What changed in LSB INDUSTRIES, INC.'s 10-K — 2024 vs 2025

ITEM 1. B USINESS 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 energy transition through 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, energy markets, 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) Agricultural and (b) Industrial.

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. 6 The following table summarizes net sales information relating to our products: 2024 2023 Percentage of consolidated net sales: AN & Nitric acid 41 % 37 % Urea ammonium nitrate (UAN) 27 % 26 % Ammonia 26 % 28 % Other 6 % 9 % 100 % 100 % 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 energy transition in the chemical industry through 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 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 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. 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 calls for further development of industrial customers who assume the volatility risk associated with the raw material costs and mitigate the effects of seasonality in the agricultural sector.

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 2025 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: • Investing to Improve Environmental, Health & Safety and Reliability at our Facilities while Supplying our Customers with Products of the Highest Quality; • Continue Optimization and Increase the Breadth of Distribution of our Product Mix; • Development of Low Carbon Ammonia and Clean Energy Projects; • Evaluate and Pursue Organic Capacity Expansion; and • Evaluate Acquisitions of Strategic Assets or Companies.

As for our liquidity, we had approximately $221 million of combined cash and cash equivalents, short-term investments and borrowing capacity at the end of 2024, 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 ”. 7 Our Competitive Strengths Strategically Located Chemical Assets Our business benefits from highly advantageous locations with logistical and distribution benefits.

We have access to the Nustar 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 industrial and agricultural customers and cost advantages when selling a number of our products west of the Mississippi River. Our Cherokee Facility is located east of the Mississippi River, allowing it 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 (relative to international markets) natural gas in the United States, which allows for significant cost advantages as compared to comparable production facilities in Europe and other parts of the world.

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.

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 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 2025, we expect ammonia pricing to moderate for a variety of reasons, including: the anticipated start-up of new production capacity in both the United States and internationally; an increase in Russian exports; and continued muted demand for nitrogen products from the global industrial sector, particularly in Asia.

Upside to our pricing expectations could be driven by a variety of factors, including: a continued increase in energy prices; a strengthening Chinese economy driving increased industrial market demand; further delays in new production capacity coming online; gas curtailments in regions exporting ammonia; a lower interest rate environment; the potential impact of United States import tariffs; and supportive weather dynamics.

Agricultural Products We produce and sell UAN, HDAN and ammonia, all of 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 and also sell directly to agricultural end-users through our wholesale and retail distribution centers. 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).

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. 8 Looking forward to 2025, we expect demand for our industrial products to be stable, despite persistent global economic challenges.

We anticipate that nitric acid demand will remain steady, reflecting the strength of the United States economy and robust consumer spending levels. Demand for AN for use in mining applications should continue to benefit from positive exposure to copper, gold and iron ore mining, as well as continued attractive market fundamentals for aggregate production relating to infrastructure construction.

While some degree of economic uncertainty persists, we believe that we have a meaningful degree of downside protection in our industrial business given our diverse customer base, 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, HDAN and AN solution for use in other applications, which are primarily used as AN fuel oil and specialty emulsions for usage in the quarry and the construction industries and for metals mining.

We have signed long-term contracts with certain customers that provide for the annual sale of LDAN mostly under natural gas cost pass through pricing arrangements. One of our customers has a plant located at our El Dorado Facility. 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 2024, we purchased approximately 28.4 million MMBtus of natural gas.

The chemical facilities’ natural gas requirements are generally purchased at spot 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 product that have been sold forward.

At December 31, 2024, we had natural gas contracts of approximately 0.6 million MMBtus, at an average cost of $3.70 per MMBtu. These contracts extend through March 2025. See further discussion relating to the outlook for our business under “