LSB Industries, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. LSB manufactures nitrogen-based chemicals and fertilizers for agricultural, industrial, and mining customers. It operates facilities in Arkansas, Alabama, and Oklahoma and operates a Texas facility for Covestro.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $556.2 million | $351.3 million |
| Gross profit | $139.0 million | $17.0 million |
| Gross margin | 25.0% | 4.9% |
| Adjusted gross profit margin (non-GAAP) | 39.1% | 23.0% |
| Operating income (loss) | $101.0 million | $(15.5) million |
| Net income (loss) | $43.5 million | $(61.9) million |
| Net cash from (used in) operating activities | $87.6 million | $(2.5) million |
| Capital expenditures | $35.1 million | $30.5 million |
- Agricultural sales rose 47% to $264.5 million; industrial and mining sales rose 70% to $291.7 million. Agricultural product volumes fell 13%, while industrial and mining volumes increased 18%.
- Higher selling prices were the principal driver of the recovery. Average prices increased 87% for UAN, 46% for HDAN, and 111% for ammonia. The Tampa ammonia benchmark rose $359 per metric ton year over year.
- Natural gas averaged $3.51 per MMBtu in 2021, versus $2.09 in 2020. LSB produced approximately 765,000 tons of ammonia.
- Year-end cash was $82.1 million. Long-term debt, including the current portion and net of issuance costs, was $527.6 million; stockholders’ equity was $460.5 million. The $65 million working-capital revolver was undrawn, with about $61.3 million available. LSB reported approximately $143.5 million of combined cash and borrowing capacity.
- Net interest expense was $49.4 million, down from $51.1 million. Annual net loss attributable to common stockholders was $220.0 million, or $4.40 per share, largely reflecting a $231.8 million deemed dividend from the preferred-stock exchange; this is distinct from reported net income of $43.5 million.
Material changes and unusual items
- In September 2021, LSB exchanged its Series E and F redeemable preferred stock for approximately 49.1 million common shares and issued a special stock dividend of 0.30 shares per eligible share. The exchange eliminated the preferred securities and their costly compounding dividend burden, but caused the deemed dividend noted above. LSB Funding held approximately 60% of common stock after the transaction.
- In October, LSB issued $500 million of 6.25% senior secured notes due 2028 and redeemed $435 million of 9.625% notes due 2023. The refinancing lowered the coupon by more than three percentage points and extended maturity. The company recorded a $20.3 million redemption loss, partly offset by a $10.0 million gain when its PPP loan was forgiven; the reported net loss on debt extinguishment was $10.3 million.
- Winter Storm Uri disrupted Pryor and El Dorado operations and natural-gas supply in February. Settlements of gas contracts generated a reported gain of approximately $6.8 million that reduced cost of sales. Cherokee completed a 40-day turnaround, with $8.0 million of turnaround expense and estimated lost ammonia production of 21,000 tons.
- The new long-term nitric-acid contract began in 2021 and requires annual supply of 70,000–100,000 tons through 2027, subject to renewal terms. Its volume ramp supported industrial sales growth.
- The $10 million PPP loan was fully forgiven in June 2021. LSB also converted its Series B and D preferred shares into common stock and paid approximately $1.9 million of accumulated dividends.
Outlook, management commentary, and risks
- Management expected favorable nitrogen-product pricing to continue into 2022, citing tight global supply, strong demand, higher natural-gas costs for competitors, and supportive farm economics. This is management’s outlook, not a guarantee.
- For 2022, LSB targeted ammonia production of approximately 780,000–800,000 tons, despite planned third-quarter turnarounds at Pryor and El Dorado. Planned capital expenditures were approximately $65 million, including $15 million for margin-enhancement projects. Environmental-project spending was estimated at $3.8–$4.2 million.
- Strategic priorities include safety and reliability improvements, product-mix and distribution optimization, development of low-carbon blue and green ammonia opportunities, and potential acquisitions. Acquisition opportunities under consideration were generally valued at $200–$500 million; none is assured.
- Key exposures include natural-gas price and availability, plant reliability and unplanned outages, seasonal and weather-sensitive fertilizer demand, transportation costs and capacity, inflation and supply-chain disruption, and environmental, safety, permitting, and climate regulation. Ten customers represented approximately 47% of 2021 sales; Koch Fertilizer accounted for about 15% and CVR about 12%.
- LSB disclosed continuing litigation related to the 2013 West Fertilizer explosion and said it could not estimate a possible loss range; no reserve was recorded except for unpaid settlement amounts. A separate Global Industrial judgment included approximately $7.4 million in damages and $1.3 million in prejudgment interest; the judgment was stayed pending appeal, and LSB is pursuing related claims against Leidos. Environmental liabilities accrued were approximately $0.5 million.
- Management said cash, revolver availability, and expected operating cash flow should cover anticipated liquidity needs for the next twelve months. The notes and credit agreements contain restrictions on additional debt, dividends, asset sales, and other actions. LSB did not anticipate cash dividends on common stock in the near term.
Important facts for investors to verify
- Whether higher product prices and margins persist as fertilizer supply, natural-gas costs, and agricultural demand change.
- Whether LSB meets its 2022 production and capital-spending plans, including the effects of scheduled turnarounds and plant reliability.
- Current liquidity, revolver availability, debt-service obligations, and compliance with debt covenants.
- Developments, potential exposure, and insurance coverage for the West Fertilizer and Global/Leidos matters, as well as environmental obligations.
- Customer concentration, renewals or termination of key supply arrangements, and execution and financing of any low-carbon ammonia or acquisition plans.
The audited financial statements received an unqualified opinion from Ernst & Young LLP. Management and the auditor reported effective internal control over financial reporting as of December 31, 2021.