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, 2019

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)

 

 

Delaware

 

73-1015226

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma

 

73116

(Address of principal executive offices)

 

(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:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $.10

 

LXU

 

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.  

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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 28,782,431 shares as of October 25, 2019.

 

 

 

 


FORM 10-Q OF LSB INDUSTRIES, INC.

TABLE OF CONTENTS

 

 

 

PART I – Financial Information

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

36

 

 

 

 

 

 

 

PART II – Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

41

 

 

 

 

 

Item 1A.

 

Risk Factors

 

41

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

41

 

 

 

 

 

Item 4.

 

Mining Safety Disclosures

 

41

 

 

 

 

 

Item 5.

 

Other Information

 

41

 

 

 

 

 

Item 6.

 

Exhibits

 

41

 

 

2


PART I

FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Information at September 30, 2019 is unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,783

 

 

$

26,048

 

Accounts receivable

 

 

33,459

 

 

 

67,043

 

Allowance for doubtful accounts

 

 

(458

)

 

 

(351

)

Accounts receivable, net

 

 

33,001

 

 

 

66,692

 

Inventories:

 

 

 

 

 

 

 

 

Finished goods

 

 

18,931

 

 

 

27,726

 

Raw materials

 

 

1,704

 

 

 

1,483

 

Total inventories

 

 

20,635

 

 

 

29,209

 

Supplies, prepaid items and other:

 

 

 

 

 

 

 

 

Prepaid insurance

 

 

1,478

 

 

 

10,924

 

Supplies

 

 

25,169

 

 

 

24,576

 

Other

 

 

10,114

 

 

 

8,964

 

Total supplies, prepaid items and other

 

 

36,761

 

 

 

44,464

 

Total current assets

 

 

157,180

 

 

 

166,413

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

950,175

 

 

 

974,248

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Operating lease assets

 

 

16,069

 

 

 

 

Intangible and other assets, net

 

 

6,357

 

 

 

7,672

 

 

 

 

22,426

 

 

 

7,672

 

 

 

 

 

 

 

 

 

 

 

 

$

1,129,781

 

 

$

1,148,333

 

 

(Continued on following page)

3


LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Information at September 30, 2019 is unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

54,088

 

 

$

62,589

 

Short-term financing

 

 

607

 

 

 

8,577

 

Accrued and other liabilities

 

 

39,309

 

 

 

42,129

 

Current portion of long-term debt

 

 

9,090

 

 

 

12,518

 

Total current liabilities

 

 

103,094

 

 

 

125,813

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

447,663

 

 

 

412,681

 

 

 

 

 

 

 

 

 

 

Noncurrent operating lease liabilities

 

 

11,441

 

 

 

 

 

 

 

 

 

 

 

 

 

Other noncurrent accrued and other liabilities

 

 

7,001

 

 

 

8,861

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

50,815

 

 

 

56,612

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred stocks:

 

 

 

 

 

 

 

 

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

   210,000 shares issued; 139,768 outstanding; aggregate liquidation preference

   of $234,680,000 ($212,071,000 at December 31, 2018)

 

 

226,271

 

 

 

202,169

 

Series F redeemable Class C preferred stock, no par value, 1 share issued and

   outstanding; aggregate liquidation preference of $100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series B 12% cumulative, convertible preferred stock, $100 par value; 20,000

   shares issued and outstanding; aggregate liquidation preference

   of $2,965,000 ($2,785,000 at December 31, 2018)

 

 

2,000

 

 

 

2,000

 

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

   1,000,000 shares issued and outstanding; aggregate liquidation preference

   of $1,237,000 ($1,192,000 at December 31, 2018)

 

 

1,000

 

 

 

1,000

 

Common stock, $.10 par value; 75,000,000 shares authorized,

   31,283,210 shares issued

 

 

3,128

 

 

 

3,128

 

Capital in excess of par value

 

 

200,045

 

 

 

198,482

 

Retained earnings

 

 

93,968

 

 

 

153,773

 

 

 

 

300,141

 

 

 

358,383

 

Less treasury stock, at cost:

 

 

 

 

 

 

 

 

Common stock, 2,500,779 shares (2,438,305 shares at December 31, 2018)

 

 

16,645

 

 

 

16,186

 

Total stockholders' equity

 

 

283,496

 

 

 

342,197

 

 

 

$

1,129,781

 

 

$

1,148,333

 

 

See accompanying notes.

4


LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In Thousands, Except Per Share Amounts)

 

Net sales

 

$

75,495

 

 

$

79,781

 

 

$

291,174

 

 

$

283,430

 

Cost of sales

 

 

85,228

 

 

 

89,523

 

 

 

273,912

 

 

 

280,006

 

Gross profit (loss)

 

 

(9,733

)

 

 

(9,742

)

 

 

17,262

 

 

 

3,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

9,115

 

 

 

9,080

 

 

 

24,705

 

 

 

25,780

 

Other expense (income), net

 

 

383

 

 

 

(2,265

)

 

 

372

 

 

 

(1,814

)

Operating loss

 

 

(19,231

)

 

 

(16,557

)

 

 

(7,815

)

 

 

(20,542

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

12,007

 

 

 

11,009

 

 

 

34,309

 

 

 

32,008

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

5,951

 

Non-operating other expense (income), net

 

 

39

 

 

 

944

 

 

 

(605

)

 

 

(296

)

Loss before provision (benefit) for income taxes

 

 

(31,277

)

 

 

(28,510

)

 

 

(41,519

)

 

 

(58,205

)

Provision (benefit) for income taxes

 

 

(483

)

 

 

(2,426

)

 

 

(5,816

)

 

 

976

 

Net loss

 

 

(30,794

)

 

 

(26,084

)

 

 

(35,703

)

 

 

(59,181

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on convertible preferred stocks

 

 

75

 

 

 

75

 

 

 

225

 

 

 

225

 

Dividends on Series E redeemable preferred stock

 

 

7,764

 

 

 

6,782

 

 

 

22,609

 

 

 

19,748

 

Accretion of Series E redeemable preferred stock

 

 

500

 

 

 

481

 

 

 

1,493

 

 

 

2,882

 

Net loss attributable to common stockholders

 

$

(39,133

)

 

$

(33,422

)

 

$

(60,030

)

 

$

(82,036

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and dilutive net loss per common share

 

$

(1.39

)

 

$

(1.22

)

 

$

(2.14

)

 

$

(2.98

)

 

See accompanying notes.

5


LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Stock

Shares

 

 

Treasury

Stock-

Common

Shares

 

 

Non-

Redeemable

Preferred

Stock

 

 

Common

Stock

Par

Value

 

 

Capital in

Excess of

Par

Value

 

 

Retained

Earnings

 

 

Treasury

Stock-

Common

 

 

Total

 

 

 

(In Thousands)

 

Balance at December 31, 2018

 

 

31,283

 

 

 

(2,438

)

 

$

3,000

 

 

$

3,128

 

 

$

198,482

 

 

$

153,773

 

 

$

(16,186

)

 

$

342,197

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,540

)

 

 

 

 

 

 

(11,540

)

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,256

)

 

 

 

 

 

 

(7,256

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(496

)

 

 

 

 

 

 

(496

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

612

 

 

 

 

 

 

 

 

 

 

 

612

 

Other

 

 

 

 

 

 

(76

)

 

 

 

 

 

 

 

 

 

 

(144

)

 

 

 

 

 

 

(546

)

 

 

(690

)

Balance at March 31, 2019

 

 

31,283

 

 

 

(2,514

)

 

 

3,000

 

 

 

3,128

 

 

 

198,950

 

 

 

134,481

 

 

 

(16,732

)

 

 

322,827

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,631

 

 

 

 

 

 

 

6,631

 

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,589

)

 

 

 

 

 

 

(7,589

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(497

)

 

 

 

 

 

 

(497

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

686

 

 

 

 

 

 

 

 

 

 

 

686

 

Balance at June 30, 2019

 

 

31,283

 

 

 

(2,514

)

 

 

3,000

 

 

 

3,128

 

 

 

199,636

 

 

 

133,026

 

 

 

(16,732

)

 

 

322,058

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,794

)

 

 

 

 

 

 

(30,794

)

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,764

)

 

 

 

 

 

 

(7,764

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(500

)

 

 

 

 

 

 

(500

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

501

 

 

 

 

 

 

 

 

 

 

 

501

 

Other

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

(92

)

 

 

 

 

 

 

87

 

 

 

(5

)

Balance at September 30, 2019

 

 

31,283

 

 

 

(2,501

)

 

$

3,000

 

 

$

3,128

 

 

$

200,045

 

 

$

93,968

 

 

$

(16,645

)

 

$

283,496

 

 

Balance at December 31, 2017

 

 

31,281

 

 

 

(2,662

)

 

$

3,000

 

 

$

3,128

 

 

$

193,956

 

 

$

256,214

 

 

$

(18,102

)

 

$

438,196

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,591

)

 

 

 

 

 

 

(5,591

)

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,338

)

 

 

 

 

 

 

(6,338

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,599

)

 

 

 

 

 

 

(1,599

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,382

 

 

 

 

 

 

 

 

 

 

 

1,382

 

Other

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

 

 

 

 

(53

)

 

 

(102

)

Balance at March 31, 2018

 

 

31,281

 

 

 

(2,667

)

 

 

3,000

 

 

 

3,128

 

 

 

195,289

 

 

 

242,686

 

 

 

(18,155

)

 

 

425,948

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,506

)

 

 

 

 

 

 

(27,506

)

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,628

)

 

 

 

 

 

 

(6,628

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(802

)

 

 

 

 

 

 

(802

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,553

 

 

 

 

 

 

 

 

 

 

 

1,553

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

7

 

 

 

(43

)

Balance at June 30, 2018

 

 

31,281

 

 

 

(2,667

)

 

 

3,000

 

 

 

3,128

 

 

 

196,792

 

 

 

207,750

 

 

 

(18,148

)

 

 

392,522

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,084

)

 

 

 

 

 

 

(26,084

)

Dividend accrued on redeemable

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,782

)

 

 

 

 

 

 

(6,782

)

Accretion of redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(481

)

 

 

 

 

 

 

(481

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,349

 

 

 

 

 

 

 

 

 

 

 

1,349

 

Other

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

35

 

 

 

(3

)

Balance at September 30, 2018

 

 

31,281

 

 

 

(2,662

)

 

$

3,000

 

 

$

3,128

 

 

$

198,103

 

 

$

174,403

 

 

$

(18,113

)

 

$

360,521

 

 

See accompanying notes.

6


LSB INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(35,703

)

 

$

(59,181

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

(5,797

)

 

 

1,015

 

Loss on extinguishment of debt

 

 

 

 

 

5,951

 

Depreciation and amortization of property, plant and equipment

 

 

51,575

 

 

 

53,514

 

Amortization of intangible and other assets

 

 

936

 

 

 

1,787

 

Loss (gain) on sales of property and equipment

 

 

657

 

 

 

(1,924

)

Other

 

 

4,093

 

 

 

7,075

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

15,511

 

 

 

6,308

 

Inventories

 

 

8,852

 

 

 

4,599

 

Prepaid insurance

 

 

9,446

 

 

 

8,878

 

Accounts payable

 

 

(15,257

)

 

 

5,023

 

Accrued interest

 

 

10,886

 

 

 

3,298

 

Other assets and other liabilities

 

 

(4,227

)

 

 

2,437

 

Net cash provided by operating activities

 

 

40,972

 

 

 

38,780

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(20,455

)

 

 

(27,187

)

Net proceeds from sales of property and equipment