LSB Industries(LXU) - 2021 Q2 - Quarterly Report

PART I – Financial Information Financial Statements This section presents LSB Industries, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2021 Condensed Consolidated Balance Sheets Total assets slightly decreased to $1.049 billion as of June 30, 2021, while total current assets increased and total liabilities decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $143,099 | $129,580 | | Property, plant and equipment, net | $871,780 | $891,198 | | Total assets | $1,049,485 | $1,053,302 | | Total current liabilities | $95,318 | $107,295 | | Long-term debt, net | $461,459 | $467,389 | | Redeemable preferred stocks | $292,849 | $272,101 | | Total stockholders' equity | $141,015 | $149,643 | | Total liabilities and stockholders' equity | $1,049,485 | $1,053,302 | Condensed Consolidated Statements of Operations The company achieved a significant turnaround in profitability, reporting $23.7 million net income in Q2 2021 and $10.4 million for the six-month period, driven by increased sales and a debt extinguishment gain Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $140,696 | $105,033 | $238,812 | $188,444 | | Gross profit | $35,008 | $19,021 | $43,068 | $21,572 | | Operating income | $26,457 | $10,684 | $25,987 | $3,697 | | Gain on extinguishment of debt | $10,000 | $— | $10,000 | $— | | Net income (loss) | $23,670 | $(365) | $10,391 | $(19,817) | | Diluted EPS | $0.42 | $(0.34) | $(0.37) | $(1.35) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $30.6 million for the six months ended June 30, 2021, while financing activities shifted to a net cash use of $14.7 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $30,581 | $19,376 | | Net cash used by investing activities | $(14,549) | $(17,654) | | Net cash provided (used) by financing activities | $(14,671) | $32,000 | | Net increase in cash and cash equivalents | $1,361 | $33,722 | | Cash and cash equivalents at end of period | $17,625 | $56,513 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, debt structure, and contingencies, including the $10 million PPP loan forgiveness and a subsequent preferred stock exchange agreement - The company manufactures and sells chemical products for agricultural, industrial, and mining applications from four facilities in Arkansas, Alabama, Oklahoma, and Texas[24] - In June 2021, the company's $10 million Paycheck Protection Program (PPP) loan was fully forgiven, resulting in a $10 million gain on extinguishment of debt[69] - On July 19, 2021, the company entered into an agreement to exchange approximately $300 million of its Series E and Series F Redeemable Preferred Stock for common stock, contingent on stockholder approval[131] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's improved financial performance in Q2 2021, driven by stronger selling prices, and outlines strategic initiatives including operational reliability and capital structure enhancement Overview and Key Initiatives LSB Industries is focused on key strategic initiatives for 2021, including enhancing operational reliability, expanding product distribution, developing low-carbon ammonia, and improving capital structure - Key strategic initiatives for 2021 include: - Focusing on safe, reliable, and high-quality chemical plant operations - Broadening the distribution of industrial and mining products - Developing a strategy for low-carbon or no-carbon ammonia ("blue-green ammonia") - Improving the capital structure through a planned exchange of preferred stock for common stock[135] Results of Operations The company's financial performance substantially improved in Q2 and H1 2021, driven by significantly higher selling prices and a $10 million PPP loan forgiveness gain, partially offset by increased natural gas costs Q2 2021 vs Q2 2020 Performance (in thousands) | Metric | Q2 2021 | Q2 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $140,696 | $105,033 | $35,663 | 34% | | Gross profit | $35,008 | $19,021 | $15,987 | 84% | | Operating income | $26,457 | $10,684 | $15,773 | 148% | | Net income (loss) | $23,670 | $(365) | $24,035 | N/A | Six Months 2021 vs 2020 Performance (in thousands) | Metric | Six Months 2021 | Six Months 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $238,812 | $188,444 | $50,368 | 27% | | Gross profit | $43,068 | $21,572 | $21,496 | 100% | | Operating income | $25,987 | $3,697 | $22,290 | 603% | | Net income (loss) | $10,391 | $(19,817) | $30,208 | N/A | - Gross profit improvement was driven by higher sales prices, partially offset by increased natural gas costs, which averaged $2.78/MMBtu in Q2 2021 versus $1.81/MMBtu in Q2 2020[174][155] Liquidity and Capital Resources The company's liquidity is supported by $17.6 million cash and $50.3 million revolver availability as of June 30, 2021, with projected 2021 capital expenditures of $30 million to $35 million Capitalization Summary (in millions) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $17.6 | $16.3 | | Total long-term debt, net | $470.5 | $484.2 | | Series E and F redeemable preferred stock | $292.8 | $272.1 | | Total stockholders' equity | $141.0 | $149.6 | - As of June 30, 2021, the Working Capital Revolver Loan was undrawn with approximately $50.3 million of availability[200] - Full-year 2021 capital expenditures are expected to be approximately $30 million to $35 million, primarily for reliability and maintenance projects[201] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from commodity price fluctuations for products and raw materials, and interest rate changes, though current interest rate risk is minimal - The company's primary market risks are related to commodity price fluctuations (ammonia, natural gas) and interest rate changes[221] - The company is exposed to variable interest rate risk on its revolving credit facility, but had no outstanding borrowings as of June 30, 2021[224] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[225] PART II – Other Information Legal Proceedings The company is involved in various legal proceedings arising in the ordinary course of business, with details provided in Note 5 of the financial statements - The company is subject to various legal proceedings. For detailed information, refer to Note 5—Commitments and Contingencies—Legal Matters in the financial statements[235] Risk Factors As a smaller reporting company, LSB Industries, Inc. is not required to provide risk factor information in this Form 10-Q filing - The company is a smaller reporting company and is not required to report risk factors in this filing[236] Exhibits This section lists exhibits filed with the Form 10-Q, including the Securities Exchange Agreement and Sarbanes-Oxley Act certifications from the CEO and CFO - Key exhibits filed include the Securities Exchange Agreement dated July 19, 2021, and Sarbanes-Oxley Act certifications from the CEO and CFO[239]