Form 10-Q - Quarterly report [Sections 13 or 15(d)]
October 30 2024 - 4:13PM
Edgar (US Regulatory)
2024--12-310000060714falsetrueQ3http://fasb.org/us-gaap/2024#OtherAccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2024#OtherAccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2024#LongTermDebthttp://fasb.org/us-gaap/2024#LongTermDebtOctober 31 2028August 31, 2025http://fasb.org/us-gaap/2024#OtherAccruedLiabilitiesCurrent 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7677
LSB Industries, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware |
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73-1015226 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma |
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73116 |
(Address of principal executive offices) |
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(Zip Code) |
(Registrant's telephone number, including area code) (405) 235-4546
Not applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, Par Value $.10 Preferred Stock Purchase Rights |
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LXU N/A |
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New York Stock Exchange New York Stock Exchange |
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.☒ Yes ☐ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).☒ Yes ☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐ Yes ☒ No
The number of shares outstanding of the Registrant's common stock was 71,621,131 shares as of October 25, 2024.
FORM 10-Q OF LSB INDUSTRIES, INC.
TABLE OF CONTENTS
When we refer to "us", "we", "our", "Company" or "LSB" we are describing LSB Industries, Inc. and its subsidiaries.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at September 30, 2024 is unaudited)
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September 30, 2024 |
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December 31, 2023 |
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(In Thousands) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
42,283 |
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$ |
98,500 |
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Restricted cash |
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— |
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2,532 |
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Short-term investments |
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157,060 |
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207,434 |
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Accounts receivable |
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44,601 |
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40,749 |
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Allowance for doubtful accounts |
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(326 |
) |
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(364 |
) |
Accounts receivable, net |
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44,275 |
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40,385 |
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Inventories: |
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Finished goods |
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19,259 |
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26,329 |
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Raw materials |
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2,127 |
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1,799 |
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Total inventories |
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21,386 |
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28,128 |
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Supplies, prepaid items and other: |
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Prepaid insurance |
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2,014 |
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14,846 |
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Precious metals |
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11,675 |
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12,094 |
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Supplies |
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31,421 |
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30,486 |
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Other |
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4,123 |
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2,337 |
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Total supplies, prepaid items and other |
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49,233 |
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59,763 |
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Total current assets |
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314,237 |
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436,742 |
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Property, plant and equipment, net |
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842,863 |
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835,298 |
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Other assets: |
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Operating lease assets |
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24,377 |
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24,852 |
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Intangible and other assets, net |
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1,456 |
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1,292 |
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Total other assets |
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25,833 |
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26,144 |
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Total assets |
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$ |
1,182,933 |
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$ |
1,298,184 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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75,734 |
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68,323 |
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Short-term financing |
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1,528 |
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13,398 |
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Accrued and other liabilities |
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36,107 |
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30,961 |
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Current portion of long-term debt |
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10,979 |
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5,847 |
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Total current liabilities |
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124,348 |
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118,529 |
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Long-term debt, net |
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475,991 |
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575,874 |
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Noncurrent operating lease liabilities |
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17,137 |
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16,074 |
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Other noncurrent accrued and other liabilities |
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523 |
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523 |
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Deferred income taxes |
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65,973 |
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68,853 |
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Commitments and contingencies (Note 5) |
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Stockholders' equity: |
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Common stock, $.10 par value; 150 million shares authorized, 91.2
million shares issued |
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9,117 |
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9,117 |
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Capital in excess of par value |
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502,972 |
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501,026 |
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Retained earnings |
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216,811 |
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227,015 |
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728,900 |
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737,158 |
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Less treasury stock, at cost: |
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Common stock, 19.5 million shares (18.1 million shares at December 31, 2023) |
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229,939 |
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218,827 |
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Total stockholders' equity |
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498,961 |
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518,331 |
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Total liabilities and stockholders’ equity |
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$ |
1,182,933 |
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$ |
1,298,184 |
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See accompanying notes to condensed consolidated financial statements.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(In Thousands, Except Per Share Amounts) |
Net sales |
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$109,217 |
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$114,287 |
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$387,494 |
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$461,096 |
Cost of sales |
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117,162 |
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117,673 |
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345,746 |
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386,845 |
Gross (loss) profit |
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(7,945) |
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(3,386) |
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41,748 |
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74,251 |
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Selling, general and administrative expense |
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10,042 |
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8,512 |
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31,883 |
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27,815 |
Other expense (income), net |
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6,436 |
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(2,399) |
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8,625 |
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(2,096) |
Operating (loss) income |
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(24,423) |
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(9,499) |
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1,240 |
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48,532 |
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Interest expense, net |
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8,115 |
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7,165 |
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26,229 |
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31,213 |
Gain on extinguishment of debt |
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— |
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— |
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(3,013) |
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(8,644) |
Non-operating other income, net |
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(2,674) |
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(3,689) |
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(9,143) |
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(10,929) |
(Loss) income before provision for income taxes |
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(29,864) |
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(12,975) |
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(12,833) |
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36,892 |
(Benefit) provision for income taxes |
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(4,482) |
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(5,249) |
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(2,629) |
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3,622 |
Net (loss) income |
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$(25,382) |
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$(7,726) |
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$(10,204) |
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$33,270 |
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(Loss) income per common share: |
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Basic: |
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Net (loss) income |
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$(0.35) |
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$(0.10) |
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$(0.14) |
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$0.44 |
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Diluted: |
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Net (loss) income |
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$(0.35) |
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$(0.10) |
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$(0.14) |
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$0.44 |
See accompanying notes to condensed consolidated financial statements.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Common
Stock
Shares |
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Treasury
Stock-
Common
Shares |
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Common
Stock
Par
Value |
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Capital in
Excess of
Par
Value |
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Retained Earnings |
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Treasury
Stock-
Common |
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Total |
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(In Thousands) |
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Balance at December 31, 2023 |
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91,168 |
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|
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(18,051 |
) |
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$ |
9,117 |
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$ |
501,026 |
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$ |
227,015 |
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$ |
(218,827 |
) |
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$ |
518,331 |
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Net income |
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5,623 |
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5,623 |
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Stock-based compensation |
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1,394 |
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1,394 |
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Purchase of common stock |
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(690 |
) |
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(5,397 |
) |
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(5,397 |
) |
Vesting of equity compensation |
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109 |
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(1,323 |
) |
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|
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1,323 |
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— |
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Shares withheld upon vesting
of equity compensation |
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(231 |
) |
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|
|
|
|
|
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|
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(1,766 |
) |
|
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(1,766 |
) |
Balance at March 31, 2024 |
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91,168 |
|
|
|
(18,863 |
) |
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9,117 |
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|
|
501,097 |
|
|
|
232,638 |
|
|
|
(224,667 |
) |
|
|
518,185 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,555 |
|
|
|
|
|
|
9,555 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
2,099 |
|
Purchase of common stock |
|
|
|
|
|
(802 |
) |
|
|
|
|
|
|
|
|
|
|
|
(6,734 |
) |
|
|
(6,734 |
) |
Shares issued restricted stock units
and ESPP participants |
|
|
|
|
|
37 |
|
|
|
|
|
|
(331 |
) |
|
|
|
|
|
429 |
|
|
|
98 |
|
Vesting of equity compensation |
|
|
|
|
|
123 |
|
|
|
|
|
|
(1,443 |
) |
|
|
|
|
|
1,443 |
|
|
|
— |
|
Shares withheld restricted stock
units vesting |
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
(410 |
) |
|
|
(410 |
) |
Balance at June 30, 2024 |
|
|
91,168 |
|
|
|
(19,547 |
) |
|
|
9,117 |
|
|
|
501,422 |
|
|
|
242,193 |
|
|
|
(229,939 |
) |
|
|
522,793 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,382 |
) |
|
|
|
|
|
(25,382 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
1,550 |
|
|
|
|
|
|
|
|
|
1,550 |
|
Balance at September 30, 2024 |
|
|
91,168 |
|
|
|
(19,547 |
) |
|
$ |
9,117 |
|
|
$ |
502,972 |
|
|
$ |
216,811 |
|
|
$ |
(229,939 |
) |
|
$ |
498,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2022 |
|
|
91,168 |
|
|
|
(14,888 |
) |
|
$ |
9,117 |
|
|
$ |
497,179 |
|
|
$ |
199,092 |
|
|
$ |
(189,515 |
) |
|
$ |
515,873 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,901 |
|
|
|
|
|
|
15,901 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
719 |
|
|
|
|
|
|
|
|
|
719 |
|
Vesting of equity compensation |
|
|
|
|
|
53 |
|
|
|
|
|
|
(682 |
) |
|
|
|
|
|
682 |
|
|
|
— |
|
Shares withheld upon vesting
of equity compensation |
|
|
|
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,541 |
) |
|
|
(2,541 |
) |
Balance at March 31, 2023 |
|
|
91,168 |
|
|
|
(15,039 |
) |
|
|
9,117 |
|
|
|
497,216 |
|
|
|
214,993 |
|
|
|
(191,374 |
) |
|
|
529,952 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,095 |
|
|
|
|
|
|
25,095 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
1,927 |
|
|
|
|
|
|
|
|
|
1,927 |
|
Purchase of common stock |
|
|
|
|
|
(1,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
(17,218 |
) |
|
|
(17,218 |
) |
Shares issued restricted stock units
and ESPP participants |
|
|
|
|
|
58 |
|
|
|
|
|
|
(626 |
) |
|
|
|
|
|
732 |
|
|
|
106 |
|
Shares withheld restricted stock
units vesting |
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
(65 |
) |
Balance at June 30, 2023 |
|
|
91,168 |
|
|
|
(16,783 |
) |
|
$ |
9,117 |
|
|
$ |
498,517 |
|
|
$ |
240,088 |
|
|
$ |
(207,925 |
) |
|
$ |
539,797 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,726 |
) |
|
|
|
|
|
(7,726 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
1,318 |
|
|
|
|
|
|
|
|
|
1,318 |
|
Purchase of common stock |
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
(586 |
) |
|
|
(586 |
) |
Shares issued restricted stock units |
|
|
|
|
|
25 |
|
|
|
|
|
|
(307 |
) |
|
|
|
|
|
307 |
|
|
|
— |
|
Shares withheld restricted stock
units vesting |
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(59 |
) |
|
|
(59 |
) |
Balance at September 30, 2023 |
|
|
91,168 |
|
|
|
(16,824 |
) |
|
$ |
9,117 |
|
|
$ |
499,528 |
|
|
$ |
232,362 |
|
|
$ |
(208,263 |
) |
|
$ |
532,744 |
|
See accompanying notes to condensed consolidated financial statements.
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2024 |
|
|
2023 |
|
|
|
(In Thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(10,204 |
) |
|
$ |
33,270 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
Deferred income taxes |
|
|
(2,880 |
) |
|
|
2,883 |
|
Gain on extinguishment of debt |
|
|
(3,013 |
) |
|
|
(8,644 |
) |
Depreciation and amortization of property, plant and equipment |
|
|
52,484 |
|
|
|
49,852 |
|
Amortization of short term investments |
|
|
4,528 |
|
|
|
(2,806 |
) |
Amortization of intangible and other assets |
|
|
141 |
|
|
|
403 |
|
Stock-based compensation |
|
|
5,042 |
|
|
|
3,964 |
|
Provision for impairment on property, plant and equipment |
|
|
6,785 |
|
|
|
207 |
|
Other |
|
|
3,966 |
|
|
|
4,253 |
|
Cash provided (used) by changes in assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(3,890 |
) |
|
|
28,365 |
|
Inventories |
|
|
6,604 |
|
|
|
6,727 |
|
Prepaid insurance |
|
|
12,832 |
|
|
|
15,566 |
|
Supplies, prepaid items and other |
|
|
(842 |
) |
|
|
1,761 |
|
Accounts payable |
|
|
6,995 |
|
|
|
(12,672 |
) |
Accrued interest |
|
|
3,634 |
|
|
|
2,237 |
|
Accrued payroll and benefits |
|
|
(961 |
) |
|
|
(5,489 |
) |
Other assets and other liabilities |
|
|
1,379 |
|
|
|
645 |
|
Net cash provided by operating activities |
|
|
82,600 |
|
|
|
120,522 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
|
(64,087 |
) |
|
|
(41,123 |
) |
Proceeds from short-term investments |
|
|
236,493 |
|
|
|
293,347 |
|
Purchases of short-term investments |
|
|
(190,646 |
) |
|
|
(230,690 |
) |
Other investing activities |
|
|
(140 |
) |
|
|
(28 |
) |
Net cash (used) provided by investing activities |
|
|
(18,380 |
) |
|
|
21,506 |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Repurchases of 6.25% Senior Secured Notes |
|
|
(92,216 |
) |
|
|
(114,320 |
) |
Payments on other long-term debt |
|
|
(3,986 |
) |
|
|
(8,155 |
) |
Payments on short-term financing |
|
|
(11,870 |
) |
|
|
(16,134 |
) |
Acquisition of treasury stock, net |
|
|
(14,208 |
) |
|
|
(20,364 |
) |
Payments of debt-related costs |
|
|
(689 |
) |
|
|
— |
|
Net cash used by financing activities |
|
|
(122,969 |
) |
|
|
(158,973 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(58,749 |
) |
|
|
(16,945 |
) |
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
101,032 |
|
|
|
63,769 |
|
Cash and cash equivalents at end of period |
|
$ |
42,283 |
|
|
$ |
46,824 |
|
See accompanying notes to condensed consolidated financial statements.
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited interim financial statements and notes of LSB have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying unaudited interim financial statements and notes should be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended December 31, 2023 (our “2023 Form 10-K”), filed with the SEC on March 6, 2024. The accompanying unaudited interim financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023 and the Company’s financial position as of September 30, 2024.
Basis of Consolidation – LSB and its subsidiaries are consolidated in the accompanying condensed consolidated financial statements. LSB is a holding company with no significant operations or assets other than cash, cash equivalents, short-term investments and investments in its subsidiaries. All intercompany accounts and transactions have been eliminated. Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to current period presentation.
Nature of Business – We are engaged in the manufacture and sale of chemical products. The chemical products we primarily manufacture, market and sell are ammonia, fertilizer grade ammonium nitrate (“HDAN”) and UAN for agricultural applications, high purity and commercial grade ammonia, high purity ammonium nitrate, sulfuric acids, concentrated, blended and regular nitric acid, mixed nitrating acids, carbon dioxide, and diesel exhaust fluid for industrial applications, and industrial grade ammonium nitrate (“LDAN”) and ammonium nitrate (“AN”) solutions for mining applications. We manufacture and distribute products in four facilities; three of which we own and are located in El Dorado, Arkansas (the “El Dorado Facility”); Cherokee, Alabama (the “Cherokee Facility”); and Pryor, Oklahoma (the “Pryor Facility”); and one of which we operate on behalf of Covestro LLC in Baytown, Texas (the “Baytown Facility”).
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.”); industrial users of acids throughout the U.S. and parts of Canada; and explosive manufacturers in the U.S. and other parts of North America.
These interim results are not necessarily indicative of results for a full year due, in part, to the seasonality of our sales of agricultural products and the timing of performing our major plant maintenance activities. Our selling seasons for agricultural products are primarily during the spring and fall planting seasons, which typically extend from March through June and from September through November.
Use of Estimates – The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Repurchase Program – In May 2023, our Board of Directors (our “Board”) authorized a $150 million stock repurchase program. Total repurchase authority remaining under the repurchase program was approximately $109 million as of September 30, 2024. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing securities, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate us to purchase any particular number or type of securities. We did not repurchase any of our outstanding common stock during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we repurchased approximately 1.5 million shares of common stock at an average cost of $8.13 per share for a total of approximately $12.1 million.
Cash and Cash Equivalents – Investments, which consist of highly liquid investments with original maturities of three months or less, are considered cash equivalents.
Restricted Cash – We classify cash that has been segregated or is otherwise limited in use as restricted. Our restricted cash as of December 31, 2023, related primarily to certain cash collateral held by Wells Fargo under our prior revolving credit facility, terminated in December 2023 and discussed in Note 4 – Long-Term Debt, for letters of credit outstanding as we transitioned these items to our current revolving credit facility (the “Revolving Credit Facility) pursuant to that credit agreement, dated December 21, 2023, between us and the lenders identified on the signature pages thereof and JPMorgan Chase Bank, N.A, as administrative agent. All of our restricted cash is classified as a current asset and is separately presented on the face of our consolidated balance sheet. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheet to the total of the same such amounts shown in the condensed consolidated statement of cash flows:
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
(in Thousands) |
|
Cash and cash equivalents |
$ |
42,283 |
|
|
$ |
98,500 |
|
Restricted cash |
|
— |
|
|
|
2,532 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
$ |
42,283 |
|
|
$ |
101,032 |
|
Short-Term Investments – Investments, which consist of U.S. treasury bills with an original maturity at the time of purchase between four months to 12 months, are considered short-term investments and are classified as Level 1. These investments are classified as held to maturity. U.S. treasury bills with an original maturity at the time of purchase of three month or less are included in cash and cash equivalents. Due to the nature of these investments as U.S. treasury securities, no impairment is anticipated.
Accounts Receivable – Our accounts receivable are presented at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any estimate of expected credit losses. Our estimate is based on historical experience and periodic assessment, particularly on accounts that are past due (based upon the terms of the sale). Our periodic assessment is based on our best estimate of amounts that are not recoverable which includes a present collectability review and forward looking assessment, where applicable.
Impairment of Long – Lived Assets – 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/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, our assets are reviewed for impairment on a facility-by-facility basis (such as the Cherokee Facility, El Dorado Facility or Pryor Facility) unless it is determined that the asset being evaluated will generate cash flows that are independent from the rest of the facility.
For the three months ended September 30, 2024 and 2023, we recorded impairments on assets the Company has or intends to abandon in the amount of $5.4 million and $0.2 million, respectively. For the nine months ended September 30, 2024 and 2023, we recorded asset impairments of $6.8 million and $2.1 million, respectively. These impairment losses are included in Other expense (income), net on our condensed consolidated statements of operations.
Short-Term Financing – Our short-term financing represents the short-term note related to financing of our insurance premium, which is renewed annually each November.
Contingencies – Certain conditions may exist which may result in a loss, but which will only be resolved when future events occur. We and our legal counsel assess such contingent liabilities and such assessment inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a loss has been incurred, we would accrue for such contingent losses when such losses can be reasonably estimated. If the assessment indicates that a potentially material loss contingency is not probable but reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred. Loss contingency liabilities are included in current and noncurrent accrued and other liabilities and are based on current estimates that may be revised in the near term. In addition, we recognize contingent gains when such gains are realized or when the contingencies have been resolved (generally at the time a settlement has been reached).
Derivatives, Hedges and Financial Instruments – Periodically, we entered into certain forward natural gas contracts. Whenever we have such derivative contracts outstanding that are subject to derivative accounting, they are recognized in the balance sheet and measured at fair value. Changes in fair value of derivatives are recorded in results of operations unless the normal purchase or sale exceptions apply, or hedge accounting is elected.
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 reported as an asset or a liability in the balance sheet. When applicable, we present the fair values of our derivative contracts under master netting agreements using a gross fair value presentation.
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:
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Level 1 - Valuations of contracts classified as Level 1 are based on quoted prices in active markets for identical contracts.
Level 2 - Valuations 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.
Level 3 - Valuations of assets and liabilities classified as Level 3 are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Leases – 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.
An operating lease asset represents our right to use the underlying asset as a lessee for the lease term and an operating lease liability represents 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 primarily relate to railcars. Other leases under which we are the lessor are not material. Variable 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 other 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 applicable lease term.
From time to time when we have excess freight capacity, we may sublease a portion of our railcars fleet on a short term basis to other parties. The income for these subleases is recorded as a component of "Other (income) expense, net" in our condensed consolidated statement of operations. For the three and nine months ended September 30, 2024, sublease income was $0.1 million and $0.9 million, respectively. For the three and nine months ended September 30, 2023, sublease income was $2.8 million and $4.8 million, respectively.
As of September 30, 2024, we have executed operating leases for railcars with lease terms greater than one year with aggregate lease payments of approximately $8.1 million which have not yet commenced.
Recently Issued Accounting Pronouncements
ASU 2023-07 - In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments include a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), extend certain annual disclosures to interim periods, clarify single reportable segment entities must apply Accounting Standard Codification (“ASC”) 280 in its entirety, permit more than one measure of segment profit or loss to be reported under certain conditions and require disclosure of the title and position of the CODM. This update is effective for public entities fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We currently expect the update to result in additional disclosures within our consolidated financial statements and related disclosures but do not expect it to impact our results of operations or financial position.
Changes to U.S. GAAP are established by the FASB in the form of ASUs to the FASB’s Accounting Standards Codification. We considered all ASUs issued and outstanding or that became effective since January 1, 2024 through the date of these financial statements and determined them not to be applicable or materially impact our financial statements other than those ASUs specifically addressed above.
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Net (Loss) Income per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
|
(In Thousands, Except Per Share Amounts) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(25,382 |
) |
|
$ |
(7,726 |
) |
|
$ |
(10,204 |
) |
|
$ |
33,270 |
|
Numerator for basic and diluted net
(loss) income per common share |
|
$ |
(25,382 |
) |
|
$ |
(7,726 |
) |
|
$ |
(10,204 |
) |
|
$ |
33,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net (loss) income per
common share - adjusted weighted-average
shares (1) |
|
|
71,672 |
|
|
|
73,992 |
|
|
|
72,070 |
|
|
|
74,946 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock and stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
533 |
|
Dilutive potential common shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
533 |
|
Denominator for diluted net (loss) income per
common share - adjusted weighted-average
shares |
|
|
71,672 |
|
|
|
73,992 |
|
|
|
72,070 |
|
|
|
75,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.14 |
) |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.14 |
) |
|
$ |
0.44 |
|
_____________________________
(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) income per common share as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
|
|
|
|
|
|
|
Restricted stock and stock units |
|
1,630,923 |
|
1,422,181 |
|
1,004,478 |
|
429,339 |
Stock options |
|
13,000 |
|
13,000 |
|
13,000 |
|
13,000 |
|
|
1,643,923 |
|
1,435,181 |
|
1,017,478 |
|
442,339 |
3. Accrued and Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
(In Thousands) |
|
Accrued interest |
|
$ |
11,213 |
|
|
$ |
7,487 |
|
Accrued payroll and benefits |
|
|
8,440 |
|
|
|
9,400 |
|
Current portion of operating lease liabilities |
|
|
7,305 |
|
|
|
8,795 |
|
Accrued taxes other than income |
|
|
3,525 |
|
|
|
2,198 |
|
Customer deposits |
|
|
657 |
|
|
|
874 |
|
Other |
|
|
5,490 |
|
|
|
2,730 |
|
|
|
|
36,630 |
|
|
|
31,484 |
|
Less noncurrent portion |
|
|
523 |
|
|
|
523 |
|
Current portion of accrued and other liabilities |
|
$ |
36,107 |
|
|
$ |
30,961 |
|
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Long-Term Debt
Our long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
(In Thousands) |
|
Revolving Credit Facility (A) |
|
$ |
— |
|
|
$ |
— |
|
Senior Secured Notes due 2028, with an interest rate of 6.25% (B) |
|
|
478,440 |
|
|
|
575,000 |
|
Secured Financing due 2025, with an interest rate of 8.75% (C) |
|
|
10,441 |
|
|
|
14,133 |
|
Finance Leases |
|
|
4,028 |
|
|
|
953 |
|
Unamortized debt issuance costs (1) |
|
|
(5,939 |
) |
|
|
(8,365 |
) |
|
|
|
486,970 |
|
|
|
581,721 |
|
Less current portion of long-term debt |
|
|
10,979 |
|
|
|
5,847 |
|
Long-term debt due after one year, net |
|
$ |
475,991 |
|
|
$ |
575,874 |
|
_____________________________
(1)Debt issuance costs as of September 30, 2024 and December 31, 2023 of approximately $0.8 million and $0.5 million, respectively, relating to our Revolving Credit Facility are not included in Unamortized debt issuance cost. They are included in our condensed consolidated balance sheet in Intangible and other assets, net.
(A)The Revolving Credit Facility provides for borrowings up to an initial maximum of $75 million, with an option to increase the maximum by an additional $25 million (which amount is uncommitted). Availability is subject to a borrowing base and an availability block of $7.5 million, which is applied against the $75 million initially reducing the maximum (which can be removed by us at our sole discretion, subject to the satisfaction of certain conditions). The Revolving Credit Facility provides for a sub-facility for the issuance of letters of credit in an aggregate amount not to exceed $10 million, with the outstanding amount of any such letters of credit reducing availability for borrowings. As of September 30, 2024, our Revolving Credit Facility was undrawn and had approximately $34 million of availability, based on our eligible collateral. The maturity date of the Revolving Credit Facility is on the earlier of (i) the date that is 90 days prior to the earliest stated maturity date of the Senior Secured Notes, which is currently October 15, 2028, (unless refinanced or repaid) and (ii) December 21, 2028. The Revolving Credit Facility contains a financial covenant, which requires that, solely if we elect to remove the $7.5 million availability block, we must maintain a minimum fixed charge coverage ratio of not less than 1.00:1.00. The financial covenant, if triggered, is tested monthly. The financial covenant was not triggered as of September 30, 2024.
Interest accrues on outstanding borrowings under the Revolving Credit Facility at a rate per annum equal to, at the option of us, either (a) term Secured Overnight Financing Rate (“SOFR”) for a period of one month (with a fallback to the prime rate if such rate is unavailable), plus 0.10%, plus an applicable margin of 1.625% or (b) term SOFR for a period of one, three or six months (at our election), plus 0.10%, plus an applicable margin of 1.625%, in each case with a floor of 0.00%.
(B)We previously issued at par an aggregate total of $700 million principal value of our Senior Secured Notes due 2028 (“Senior Secured Notes”). The Senior Secured Notes, which mature in October 2028, bear interest at a rate of 6.25% paid in arrears on May 15 and October 15. Please see Note 5 in our 2023 Form 10-K for further discussion of the Senior Secured Notes. From time to time, we have engaged in open market repurchases to extinguish a portion of the outstanding balance.
We did not repurchase any of our Senior Secured Notes during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we repurchased $96.6 million in principal amount of our Senior Secured Notes for approximately $92.2 million which was accounted for as an extinguishment of debt. Including our write-off of the associated remaining portion of unamortized debt issuance costs, we recognized a gain on extinguishment of approximately $3.0 million.
(C)In August 2020, we entered into a $30 million secured financing arrangement with an affiliate of Eldridge Industries, L.L.C. (“Eldridge”). Beginning in September 2020,