LSB INDUSTRIES, INC. (LXU) Business

ITEM 1. BUSINESS

Overview

All references to “LSB Industries,” “LSB,” the “Company,” “we,” “us,” and “our” refer to LSB Industries, Inc. and its subsidiaries on a consolidated basis, 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. Financial Statements and Supplementary Data” of this report. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto under the heading “Special Note Regarding Forward-Looking Statements – Defined Terms.”

LSB is a Delaware corporation, formed in 1968, and headquartered in Oklahoma City, Oklahoma. LSB is committed to playing a leadership role in the production of low and no carbon products that build, feed and power the world. We seek to accomplish this goal through the manufacture and marketing of essential products for the agricultural and industrial markets, and in the future, low and no carbon products, all with an emphasis on a culture of excellence in customer experience. The Company manufactures ammonia and ammonia-related products in El Dorado, Arkansas (the “El Dorado Facility”), Cherokee, Alabama (the “Cherokee Facility”), and Pryor, Oklahoma (the “Pryor Facility”), and operates 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, such as farmers, ranchers, and fertilizer dealers, throughout the United States and parts of Canada, and to explosives manufacturers in the United States and other parts of North America.

Our Business

Our business manufactures products for two principal markets: (a) Industrial and (b) Agricultural. The chart below highlights representative products and applications in each of our end markets.

The products we manufacture at our facilities are primarily derived from natural gas (a raw material). 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.

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The following table summarizes net sales information relating to our products:

For additional 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.

Our Strategy

We aim to be a leader in the production of low and no carbon products that build, feed and power the world. We plan to accomplish this goal by leveraging our existing business platform and portfolio of assets to produce low carbon products, utilizing our significant manufacturing expertise and experience in ammonia and hydrogen plant operations, optimizing our liquidity and free cash flows to generate growth, and creating a network of partners that bring additional knowledge, expertise and relationships.

With respect to our current portfolio of products, 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 and maintaining industrial customers that purchase substantial quantities of products, primarily under contractual obligations and/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 and/or the changes in demand for our products.

The strategy of developing and maintaining industrial 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 natural gas raw material 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. Industrial customers assume the volatility risk associated with the raw material costs and mitigate the effects of seasonality in the agricultural sector. 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 also includes evaluating further investments in low carbon opportunities, potential acquisitions of strategic assets or companies, joint ventures with other companies and investments in additional production capacity where we believe those acquisitions, joint ventures or expansion of production capacity will enhance the value of the Company and provide appropriate returns.

Key Operating Initiatives for 2026

As discussed in more detail under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Key Operating Initiatives,” we believe our future results of operations and financial condition will depend significantly on our ability to successfully implement the following key initiatives:

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Invest to Improve Environmental, Health & Safety at our Facilities;

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Improve the Reliability at our Facilities while Supplying our Customers with Products of the Highest Quality;

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Advance Productivity Improvement;

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Continued Optimization and Increase the Breadth of Distribution of our Product Mix; and

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Grow Our Platform.

As for our liquidity, we had approximately $192.8 million of combined cash and cash equivalents, short-term investments and borrowing capacity at the end of 2025, which we believe provides us with ample liquidity to fund our operations and meet our current obligations. Also see discussions in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources.”

Our Competitive Strengths

Strategically Located Chemical Assets

Our business benefits from advantageous locations with logistical and distribution benefits. We have access to the Sunoco LP ammonia pipeline from the Gulf Coast of the United States 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 customers and cost

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advantages when selling a number of our products west of the Mississippi River. Our Cherokee Facility is located east of the Mississippi River, allowing us to reach customers that are not freight logical for our competitors. 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 Facility is located in the heart of the Southern Plains with strategic rail and truck delivery access.

Advantaged Raw Material Cost Position

We have access to low-cost natural gas in the United States relative to international markets, which allows for significant cost advantages as compared to comparable production facilities in Europe.

Diversified Sources of Revenue

Our business serves a broad range of agricultural and industrial end markets, which we believe diminishes the cyclicality of our financial performance. The flexible nature of our production process and storage capability allows us the ability to shift our product mix based on end market demand.

Industrial Market Conditions

As discussed in more detail in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Key Industry Factors,” 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. For our other products, our sales volumes are typically driven by changes in the overall North American consumption levels of mining products, which 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 other products and impact competition within the other sectors of this market.

Our industrial business competes based upon service, price and location of production and distribution sites, product quality and performance as part of the value-added services offered to certain customers.

Looking forward to 2026, we expect demand for our industrial products to remain consistent, despite global economic concerns. Demand for nitric acid is robust domestically, where it is supported by tariffs and preliminary anti-dumping duties on imports of methylene diphenyl diisocyanate (MDI). Demand for AN for use in mining applications is robust across all commodities, particularly with copper and gold, as miners have been maximizing production volumes to take advantage of record prices. AN demand for explosives used in quarrying/aggregate production for infrastructure upgrade and expansion remains steady. Demand for AN in coal is also robust, supporting electricity production and the deferral of coal power plant closures. These factors should continue to support AN demand well into 2026. Economic uncertainty continues to be heightened by the potential impacts of tariffs on global trade flows, consumer prices and production input costs. However, we believe that we have a meaningful degree of downside protection in our industrial business given our diverse customer base, which is almost entirely located in the United States, the nature of our contracts and our ability to shift our production mix to products where demand and pricing are strongest.

Industrial Products

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.

Sales of our industrial 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 stabilize the effect of commodity cost changes and fluctuations in demand for these products due to the cyclicality of the end markets.

We operate the Baytown Facility on behalf of Covestro, and we believe it is one of the largest and most technologically advanced nitric acid manufacturing units in the United States. We operate and maintain this facility pursuant to a long-term operating contract in exchange for a management fee, which is not significant to our results of operations. The term of this agreement runs until October 2029 with options for renewal by mutual agreement between us and Covestro.

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.

We also produce and sell LDAN and AN solution for use in other applications, which are primarily used to produce AN fuel oil and specialty emulsions for use in explosives in the quarry and the construction industries and for metals mining. We have signed long-term contracts with certain customers that provide for the sale of LDAN and AN solution mostly under natural gas cost pass through pricing arrangements. One of our customers has a plant located at our El Dorado Facility.

Agricultural Market Conditions

As discussed in more detail under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Key Industry Factors”, the price at which our agricultural products are ultimately sold depends on numerous factors, including the

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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, all of which impact competition. 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 product margins.

We sell our agricultural products at the current spot market price for either immediate shipment or as part of forward sales commitments, depending on fertilizer seasonality and our forward pricing point of view.

Looking forward to 2026, ammonia prices currently reflect constrained global inventories resulting from reduced supply from the Middle East and Trinidad, higher cost of production in Europe and delays to the start-up of new production capacity. Supply constraints are expected to ease throughout the first half of 2026. New production in the United States is expected to come online mid-2026, which could pressure pricing in the near term.

Agricultural Products

We produce and sell UAN and ammonia, which are nitrogen-based fertilizers. We sell these agricultural products to farmers, ranchers, fertilizer dealers and distributors primarily in the ranch land and grain production markets in the United States. Our nitrogen-based fertilizers are used to grow food crops, biofuel feedstock crops, and pasture forage for grazing livestock and forage production. We maintain long-term relationships with wholesale agricultural distributors and retailers.

The demand for nitrogen fertilizer products in the agricultural industry is seasonal. 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).

Raw Materials

The products we manufacture at our facilities are primarily derived from natural gas. This raw material 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. During 2025, we purchased approximately 30.5 million MMBtus of natural gas.

The chemical facilities’ natural gas requirements are generally purchased at a first-of-month market price. Periodically, we enter into volume purchase commitments and/or forward contracts to fix the cost of certain expected natural gas requirements primarily to match quantities needed to produce products that have been sold forward. At December 31, 2025, we had natural gas contracts of approximately 0.2 million MMBtus, at an average cost of $4.39 per MMBtu. These contracts extend through March 2026.

See further discussion relating to the outlook for our business under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Key Industry Factors.”

Competition

We operate in a highly competitive market with many other larger chemical companies, such as CF Industries Holdings, Inc., CVR Partners, Dyno Nobel, a subsidiary of Incitec Pivot Limited, Eurochem North America, Helm AG, Koch Industries, Macro-Source L.L.C., Nutrien, Orica Limited, and Yara International (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.

Customers

The principal customers for our products are distributors and end customers, such as farmers, ranchers, and fertilizer dealers and industrial users. Sales are generated by our internal marketing and sales force. For 2025, five customers accounted for approximately 32% of our consolidated net sales.

NOL Rights Agreement

We are party to an Amended and Restated Section 382 Rights Agreement (as amended, the “NOL Rights Agreement”) with Computershare Trust Company, N.A., as rights agent.

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 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% stockholders, 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

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any person (as defined in the NOL Rights Agreement) or group of affiliated or associated persons from acquiring beneficial ownership of 4.9% or more of our outstanding shares of common stock.

The rights issued under the NOL Rights Agreement will expire on the earliest to occur of (i) the date on which our Board of Directors (the “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 (ii) the close of business on August 22, 2026.

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.

Human Capital Resources

As of December 31, 2025, we employed 513 persons, 144 of whom are represented by unions under collective bargaining agreements. We have three 3-year union contracts, of which one was ratified in 2024 and the remaining two were ratified in 2025.

Oversight & Management

Our success depends on the capabilities and strength of our workforce. Our Chief Human Resources Officer (“CHRO”) is responsible for developing and executing our human capital strategy, which includes the acquisition, development, and retention of talent, as well as the enhancement of benefits and the overall employee experience to support our business strategy. The CHRO regularly updates our Board of Directors on the operation and status of these human capital initiatives, including the following:

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Training & Development – We are committed to the continued development of our employees through formal training programs, annual performance reviews, and individualized development action plans. We provide structured training for frontline supervisors and managers focused on foundational leadership capabilities. In addition, we conduct annual talent reviews across all operational business units and corporate functions. The CEO, CHRO, and executive leadership team review talent data annually and identify development actions to support succession planning, continuous improvement, and long-term growth.

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Engagement – We believe we maintain positive and productive relationships with our employees. To support engagement, we proactively gather feedback through employee discussions, various surveys and focus groups. Based on this feedback, we implement targeted initiatives, such as employee recognition programs and operationally focused communications, designed to enhance engagement. We also conduct annual benefits benchmarking studies to help ensure our benefits remain competitive and continue to add value for employees.

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Heath, Safety & Environment (“EHS”) – Our EHS Risk Management System focuses on five key elements to ensure risks are managed, and that we continuously improve. This system is guided by an executive committee that provides focus and priority to compliance and industry best practices. The five key elements of our EHS Risk Management System are as follows:

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Leadership commitment and employee ownership drive a culture of compliance at each business unit.

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Risk and compliance assessment ensures we evaluate each unique operation, assigning potential risk consequence to events and compliance requirements.

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Anticipating and controlling impacts is realized through our leading and lagging metrics, such as near miss tracking.

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A disciplined change management process is executed to evaluate, assess and safely manage changes to operations and compliance requirements.

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Continuous improvement is rooted in our Core Value: “Make It Better.”

Our operations are committed to EHS Risk Management through investigating events using root cause analysis tools, assigning and tracking corrective actions, shared learning across the organization, developing a robust training program and conducting periodic third-party audits and internal self-assessment to continuously improve.

Government Regulation

Our facilities and operations are subject to numerous federal, state and local laws and regulations regarding environmental, health and safety, including laws and regulations relating to the generation and handling of hazardous substances and wastes, the introduction of new chemicals or substances to the market, the investigation and remediation of contamination, spills or releases and the discharge of pollutants or emissions of regulated substances to the air, water or soils. These laws and regulations provide for certain performance obligations and in some cases require us to obtain and maintain permits for our operations. The failure to comply with these laws and regulations can result in substantial administrative, civil and criminal fines, injunctive relief and criminal sanctions. Compliance with and changes to these laws and regulations may adversely affect our business, results or operations and financial condition.

Certain of these laws and regulations impose strict liability as well as joint and several liability for costs required to remediate and restore sites that we own or operate, that we formerly owned or operated, and where hazardous substances, hydrocarbons, solid wastes or other materials from our operations have been stored, disposed or released, regardless of whether such contamination resulted from

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the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken.

We may incur material costs or liabilities in complying with such laws and pay 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 brought against us. These laws and regulations (including enforcement policies thereunder) 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 we disposed our wastes), penalties or other liabilities relating to the handling, manufacture, use, storage, emission, release, discharge or disposal of materials at or from our facilities or the use or disposal of certain of its chemical products. Historically, we have incurred significant expenditures in order to comply with these laws and regulations and are reasonably expected to do so in the future. Changes in these laws and regulations, and changes in the interpretations of such laws and regulations by regulatory bodies impacts the costs of compliance and may impact the demands for our products. 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.

We have obtained and maintain numerous environmental permits and approvals in connection with the operations of our facilities. Changes to our facilities or new facilities or operations may require new or amended permits, and our existing permits require periodic review and renewal. If the regulatory body were to deny or delay issuing a permit or permit amendment or were to modify an existing permit or approval, we could experience a material adverse impact on our ability to operate or the costs of our operations. The requirement to obtain permits and authorizations may also impact our ability to construct new operations or to make changes to existing operations.

Also see discussions concerning our risk factors under “Item 1A. Risk Factors” of this report.

Available Information

We make available free of charge through our Internet website (www.lsbindustries.com) or by calling Investor Relations (405) 510-3524 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 of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (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 on our website does not constitute part of this Annual Report on Form 10-K.