cid:55)(cid:40)(cid:48) (cid:23)(cid:17) (cid:48)(cid:44)(cid:49)(cid:40) (cid:54)(cid:36)(cid:41)(cid:40)(cid:55)(cid:60) (cid:39)(cid:44)(cid:54)(cid:38)(cid:47)(cid:50)(cid:54)(cid:56)(cid:53)(cid:40)(cid:54) Not applicable (cid:51)(cid:36)(cid:53)(cid:55) (cid:44)(cid:44) (cid:44)(cid:55)(cid:40)(cid:48) (cid:24)(cid:17) (cid:48)(cid:36)(cid:53)(cid:46)(cid:40)(cid:55) (cid:41)(cid:50)(cid:53) (cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:182)(cid:54) (cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49) (cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:15) (cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:40)(cid:39) (cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53) (cid:48)(cid:36)(cid:55)(cid:55)(cid:40)(cid:53)(cid:54) (cid:36)(cid:49)(cid:39) (cid:44)(cid:54)(cid:54)(cid:56)(cid:40)(cid:53) (cid:51)(cid:56)(cid:53)(cid:38)(cid:43)(cid:36)(cid:54)(cid:40)(cid:54) (cid:50)(cid:41) (cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60) (cid:54)(cid:40)(cid:38)(cid:56)(cid:53)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) Our common stock is trading on the New (cid:60)ork Stock Exchange under the symbol “L(cid:59)U.” (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86) As of February 18, 2022, we had approximately 361 record holders of our common stock. This number does not include investors whose ownership is recorded in the name of their brokerage company. (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:51)(cid:79)(cid:68)(cid:81)(cid:86) Discussions relating to our equity compensation plans under Item 12 of Part III are incorporated by reference to our definitive proxy statement which we intend to file with the SEC on or before April 29, 2022. (cid:54)(cid:68)(cid:79)(cid:72) (cid:82)(cid:73) (cid:56)(cid:81)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) There were no unregistered sales of equity securities in 2021 that have not been previously reported in a Quarterly Report on Form 10- Q or Current Report on Form 8-K. (cid:44)(cid:55)(cid:40)(cid:48) (cid:25)(cid:17) (cid:62)(cid:53)(cid:40)(cid:54)(cid:40)(cid:53)(cid:57)(cid:40)(cid:39)(cid:64) 26 (cid:44)(cid:55)(cid:40)(cid:48) (cid:26)(cid:17) (cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54) (cid:39)(cid:44)(cid:54)(cid:38)(cid:56)(cid:54)(cid:54)(cid:44)(cid:50)(cid:49) (cid:36)(cid:49)(cid:39) (cid:36)(cid:49)(cid:36)(cid:47)(cid:60)(cid:54)(cid:44)(cid:54) (cid:50)(cid:41) (cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47) (cid:38)(cid:50)(cid:49)(cid:39)(cid:44)(cid:55)(cid:44)(cid:50)(cid:49) (cid:36)(cid:49)(cid:39) (cid:53)(cid:40)(cid:54)(cid:56)(cid:47)(cid:55)(cid:54) (cid:50)(cid:41) (cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54) The following MD(cid:9)A should be read in conjunction with a review of the other Items included in this Form 10-K and our December 31, 2021 consolidated financial statements included elsewhere in this report. A reference to a “Note” relates to a note in the accompanying notes to the consolidated financial statements. Certain statements contained in this MD(cid:9)A may be deemed to be forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” (cid:50)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) 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. (cid:46)(cid:72)(cid:92) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:44)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86) (cid:73)(cid:82)(cid:85) (cid:21)(cid:19)(cid:21)(cid:21) We expect our future results of operations and financial condition to benefit from following key initiatives(cid:29) • • Investing to improve Environmental, Health &Safetyff Becoming a “Best “ in Class” Chemical Plant Operator while Supplying our Customers with Products of the Highest Quality.tt and Reliabilityt at our Facilities to further our Progress Towards (cid:3) 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 implemm enting enhanced safety programs during the last three years. (cid:3) 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. (cid:3) 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. (cid:3) 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 productd ion volume of certain products through debottlenecking projects and will be analyzing the potential returnsr from these investments over the course of the year. • Development 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, rial, mining, power generation and marine customers seeking to reduce their carbon footprint and potentially capitalize on industd 27 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 opportunitytt 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, industria l 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 ce any of the foregoing through the incurrence of additional indebtedness (including through attractive. We may choose to finan 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. d q ff is We may not successfully implement any or all of these initiatives. In addition, the consummation of any acquisition opportunitytt 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 cana 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. r (cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:16)(cid:21)(cid:19)(cid:21)(cid:20) 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 Preferff red 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, is that it relieved our Company and our common stockholders the Special Dividend record date. The main benefit of the exchange from the expensive, compounding burden of the preferred stock dividend, improving the current capital structure. a Reduced Cost of Capital through Debt Refinancing The Exchange Transaction discussed above prompted the major credit rating agencies, Moody’s and S(cid:9)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 28 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 driven 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 dd 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 CO(cid:57)ID-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. tt 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. u rr 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 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 (cid:45)une 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. 29 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 was in production shortly thereafter ff 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. (cid:46)(cid:72)(cid:92) (cid:44)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92) (cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86) Supply and Demand Agricultural 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. Additionally, expansions or upgrades of competitors’ facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics, including the impact from the Phase 1 trade agreement between the U.S and China. These factors can affect, in addition to selling prices, the level of inventories in the market which can cause price volatility and affect product margins. From a farmers’ perspective, 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 ppatterns and the yptypes of pcrops pplanted. Additionally, changes in corn prices and those of soybean, cotton and wheat prices, can affect the number of acres of corn plantea given year, and the number of acres planted will drive the level of nitrogen fertilizer consumption, likely effecting prices. d in a For 2021 as noted in the table below, the USDA estimates the number of acres of corn planted in the U.S. 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(cid:29) U.S. Area Planted (Million acres) U.S. (cid:60)ield per Acre (Bushels) U.S. Production (Million bushels) U.S. Ending Stocks (Million metric tons) World Ending Stocks (Million metric tons) (cid:21)(cid:19)(cid:21)(cid:21) (cid:38)(cid:85)(cid:82)(cid:83) (cid:11)(cid:21)(cid:19)(cid:21)(cid:20) (cid:43)(cid:68)(cid:85)(cid:89)(cid:72)(cid:86)(cid:87)(cid:12) (cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:11)(cid:20)(cid:12) 93.4 177.0 15,115 39.1 302.2 (cid:21)(cid:19)(cid:21)(cid:20) (cid:38)(cid:85)(cid:82)(cid:83) (cid:11)(cid:21)(cid:19)(cid:21)(cid:19) (cid:43)(cid:68)(cid:85)(cid:89)(cid:72)(cid:86)(cid:87)(cid:12) (cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:11)(cid:20)(cid:12) 90.7 171.4 14,111 31.4 292.1 (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:11)(cid:21)(cid:12) 3.0% 3.3% 7.1% 24.5% 3.5% (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:85)(cid:82)(cid:83) (cid:11)(cid:21)(cid:19)(cid:20)(cid:28) (cid:43)(cid:68)(cid:85)(cid:89)(cid:72)(cid:86)(cid:87)(cid:12) (cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:11)(cid:20)(cid:12) 89.7 167.5 13,620 48.8 306.3 (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:11)(cid:22)(cid:12) 4.1% 5.7% 11.0% (19.9%) (1.3%) (1) Information obtained from WASDE report dated February 9, 2022 (“February Report”) for the 2021(cid:18)2022 (“2022 Crop”), 2020(cid:18)2021 (“2021 Crop”) and 2019(cid:18)2020 (“2020 Crop”) corn marketing years. The marketing year is the twelve-month period during which a crop normally is marketed. For example, the marketing year for the current corn crop is from September 1 of the current year to August 31 of the next year. The year begins at the harvest and continues until just before harvest of the following year. (2) Represents the percentage change between the 2022 Crop amounts compared to the 2021 Crop amounts. pCrop amounts. ( )(3) change between the 2022 compared to the 2020 pRepresents the p pCrop amounts percentage g p g 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 30 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 a the re-opening of the vast majority of the U.S. economy, promoting increased mobility and a return to historical levels of gasoline consumption. Most gasoline has 10% ethanol content. Ethanol is commonly made from corn and ethanol production is the largest user of U.S. corn, currently representing roughly 36% 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. 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 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 Our industrial products sales volumes are dependent upon general economic conditions primarily in the housing, automotive, and paper industries. 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.” Our mining products are LDAN and AN solution, which are primary used as AN fuel oil and specialty emulsions for usage in the quarry and the construction industries, for metals mining, and to a lesser extent, for coal. 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. 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. NN Natural Gas Prices Natural gas is the primary feedstock used to produce nitrogen fertilizers at our manufacturing facilities. In recent years, U.S. natural gas reserves have increased significantly due to, among other factors, advances in extracting shale gas, which has reduced and stabilized natural gas prices, providing North America with a cost advantage over certain imports. As a result, our competitive position and that of other North American nitrogen fertilizer producers has been positively affected. We historically have purchased natural gas either on the spot market, through forward purchase contracts, or a combination of both and have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements. These forward purchase contracts are generally either fixed-price or index-price, short-term in nature and for a fixed supply quantity. We are able to purchase natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems. The following tablea shows the annual volume of natural gas we purchased and the average cost per MMBtu(cid:29) rr NNatural gas volumes (MMBtu in millions) NNatural gas average cost per MMBtu Transportation Costs (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) 28.3 3.51 $ 30.1 2.09 $ Costs for transporting nitrogen-based products can be significant relative to their selling price. 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 ouru 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. 31 (cid:46)(cid:72)(cid:92) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) (cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86) Facilityii Reliabilitytt Consistent, reliable and safe operations at our chemical plants are critical to our financial performance and results of operations. The financial effects of planned downtime at our plants, including Turnarounds (primarily associated with our ammonia plants), is mitigated through a diligent planning process that considers the availability of resources to perform the needed maintenance and other factors. 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 completing a planned Turnaround during 2021 with the next ammonia plant Turnaround planned in the third quarter of 2024. a 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. r Ammonia Production Ammonia is the basic product used to produce all of our upgraded products. The ammonia production rates of our plants affect the total cost per ton of each product produced and the overall sales of our products. Total ammonia production in 2021 was 765,000 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. Forward Sales Contracts We use forward sales of our fertilizer products to optimize our asset utilization, planning process and production scheduling. These sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that are agreed upon, with dates typically occurring within 12 months. We use this program to varying degrees during the year depending on market conditions and our view of changing price environments. Fixing the selling prices of our products months in advance of their ultimate delivery to customers typically causes our reported selling prices and margins to differ from spot market prices and margins available at the time of shipment. (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71) (cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) (cid:73)(cid:82)(cid:85) (cid:21)(cid:19)(cid:21)(cid:20) Our consolidated net sales for 2021 were $556.2 million compared to $351.3 million for 2020. 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.” (cid:44)(cid:87)(cid:72)(cid:80)(cid:86) (cid:36)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:82)(cid:73) (cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) Sellingii Prices Our 2021 average agricultural selling prices for our ammonia, UAN,A 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. were also higher compared to the same period of 2020, primarily Our 2021 average industrial selling prices for most of our products 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. d 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(cid:29) Facility Cherokee 2021 Related Period 3rd Quarter 32 Turnaround Downtime 40 days Turnaround Expense (In Thousands) $ 7,976 Estimated Lost Ammonia Production (In Tons) 21,000 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. 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 the February cold weather event. t 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,rr 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(cid:9)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 on of this plant was completed and began production in 2016. Of the new nitric acid plant at our El Dorado Facility. The constructi $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 dd reduction to PP(cid:9)E. The recovery amount was applied against the original classification of the underlying costs. r Legal Fees-Leidos For 2021 and 2020, certain legal fees were approximately $1.9 million and $5.7 million, respectively. These fees relate to claims we are pursuing against Leidos to recover damages and losses associated with the construction of the ammonia plant at the El Dorado Facility as discussed in footnote B of Note 9. Due to the impact from the CO(cid:57)ID-19 pandemic, the trial date has been delayed, which resulted in reduced costs in 2021. We are awaiting a new trial date. 33 (cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86) (cid:82)(cid:73) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) The following Results of Operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2021 and 2020 and accompanying notes and the discussions under “Overview” and “Liquidity and Capital Resources” included in this MD(cid:9)A. (cid:60)ou should carefully review and consider the information in the MD(cid:9)A of our 2020 Form 10-K, filed with the SEC on February 25, 2021, for an understanding of our results of operations and liquidity discussions and analysis comparing 2020 to 2019. We present the following information about our results of operations. Net sales to unaffili consolidated financial statements and gross profitff cost of freight being recorded in cost of sales. ated customers are reported in the represents net sales less cost of sales. Net sales are reported on a gross basis with the ff (cid:60)(cid:72)(cid:68)(cid:85) (cid:40)(cid:81)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71) (cid:87)(cid:82) (cid:60)(cid:72)(cid:68)(cid:85) (cid:40)(cid:81)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:19) The following table contains certain financial information(cid:29) NNet sales(cid:29) l products Industrial and mining products Total net sales profit(cid:29) gross profit (1) Depreciation and amortization (2) Turnaround expense Recovery from settlements with certain vendors (3) Total gross profit Selling, general and administrative expense Other (income) expense, net Operating income (loss) Interest expense, net NNet loss on extinguishments of debt NNon-operating other expense, net Benefit forff income taxes Net income (loss) information(cid:29) profit percentage (4) Adjusted gross profit percentage (4) Property, plant and equipment expenditures (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (Dollars In Thousands) (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:74)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:38) 264,502 291,737 556,239 $ $ 180,036 171,280 351,316 $ $ 84,466 120,457 204,923 217,515 (68,583) (9,953) (cid:178) 138,979 38,028 (97) 101,048 49,378 10,259 2,422 (4,556) 43,545 $ 80,960 (69,500) (76) 5,664 17,048 32,084 499 (15,535) 51,115 (cid:178) 10 (4,749) (61,911) $ 136,555 917 (9,877) (5,664) 121,931 5,944 (596) 116,583 (1,737) 10,259 2,412 193 105,456 25.0% 39.1% 4.9% 23.0% 35,128 $ 30,471 $ 20.1% 16.1% 4,657 47% 70% 58% 169% (1)% 715% 19% 750% (3)% (170)% 15% $ $ $ $ (1) (2) (3) (4) Represents a non-GAAP measure since the amount excludes unallocated depreciation and amortization, Turnaround expenses and a recovery from settlements. Represents amount classified as cost of sales. See discussion above under “Items Affecting Comparability of Results.” As a percentage of total net sales. 34 The following tables provide key sales metrics for the agricultural tt products(cid:29) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87) (cid:11)(cid:87)(cid:82)(cid:81)(cid:86) (cid:86)(cid:82)(cid:79)(cid:71)(cid:12) UAN HDAN Ammonia Other Total (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) 440,270 265,918 70,331 13,505 790,024 498,738 292,679 97,367 18,024 906,808 (cid:38) (cid:74)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (58,468) (26,761) (27,036) (4,519) (116,784) (cid:42)(cid:85)(cid:82)(cid:86)(cid:86) (cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:54)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74) (cid:51)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86) (cid:11)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72) (cid:83)(cid:72)(cid:85) (cid:87)(cid:82)(cid:81)(cid:12) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) UAN HDAN Ammonia $ $ $ 281 347 485 $ $ $ 150 237 230 $ $ $ 131 110 255 (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:74)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (cid:38) (12)% (9)% (28)% (25)% (13)% (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) 87% 46% 111% With respect to sales of industrial and mining products, the folff lowing tablea indicates key operating metrics of our major products dd (cid:29) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87) (cid:11)(cid:87)(cid:82)(cid:81)(cid:86) (cid:86)(cid:82)(cid:79)(cid:71)(cid:12) Ammonia AN, Nitric Acid and Other Total (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) 234,258 442,066 676,324 269,485 303,787 573,272 (35,227) 138,279 103,052 (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (13)% 46% 18% Ammonia Benchmark (price per metric ton) $ 592 $ 233 $ 359 154% (cid:49)(cid:72)(cid:87) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) 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. ff 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. tt (cid:42)(cid:85)(cid:82)(cid:86)(cid:86) (cid:51)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87) 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. d 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 industr 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. ial and mining products partially offset ff 35 (cid:54)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:15) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) Our SG(cid:9)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. (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:15) (cid:81)(cid:72)(cid:87) Interest expense for 2021 was $49.4 million compared to $51.1 million for 2020. The decrease relates primarily to the interest expense incurred in 2020 associated with a litigation judgment discussed in footnote (B) of Note 9. (cid:49)(cid:72)(cid:87) (cid:79)(cid:82)(cid:86)(cid:86) (cid:82)(cid:81) (cid:40)(cid:91)(cid:87)(cid:76)(cid:81)(cid:74)(cid:88)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:82)(cid:73) (cid:39)(cid:72)(cid:69)(cid:87) 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. (cid:49)(cid:82)(cid:81)(cid:16)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72) (cid:11)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:12)(cid:15) (cid:81)(cid:72)(cid:87) 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”. (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87) (cid:73)(cid:82)(cid:85) (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86) The benefit for income taxes for 2021 was $4.6 million compared to $4.7 million for 2020. The resulting effective tax rate for 2021 ive tax rate on pre-tax income was (11.7)% on pre-tax income compared to 7.1% for 2020 on pre-tax loss. For 2021, the negative effect 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. Also see discussion in Note 8. ff 36 (cid:47)(cid:44)(cid:52)(cid:56)(cid:44)(cid:39)(cid:44)(cid:55)(cid:60) (cid:36)(cid:49)(cid:39) (cid:38)(cid:36)(cid:51)(cid:44)(cid:55)(cid:36)(cid:47) (cid:53)(cid:40)(cid:54)(cid:50)(cid:56)(cid:53)(cid:38)(cid:40)(cid:54) The following table summarizes our cash flow activities for 2021 and 2020(cid:29) NNet cash flows from operating activities NNet cash flows from investing activities NNet cash flows from financing activities (cid:49)(cid:72)(cid:87) (cid:38)(cid:68)(cid:86)(cid:75) (cid:41)(cid:79)(cid:82)(cid:90) (cid:73)(cid:85)(cid:82)(cid:80) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72) (In Thousands) 87,627 $ (2,513) $ 90,140 (34,694) $ (28,426) $ (6,268) 12,947 $ 24,412 $ (11,465) $ $ $ 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(cid:9)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(cid:9)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. (cid:49)(cid:72)(cid:87) (cid:38)(cid:68)(cid:86)(cid:75) (cid:41)(cid:79)(cid:82)(cid:90) (cid:73)(cid:85)(cid:82)(cid:80) (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74) (cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) Net cash used by investing activities was $34.7 million for 2021 compared to $28.4 million for 2020, a change of $6.3 million. For 2021 and 2020, net cash used relates primarily to expendituresu for PP(cid:9)E. (cid:49)(cid:72)(cid:87) (cid:38)(cid:68)(cid:86)(cid:75) (cid:41)(cid:79)(cid:82)(cid:90) (cid:73)(cid:85)(cid:82)(cid:80) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:36)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) 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. 37 (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) The following is our total current cash, long-term debt and stockholders’ equity(cid:29) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) Cash and cash equivalents Revolving credit facility and long-term debt(cid:29) Working Capital Revolver Loan Senior Secured Notes due 2028 (1) Senior Secured Notes due 2023 (1) Secured Financing due 2023 Secured Loan Agreement due 2025 Secured Financing Agreement due 2025 Unsecured Loan Agreement due 2022 (1) Secured Promissory Note due 2021 Other Unamortized discount and debt issuance costs Total long-term debt, including current portion, net Series E and F redeemable preferred stock (2) Total stockholders(cid:10) equity $ (In Millions) 82.1 $ (cid:178) 500.0 (cid:178) 7.7 5.3 24.0 (cid:178) (cid:178) 0.3 (9.7) 527.6 $ (cid:178) $ $ 460.5 16.3 (cid:178) (cid:178) 435.0 10.7 6.8 28.6 10.0 1.2 0.5 (8.6) 484.2 272.1 149.6 (1) (2) 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) (cid:62)or the issuance of equity(cid:64), 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. The remaining capital spending is planned for reliability and maintenance capital projects. a We believe that the combination of our cash on hand, the availability operations will be sufficient to fund our anticipated liquidity needs for the next twelve months. a on our revolving credit facility, and our cash flow from (cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72) (cid:90)(cid:76)(cid:87)(cid:75) (cid:47)(cid:82)(cid:81)(cid:74) (cid:16) (cid:55)(cid:72)(cid:85)(cid:80) (cid:39)(cid:72)(cid:69)(cid:87) (cid:38)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86) As discussed below under “Loan Agreements,” the Working Capital Revolver Loan requires, among other things, that we meet certain financial covenants. The Working Capital Revolver Loan does not include financial covenant requirements unless a defined covenant trigger event has occurred and is continuing. As of December 31, 2021, no trigger event had occurred. (cid:47)(cid:82)(cid:68)(cid:81) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:27) (cid:177) LSB has $500 million aggregate principal amountuu of the 6.25% Senior Secured Notes outstanding, as discussed in footnote (B) of Note 7. Interest is to be paid semiannually on May 15th and October 15th. Due to the redemption of the Old Notes, our interest expense is expected to decrease as compared to 2021. (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:22) (cid:177) 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 (cid:45)une 2023. (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:47)(cid:82)(cid:68)(cid:81) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:24) (cid:16) 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 Marca h 2025. (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:71)(cid:88)(cid:72) (cid:21)(cid:19)(cid:21)(cid:24) (cid:177) 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. 38 (cid:58)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:53)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:85) (cid:47)(cid:82)(cid:68)(cid:81) (cid:177) At December 31, 2021, the Working Capital Revolver Loan was undrawn and the net credit available for borrowings under our Working Capital Revolver Loanaa was approximately $61.3 million, based on our eligible collateral, less outstanding standby letters of credit as of that date. Also see discussion above under “Compliance with Long-Term Debt Covenants. dd (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86) (cid:177) (cid:21)(cid:19)(cid:21)(cid:20) For 2021, capital expenditures relating to PP(cid:9)E were $35.1 million, which expenditures include approximately $0.6 million associated with maintaining compliance with environmental laws, regulations and guidelines. The capital expenditures were funded primarily from cash and working capital. See discussion above under “Capitaliz a ation” for our expected annual capital expenditures for 2022. (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86) (cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71) (cid:90)(cid:76)(cid:87)(cid:75) (cid:40)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92) (cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72) We are subject to numerous federal, state and local laws and regulations, including matters regarding environmental, health and safety matters. As a result, we incurred expenses of $3.4 million in 2021 in connection with environmental projects. For 2022, we expect to incur expenses ranging from $3.8 million to $4.2 million in connection with additional environmental projects. However, it is possible that the actual costs could be significantly different than our estimates. (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86) 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. t 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 preferr ed stock (the “Series D Preferred”) and Series B 12% cumulative convertible Class C Preferred Stock (the “Series B Preferred”). ff (cid:54)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92) We believe fertilizer products sold to the agricultural industryrr are seasonal while sales into the industrial and mining sectors generally are primarily during the spring and fall planting seasons, which are less susceptible. The selling seasons for agricultural products typically extend from March through (cid:45)une and from September through November in the geographical markets we distribute the majority of our agricultural products. As a result, we typically increase our inventory of fertilizer products prior to the beginning of each planting season in order to meet the demand for our products. In addition, the amount and timing of sales to the agriculturatt l markets depend upon weather conditions and other circumstances beyond our control. dd (cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)(cid:81)(cid:71) (cid:51)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87) (cid:37)(cid:82)(cid:81)(cid:71)(cid:86) We are contingently liable to sureties in respect of insurance bonds issued by the sureties in connection with certain contracts entered into by subsidiaries in the normal course of business. These insurance bonds primarily represent guarantees of future performance of our subsidiaries. As of December 31, 2021, we have agreed to indemnify the sureties for payments, up to $9.7 million, made by them in respect of such bonds. All of these insurance bonds are expected to expire or be renewed in 2022. (cid:50)(cid:73)(cid:73)(cid:16)(cid:73)(cid:73) (cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:54)(cid:75)(cid:72)(cid:72)(cid:87) (cid:36)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934. 39 (cid:178) (cid:178) (cid:178) (cid:178) 7 8 5 , 5 6 5 $ 1 3 2 , 5 3 $ 1 9 9 , 6 4 $ 7 9 2 , 9 4 $ $ 2 5 3 , 6 4 1 $ 0 8 1 , 1 0 9 $ $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:85) (cid:72) (cid:87) (cid:73) (cid:68) (cid:72) (cid:85) (cid:72) (cid:75) (cid:55) (cid:25) (cid:21) (cid:19) (cid:21) (cid:24) (cid:21) (cid:19) (cid:21) (cid:23) (cid:21) (cid:19) (cid:21) ) s d n a s u o h T n I ( (cid:15) (cid:20) (cid:22) (cid:85) (cid:72) (cid:69) (cid:80) (cid:72) (cid:70) (cid:72) (cid:39) (cid:74) (cid:81) (cid:76) (cid:71) (cid:81) (cid:40) (cid:85) (cid:68) (cid:72) (cid:60) (cid:72) (cid:75) (cid:87) (cid:81) (cid:76) (cid:22) (cid:21) (cid:19) (cid:21) (cid:21) (cid:21) (cid:19) (cid:21) (cid:79) (cid:68) (cid:87) (cid:82) (cid:55) (cid:86) (cid:81) (cid:82) (cid:76) (cid:87) (cid:68) (cid:74) (cid:76) (cid:79) (cid:69) (cid:50) (cid:79) (cid:68) (cid:88) (cid:87) (cid:70) (cid:68) (cid:85) (cid:87) (cid:81) (cid:82) (cid:38) (cid:72) (cid:88) (cid:39) (cid:86) (cid:87) (cid:81) (cid:72) (cid:80) (cid:92) (cid:68) (cid:29) (cid:51) e l b a t g n i w o l l o f e h t n i d e z i r a m m u s e r a s n o i t a g i l b o l a u t c a r t n o c e t a g e r g g a r u o , 1 2 0 2 , 1 3 r e b m e c e D f o s A (cid:86) (cid:81) (cid:82) (cid:76) (cid:87) (cid:68) (cid:74) (cid:76) (cid:79) (cid:69) (cid:50) (cid:79) (cid:68) (cid:88) (cid:87) (cid:70) (cid:68) (cid:85) (cid:87) (cid:81) (cid:82) (cid:38) (cid:72) (cid:87) (cid:68) (cid:74) (cid:72) (cid:85) (cid:74) (cid:74) (cid:36) (cid:178) 0 0 0 , 0 0 5 0 0 0 , 0 0 5 $ (cid:178) (cid:178) (cid:178) (cid:178) 0 0 0 , 2 0 0 5 , 2 6 (cid:178) (cid:178) 7 8 0 , 1 (cid:178) 3 4 5 , 2 0 5 2 , 1 3 (cid:178) 0 8 1 8 5 2 , 1 5 8 5 , 9 5 8 5 , 9 (cid:178) 6 3 7 , 3 2 9 6 , 1 3 (cid:178) 0 2 7 8 5 2 , 1 7 2 4 , 7 7 2 4 , 7 (cid:178) 8 9 2 , 6 4 6 4 , 2 3 (cid:178) 0 2 7 8 8 3 , 2 0 0 9 , 0 1 0 0 9 , 0 1 (cid:178) 9 8 9 , 7 5 2 2 , 3 3 (cid:178) 0 2 7 8 8 3 , 2 0 0 5 , 2 2 2 7 , 7 5 4 5 4 , 9 4 5 4 , 9 5 9 1 , 4 3 0 0 5 , 4 6 2 9 6 , 9 3 5 5 , 4 2 0 2 7 8 3 2 , 3 (cid:178) 6 6 3 , 7 3 0 0 0 , 0 0 5 6 6 3 , 7 3 5 0 0 5 , 4 6 8 5 2 , 2 3 3 5 5 , 4 2 0 6 0 , 3 7 1 6 , 1 1 6 2 3 , 5 2 2 0 0 5 , 2 $ ) 4 ( s e i t i l i b a i l r e h t o d n a d e u r c c a t n e r r u c n o n n i d e d u l c n i s n o i t a g i l b o l a u t c a r t n o c r e h t O ) 3 ( t n e m t i m m o c e n i l e p i p s a g l a r u t a NN s n o i t a g i l b o l a u t c a r t n o c r e h t O ) 1 ( t b e d m r e t - g n o l n o s t n e m y a p t s e r e t n I s t n e m t i m m o c e s a h c r u p m r i F ) 2 ( s e r u t i d n e p x e l a t i p a C s e s a e l g n i t a r e p O s e t o N d e r u c e S r o i n e S (cid:29) t b e d m r e t - g n o L t b e d m r e t - g n o l l a t o T r e h t O 0 4 . t b e d e t a r t s e r e t n i d e x i f l l a s i t b e d h c i h w , 1 2 0 2 , 1 3 r e b m e c e D t a s e t a r t s e r e t n i n o d e s a b e r a s t n e m y a p t s e r e t n i d e t a m i t s e e h T . m e t s y s e n i l e p i p d n a g n i r e h t a g a o t g n i t a l e r y t i c a p a c e r u s n e o t s t s o c m u m i n i m e h t f o e r a h s e t a n o i t r o p o r p r u O . 1 2 0 2 , 1 3 r e b m e c e D t a s e t a m i t s e n o d e s a b s i t i f e n e b h t a e d e h t o t g n i t a l e r s w o l f h s a c e r u t t u f e h T . 1 2 0 2 , 1 3 r e b m e c e D t a s t n u o m a d e t e g d u b e h t y l n o e d u l c n i s e r u t i d n e p x e l a t i p a C ) 1 ( ) 2 ( ) 3 ( ) 4 ( l a t o T (cid:49)(cid:72)(cid:90) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) Refer to Note 1 for recently adopted and issued accounting standards. (cid:38)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86) The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and disclosures of contingencies and fair values. It is reasonably possible that the estimates and assumptions utilized as of December 31, 2021, could change in the near term. The more critical areas of financial reporting affected by management(cid:10)s judgment, estimates and assumptions include the following(cid:29) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:177) 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 realizable and earned. 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 actuat l costs could be significantly ff different than our estimates. (cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92) (cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72) (cid:177) As discussed under “Government Laws and Regulations” in Item 1 of this report, we are subject to numerous federal, state, and local laws and regulations, including matters regarding environmental, health and safety matters. We have We must continually monitor whether we have maintained developed policies and procedures related to regulatory compliance. a compliance with such laws and regulations and the operating implications, if any, and amount of penalties, fines and assessments that may result from noncompliance. We will also be obligated to manage certain discharge water outlets and monitor groundwater contaminants at our chemical facilities should we discontinue the operations of a facility. However, certain conditions exist which may result in a loss, but which will only be resolved when future events occur relating to these matters. 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, 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. Actual results could differ materially from these estimates and judgments, as additional informati on becomes known. ff (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91) (cid:177) As discussed under “Income Taxes” in Note 1 and in Note 8, 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. 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. At December 31, 2021 and 2020, our valuation allowance on deferred tax assets was $47.0 million and $64.7 million, respectively. (cid:73)(cid:73) - As discussed in Note 1, the Series E and Series F Redeemable Preferre (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:40) (cid:68)(cid:81)(cid:71) (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:41) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) d Stocks, prior to their redemption as discussed in Note 2, were redeemable outside our control and therefore were historically classified as temporary(cid:18)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. ff As discussed in Note 2, in (cid:45)uly 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. qq 41 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. ff 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 Series 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. (cid:44)(cid:55)(cid:40)(cid:48) (cid:26)(cid:36)(cid:17) (cid:52)(cid:56)(cid:36)(cid:49)(cid:55)(cid:44)(cid:55)(cid:36)(cid:55)(cid:44)(cid:57)(cid:40) (cid:36)(cid:49)(cid:39) (cid:52)(cid:56)(cid:36)(cid:47)(cid:44)(cid:55)(cid:36)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:54)(cid:38)(cid:47)(cid:50)(cid:54)(cid:56)(cid:53)(cid:40)(cid:54) (cid:36)(cid:37)(cid:50)(cid:56)(cid:55) (cid:48)(cid:36)(cid:53)(cid:46)(cid:40)(cid:55) (cid:53)(cid:44)(cid:54)(cid:46) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) Our results of operations and operating cash flows are affected by changes in market prices of ammonia and natural gas and changes in market interest rates. a (cid:41)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:53)(cid:76)(cid:86)(cid:78) Periodically, we enter into forward firm sales commitments for products to be delivered in future periods. As a result, we could be exposed to embedded losses should our product costs exceed the firm sales prices at the end of a reporting period. At December 31, 2021, we had no embedded losses associated with sales commitments with firm sales prices. (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:71)(cid:76)(cid:87)(cid:92) (cid:51)(cid:85)(cid:76)(cid:70)(cid:72) (cid:53)(cid:76)(cid:86)(cid:78) A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change. Since we are exposed to commodity price risk, we periodically enter into contracts to purchase natural gas for anticipated production needs to manage risk related to changes in prices of natural gas commodities. Generally, these contracts are considered normal purchases because they provide for the purchase of natural gas that will be delivered in quantities expected to be used over a reasonable period of time in the normal course of business, these contracts are exempt from the accounting and reporting requirements relating to derivatives. At December 31, 2021, we had no outstanding natural gas contracts, which are accounted for on a mark-to-market basis. (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87) (cid:53)(cid:68)(cid:87)(cid:72) (cid:53)(cid:76)(cid:86)(cid:78) Generally, we are exposed to variable interest rate risk with respect to our revolving credit facility. As of December 31, 2021, we had no outstanding borrowings on this credit faff cility and no other variable rate borrowings. We currently do not hedge our interest rate risk associated with these variable interest loans. The following table presents principal amounts by maturity date and weighted-average interest rates for the periods presented for our debt agreements as of December 31, 2021(cid:29) (cid:40)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71) (cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:82)(cid:73) (cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80) (cid:71)(cid:72)(cid:69)(cid:87) (cid:11)(cid:20)(cid:12)(cid:29) (cid:21)(cid:19)(cid:21)(cid:21) (cid:21)(cid:19)(cid:21)(cid:22) (cid:60)(cid:72)(cid:68)(cid:85)(cid:86) (cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:23) (Dollars In Thousands) (cid:21)(cid:19)(cid:21)(cid:24) (cid:21)(cid:19)(cid:21)(cid:25) (cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85) (cid:55)(cid:82)(cid:87)(cid:68)(cid:79) Fixed interest rate debt $ 9,454 $ 10,900 $ 7,427 $ 9,585 $ (cid:178) $500,000 $537,366 Weighted-average interest rate 6.40% 6.36% 6.31% 6.27% 6.25% 6.25% 6.26% (1) The debt balances and weighted-average interest rate are based on the aggregate amount of debt outstanding as of December 31, 2021. At December 31, 2021 and 2020, we did not have any financial instruments with fair values materially different from their carrying amounts (which excludes issuance costs, if applicablea ). The fair value of financial instruments is not indicative of the overall fair value of our assets and liabila ities since financial instruments do not include all assets, including intangibles, and all liabilities. rr (cid:44)(cid:55)(cid:40)(cid:48) (cid:27)(cid:17) (cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47) (cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:54) (cid:36)(cid:49)(cid:39) (cid:54)(cid:56)(cid:51)(cid:51)(cid:47)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:36)(cid:53)(cid:60) (cid:39)(cid:36)(cid:55)(cid:36) We have included the financial statements and supplementary financial information required by this item immediately following Part I(cid:57) of this report and hereby incorporate by reference the relevant portions of those statements and information into this Item 8. (cid:44)(cid:55)(cid:40)(cid:48) (cid:28)(cid:17) (cid:38)(cid:43)(cid:36)(cid:49)(cid:42)(cid:40)(cid:54) (cid:44)(cid:49) (cid:36)(cid:49)(cid:39) (cid:39)(cid:44)(cid:54)(cid:36)(cid:42)(cid:53)(cid:40)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:54) (cid:58)(cid:44)(cid:55)(cid:43) (cid:36)(cid:38)(cid:38)(cid:50)(cid:56)(cid:49)(cid:55)(cid:36)(cid:49)(cid:55)(cid:54) (cid:50)(cid:49) (cid:36)(cid:38)(cid:38)(cid:50)(cid:56)(cid:49)(cid:55)(cid:44)(cid:49)(cid:42) (cid:36)(cid:49)(cid:39) (cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47) (cid:39)(cid:44)(cid:54)(cid:38)(cid:47)(cid:50)(cid:54)(cid:56)(cid:53)(cid:40) None. 42 (cid:44)(cid:55)(cid:40)(cid:48) (cid:28)(cid:36)(cid:17) (cid:38)(cid:50)(cid:49)(cid:55)(cid:53)(cid:50)(cid:47)(cid:54) (cid:36)(cid:49)(cid:39) (cid:51)(cid:53)(cid:50)(cid:38)(cid:40)(cid:39)(cid:56)(cid:53)(cid:40)(cid:54) As of the end of the period covered by this report, we carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures were effective. There were no changes to our internal control over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. d (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:82)(cid:81) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79) (cid:82)(cid:89)(cid:72)(cid:85) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control system is a process, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. ff Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our ff internal control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework). Based on our assessment, we believe that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting. This report appears on the following page. 43 (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:82)(cid:73) (cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71) (cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:41)(cid:76)(cid:85)(cid:80) To the Shareholders and the Board of Directors of LSB Industries, Inc. (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81) (cid:82)(cid:81) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79) (cid:50)(cid:89)(cid:72)(cid:85) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) control over financial reporting as of December 31, 2021, based on criteria established We have audited LSB Industries, Inc.’s internal in Internal Control(cid:178)Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, LSB Industries, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. a r We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements of the Company and our report dated February 24, 2022 expressed an unqualified opinion thereon. u (cid:37)(cid:68)(cid:86)(cid:76)(cid:86) (cid:73)(cid:82)(cid:85) (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81) The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit internal control over financial reporting was maintained in all material respects. to obtain reasonable assurance about whether effective Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effecff ng such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. tiveness of internal control based on the assessed risk, and performi ff ff (cid:39)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:82)(cid:73) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79) (cid:50)(cid:89)(cid:72)(cid:85) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company(cid:30) (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company(cid:30) and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effeff ct on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. a (cid:18)s(cid:18) Ernst (cid:9) (cid:60)oung LLP Oklahoma City, Oklahoma February 24, 2022 (cid:44)(cid:55)(cid:40)(cid:48) (cid:28)(cid:37)(cid:17) (cid:50)(cid:55)(cid:43)(cid:40)(cid:53) (cid:44)(cid:49)(cid:41)(cid:50)(cid:53)(cid:48)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49) None. (cid:44)(cid:55)(cid:40)(cid:48) (cid:28)(cid:38)(cid:17) (cid:39)(cid:44)(cid:54)(cid:38)(cid:47)(cid:50)(cid:54)(cid:56)(cid:53)(cid:40) (cid:53)(cid:40)(cid:42)(cid:36)(cid:53)(cid:39)(cid:44)(cid:49)(cid:42) (cid:41)(cid:50)(cid:53)(cid:40)(cid:44)(cid:42)(cid:49) (cid:45)(cid:56)(cid:53)(cid:44)(cid:54)(cid:39)(cid:44)(cid:38)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54) (cid:55)(cid:43)(cid:36)(cid:55) (cid:51)(cid:53)(cid:40)(cid:57)(cid:40)(cid:49)(cid:55) (cid:44)(cid:49)(cid:54)(cid:51)(cid:40)(cid:38)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54) Not Applicable. 44 Item 10, Item 11, Item 12, Item 13 and Item 14 are incorporated by reference to our definitive proxy statement which we intend to file with the SEC on or before April 29, 2022. (cid:51)(cid:36)(cid:53)(cid:55) (cid:44)(cid:44)(cid:44) (cid:44)(cid:55)(cid:40)(cid:48) (cid:20)(cid:24)(cid:17) (cid:40)(cid:59)(cid:43)(cid:44)(cid:37)(cid:44)(cid:55)(cid:54) (cid:36)(cid:49)(cid:39) (cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47) (cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55) (cid:54)(cid:38)(cid:43)(cid:40)(cid:39)(cid:56)(cid:47)(cid:40)(cid:54) (cid:11)(cid:68)(cid:12) (cid:11)(cid:20)(cid:12) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) The following consolidated financial statements of the Company appear immediately following this Part I(cid:57)(cid:29) (cid:51)(cid:36)(cid:53)(cid:55) (cid:44)(cid:57) Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2021 and 2020 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2021 Consolidated Statements of Stockholders(cid:10) Equity for each of the three years in the period ended December 31, 2021 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2021 Notes to Consolidated Financial Statements Quarterly Financial Data (Unaudited) (cid:11)(cid:68)(cid:12) (cid:11)(cid:21)(cid:12) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:54)(cid:70)(cid:75)(cid:72)(cid:71)(cid:88)(cid:79)(cid:72) The Company has included the following schedule in this report(cid:29) II - (cid:57)aluation and Qualifying Accounts Page F-2 F-4 F-6 F-7 F-8 F-10 F-37 F-39 We have omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in our Consolidated Financial Statements, including the notes to those statements. 45 (cid:11)(cid:68)(cid:12)(cid:11)(cid:22)(cid:12) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:86) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 3(i).1 3(i).2 3(ii).1 4.1(P) 4.2 4.3 4.4 4.5 4.6 4.7(a) 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) Restated Certificate of Incorporation of LSB Industries, Inc., dated (cid:45)anuary 21, 1977, as amended August 27, 1987 Certificate of Amendment Incorporation of LSB Industries, dated September 23, 2021 to the Restated Certificate of (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Exhibit 3(i).1 to the Company’s Form 10-K filed on February 28, 2013 Exhibit 3(i).2 to the Company’s Registration Statement on From S-3 filed on November 16, 2021 Exhibit 3.1 to the Company’s Form 8-K filed (cid:45)uly 19, 2021 Second Amended and Restated Bylaws of LSB Industries, dated (cid:45)uly 19, 2021 Specimen Certificate for the Company’s Series B Preferred Stock Exhibit 4.27 to the Company’s Registra Inc. , ntion Specimen Certificaff Convertible Class C Preferred Stock Specimen Certificate for the Company’s Common Stock the Company’s Series D 6% Cumulative, te forff Certificate of Designations of Series E Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of December 4, 2015 Certificate of Designations of Series E-1 Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of October 18, 2018 Certificate of Correction to Certificate of Designations of the Series E-1 Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc. Certificate of Amendment to Certificate of Designations of the Series E-1 Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc. Certificate of Designations of Series F Cumulative Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of December 4, 2015 Certificate of Designations of Series F-1 Redeemable Class C Preferred Stock of LSB Industries, Inc., dated as of October 18, 2018 Certificate of Designations of Series G Class C Preferred Stock of LSB Industries, Inc., as filed with the Secretary of State of the State of Delaware on (cid:45)uly 6, 2020 Section 382 Rights Agreement, dated as of (cid:45)uly 6, 2020, between LSB Industries, Inc. and Computershare Trust Company, N.A., as rights agent Indenture, dated August 7, 2013, among LSB Industries, Inc., the guarantors named therein and UMB Bank, n.a., as trustee First Supplemental Indenture, dated as of September 7, 2016, by and among LSB Industries, Inc., the guarantors party thereto and UMB Bank, n.a., as trustee and notes collateral agent Intercreditor Agreement, dated August 7, 2013, by and among Wells Fargo Capital Finance, Inc., as agent and UMB Bank, n.a., as collateral agent, and acknowledged and agreed to by LSB Industries, Inc. and the other grantors named therein Indenture, dated as of April 25, 2018, among LSB Industries, Inc., the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent. Form of 9.625% Senior Secured Notes due 2023 (included in Exhibit 4.1). 46 Statement on Form S-3 No. 33-9848 Exhibit 4.3 to the Company’s Form 10-K filed March 3, 2011 Exhibit 4.3 to the Company’s Registration Statement on Form S-3 ASR filed November 16, 2012 Exhibit 4.1 to the Company’s Form 8-K filed December 8, 2015 Exhibit 4.1 to the Company’s Form 8-K filed October 19, 2018 Exhibit 4.1 to the Company’s Form 8-K filed November 2, 2018 Exhibit 4.2 to the Company’s Form 8-K filed December 8, 2015 Exhibit 4.2 to the Company’s Form 8-K filed October 19, 2018 Exhibit 3.1 to the Company’s Form 8-K filed (cid:45)uly 6, 2020 Exhibit 4.1 to the Company’s Form 8-K filed (cid:45)uly 6, 2020 Exhibit 4.1 to the Company’s Form 8-K filed August 14, 2013 Exhibit 4.1 to the Company’s Form 8-K filed October 4, 2016. Exhibit 99.1 to the Company’s Form 8-K filed August 14, 2013 Exhibit 4.1 to the Company’s Form 8-K filed April 25, 2018 Exhibit 4.2 to the Company’s Form 8-K filed April 25, 2018 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 4.17(a) 10.1(cid:13) 10.2(cid:13) 10.3(cid:13) 10.4(cid:13) 10.5(cid:13) 10.6(cid:13) 10.7(cid:13) 10.8(cid:13) 10.9(cid:13) 10.10(cid:13) 10.11(cid:13) 10.12(cid:13) 10.13(cid:13) 10.14(cid:13) 10.15(cid:13) 10.16(cid:13) 10.17(cid:13) 10.18(cid:13) 10.19(cid:13) 10.20(cid:13) 10.21(cid:13) 10.22(cid:13) 10.23(cid:13) 10.24(cid:13) 10.25(cid:13) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Description of Registrant’s Securities Registered Pursuant Section 12 of the Securities Exchange Act of 1934 Form of Death Benefit Plan Agreement, dated April 1, 1981 to LSB Industries, Inc. Outside Directors Stock Purchase Plan, dated May 24, 1999 LSB Industries, Inc. 2008 Incentive Stock Plan, effective (cid:45)une 5, 2008, as amended by First Amendment, effective (cid:45)une 5, 2014 Form of Restricted Stock Agreement Form of Incentive Stock Option Agreement for 2008 Plan LSB Industries, Inc. 2016 Long Term Incentive Plan Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Stock Option Agreement Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Restricted Stock Unit Agreement (Director Award) Form of LSB Industries, Inc. 2016 Long Term Incentive Plan Restricted Stock Agreement Form of Time-Based Restricted Stock Agreement of LSB Industries, Inc. Form of Performance-Based Restricted Stock Agreement of LSB Industries, Inc. Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Mark Behrman Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Mark Behrman Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Mark T. Behrman Restricted Stock Agreement by and between LSB Industries, Inc. and Mark Behrman, dated as of December 31, 2015 Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of December 31, 2015 Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell General Release Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of (cid:45)anuary 14, 2019 Restricted Stock Agreement by and between LSB Industries, Inc. and Daniel D. Greenwell, dated as of December 31, 2015 Employment Agreement by and between LSB Industries, Inc. and Michael Foster, dated as of (cid:45)anuary 5, 2016 Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Michael (cid:45). Foster Notice Period Extension Regarding Employment Agreement by and between LSB Industries, Inc. and Michael (cid:45). Foster Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Michael (cid:45). Foster Restricted Stock Agreement by and between LSB Industries, Inc. and Michael Foster, dated as of (cid:45)anuary 5, 2016 47 dfiled Exhibit 10.2 to the Company’s Form 10-K filed March 31, 2006 Exhibit 99.2 to the Company’s Form 8-K filed October 23, 2014 Exhibit 99.3 to the Company’s Form 8-K filed (cid:45)une 11, 2014 Exhibit 10.3 to the Company’s Form 8-K (cid:45)anuary 8, 2016 Exhibit 10.8 to the Company’s Form 10-K filedd February 29, 2016 Exhibit 4.8 to the Company’s Form S-8 filed (cid:45)une 28, 2016 Exhibit 4.9 to the Company’s Form S-8 filed (cid:45)une 28, 2016 Exhibit 4.10 to the Company’s Form S-8 filed (cid:45)une 28, 2016 Exhibit 4.11 to the Company’s Form S-8 filed (cid:45)une 28, 2016 Exhibit 10.4 to the Company’s Form 8-K filed (cid:45)anuary 3, 2019 Exhibit 10.5 to the Company’s Form 8-K filed (cid:45)anuary 3, 2019 Exhibit 10.12 to the Company’s Form 10-K fileff February 26, 2019 Exhibit 10.4 to the Company’s Form 10-Q filed October 24, 2018 Exhibit 10.1 to the Company’s Form 8-K filed (cid:45)anuary 3, 2019 Exhibit 10.17 to the Company’s Form 10-K fileff February 29, 2016 Exhibit 10.1 to the Company’s Form 8-K(cid:18)KK A filed (cid:45)anuary 7, 2016 Exhibit 10.3 to the Company’s Form 10-Q filed October 24, 2018 Exhibit 10.18 to the Company’s Form 10-K fileff February 26, 2019 Exhibit 10.19 to the Company’s Form 10-K fileff February 26, 2019 Exhibit 10.2 to the Company’s Form 8-K(cid:18)KK A fileff (cid:45)anuary 7, 2016 Exhibit 10.25 to the Company’s Form 10-K fileff February 29, 2016 Exhibit 10.5 to the Company’s Form 10-Q filed October 24, 2018 Exhibit 10.23 to the Company’s Form 10-K filed February 26, 2019 Exhibit 10.3 to the Company’s Form 8-K filed (cid:45)anuary 3, 2019 Exhibit 10.26 to the Company’s Form 10-K filed February 29, 2016 d d d d d d (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 10.26(cid:13) 10.27(cid:13) 10.28(cid:13) 10.29(cid:13) 10.30(cid:13) 10.31(cid:13) 10.32 10.33 10.34 10.35 10.36 10.37 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) Employment Agreement by and between LSB Industries, Inc. and (cid:45)ohn Diesch, executed as of (cid:45)uly 21, 2016 Employment Agreement by and between LSB Industries, Inc. and (cid:45)ohn Diesch, executed as of February 8, 2019 Employment Agreement, dated December 30, 2018, between LSB Industries, Inc. and Cheryl Maguire Employment Agreement, dated December 20, 2019 and to be effective not later than February 3, 2020, between LSB Industries, Inc. and (cid:45)ohn Burns Severance and Change in Control Agreement, dated April 6, 2020, between LSB Industries, Inc. and Kristy Carver Form of Retention Bonus Agreement schedule identifying other Agreement, dated October 14, 2015, by and Indemnification ff between the Company and (cid:45)ack E. Golsen, together with a schedule identifying other substantially identical agreements between the Company and each of the other directors identified on the schedule Agreement, dated October 14, 2015 by and Indemnification ff between the Company and David M. Shear, together with a schedule identifying other substantially identical agreements between the Company and each of its executive officers identified on the schedule Indemnification Agreement, dated as of December 4, 2015, by ff and between LSB Industries, Inc. and (cid:45)onathan S. Bobb, together substantially identical with a agreements between the Company and each of the other directors identified on the schedule Asset Purchase Agreement, dated as of December 6, 2002, by and among Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation, Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC Exhibits and Disclosure Letters to the Asset Purchase Agreement, dated as of December 6, 2002, by and among Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation, Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC Ammonia Purchase and Sale Agreement by and between El Dorado Chemical Company and Koch Fertilizer, LLC, dated as of November 2, 2015 (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Exhibit 10.1 to the Company’s Form 8-K filed August 2, 2016 Exhibit 10.1 to the Company’s Form 8-K filed February 11, 2019 Exhibit 10.2 to the Company’s Form 8-K filed (cid:45)anuary 3, 2019 Exhibit 10.30 to the Company’s Form 10-K filed February 25, 2019 Exhibit 10.1 to the Company’s Form 10-Q filed May 7, 2020 Exhibit 10.28 to the Company’s Form 10-K filed February 29, 2016 Exhibit 10.1 to the Company’s Form 8-K filed October 19, 2015 Exhibit 10.2 to the Company’s Form 8-K filed October 19, 2015 Exhibit 10.5 to the Company’s Form 8-K filed December 8, 2015 Exhibit 2.1 to the Company’s Form 8-K dated December 27, 2002 Exhibit 10.1b to the Company’s Form 10-Q filed August 6, 2010 Exhibit 10.49 to the Company’s Form 10-K filed February 29, 2016 CERTAIN INFORMATION WITHIN THIS E(cid:59)HIBIT HAS BEEN OMITTED AS IT IS THE SUB(cid:45)ECT OF A COMMISSION ORDER CF (cid:6)33502, DATED APRIL 4, 2016, GRANTING REQUEST COMPAN(cid:60) FOR CONFIDENTIAL TREATMENT B(cid:60) THE E(cid:59)CHANGEAA AND SECURITIES COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. B(cid:60) THE 48 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 10.38 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) Second Amendment to Ammonia Purchase and Sale Agreement Between Koch Fertilizer, LLC and El Dorado Chemical Company, dated as of September 30, 2019 10.39 Urea Ammonium Nitrate Purchase and Sale Agreement dated as of March 3, 2016 and effective as of (cid:45)une 1, 2016 between Coffeyville Resources Nitrogen Fertilizers, LLC and Pryor Chemical Company 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 10.48 10.49 Stock Purchase Agreement by and among Consolidated Industries L.L.C. The Climate Control Group, Inc., NIBE Energy Systems Inc. and, solely for purposes of Sections 6.8, 6.19 and 11.15 therein, LSB Industries, Inc., and solely for purposes of Section 11.16 therein, NIBE Industrier AB (publ), dated as of May 11, 2016. Contract on the supply of Basic Engineering Package, Detail Engineering Package, Tagged Major Equipment and related Advisory Services, between Weatherly Inc. and El Dorado Chemical Company, dated November 30, 2012 Engineering, Procurement and Construction Agreement, dated August 12, 2013, between El Dorado Ammonia L.L.C. and SAIC Constructors, LLC Construction Agreement-DMW2, dated November 6, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Construction Agreement (cid:177) NACSAC, dated November 6, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Engineering, Procurement and Construction Agreement, dated December 31, 2013, between El Dorado Chemical Company and SAIC Constructors, LLC Engineering, Contract, Amendment No. 1 dated October 20, 2015, by and between El Dorado Ammonia LLC and SAIC Constructors, LLC Settlement Agreement, dated April 26, 2015, by and among the Company and Starboard (cid:57)alue LP and its certain affiliates and associates Consent Decree, dated May 28, 2014, by and among, LSB Industries, Inc., El Dorado Chemical Co., Cherokee Nitrogen Co., Pryor Chemical Co., El Dorado Nitrogen, L.P., the U.S. the U.S. Environmental Protection Department of Agency, Environmental of Management, and the Oklahoma Department of Environment Quality Second Amended and Restated Loan and Security Agreement, dated December 31, 2013, by and among LSB Industries, Inc., each of its subsidiaries that are signatories thereto, the lenders signatories thereto, and Wells Fargo Capital Finance, LLC the Alabama Department Construction Procurement (cid:45)ustice, and 49 (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Exhibit 10.1 to the Company’s Form 10-Q filed October 29, 2019 CERTAIN CONFIDENTIAL INFORMATION WITHIN THIS BEEN OMITTED. Exhibit 10.1 to the Company’s Form 10-Q filed August 8, 2016 E(cid:59)HIBIT HAS DATED AUGUST 30, CERTAIN INFORMATION WITHIN THIS E(cid:59)HIBIT HAS BEEN OMITTED AS IT IS THE SUB(cid:45)ECT OF A COMMISSION ORDER CF (cid:6)33783. 2016, GRANTING REQUEST B(cid:60) THE COMPAN(cid:60) FOR CONFIDENTIAL TREATMENT B(cid:60) THE SECURITIES E(cid:59)CHANGEAA AND COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. Exhibit 10.1 to the Company’s Form 8-K filed May 13, 2016 Exhibit 99.2 to the Company’s Form 8-K filed December 6, 2012 Exhibit 10.1 to the Company’s Form 8-K filed August 15, 2013 Exhibit 99.1 to the Company’s Form 8-K filed November 12, 2013 Exhibit 99.2 to the Company’s Form 8-K filed November 12, 2013 Exhibit 99.1 to the Company’s Form 8-K filed (cid:45)anuary 7, 2014 Exhibit 10.1 to the Company’s Form 8-K filed October 26, 2015 Exhibit 99.1 to the Company’s Form 8-K filed April 30, 2015 Exhibit 99.1 to the Company’s Form 8-K filed (cid:45)une 3, 2014 Exhibit 4.9 to the Company’s Form 10-K filed February 27, 2014 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 10.50 10.51 10.52 10.53 10.54 10.55 10.56 10.57 10.58 10.59 10.60 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Amendment No. 1 to the Second Amended and Restated Loan and Security Agreement, dated as of (cid:45)une 11, 2015, by and among LSB Industries, Inc. its subsidiaries identified on the signature pages thereof, the lenders identifiedff on the signature pages thereof and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent for the Lenders Amendment No. 2 to the Second Amended and Restated Loan and Security Agreement, dated as of November 9, 2015, by and among LSB Industries, Inc., its subsidiaries identified on the signature pages thereof, the lenders identified on the signature pages thereof, and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent for the Lenders Third Amended and Restated Loan and Security Agreement, dated as of (cid:45)anuary 17, 2017, by and among LSB Industries, Inc., the subsidiaries of LSB Industries, Inc. party thereto, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the arranger and administrative agent. to Third Amended and Restated Loan and First Amendment Security Agreement, dated as of April 16, 2018, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors. Second Amendment to Third Amended and Restated Loan and Security Agreement, dated as of February 26, 2019, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors. Third Amendment to Third Amended and Restated Loan and Security Agreement, dated as of April 20, 2020, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors Consent and Fourth Amendment to Third Amended and Restated Loan and Security Agreement, dated as of September 22, 2021, by and among Wells Fargo Capital Finance, LLC, as the arranger and administrative agent, the lenders party thereto, LSB Industries, Inc. and its subsidiaries identified on the signature pages thereto as borrowers and the Company’s subsidiaries identified on the signature pages thereto as guarantors Security Agreement dated as of August 7, 2013, among LSB Industries, Inc. and the other grantors identified therein in favor of UMB Bank, N.A. as Collateral Agent Supplement No. 1 to Security Agreement February 12, 2014 among LSB Industries, Inc. and the other grantors identified therein in favor of UMB Bank, N.A., as Collateral Agent Note Purchase Agreement, dated November 9, 2015, by and among LSB Industries, Inc., the guarantors party thereto and LSB Funding LLC Promissory Note, dated November 9, 2015, by LSB Industries, Inc. 50 Exhibit 99.1 to the Company’s Form 8-K filed (cid:45)une 17, 2015 Exhibit 10.3 to the Company’s Form 8-K filed November 16, 2015 Exhibit 10.1 to the Company’s Form 8-K filed (cid:45)anuary 20, 2017 Exhibit 10.1 to the Company’s Form 8-K filed April 20, 2018 Exhibit 4.1 to the Company’s Form 8-K filed February 28, 2019 Exhibit 10.3 to the Company’s Form 10-Q filed May 7, 2020 Exhibit 10.1 to the Company’s Form 8-K filed September 27, 2021 Exhibit 10.72 to the Company’s Form 10-K filed February 29, 2016 Exhibit 10.73 to the Company’s Form 10-K fileff February 29, 2016 d Exhibit 10.1 to the Company’s Form 8-K filed November 16, 2015 Exhibit 10.2 to the Company’s Form 8-K filed November 16, 2015 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 10.61 10.62 10.63 10.64 10.65 10.66 10.67(cid:13) 10.68 10.69 21.1(a) 23.1(a) 31.1(a) 31.2(a) 32.1(b) 32.2(b) 101.INS(a) 101.SCH(a) 101.CAL(a) 101.DEF(a) 101.LAB(a) 101.PRE(a) (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) Exhibit 10.4 to the Company’s Form 8-K filed November 16, 2015 Exhibit 10.1 to the Company’s Form 8-K filed April 25, 2018 Exhibit 10.5 to the Company’s Form 8-K filed November 16, 2015 Exhibit 10.3 to the Company’s Form 8-K filed December 8, 2015 Exhibit 10.4 to the Company’s Form 8-K filed December 8, 2015 Exhibit 10.1 to the Company’s Form 8-K filed August 12, 2016 Exhibit 10.1 to the Company’s Form 8-K filed on (cid:45)une 30, 2017 Exhibit 10.1. to the Company’s Form 8-K Filed on October 26, 2017 Exhibit 10.2 to the Company’s Form 8-K filed October 19, 2018 (cid:45)oinder Agreement to Intercreditor Agreement, dated November 9, 2015, by and among LSB Funding LLC, Wells Fargo Capital Finance, Inc., as ABL Agent, UMB Bank, N.A., as Notes Agent, LSB Industries, Inc. and the guarantors party thereto Amendment No. 1 to Intercreditor Agreement, dated as of April 25, 2018, among Wells Fargo Capital Finance, LLC, UMB Bank, n.a. and and Wilmington Trust, National Association, acknowledged by LSB Industries, Inc. and the subsidiary guarantors party thereto. (cid:45)oinder Agreement to Security Agreement, dated November 9, 2015, by and among LSB Funding LLC, UMB Bank, N.A., as Collateral Agent, LSB Industries, Inc. and the guarantors party thereto Board Representation and Standstill Agreement by and among LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly and the Golsen Holders (as defined therein), dated as of December 4, 2015 Registration Rights Agreement by and between LSB Industries, Inc. and LSB Funding LLC, dated as of December 4, 2015 Letter Agreement, dated as of August 12, 2016, by and among LSB Industries, Inc., LSB Funding LLC and Security Benefit Corporation Transition Agreement dated (cid:45)une 30, 2017 by and between (cid:45)ack E. Golsen and LSB Industries, Inc. Amendment, dated October 26, 2017, to the Board Representation and Standstill Agreement by and between LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly, (cid:45)ack E. Golsen, Barry H. Golsen, Linda Golsen Rappaport, Golsen Family LLC, SBL LLC and Golsen Petroleum Corp., dated as of December 4, 2015 Amendment to Board Representation and Standstill Agreement, dated as of October 18, 2018, by and among LSB Industries, Inc., LSB Funding LLC, Security Benefit Corporation, Todd Boehly and the Golsen Holders (as defined therein) Subsidiaries of the Company Consent of Independent Registered Public Accounting Firm Certification of Mark T. Behrman, Chief Executive Officer, pursuant to Sarbanes-Oxley Act of 2002, Section 302 Certification of Cheryl A. Maguire, Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002, Section 302 Certification of Mark T. Behrman, Chief Executive Officer, furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906 Certification of Cheryl A. Maguire, Chief Financial Officer furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906 Inline (cid:59)BRL Instance Document Inline (cid:59)BRL Taxonomy Extension Schema Document Inline (cid:59)BRL Taxonomy Extension Calculation Linkbase Document Inline (cid:59)BRL Taxonomy Extension Definition Linkbase Document Inline (cid:59)BRL Taxonomy Extension Labels Linkbase Document Inline (cid:59)BRL Taxonomy Extension Presentation Linkbase Document ff ff , , 51 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85) 104 (cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) Cover Page Interactive Data File (formatted as Inline (cid:59)BRL and contained in Exhibit 101) (cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72) (cid:87)(cid:82) (cid:87)(cid:75)(cid:72) (cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) (cid:13) (a) (b) (P) Executive Compensation Plan or Arrangement Filed herewith Furnished herewith Paper copy filed 52 LSB Industries, Inc. (cid:54)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated(cid:29) February 24, 2022 By(cid:29) (cid:18)s(cid:18) Mark T. Behrman Mark T. Behrman, President, Chief Executive Officer ff and Director Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 Dated(cid:29) February 24, 2022 By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) By(cid:29) (cid:18)s(cid:18) Mark T. Behrman Mark T. Behrman, President and Chief Executive Officer (Principal Executive Officer) and Director (cid:18)s(cid:18) Cheryl A. Maguire Cheryl A. Maguire, Executive (cid:57)ice President and Chief Financial Officer (Principal Financial and Accounting Officer Officer) ff (cid:18)s(cid:18) Richard W. Roedel Richard W. Roedel, Chairman of the Board of Directors (cid:18)s(cid:18) (cid:45)onathan S. Bobb (cid:45)onathan S. Bobb, Director (cid:18)s(cid:18) Barry H. Golsen Barry H. Golsen, Director (cid:18)s(cid:18) Kanna Kitamura Kanna Kitamura, Director (cid:18)s(cid:18) Steven L. Packebush Steven L. Packebush, Director (cid:18)s(cid:18) Diana M. Peninger Diana M. Peninger, Director (cid:18)s(cid:18) Richard S. Sanders (cid:45)r. Richard S. Sanders (cid:45)r., Director (cid:18)s(cid:18) Lynn F. White Lynn F. White, Director 53 LSB Industries, Inc. Consolidated Financial Statements And Schedule for Inclusion in Form 10-K For the Fiscal (cid:60)ear ended December 31, 2021 Table of Contents Financial Statements Report of Independent Registered Public Accounting Firm ............................................................................................................. Consolidated Balance Sheets ............................................................................................................................................................ Consolidated Statements of Operations ............................................................................................................................................ Consolidated Statements of Stockholders’ Equity............................................................................................................................ Consolidated Statements of Cash Flows ........................................................................................................................................... Page F(cid:177)2 F(cid:177)4 F(cid:177)6 F(cid:177)7 F(cid:177)8 Notes to Consolidated Financial Statements..................................................................................................................................... F(cid:177)10 Quarterly Financial Data (Unaudited)............................................................................................................................................... F(cid:177)37 Financial Statement Schedule Schedule II (cid:177) (cid:57)aluation and Qualifying Accounts ........................................................................................................................... F(cid:177)39 F-1 (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87) (cid:82)(cid:73) (cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71) (cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:41)(cid:76)(cid:85)(cid:80) To the Shareholders and the Board of Directors of LSB Industries, Inc. (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81) (cid:82)(cid:81) (cid:87)(cid:75)(cid:72) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) We have audited the accompanying consolidated balance sheets of LSB Industries, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon. u (cid:37)(cid:68)(cid:86)(cid:76)(cid:86) (cid:73)(cid:82)(cid:85) (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81) These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. u We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe and significant that our audits provide a reasonable basis for our opinion. ff (cid:38)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87) (cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85) The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committeett and that(cid:29) (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Description of the Matter Extinguishment of preferred ff stock in exchange for common stock As discussed in Note 2 to the consolidated financial statements, the Company entered into an Exchange Agreement with LSB Funding LLC, requiring approval from the Company’s common stockholders, which was subsequently voted on and approved by the Company’s common stockholders. Pursuant to the terms of the Exchange Agreement, which closed on September 27, 2021, LSB Funding LLC and the Company agreed to exchange the outstanding Series E-1 and Series F-1 Redeemable Preferred Stock for common stock of the Company at an agreed upon exchange price of $6.16 per common share. In connection with the exchange, each common stockholder prior to the exchange received a special dividend in the form of 0.30 shares of common stock for every share owned as of, September 24, 2021, the dividend record date. The Company applied the related accounting guidance and disclosure requirements, recognizing a deemed dividend of $231.8 million within capital in excess of par value. The deemed dividend increased the reported net loss to arrive at the net loss attributable to common stockholders, which is used in the basic and diluted net loss per share calculation using the two-class method, with retrospective application of the special dividend. Auditing the Company(cid:10)s application of the accounting guidance related to the exchange and special dividend required special consideration, given the non-recurring nature of the transaction and the complexity involved in applying the relevant accounting standards F-2 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls relating to the accounting for the exchange and special dividend. To test the accounting for the exchange and special dividend, our audit procedures included, among others, examining the terms of the relevant Exchange Agreement and special dividend, the Company’s provisions over change in control activities, reading the minutes and meeting materials of the committees of the board of directors, and performing inquiries of members of management. As part of these procedures, we involved our subject matter resources and evaluated the Company’s application of the related accounting guidance to the accounting conclusions and financial statement presentation of equity and the basic and diluted net loss per share. (cid:18)s(cid:18) Ernst (cid:9) (cid:60)oung We have served as the Company’s auditor since 1968. Oklahoma City, Oklahoma February 24, 2022 F-3 (cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86) Current assets(cid:29) Cash and cash equivalents Accounts receivable Allowance forff doubtful accounts Accounts receivable, net Inventories(cid:29) Finished goods Raw materials Total inventories Supplies, prepaid items and other(cid:29) Prepaid insurance Precious metals Supplies Other Total supplies, prepaid items and other Total current assets Property, plant and equipment, net Other assets(cid:29) Operating lease assets Intangible and other assets, net LSB Industries, Inc. Consolidated Balance Sheets (cid:7) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) $ (cid:27)(cid:21)(cid:15)(cid:20)(cid:23)(cid:23) (cid:27)(cid:25)(cid:15)(cid:28)(cid:19)(cid:21) (cid:11)(cid:23)(cid:26)(cid:23)(cid:12) (cid:27)(cid:25)(cid:15)(cid:23)(cid:21)(cid:27) (cid:20)(cid:23)(cid:15)(cid:25)(cid:27)(cid:27) (cid:20)(cid:15)(cid:27)(cid:28)(cid:24) (cid:20)(cid:25)(cid:15)(cid:24)(cid:27)(cid:22) (cid:20)(cid:23)(cid:15)(cid:21)(cid:23)(cid:23) (cid:20)(cid:23)(cid:15)(cid:28)(cid:23)(cid:24) (cid:21)(cid:25)(cid:15)(cid:24)(cid:24)(cid:27) (cid:21)(cid:15)(cid:21)(cid:22)(cid:23) (cid:24)(cid:26)(cid:15)(cid:28)(cid:27)(cid:20) (cid:21)(cid:23)(cid:22)(cid:15)(cid:20)(cid:22)(cid:25) (cid:27)(cid:24)(cid:27)(cid:15)(cid:23)(cid:27)(cid:19) (cid:21)(cid:26)(cid:15)(cid:22)(cid:20)(cid:26) (cid:22)(cid:15)(cid:28)(cid:19)(cid:26) (cid:22)(cid:20)(cid:15)(cid:21)(cid:21)(cid:23) 16,264 42,929 (378) 42,551 17,778 1,795 19,573 12,315 6,787 25,288 6,802 51,192 129,580 891,198 26,403 6,121 32,524 (cid:7) (cid:20)(cid:15)(cid:20)(cid:22)(cid:21)(cid:15)(cid:27)(cid:23)(cid:19) $ 1,053,302 on following page) F-4 LSB Industries, Inc. Consolidated Balance Sheets (continued) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:10) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) Current liabilities(cid:29) Accounts payable Short-term financing Accrued and other liabilities Current portion of long-term debt Total current liabilities Long-term debt, net NNoncurrent operating lease liabilities Other noncurrent accrued and other liabilities Deferred income taxes Commitments and contingencies (Note 8) prefeff rred stocks(cid:29) Series E 14% cumulative, redeemable Class C preferred stock, no par value, no shares issued or outstanding at December 31, 2021(cid:30) (210,000 shares issued(cid:30) 139,768 outstanding(cid:30) 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 December 31, 2021(cid:30) (1 share issued and outstanding(cid:30) aggregate liquidation preference of $100 at December 31, 2020) Stockholders(cid:10) equity(cid:29) Series B 12% cumulative, convertible preferred stock, $100 par value(cid:30) no shares issued or outstanding at December 31, 2021(cid:30) (20,000 shares issued and outstanding(cid:30) aggregate liquidation prefeff rence $3.3 million at December 31, 2020) Series D 6% cumulative, convertible Class C preferred stock, no par value(cid:30) no shares issued or outstanding at December 31, 2021(cid:30) (1 million shares issued and outstanding(cid:30) aggregate liquidation prefeff rence $1.3 million December 31, 2020) Common stock, $.10 par value(cid:30) 150 million shares authorized, 91.1 million shares issued (75 million shares authorized, 39.9 million shares issued at December 31, 2020) Capital in excess of par value Accumulated deficit Less treasury stock, at cost(cid:29) Common stock, 1.4 million shares (2.1 million shares at December 31, 2020) Total stockholders(cid:10) equity See accompanying notes. F-5 (cid:7) $ (cid:23)(cid:28)(cid:15)(cid:23)(cid:24)(cid:27) (cid:20)(cid:21)(cid:15)(cid:26)(cid:20)(cid:25) (cid:22)(cid:22)(cid:15)(cid:22)(cid:19)(cid:20) (cid:28)(cid:15)(cid:23)(cid:24)(cid:23) (cid:20)(cid:19)(cid:23)(cid:15)(cid:28)(cid:21)(cid:28) (cid:24)(cid:20)(cid:27)(cid:15)(cid:20)(cid:28)(cid:19) (cid:20)(cid:28)(cid:15)(cid:24)(cid:25)(cid:27) (cid:22)(cid:15)(cid:19)(cid:22)(cid:19) (cid:21)(cid:25)(cid:15)(cid:25)(cid:22)(cid:22) (cid:178) (cid:178) (cid:178) (cid:178) (cid:28)(cid:15)(cid:20)(cid:20)(cid:26) (cid:23)(cid:28)(cid:22)(cid:15)(cid:20)(cid:25)(cid:20) (cid:11)(cid:22)(cid:20)(cid:15)(cid:21)(cid:24)(cid:24)(cid:12) (cid:23)(cid:26)(cid:20)(cid:15)(cid:19)(cid:21)(cid:22) 46,551 13,576 30,367 16,801 107,295 467,389 19,845 6,090 30,939 272,101 (cid:178) 2,000 1,000 3,993 197,350 (41,487) 162,856 (cid:20)(cid:19)(cid:15)(cid:24)(cid:22)(cid:22) (cid:23)(cid:25)(cid:19)(cid:15)(cid:23)(cid:28)(cid:19) (cid:20)(cid:15)(cid:20)(cid:22)(cid:21)(cid:15)(cid:27)(cid:23)(cid:19) $ 13,213 149,643 1,053,302 (cid:7) LSB Industries, Inc. Consolidated Statements of Operations (cid:21)(cid:19)(cid:21)(cid:20) (cid:60)(cid:72)(cid:68)(cid:85) (cid:40)(cid:81)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands, Except Per Share Amounts) (cid:21)(cid:19)(cid:20)(cid:28) NNet sales Cost of sales Gross profit Selling, general and administrative expense Other expense (income), net Operating income (loss) Interest expense, net NNet loss on extinguishments of debt NNon-operating other expense (income), net Income (loss) beforeff Benefit for income taxes NNet income (loss) benefit for income taxes Dividends on convertible preferred stocks Dividends on Series E redeemable preferred stock Accretion of Series E redeemable preferred stock Deemed dividend on Series E and Series F redeemable preferred stocks NNet loss attributable to common stockholders Basic and diluted net loss per common share (cid:7) $ (cid:24)(cid:24)(cid:25)(cid:15)(cid:21)(cid:22)(cid:28) (cid:23)(cid:20)(cid:26)(cid:15)(cid:21)(cid:25)(cid:19) (cid:20)(cid:22)(cid:27)(cid:15)(cid:28)(cid:26)(cid:28) $ 351,316 334,268 17,048 365,070 360,085 4,985 (cid:22)(cid:27)(cid:15)(cid:19)(cid:21)(cid:27) (cid:11)(cid:28)(cid:26)(cid:12) (cid:20)(cid:19)(cid:20)(cid:15)(cid:19)(cid:23)(cid:27) (cid:23)(cid:28)(cid:15)(cid:22)(cid:26)(cid:27) (cid:20)(cid:19)(cid:15)(cid:21)(cid:24)(cid:28) (cid:21)(cid:15)(cid:23)(cid:21)(cid:21) (cid:22)(cid:27)(cid:15)(cid:28)(cid:27)(cid:28) (cid:11)(cid:23)(cid:15)(cid:24)(cid:24)(cid:25)(cid:12) (cid:23)(cid:22)(cid:15)(cid:24)(cid:23)(cid:24) (cid:21)(cid:28)(cid:27) (cid:21)(cid:28)(cid:15)(cid:28)(cid:20)(cid:23) (cid:20)(cid:15)(cid:24)(cid:21)(cid:22) 32,084 499 (15,535) 51,115 (cid:178) 10 (66,660) (4,749) (61,911) 300 35,182 2,026 34,172 9,904 (39,091) 46,389 (cid:178) (1,139) (84,341) (20,924) (63,417) 300 30,729 1,995 (cid:21)(cid:22)(cid:20)(cid:15)(cid:27)(cid:20)(cid:21) (cid:11)(cid:21)(cid:21)(cid:19)(cid:15)(cid:19)(cid:19)(cid:21)(cid:12) $ (cid:178) (99,419) $ (cid:178) (96,441) (cid:11)(cid:23)(cid:17)(cid:23)(cid:19)(cid:12) $ (2.71) $ (2.65) (cid:7) (cid:7) See accompanying notes. F-6 LSB Industries, Inc. Consolidated Statements of Stockholders’ Equity (cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:16) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:49)(cid:82)(cid:81)(cid:16) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:51)(cid:68)(cid:85) (cid:57)(cid:68)(cid:79)(cid:88)(cid:72) (cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79) (cid:76)(cid:81) (cid:40)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86) (cid:82)(cid:73) (cid:51)(cid:68)(cid:85) (cid:57)(cid:68)(cid:79)(cid:88)(cid:72) (In Thousands) (cid:53)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71) (cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86) (cid:11)(cid:36)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:39)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:87)(cid:12) (cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:16) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:55)(cid:82)(cid:87)(cid:68)(cid:79) 39,725 (2,438) $ 3,000 $ 3,972 $ 197,638 $ 153,773 $(16,186) $ 342,197 (63,417) (63,417) 176 428 39,901 (2,010) 3,000 18 3,990 25 (65) 39,926 (2,075) 3,000 3 3,993 2,220 (3,887) 195,971 1,761 (382) 197,350 (cid:23)(cid:28)(cid:15)(cid:19)(cid:25)(cid:25) (cid:23)(cid:15)(cid:28)(cid:19)(cid:26) (cid:24)(cid:21)(cid:25)(cid:15)(cid:21)(cid:22)(cid:21) (30,729) (1,995) 57,632 (61,911) (35,182) (2,026) (41,487) (cid:23)(cid:22)(cid:15)(cid:24)(cid:23)(cid:24) 2,920 (13,266) 53 (13,213) (30,729) (1,995) 2,220 (949) 247,327 (61,911) (35,182) (2,026) 1,761 (326) 149,643 (cid:23)(cid:22)(cid:15)(cid:24)(cid:23)(cid:24) (cid:24)(cid:22)(cid:20)(cid:15)(cid:20)(cid:22)(cid:28) (cid:11)(cid:21)(cid:22)(cid:20)(cid:15)(cid:27)(cid:20)(cid:21)(cid:12) (cid:11)(cid:21)(cid:22)(cid:20)(cid:15)(cid:27)(cid:20)(cid:21)(cid:12) (cid:11)(cid:21)(cid:28)(cid:15)(cid:28)(cid:20)(cid:23)(cid:12) (cid:11)(cid:21)(cid:28)(cid:15)(cid:28)(cid:20)(cid:23)(cid:12) (cid:11)(cid:20)(cid:15)(cid:24)(cid:21)(cid:22)(cid:12) (cid:11)(cid:20)(cid:15)(cid:27)(cid:26)(cid:25)(cid:12) (cid:21)(cid:15)(cid:27)(cid:27)(cid:20) (cid:24)(cid:15)(cid:24)(cid:20)(cid:25) (cid:11)(cid:20)(cid:15)(cid:24)(cid:21)(cid:22)(cid:12) (cid:11)(cid:20)(cid:15)(cid:27)(cid:26)(cid:25)(cid:12) (cid:178) (cid:24)(cid:15)(cid:24)(cid:20)(cid:25) (cid:28)(cid:27)(cid:23) (cid:26)(cid:19)(cid:19) (cid:28)(cid:27) (cid:11)(cid:26)(cid:15)(cid:19)(cid:19)(cid:25)(cid:12) (cid:11)(cid:23)(cid:15)(cid:21)(cid:21)(cid:27)(cid:12) (cid:21)(cid:15)(cid:25)(cid:27)(cid:19) (cid:11)(cid:22)(cid:20)(cid:15)(cid:21)(cid:24)(cid:24)(cid:12) (cid:7)(cid:11)(cid:20)(cid:19)(cid:15)(cid:24)(cid:22)(cid:22)(cid:12) (cid:7) (cid:23)(cid:25)(cid:19)(cid:15)(cid:23)(cid:28)(cid:19) Balance at December 31, 2018 NNet loss Dividend accrued on redeemable preferred ff stock Accretion of redeemable preferred stock Stock-based compensation Issuance of restricted stock, net Balance at December 31, 2019 NNet loss Dividend accrued on redeemable preferred stock Accretion of redeemable preferred stock Stock-based compensation Other Balance at December 31, 2020 NNet income 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 Dividend paid on non-redeemable preferred stock upon conversion Conversion of non-redeemable Stock-based compensation Issuance of restricted and unrestricted stock, net preferred stock into common stock (cid:20)(cid:15)(cid:20)(cid:28)(cid:21) (cid:11)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) (cid:20)(cid:20)(cid:28) Balance at December 31, 2021 (cid:28)(cid:20)(cid:15)(cid:20)(cid:25)(cid:27) (cid:11)(cid:20)(cid:15)(cid:22)(cid:26)(cid:24)(cid:12) (cid:7) (cid:16) (cid:7) (cid:28)(cid:15)(cid:20)(cid:20)(cid:26) (cid:7) (cid:23)(cid:28)(cid:22)(cid:15)(cid:20)(cid:25)(cid:20) (cid:7) See accompanying notes. F-7 LSB Industries, Inc. Consolidated Statements of Cash Flows (cid:38)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) NNet income (loss) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities(cid:29) Deferred income taxes Depreciation and amortization of property, plant and equipment Amortization of intangible and other assets Loss associated with assets held for sale Charge on extinguishments of debt Amortization of debt issuance costs, including discounts and premiums Stock-based compensation Loss (gain) associated with commodity contracts Other Cash provided (used) by changes in assets and liabilities(cid:29) Accounts receivable Inventories Supplies, prepaid items and other Accounts payable Other assets and other liabilities NNet cash provided (used) by operating activities (cid:38)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) Expenditures for property, plant and equipment Proceeds from vendor settlements associated with property, plant and equipment Other investing activities NNet cash used by investing activities (cid:21)(cid:19)(cid:21)(cid:20) (cid:60)(cid:72)(cid:68)(cid:85) (cid:40)(cid:81)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:7) (cid:23)(cid:22)(cid:15)(cid:24)(cid:23)(cid:24) $ (61,911) $ (63,417) (cid:11)(cid:23)(cid:15)(cid:22)(cid:19)(cid:25)(cid:12) (4,778) (20,895) (cid:25)(cid:27)(cid:15)(cid:25)(cid:27)(cid:28) (cid:20)(cid:15)(cid:21)(cid:24)(cid:23) (cid:178) (cid:20)(cid:19)(cid:15)(cid:21)(cid:24)(cid:28) (cid:25)(cid:15)(cid:19)(cid:25)(cid:26) (cid:24)(cid:15)(cid:24)(cid:20)(cid:25) (cid:11)(cid:21)(cid:15)(cid:26)(cid:19)(cid:25)(cid:12) (cid:21)(cid:15)(cid:25)(cid:24)(cid:22) (cid:11)(cid:23)(cid:21)(cid:15)(cid:28)(cid:20)(cid:22)(cid:12) (cid:22)(cid:15)(cid:21)(cid:25)(cid:20) (cid:11)(cid:27)(cid:15)(cid:25)(cid:23)(cid:21)(cid:12) (cid:28)(cid:22)(cid:21) (cid:23)(cid:15)(cid:19)(cid:20)(cid:27) (cid:27)(cid:26)(cid:15)(cid:25)(cid:21)(cid:26) 69,581 1,260 (cid:178) (cid:178) 3,807 1,761 1,613 910 (4,702) 3,550 (6,585) (6,561) (458) (2,513) 68,325 1,249 9,701 (cid:178) 3,620 2,220 (cid:178) (148) 8,800 6,092 (933) (7,987) (4,528) 2,099 (cid:11)(cid:22)(cid:24)(cid:15)(cid:20)(cid:21)(cid:27)(cid:12) (30,471) (36,081) (cid:178) (cid:23)(cid:22)(cid:23) (cid:11)(cid:22)(cid:23)(cid:15)(cid:25)(cid:28)(cid:23)(cid:12) 1,647 398 (28,426) (cid:178) 156 (35,925) (Continued on following page) F-8 LSB Industries, Inc. Consolidated Statements of Cash Flows (continued) (cid:38)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) Proceeds from revolving debt facility Payments on revolving debt facility Proceeds from 6.25% senior secured notes Net proceeds from 9.625% senior secured notes Payments on 9.625% senior secured notes Proceeds from other long-term debt Payments on other long-term debt Payments of debt-related costs, including extinguishment costs Proceeds from short-term financing Payments on short-term financing Payments of costs to exchange redeemable prefeff rred stocks for common stock Taxes paid on equity awards Payments of dividends on non-redeemable preferred stocks NNet cash provided by financing activities NNet increase (decrease) in cash and cash equivalents (cid:21)(cid:19)(cid:21)(cid:20) (cid:60)(cid:72)(cid:68)(cid:85) (cid:40)(cid:81)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:7) $ (cid:20)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19) (cid:11)(cid:20)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) (cid:24)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) (cid:178) (cid:11)(cid:23)(cid:22)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) (cid:178) (cid:11)(cid:20)(cid:19)(cid:15)(cid:23)(cid:26)(cid:21)(cid:12) (cid:11)(cid:21)(cid:26)(cid:15)(cid:21)(cid:24)(cid:23)(cid:12) (cid:20)(cid:25)(cid:15)(cid:25)(cid:27)(cid:28) (cid:11)(cid:20)(cid:26)(cid:15)(cid:24)(cid:23)(cid:28)(cid:12) (cid:11)(cid:26)(cid:15)(cid:22)(cid:25)(cid:22)(cid:12) (cid:11)(cid:23)(cid:15)(cid:21)(cid:21)(cid:27)(cid:12) (cid:11)(cid:20)(cid:15)(cid:27)(cid:26)(cid:25)(cid:12) (cid:20)(cid:21)(cid:15)(cid:28)(cid:23)(cid:26) (cid:25)(cid:24)(cid:15)(cid:27)(cid:27)(cid:19) $ 30,000 (30,000) (cid:178) (cid:178) (cid:178) 42,570 (21,356) (124) 14,589 (10,941) (cid:178) (326) (cid:178) 24,412 5,000 (15,000) (cid:178) 35,086 (cid:178) 20,219 (14,073) (1,065) 12,179 (10,828) (cid:178) (949) (cid:178) 30,569 (6,527) (3,257) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (cid:20)(cid:25)(cid:15)(cid:21)(cid:25)(cid:23) (cid:27)(cid:21)(cid:15)(cid:20)(cid:23)(cid:23) $ 22,791 16,264 $ 26,048 22,791 (cid:7) See accompanying notes. F-9 LSB Industries, Inc. Notes to Consolidated Financial Statements (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:37)(cid:68)(cid:86)(cid:76)(cid:86) (cid:82)(cid:73) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:177) LSB Industries, Inc. (“LSB”) and its subsidiaries (the “Company”, “we”, “us”, or “our”) are consolidated in the accompanying consolidated financial statements. LSB is a holding company with no significant operations or assets other than cash, cash equivalents, and investments in its subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassifiedff to conform to current period presentation. and sale of chemical products. The chemical products we primarily (cid:49)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72) (cid:82)(cid:73) (cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86) (cid:177) We are engaged in the manufacture manufacture, market and sell are ammonia, fertilizer grade AN (“HDAN”) and UAN for agricultural applications, high purity and commercial grade ammonia, high purity AN, sulfuric acids, concentrated, blended and regular nitric acid, mixed nitrating acids, carbon dioxide, and diesel exhaust fluid for industrial applications, and industrial grade AN (“LDAN”) and solutions for the mining industry. We manufacture and distribute our products in four facilities(cid:30) three of which we own and are located in El Dorado, Arkansas (the “El Dorado Facility”)(cid:30) Cherokee, Alabaa ma (the “Cherokee Facility”)(cid:30) and Pryor, Oklahoma (the “Pryor Facility”)(cid:30) and one of which “Baytown we operate on behalf of Covestro LLC in Baytown, Texas (thet Facility”). aa rr ff Sales to customers include farmers, ranchers, fertilizer dealers and distributors primarily in the ranch land and grain production markets in the United States (“U.S.”)(cid:30) industrial users of acids throughout the U.S. and parts of Canada(cid:30) and explosive manufacturers in the U.S. and parts of Mexico and Canada. (cid:56)(cid:86)(cid:72) (cid:82)(cid:73) (cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86) (cid:177) The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differff from those estimates. (cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72) (cid:76)(cid:81) (cid:36)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:82)(cid:73) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:68)(cid:81)(cid:71) (cid:68) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71) (cid:177) In September 2021, LSB held a Special Meeting of Stockholders (the “Special Meeting”). At the Special Meeting, our stockholders approved(cid:29) • • • 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)(cid:30) amending our restated certificate of incorporation to increase the number of authorized shares of our common stock to 150 million shares of common stock(cid:30) 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. 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. For financial reporting purposes, the Special Dividend is accounted share and per share information herein has been retroactively adjusted u d to reflff ect the Special Dividend. for as a stock split in the form of a stock dividend. As a result, all In addition, pursuant to anti-dilution terms included in cash-based awards that were outstanding on the Record Date, 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. See additional discussion relating to these cash-based awards in Note 2. F-10 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) ff (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:86) (cid:177) Our redeemable preferred stocks, prior to their redemption as discussed in Note 2, were redeemable outside our control and therefore were historically classified as temporary(cid:18)mezzanine equity. The redeemable preferred stocks were In addition, certain embedded features (“embedded recorded at fair value upon issuance, net of issuance costs or discounts. derivative”) included in the Series E Redeemable Preferred required bifurcation and were classifiedff 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 redemptionm value as of the earliest possible redemption date by the holder. The accretion was recorded to retained earnings(cid:18)accumulated deficit. However, in September 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(cid:18)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. (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86) (cid:177) Equity award transactions with employees are measured based on the estimated fair value of the equity awards issued. For equity awards with service conditions that have a graded vesting period, we recognize compensation cost on a straight-line basis over the requisite service period for the entire award. Forfeitures are accounted for as they occur. We may issue new shares of common stock or may use treasury shares associated with the equity awards. See additional discussion relating to certain equity awards impacted by the Exchange Transaction in Note 11. (cid:38)(cid:68)(cid:86)(cid:75) (cid:68)(cid:81)(cid:71) (cid:38)(cid:68)(cid:86)(cid:75) (cid:40)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86) (cid:177) Investments, which consist of highly liquid investments with original maturities of three months or less, are considered cash equivalents. (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86) (cid:53)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72) (cid:177) Our accounts receivable is stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on accounts receivable balances. Our estimate is based on historical experience and periodic assessment of outstanding accounts receivable, particularly those accounts that are past due (based upon the terms of the sale). Our periodic assessment of our accounts receivable is based on our best estimate of amounts that are not recoverable. Any contract assets consist of receivables from contracts with customers. Our accounts receivable primarily relate to these contract assets and are presented in our consolidated balance sheets. Sales to our customers are generally unsecured. Credit is extended to customers based on an evaluation of the customer’s financial condition and other factors. Customer payments are generally due thirty to sixty days after the invoice date. Concentrations of credit risk with respect to trade receivables are monitored and this risk is reduced due to short-term payment terms relating to most of our significant customers. Six customers (including their affiliates) account for approximately 50% of our total net receivables at December 31, 2021. (cid:44)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:76)(cid:72)(cid:86) (cid:177) Inventories are stated at the lower of cost (determined using the first-in, first-out (“FIFO”) basis) or net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, transportation or disposal. Finished goods include material, labor, and manufacturing overhead costs. a Inventory reserves associated with cost exceeding net realizable value were not material at December 31, 2021 and 2020. (cid:51)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:15) (cid:51)(cid:79)(cid:68)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:40)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87) (cid:177) Property, plant and equipment (“PP(cid:9)E”) are stated at cost, net of accumulated depreciation amortization (“D(cid:9)A”). Leases meeting finance lease criteria are capitalized in PP(cid:9)E. Major renewals and improvements that increase the life, value, or productive capacity of assets are capitalized in PP(cid:9)E while maintenance, repairs and minor renewals are In addition, maintenance, repairs and minor renewal costs relating to planned major maintenance activities expensed as incurred. (“Turnarounds”) are expensed as they are incurred. All long-lived assets relate to domestic operations. Fully depreciated assets are retained in PP(cid:9)E and accumulated D(cid:9)A accounts until disposal. When PP(cid:9)E is retired, sold, or otherwise disposed, the asset’s carrying amount and related accumulated D(cid:9)A is removed from the accounts and any gain or loss is included in other income or expense. For financial reporting purposes, depreciation of the costs of PP(cid:9)E is primarily computed using the straight-line method over the estimated useful lives of the assets. No provision for depreciation is made on construction in progress or capital spare parts until such time as the relevant assets are put into service. r In general, assets held for sale are reported at the lower of the carrying amounts of the assets or fair values less costs to sell. F-11 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) (cid:44)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87) (cid:82)(cid:73) (cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:47)(cid:76)(cid:89)(cid:72)(cid:71) (cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86) (cid:177) Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An asset’s fair value must be determined when the carrying amount of an asset (asset group) exceeds the estimated undiscounted future cash flows expected to result from the use of the asset (asset group) and(cid:18)dd or its eventual disposition. If assets to be held and used are considered to be impaired, the impairment to be recognized is the amount by which the carrying amounts of the assets exceed the fair values of the assets as measured by the present value of future net cash flows expected to be generated by the assets or their appraised value. In general, and depending on the event or change in circumstances, our asset groups are reviewed for impairment on a facility-by-facility basis (such as the Cherokee, El Dorado or Pryor Facility). In addition, if the event or change in circumstance relates to the probable sale of an asset (or group of assets), the specific asset (or group of assets) is reviewed for impairment. (cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86) (cid:177) We determine if an arrangement is a lease at inception or modification of a contract and classify each lease as either an operating or finance lease based on the terms of the contract. We reassess lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. tt An operating lease asset represents our right to use the underlying asset as a lessee for the lease term and an operating lease liability represent our obligation to make lease payments arising from the lease. Currently, most of our leases are classified as operating leases and primarily relate to railcars, other equipment and office space. Our leases that are classified as finance leases and other leases underr which we are the lessor are not material. (cid:57)ariable payments are excluded from the present value of lease payments and are recognized in the period in which the payment is made. Our current leases do not contain residual value guarantees. Most of our leases do not include options to extend or terminate the lease prior to the end of the term. Leases with a term of 12 months or less are not recognized in the balance sheet. Since our leases generally do not provide an implicit rate, we use our incremental borrowing rate based on the lease term and oth rer information available at the commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the appli cable lease term. a (cid:38)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87) (cid:53)(cid:76)(cid:86)(cid:78)(cid:86) (cid:73)(cid:82)(cid:85) (cid:38)(cid:68)(cid:86)(cid:75) (cid:68)(cid:81)(cid:71) (cid:38)(cid:68)(cid:86)(cid:75) (cid:40)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) (cid:177) Financial instruments relating to cash and cash equivalents potentially subject us to concentrations of credit risk. These financial instruments were held by financial institutions within the U.S. None of the financial instruments held within U.S. were in excess of the federally insured limits. tt Net sales to one customer, Koch Fertilizer LLC (“Koch Fertilizer”), represented approximately 15%, 10% and 11% of our total net sales for 2021, 2020 and 2019, respectively. Net sales to one customer, Coffeyville Resources Nitrogen Fertilizer, LLC (“C(cid:57)R”), represented approximately 12%, 13% and 9% of our total net sales for 2021, 2020 and 2019, respectively. (cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71) (cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:177) We are self-insured up to certain limits for group health, workers’ compensation and general liability claims. Above these limits, we have commercial stop-loss insurance coverage for our contractual exposure on group health claims and statutory limits under workers’ compensation obligations. We also carry umbrella insurance of $100 million for most general liability and auto liability risks. We have a separate $50 million insurance policy covering pollution liability at our chemical facilities. Additional pollution liability coverage for our other facilities is provided in our general liability and umbrella policies. Our accrued self-insurance liabilities are based on estimates of claims, which include the reported incurred claims amounts plus the reserves established by our insurance adjustors and(cid:18)dd or estimates provided by attorneys handling the claims, if any, up to the amount of our self-insurance limits. In addition, our accrued insurance liabilities include estimates of incurred, but not reported, claims based on historical claims experience. The determination of such claims and the appropriateness of the related liability is periodically reviewed and revised, if needed. Changes in these estimated liabia lities are charged to operations. Potential legal fees and other directly related costs associated with insurance claims are not accrued but rather are expensed as incurred. Accrued insurance claims are included in accrued and other liabilities. It is reasonably possible that the actual development of claims could be different than our estimates. F-12 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:177) We are party to certain benefit agreements with certain key former executives. Costs associated with these individual benefit agreements are accrued based on the estimated remaining service period when such benefits become probable, or they will be paid. Total costs accrued equal the present value of specified payments to be made after benefits become payable. (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86) (cid:177) 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 amountuu of the tax benefit that, in our judgment, is greater than 50% likely to be realized. We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense. Income tax benefits associated with amounts that are deductible for income tax purposes are recorded through the statement of operations. These benefits are principally generated from the vesting of restricted stock. We reduce income tax expense for investment tax credits in the period the credit arises and is earned. (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:177) 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). (cid:36)(cid:86)(cid:86)(cid:72)(cid:87) (cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:50)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:177) In general, we record the estimated fair value of an asset retirement obligation (“ARO”) associated with tangible long-lived assets in the period it is incurred and when there is sufficient information availablea to estimate the fair value. An ARO associated with long-lived assets is a legal obligation under existing or enacted law, statute, written or oral contract or legal construction. AROs, which are initially recorded based on estimated discounted cash flows, are accreted to full value over time through charges to cost of sales. In addition, we capitalize the corresponding asset retirement cost as PP(cid:9)E, which cost is depreciated or depleted over the related asset’s respective useful lifeff . We do not have any assets restricted for the purpose of settling our AROs. (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72) (cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) Revenue Recognition and Performance Obligations i We determine revenue recognition through the following steps(cid:29) • • • • Identification of the performance obligations in the contract(cid:30) Determination of the transaction price(cid:30) Allocation of the transaction price to the performance obligations in the contract(cid:30) and Recognition of revenue when, or as, we satisfy a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which we expect to be entitled. Generally, control is transferred when the preparation for shipment of the product to a customer has been completed. Most of our contracts contain a single performance obligation with the promise to transfer a specific product. ff 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. F-13 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) 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 N(cid:60)ME(cid:59) 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 adjud stment reducid ng 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 conjunctio n with the variable consideration included in our material uu contracts prevent a practical assignment of a specific dollar amount to performance obligations at the beginning and end of the period. Therefore, we have applied the variable consideration allocation exception. Future revenues to be earned from the satisfaction of performance obligations will be recognized when control transfers as goods are loaded and weighed or services are performed over the remaining duration of our contracts. Practical Expedients and Other Information We have applied the foll owing practical expedients(cid:29) ff • • • • to recognize revenue in the amount we have the right to invoice relating to certain services that are performed for customers and, not disclosing the value of unsatisfied performance not disclosing the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. not adjusting the promised amount of consideration for the effects of a significant financing component if we expect the financing time period to be one year or less. expense as incurred any incremental costs of obtaining a contract if the associated period of benefit is one year or less. obligations related to such services. a All net sales and long-lived assets relate to domestic operations for the periods presented. In addition, net sales to non-U.S. customers were not material. (cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72) (cid:55)(cid:68)(cid:91) (cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86) (cid:11)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:55)(cid:75)(cid:68)(cid:81) (cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86) (cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71) (cid:90)(cid:76)(cid:87)(cid:75) (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86)(cid:12) (cid:177) If an incentive tax credit relates to a recovery of taxes (other than income taxes) incurred, we recognize the incentive tax credit when it is probable and reasonably estimable. If an incentive tax credit relates to an amount in excess of taxes incurred, the incentive tax credit is a contingent gain, which we recognize the incentive tax credit when it is realized or when the contingencies have been resolved (generally at the time a settlement has been reached). Amounts recoverable from the taxing authorities, if any, are included in accounts receivable. The same financial statement classification is used for an incentive tax credit as the associated tax incurred. At December 31, 2020, our incentive tax credits receivable totaled $1.4 million (minimal at December 31, 2021). (cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) (cid:82)(cid:73) (cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72) (cid:53)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:177) If an insurance claim relates to a recovery of our losses, we recognize the recovery when it is probable and reasonably estimable. If our insurance claim relates to a contingent gain, we recognize the recovery when it is realized or when the contingencies have been resolved (generally at the time a settlement has been reached). Amounts recoverable from our insurance carriers, if any, are included in accounts receivable. An insurance recovery in excess of recoverable costs relating to a business interruption claim, if any, is a reduction to cost of sales. (cid:38)(cid:82)(cid:86)(cid:87) (cid:82)(cid:73) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) (cid:177) Cost of sales includes materials, labor and overhead costs, including depreciation, to manufacture the products sold plus inbound freight, purchasing and receiving costs, inspection costs, internal transfer costs, loading and handling costs, warehousing costs, railcar lease costs and outbound freight. Maintenance, repairs and minor renewal costs relating to Turnarounds are included in cost of sales as they are incurred. Precious metals used as a catalyst and consumed during the manufacturing process are included in cost of sales. Recoveries and gains from precious metals and business interruption insurance claims, if any, are reductions to cost of sales. ff (cid:54)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:15) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72) (cid:177) Selling, general and administrative expense (“SG(cid:9)A”) includes costs associated with the sales, marketing and administrative functions. Such costs include personnel costs, including benefits, professional fees, office and occupancy costs associated with the sales, marketing and administrativ e functions. Also included in SG(cid:9)A are any distribution fees paid to third parties to distribute our products. d F-14 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) (cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15) (cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:44)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:177) Derivatives are recognized in the balance sheet and are measured at fair value. Changes in fair value of derivatives are recorded in results of operations unless the normal purchase or sale exceptions apply, or hedge accounting is elected. The fair value amounts recognized for our derivative contracts executed with the same counterparty under a master netting arrangement may be offset. We have the choice to offset or not, but that choice must be applied consistently. A master netting arrangement exists if the reporting entity has multiple contracts with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for the derivative contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the balance sheet. When applicable, we present the faff ir values of our derivative contracts under master netting agreements using a gross fair value presentation. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date(cid:29) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79) (cid:20) - (cid:57)aluations of contracts classified as Level 1 are based on quoted prices in active markets for identical contracts. (cid:47)(cid:72)(cid:89)(cid:72)(cid:79) (cid:21) - (cid:57)aluations of contracts classified as Level 2 are based on quoted prices for similar contracts and valuation inputs other than quoted prices that are observable for these contracts. (cid:47)(cid:72)(cid:89)(cid:72)(cid:79) (cid:22) - (cid:57)aluations of assets and liabilities classified as Level 3 are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. At December 31, 2021 and 2020, we did not have any financial instruments with fair values materially different from their carrying ents is not indicative of the overall fair value amounts (which excludes issuance costs, if applicable). The fair value of financial instrumr a of our assets and liabilities since financial instruments do not include all assets, including intangibles, and all liabiliti es. rr (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12) (cid:83)(cid:72)(cid:85) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72) (cid:177) 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 numberm of common shares outstanding, excluding contingently issuable common shares (unvested restricted stock), if applicable. For periods we earn net income, a proportional share of net income is allocated to participating securities, if applicable, determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securituu ies (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. tt 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. (cid:54)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:16) We operate in one principal business segment (cid:177) our chemical business. (cid:53)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92) (cid:36)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) the Accounting for (cid:36)(cid:54)(cid:56) (cid:21)(cid:19)(cid:20)(cid:28)(cid:16)(cid:20)(cid:21) – In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying 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(cid:18)dd or clarify accounting for income taxes by adding certain requirements that would simplify GAAP for financial statement preparers. On (cid:45)anuary 1, 2021, we adopted ASU 2019-12, which did not have a material impact on our consolidated financial statements or related disclosures. ff F-15 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:17) (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) (cid:53)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92) (cid:44)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) (cid:51)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:36)(cid:54)(cid:56) (cid:21)(cid:19)(cid:21)(cid:19)(cid:16)(cid:19)(cid:25) - In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s own Equity (Subtopic 815-40). This ASU addresses the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifiesff the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models. Additionally, the ASU requires entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. This ASU will be effective for us on (cid:45)anuary 1, 2024(cid:30) however, early adoption is permitted, which began (cid:45)anuary 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. ff ff (cid:36)(cid:54)(cid:56) (cid:21)(cid:19)(cid:21)(cid:19)(cid:16)(cid:19)(cid:23) – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates such as LIBOR that are expected to be discontinued. This ASU pprovides exceptions and optional expedients for applying GAAP to contract modifications, hedging relationships, and otherr transactions that reference LIBOR or other reference rates to be discontinued as a result of reference rate reform. They do not apply to modifications made or hedges entered into or evaluated after December 31, 2022, unless the hedging relationships existed as of thatt date and optional expedients for them were elected and retained through the end of the hedging relationship. This ASU became effective upon issuance. We continue to evaluate the effect of this ASU and plan to utilize this relief for our debt agreements that include LIBOR rates. F-16 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:21)(cid:17) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:86) Series E and Series F Redeemable Preferred Exchanged for Common Stock In (cid:45)uly 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 accruedr 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 red for to the terms of the Exchange Agreement, the Holder exchanged all of the shares of the Series E and Series F Redeemable Preferff 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 Series 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 are as follows(cid:29) Balance at December 31, 2020 139,768 $ 272,101 (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:40) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:16) (cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87) (Dollars In Thousands) 1,029 $ (cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86) (cid:41) (cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) 1 $ Accretion relating to liquidation preference on preferred stock Accretion for discount and issuance costs on stock ff preferred Accumulated dividends Change in fair value of embedded derivative Costs relating to exchange transaction Exchange of preferred stock for common stock Balance at December 31, 2021 Change of Control (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 814 709 29,914 (cid:178) (7,497) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 2,258 (139,768) (296,041) (cid:178) $ (cid:178) $ (3,287) (cid:178) (1) (cid:178) $ (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 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 equity award agreements discussed in Note 11 and in certain cash-based award agreements. Pursuant to the terms of the cash-based awards outstanding as of the CoC event, all such awards immediately vested and approximately $5.4 million was paid. 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(cid:9)A. F-17 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:22)(cid:17) (cid:47)(cid:82)(cid:86)(cid:86) (cid:83)(cid:72)(cid:85) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72) The following table sets forth the computation of basic and diluted net loss per common share(cid:29) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) ( In Thousands, Except Per Share Amounts) (cid:21)(cid:19)(cid:20)(cid:28) NNumerator(cid:29) NNet income (loss) Adjustments for basic and diluted net loss per common share(cid:29) Dividend requirements on Series E Redeemable Preferred Deemed dividend on Series E and Series F Redeemable Preferred Dividend and dividend requirements on Series B Preferred Dividend and dividend requirements on Series D Preferred Accretion of Series E Redeemable Preferred (cid:7) (cid:23)(cid:22)(cid:15)(cid:24)(cid:23)(cid:24) $ (61,911) $ (63,417) (cid:11)(cid:21)(cid:28)(cid:15)(cid:28)(cid:20)(cid:23)(cid:12) (35,182) (30,729) (cid:11)(cid:21)(cid:22)(cid:20)(cid:15)(cid:27)(cid:20)(cid:21)(cid:12) (cid:11)(cid:21)(cid:22)(cid:28)(cid:12) (cid:11)(cid:24)(cid:28)(cid:12) (cid:11)(cid:20)(cid:15)(cid:24)(cid:21)(cid:22)(cid:12) (cid:178) (240) (60) (2,026) (cid:178) (240) (60) (1,995) Numerator for basic and diluted net loss per common share (cid:7) (cid:11)(cid:21)(cid:21)(cid:19)(cid:15)(cid:19)(cid:19)(cid:21)(cid:12) $ (99,419) $ (96,441) Denominator(cid:29) Denominator for basic and diluted net loss per common share - adjusted weighted-average shares (1) (cid:23)(cid:28)(cid:15)(cid:28)(cid:25)(cid:22) 36,664 36,455 Basic and diluted net loss per common share (cid:7) (cid:11)(cid:23)(cid:17)(cid:23)(cid:19)(cid:12) $ (2.71) $ (2.65) (1) All periods exclude the weighted-average shares of unvested restricted stock that are contingently issuable. The following weighted-average shares of securities were not included in the computation of diluted net loss per common share as their effect would have been antidilutive(cid:29) Restricted stock and stock units Stock options Series E redeemable preferred stock - embedded derivative Convertible preferred stocks (cid:23)(cid:17) (cid:51)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:15) (cid:51)(cid:79)(cid:68)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:40)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87) Machinery, equipment and automotive Buildings and improvements Land improvements Furniture, fixtures and store equipment Construction in progress Capital spare parts Land Less accumulated depreciation and amortization (1) Weighted average useful lives as of December 31, 2021. (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:20)(cid:15)(cid:24)(cid:22)(cid:20) (cid:20)(cid:22) (cid:178) (cid:178) (cid:20)(cid:15)(cid:24)(cid:23)(cid:23) 1,588 138 304 1,192 3,222 938 138 304 1,192 2,572 (cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:88)(cid:86)(cid:72)(cid:73)(cid:88)(cid:79) (cid:79)(cid:76)(cid:89)(cid:72)(cid:86) (cid:11)(cid:20)(cid:12) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:24) (cid:21)(cid:25) (cid:22)(cid:24) (cid:24) (cid:49)(cid:18)(cid:36) (cid:49)(cid:18)(cid:36) (cid:49)(cid:18)(cid:36) (cid:7) (cid:7) (cid:20)(cid:15)(cid:21)(cid:23)(cid:23)(cid:15)(cid:25)(cid:20)(cid:26) (cid:23)(cid:23)(cid:15)(cid:27)(cid:20)(cid:23) (cid:27)(cid:15)(cid:21)(cid:26)(cid:20) (cid:20)(cid:15)(cid:20)(cid:24)(cid:25) (cid:20)(cid:24)(cid:15)(cid:21)(cid:28)(cid:27) (cid:21)(cid:25)(cid:15)(cid:26)(cid:23)(cid:23) (cid:23)(cid:15)(cid:24)(cid:25)(cid:26) (cid:20)(cid:15)(cid:22)(cid:23)(cid:24)(cid:15)(cid:23)(cid:25)(cid:26) (cid:23)(cid:27)(cid:25)(cid:15)(cid:28)(cid:27)(cid:26) (cid:27)(cid:24)(cid:27)(cid:15)(cid:23)(cid:27)(cid:19) $ $ 1,213,359 44,123 8,223 1,080 18,389 26,894 4,567 1,316,635 425,437 891,198 Machinery, equipment and automotive primarily includes the categories of property and equipment and estimated useful lives as follows(cid:29) processing plants and plant infrastructure (15-30 years)(cid:30) certain processing plant components (3-10 years)(cid:30) and trucks, automobiles, trailers, and other rolling stock (4-7 years). F-18 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:24)(cid:17) (cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:49)(cid:82)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87) (cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71) (cid:68)(cid:81)(cid:71) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) interest Accrued payroll and benefits Accruedr Current portion of operating lease liabilities death and other executive benefits Accruedr Accruedr health and worker compensation insurance claims Other Less noncurrent portion Current portion of accrued and other liabilities (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:28)(cid:15)(cid:26)(cid:28)(cid:23) (cid:27)(cid:15)(cid:22)(cid:28)(cid:26) $ (cid:26)(cid:15)(cid:26)(cid:24)(cid:24) (cid:21)(cid:15)(cid:24)(cid:20)(cid:23) (cid:20)(cid:15)(cid:21)(cid:26)(cid:21) (cid:25)(cid:15)(cid:24)(cid:28)(cid:28) (cid:22)(cid:25)(cid:15)(cid:22)(cid:22)(cid:20) (cid:22)(cid:15)(cid:19)(cid:22)(cid:19) (cid:22)(cid:22)(cid:15)(cid:22)(cid:19)(cid:20) $ 5,837 8,669 6,706 2,539 1,179 11,527 36,457 6,090 30,367 (cid:7) (cid:7) (cid:25)(cid:17) (cid:36)(cid:86)(cid:86)(cid:72)(cid:87) (cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:50)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) We own the land on which our owned plants operate, limiting asset retirement obligations at our owned chemical facilities. However, we have various legal requirements related to operations at our chemical facilities mainly for the disposal of wastewater generated at certain of these facilities. At December 31, 2021 and 2020, our accrued liability for AROs was $100,000. However, the facilities and some of the water related assets have an indeterminate life and as a result there is insufficient information to estimate the fair value for certain of our AROs. We will continue to review these obligations and record a liability when a reasonable estimate of the fair value can be made. (cid:26)(cid:17) (cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:55)(cid:72)(cid:85)(cid:80) (cid:39)(cid:72)(cid:69)(cid:87) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:7) (cid:178) $ (cid:24)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) (cid:178) (cid:26)(cid:15)(cid:26)(cid:20)(cid:21) (cid:24)(cid:15)(cid:22)(cid:21)(cid:27) (cid:178) (cid:178) 435,000 10,715 6,834 (cid:21)(cid:22)(cid:15)(cid:28)(cid:27)(cid:26) 28,636 (cid:178) (cid:178) (cid:22)(cid:22)(cid:28) (cid:11)(cid:28)(cid:15)(cid:26)(cid:21)(cid:21)(cid:12) (cid:24)(cid:21)(cid:26)(cid:15)(cid:25)(cid:23)(cid:23) (cid:28)(cid:15)(cid:23)(cid:24)(cid:23) (cid:24)(cid:20)(cid:27)(cid:15)(cid:20)(cid:28)(cid:19) $ 10,000 1,221 432 (8,648) 484,190 16,801 467,389 Working Capital Revolver Loan, with a current interest rate of 3.75% (A) Senior Secured Notes due 2028 (B) Senior Secured Notes due 2023 (B) Secured Financing due 2023, with an interest rate of 8.32% (C) Secured Loan Agreement due 2025, with an interest rate of 8.75% (D) Secured Financing Agreement due 2025, with an interest rate of 8.75% (E) Unsecured Loan Agreement due 2022, with an interest rate of 1.00% (F) Secured Promissory Note due 2021 Other Unamortized debt issuance costs Less current portion of long-term debt (G) one year, net (G) ff Long-term debt due after (cid:7) F-19 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:26)(cid:17) (cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:55)(cid:72)(cid:85)(cid:80) (cid:39)(cid:72)(cid:69)(cid:87) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) ummm Revolver Amounuu t”)nn , based on specificff percentages of eligible accountsuu (cid:11)(cid:36)(cid:12) Our revolving credit facility, as amended (the “Working Capital Revolver Loan”), provides for advances up to $65 million (the “Maximaa receivable and invenn ntories and up to $10 million of letters of credit, the outstanding amount of which reduces the available for borrowing under the Working Capital Revolver Loan. At December 31, 2021, our available borrowings under our Working Capital Revolver Loan were approximately $61.3 million, based on our eligible collateral, less outstanding letters of credit and loan balance. The maturity date of the Working Capital Revolver Loan is on the earlier of (i) the date that is 90 days prior to the earliest stated maturity date of the Senior Secured Notes (unless refinanced or repaid) and (ii) February to certain conditions anaa d subject to lender approval, the Maximum Revolver Amount may increase up to an additional $10 26, 2024. Subu ject million. The Working Capital Revolver Loan also provides for a springing financial covenant (the “Financial Covenant”), which requires that, if the borrowing availabilitytt is less than 10.0% of the total revolver commitments, then the borrowers must maintain a minimum fixed charge coverage ratio of not less than 1.00 to 1.00. The Financial Covenant, if triggered, is tested monthly. b Revolver Loan at a rate equal to, at our election, either (a) a Interest accrues on outstanding borrowings under the Working Capital LIBOR for an interest period selected by us plus an applicable margin equal to 1.50% per annum or 1.75% per annum, depending on borrowing availability under the Working Capital Revolver Loan, or (b) Wells Fargo Capital Finance’s prime rate plus an applicable margin equal to 0.50% per annum or 0.75% per annum, depending on borrowing availability under the Working Capital Revolver Loan. Interest is paid quarterly, if applicable. The Working Capital Revolver Loan contains customary covenants including limitations on asset sales, liens, debt incurrence, restricted payments, investments, dividends and transactions with affiliates. The Working Capital Revolver Loan includes customary events of default. Upon the occurrence of any event of default, the obligations under the Working Capital Revolver Loan may be accelerated and the revolver commitments may be terminated. Obligations under the Working Capital Revolver Loan are secured by a first priority security interest in substantially all of our current assets, including accounts receivable and inventory, subject to certain customary exceptions. Also, the lender provided LSB a consent to close the Exchange Transaction discussed in Note 2 and to allow for the payment of dividends to the holders of the Series B and Series D Preferred discussed in Note 12. (cid:11)(cid:37)(cid:12) On October 14, 2021, LSB completed the issuance and sale of $500 million in aggregate principal amount of its 6.25% Senior Secured Notes due 2028 (the “New Notes”). The New Notes were issued pursuant to an indenture, dated as of October 14, 2021 (the “Indenture”), by and among the LSB, the subsidiary guarantors named therein, and Wilmington Trust, National Association, a national banking association, as trustee and collateral agent. The New Notes were issued at a price equal to 100% of their face value. Most of the proceeds from the New Notes were used to redeem all of our existing Senior Secured Notes due 2023 (the "Old Notes"), to pay related transaction fees, and the remaining portion to be used for general corporate purposes. The redemption was completed by the trustee on October 29, 2021. The Old Notes were redeemed in accordance with the contractual terms and 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 the contractual redemption premium paid and the expensing of unamortized debt issuance costs associated with the Old Notes. The New Notes mature on October 15, 2028, ranking 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 New Notes are jointly and severally guaranteed by the subsidiary guarantors named in the Indenture on a senior secured basis. Interest on the New Notes accrues at a rate of 6.25% per annum and is payable semi-annually in arrears on May 15 and October 15 of each year, beginning on May 15, 2022. Pursuant to the Indenture, LSB may redeem the New 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 (as defined in the Indenture). The New Notes do not have any conversion features. 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 New Notes may declare the principal of and accruedrr but unpaid interest on all the New Notes to be due and payable. F-20 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:26)(cid:17) (cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:55)(cid:72)(cid:85)(cid:80) (cid:39)(cid:72)(cid:69)(cid:87) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) LSB may redeem the New Notes at its option, in whole or in part, subject to the payment of a premium of 3.125% of the principal amount so redeemed, in the case of any optional redemption on or after October 15, 2024. If LSB experiences a change of control, it must offer to purchase the New Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to but excluding the date of purchase. The Indenture contains covenants that limit, among other things, LSB and certain of its subsidiaries’ ability to (1) incur additional indebtedness(cid:30) (2) declare or pay dividends, redeem stock or make other distributions to stockholders(cid:30) (3) make other restricted payments, including investments(cid:30) (4) create dividend and other payment restrictions affecting its subsidiaries(cid:30) (5) create liens or use assets as security in other transactions(cid:30) (6) merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of our assets(cid:30) and (7) enter into transactions with affiliates. Further, during any such time when the New Notes are rated investment grade by each of Moody’s Investors Service, Inc. and Standard (cid:9) Poor’s Investors Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, certain of the covenants will be suspended with respect to the New Notes. Obligations in respect of the New Notes are secured by a first priority security interest in substa certain customary exceptions. u ntially all of our fixed assets, subject to (cid:11)(cid:38)(cid:12) 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 (cid:45)une 2023. (cid:11)(cid:39)(cid:12) EDC is party to a secured loan agreement with an affiliate of LSB Funding. Principal and interest will be payable in 60 equal monthly installments through March 2025. (cid:11)(cid:40)(cid:12) In August 2020, El Dorado Ammonia L.L.C. (“EDA”), one of our subsidiaries, entered into a $30 million secured financing arrangement with an affiliate of LSB Funding. Beginning in September 2020, principal and interest are payable in 60 equal monthlyt installments with a final balloon payment of approximately $5 million due in August 2025. This financing arrangement is secured by an ammonia storage tank and is guaranteed by LSB. (cid:11)(cid:41)(cid:12) 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 (cid:45)une 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 in 2021. (cid:11)(cid:42)(cid:12) Maturities of long-term debt for each of the fiff ve years after December 31, 2021 are as follows (in thousands)(cid:29) 2022 2023 2024 2025 2026 Thereafter Less(cid:29) Debt issuance costs $ $ 9,454 10,900 7,427 9,585 (cid:178) 500,000 9,722 527,644 F-21 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:27)(cid:17) (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86) Benefit for income taxes are as follows(cid:29) (cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:29) Federal State Total Current (cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:29) Federal State Total Deferred Benefit for income taxes (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:178) $ (cid:11)(cid:21)(cid:24)(cid:19)(cid:12) (cid:11)(cid:21)(cid:24)(cid:19)(cid:12) $ (4) $ 33 29 $ (cid:178) (29) (29) (cid:11)(cid:25)(cid:15)(cid:21)(cid:20)(cid:26)(cid:12) $ (cid:20)(cid:15)(cid:28)(cid:20)(cid:20) (cid:11)(cid:23)(cid:15)(cid:22)(cid:19)(cid:25)(cid:12) $ (cid:11)(cid:23)(cid:15)(cid:24)(cid:24)(cid:25)(cid:12) $ (4,631) $ (147) (4,778) $ (4,749) $ (14,739) (6,156) (20,895) (20,924) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) The current benefit for federal income taxes shown above includes federal income tax after the consideration of permanent and temporary differences between income for GAAP and tax purposes. The current benefit for state income taxes includes state income tax and provisions for uncertain income tax positions, and other similar adjustments. The deferred tax provision (benefit) results from the recognition of changes in our prior year deferred tax assets and liabilities, and the utilization of state NOL carryforwards and other temporary differences. We reduce income tax expense for tax credits in the year they arise and are earned. At December 31, 2021, our gross amount of tax credits available to offset state income taxes was $4.2 million ($3.4 million net of federal benefit). Most of these tax credits carryforward for 9 years and begin expiring in 2022. The gross amount of federal tax credits was $8.1 million. These credits carryforward for 20 years and begin expiring in 2034. rr ff In 2021, we utilized approximately $64 million and $56 million of federal and state NOL carryforwards, respectively, to reduce tax of $592 liabilities (minimal in 2020 and 2019). At December 31, 2021, we have remaining federal and state tax NOL carryforwards million and $798 million, respectively. The federal NOL carryforr began expiring in 2021. rwards begin expiring in 2033 and the state NOL carryrr forwards rr ff We considered both positive and negative evidence in our determination of the need for valuation allowances for the deferred tax assets associated with federal and state NOLs and federal credits and in conjunction with the IRC Section 382 limitation. Information evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax ly available information about future years. (cid:57)aluation allowances are liabilities and tax carrybacks, as well as an evaluation of current reflective of our quarterly analysis of the four sources of taxable income, including the calculation of the reversal of existing tax assets and liabilities, the impact of annual utilization limitations of interest expense and net operating losses and our results of operations. Based on our analysis, we believe that it is more-likely-than-not that a portion of our federal and state deferred tax assets will not be able to be utilized. Information relating to our valuation allowance are included in the tables below. In 2021, the provision for income taxes includes the reversal of approximately $13 million of federal valuation allowance and $4 million of state valuation allowance primarily due to current year income. rr F-22 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:27)(cid:17) (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) Deferred tax assets and liabilities include temporary differences and carryforwards as follows(cid:29) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) Deferred compensation Other accrued liabilities Lease liability Interest expense carryforward NNet operating loss Other rr Less valuation allowance on deferred tax assets (cid:55)(cid:82)(cid:87)(cid:68)(cid:79) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:87)(cid:68)(cid:91) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86) Property, plant and equipment Right-of-use-assets Prepaid and other insurance reserves (cid:55)(cid:82)(cid:87)(cid:68)(cid:79) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:87)(cid:68)(cid:91) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:49)(cid:72)(cid:87) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:87)(cid:68)(cid:91) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:7) (cid:7) (cid:7) (cid:7) $ (In Thousands) (cid:21)(cid:15)(cid:22)(cid:28)(cid:19) (cid:20)(cid:15)(cid:26)(cid:21)(cid:20) (cid:25)(cid:15)(cid:26)(cid:20)(cid:19) (cid:21)(cid:26)(cid:15)(cid:28)(cid:21)(cid:27) (cid:20)(cid:24)(cid:28)(cid:15)(cid:21)(cid:20)(cid:22) (cid:20)(cid:21)(cid:15)(cid:19)(cid:22)(cid:19) (cid:11)(cid:23)(cid:25)(cid:15)(cid:28)(cid:25)(cid:27)(cid:12) (cid:20)(cid:25)(cid:22)(cid:15)(cid:19)(cid:21)(cid:23) $ 2,106 2,142 6,471 36,165 170,362 10,255 (64,655) 162,846 (cid:11)(cid:20)(cid:26)(cid:27)(cid:15)(cid:24)(cid:22)(cid:24)(cid:12) (cid:11)(cid:25)(cid:15)(cid:26)(cid:19)(cid:28)(cid:12) (cid:11)(cid:23)(cid:15)(cid:23)(cid:20)(cid:22)(cid:12) (cid:11)(cid:20)(cid:27)(cid:28)(cid:15)(cid:25)(cid:24)(cid:26)(cid:12) $ (183,335) (6,508) (3,942) (193,785) (cid:11)(cid:21)(cid:25)(cid:15)(cid:25)(cid:22)(cid:22)(cid:12) $ (30,939) All of our income (loss) before taxes relates to domestic operations. Detailed below are the differences between the amount of the provision (benefit) for income taxes and the amount which would result from the application of the federal statutory rate to “Income (loss) before benefit for income taxes.” Provision (benefit) for income taxes at federal statutory rate State current and deferred income tax provision (benefit) (cid:57)aluation allowance - Federal (cid:57)aluation allowance - State State tax law changes Tax credits PPP loan forgiveness Other Benefit for income taxes (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:7) (cid:27)(cid:15)(cid:20)(cid:27)(cid:26) $ (13,999) $ (17,712) (cid:20)(cid:15)(cid:27)(cid:22)(cid:22) (cid:11)(cid:20)(cid:22)(cid:15)(cid:23)(cid:19)(cid:19)(cid:12) (cid:11)(cid:23)(cid:15)(cid:21)(cid:27)(cid:25)(cid:12) (cid:26)(cid:15)(cid:22)(cid:25)(cid:19) (cid:11)(cid:21)(cid:15)(cid:27)(cid:22)(cid:24)(cid:12) (cid:11)(cid:21)(cid:15)(cid:23)(cid:24)(cid:25)(cid:12) (cid:20)(cid:15)(cid:19)(cid:23)(cid:20) (cid:11)(cid:23)(cid:15)(cid:24)(cid:24)(cid:25)(cid:12) $ (cid:7) (5,094) 8,758 4,308 (660) (cid:178) (cid:178) 1,938 (4,749) $ (5,282) 2,739 2,961 (4,388) (cid:178) (cid:178) 758 (20,924) A reconciliation of the beginning and ending amount of uncertain tax positions is as follows(cid:29) Balance at beginning of year Additions based on tax positions related to the current year Reductions for tax positions of prior years Balance at end of year (cid:7) (cid:7) (cid:21)(cid:19)(cid:21)(cid:20) (cid:23)(cid:25)(cid:23) (cid:178) (cid:11)(cid:23)(cid:25)(cid:23)(cid:12) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) 519 $ (cid:178) (55) 464 (cid:21)(cid:19)(cid:20)(cid:28) $ $ 577 (cid:178) (58) 519 (cid:178) $ We expect that the amount of unrecognized tax benefits may change as the result of ongoing operations, the outcomes of audits, and the expiration of statute of limitations. This change is not expected to have a significant effect on our results of operations or financial condition. For 2021, 2020, and 2019, if recognized, the effect on the effective tax rate from unrecognized tax benefits would be insignificant. F-23 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:27)(cid:17) (cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:55)(cid:68)(cid:91)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense. For 2021, 2020 and 2019, the amounts for interest and penalties associated witht unrecognized tax positions were minimal. At December 31, 2021, there was no accrued interest or penalties (minimal at December 31, 2020). LSB and certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the 2018-2021 years remain open for all purposes of examination by the U.S. 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 u loss and other carryforwards. (cid:28)(cid:17) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72) (cid:68)(cid:81)(cid:71) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:177) We have the following significant purchase and sales commitments. UAN supply agreement (cid:177) The Pryor Chemical Company (“PCC”) is party to an agreement with C(cid:57)R. C(cid:57)R has the exclusive right (but not the obligation) to purchase all the tons of UAN that are produced by PCC with certain limitations. If C(cid:57)R fails to take delivery of certain tons, PCC pursuant to the terms of the agreement may immediately sell such unpurchased product to a third-party without restriction. The current term of the agreement expires in (cid:45)une 2022, but includes automatic renewals for one or more additional one-year terms unless terminated by either party. However, C(cid:57)R may unilaterally terminate the agreement upon 180 days’aa advance written notice of termination to PCC(cid:30) provided, however, that each party’s rights and obligations pertaining to UAN that C(cid:57)R committed to purchase before such advance notice will survive termination. Additionally, PCC can terminate the agreement upon 90 days’ advance written notice of termination to C(cid:57)R(cid:30) provided, however, that each party’s rights and obligations pertaining to UAN that PCC committed to sell prior to such advance notice will survive termination. Ammonia supply agreement (cid:177) EDC is party to an agreement, as amended, with Koch Fertilizer under which Koch Fertilizer agrees to purchase, with minimum purchase requirements, the ammonia that (a) will be produced at the El Dorado Facility and (b) a portion that is in excess of EDC’s needs as defined. As amended, the term of the agreement expires in (cid:45)une 2023 but automatically continues for one or more additional one-year terms unless terminated by either party by delivering a notice of termination at least nine months prior to the end of term in effect. Nitric acid supply agreement (cid:177) EDC is party to an agreement witht a customer to supply nitric acid. Under the agreement, EDC agreed to supply between 70,000 to 100,000 tons of nitric acid annually. The initial contract term began in 2021 and extends through 2027 but includes automatic one-year renewal terms unless terminated by either party in writing 180 days before the current contract expiration date. (cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15) (cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74) (cid:49)(cid:68)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79) (cid:42)(cid:68)(cid:86) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15) (cid:68)(cid:81)(cid:71) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:177) During several days in February 2021, the Pryor Facility was taken out of service after extreme cold weather caused a surge in natural gas prices in the region, along with the a curtailment of gas distribution by the operator of the pipeline that supplies natural gas to the facility. Also, as a result of unprecedented cold weather conditions, 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. 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 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 discussed under “Natural Gas Contracts” in Note 10 and is classified as a reduction to cost of sales. During 2020, EDC and certain vendors mediated settlements for EDC to recover certain costs associated with a nitric acid plant at our El Dorado Facility. The construction of this plant was completed, and the plant began production in 2016. As a result of the settlements, the vendors paid EDC $4.3 million, provided parts totaling $0.3 million and have agreed to provide services and parts totaling $2.5 million, which amount, or portion thereof, may be paid in cash at the option of the vendors. At December 31, 2021 and 2020, approximately $2.0 million and $2.5 million, respectively, is included in noncurrent accounts receivable (classified as a noncurrent other asset) associated with these settlements. As part of the settlements, EDC paid the vendors $2.7 million to settle $3.2 million of invoices that were held in our accounts payable. As a result, the recovery from these settlements recognized during 2020 includes approximately $5.7 million classified as a reduction to cost of sales and approximately $1.9 million classified as a reduction to PP(cid:9)E. At December 31, 2021 certain of our natural gas contracts qualifyff as normal purchases under GAAP and thus are not mark-to-market, which contracts included volume purchase commitments with fixed costs of approximately 5.4 million MMBtus of natural gas. These contracts extend through March 2022 at a weighted-average cost of $4.53 per MMBtu ($24.6 million) and a weighted-average market value of $3.87 per MMBtu ($21.0 million). F-24 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:28)(cid:17) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) In addition, we had standby letters of credit outstanding of approximately $2.6 million at December 31, 2021. (cid:58)(cid:68)(cid:86)(cid:87)(cid:72)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85) (cid:51)(cid:76)(cid:83)(cid:72)(cid:79)(cid:76)(cid:81)(cid:72) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:177) EDC is party to an operating agreement for the right to use a pipeline to dispose its wastewater. EDC is contractually obligated to pay a portion of the operating costs of the pipeline, as incurred, which portion is estimated to be $100,000 to $150,000 annually. The initial term of the operating agreement is through December 2053. (cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)(cid:81)(cid:71) (cid:51)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87) (cid:37)(cid:82)(cid:81)(cid:71)(cid:86) (cid:177) We are contingently liable to sureties in respect of certain insurance bonds issued by the sureties s in the normal course of business. These insurance bonds in connection with certain contracts entered into by certain subsidiarie primarily represent guarantees of future performance of our subsidiaries. As of December 31, 2021, we have agreed to indemnify the sureties for payments, up to $9.7 million, made by them in respect of such bonds. All of these insurance bonds are expected to expire or be renewed in 2022. u (cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87) (cid:68)(cid:81)(cid:71) (cid:54)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:16) We have employment and severance agreements with several of our officers. The agreements, as amended, provide for annual base salaries, bonuses and other benefits commonly found in such agreements. In the event of termination of employment due to a change in control (as defined in the agreements), the agreements provide for payments aggregating $9.9 million at December 31, 2021. Also see Note 14-Related Party Transactions. (cid:47)(cid:72)(cid:74)(cid:68)(cid:79) (cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) (cid:16) Following is a summary of certain legal matters involving the Company(cid:29) (cid:36)(cid:17) (cid:40)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) Our facilities and operations are subject to numerous federal, state and local environmental laws and to other laws regarding health and safety matters (collectively, the “Environmental and Health Laws”), many of which provide for certain performance obligations, substantial fines and criminal sanctions for violations. Certain Environmental and Health Laws impose strict liabilitytt as well as joint and several liabilitytt or solid wastes have been stored or released. We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conducdd t of otht ers or from consequences of our own actions that were in compliance for costs required to remediate and restore sites where hazardous substances, hydrocarbons witht all applicable lawsaa actions were taken. at the time those mm r t In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safetytt effects of our operations. There can be no assurance that we will not incur material costs or liabilities in complying with such laws or in paying fines or penalties for violation of such laws. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. The Environmental and Health Laws and related enforcement policies have in the past resulted, and could in the future result, in significant compliance expenses, cleanup costs (for our sites or third-party sites where our wastes were disposed of), penalties or other liabilities relating to the handling, manufacture, use, emission, discharge or disposal of hazardous or toxic materials at or from our facilities or the use or disposal of certain of its chemical products. Further, a number of our facilities are dependent on environmental permits to operate, the loss or modification of which could have a material adverse effect on their operations and our financial condition. ff Historically, significant capital expenditures have been incurred by our subsidiaries in order to comply with the Environmental and Health Laws, and significant capital expenditures are expected to be incurred in the future. We will also be obligated to manage certain discharge water outlets and monitor groundwater contaminants at our facilities should we discontinue the operations of a facility. As of December 31, 2021, 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. It is reasonably possible that a change in the estimate of our liability could occur in the near term. Also, see discussion in Note 6 (cid:177) Asset Retirement Obligations. (cid:20)(cid:17) (cid:39)(cid:76)(cid:86)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72) (cid:58)(cid:68)(cid:87)(cid:72)(cid:85) (cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) Each of our manufacturing facilities generates process wastewater, which may include cooling tower and boiler water quality control streams, contact storm water and miscellaneous spills and leaks from process equipment. The process water discharge, storm-water runoff and miscellaneous spills and leaks are governed by various permits generally issued by the respective state environmental agencies as authorized and overseen by the U.S. Environmental Protection Agency. These permits limit the type and amount of effluents that can be discharged and control the method of such discharge. F-25 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:28)(cid:17) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) In 2017, the Pryor Chemical Company (“PCC”) filed a Permit Renewal Application for its Non-Hazardous Injection Well Permit at the Pryor Facility. Although the Injection Well Permit expired in 2018, PCC continues to operate the injection well pending the Oklahoma Department of Environmental Quality (“ODEQ”) action on the Permit Renewal Application. PCC and ODEQ are engaged in ongoing discussions related to the renewal of the injection well to address the wastewater stream. n Our El Dorado Facility is subject to a National Pollutant Discharge Elimination System (“NPDES”) permit issued by the Arkansas Department of Environmental Quality (“ADEQ”) in 2004. In 2010, the ADEQ issued a draftff NPDES permit renewal for the El Dorado Facility, which contained more restrictive discharge limits than the previous 2004 permit. During 2017, ADEQ issued a final NPDES permit with new dissolved mineral limits(cid:30) however, EDC filed an appeal, and a Permit Appeal Resolution (“PAR”) was signed in 2018. EDC is in compliance with the revised permit limits agreed upon in the PAR. In 2006, the El Dorado Facility entered into a Consent Administrative Order (“CAO”) that recognizes the presence of nitrate contamination in the shallow groundwater. The CAO required EDC to perform semi-annual groundwater monitoring, continue operation of a groundwater recovery system, submit a human health and ecological risk assessment, and submit a remedial action plan. t The risk assessment was submitted in 2007. In 2015, the ADEQ stated that El Dorado Chemical was meeting the requirements of the CAO and should continue semi-annual monitoring. Subsequent to the PAR mentioned previously, a new CAO was signed in 2018, which required an Evaluation Report of the data and effectiveness of the groundwater remedy for nitrate contamination. During 2019, the Evaluation Report was submitted to the ADEQ and the ADEQ approved the report. No liability has been established at December 31, 2021, in connection with this ADEQ matter. a (cid:21)(cid:17) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:40)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:48)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86) In 2002, certain of our subsidiaries sold substantially all of their operating assets relating to a Kansas chemical facility (the “Hallowell Facility”) but retained ownership of the real property where the facility is located. Our subsidiary retained the obligation to be responsible for, and perform the activities under, a previously executed consent order to investigate the surface and subsurface contamination at the real property, develop a corrective action strategy based on the investigation, and implement such strategy. In addition, certain of our subsidiaries agreed to indemnify the buyer of such assets for these environmental matters. As the successor to a prior owner of the Hallowell Facility, Chevron Environmental Management Company (“Chevron”) has agreed in writing, within certain limitations, to pay and has been paying one-half of the costs of the investigation and interim measures relating to this matter as approved by the Kansas Department of Health and Environment (the “KDHE”), subject to reallocation. During this process, our subsidiary and Chevron retained an environmental consultant that prepared and performed a corrective action study work plan as to the appropriate method to remediate the Hallowell Facility. During 2020, the KDHE selected a remedy of annual monitoring and the implementation of an Environmental Use Control (“EUC”). This remedy primarily relates to long-term surface and groundwater monitoring to track the natural decline in contamination and is subject to a 5-year re-evaluation with the KDHE. The final remedy, including the EUC, the finalization of the cost estimates and any required financial assurances remains under discussion with the KDHE, but continues to be delayed due to the impact from the CO(cid:57)ID-19 pandemic. Pending the results from our discussions regarding the final remedy, we continue to accrue our allocable portion of costs primarily for the additional testing, monitoring and risk assessments that could be reasonably estimated, which amount is included in our accrued liabilities for environmental matters discussed above. The estimated amount is not discounted to its present value. As more information becomes available, our estimated accrual will be refined, as necessary. (cid:37)(cid:17) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:51)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15) (cid:55)(cid:75)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:81)(cid:72)(cid:71) (cid:82)(cid:85) (cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:71) (cid:47)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) at the West Fertilizer Co. (“West Fertilizer”) located in West, Texas, causing death,t bodily injuryrr In 2013, an explosion and fire occurredrr and substantial propertytt damage. West Fertilizer is not owned or controlled by us, but West Fertilizer was a customer of EDC, and purchased AN from EDC from time to time. LSB and EDC received letters from counsel purporting to represent subrogated insurance carriers, personal injury claimants and persons who suffered property damages informing LSB and EDC that their clients are conducting investigations into the cause of the explosion and fire to determine, among other things, whether AN manufactured by EDC and supplied to West Fertilizer was stored at West Fertilizer at the time of the explosion and, if so, whether such AN may have been one of the contributing factors of the explosion. Initial lawsuits filed named West Fertilizer and another supplier of AN as defendants. uu a tt t F-26 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:28)(cid:17) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) In 2014, EDC and LSB were named as defendants, together with other AN manufacturers and brokers that arranged the transport and delivery of AN to West Fertilizer, in the case styled City of West, Texas vs. CF Industries, Inc., et al., in the District Court of McLennan County, Texas. The plaintiffs allege, among other things, that LSB and EDC were negligent in the production and marketing of fertilizer products sold to West Fertilizer, resulting in death, personal injury and property damage. EDC retained a firm specializing in cause and origin investigations with particular experience with fertilizer facilities, to assist EDC in its own investigation. LSB and EDC placed its liability insurance carrier on notice, and the carrier is handling the defense for LSB and EDC concerning this matter. Our product liability insurance policies have aggregate limits of general liability totaling $100 million, with a self-insured retention of $250,000, which retention limit has been met relating to the West Fertilizer matter. In August 2015, the trial court dismissed plaintiff’s negligence claims against us, and EDC based on a duty to inspect but allowed the plaintiffs to proceed on claims for design defect and failure to warn. Subsequently, we and EDC have entered into confidential settlement agreements (with approval of our insurance carriers) with several plaintiffs that had claimed wrongful death and bodily injury and insurance companies asserting subrogation claims for damages from the explosion. While these settlements resolve the claims of a number of the claimants in this matter, we continue to be party to litigation related to the explosion. We continue to defend these lawsuits vigorously and we are unable to estimate a possible range of loss at this time if there is an adverse outcome in this matter. As of December 31, 2021, no liability reserve has been established in connection with this matter, except for the unpaid portion of the settlement agreements discussed above. In 2015, we and EDA received formal written notice from Global Industrial, Inc. (“Global”) of Global’s intention to assert mechanic liens for labor, service, or materials furnished under certain subcontract agreements for the improvement of the new ammonia plant (“Ammonia Plant”) at our El Dorado Facility. Global was a subcontractor of Leidos Constructors, LLC (“Leidos”), the general contractor for EDA for the construction for the Ammonia Plant. Leidos terminated the services of Global with respect to their work performed at our El Dorado Facility. LSB and EDA are pursuing the recovery of any damage or loss caused by Global’s work performed through their contract with Leidos at our El Dorado Facility. In March 2016, EDC and LSB were served a summons in a case styled Global Industrial, Inc. d/b/a Global Turnaround vs. Leidos Constructors, LLC et al., in the Circuit court of Union County, Arkansas, wherein Global sought damages under breach of contract and other claims. At the time of the summons, our accounts payable included invoices totaling approximately $3.5 million related to the claims asserted by Global but such invoices were not approved by Leidos for payment. We have requested indemnification from Leidos under the terms of our contracts, which they have denied. As a result, we are seeking reimbursement of legal expenses from Leidos under our contracts. We also seek damages from Leidos for their wrongdoing during the expansion, including breach of contract, fraud, professional negligence, and gross negligence. During 2018, the court bifurcated the case into(cid:29) (1) Global’s claims against Leidos and LSB, and (2) the cross-claims between Leidos and LSB. Part (1) of the case was tried in the court. In March 2020, the court rendered an interim judgment and issued its final judgment in April 2020. In summary, the judgment awarded Global (i) approximately $7.4 million (including the $3.5 million discussed above) for labor, service, and materials furnished relating to the Ammonia Plant, (ii) approximately $1.3 million for prejudgment interest, and (iii) a claim of lien on certain property and the foreclosure of the lien to satisfy these obligations. In addition, post-judgment interest will accrue at the annual rate of 4.25% until paid. During 2020, this judgment impacted our consolidated statement of operations as follows(cid:29) • • additional depreciation expense of $0.5 million classified as cost of sales(cid:30) and prejudgment and post-judgment interest expense totaling $1.6 million. We have filed a notice of intent to appeal, and the court entered a stay of the judgment pending appeal. LSB intends to vigorously prosecute its claims against Leidos and vigorously contest the cross-claims in Part (2) of the matter. Due to the impact from the CO(cid:57)ID-19 pandemic, the trial date for Part (2) of the matter has been delayed and we are awaiting a new trial date. No liability was established at December 31, 2021 or 2020, 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). It is possible that the actual future development of claims could be different from our estimates but, after consultation with legal counsel, we believe that changes in our estimates will not have a material effect on our business, financial condition, results of operations or cash flows. F-27 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:19)(cid:17) (cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:15) (cid:43)(cid:72)(cid:71)(cid:74)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79) (cid:44)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) For the periods presented, the following significant instruments are accounted for on a fair value basis(cid:29) (cid:49)(cid:68)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79) (cid:42)(cid:68)(cid:86) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86) Periodically, we entered into certain forward natural gas contracts (“natural gas contracts”), which are accounted for on a mark-to- market basis. We utilize 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 t through December 2021, but these contracts were settled during the first quarter of 2021, primarily due to the weather event discussed in Note 9. At December 31, 2021, we had no outstanding natural gas contracts. 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 valuations of the natural gas contracts are classified as Level 2. 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. ff For 2021, we recognized a gain of $2.7 million (including a realized gain of $1.5 million). For 2020, we recognized a $1.6 million loss (none for 2019), which amount included an unrealized loss of $1.2 million attributed to natural gas contracts still held at the reporting date. The gain is classified as a reduction of cost of sales and the loss is classified as cost of sales. (cid:40)(cid:80)(cid:69)(cid:72)(cid:71)(cid:71)(cid:72)(cid:71) (cid:39)(cid:72)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) As discussed in Note 2, the Series E Redeemable Preferred was exchanged for our common stock during 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. Prior to the completion of the Exchange 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 liabila ity). 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. tt 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. At December 31, value of the embedded derivative included the valuation of the participation rights, which was based on the equivalent of 2020, the fair 303,646 shares of our common stock at $3.39 per share. ff 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 2021, we recognized a loss of $2.3 million (including a realized loss of $3.3 million) due to the change in faff ir value of the embedded derivative through the date of the Exchange Transaction. For 2020 and 2019, we recognized unrealized gains of approximately $0.1 million and $0.5 million, respectively, due to the change faff ir value of the embedded derivative. These gains and loss are included in non-operating other income and expense. a in There was no Level 3 transfer activity during 2021, 2020 or 2019. F-28 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:20)(cid:17) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:21)(cid:19)(cid:20)(cid:25) (cid:47)(cid:82)(cid:81)(cid:74) (cid:55)(cid:72)(cid:85)(cid:80) (cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72) (cid:51)(cid:79)(cid:68)(cid:81) (cid:177) During 2016, our Board adopted our 2016 Long Term Incentive Plan, which plan was approved by our shareholders at our annual meeting of shareholders held on (cid:45)une 2, 2016. During 2021, the 2016 Long Term Incentive Plan was amended as approved by our shareholders at our annual meeting of shareholders held on May 14, 2021 (together, the “2016 Plan”). No awards may be granted under the 2016 Plan on and after the tentht anniversary of its effective date. After the effective date of the 2016 Plan, no further awards can be granted under our 2008 Incentive Stock Plan (the “2008 Plan”). of Any awards that remain outstanding under the 2008 Plan will continue to be governed by the respective plan’s terms and the termsrr the specific award agreement, as applicable. The maximum aggregate number of shares reserved and available for issuance under the 2016 Plan shall not exceed 5,750,000 shares plus any shares that become available for reissuance under the share counting provisions of the 2008 Plan following the effective date of the 2016 Plan, subject to adjustment (including additional shares relating to the Special Dividend) as permitted under the 2016 Plan. Shares subject to any award that is canceled, forfeited, expires unexercised, settled in cash in lieu of common stock or otherwise terminated without a delivery of shares to a participant will again be available for awards under the 2016 Plan to the extent allowable by law. Under the 2016 Plan, awards may be made to employees, directors and consultants (for services rendered) of LSB or our subsidiaries subject to limitations as defined by the 2016 Plan. rr The 2016 Plan is administered by the compensation committee (the “Committee”) of our Board. Our Board or the Committee may amend the 2016 Plan, except that if any applicable statute, rule or regulation requires shareholder approval with respect to any amendment of the 2016 Plan, then to the extent so required, shareholder approval will be obtained. Shareholder approval will also be obtained for any amendment that would increase the number of shares stated as available for issuance under the 2016 Plan. All share information has been retroactively adjusted to reflecff t the Special Dividend as discussed in Note 2. The following may be granted by the Committee under the 2016 Plan(cid:29) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:15) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:56)(cid:81)(cid:76)(cid:87)(cid:86)(cid:15) (cid:68)(cid:81)(cid:71) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86) (cid:177) The Committee may grant awards of restricted stock, restricted stock units, and other stock and cash-based awards, which may include the payment of stock in lieu of cash (including cash payable under other incentive or bonus programs) or the payment of cash (which may or may not be based on the price of our common stock). aa (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:36)(cid:83)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86) (cid:11)(cid:179)(cid:54)(cid:36)(cid:53)(cid:86)(cid:180)(cid:12) (cid:177) The Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2016 Plan or on a stand-alone basis. SARs are the right to receive payment per share of the SAR exercised in stock or in cash equal to the excess of the share’s fair market value, as defined in the 2016 Plan, on the date of exercise over its fair market value on the date the SAR was granted. Exercise of a SAR issued in tandem with stock options will result in the reduction of the number of shares underlying the related stock option to the extent of the SAR exercise. (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:177) The Committee may grant either incentive stock options or non-qualified stock options. The Committee sets option exercise prices and terms, except that the exercise price of a stock option may be no less than 100% of the fair market value, as defined in the 2016 Plan, of the shares on the date of grant. At the time of grant, the Committee will have sole discretion in determining when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed 10 years subject to certain conditions. (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72) (cid:51)(cid:79)(cid:68)(cid:81)(cid:86) - The following information relates to our long-term incentive plans(cid:29) Maximum number of securities for issuance NNumber of awards available to be granted (1) NNumber of unvested restricted stock(cid:18)kk perfor (cid:18) mance-based restricted stock(cid:18)kk restricted stock units outstanding NNumber of options outstanding NNumber of options exercisable (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:20)(cid:25) (cid:51)(cid:79)(cid:68)(cid:81) 5,750,000 2,800,002 1,900,986 (cid:178) (cid:178) (cid:21)(cid:19)(cid:19)(cid:27) (cid:51)(cid:79)(cid:68)(cid:81) (cid:178) 13,000 13,000 . (1) Includes 2008 and 2016 Plan shares canceled, forfeited, expired unexercised, which became available for reissuance under the 2016 Plan. F-29 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:20)(cid:17) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:68)(cid:81)(cid:71) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:56)(cid:81)(cid:76)(cid:87)(cid:86) (cid:177) During the three years presented below, the Committee approved various grants under the 2016 Plan of shares of restricted stock to certain executives and employees. These shares have vesting provisions including vesting at the end of each one-year period at the rate of one-third per year for three years, vesting 100% at the end of three years, and vesting 100% at the end of one year. The unvested restricted shares carry dividend and voting rights. Sales of these shares are restricted prior to the date of vesting. Pursuant to the terms of the underlying restricted stock agreements, unvested restricted shares will immediately vest upon the rr occurrence of a change in control (as defined by the agreement), termination without cause or death. t During 2021, the Committee approved the grant of shares of restricted stock and performance-based restricted stock (“PBRS”) to t certain executives and the grant of shares of restricted stock units to certain employees. Pursuant to the terms of the performance- based awards outstanding as of the CoC event associated with the Exchange Transaction discussed in Note 2, additional shares of restricted stock were issued including the satisfaction of certain performance conditions above the target performance level. Upon the CoC event, such restricted stock is subject only to the time-based vesting conditions set forth in the applicable award agreement and the 2016 Plan. The shares discussed above are reflected in the 2021 information below. r ff ff During 2020, the Committee approved the grant of shares of restricted reflected in the 2020 information below. t stock and PBRS to a certain executive. These shares are On December 31, 2019, the Committee approved the grant of approximately 358,000 shares of performance-based restricted stock to certain executives. Key informa tion to finalize the performance targets and range of vesting shares was approved by the Board during February 2020, which is the grant date for financial reporting purposes. The terms of this PBRS grant are discussed below and these PBRS shares are reflected in the 2020 information below. ff During the three years presented below, the Committee approved the grant of shares of RSU to our non-employee directors for payment of a portion of their director fees under the 2016 Plan. Each RSU represents a right to receive one share of our common stock following the grant date and are non-forfeitable. (cid:57)esting occurs upon the earliest to occur(cid:29) (i) the director’s separation from service, (ii) the first anniversary of the grant date (for the 2021 and 2020 grants), (iii) the third anniversary of the grant date (for 2019 grant), or (iv) the occurrence of a change of control, as defined by the agreement. Based on terms of the RSU agreements, the grant date fair value was recognized as stock-based compensation expense (SG(cid:9)A) on the grant date in each respective year. Pursuant to the terms of these RSU awards outstanding as of the CoC event associated with the Exchange Transaction discussed in Note 2, all such awards immediately vested. A summary of restricted stock activity during 2021 is presented below(cid:29) Unvested outstanding beginning of year Granted (cid:57)ested Cancelled or forfeited Unvested outstanding end of year (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:16)(cid:37)(cid:68)(cid:86)(cid:72)(cid:71) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:56)(cid:81)(cid:76)(cid:87)(cid:86) (cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16) (cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:42)(cid:85)(cid:68)(cid:81)(cid:87) (cid:39)(cid:68)(cid:87)(cid:72) (cid:41)(cid:68)(cid:76)(cid:85) (cid:57)(cid:68)(cid:79)(cid:88)(cid:72) 3.48 3.55 3.20 (cid:178) 2.78 (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) 445,472 $ $ 799,500 (295,993) $ (cid:178) $ $ 948,979 (cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16) (cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:42)(cid:85)(cid:68)(cid:81)(cid:87) (cid:39)(cid:68)(cid:87)(cid:72) (cid:41)(cid:68)(cid:76)(cid:85) (cid:57)(cid:68)(cid:79)(cid:88)(cid:72) 3.77 3.09 4.66 4.89 2.67 (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) 686,005 $ $ 675,532 (598,536) $ (20,737) $ $ 742,264 (cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16) (cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:42)(cid:85)(cid:68)(cid:81)(cid:87) (cid:39)(cid:68)(cid:87)(cid:72) (cid:41)(cid:68)(cid:76)(cid:85) (cid:57)(cid:68)(cid:79)(cid:88)(cid:72) 1.62 5.05 2.34 5.04 5.04 (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) 388,908 $ $ 327,188 (490,866) $ (15,487) $ $ 209,743 F-30 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:20)(cid:17) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) Shares of restricted stock granted Total fair value of restricted stock granted Weighted-average fair value per restricted stock granted during year Stock-based compensation expense - Cost of sales Stock-based compensation expense - SG(cid:9)A Income tax benefit Total weighted-average remaining vesting period in years Total fair value of restricted stock vested during the year Shares of PBRS granted Total fair value of PBRS granted Weighted-average fair value per PBRS granted during year Stock-based compensation expense - Cost of sales Stock-based compensation expense - SG(cid:9)A Income tax benefit Total weighted-average remaining vesting period in years Total fair value of PBRS vested during the year Shares of RSU granted Total fair value of RSU granted Weighted-average fair value per RSU granted during year Stock-based compensation expense - Cost of sales Stock-based compensation expense - SG(cid:9)A Income tax benefit Total weighted-average remaining vesting period in years Total fair value of RSU vested during the year (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:21)(cid:19)(cid:21)(cid:19) (cid:21)(cid:19)(cid:21)(cid:20) (cid:26)(cid:28)(cid:28)(cid:15)(cid:24)(cid:19)(cid:19) $ (cid:21)(cid:15)(cid:20)(cid:27)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:22)(cid:17)(cid:24)(cid:24) $ (cid:20)(cid:19)(cid:26)(cid:15)(cid:19)(cid:19)(cid:19) (cid:20)(cid:15)(cid:25)(cid:23)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:11)(cid:23)(cid:22)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) $ (cid:20)(cid:17)(cid:27)(cid:23) (cid:21)(cid:15)(cid:26)(cid:21)(cid:28)(cid:15)(cid:19)(cid:19)(cid:19) $ 40,479 $ 87,000 $ 2.15 $ 62,000 1,078,000 $ (279,000) $ 1.61 578,000 $ (cid:21)(cid:19)(cid:20)(cid:28) 371,743 1,223,000 3.29 255,000 1,263,000 (374,000) 2.18 1,917,000 (cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:16)(cid:37)(cid:68)(cid:86)(cid:72)(cid:71) (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:21)(cid:19)(cid:21)(cid:20) (cid:11)(cid:20)(cid:12) (cid:21)(cid:19)(cid:21)(cid:19) (cid:11)(cid:20)(cid:12) (cid:21)(cid:19)(cid:20)(cid:28) (cid:11)(cid:20)(cid:12) (cid:25)(cid:26)(cid:24)(cid:15)(cid:24)(cid:22)(cid:21) $ (cid:21)(cid:15)(cid:23)(cid:27)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:22)(cid:17)(cid:19)(cid:28) $ (cid:20)(cid:19)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19) (cid:21)(cid:15)(cid:28)(cid:22)(cid:27)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:11)(cid:26)(cid:23)(cid:26)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) $ (cid:20)(cid:17)(cid:24)(cid:25) (cid:25)(cid:15)(cid:25)(cid:26)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19) $ 398,134 980,000 2.46 $ $ (cid:178) $ 218,000 $ (53,000) $ 1.57 (cid:178) $ 287,871 1,608,000 5.59 53,000 290,000 (84,000) 1.85 (cid:178) (cid:21)(cid:19)(cid:21)(cid:20) (cid:22)(cid:21)(cid:26)(cid:15)(cid:20)(cid:27)(cid:27) $ (cid:20)(cid:15)(cid:25)(cid:24)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:24)(cid:17)(cid:19)(cid:24) (cid:7) (cid:20)(cid:25)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19) (cid:24)(cid:25)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:11)(cid:20)(cid:26)(cid:27)(cid:15)(cid:19)(cid:19)(cid:19)(cid:12) $ (cid:21)(cid:17)(cid:23)(cid:21) (cid:21)(cid:15)(cid:21)(cid:19)(cid:28)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:56)(cid:81)(cid:76)(cid:87)(cid:86) (cid:21)(cid:19)(cid:21)(cid:19) 301,361 255,000 0.85 $ $ (cid:178) $ 255,000 $ (63,000) $ 0.48 16,000 $ (cid:21)(cid:19)(cid:20)(cid:28) 41,383 187,000 4.53 53,000 187,000 (46,000) 1.57 41,000 (1) Upon the CoC event associated with the Exchange Transaction during 2021, such PBRS is subject only to the time-based vesting conditions set forth in the applicable award agreement and the 2016 Plan. (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:177) No stock options have been granted under the 2016 Plan during the three years presented below. As it relates to stock options granted under the 2008 plan, the exercise price of the outstanding options granted were equal to the market value of our common stock at the date of grant and vested at the end of each one-year period at the rate of 16.5% per year for the first five years and the remaining unvested options vested at the end of the sixth year. The fair value for of the stock options granted under the 2008 Plan were estimated, using an option pricing model, as of the date of the grant, which date was also the service inception date. A summary of stock option activity in 2021 is presented below(cid:29) (cid:21)(cid:19)(cid:21)(cid:20) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72) (cid:51)(cid:85)(cid:76)(cid:70)(cid:72) 158,600 $ (cid:178) $ (cid:178) $ (145,600) $ $ 13,000 $ 13,000 26.04 (cid:178) (cid:178) 26.07 25.66 25.66 Outstanding at beginning of year Granted Exercised Forfeited or expired Outstanding at end of year Exercisable at end of year F-31 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:20)(cid:17) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182) (cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) Stock-based compensation expense - Cost of sales Stock-based compensation expense - SG(cid:9)A Income tax benefit Total intrinsic value of options exercised during the year Total fair value of options vested during the year Total intrinsic value of options outstanding at end of year Total intrinsic value of options exercisable at end of year Total weighted-average remaining vesting period in years Total weighted-average remaining contractual life period in years (options outstanding) Total weighted-average remaining contractual life period in years (options exercisable) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:7) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:21)(cid:19)(cid:20)(cid:28) $ 122,000 (cid:178) $ 106,000 50,000 $ 42,000 (cid:178) $ (cid:178) $ (36,000) $ (42,000) (cid:178) (cid:178) $ (cid:178) (cid:178) $ (cid:178) (cid:178) $ (cid:178) $ (cid:178) 0.49 (cid:178) 3.61 (cid:21)(cid:17)(cid:28)(cid:21) 3.47 (cid:21)(cid:17)(cid:28)(cid:21) (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) 2.64 2.64 (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72) (cid:49)(cid:82)(cid:87) (cid:60)(cid:72)(cid:87) (cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71) (cid:177) At December 31, 2021, the total stock-based compensation expense not yet recognized is $4,079,000, relating to all forms of non-vested equity awards, which we will be amortizing (subject to adjustments for actual forfeitures) through the respective remaining vesting periods through (cid:45)une 2024. (cid:53)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86) (cid:82)(cid:73) (cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:177) As of December 31, 2021, we have reserved 0.2 million shares of common stock issuable upon vesting of equity awards pursuant to their respective terms. (cid:49)(cid:50)(cid:47) (cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:16) On (cid:45)uly 6, 2020, we entered into the Section 382 Rights Agreement (the “NOL Rights Agreement”), dated as of (cid:45)uly 6, 2020, between LSB and Computershare Trust Company, N.A., as rights agent. During 2021, the NOL Rights Agreement was ratified by our shareholders at our annual meeting of shareholders held on May 14, 2021. The purpose of the NOL Rights Agreement is to facilitate our ability to preserve our NOLs and other tax attributes in order to be able to offset potential future income taxes for federal income tax purposes. Our ability to use these NOLs and other tax attributes would be ff substantially limited if we experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). A company generally experiences an ownership change if the percentage of the value of its stock owned by certain 5% shareholders, as defined in Section 382 of the Code, increases by more than 50% points over a rolling three-year period. The NOL Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any person (as defined in the NOL Rights Agreement) or group of affiliated or associated persons (“Group”) from acquiring beneficial ownership of 4.9% or more of our outstanding common shares. The rights issued under the NOL Rights Agreement will expire on the earliest to occur of (i) the close of business on the day following the certification of the voting results of our 2021 annual meeting of stockholders, or other duly held stockholders’ meeting, (ii) the date on which our Board determines in its sole discretion that (x) the NOL Rights Agreement is no longer necessary for the preservation of material valuable NOLs or tax attributes or (y) the NOLs and tax attributes have been fully utilized and may no longer be carried forward and (iii) the close of business on (cid:45)uly 6, 2023. Our Board may, in its discretion, determine that a person, entity or a certain transaction is exempt from the operation of the NOL Rights Agreement or amend the terms of the rights. This summary description of the NOL Rights Agreement does not purport to be complete and is qualified in its entirety by referff ence to the Rights Agreement filed as an exhibit to our Current Report on Form 8-K filed on (cid:45)uly 6, 2020. (cid:20)(cid:21)(cid:17) (cid:49)(cid:82)(cid:81)(cid:16)(cid:53)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72) (cid:51)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) In 2021, certain of the Golsen Holders who held all of the outstanding shares of Series B 12% Cumulative, Convertible Preferred Stock, par value $100 (“Series B Preferred”) and Series D 6% Cumulative, Convertible Class C Preferred Stock, no par value (“Series D Preferred”) provided notice to convert all of their shares of Series B Preferred and Series D Preferred into approximately 1.2 million shares of our common stock, pursuant to the terms of these securities. Pursuant to the terms of these securities, our Board declared and we paid the accumulated dividends totaling approximately $1.9 million on the Series B and Series D Preferred. As a result, no shares of the Series B Preferred and Series D Preferred remain outstanding. See further discussion concerning the Series B and Series D Preferred in Note 14. ff (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:177) At December 31, 2021, we are authorized to issue an additional 250,000 shares of $100 par value preferred stock and an additional 5,000,000 shares of no-par value preferred stock. Upon issuance, our Board will determine the specific terms and conditions of such preferred stock. ff F-32 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:22)(cid:17) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15) (cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72) (cid:54)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86) (cid:51)(cid:79)(cid:68)(cid:81)(cid:86) (cid:68)(cid:81)(cid:71) (cid:38)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72) (cid:37)(cid:68)(cid:85)(cid:74)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) We are party to a death benefit agreement (“2005 Agreement”) with (cid:45)ack E. Golsen (“(cid:45). Golsen”), who retired as discussed in Note 14-Related Party Transactions. The 2005 Agreement provides that, upon (cid:45). Golsen’s death, we will pay to the designated beneficiary, a lump-sum payment of $2,500,000 to be funded from the net proceeds received by us under certain lifeff insurance policies on his life that are owned by us. We are obligated to keep in existence life insurance policies with a total face amount of no less than $2,500,000 of the stated death benefit. The following table includes informat ff ion about this agreement(cid:29) Total undiscounted death benefit Total accrued death benefiff t (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:15)(cid:24)(cid:19)(cid:19) $ (cid:21)(cid:15)(cid:24)(cid:20)(cid:23) $ 2,500 2,539 (cid:7) (cid:7) The accrued executive benefit under the 2005 Agreement is included in noncurrent accruedr liabilities when they become probable and discount the liabilities to their present value. and other liabilities. We accrue for such To assist us in funding the 2005 Agreement and for other business reasons, we purchased lifeff insurance policies on various individuals in which we are the beneficiary. Some of these life insurance policies have cash surrender values that we have borrowed against. The net cash surrender values of these policies are included in other assets. d The following table summarizes certain information about these life insurance policies. Total face value of lifeff insurance policies Total cash surrender values of lifeff Loans on cash surrender values Net cash surrender values insurance policies (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20)(cid:15) (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:23)(cid:15)(cid:24)(cid:19)(cid:19) $ 4,500 (cid:20)(cid:15)(cid:27)(cid:25)(cid:22) (cid:11)(cid:20)(cid:15)(cid:25)(cid:23)(cid:21)(cid:12) (cid:21)(cid:21)(cid:20) $ $ 1,796 (1,703) 93 (cid:7) (cid:7) (cid:7) Cost of lifeff insurance premiums Increase in cash surrender values NNet cost of life insurance premiums included in SG(cid:9)A (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) 215 $ (69) 146 $ $ $ (cid:21)(cid:20)(cid:24) (cid:11)(cid:25)(cid:28)(cid:12) (cid:20)(cid:23)(cid:25) (cid:7) (cid:7) (cid:21)(cid:19)(cid:20)(cid:28) 215 (70) 145 Employee Savings Plans - We sponsor a savings plan under Section 401(k) of the Internal Revenue Code under which participation is available to substantially all full-time employees. Beginning in (cid:45)anuary 2019, we began matching 50% of an employee’s contribution, up to 6%, for substantially all full-time employees. Prior to 2019, we did not contribute to this plan except for certain employees. For 2021, 2020 and 2019, the amounts contributed to this plan were $986,000, $1,022,000, and $997,000, respectively. Collective Bargaining Agreements - As of December 31, 2021, we employed 545 persons, 180 of whom are represented by unions under agreements, including agreements being negotiated, that expire in (cid:45)uly 2022 through (cid:45)uly 2024. (cid:20)(cid:23)(cid:17) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:51)(cid:68)(cid:85)(cid:87)(cid:92) (cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) 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. F-33 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:23)(cid:17) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:51)(cid:68)(cid:85)(cid:87)(cid:92) (cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:11)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:12) 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 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 certain of the Golsen Holders. In addition, pursuant to the anti-dilution terms of the Series B and Series D Preferred, which shares were held by certain of the Golsen Holders, 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. See Note 12 for the discussion regarding the conversion of the Series B and Series D Preferred into our common stock and the payment of the accumulated dividends on these securities. As of December 31, 2021, we have three separate outstanding financing arrangements by an affiliate of LSB Funding as discussed in footnotes (C), (D) and (E) of Note 7. In addition, an affiliate of LSB Funding held $50 million of our Old Notes, which Old Notes were redeemed with the proceeds from the New Notes as discussed in footnote (B) of Note 7. An affiliate of LSB Funding holds $30 million of the New Notes. Pursuant to the terms of the Board Representation and Standstill Agreement, as amended, our Board includes two directors that are employees of affiliates of LSB Funding. During 2021, 2020 and 2019, we incurred director fees associated with these directors totaling approximately $0.3 million for each respective year. During 2021, 2020 and 2019, we incurred director fees associated with Barry H. Golsen totaling approximately $0.1 million for each respective year. As the result of (cid:45). Golsen informing the Board of his election to retire as Executive Chairman effective December 31, 2017, we determined not to extend the employment agreement with (cid:45). Golsen beyond its then current term that expired on December 31, 2017 (the “Retirement Date”) and, in accordance with the terms his employment agreement, delivered a notice of non-renewal to (cid:45). Golsen. Following the Retirement Date, (cid:45). Golsen serves as Chairman Emeritus of our Board. During 2017, we entered into a transition agreement (the “Transition Agreement”) with (cid:45). Golsen that commenced on (cid:45)anuary 1, 2018 and ends upon the earlier of his death or a change in control as defined in the agreement. During the term, (cid:45). Golsen will receive an annual cash retainer of $480,000 and an additional monthly amountu of $4,400 to cover certain expenses. In accordance with the terms of the Transition Agreement, we will also reimburse (cid:45). Golsen for his cost of certain medical insurance coverage until his death. Effective as of the Retirement Date, the severance agreement that was in force with (cid:45). Golsen was terminated. In consideration for his services, including as Chairman Emeritus, we will pay (cid:45). Golsen a one-time payment equal to $2,320,000 upon the consummation of a change in control, as defined in the agreement, should one occuruu prior to his death. (cid:20)(cid:24)(cid:17) (cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:38)(cid:68)(cid:86)(cid:75) (cid:41)(cid:79)(cid:82)(cid:90) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) The following provides additional information relating to cash floff w activities(cid:29) Cash payments (refunds) for(cid:29) Interest on long-term debt and other, net of capitalized interest Income taxes, net NNoncash investing and financing activities(cid:29) Accounts receivable, supplies, other assets, accounts payable and accrued liabilities associated with additions of property, plant and equipment Extinguishment of PPP loan Series E and Series F Redeemable Preferred and related (cid:7) (cid:7) (cid:7) (cid:7) dividends, accretion, and embedded derivative exchanged for common stock, net of related costs in accounts payable (cid:7) Series B and Series D preferred converted into common (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:23)(cid:22)(cid:15)(cid:24)(cid:27)(cid:22) $ (cid:11)(cid:20)(cid:27)(cid:21)(cid:12) $ 45,730 $ (312) $ 42,184 (65) (cid:20)(cid:26)(cid:15)(cid:25)(cid:23)(cid:28) $ (cid:20)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) $ 16,286 $ (cid:178) $ 18,350 (cid:178) (cid:22)(cid:19)(cid:25)(cid:15)(cid:25)(cid:28)(cid:19) $ 37,208 $ 32,724 stock (cid:7) (cid:22)(cid:15)(cid:19)(cid:19)(cid:19) $ (cid:178) $ (cid:178) F-34 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:25)(cid:17) (cid:49)(cid:72)(cid:87) (cid:54)(cid:68)(cid:79)(cid:72)(cid:86) 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 consolidated financial statements(cid:29) NNet sales(cid:29) Agricultural products Industrial products Mining products Total net sales Other Information (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (In Thousands) (cid:21)(cid:19)(cid:20)(cid:28) (cid:7) (cid:7) (cid:21)(cid:25)(cid:23)(cid:15)(cid:24)(cid:19)(cid:21) (cid:21)(cid:22)(cid:23)(cid:15)(cid:23)(cid:28)(cid:25) (cid:24)(cid:26)(cid:15)(cid:21)(cid:23)(cid:20) (cid:24)(cid:24)(cid:25)(cid:15)(cid:21)(cid:22)(cid:28) $ $ 180,036 133,024 38,256 351,316 $ $ 187,641 139,643 37,786 365,070 Although most of our contracts have an original expected duration of one year or less, for our contracts with a duration greater than one year at contract inception, the average remaining expected duration was approximately 18 months at December 31, 2021. Liabilities associated with contracts with customers (contract liabilities) primarily relate to deferred revenue and customer deposits associated with cash payments received in advance from customers for volume shortfall charges and product shipments. We had approximately $1.6 million and $2.5 million of contract liabilities as of December 31, 2021 and 2020, respectively. During 2021, revenues of $2.5 million were recognized and included in the balance at the beginning of the period. At December 31, 2021, we have remaining performance obligations with certain customer contracts, excluding contracts with original durations of less than one year and contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as invoiced. The remaining performance obligations totals approximately $77 million, of which approximately 39% of this amount relates to 2022 through 2024, approximately 29% relates to 2025 through 2026, with the remainder thereafter. F-35 LSB Industries, Inc. Notes to Consolidated Financial Statements (continued) (cid:20)(cid:26)(cid:17) (cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86) Information related to our leases are presented below(cid:29) (cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86) (cid:82)(cid:73) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:29) Operating lease cost Short-term lease cost Other cost (1) Total lease cost (cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79) (cid:70)(cid:68)(cid:86)(cid:75) (cid:73)(cid:79)(cid:82)(cid:90) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:87)(cid:82) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:29) Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Cash paid for amounts included in the measurement of lease liabilities Right-of-use assets obtained in exchange for new operating lease liabilities (cid:50)(cid:87)(cid:75)(cid:72)(cid:85) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:16)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:29) Weighted-average remaining lease term - operating leases (in years) Weighted-average remaining lease term - finance leases (in years) Weighted-average discount rate - operating leases Weighted-average discount rate - finance leases (1) Includes variable and finance lease costs. (cid:21)(cid:19)(cid:21)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:21)(cid:19)(cid:20)(cid:28) (Dollars In Thousands) $ $ $ 9,998 2,243 157 12,398 10,290 33 92 $ $ $ 7,611 4,372 75 12,058 7,782 15 45 7,270 2,665 64 9,999 7,677 16 61 10,415 $ 7,842 $ 7,754 9,549 $ 17,064 $ 5,967 $ $ $ $ $ 4.0 3.2 8.44% 8.69% 4.3 4.1 8.26% 8.65% 4.6 3.8 8.70% 8.94% At December 31, 2021, future minimum operating lease payments due under ASC 842 are summarized by fiscal year in the table bbelow(cid:29) 2022 2023 2024 2025 2026 Thereafter Total lease payments Less imputed interest Present value of lease liabilities (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86) (In thousands) 9,692 7,989 6,298 3,736 2,543 2,000 32,258 (4,935) 27,323 $ $ As of December 31, 2021, we did not have any executed operating leases with lease terms greater than one year that have not yet commenced. F-36 LSB Industries, Inc. Supplementary Information Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data for 2021 and 2020 are as follows. (cid:21)(cid:19)(cid:21)(cid:20) NNet sales Gross profitff NNet income (loss) (1) (2) NNet income (loss) attributable to common stockholders (A) (1) Basic income (loss) per common share Diluted income (loss) per common share (cid:21)(cid:19)(cid:21)(cid:19) NNet sales Gross profit (loss) (1) NNet loss (1) (2) NNet loss attributable to common stockholders and diluted loss per common share $ $ $ $ $ $ $ $ $ $ $ (cid:55)(cid:75)(cid:85)(cid:72)(cid:72) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75) (cid:22)(cid:20) (cid:45)(cid:88)(cid:81)(cid:72) (cid:22)(cid:19) (cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:19) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20) (In Thousands, Except Per Share Amounts) $ 98,116 8,060 $ (13,279) $ (23,376) $ 140,696 35,008 23,670 12,646 (0.63) $ (0.63) $ 0.34 0.32 $ $ $ $ $ $ $ 127,199 17,447 $ (8,928) $ (251,504) $ 190,228 78,464 42,082 42,009 (6.39) $ (6.39) $ 0.49 0.47 $ 83,411 2,551 $ (19,452) $ (28,338) $ 105,033 19,021 $ $ (365) $ (9,634) $ 73,969 $ (1,059) $ (20,402) $ (29,874) $ 88,903 (3,465) (21,692) (31,573) (0.77) $ (0.26) $ (0.81) $ (0.86) (A) See Notes 2 and 3 concerning a deemed dividend associated with the Exchange Transaction, which was consummated during the third quarter of 2021. F-37 (1) The following income (expense) items impacted gross profit (loss) and net income (loss)(cid:29) LSB Industries, Inc. Supplementary Financial Data Quarterly Financial Data (Unaudited) Turnaround expense(cid:29) (A) (loss) on natural gas forward contracts 2020 on expense due to CoC event Recovery from settlements with certain vendors (cid:48)(cid:68)(cid:85)(cid:70)(cid:75) (cid:22)(cid:20) (cid:45)(cid:88)(cid:81)(cid:72) (cid:22)(cid:19) (cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:19) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:22)(cid:20) (cid:55)(cid:75)(cid:85)(cid:72)(cid:72) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71) (In Thousands) (140) $ (707) $ (7,976) $ (1,130) (cid:178) $ (11) $ (34) $ (31) 2,706 $ (cid:178) $ (cid:178) $ (cid:178) (714) $ 31 $ 513 $ (1,443) (cid:178) $ (cid:178) $ (1,221) $ (cid:178) $ 5,664 $ (cid:178) $ (cid:178) (cid:178) $ $ $ $ $ $ (2) The following income (expense) items impacted net income (loss)(cid:29) Legal fees associated with Leidos matter on expense due to CoC event Gain (loss) on extinguishments of debt expense associated with Global judgment (loss) associated with embedded derivative 2020 (provision) for income taxes 2020 $ $ $ $ $ $ $ $ $ $ (886) $ (441) $ (271) $ (296) (3,287) $ (955) $ (901) $ (572) (cid:178) $ (cid:178) $ (3,786) $ (cid:178) (cid:178) $ 10,000 $ (cid:178) $ (20,259) (78) $ (79) $ (80) $ (1,327) $ (79) $ (80) $ (80) (80) (436) $ (716) $ (1,106) $ (cid:178) 637 $ 120 $ (141) $ (561) (42) $ 248 339 $ 1,299 $ $ (19) $ 4,369 1,370 $ 1,741 Turnaround expenses do not include the impact on operating results relating to lost absorption or reduced margins due to the associated plants being shut down. F-38 LSB Industries, Inc. Scheduled II - (cid:57)aluation and Qualifying Accounts (cid:60)ears ended December 31, 2021, 2020, and 2019 (In Thousands) Accounts receivable - allowance for doubtful accounts(cid:29) (cid:39)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81) (cid:11)(cid:20)(cid:12) 2020 2019 Deferred tax assets - valuation allowance(cid:29) 2020 2019 (cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)(cid:87) (cid:37)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74) (cid:82)(cid:73) (cid:60)(cid:72)(cid:68)(cid:85) (cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:16) (cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86) (cid:87)(cid:82) (cid:11)(cid:53)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92) (cid:82)(cid:73)(cid:12)(cid:73)(cid:73) (cid:38)(cid:82)(cid:86)(cid:87)(cid:86) (cid:68)(cid:81)(cid:71) (cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86) (cid:39)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:16) (cid:58)(cid:85)(cid:76)(cid:87)(cid:72)(cid:16) (cid:82)(cid:73)(cid:73)(cid:86)(cid:18)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86) (cid:44)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71) (cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)(cid:87) (cid:40)(cid:81)(cid:71) (cid:82)(cid:73) (cid:60)(cid:72)(cid:68)(cid:85) $ $ $ $ $ $ 378 261 351 64,655 51,589 45,626 $ $ $ $ $ $ 96 141 175 $ $ $ (cid:178) $ 24 265 $ $ 474 378 261 (17,687) $ (cid:178) $ 46,968 13,471 8,279 $ $ 405 2,316 $ $ 64,655 51,589 (1) Reduction in the consolidated balance sheet from the related assets to which the reserve applies. Other valuation and qualifying accounts are detailed in our notes to consolidated financial statements. F-39 [THIS PAGE INTENTIONALLY LEFT BLANK] PERFORMANCE GRAPH & PEER GROUP LIST [THIS PAGE INTENTIONALLY LEFT BLANK] Stock Performance Graph Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 December 2021 $200.00 $180.00 $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 2016 2017 2018 2019 2020 2021 LSB Industries, Inc. NYSE Composite Index New Peer Group Old Peer Group LSB Industries, Inc. NYSE Composite Index New Peer Group New Peer Group + LSB Industries, Inc. Old Peer Group Old Peer Group + LSB Industries, Inc. Return % Cum $ Return % Cum $ Return % Cum $ Return % Cum $ Return % Cum $ Return % Cum $ 2016 2017 2018 2019 2020 2021 100.00 100.00 100.00 100.00 100.00 100.00 4.04 104.04 18.90 118.90 6.11 106.11 6.06 106.06 13.58 113.58 13.55 113.55 -36.99 65.56 -8.79 108.45 -9.61 95.90 -10.19 95.25 -4.40 108.58 -4.52 108.41 -23.91 49.88 25.74 136.36 15.17 110.45 14.58 109.14 7.18 116.38 7.11 116.13 -19.29 40.26 6.99 145.89 17.24 129.49 16.88 127.56 2.38 119.15 2.35 118.85 323.75 170.61 20.68 176.06 27.04 164.50 29.02 164.59 47.41 175.64 47.76 175.61 AdvanSix Inc. - American Vanguard Corporation - Balchem Corporation - Chase Corporation - CSW Industrials, Inc. - CVR Partners, LP - Flotek Industries, Inc. Hawkins, Inc. - Haynes International, Inc. - Intrepid Potash, Inc. - Landec Corporation - Quaker Chemical Corporation - Synalloy Corporation - Trecora Resources - United States Lime & Minerals, Inc. - ASIX AVD BCPC CCF CSWI UAN FTK HWKN HAYN IPI LNDC KWR SYNL TREC USLM 2021 (New) Peer Group 2021 (Old) Peer Group Flotek Industries, Inc. H. B. Fuller Company AdvanSix Inc. American Vanguard Corporation Avient Corporation (formerly PolyOne Corp) Hawkins, Inc. Balchem Corporation CF Industries Holdings, Inc. Chase Corporation CSW Industries, Inc. CVR Partners, LP Ferro Corporation Haynes International, Inc. Ingevity Corporation Innospec Inc. Intrepid Potash, Inc. Kraton Performance Polymers, Inc. Landec Corporation NewMarket Corporation Nutrien, LTO. Quaker Chemical Corporation Stepan Company Synalloy Corporation The Mosaic Company Trecora Resources United States Lime & Minerals, Inc. LSB DIRECTORS Mark T. Behrman President and Chief Executive Officer Jonathan S. Bobb Director, Eldridge Industries Barry H. Golsen GOL Capital, LLC Former President and CEO LSB Industries, Inc. Kanna Kitamura Senior Director and Head of Human Resources, Eldridge Industries LSB EXECUTIVE OFFICERS Mark T. Behrman President and Chief Executive Officer Cheryl A. Maguire Executive Vice President and Chief Financial Officer Michael J. Foster Executive Vice President, General Counsel, and Secretary John P. Burns Executive Vice President, Manufacturing Damien Renwick Executive Vice President and Chief Commercial Officer Kristy D. Carver Senior Vice President and Treasurer Steven L. Packebush Founder and Principal, Elevar Partners LLC Former President Koch Ag & Energy Solutions Diana M. Peninger CEO, Geneva Lake Partners LLC Former Vice President, Celanese Corp. Richard W. Roedel Chairman of the Board Retired Chairman and CEO BDO Seidman, LLP Richard S. Sanders, Jr. President, Circle S Consulting, Inc. Former Vice President of Manufacturing, Terra Industries, Inc. Lynn F. White Founder and Managing Director, Twemlow Group, LLC Jack E. Golsen Chairman Emeritus of the Board HEADQUARTERS LSB Industries, Inc. 3503 NW 63rd Street, Suite 500, Oklahoma City, OK 73116 Tel: (405) 235-4546 Fax: (405) 235-5067 Email: info@lsbindustries.com TRANSFER AGENT & REGISTRAR Computershare Trust Company, N.A. 462 S. 4th Street, Suite 1600 Louisville, KY 40202 Tel: (800) 884-4225 (US & Canada) (781) 575-2879 (outside US & Canada) INVESTOR RELATIONS WEBSITE Fred Buonocore, CFA Vice President of Investor Relations Tel: (405) 510-3550 Email: fbuonocore@lsbindustries.com INDEPENDENT AUDITORS Ernst & Young LLP Oklahoma City, OK www.lsbindustries.com Visit our website for details about our plants, products, operations and policies. SECURITY LISTING Common Stock listed on the New York Stock Exchange, NYSE Ticker Symbol: LXU 3503 NW 63rd Street, Suite 500, Oklahoma City, OK 73116 (405) 235-4546 www.lsbindustries.com 2 0 2 1 A N N U A L R E P O R T L S B I n d u s t r i e s , I n c . 

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