LSB Industries, Inc. Annual Report 2019

FY2019 Annual Report · LSB Industries, Inc.

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2019 ANNUAL REPORT

Dear Fellow Shareholders,

The past year was a period of great progress for LSB and I’d like to thank our nearly 600 employees for their
hard work and dedication to the advancements that we made. Our team has truly embraced our goal of
transforming LSB into a “best-in-class” chemical manufacturer, which they demonstrate every day through their
focus on safety, operational excellence, and commitment to all our stakeholders. I’d also like to thank both our
stock and bond holders for your investment in our Company. We are grateful for your continued support as we
strive to achieve our ongoing goal of creating increased value for all our stakeholders.

This past January marked my first full year as LSB’s Chief Executive Officer after serving for several years as
our Chief Financial Officer. As I write this letter, I am confident that we are now, more than we have been at any
time in our Company’s history, in the best position to maximize the production capacity of our manufacturing
assets. As many of you know, this has been a multi-year process involving the contributions of many individuals.
One of these key people is John Diesch, who recently retired from LSB after serving as our Executive Vice
President of Manufacturing since mid-2016. During his tenure with our Company, Mr. Diesch led the initiatives
that resulted in a significant improvement in our ammonia plant on-stream rates and I would like to thank him for
his efforts and wish him well in his retirement. At the same time, I’d like to welcome our new EVP of
Manufacturing, John Burns. Mr. Burns has extensive experience in driving operational excellence, particularly at
nitrogen chemical manufacturing plants and we are pleased to have the opportunity to work with him as we make
our push towards attaining our targeted safety and operational goals on a sustained basis.

2019 Results

Turning to our 2019 financial performance, we delivered $365.1 million in net sales and adjusted EBITDA of
$69.3 million for the year, which compares to $378.2 million and $77.8 million in 2018, respectively. Our 2019
results reflect the impacts of inordinately wet weather across the U.S. midwest on demand for fertilizers. The
unfavorable weather conditions, which began in the fourth quarter of 2018 and continued throughout much of the
ensuing 12 months, negatively affected our agricultural ammonia sales volumes, and also caused a buildup of
ammonia inventory in certain U.S. markets resulting in a precipitous decline in selling prices. On the industrial
side of our business, ammonia selling prices are largely tied to the benchmark Tampa ammonia price, which was
down significantly in 2019 as compared to 2018, impacting our industrial market sales. In addition, our top and
bottom line were affected by reduced production volume resulting from the extensive maintenance and upgrade
activities performed during planned turnarounds at two of our three facilities. We expect to reap material
performance benefits from this work in 2020 and beyond. Despite the challenges we faced in our primary end
markets during 2019, gross margins on our industrial sales remained robust, while margins for our agricultural
sales improved meaningfully as compared to the previous two years. We view this as indicative of the
opportunity to deliver significantly stronger profitability and cash flow on our anticipated higher volumes.

Agricultural, Industrial & Mining Gross profit margins 2017 – 2019

39%

36%

33%

15%

11%

Agricultural

Industrial & Mining

2017 *

2018 **

2019 **

2017 reflects EBITDA Margin which excludes turnaround, corporate SG&A, and businesses disposed of during 2017. This is a
non-GAAP measure.
Refer to the 2017 EBITDA Reconciliation page within the Q4 2019 earnings presentation on our website for a reconciliation of end
2018 and forward periods reflect gross profit margin which excludes turnaround,
market operating loss to adjusted EBITDA. **
depreciation, and amortization expenses. This is a non-GAAP measure. Refer to the Gross Profit Reconciliation page within the Q4
2019 earnings presentation on our website for a reconciliation of adjusted gross profit to reported gross profit.

2019 Highlights Include:

Continued performance improvement of our chemical manufacturing facilities.

Our primary goal headed into 2019 was to continue our multi-year trend of improved operating performance at
our facilities which, excluding the maintenance-related downtime, we accomplished. We improved our average
ammonia on-stream rate across our three facilities by two percentage points over 2018, to 91%. Relative to 2016,
this represents a greater than 10 percentage point improvement. We view this as an indication that the leadership
changes and reliability investments we’ve made over the past several years, coupled with the maintenance
management systems, procedures, and preventative maintenance programs we’ve implemented have, and
continue to yield, very positive results.

On-stream rate improvement 2016 – 2020 target

94%

91%

89%

85%

80%

100%

95%

90%

85%

80%

75%

70%

2016

2017

2018

2019

2020

(1) On-stream rate is the number of hours operating divided by total hours in the period. On-stream rate is a weighted average of all

three plants and excludes impact from planned turnaround days.

While our facilities performed well in 2019, we are confident that they can operate at even greater on-stream rates and
expect all three of them to deliver further improvements in 2020. In that regard, we took significant actions over the
course of the past year to drive increased on-stream rates and greater production volume in 2020 and the years to come.

Completed turnarounds Pryor and El Dorado plants, including capacity expansions.

During the third and fourth quarters for 2019 we performed turnarounds at both our Pryor and El Dorado
facilities. Pryor’s turnaround had a duration of 67-days, our most extensive planned maintenance activity at this
facility in our Company’s history. As part of the turnaround at Pryor, we installed a new urea reactor, which we
expect to significantly increase the reliability of that plant and enable us to increase production of UAN by as
much as 30,000 tons per year. At El Dorado, we conducted an 18-day turnaround which included the installation
and startup of a new sulfuric acid converter that we anticipate will provide us with incremental sulfuric acid
capacity of approximately 20,000 tons per year.

Captured new business opportunities.

Our sales and marketing teams were successful in increasing sales volumes of our industrial and mining products
in 2019, particularly for industrial ammonia and AN solution. During the past year we conducted a review of our
product mix with a focus on adjusting our sales volumes to match our full production capacities, while at the
same time, fine-tuning our production and sales mix towards products that carry the most attractive margins. We
made significant progress in this regard during 2019 and thus far in 2020 and expect to continue to identify and
pursue opportunities to capture incremental, higher margin sales volumes over the course of the year. We believe
that these efforts will enhance our profitability, both by maximizing our asset utilization and by driving a
favorable shift in our overall sales mix. As an example, we recently signed an agreement to supply one of our
existing customers with an incremental 50,000 tons of LDAN annually for the next three years in order to support
a new contract award that they received from one of their large customers. With the increased volumes of other
downstream products at our Pryor and El Dorado facilities following the aforementioned capacity expansions, we
expect to attain further new business awards over the balance of this year.

Completed a growth financing transaction.

In June 2019, we completed the issuance and sale of $35 million Senior Secured Notes via a private placement.
The purpose of this financing was to provide us with additional capital to pursue approximately $20 million of

projects at our facilities aimed at supporting additional sales volumes and diversifying our revenue streams
including the two mentioned above. These projects are projected to generate between $7 million to $10 million of
annual incremental EBITDA when fully completed, which we believe will occur by mid-2021.

Looking Ahead

Our focus for 2020 remains one of continuous improvement across all our operations. With the work we have
completed on our facilities in 2019 and the processes, procedures, systems and management changes we have
implemented over the past several years, we expect that we will achieve our targeted average on-stream rate of
94% for our three ammonia plants in the current year. The new urea reactor at Pryor and new sulfuric acid
converter at El Dorado provide us with greater reliability and production capacity for downstream products at
those facilities. Additionally, we have no scheduled turnarounds at any of our facilities for 2020. Pryor is now on
a two-year turnaround cycle with its next turnaround scheduled for 2021, while our Cherokee and El Dorado
facilities are now on three-year turnaround cycles with their next turnarounds scheduled in 2021 and 2022,
respectively. Collectively, these factors position us extremely well to significantly increase our overall
production this year and achieve our highest volumes relative to any other year in LSB’s history. Specifically, for
our agricultural business, we anticipate that improved ammonia on-stream rates, combined with the additional
UAN production capacity will lead to a year-over-year increase in sales volumes of more than 20% for the full
year 2020. We expect sales volumes for our industrial products to grow by more than 10% in 2020 as compared
to 2019, driven by our higher ammonia on-stream rates, increased nitric acid production and expanded sulfuric
acid production. Of course, this anticipated growth could be affected by any potential impact to our business
from the COVID-19 coronavirus.

In Conclusion

To sum up, I am extremely pleased with what our team accomplished in the past year to enable us to take control
of our own destiny with respect to generating improved financial results. As I write this letter, our nation and our
world are consumed by a battle against the spread of the COVID-19 coronavirus. Our hearts go out to all those
who have been sickened by the virus, and most especially to those that have lost friends and loved ones to it. The
extent of the economic and social disruption caused by this global pandemic rivals that of the greatest crises
mankind has experienced in the past century. Uncertainty regarding the current and future impacts on customer
demand for our products and the U.S. economy in general remains extremely high, with visibility likely to
remain poor for at least the next several months. Despite this extraordinarily challenging situation, we remain
confident in the favorable long-term fundamentals of our end markets and our ability to execute on our strategic
plan. With the work we’ve done on both the operations and sales sides of our business to drive greater sales
volumes, I am optimistic in our prospects for delivering on our goal of increasing value for investors.

Mark Behrman

President & Chief Executive Officer,
April 2020

This letter contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements generally are identifiable by use of the words “may,” “believe,” “expect,” “intend,” “plan to,” “estimate,”
“project” or similar expressions, and include but are not limited to: financial performance improvement; view on sales to mining customers;
estimates of consolidated depreciation and amortization and future turnaround expenses; our expectation of production consistency and
enhanced reliability at our Facilities; our projections of trends in the fertilizer market; improvement of our financial and operational
performance; our planned capital additions for 2020; reduction of SG&A expenses; and volume outlook.

Investors are cautioned that such forward-looking statements are not guarantees of future performance and involve risk and uncertainties.
Though we believe that expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such
expectation will prove to be correct. Actual results may differ materially from the forward-looking statements as a result of various factors.
These and other risk factors are discussed in the Company’s filings with the Securities and Exchange Commission (SEC), including those set
forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in our Form 10-K for the year ended December 31,
2019 and, if applicable, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. All forward-looking statements included
in this letter are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or
clarify and forward-looking statement to reflect events, new information or circumstances occurring after the date of this letter except as
required by applicable law.

2019 FORM 10-K

[THIS PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
(cid:3)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019
or
(cid:4)(cid:4) 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
(State of or other Jurisdiction
Incorporation or Organization)
3503 NW 63rd Street, Suite 500,
Oklahoma City, Oklahoma
(Address of Principal Executive Offices)

73-1015226
(I.R.S. Employer
Identification No.)

73116
(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Registrant's Telephone Number, Including Area Code: (405) 235-4546

Title of each class
Common Stock, Par Value $.10

Trading Symbol(s)
LXU

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:4) Yes (cid:3) No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:4) Yes (cid:3) No
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. (cid:3) Yes (cid:4) 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 file such reports
submit such files). (cid:3) Yes (cid:4) No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the 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
Non-accelerated filer

(cid:3)
(cid:3)
(cid:4)
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. (cid:4)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:4) Yes (cid:3) No
The aggregate market value of the Registrant’s voting common equity held by non-affiliates of the Registrant, computed by reference to the price at which the
voting common stock was last sold as of June 30, 2019, was approximately $80 million. As a result, the Registrant is an accelerated filer as of December 31,
2019. For purposes of this computation, shares of the Registrant’s common stock beneficially owned by each executive officer and director of the Registrant
and LSB Funding LLC were deemed to be owned by affiliates of the Registrant as of June 30, 2019. Such determination should not be deemed an admission
that such executive officers, directors or entity of our common stock are, in fact, affiliates of the Registrant or affiliates as of the date of this Form 10-K.

Accelerated filer
Smaller reporting company
Emerging growth company

(cid:4)
(cid:4)

As of February 14, 2020, the Registrant had 29,335,920 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s proxy statement for its annual meeting of stockholders will be filed with the Securities and Exchange Commission within 120
days after the end of its 2019 fiscal year, are incorporated by reference in Part III.

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART I

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Item 6.

Selected Financial Data

Item 7.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

(Items 10, 11, 12, 13, and 14)

The information required by Part III, shall be incorporated by reference from our definitive proxy statement to
be filed pursuant to Regulation 14A which involves the election of directors that we expect to be filed with the
Securities and Exchange Commission not later than 120 days after the end of its 2019 fiscal year covered by
this report.

Item 15.

Exhibits and Financial Statement Schedules

PART IV

Page

ITEM 1. BUSINESS

Overview

PART I

All references to "LSB Industries,” “LSB,” “the Company,” “we,” “us,” and “our” refer to LSB Industries, Inc. and its subsidiaries,
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.

The Company was formed in 1968 as an Oklahoma corporation and became a Delaware corporation in 1977. We manufacture and
market chemical products for the agricultural, industrial and mining markets. We own and operate facilities in El Dorado, Arkansas
(the “El Dorado Facility”), Cherokee, Alabama (the “Cherokee Facility”), and Pryor, Oklahoma (the “Pryor Facility”), and we operate a
facility for Covestro AG (“Covestro”) in Baytown, Texas (the “Baytown Facility”). Our products are sold through distributors and
directly to end customers throughout the United States.

Our Business

Our business manufactures products for three principal markets:

•

ammonia, fertilizer grade ammonium nitrate (“AN” and “HDAN”) and urea ammonia nitrate (“UAN”) for agricultural
applications;

high purity and commercial grade ammonia, high purity AN, sulfuric acids, concentrated, blended and regular nitric acid,
mixed nitrating acids, carbon dioxide, and diesel exhaust fluid (“DEF”) for industrial applications; and

industrial grade AN (“LDAN”) and AN solutions for mining applications.

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

The chart below highlights representative products and applications in each of our end markets.

End Market

Products

Applications

Agricultural

UAN, HDAN and
ammonia

Industrial Acids and Other

Nitric acid, metallurgical
and commercial grade
ammonia, sulfuric acid,
diesel exhaust fluid and
other urea solutions,
Specialty E-2 ammonium
nitrate and CO2

Mining

LDAN, AN solution and
HDAN

Fertilizer and fertilizer blends
for corn and other crops; NPK
fertilizer blends

Semi-conductor and
polyurethane intermediates,
ordnance; Pulp and paper, alum,
water treatment, metals and
vanadium processing; Power
plant emissions abatement,
water treatment, refrigerants,
metals processing; Exhaust
stream additive, horticulture /
greenhouse applications;
refrigeration

Ammonium nitrate fuel oil
(ANFO) and specialty emulsions
for mining applications, surface
mining, quarries, and
construction

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

Percentage of consolidated net sales:

Agricultural products
Industrial acids and other chemical products
Mining products
Other products

2019

2018

2017

52%
38%
10%
0%
100%

50%
39%
11%
0%
100%

43%
46%
9%
2%
100%

For 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 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 and mining 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 feedstock and/or the changes in
demand for our products.

The strategy of developing industrial and mining 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 the natural gas feedstock 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 continually pursue profitable growth and margin enhancement. Our strategy calls for continued
emphasis on the agricultural sector, while remaining committed to further developing 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 acquisitions of strategic assets or companies, mergers with other companies and investment in
additional production capacity where we believe those acquisitions, mergers or expansion of production capacity will enhance the
value of the Company and provide appropriate returns.

Key Operating Initiatives for 2020

We believe our future results of operations and financial condition will depend significantly on our ability to successfully implement
the following key initiatives:

•

Continued Focus on Becoming a “Best in Class” Chemical plant operator with respect to safe, reliable operations that
produce the highest quality product.

•

We believe that high safety standards are critical and a precursor to improved plant performance. With that in mind,
we implemented and are currently managing enhanced safety programs at our facilities that focus on improving our
safety culture that will reduce risks and continuously improve our safety performance.

Additionally, over the last several years, our focus has been on upgrading our existing maintenance management
system through technology enhancements and work processes to improve our predictive and preventative
maintenance programs at our facilities.

We have several initiatives underway that we believe will improve the overall reliability of our plants and allow us
to produce more products for sale while lowering our cost of production. Those initiatives are focused on building
internal expertise to improve oversight of external contractors, operating behavior and procedure enhancements
including operator training, leadership training, shift change enhancements and operating and maintenance
procedures.

•

Continue the Broadening of the Distribution of our Products. To further leverage our plants’ current production capacity,
we are continuing to expand the distribution of our industrial and mining products by partnering with customers to take
product into different markets within the U.S., as well as markets outside the U.S. Additionally, during 2019, we
developed a pipeline of margin enhancement projects including product loading and unloading improvements, tank
storage and capital to facilitate guest plant opportunities which, we expect will result in improved margins on the sales of
our products. We expect to complete these projects over the next 12 to 18 months.

Improve Our Capital Structure and Overall Cost of Capital. We are actively seeking ways to improve our capital
structure and reduce our overall cost of capital. We believe that our improved operating performance will be a benefit in
achieving those efforts.

We may not successfully implement any or all of these initiatives. Even if we successfully implement the initiatives, they may not
achieve the results that we expect or desire.

Our Competitive Strengths

Strategically Located Chemical Assets and Long-Standing Customer Relationships

Our business benefits from highly advantageous locations with logistical and distribution benefits. We have access to the ammonia
pipeline from the U.S. Gulf at our El Dorado Facility, which provides low cost transportation to distribution points. The El Dorado
Facility also has rail access that is freight logical to our industrial and agricultural customers and cost advantaged 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 others. 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 close proximity to the Port of Catoosa along with strategic rail and truck delivery access.

Advantaged Raw Material Cost Position

We currently produce ammonia at our El Dorado, Cherokee and Pryor Facilities, which allows us to take advantage of the spread
between producing and purchasing ammonia at those facilities. Additionally, our Pryor Facility has a natural gas cost advantage as its
cost of gas has historically been lower than our El Dorado and Cherokee Facilities.

Diversified Sources of Revenue

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

Operation of Multiple Facilities and High Production Capacity

We operate our business through several facilities. Operating multiple facilities diversifies the risk and impact of operational issues
that may occur at a single plant, which gives us a strategic advantage over competitors that operate their company through a single
facility. Additionally, our competitive production capacity of our combined plants allows us to decrease manufacturing costs, helping
us to achieve enhanced margins.

Market Conditions

As discussed in more detail under “Key Industry Factors” of “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” (“MD&A”) contained in Item 7 of this report, 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. 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.

From a farmers’ perspective, the demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application
rate decisions of individual farmers which are impacted by factors such as financial resources, soil conditions and weather patterns.

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. In our mining markets, our sales volumes are typically
driven by changes in the overall North American consumption levels of mining products that can be impacted by weather.
Additionally, recent reduction in coal mining activities is increasing competition within the other sectors of this market.

On the supply side, given the low price of natural gas in North America over the last several years, North American fertilizer
producers have become the global low-cost producers for delivered fertilizer products to the Midwest U.S. Several years ago, the
market believed that low natural gas prices would continue. That belief, combined with favorable fertilizer pricing, stimulated
investment in numerous expansions of existing nitrogen chemical facilities and the construction of new nitrogen chemical facilities.
Following the expansions, global nitrogen fertilizer supply outpaced global nitrogen fertilizer demand causing oversupply in the
global and North American markets. In addition, the new domestic supply of ammonia and other fertilizer products changed the
physical flow of ammonia in North America placing pressure on nitrogen fertilizer sales pricing as the new capacity was absorbed by
the market. More recently, ammonia pricing has been under pressure as a result of inordinately inclement weather in 2019, which led
to limited fertilizer application and resultant elevated ammonia inventory levels in the domestic distribution channel. Additionally,
UAN prices have pulled back in part, to European anti-dumping duties that were imposed on imports from certain countries, including
the U.S which has caused imports of UAN into the U.S. to increase and exports from the U.S. to decrease increasing UAN supply in
the U.S.

After a challenging 2019 for U.S. corn farmers, it is expected that final harvested acres and yields for the 2019 harvest year will be
lower than expected. These factors have already impacted the price of corn, which has risen to its highest level since 2014. A likely
decline in the stock-to-use ratio for corn should lead to an increase in planted acres in the spring 2020 planting season. Assuming
normal weather conditions, industry reports currently estimate a 5% increase in corn acres to be planted during 2020 compared to
2019.

Therefore, for 2020, we expect overall stronger demand for our products some what tempered by continued pricing pressures on these
products.

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 U.S. Our nitrogen-
based fertilizers are used to grow food crops, biofuel feedstock crops, pasture land 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 network of wholesale and retail distribution centers.

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. Additionally, expansions or upgrades of
competitors’ facilities combined with 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 develop our market position in these areas by emphasizing high quality products, customer service and technical advice. During
the past few years, we have been successful in expanding outside our traditional markets by delivering to distributors on the Tennessee
and Ohio rivers by barge, and by delivering to certain Western States by rail.

In addition, we have an agreement with a third-party purchaser, Coffeyville Resources Nitrogen Fertilizers, LLC, (“CVR”), to market
and sell a portion of our UAN. Demand for sales under this agreement is based on the expected needs of the purchaser’s customers.
The agreement provides the exclusive right (but not the obligation) to purchase, at market prices, substantially all of the UAN
produced at our Pryor Facility. The term of the agreement runs through May 2020, with automatic one-year extensions, subject to a
180-day advance notice of termination from CVR or a 90-day advance notice from us.

We sell most of our agricultural products at the current spot market price in effect at the time of shipment, although we periodically
enter into forward sales commitments for some of these products. Sales of our industrial and mining 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.

Industrial Acids and Other Chemical 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. In addition, one of our
subsidiaries, El Dorado Chemical Company (“EDC”) and Koch Fertilizer LLC (“Koch Fertilizer”) are parties to an ammonia purchase
and sale agreement, under which Koch Fertilizer agreed to purchase, with minimum purchase requirements, a portion of the ammonia
that is in excess of EDC’s internal needs. We began selling ammonia under this agreement during June 2016. The term of the
agreement runs until June 2022, with annual renewal options thereafter.

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 U.S. We operate and maintain this facility pursuant to a long-term contract (the “Covestro
Agreement”). The term of this agreement runs until June 2021 with options for renewal.

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.

Our industrial business competes based upon service, price and location of production and distribution sites, product quality and
performance and provides inventory management as part of the value-added services offered to certain customers. See our discussion
above concerning broadening the distribution of our nitric acid products under “Key Operating Initiatives for 2020”.

Mining Products

We produce and sell LDAN, HDAN and AN solution to the mining industry, those products are primarily used as AN fuel oil and
specialty emulsions for usage in the quarry and the construction industries, for metals mining, and to a lesser extent, for coal mining.
We have signed long-term contracts with certain customers that provide for the annual sale of LDAN under various natural-gas-based
pricing arrangements. Also, during 2018, a current customer located an emulsion explosives plant at our El Dorado Facility. We have
been selling product to that facility since the fourth quarter of 2018. See our discussion above concerning broadening the distribution
of our mining products under “Key Operating Initiatives for 2020”.

Raw Materials

The products we manufacture at our facilities are primarily derived from natural gas. This raw material feedstock 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. For 2019, we purchased approximately 27.4 million MMBtus of
natural gas.

The chemical facilities’ natural gas feedstock requirements are generally purchased at spot market price. Periodically, we enter into
volume purchase commitments and/or futures/forward contracts to lock in the cost of certain of the expected natural gas requirements
primarily to match quantities needed to produce product that has been sold forward. At December 31, 2019, we had volume purchase
commitments with fixed costs for natural gas of approximately 7.0 million MMBtus, representing approximately 23% or our annual
usage, at an average cost of $2.23 per MMBtu. These contracts extend through December 2020.

See further discussion relating to the outlook for our business under “Key Industry Factors”.

Regulatory Matters

We are subject to extensive federal, state and local environmental laws, rules and regulations as discussed under “Environmental,
Health and Safety Matters" of this Item 1 and various risk factors under Item 1A.

Competition

We operate in a highly competitive market with many other larger chemical companies, such as CF Industries Holdings, Inc.,
Chemtrade Logistics Inc., Cornerstone Chemical, EuroChem, Inc., OCI Partners NV, Dyno Nobel, a subsidiary of Incitec Pivot
Limited, The Gavilon Group, Helm AG, Koch Industries, Norfalco, Nutrien (formerly known as Agrium and Potash Corporation of
Saskatchewan), Praxair, Inc., Quad Chemical Corporation, Trammo Inc. 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.

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Employees

As of December 31, 2019, we employed 593 persons, 162 of whom are represented by unions under agreements, including agreements
being negotiated, that expire in July 2021 through November 2022.

Environmental, Health and Safety Matters

Our facilities and operations are subject to numerous federal, state and local environmental laws and to other laws regarding health
and safety matters (the “Environmental and Health Laws”), many of which provide for certain performance obligations, substantial
fines and criminal sanctions for violations. Certain Environmental and Health Laws impose strict liability as well as joint and several
liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or
released. We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of
third parties that received waste generated by our operations regardless of whether such contamination resulted from 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.

There can be no assurance that we will not incur material costs or liabilities in complying with such laws or in paying 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 made against us. The Environmental and Health Laws and 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 our wastes were disposed of), penalties or other liabilities relating to the handling, manufacture, use, emission, discharge
or disposal of hazardous or toxic materials at or from our facilities or the use or disposal of certain of its chemical products.
Historically, our subsidiaries have incurred significant expenditures in order to comply with the Environmental and Health Laws and
are reasonably expected to do so in the future. 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.

Available Information

We make available free of charge through our Internet website (www.lsbindustries.com) or by calling Investor Relations (212) 836-
9607 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 as soon as reasonably practicable after
we electronically file such material with, or furnish it to, 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 in our website does not constitute part of
this Annual Report on Form 10-K.

Section 16(a) of the Exchange Act requires our directors, officers, and beneficial owners of more than 10% of our common stock to
file with the SEC reports of holdings and changes in beneficial ownership of our stock. Based solely on a review of copies of the
Forms 3, 4 and 5 furnished to us with respect to 2019, or written representations that no Form 5 was required to be filed, we believe
that during 2019 all our directors and officers and beneficial owners of more than 10% of our common stock timely filed their required
Forms 3, 4, or 5.

ITEM 1A. RISK FACTORS

Risks Related to Our Business and Industryy

We may not be able to generate sufficient cash to service our debt and may be required to take other actions to satisfy the
obligations under our debt agreements or to redeem our preferred stock, which may not be successful.

Our ability to make scheduled payments on our debt obligations and our ability to satisfy the redemption obligations for the Series E
cumulative redeemable Class C preferred stock (“Series E Redeemable Preferred”) depends on our financial condition and operating
performance, prevailing economic and competitive conditions, and certain financial, business and other factors, some of which may be
beyond our control. We may not be able to maintain a level of cash flows sufficient to pay the principal and interest on our debt,
including the $435 million principal amount of our Senior Secured Notes (the “Senior Secured Notes”), or the outstanding amount of
the Working Capital Revolver Loan or to pay the cumulative dividends and redemption payment on the Series E Redeemable
Preferred should the holder choose to redeem it on or after October 25, 2023, that applicable optional redemption date with respect
thereto.

If cash flows and capital resources are insufficient to fund our debt, dividend or preferred stock redemption obligations, we could face
substantial liquidity problems and will need to seek additional capital through the issuance of debt, the issuance of equity, asset sales
or a combination of the foregoing. If we are unsuccessful, we will need to reduce or delay investments and capital expenditures, or to
dispose of other assets or operations, seek additional capital, or restructure or refinance debt or redeemable equity. These alternative
measures may not be successful, may not be completed on economically attractive terms, or may not be adequate for us to meet our
debt or preferred stock redemption obligations when due. Additionally, our debt agreements and the operating agreements associated
with our Series E Redeemable Preferred limit the use of the proceeds from many dispositions of assets or operations. As a result, we
may not be permitted to use the proceeds from these dispositions to satisfy our debt or preferred stock redemption obligations. If we
cannot make scheduled payments on our debt, we will be in default and the outstanding principal and interest on our debt could be
declared to be due and payable, in which case we could be forced into bankruptcy or liquidation or required to substantially restructure
or alter our business operations or debt obligations. In such an event, we may not have sufficient assets to repay all of our debt.

Further, if we suffer or appear to suffer from a lack of available liquidity, the evaluation of our creditworthiness by counterparties and
rating agencies and the willingness of third parties to do business with us could be materially and adversely affected. In particular, our
credit ratings could be lowered, suspended or withdrawn entirely at any time by the rating agencies. Downgrades in our long-term
debt ratings generally cause borrowing costs to increase and the potential pool of investors and funding sources to decrease and could
trigger liquidity demands pursuant to the terms of contracts, leases or other agreements. Any future transactions by us, including the
issuance of additional debt, the sale of any operating assets, or any other transaction to manage our liquidity, could result in temporary
or permanent downgrades of our credit ratings.

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Our substantial level of indebtedness, including dividend requirements relating to our preferred stock, could limit our
financial and operating activities, and adversely affect our ability to incur additional debt to fund future needs.

We currently have a substantial amount of indebtedness, as well as dividend and redemption requirements relating to our preferred
stock. As a result, this level could, among other things:

•

require us to dedicate a substantial portion of our cash flow to the payment of principal, interest and dividends,
thereby reducing the funds available for operations and future business opportunities;

make it more difficult for us to satisfy our obligations, including our repurchase obligations;

limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures,
debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;

limit our ability to adjust to changing economic, business and competitive conditions;

place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;

make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general
economic conditions; and

make us more susceptible to changes in credit ratings, which could affect our ability to obtain financing in the future and
increase the cost of such financing.

Any of the foregoing could adversely affect our operating results, financial condition, and liquidity.

Our debt agreements and our preferred stock contain covenants and restrictions that could restrict or limit our financial and
business operations. A breach of these covenants or restrictions could result in an event of default under one or more of our
debt agreements or contracts at different entities within our capital structure, including as a result of cross acceleration or
default provisions.

Our debt agreements and our preferred stock contain various covenants and other restrictions that, among other things, limit flexibility
in operating our businesses. A breach of any of these covenants or restrictions could result in a significant portion of our debt
becoming due and payable or could result in significant contractual liability. These covenants and other restrictions limit our ability
to, among other things:

•

incur additional debt or issue preferred shares;

pay dividends on, repurchase or make distributions in respect of capital stock, make other restricted payments;

or make investments;

sell or transfer assets;

create liens on assets to secure debt;

engage in certain fundamental corporate changes or changes to our business activities;

make certain material acquisitions;

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

enter into transactions with affiliates;

designate subsidiaries as unrestricted subsidiaries; and

repay, repurchase or modify certain subordinated and other material debt.

The Working Capital Revolver Loan also contains certain affirmative covenants and requires the borrowers to comply with a fixed
charge coverage ratio (as defined in the Working Capital Revolver Loan) if their excess availability (as defined in the Working Capital
Revolver Loan) falls below a certain level.

These covenants and restrictions could affect our ability to operate our business and may limit our ability to react to market conditions
or take advantage of potential business opportunities as they arise. Additionally, our ability to comply with these covenants may be
affected by events beyond our control, including general economic and credit conditions and industry downturns.

In addition, certain failures to make payments when due on, or the acceleration of, significant indebtedness constitutes a default under
some of our debt instruments, including the indenture governing the notes. Further, a breach of any of the covenants or restrictions in a
debt instrument could result in an event of default under such debt instrument. Upon the occurrence of an event of default under one of
these debt instruments, our lenders or noteholders could elect to declare all amounts outstanding under such debt instrument to be
immediately due and payable and/or terminate all commitments to extend further credit. Such actions by those lenders or noteholders
could cause cross defaults or accelerations under our other debt. If we were unable to repay those amounts, the lenders or noteholders
could proceed against any collateral granted to them to secure such debt. In the case of a default under debt that is guaranteed, holders
of such debt could also seek to enforce the guarantees. If lenders or noteholders accelerate the repayment of all borrowings, we would
likely not have sufficient assets and funds to repay those borrowings. Such occurrence could result in our or our applicable subsidiary
going into bankruptcy, liquidation or insolvency.

Despite our current levels of debt, we may still incur more debt ranking senior or equal in right of payment with our existing
obligations, including secured debt, which would increase the risks described herein.

The agreements relating to our debt, including the Senior Secured Notes Indenture and the credit agreement governing our Working
Capital Revolver Loan, limit but do not prohibit our ability to incur additional debt, including additional secured debt.
Notwithstanding the fact that the Senior Secured Notes Indenture and the credit agreement governing our Working Capital Revolver
Loan limit our ability to incur additional debt or grant certain liens on our assets, the restrictions on the incurrence of additional
indebtedness and liens are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens
incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks that
we now face could intensify.

Borrowings under our Working Capital Revolver Loan bear interest at a variable rate, which subjects us to interest rate risk
and could cause our debt service obligations to increase.

All of our borrowings under our Working Capital Revolver Loan are at variable rates of interest and expose us to interest rate risk. If
interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount
borrowed remained the same. Although we may enter into interest rate swaps to reduce interest rate volatility, we cannot provide
assurances that we will be able to do so or that such swaps will be effective.

Despite continuing investment to upgrade and replace equipment on an ongoing basis, the age of our chemical manufacturing
facilities increases the risk for unplanned downtime, which may be significant.

Our business is comprised of operating units of various ages and levels of automated control. While we have continued to make
significant annual capital improvements, potential age or control related issues have occurred in the past and may occur in the future,
which could cause damage to the equipment and ancillary facilities. As a result, we have experienced and may continue to experience
additional downtime at our chemical facilities in the future.

The equipment required for the manufacture of our products is specialized, and the time for replacement of such equipment can be
lengthy, resulting in extended downtime in the affected unit. In addition, the cost for such equipment could be influenced by changes
in regulatory policies (including tariffs) of foreign governments, as well as the U.S. laws and policies affecting foreign trade and
investment.

Although we use various reliability and inspection programs and maintain a significant inventory of spare equipment, which are
intended to mitigate the extent of production losses, unplanned outages may still occur. As a result, these planned and unplanned
downtime events at our chemical facilities have in the past and could in the future adversely affect our operating results, liquidity and
financial condition.

LSB is a holding company and depends, in large part, on receiving funds from its subsidiaries to fund our indebtedness.

Because LSB is a holding company and operations are conducted through its subsidiaries, LSB’s ability to meet its obligations
depends, in large part, on the operating performance and cash flows of its subsidiaries and the ability of its subsidiaries to make
distributions and pay dividends to LSB.

We have not paid dividends on our outstanding common stock in many years.

We have not paid cash dividends on our outstanding common stock in many years, and we do not currently anticipate paying cash
dividends on our outstanding common stock in the near future. Although our Board of Directors (the “Board”) has not made a
decision whether or not to pay dividends on our common stock in 2020, it is unlikely we will pay dividends on our common stock
until we have repaid or refinanced our debt and our preferred stock. In addition, there are certain limitations contained in our loan and
securities purchase agreements that may limit our ability to pay dividends on our outstanding common stock.

Future issuances or potential issuances of our common stock or preferred stock could adversely affect the price of our
common stock and our ability to raise funds in new stock offerings and could dilute the percentage ownership or voting power
of our common stockholders.

Future sales of substantial amounts of our common stock, preferred stock or equity-related securities in the public market, or the
issuance of a substantial amount of our common stock as the result of the conversion of our outstanding convertible preferred stocks,
or the perception that such sales or conversions could occur, could adversely affect prevailing trading prices of our common stock and
could dilute the value of common stock held by our existing stockholders. No prediction can be made as to the effect, if any, that
future sales of common stock, preferred stock, or equity-related securities, conversions of our outstanding preferred stocks into shares
of common stock, or the availability of shares of common stock for future sale will have on the trading price of our common
stock. Such future sales or conversions could also significantly reduce the percentage ownership and voting power of our existing
common stockholders.

Deterioration of global market and economic conditions could have a material adverse effect on our business, financial
condition, results of operations and cash flow.

A slowdown of, or persistent weakness in, economic activity caused by a deterioration of global market and economic conditions
could adversely affect our business in the following ways, among others: conditions in the credit markets could impact the ability of
our customers and their customers to obtain sufficient credit to support their operations; the failure of our customers to fulfill their
purchase obligations could result in increases in bad debts and affect our working capital; and the failure of certain key suppliers could
increase our exposure to disruptions in supply or to financial losses. We also may experience declining demand and falling prices for
some of our products due to our customers’ reluctance to replenish inventories. The overall impact of a global economic downturn or
reduced overall global trade on us is difficult to predict, and our business could be materially adversely impacted.

In addition, conditions in the international market for nitrogen fertilizer significantly influence our operating results. The international
market for fertilizers is influenced by such factors as the relative value of the U.S. currency and its impact on the importation of
fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign
markets and other regulatory policies (including tariffs) of foreign governments, as well as the U.S. laws and policies affecting foreign
trade and investment.

Seasonality can adversely affect our business.

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). The risks associated with excess inventory and product shortages are
exacerbated by the volatility of natural gas and nitrogen fertilizer prices and the relatively brief periods during which farmers can
apply nitrogen fertilizers. If prices for our products rapidly decrease, we may be subject to inventory write-downs, adversely affecting
our operating results. If seasonal demand is greater than we expect, we may experience product shortages, and customers of ours may
turn to our competitors for products that they would otherwise have purchased from us.

Our operations and the production and handling of our products involve significant risks and hazards.

Our operations are subject to hazards inherent in the manufacture, transportation, storage and distribution of chemical products,
including some products that are highly toxic and corrosive. These hazards include, among other things, explosions; fires; severe
weather and natural disasters; train derailments, collisions, vessel groundings and other transportation and maritime incidents; leaks
and ruptures involving storage tanks, pipelines and rail cars; spills, discharges and releases of toxic or hazardous substances or gases;
deliberate sabotage and terrorist incidents; mechanical failures; unscheduled plant downtime; labor difficulties and other risks. Some
of these hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental
damage and may result in suspension of operations for an extended period of time and/or the imposition of civil or criminal penalties
and liabilities. We periodically experience minor releases of ammonia related to leads from our equipment. Similar events may occur
in the future. As a result, such events could have a material adverse effect on our results of operations and financial condition.

A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the production of
ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw
material used to produce ethanol could have a material adverse effect on our results of operations, financial condition and
ability to make cash distributions.

A major factor underlying the solid level of demand for our nitrogen-based fertilizer products is the production of ethanol in the
United States and the use of corn in ethanol production. Ethanol production in the United States is highly dependent upon a myriad of
federal statutes and regulations and is made significantly more competitive by various federal and state incentives and mandated usage
of renewable fuels pursuant to the federal renewable fuel standards (“RFS”). To date, the RFS has been satisfied primarily with fuel
ethanol blended into gasoline. However, a number of factors, including the continuing “food versus fuel” debate and studies showing
that expanded ethanol usage may increase the level of greenhouse gases in the environment as well as be unsuitable for small engine
use, have resulted in calls to reduce subsidies for ethanol, allow increased ethanol imports and to repeal or waive (in whole or in part)
the current RFS, any of which could have an adverse effect on corn-based ethanol production, planted corn acreage and fertilizer
demand. Therefore, ethanol incentive programs may not be renewed, or if renewed, they may be renewed on terms significantly less
favorable to ethanol producers than current incentive programs.

Furthermore, most ethanol is currently produced from corn and other raw grains, such as milo or sorghum, especially in the Midwest.
The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass,
such as agricultural waste, forest residue, municipal solid waste and energy crops (plants grown for use to make biofuels or directly
exploited for their energy content). If an efficient method of producing ethanol from cellulose-based biomass is developed, the
demand for corn may decrease significantly, which could reduce demand for nitrogen fertilizer products and have a material adverse
effect on the prices we receive on sales of our ammonia products and our results of operations, financial condition and ability to make
cash distributions.

Our business and customers are sensitive to adverse economic cycles.

Our business can be affected by cyclical factors such as inflation, currency exchange rates, global energy policy and costs, regulatory
policies (including tariffs), global market conditions and economic downturns in specific industries. Certain sales are sensitive to the
level of activity in the agricultural, mining, automotive and housing industries. Therefore, substantial changes could adversely affect
our operating results, liquidity, financial condition and capital resources.

Weather conditions adversely affect our business.

The products (primarily agricultural) produced and sold by us have been in the past, and could be in the future, materially affected by
adverse weather conditions (such as excessive rain or drought) in the primary markets for our fertilizer and related agricultural
products. In addition, weather can cause an interruption to the operations of our chemical facilities. Many scientists have concluded
that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant
physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. These climate
changes might also occur as the result of other phenomena that human activity is unable to influence, including changes in solar
activity and volcanic activity. Regardless of the cause, if any of these unusual weather events occur during the primary seasons for
sales of our agricultural products (March-June and September-November), this could have a material adverse effect on our agricultural
sales and our financial condition and results of operations.

There is intense competition in the markets we serve.

Substantially all of the markets in which we participate are highly competitive with respect to product quality, price, distribution,
service, and reliability. We compete with many companies, domestic and foreign, that have greater financial, marketing and other
resources. Competitive factors could require us to reduce prices or increase spending on product development, marketing and sales,
which could have a material adverse effect on our business, results of operation and financial condition.

We compete with many U.S. producers and producers in other countries, including state-owned and government-subsidized entities.
Some competitors have greater total resources and are less dependent on earnings from chemical sales, which make them less
vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive
position could suffer to the extent we are not able to expand our own resources sufficiently either through investments in new or
existing operations or through acquisitions, joint ventures or partnerships. An inability to compete successfully could result in the loss
of customers, which could adversely affect our sales and profitability.

A substantial portion of our sales is dependent upon a limited number of customers.

For 2019, ten customers accounted for approximately 47% of our consolidated net sales. The loss of, or a material reduction in
purchase levels by, one or more of these customers could have a material adverse effect on our business and our results of operations,
financial condition and liquidity if we are unable to replace a customer with other sales on substantially similar terms.

A change in the volume of products that our customers purchase on a forward basis, or the percentage of our sales volume
that is sold to our customers on a forward basis, could increase our exposure to fluctuations in our profit margins and
materially adversely affect our business, financial condition, results of operations and cash flows.

We offer our customers from time-to-time, the opportunity to purchase products from us on a forward basis at prices and deliveryrr
dates we propose. Under our forward sales programs, customers generally make an initial cash down payment at the time of order and
pay the remaining portion of the contract sales under their usual invoice terms when the performance obligation is satisfied. Forward
sales improve our liquidity due to the cash payments received from customers in advance of shipment of the product and allow us to
improve our production scheduling and planning and the utilization of our manufacturing and distribution assets. Any cash payments
received in advance from customers in connection with forward sales are reflected on our consolidated balance sheets as a current
liability until the related performance obligations are satisfied, which can take up to several months. We believe the ability to
purchase products on a forward basis is most appealing to our customers during periods of generally increasing prices for nitrogen
fertilizers. Our customers may be less willing or even unwilling to purchase products on a forward basis during periods of generally
decreasing or stable prices or during periods of relatively high fertilizer prices due to the expectation of lower prices in the future or
limited capital resources. In periods of rising fertilizer prices, selling our nitrogen fertilizers on a forward basis may result in lower
profit margins than if we had not sold fertilizer on a forward basis. Conversely, in periods of declining fertilizer prices, selling our
nitrogen fertilizers on a forward basis may result in higher profit margins than if we had not sold fertilizer on a forward basis. In
addition, fixing the selling prices of our products, often months in advance of their ultimate delivery to customers, typically causes our
reported selling prices and margins to differ from spot market prices and margins available at the time the performance obligation is
satisfied.

Cost and the lack of availability of raw materials could materially affect our profitability and liquidity.

Our sales and profits are heavily affected by the costs and availability of primary raw materials. These primary raw materials are
subject to considerable price volatility. Historically, when there have been rapid increases in the cost of these primary raw materials,
we have sometimes been unable to timely increase our sales prices to cover all of the higher costs incurred. While we periodically
enter into futures/forward contracts to economically hedge against price increases in certain of these raw materials, there can be no
assurance that we will effectively manage against price fluctuations in those raw materials.

Natural gas represents the primary raw material feedstock in the production of most of our chemical products. Although we enter into
contracts with certain customers that provide for the pass-through of raw material costs, we have a substantial amount of sales that do
not provide for the pass-through of raw material costs. Also, the spot sales prices of our agricultural products may not correlate to the
cost of natural gas but rather reflect market conditions for similar and competing nitrogen sources. This lack of correlation can
compromise our ability to recover our full cost to produce the products in this market. As a result, in the future, we may not be able to
pass along to all of our customers the full amount of any increases in raw material costs. Future price fluctuations in our raw materials
may have an adverse effect on our financial condition, liquidity and results of operations.

Additionally, we depend on certain vendors to deliver natural gas and other key components that are required in the production of our
products. Any disruption in the supply of natural gas and other key components could result in lost production or delayed shipments.

The price of natural gas in North America and worldwide has been volatile in recent years and has declined on average due in part to
the development of significant natural gas reserves, including shale gas, and the rapid improvement in shale gas extraction techniques,
such as hydraulic fracturing and horizontal drilling. Future production of natural gas from shale formations could be reduced by
regulatory changes that restrict drilling or hydraulic fracturing or increase its cost or by reduction in oil exploration and development
prompted by lower oil prices and resulting in production of less associated natural gas. Additionally, increased demand for natural
gas, particularly in the Gulf Coast Region, due to increased industrial demand and increased natural gas exports could result in
increased natural gas prices.

We have suspended in the past, and could suspend in the future, production at our chemical facilities due to, among other things, the
high cost or lack of availability of natural gas and other key components, which could adversely affect our competitiveness in the
markets we serve. Accordingly, our financial condition, liquidity and results of operations could be materially affected in the future
by the lack of availability of natural gas and other key components and increase costs relating to the purchase of natural gas and other
key components.

Our business is subject to risks involving derivatives and the risk that our hedging activities might not be effective.

We may utilize natural gas derivatives to hedge our financial exposure to the price volatility of natural gas, the principal raw material
used in the production of nitrogen-based products. We may use futures, financial swaps and option contracts traded in the over-the-
counter markets or on exchanges to hedge our risk. Our use of derivatives can result in volatility in reported earnings due to the
unrealized mark-to-market adjustments that occur from changes in the value of the derivatives that do not qualify for, or to which we
do not apply, hedge accounting. To the extent that our derivative positions lose value, we may be required to post collateral with our
counterparties, adversely affecting our liquidity. We have also used fixed-price, physical purchase and sales contracts to hedge our
exposure to natural gas price volatility. Hedging arrangements are imperfect and unhedged risks will always exist. In addition, our
hedging activities may themselves give rise to various risks that could adversely affect us. For example, we are exposed to
counterparty credit risk when our derivatives are in a net asset position. The counterparties to our derivatives are multi-national
commercial banks, major financial institutions or large energy companies. Our liquidity could be negatively impacted by a
counterparty default on settlement of one or more of our derivative financial instruments or by the trigger of any cross-default
provisions or credit support requirements. Additionally, the International Swaps and Derivative Association master netting
arrangements for most of our derivative instruments contain credit-risk-related contingent features, such as cross-default and/or
acceleration provisions and credit support requirements. In the event of certain defaults or a credit ratings downgrade, our counterparty
may request early termination and net settlement of certain derivative trades or may require us to collateralize derivatives in a net
liability position. At other times we may not utilize derivatives or derivative strategies to hedge certain risks or to reduce the financial
exposure of price volatility. As a result, we may not prevent certain material adverse impacts that could have been mitigated through
the use of derivative strategies.

We may not have adequate insurance.

While we maintain liability, property and business interruption insurance, including certain coverage for environmental
contamination, it is subject to coverage limits and policies that may exclude coverage for some types of damages. Although the
re may
currently be sources from which such coverage may be obtained, the coverage may not continue to be available to us on commercially
reasonable terms or the possible types of liabilities that may be incurred by us may not be covered by our insurance. In addition, our
insurance carriers may not be able to meet their obligations under the policies, or the dollar amount of the liabilities may exceed our
policy limits. Even a partially uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our
business, results of operations, financial condition and liquidity.

Furthermore, we are subject to litigation for which we could be obligated to bear legal, settlement and other costs, which may be in
excess of any available insurance coverage. If we are required to incur all or a portion of the costs arising out of any litigation or
investigation as a result of inadequate insurance proceeds, if any, our business, results of operations, financial condition and liquidity
could be materially adversely affected. For further discussion of our litigation, please see “Other Pending, Threatened or Settled
Litigation” in Note 9 to the Consolidated Financial Statements included in this report.

Loss of key personnel could negatively affect our business.

We believe that our performance has been and will continue to be dependent upon the efforts of our principal executive officers. We
cannot ensure that our principal executive officers will continue to be available. Although we have employment agreements with
certain of our principal executive officers, including Mark T. Behrman and Cheryl A. Maguire, we do not have employment
agreements with all of our key personnel. The loss of some of our principal executive officers could have a material adverse effect on
us. We believe that our future success will depend in large part on our continued ability to attract and retain highly skilled and
qualified personnel.

We are subject to collective bargaining agreements with certain employees.

Approximately 27% of our employees are covered by collective bargaining agreements. We may not be able to renew our collective
bargaining agreements on terms similar to current terms or renegotiate collective bargaining agreements on terms acceptable to us.
The prolonged failure to renew or renegotiate a collective bargaining agreement could result in work stoppages. Additionally, if a
collective bargaining agreement is negotiated at higher-than-anticipated cost, absorbing those costs or passing them through to
customers in the form of higher prices may make us less competitive.

Terrorist attacks and other acts of violence or war, and natural disasters (such as hurricanes, pandemic health crises, etc.),
have negatively affected and could negatively affect U.S. and foreign companies, the financial markets, the industries where we
operate, our operations and our profitability.

Terrorist attacks in the U.S and elsewhere and natural disasters (such as hurricanes or pandemic health crises) have in the past and can
in the future negatively affect our operations. We cannot predict further terrorist attacks and natural disasters in the U.S. and
elsewhere. These attacks or natural disasters have contributed to economic instability in the U.S. and elsewhere, and further acts of
terrorism, violence, war or natural disasters could affect the industries where we operate, our ability to purchase raw materials, our
business, results of operations and financial condition. In addition, terrorist attacks and natural disasters may directly affect our
physical facilities, especially our chemical facilities, or those of our suppliers or customers and could affect our sales, our production
capability and our ability to deliver products to our customers. In the past, hurricanes affecting the Gulf Coast of the U.S. have
negatively affected our operations and those of our customers. As previously noted, some scientists have concluded that increasing
concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such
as increased frequency and severity of storms, droughts and floods and other climatic events. If any such effects, whether
anthropogenic or otherwise, were to occur in areas where we or our clients operate, they could have an adverse effect on our assets
and operations.

Cyber security risks could adversely affect our business operations.

As we continue to increase our dependence on information technologies to conduct our operations, the risks associated with cyber
security also increase. We rely on our enterprise resource planning software (“ERP”) and other information systems, among other
things, to manage our manufacturing, supply chain, accounting and financial functions. This risk not only applies to us, but also to
third parties on whose systems we place significant reliance for the conduct of our business. We are significantly dependent upon
internet connectivity and a third-party cloud hosting vendor. We have implemented security procedures and measures in order to
protect our information from being vulnerable to theft, loss, damage or interruption from a number of potential sources or events.
Although we believe these measures and procedures are appropriate, we may not have the resources or technical sophistication to
anticipate, prevent, or recover from rapidly evolving types of cyber-attacks. Compromises to our information systems could have an
adverse effect on our results of operations, liquidity and financial condition.

Our transportation and distribution activities rely on third party providers, which subject us to risks and uncertainties
beyond our control that may adversely affect our operations.

We rely on railroad, trucking, pipeline and other transportation service providers to transport raw materials to our manufacturing
facilities, to coordinate and deliver finished products to our storage and distribution system and our retail centers and to ship finished
products to our customers. These transportation operations, equipment and services are subject to various hazards, including adverse
operating conditions, extreme weather conditions, system failures, work stoppages, equipment and personnel shortages, delays,
accidents such as spills and derailments and other accidents and operating hazards.

In the event of a disruption of existing transportation or terminaling facilities for our products or raw materials, alternative
transportation and terminaling facilities may not have sufficient capacity to fully serve all of our customers or facilities. An extended
interruption in the delivery of our products to our customers or the supply of natural gas, ammonia or sulfur to our production facilities
could adversely affect sales volumes and margins.

These transportation operations, equipment and services are also subject to environmental, safety, and regulatory oversight. Due to
concerns related to accidents, terrorism or increasing concerns regarding transportation of potentially hazardous substances, local,
provincial, state and federal governments could implement new regulations affecting the transportation of raw materials or our
finished products. If transportation of our products is delayed or we are unable to obtain raw materials as a result of any third party’s
failure to operate properly or the other hazards described above, or if new and more stringent regulatory requirements are implemented
affecting transportation operations or equipment, or if there are significant increases in the cost of these services or equipment, our
revenues and cost of operations could be adversely affected. In addition, we may experience increases in our transportation costs, or
changes in such costs relative to transportation costs incurred by our competitors.

Future technological innovation could affect our business.

Future technological innovation, such as the development of seeds that require less crop nutrients, or developments in the application
of crop nutrients, if they occur, could have the potential to adversely affect the demand for our products and results of operations.

We are reliant on a limited number of key facilities.

Our nitrogen production is concentrated in four separate complexes. The suspension of operations at any of these complexes could
adversely affect our ability to produce our products and fulfill our commitments and could have a material adverse effect on our
business, financial condition, results of operations and cash flows. Moreover, our facilities may be subject to failure of equipment that
may be difficult to replace and could result in operational disruptions.

Potential increase of imported agricultural products.

Russia and Ukraine both have substantial capacity to produce and export fertilizers. Producers in these countries also benefit from
below-market prices for natural gas, due to government regulation and other factors. We have seen imports into the U.S. from those
countries increase over the last twelve months.

In addition, producers in China have substantial capacity to produce and export urea. Depending on various factors, including
prevailing prices from other exporters, the price of coal, and the price of China’s export tariff, higher volumes of urea from China
could be imported into the U.S. at prices that could have an adverse effect on the selling prices of other nitrogen products, including
the nitrogen products we manufacture and sell.

Current and future legislative or regulatory requirements affecting our business may result in increased costs and decreased
revenues, cash flows and liquidity or could have other negative effects on our business.

Our business is subject to numerous health, safety, security and environmental laws and regulations. The manufacture and distribution
of chemical products are activities that entail health, safety and environmental risks and impose obligations under health, safety and
environmental laws and regulations, many of which provide for substantial fines and potential criminal sanctions for violations.
Although we believe we have established processes to monitor, review and manage our businesses to comply with the numerous
health, safety and environmental laws and regulations, we previously were, and in the future, may be, subject to fines, penalties and
sanctions for violations and substantial expenditures for cleanup costs and other liabilities relating to the handling, manufacture, use,
emission, discharge or disposal of effluents at or from our chemical facilities. Further, a number of our chemical facilities are
dependent on environmental permits to operate, the loss or modification of which could have a material adverse effect on their
operations and our results of operation and financial condition. These operating permits are subject to modification, renewal and
revocation. In addition, third parties may contest our ability to receive or renew certain permits that we need to operate, which can
lengthen the application process or even prevent us from obtaining necessary permits. We regularly monitor and review our
operations, procedures and policies for compliance with permits, laws and regulations. Despite these compliance efforts, risk of
noncompliance or permit interpretation is inherent in the operation of our business.

There can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual
future expenditures may be different from the amounts we currently anticipate. We try to anticipate future regulatory requirements
that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to
minimize the costs of compliance.

Changes to the production equipment at our chemical facilities that are required in order to comply with health, safety and
environmental regulations may require substantial capital expenditures.

Explosions and/or losses at other chemical facilities that we do not own (such as the April 2013 explosion in West, Texas) could also
result in new or additional legislation or regulatory changes, particularly relating to public health, safety or any of the products
manufactured and/or sold by us or the inability on the part of our customers to obtain or maintain insurance as to certain products
manufactured and/or sold by us, which could have a negative effect on our revenues, cash flow and liquidity.

In summary, new or changed laws and regulations or the inability of our customers to obtain or maintain insurance in connection with
any of our chemical products could have an adverse effect on our operating results, liquidity and financial condition.

We may be required to modify or expand our operating, sales and reporting procedures and to install additional equipment in
order to comply with current and possible future government regulations.

The chemical industry in general, and producers and distributors of ammonia and AN specifically, are scrutinized by the government,
industry and public on security issues. Under current and proposed regulations, we may be required to incur substantial additional
costs relating to security at our chemical facilities and distribution centers, as well as in the transportation of our product
s. These costs
could have a material effect on our results of operations, financial condition, and liquidity. The cost of such regulatory changes, if
significant, could lead some of our customers to choose other products over ammonia and AN, which may have a significant adverse
effect on our business.

The “Secure Handling of Ammonium Nitrate Act of 2007” was enacted by the U.S. Congress, and subsequently the U.S. Department
of Homeland Security (“DHS”) published a notice of proposed rulemaking in 2011. This regulation proposes to require sellers,
buyers, their agents and transporters of solid AN and certain solid mixtures containing AN to possess a valid registration issued by
DHS, keep certain records, report the theft or unexplained loss of regulated materials, and comply with certain other new
requirements. We and others affected by this proposal have submitted appropriate comments to DHS regarding the proposed
regulation. It is possible that DHS could significantly revise the requirements currently being proposed. Depending on the provisions
of the final regulation to be promulgated by DHS and on our ability to pass these costs to our customers, these requirements may have
a negative effect on the profitability of our AN business and may result in fewer distributors who are willing to handle the
product. DHS has not finalized this rule, and has indicated that its next action, and the timing of such an action, is undetermined.

On August 1, 2013, U.S. President Obama issued an executive order addressing the safety and security of chemical facilities in
response to recent incidents involving chemicals such as the explosion at West, Texas. The President directed federal agencies to
enhance existing regulations and make recommendations to the U.S. Congress to develop new laws that may affect our business. In
January 2016, the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) released its final report on the West, Texas
incident. The CSB report identifies several federal and state regulations and standards that could be strengthened to reduce the risk of
a similar incident occurring in the future. While the CSB does not have authority to directly regulate our business, the findings in this
report, and other activities taken in response to the West, Texas incident by federal, state, and local regulators may result in additional
regulation of our processes and products.

In January 2017, the U.S. Environmental Protection Agency (“EPA”) finalized revisions to its Risk Management Program (“RMP”).
The revisions include new requirements for certain facilities to perform hazard analyses, third-party auditing, incident investigations
and root cause analyses, emergency response exercises, and to publicly share chemical and process information. Compliance with
many of the rule’s new requirements will be required beginning in 2021. The EPA temporarily delayed the rule’s effective date
however, the delay was subsequently vacated with an immediate effective date. On December 3, 2018, the EPA published a final rule
that incorporates amendments to the RMP under 40 CFR Part 68. However, on November 21, 2019, EPA finalized its Risk
Management Program Reconsideration Rule which rescinded third-party auditing, incident investigation and root cause analysis, and
the public sharing of specific chemical and process information. The passage of the Reconsideration Rule has reduced the potential
negative effect on the profitability of our AN business compared to the January 2017 RMP amendments. The Occupational Safety and
Health Administration (“OSHA”) is likewise considering changes to its Process Safety Management standards. In addition, DHS, thet
EPA, and the Bureau of Alcohol, Tobacco, Firearms and Explosives updated a joint chemical advisory on the safe storage, handling,
and management of AN. While these actions may result in additional regulatory requirements or changes to our operators, it is
difficult to predict at this time how these and any other possible regulations, if and when adopted, will affect our business, operations,
liquidity or financial results.

Proposed and existing governmental laws and regulations relating to greenhouse gas and other air emissions may subject
certain of our operations and customers to significant new costs and restrictions on their operations and may reduce sales of
our products.

Our chemical manufacturing facilities use significant amounts of electricity, natural gas and other raw materials necessary for the
production of their chemical products that result, or could result, in certain greenhouse gas emissions into the environment. Federal
and state legislatures and administrative agencies, including the EPA, are considering the scope and scale of greenhouse gas or other
air emission regulation. Legislation and administrative actions have been considered that would regulate greenhouse gas emissions at
some point in the future for our facilities, and existing and possible actions have already affected certain of our customers, leading to
closure or rate reductions of certain facilities.

In response to findings that emissions of carbon dioxide, methane and other greenhouse gases present an endangerment to public
health and the environment, the EPA adopted regulations pursuant to the federal Clean Air Act to reduce greenhouse gas emissions
from various sources. For example, the EPA requires certain large stationary sources to obtain preconstruction and operating permits
for pollutants regulated under the Prevention of Significant Deterioration and Title V programs of the Clean Air Act. Facilities
required to obtain preconstruction permits for such pollutants are also required to meet “best available control technology” standards
that are being established by the states. These regulatory requirements could adversely affect our operations and restrict or delay our
ability to obtain air permits for new or modified sources.

Although greenhouse gas regulation could: increase the price of the electricity and other energy sources purchased by our chemical
facilities; increase costs for natural gas and other raw materials (such as ammonia); potentially restrict access to or the use of certain
raw materials necessary to produce our chemical products; and require us to incur substantial expenditures to retrofit our chemical
facilities to comply with the proposed new laws and regulations regulating greenhouse gas emissions. Federal, state and local
governments may also pass laws mandating the use of alternative energy sources, such as wind power and solar energy, which may
increase the cost of energy use in certain of our chemical and other manufacturing operations. For instance, the EPA published a rule,
known as the Clean Power Plan, to limit greenhouse gases from electric power plants. The EPA is currently reviewing the Clean
Power Plan however, it could result in increased electricity costs due to increased requirements for use of alternative energy sources,
and a decreased demand for coal-generated electricity.

Laws, regulations or other issues related to climate change could have a material adverse effect on us.

If we, or other companies with which we do business become subject to laws or regulations related to climate change, it could have a
material adverse effect on us. The United States may enact new laws, regulations and interpretations relating to climate change,
including potential cap-and-trade systems, carbon taxes and other requirements relating to reduction of carbon footprints and/or
greenhouse gas emissions. Other countries have enacted climate change laws and regulations and the United States has been involved
in discussions regarding international climate change treaties. The federal government and some of the states and localities in which
we operate have enacted certain climate change laws and regulations and/or have begun regulating carbon footprints and greenhouse
gas emissions. Although these laws and regulations have not had any known material adverse effect on us to date, they could result in
substantial costs, including compliance costs, monitoring and reporting costs and capital. Furthermore, our reputation could be
damaged if we violate climate change laws or regulations. We cannot predict how future laws and regulations, or future
interpretations of current laws and regulations, related to climate change will affect our business, results of operations, liquidity and
financial condition. Lastly, the potential physical impacts of climate change on our operations are highly uncertain and would bed
particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and
intensities, water shortages and changing temperatures. Any of these matters could have a material adverse effect on us.

Certain of our stockholders control a significant amount of our voting stock, and their interests could conflict with interests of
other stockholders.

LSB Funding LLC (“LSB Funding”), our largest voting shareholder, owned 4,069,324 shares of common stock and one share of
Series F redeemable Class C preferred stock (the “Series F Redeemable Preferred”), which has voting rights equal to 456,225 shares
of common stock, which together represents approximately 15.2% of the voting power of our common stock and the Series F
Redeemable Preferred as of December 31, 2019.

Jack E. Golsen (“J. Golsen”), Steven J. Golsen (“S. Golsen”), Barry H. Golsen (“B. Golsen”), Linda Golsen Rappaport (“L.
Rappaport”), Golsen Family LLC, an Oklahoma limited liability company (“Family LLC”), SBL LLC, an Oklahoma limited liability
company (“SBL LLC”), and Golsen Petroleum Corp., an Oklahoma corporation (“GPC”, and together with Messrs. J. Golsen, S.
Golsen and B. Golsen, Ms. L. Rappaport, Family LLC, SBL LLC, each a “Golsen Holder” and, collectively, the “Golsen Holders”)
owned as of December 31, 2019, an aggregate of 2,185,517 shares of our common stock and 1,020,000 shares of our voting preferred
stock (1,000,000 of which shares have 0.875 votes per share, or 875,000 votes), which together vote as a class and represent
approximately 10.2% of the voting power (prior to conversion of the shares of voting preferred) of our issued and outstanding voting
securities as of that date. The series of preferred represented by the 20,000 shares of voting preferred is convertible into an aggregate
of 666,666 shares of our common stock.

Pursuant to a Board Representation and Standstill Agreement entered into in connection with LSB Funding’s purchase of preferred
stock in December 2015, as amended in October 2017 and 2018, LSB Funding has the right to designate two directors on our Board,
and the Golsen Holders have the right to appoint two directors on our Board, subject to reduction in each case in certain
circumstances. This is in addition to their ability to vote generally in the election of directors. As a result, each of LSB Funding and
the Golsen Holders have significant influence over the election of directors to our Board.

The interests of LSB Funding and the Golsen Holders may conflict with interests of other stockholders (as well as with each other).
As a result of the voting power and board designation rights of LSB Funding and the Golsen Holders, the ability of other stockholders
to influence our management and policies could be limited.

We are subject to a variety of factors that could discourage other parties from attempting to acquire us.

Our certificate of incorporation provides for a staggered Board and, except in limited circumstances, a two-thirds vote of outstanding
voting shares to approve a merger, consolidation or sale of all, or substantially all, of our assets. In addition, we have entered into
severance agreements with our executive officers and some of the executive officers of certain subsidiaries that provide, among other
things, that if, within a specified period of time after the occurrence of a change in control of LSB, these officers are terminated, other
than for cause, or the officer terminates his employment for good reason, the officer would be entitled to certain severance benefits.
Certain of our preferred stock series and debt instruments also provide special rights in a change of control, including in some cases
the ability to be repaid in full or redeemed.

We have authorized and unissued (including shares held in treasury) 45,726,356 shares of common stock and 4,090,231 shares of
preferred stock as of December 31, 2019. These unissued shares could be used by our management to make it more difficult, and
thereby discourage an attempt to acquire control of us.

The foregoing provisions and agreements may discourage a third-party tender offer, proxy contest, or other attempts to acquire control
of us and could have the effect of making it more difficult to remove incumbent management. In addition, LSB Funding and the
Golsen Holders have significant voting power and rights to designate board representatives, all of which may further discourage a
third-party tender offer, proxy contest, or other attempts to acquire control of us.

Delaware has adopted an anti-takeover law which, among other things, will delay for three years business combinations with acquirers
of 15% or more of the outstanding voting stock of publicly-held companies (such as us), unless:

•

prior to such time the Board of the corporation approved the business combination that results in the stockholder
becoming an invested stockholder;

the acquirer owned at least 85% of the outstanding voting stock of such company prior to commencement of the
transaction;

two-thirds of the stockholders, other than the acquirer, vote to approve the business combination after approval thereof by
the Board; or

the stockholders of the corporation amend its articles of incorporation or by-laws electing not to be governed by this
provision.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained within this report may be deemed “Forward-Looking Statements” within the meaning of Section 27A of
the Securities Act of 1933 (as amended, the “Securities Act”) and Section 21E of the Securities Exchange Act. All statements in this
report other than statements of historical fact are Forward-Looking Statements that are subject to known and unknown risks,
uncertainties and other factors which could cause actual results and performance of the Company to differ materially from such
statements. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “may,” “could” and similar expressions identify Forward-
Looking Statements. Forward-Looking Statements contained herein include, but are not limited to, the following: our ability to invest
in projects that will generate best returns for our stockholders;

•

our future liquidity outlook;

the outlook our chemical products and related markets;

the amount, timing and effect on the nitrogen market from the current nitrogen expansion projects;

the effect from the lack of non-seasonal volume;

our belief that competition is based upon service, price, location of production and distribution sites, and product quality
and performance;

our outlook for the coal industry;

the availability of raw materials;

the result of our product and market diversification strategy;

changes in domestic fertilizer production;

the increasing output and capacity of our existing production facilities;

on-stream rates at our production facilities;

our ability to moderate risk inherent in agricultural markets;

the sources to fund our cash needs and how this cash will be used;

the ability to enter into the additional borrowings;

the anticipated cost and timing of our capital projects;

certain costs covered under warranty provisions;

our ability to pass to our customers cost increases in the form of higher prices;

our belief as to whether we have sufficient sources for materials and components;

annual natural gas requirements;

compliance by our Facilities with the terms of our permits;

the costs of compliance with environmental laws, health laws, security regulations and transportation regulations;

our belief as to when Turnarounds will be performed and completed;

expenses in connection with environmental projects;

the effect of litigation and other contingencies;

the increase in interest expense;

our ability to comply with debt servicing and covenants;

our ability to meet debt maturities or redemption obligations when due; and

our beliefs as to whether we can meet all required covenant tests for the next twelve months.

While we believe, the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance such
expectations will prove to have been correct. There are a variety of factors which could cause future outcomes to differ materially
from those described in this report, including, but not limited to, the following:

•

changes in general economic conditions, both domestic and foreign;

material reductions in revenues;

material changes in interest rates;

our ability to collect in a timely manner a material amount of receivables;

increased competitive pressures;

adverse effects on increases in prices of raw materials;

changes in federal, state and local laws and regulations, especially environmental regulations or the American
Reinvestment and Recovery Act, or in the interpretation of such;

changes in laws, regulations or other issues related to climate change;

releases of pollutants into the environment exceeding our permitted limits;

material increases in equipment, maintenance, operating or labor costs not presently anticipated by us;

the requirement to use internally generated funds for purposes not presently anticipated;

the inability to secure additional financing for planned capital expenditures or financing obligations due in the near future;

our substantial existing indebtedness;

material changes in the cost of natural gas and certain precious metals;

limitations due to financial covenants;

changes in competition;

the loss of any significant customer;

increases in cost to maintain internal controls over financial reporting;

changes in operating strategy or development plans;

an inability to fund the working capital and expansion of our businesses;

changes in the production efficiency of our facilities;

adverse results in our contingencies including pending litigation;

unplanned downtime at one or more of our chemical facilities;

changes in production rates at any of our chemical plants;

an inability to obtain necessary raw materials and purchased components;

material increases in cost of raw materials;

material changes in our accounting estimates;

significant problems within our production equipment;

fire or natural disasters;

an inability to obtain or retain our insurance coverage;

difficulty obtaining necessary permits;

difficulty obtaining third-party financing;

risks associated with proxy contests initiated by dissident stockholders;

changes in fertilizer production;

reduction in acres planted for crops requiring fertilizer;

•

decreases in duties for products we sell resulting in an increase in imported products into the U.S.;

adverse effects from regulatory policies, including tariffs;

volatility of natural gas prices;

weather conditions;

increases in imported agricultural products;

other factors described in the MD&A contained in this report; and

other factors described in “Risk Factors” contained in this report.

Given these uncertainties, all parties are cautioned not to place undue reliance on such Forward-Looking Statements. We disclaim any
obligation to update any such factors or to publicly announce the result of any revisions to any of the Forward-Looking Statements
contained herein to reflect future events or developments.

Defined Terms

The following is a list of terms used in this report.

ADEQ

ARO

ASU

B. Golsen

- The Arkansas Department of Environmental Quality.

- Ammonium nitrate.

- Asset retirement obligation.

- Accounting Standard Update.

- Barry H. Golsen.

Baytown Facility

- The nitric acid production facility located in Baytown, Texas.

CAO

CEO

- A consent administrative order.

- Chief Executive Officer.

Cherokee Facility

- Our chemical production facility located in Cherokee, Alabama.

Chevron

Covestro

Covestro Agreement

- Chevron Environmental Management Company.

- The party with whom our subsidiary, EDN, has entered the Covestro Agreement.

- A long-term contract that (a) allows us to pass-through most of the costs of producing the nitric
acid that Covestro purchases, including the cost of ammonia; (b) to receive management fees for
managing the operations and marketing nitric acid at the Baytown Facility and; (c) to receive a
portion of any carbon credits that are sold. The term of this agreement runs until June 2021 with
options for renewal.

CVR

DD&A

DEF

DHS

EDA

EDC

EDN

- Coffeyville Resources Nitrogen Fertilizers, LLC.

- Depreciation, depletion and amortization.

- Diesel Exhaust Fluid.

- The U.S. Department of Homeland Security.

- El Dorado Ammonia L.L.C.

- El Dorado Chemical Company.

- El Dorado Nitrogen L.L.C.

El Dorado Facility

- Our chemical production facility located in El Dorado, Arkansas.

Environmental and Health
Laws

- Numerous federal, state and local environmental, health and safety laws.

ERP

EPA

Family LLC

FASB

- Enterprise Resource Planning Software.

- The U.S. Environmental Protection Agency.

- Golsen Family LLC, an Oklahoma limited liability company.

- Financial Accounting Standards Board.

Financial Covenant

- Certain springing financial covenants associated with the working capital revolver loan.

GAAP

Global

- U.S. Generally Accepted Accounting Principles.

- Global Industrial, Inc., a subcontractor asserting mechanics liens for work rendered to LSB and

EDC.

Golsen Holders

GPC

- Golsen Petroleum Corp., an Oklahoma corporation.

Hallowell Facility

- A chemical facility previously owned by two of our subsidiaries located in Kansas.

HDAN

Interim Loan

- High density ammonium nitrate prills used in the agricultural industry.

- A loan agreement between EDC and a lender with up to $7.5 million of available borrowing for

the construction of certain equipment.

Interim Loan Period

- The time period covered by the Interim Loan for certain equipment construction between EDC

IRS

J. Golsen

KDHE

and a lender.

- U.S. Internal Revenue Service.

Jack E. Golsen.

- The Kansas Department of Health and Environment.

Koch Fertilizer

- Koch Fertilizer L.L.C.

LDAN

Leidos

- Low density ammonium nitrate prills used in the mining industry.

- Leidos Constructors L.L.C.

Liquidation Preference

- The Series E Redeemable Preferred liquidation preference of $1,000 per share plus accrued and

unpaid dividends plus the participation rights value.

LSB

LSB Funding

MD&A

NOL

New Notes

Note

Notes

NPDES

NPK

ODEQ

OSHA

PBRS

PCC

PP&E

- LSB Industries, Inc.

- LSB Funding L.L.C.

- Management’s Discussion and Analysis of Financial Condition and Results of Operations found

in Item 7 of this report.

- Net Operating Loss.

- The notes issued on June 21, 2019 with an interest rate of 9.625%, which mature in May 2023.

- A note in the accompanying notes to the consolidated financial statements.

- The notes issued on April 28, 2018 with an interest rate of 9.625%, which mature in May 2023.

- National Pollutant Discharge Elimination.

- Compound fertilizer products which are a solid granular fertilizer product for which the nutrient

content is a combination of nitrogen, phosphorus, and potassium.

- The Oklahoma Department of Environmental Quality.

- Occupational Safety and Health Administration.

- Performance-based restricted stock.

- Pryor Chemical Company.

- Plant, property and equipment.

Pryor Facility

Purchaser

- Our chemical production facility located in Pryor, Oklahoma.

- LSB Funding L.L.C.

Retirement Date

- Date of retirement of Jack E. Golsen as Executive Chairman of the Board, December 31, 2017.

RFS

RMP

- Federal renewable fuel standards.

- Risk Management Program.

RSU

SBL LLC

S. Golsen

SEC

- Restricted stock unit.

- SBL LLC, an Oklahoma limited liability company.

- Steven J. Golsen.

- The U.S. Securities and Exchange Commission.

Secured Promissory Note due
2019

Secured Promissory Note due
2021

Secured Promissory Note due
2023

- A secured promissory note between EDC and a lender which matures in June 2019.

- A secured promissory note between EDC and a lender which matures in March 2021.

- A secured promissory note between EDA and a lender which matures in May 2023.

Senior Secured Notes

- The Senior Secured Notes due on May 1, 2023 with a stated interest rate of 9.625%.

Series B Preferred

Series D Preferred

- The Series B 12% cumulative convertible Class C Preferred stock.

- The Series D 6% cumulative convertible Class C preferred stock.

Series E Redeemable Preferred - The 14% Series E Redeemable Preferred stock with participating rights and liquidating
distributions based on a certain number of shares of our common stock, including the amended
terms discussed in Note 10 to the Consolidated Financial Statements.

Series F Redeemable Preferred - The Series F Redeemable Preferred stock with one share to vote as a single class on all matters
with our common stock equal to 456,225 shares of our common stock, including the amended
terms discussed in Note 10 to the Consolidated Financial Statements.

SG&A

Tax Cut Act

- Selling, general and administrative expense.

- The Tax Cuts and Jobs Act of 2017.

Transition Agreement

- An agreement between Jack Golsen and LSB, dated June 30, 2017.

TSR

Turnaround

UAN

U.S.

USDA

WASDE

West Fertilizer

Working Capital
Revolver Loan

2005 Agreement

2008 Plan

2016 Plan

2018 Crop

2019 Crop

2020 Crop

- Total shareholder return.

- A planned major maintenance activity.

- Urea ammonia nitrate.

- United States.

- United States Department of Agriculture.

- World Agricultural Supply and Demand Estimates Report.

- West Fertilizer Company.

- Our secured revolving credit facility.

- A death benefit agreement with Jack E. Golsen.

- The 2008 Incentive Stock Plan.

- The 2016 Long Term Incentive Plan.

- Corn crop marketing year (September 1 - August 31), which began in 2017 and ended in 2018

and primarily relates to corn planted and harvested in 2017.

- Corn crop marketing year (September 1 - August 31), which began in 2018 and ended in 2019

and primarily relates to corn planted and harvested in 2018.

- Corn crop marketing year (September 1 - August 31), which began in 2019 and will end in 2020

and primarily relates to corn planted and harvested in 2019.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

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2

ITEM 3. LEGAL PROCEEDINGS

See Legal Matters under Note 9 to the Consolidated Financial Statements included in this report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
Q
PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is trading on the New York Stock Exchange under the symbol “LXU”.

Stockholders

As of February 18, 2020, we had approximately 388 record holders of our common stock. This number does not include investors
whose ownership is recorded in the name of their brokerage company.

p
Equity Compensation Plans

Discussions relating to our equity compensation plans under Item 12 of Part III are incorporated by reference to our definitive proxy
statement which we intend to file with the SEC on or before April 29, 2020.

Sale of Unregistered Securities

There were no unregistered sales of equity securities in 2019 that have not been previously reported in a Quarterly Report on Form 10-
Q or Current Report on Form 8-K.

( )
ITEM 6. SELECTED FINANCIAL DATA (1)

Selected Statement of Operations Data in Dollars:

Net sales (2)
Operating loss
Interest expense, net
Provisions (benefit) for income taxes
Loss from continuing operations
Income from discontinued operations, net of taxes (3)
Net income (loss)
Net income (loss) income attributable to common stockholders
Income (loss) per common share attributable to
common stockholders:

Basic:

Loss from continuing operations
Income from discontinued operations, net of taxes
Net income (loss)

Diluted:

Loss from continuing operations
Income from discontinued operations, net of taxes
Net income (loss)

Selected Balance Sheet Data in Dollars:

Total assets
Long-term debt, including current portion, net
Redeemable preferred stocks
Stockholders' equity

Selected Other Data in Dollars:

2019

Year ended December 31,
2018
2016
2017
(In Thousands, Except Per Share Data)

2015

$ 365,070 $ 378,160 $ 427,504 $ 374,585 $ 437,695
(71,166)
(90,223)
7,371
30,945
(32,520)
(41,956)
(46,146)
(88,133)
11,381
200,301
112,168
(34,765)
64,760 $ (38,038)

(23,025)
43,064
1,740
(72,226)
—
(72,226)
$ (96,441) $ (102,741) $ (59,447) $

(34,091)
37,267
(40,759)
(30,293)
1,076
(29,217)

(39,091)
46,389
(20,924)
(63,417)
—
(63,417)

$
$
$

(3.44) $
— $
(3.44) $

(3.74) $
— $
(3.74) $

(2.22) $
0.04 $
(2.18) $

(5.28) $
7.82 $
2.54 $

(2.17)
0.50
(1.67)

$1,088,489 $1,148,333 $1,189,182 $1,270,420 $1,361,827
$ 459,044 $ 425,199 $ 409,399 $ 420,220 $ 520,422
$ 234,893 $ 202,169 $ 174,959 $ 145,029 $ 177,272
$ 247,327 $ 342,197 $ 438,196 $ 492,513 $ 421,580

Cash dividends declared per common share

— $

—

(1)

The following selected consolidated financial data were derived from our audited consolidated financial statements and should
be read in conjunction with, and are qualified by reference, to the MD&A contained in Item 7 of Part II of this report. The
financial information presented may not be indicative of our future performance.

(2) Upon adoption of ASC 606, net sales for the years 2015 – 2017 have not been adjusted under the modified retrospective

method.
See discussion of our discontinued operations in Note 17 to the Consolidated Financial Statements.

(3)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following MD&A should be read in conjunction with a review of the other Items included in this Form 10-K and our December
31, 2019 consolidated financial statements included elsewhere in this report. A reference to a “Note” relates to a note in the
accompanying notes to the consolidated financial statements. Certain statements contained in this MD&A may be deemed to be
forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

Overview

General

LSB is headquartered in Oklahoma City, Oklahoma and through its subsidiaries, manufactures and sells chemical products for the
agricultural, mining, and industrial markets. We own and operate facilities in Cherokee, Alabama; El Dorado, Arkansas; and Pryor,
Oklahoma, and operate a facility for Covestro in Baytown, Texas. Our products are sold through distributors and directly to end
customers throughout the U.S.

Key Operating Initiatives for 2020

We believe our future results of operations and financial condition will depend significantly on our ability to successfully implement
the following key initiatives:

•

Continued Focus on Becoming a “Best in Class” Chemical plant operator with respect to safe, reliable operations that
produce the highest quality product.

•

Continue Broadening of the Distribution of our Products. To further leverage our plants current production capacity, we
are continuing to expand the distribution of our industrial and mining products by partnering with customers to take
product into different markets within the U.S. as well as markets outside the U.S. Additionally, during 2019, we
developed a pipeline of margin enhancement projects including product loading and unloading improvements, tank
storage and capital to facilitate guest plant opportunities which, we expect will result in improved margins on the sales of
our products. We expect to complete these projects over the next 12 to 18 months.

We may not successfully implement any or all of these initiatives. Even if we successfully implement the initiatives, they may not
achieve the results that we expect or desire.

Business Developments - 2019

Financing Transaction

As discussed in Note 7, in June 2019, we completed the issuance and sale of $35 million of the New Notes. The New Notes were
issued at a price equal to 102.125% of their face value. We expect to use the net proceeds from the New Notes to fund approximately
$20 million in anticipated capital expenditures over a 12 to 18-month period that are intended to enhance our margins as discussed
above under “Key Operating Initiatives for 2020”. The remaining net proceeds have been used for general corporate purposes.

Completion of Turnarounds at our El Dorado and Pryor Facilities

During August 2019, we completed an 18-day Turnaround on our ammonia plant at our El Dorado Facility. Additionally, during
November 2019, tthe ammonia plant at our El Dorado Facility was taken out of service for 16 days in order to make adjustments th tat
improved the ammonia plant reliability and production volume. Also, during November 2019, we completed a 28-day Turnaround on
n
our sulfuric acid plant at our El Dorado Facility, which included the installation of a new sulfuric acid converter which will increase
reliability and production volume.
During November 2019, we completed an extensive 67-day Turnaround at our Pryor Facility
including the installation of a new, larger urea reactor. The next Turnarounds for these facilities are scheduled in 2021 for our Pryor
Facility and 2022 for our El Dorado Facility. See additional discussion below under “Items Affecting Comparability of Results.”

Amended Ammonia Agreement

During October 2019, the ammonia purchase and sale agreement between El Dorado Chemical Company (“EDC”) and Koch Fertilizer
LLC (“Koch Fertilizer”) was amended, pursuant to which Koch Fertilizer agrees to purchase, with minimum purchase requirements, a
portion of the ammonia that (a) will be produced at the El Dorado Facility and (b) that is in excess of EDC’s needs. As amended, the
term of the agreement expires in June 2022 but automatically continues for additional one-year terms unless terminated by either party
by delivering a notice of termination at least nine months prior to the end of term in effect.

Assets Held for Sale

During November 2019, in conjunction with management’s review of our long-range strategy, development of the 2020 budget and
the completion of the 2019 Turnarounds, certain long-lived assets were identified for sale and a plan to sell such assets was finalized
by management. Based on information obtained from various potential buyers and vendors to dissemble the assets, the carrying
amount of these assets held for sale was written down to a de minimis amount and the corresponding non-cash charge of $9.7 million
was recognized and included in other expense. Costs to disassemble these assets, in conjunction with disposals, will be recognized as
incurred. We expect the sales of these assets, which will be sold primarily for scrap value, to be completed within one year.

Key Industry Factors

Supply and Demand

Agricultural

Sales of our agricultural products were approximately 52% of our total net sales for 2019. 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. 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, including the impact from the Phase 1 trade agreement between the U.S and China. 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.

From a farmers’ perspective, the demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application
rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of af
harvest, while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources, soil
conditions, weather patterns and the types of crops planted.

Additionally, changes in corn prices and those of soybean, cotton and wheat prices, can affect the number of acres of corn planted in a
given year, and the number of acres planted will drive the level of nitrogen fertilizer consumption, likely effecting prices. The USDA
estimates corn production for the 2020 Crop at approximately 13.7 billion bushels, down 5 percent from the 2019 Crop. The average
yield in the U.S. was estimated at 168.0 bushels per acre, 8.4 bushels below the 2019 Crop yield of 176.4 bushels per acre. The
following February estimates are associated with the corn market:

U.S. Area Planted (Million acres)
U.S. Yield per Acre (Bushels)
U.S. Production (Million bushels)
U.S. Ending Stocks (Million metric tons)
World Ending Stocks (Million metric tons)

2020 Crop
(2019 Harvest)
January Report (1)
89.7
168.0
13,692
48.1
296.8

2019 Crop
(2018 Harvest)
January Report (1)
88.9
176.4
14,340
56.4
320.5

Percentage
Change (2)

0.9%
(4.8%)
(4.5%)
(14.7%)
(7.4%)

2018 Crop
(2017 Harvest)
January Report (1)
90.2
176.6
14,609
54.4
341.3

Percentage
Change (3)

(0.6%)
(4.9%)
(6.3%)
(11.6%)
(13.0%)

(1)

Information obtained from WASDE reports dated February 11, 2020 (February Report) for the 2019/2020 (“2020 Crop”),
2018/2019 (“2019 Crop”) and 2017/2018 (“2018 Crop”) corn marketing years. The marketing year is the twelve-month period
during which a crop normally is marketed. For example, the marketing year for a corn crop is from September 1 of the current
year to August 31 of the next year. The marketing year begins at the harvest and continues until just before harvest of the
following year.

(2) Represents the percentage change between the 2020 Crop amounts compared to the 2019 Crop amounts.
(3) Represents the percentage change between the 2020 Crop amounts compared to the 2018 Crop amounts.
( )

On the supply side, given the low price of natural gas in North America over the last several years, North American fertilizer
producers have become the global low-cost producers for delivered fertilizer products to the Midwest U.S. Several years ago, the
market believed that low natural gas prices would continue. That belief, combined with favorable fertilizer pricing, stimulated
investment in numerous expansions of existing nitrogen chemical facilities and the construction of new nitrogen chemical facilities.
Following the expansions, global nitrogen fertilizer supply outpaced global nitrogen fertilizer demand causing oversupply in the
global and North American markets. In addition, the new domestic supply of ammonia and other fertilizer products changed the
physical flow of ammonia in North America placing pressure on nitrogen fertilizer selling prices as the new capacity was absorbed by
the market. More recently, ammonia pricing has been under pressure as a result of inordinately inclement weather in late 2018 and
2019, which led to limited fertilizer application and resultant elevated ammonia inventory levels in the domestic distribution channel.
Additionally, UAN prices have pulled back in part, to European anti-dumping duties that were imposed on imports from certain
countries, including the U.S which has caused imports of UAN into the U.S. to increase and exports from the U.S. to decrease
increasing UAN supply in the U.S.

Therefore, for 2020, we expect overall stronger demand for our products somewhat tempered by continued pricing pressures on these
products.

Industrial

Sales of our industrial products were approximately 38% of our total net sales for 2019. Our industrial products sales volumes are
dependent upon general economic conditions primarily in the housing, automotive, and paper industries. According to the American
Chemistry Council, the U.S. economic indicators point to modest growth in 2020 in the U.S market we serve and export weakness duedd
to the softening global economy and trade tensions. Our sales prices generally vary with the market price of ammonia or natura
l gas,
as applicable, in our pricing arrangements with customers.

Miningg

Sales of our mining products were approximately 10% of our total net sales for 2019. Our mining products are LDAN and AN
solution, which are primary used as AN fuel oil and specialty emulsions for usage in the quarry and the construction industries, for
metals mining, and to a lesser extent, for coal. In our mining markets, our sales volumes are typically driven by changes in the overall
North American consumption levels of mining products that can be impacted by weather. Additionally, recent reduction in coal
mining activities is increasing competition within the other sectors of this market. While we believe our plants are well located to
support the more stable quarry and construction industries and the metals mining industries, our 2019 mining sales volumes were
affected by overall lower customer demand in our mining markets.

Farmer Economics

The demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual
farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties
and amounts of fertilizer they apply depend on factors such as their financial resources, soil conditions, weather patterns and the types
of crops planted.

Natural Gas Prices

Natural gas is the primary feedstock used to produce nitrogen fertilizers at our manufacturing facilities. In recent years, U.S. natural
gas reserves have increased significantly due to, among other factors, advances in extracting shale gas, which has reduced and
stabilized natural gas prices, providing North America with a cost advantage over certain imports. As a result, our competitive
position and that of other North American nitrogen fertilizer producers has been positively affected.

We historically have purchased natural gas either on the spot market, through forward purchase contracts, or a combination of both
and have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements. These forward purchase
contracts are generally either fixed-price or index-price, short-term in nature and for a fixed supply quantity. We are able to purchase
natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems.
The following table shows the annual volume of natural gas we purchased and the average cost per MMBtu:

NNatural gas volumes (MMBtu in millions)
NNatural gas average cost per MMBtu

2019

2018

27.4
2.55

27.8
2.91

Transportation Costs

Costs for transporting nitrogen-based products can be significant relative to their selling price. For example, ammonia is a hazardous
gas at ambient temperatures and must be transported in specialized equipment, which is more expensive than other forms of nitrogen
fertilizers. In recent years, a significant amount of the ammonia consumed annually in the U.S. was imported. Therefore, nitrogen
fertilizers prices in the U.S. are influenced by the cost to transport product from exporting countries, giving domestic producers who
transport shorter distances an advantage. However, we continue to evaluate the recent rising costs of rail and truck freight
domestically. Additionally, the Magellan ammonia pipeline, which had an annual capacity to transport approximately 900,000 tons
per year, most of which was produced in Oklahoma and Texas and delivered via the pipeline in the Midwest, is in the process of being
permanently shut down. Pipeline closure began at the southern end of the pipeline in September of 2019 and is expected to continue
on the northern end of the pipeline in early 2020. Without the pipeline in place for ammonia transport, producers will have to rely on
other transportation venues, primarily by truck but will also include rail and barge transport of ammonia. Higher transportation costs
may impact our margins if we are not able to pass through these costs. As a result, we continue to evaluate supply chain efficiencies
to reduce or counter the impact of higher logistics costs.

Key Operational Factors

Facility Reliability

Consistent, reliable and safe operations at our chemical plants are critical to our financial performance and results of operations. The
financial effects of planned downtime at our plants, including Turnarounds, is mitigated through a diligent planning process that
considers the availability of resources to perform the needed maintenance and other factors. Unplanned downtime of our plants
typically results in lost contribution margin from lost sales of our products, lost fixed cost absorption from lower production of our
products and increased costs related to repairs and maintenance. All Turnarounds result in lost contribution margin from lost sales of
our products, lost fixed cost absorption from lower production of our products, and increased costs related to repairs and maintenance,
which repair and maintenance costs are expensed as incurred.

Our Pryor Facility completed an extensive Turnaround during 2019. The Pryor Facility will continue on a two-year Turnaround cycle
with the next Turnaround planned for the third quarter of 2021. At that time, we will seek to move to a three-year Turnaround cycle.

In addition, our El Dorado Facility completed a partial Turnaround during 2018. The remaining portion of this Turnaround was
completed during 2019. The El Dorado Facility has moved to a three-year Turnaround cycle with the next Turnaround planned in the
third quarter of 2022.

Our Cherokee Facility is currently on a three-year Turnaround cycle with the next Turnaround to be performed in the third quarter of
2021.

Prepay Contracts

We use forward sales of our fertilizer products to optimize our asset utilization, planning process and production scheduling. These
sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that are
agreed upon. We use this program to varying degrees during the year depending on market conditions and our view of changing price
environments. Fixing the selling prices of our products months in advance of their ultimate delivery to customers typically causes our
reported selling prices and margins to differ from spot market prices and margins available at the time of shipment.

Consolidated Results for 2019

Our consolidated net sales for 2019 were $365.1 million compared to $378.2 million for 2018. Our consolidated operating loss was
$39.1 million compared to $23.0 million for 2018. The items affecting our operating results are discussed below and under “Results
of Operations.”

Items Affecting Comparability of Results

On-Stream Rates

The on-stream rates of our plants affect our production, the absorption of fixed costs of each plant and sales of our products. It is a
key operating metric that we use to manage our business. In particular, we closely monitor the on-stream rates of our ammonia plants
as ammonia is the basic product as used to produce all upgraded products. The on-stream rates noted below exclude Turnaround days,
when applicable.

Our average overall on-stream rate of our ammonia plants was 91% for 2019 compared to 89% for 2018. For 2020, we are targeting
an average overall on-stream rate of 94%.

We believe that our focus on improving on-stream rates as discussed in key operating initiatives will continue to improve our overall
on-stream rate for 2020.

Turnaround Expense

During 2019, we incurred Turnaround costs totaling approximately $13.2 million associated with a 67-day Turnaround performed on
our plants at our Pryor Facility and a total of 46 days associated with Turnaround activity performed on our plants at our El Dorado
Facility which consisted of an 18-day Turnaround on the ammonia plant and a 28-day Turnaround on the sulfuric acid plant.

During 2018, we incurred Turnaround costs totaling approximately $9.8 million associated with a 35-day Turnaround performed on
our plants at our Cherokee Facility and a total of 12 days associated with Turnaround activity at our El Dorado Facility.

Selling Prices

During 2019, we experienced improved selling prices for our agricultural products compared to 2018. Average selling prices for our
UAN, ammonia, and HDAN increased 14%, 2% and 1%, respectively compared to 2018 average selling prices. During the back half
of 2019 selling prices began to decline reflecting a lowering in the Southern Plains benchmark price for ammonia resulting from
elevated inventory levels from the inordinately inclement weather throughout the Midwest over the past year and the closure of the
Magellan ammonia pipeline. In addition, UAN selling prices also deteriorated in the second half of 2019, as import volumes increased
while export volumes declined due, in part, to European anti-dumping duties.

Our 2019 average industrial selling prices for our ammonia decreased compared to the same period of 2018 as a result of the
aforementioned elevated ammonia inventory levels. The 2019 average Tampa Ammonia price declined approximately 21% as
compared to the same period in 2018, which led to a decrease in industrial selling prices as many of our industrial contracts are
indexed to the Tampa Ammonia benchmark price.

With respect to our outlook for 2020, we expect that agricultural and industrial pricing will continue to be impacted by the
aforementioned factors, impacting the agricultural market coupled with excess ammonia inventories weighing on the industrial
market, as was the case in the second half of 2019.

Legal Fees

For 2019 and 2018, legal fees were approximately $12.8 million and $8.3 million, respectively. The change primarily relates to fees
incurred as we pursue our claims against Leidos to recover damages and losses associated with the construction of the ammonia plant
and other assets at our El Dorado Facility as discussed in footnote B of Note 9. We expect to continue to incur legal fees associated
with this matter through March 2020, the scheduled date of the trial.

Depreciation Expense

During 2019 and 2018, depreciation expense was $68.3 million and $70.3 million, respectively. For 2018, approximately $2.0 million
relates to accelerated depreciation at the El Dorado Facility due to the boiler tube failures caused by a power outage.

Charge Associated with Assets Held for Sale (2019 only)

As discussed above under “Business Developments – 2019”, we recognized a non-cash charge of $9.7 million associated with assets
held for sale, which amount is included in other expense.

Interest Expense

During 2019 and 2018, interest expense was $46.4 million and $43.1 million, respectively. The change primarily relates to our Senior
Secured Notes as discussed in Note 7.

Provision (benefit) for Income Taxes

For 2019, the benefit for income taxes was $20.9 million compared to a provision of $1.7 million for 2018. The resulting benefit rate
for 2019 was 24.8% compared to an effective tax rate of 2.5% for 2018, which includes the impact from tax reform adjustments. The
increase in the benefit rate is primarily due to changes to the state deferred tax assets and liabilities resulting from state tax law
changes enacted during 2019 and due to federal and state indefinite lived carryforward benefits that can be realized through the
reversal of deferred tax liabilities. The 2018 effective tax rate was impacted by adjustments made to our valuation allowances
including a reversal of approximately $2.3 million of state valuation allowance related to tax law changes.

Loss on Extinguishment of Debt (2018 only)

As the result of the financing transactions relating to the Senior Secured Notes and repurchase of the senior secured notes due 2019,
we incurred a loss on extinguishment of debt of $6.0 million in 2018.

Severance Benefits and Accelerated Stock-based Compensation (2018 only)

During 2018, we incurred $5.3 million associated with certain severance benefits and accelerated stock-based compensation relating to
Daniel D. Greenwell, our former Chief Executive Officer (“CEO”), electing not to renew his employment agreement in December
2018.

Recovery from a Settlement with a Vendor (2018 only)

During 2018, we and a vendor mediated a settlement relating primarily to a business interruption claim caused by defective work
performed by the vendor at our Pryor Facility. As a result of the settlement, the vendor paid us $4.0 million. As part of the settlement,
we paid the vendor $0.5 million to settle $1.1 million of invoices that were held in our accounts payable. As a result, we recognized a
recovery from this settlement totaling $4.6 million of which $4.4 million was classified as a reduction to cost of sales (primarily
relating to our business interruption claim) and the remaining balance of $0.2 million as a reduction to PP&E.

Results of Operations

The following Results of Operations should be read in conjunction with our consolidated financial statements for the years ended
December 31, 2019 and 2018 and accompanying notes and the discussions under “Overview” and “Liquidity and Capital Resources”
included in this MD&A. You should carefully review and consider the information in the MD&A of our 2018 Form 10-K, filed with
the SEC on February 26, 2019, for an understanding of our results of operations and liquidity discussions and analysis comparing
2018 to 2017.

We present the following information about our results of operations. Net sales to unaffiliated customers are reported in the
consolidated financial statements and gross profit represents net sales less cost of sales. Net sales are reported on a gross basis with
the cost of freight being recorded in cost of sales.

p
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

The following table contains certain financial information:

NNet sales:

Industrial and mining products

Total net sales

(1)

Industrial and mining products (1)

Adjusted gross profit by market (1)

Depreciation and amortization (2)
Turnaround expense
Total gross profit

Selling, general and administrative expense
Other expense (income), net

Operating loss

Interest expense, net
Loss on extinguishment of debt
NNon-operating other income, net
Provision (benefit) for income taxes

Net loss

Property, plant and equipment expenditures

(3)

2019

2018

Change

(Dollars In Thousands)

Percentage
Change

187,641
177,429
365,070

28,453
58,005
86,458
(68,263)
(13,210)
4,985
34,172
9,904
(39,091)
46,389
—
(1,139)
(20,924)
(63,417)

187,164
190,996
378,160

21,406
74,381
95,787
(70,184)
(9,768)
15,835
40,811
(1,951)
(23,025)
43,064
5,951
(1,554)
1,740
(72,226)

477
(13,567)
(13,090)

7,047
(16,376)
(9,329)
1,921
(3,442)
(10,850)
(6,639)
11,855
(16,066)
3,325
(5,951)
415
(22,664)
8,809

1.4%

4.2%

36,081

37,050

(2.8)%
(969)

0%
(7)%
(3)%

33%
(22)%
(10)%
(3)%
35%
(69)%
(16)%

(70)%
8%

12%

(3)%

(1)
(2)
(3)

Represents a non-GAAP measure since the amount excludes depreciation, amortization and Turnaround expenses.
Represents amount classified as cost of sales.
As a percentage of total net sales.

The following table provides certain financial information by market (dollars in thousands):

NNet sales
Adjusted gross profit by market (1)
Adjusted gross profit percentage
by market (2)

2019

2018

Change

Agricultural
Products
$ 187,641
28,453
$

Industrial
and
Mining
Products
$ 177,429
58,005
$

Agricultural
Products
$ 187,164
21,406
$

Industrial
and
Mining
Products
$ 190,996
74,381
$

Agricultural
Products

$
$

477
7,047

Industrial
and
Mining
Products
$ (13,567)
$ (16,376)

15.2%

32.7%

11.4%

38.9%

3.8%

(6.2)%

(1)

(2)

Represents a non-GAAP measure since the amount excludes depreciation, amortization and Turnaround expenses. See reconciliation included
in the financial information table above.
As a percentage of the respective net sales.

The following tables provide key sales metrics for the agricultural products:

)
Product (tons sold)
(
UAN
HDAN
Ammonia
Other

Total

)
Gross Average Selling Prices (price per ton)
g

UAN
HDAN
Ammonia

2019

2018

Change

Percentage
Change

359,905
277,820
83,924
19,655
741,304

400,054
284,433
82,586
23,422
790,495

(40,149)
(6,613)
1,338
(3,767)
(49,191)

2019

2018

Change

$
$
$

200
266
324

$
$
$

176
264
319

$
$
$

24
2
5

With respect to sales of industrial products, the following tables indicate key operating metrics of our major products:

Product (tons sold)
)
(
Ammonia
Nitric Acid
Other Industrial Products

Total

2019

2018

Change

275,253
99,544
35,107
409,904

238,520
110,975
32,110
381,605

36,733
(11,431)
2,997
28,299

248

313

(65)

With respect to sales of mining products, the following tables indicate key operating metrics of our major products:

)
Product (tons sold)
(

LDAN/HDAN/AN Solution

2019

151,935

2018

163,308

Change

(11,373)

Percentage
Change

(7)%

Net Sales

•

Agricultural products sales were slightly higher primarily from improved selling prices for all of our agricultural products
in conjunction with improved sales volumes for ammonia. This improvement was partially offset by lower sales volumes
of UAN and HDAN resulting from unfavorable weather conditions in the markets we serve compared to 2018, as well as
an extensive 67-day turnaround at our Pryor Facility which was completed in November of 2019.

Industrial acids and other industrial chemical products sales decreased primarily from lower selling prices due to lower
Tampa ammonia benchmark pricing along with lower sales volumes for nitric acid due to certain spot sales made to a
customer during 2018 to meet their demand caused by a disruption of their plant operations. This decline was partially
offset by improved sales volumes for ammonia from improved on-stream rates during 2019 allowing for the sale of more
product. The average Tampa ammonia pricing was approximately $65 per ton lower compared to 2018 as discussed
below.

(10)%
(2)%
2%
(16)%
(6)%

Percentage
Change

14%
1%
2%

Percentage
Change

15%
(10)%
9%
7%

(21)%

•

Mining products sales decreased primarily as the result of overall lower sales volume and selling prices for our mining
products. This decline is primarily driven by lower customer demand as the overall coal market conditions remain
suppressed in conjunction with competitive pressures in our marketing region.

Gross Profit

As noted in the tables above, we recognized a gross profit $5.0 million for 2019 compared to $15.8 million for 2018, or a decrease of
approximately $10.8 million. Overall, our gross profit percentage decreased to 1.4% for 2019 compared to 4.2% for 2018.

Our agricultural products adjusted gross profit percentage increased to 15% for 2019 from 11% for 2018 due primarily to increased
selling prices for all of our agricultural products along with improved production and sales volumes for ammonia, partially offset by
lower UAN and HDAN sales volumes as discussed above.

Industrial and mining products adjusted gross profit percentage declined for 2019 to 33% from 39% for 2018 primarily driven by
lower overall Tampa ammonia pricing, which averaged approximately $248 per metric ton during 2019 compared to approximately
$313 per metric ton for 2018 driven by a poor weather negatively impacting the 2018 fall and the 2019 spring and fall application
seasons in the U.S. agricultural markets, combined with weather impacting the movement of ammonia from the Gulf region, which
caused a build-up of ammonia inventory across the distribution channel, resulting in downward pressure on Tampa ammonia
benchmark pricing and Gulf ammonia in general.

The net negative effect on gross profit from sales activity discussed above was partially offset by approximately $9.9 million in lower
natural gas costs per MMBtu, approximately $1.9 million decline in depreciation expense, and improved cost absorption from higher
overall plant on-stream rates partially offset by approximately $3.4 million increase in turnaround costs and approximately $1.0
million of higher freight costs incurred to move product for storage as a result of the delay in the spring application season.

Also, as discussed above under “Items Affecting Comparability of Results-Recovery from a Settlement with a Vendor”, our 2018
gross profit included a recovery from a settlement with a vendor of $4.4 million classified as a reduction to cost of sales (primarily
relating to our business interruption claim).

Selling, General and Administrative

Our SG&A expenses were $34.2 million for 2019, a decrease of $6.6 million compared to 2018, of which $5.3 million was associated
with severance benefits and accelerated stock-based compensation recognized in 2018 relating to our former CEO electing not to
renew his employment agreement in December 2018. Excluding this impact, SG&A expenses decreased $1.3 million primarily driven
by a $5.0 million reduction in compensation-related costs and $0.9 million reduction in insurance and other miscellaneous items
partially offset by a $4.6 million increase in professional fees, including legal fees associated with the legal matter discussed above
under “Items Affecting Comparability of Results-Legal”.

Other Expense (Income), net

(

Other expense for 2019 was $9.9 million primarily relating to a non-cash charge associated with assets held for sale discussed above
under “Business Developments-2019.” Other income for 2018 was $2.0 million primarily relating to the sales of certain non-core assets
(primarily consisting of real estate).

Interest Expense, net

Interest expense for 2019 was $46.4 million compared to $43.1 million for 2018. The net increase relates primarily to interest expense
associated with the Notes issued in April 2018 and the New Notes issued in June 2019 partially offset by $0.9 million of debt
modification fees incurred in 2018.

Loss on Extinguishment of Debt

During 2018, we incurred a loss on extinguishment of debt of approximately $6.0 million relating to the repurchase of the senior
secured notes that were scheduled to mature in 2019.

)
Provision (benefit) for Income Taxes

(

The benefit for income taxes for 2019 was $20.9 million compared to a provision of $1.7 million for 2018. The resulting benefit rate
for 2019 was 24.8% compared to an effective tax rate of 2.5% for 2018 including the impact of tax reform adjustments. The increase
in the benefit rate is primarily due to changes to the state deferred tax assets and liabilities resulting from state tax law changes enacted
during 2019 and due to federal and state indefinite lived carryforward benefits that can be realized through the reversal of deferred tax
liabilities. The 2018 effective tax rate was impacted by adjustments made to our valuation allowances during 2018 including a
reversal of approximately $2.3 million of state valuation allowance related to tax law changes. Also, see discussion in Note 8.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our continuing cash flow activities for 2019 and 2018:

NNet cash flows from operating activities

NNet cash flows from investing activities

NNet cash flows from financing activities

2019

2018

Change

(In Thousands)

2,099

17,622

$ (15,523)

(35,925) $

(25,740) $ (10,185)

30,569

547

$ 30,022

Net Cash Flow from Operating Activities

Net cash provided by operating activities was $2.1 million for 2019 compared to $17.6 million for 2018, a decrease of $15.5 million.

For 2019, net cash provided is the result of a net loss of $63.4 million plus adjustments of $69.6 million for depreciation and
amortization of PP&E, non-cash charge of $9.7 million associated assets held for sale, and other adjustments of $5.7 million less an
adjustment of $20.9 million for deferred taxes and net cash provided of approximately $1.4 million primarily from our working
capital.

For 2018, net cash provided is the result of a net loss of $72.2 million plus adjustments of $70.3 million for depreciation, depletion
and amortization of PP&E, $8.4 million for stock-based compensation, $6.0 million for a loss on extinguishment of debt, $1.8 million
for deferred taxes and other adjustments totaling approximately $2.8 million and net cash provided of approximately $0.5 million
primarily from our working capital including an increase in inventories and accounts payables and a decrease in accrued interest.

Net Cash Flow from Investing Activities

Net cash used by investing activities was $35.9 million for 2019 compared to $25.7 million for 2018, a change of $10.2 million.

For 2019, net cash used relates primarily to expenditures for PP&E.

For 2018, net cash used is the result of $37.1 million on expenditures for PP&E partially offset by $6.7 million from net proceeds from
the sale of PP&E, $2.7 million representing the remaining proceeds from an indemnity escrow account associated with the sale of our
former Climate Control business in 2016 and approximately $2.0 million relating to a recovery from a property insurance claim and
other investing activities.

Net Cash Flow from Financing Activities

Net cash provided by financing activities was $30.6 million for 2019 compared to $0.5 million for 2018, a change of approximately
$30.0 million.

For 2019, net cash provided primarily consists of net proceeds of $35.1 million from the New Notes, net proceeds of $7.5 million, net
of payments, from other long-term debt and insurance premium short-term financing partially offset by net payments of $10 million
on the Working Capital Revolver Loan, and payments of $2.0 million for other financing activities.

For 2018, net cash provided consists of net proceeds of $390.5 million from the Notes, $10.9 million from insurance premium short-
term financing, and $10.0 million from our Working Capital Revolver Loan partially offset by $375 million repayment of the senior
secured notes due 2019, payments of $20.0 million on other long-term debt and short-term financing, payments of $11.0 million for
debt related costs, payments of $2.8 million of fees associated with the modification of terms of our Series E Redeemable Preferred
and approximately $2.1 million of other financing activities.

Capitalization

The following is our total current cash, long-term debt, redeemable preferred stock and stockholders’ equity:

Cash and cash equivalents
Revolving credit facility and long-term debt:

Working Capital Revolver Loan
Senior Secured Notes due 2023
Secured Promissory Note due 2021
Secured Promissory Note due 2023
Secured Financing (1)
Secured Loan Agreement
Other
Unamortized discount and debt issuance costs
Total long-term debt, including current portion, net
Series E and F redeemable preferred stock (2)
Total stockholders' equity

December 31,

2019

2018

(In Millions)
22.8

—
435.0
4.7
12.7
13.5
5.2
0.2
(12.3)
459.0
234.9
247.3

$
$
$

26.0

10.0
400.0
8.1
14.7
7.2
—
0.2
(15.0)
425.2
202.2
342.2

$
$
$

(1) A portion of the proceeds from the Secured Financing due in 2023 was used to pay off the secured financing due in 2019.
(2)

Liquidation preference of $242.8 million as of December 31, 2019.

We currently have a revolving credit facility, our Working Capital Revolver Loan, with a borrowing base of $75 million. As of
December 31, 2019, our Working Capital Revolver Loan was undrawn and had approximately $42.1 million of availability.

We expect capital expenditures to be approximately $25 million to $30 million for 2020, which includes approximately $5 million ton
$10 million for margin enhancement projects. The remaining capital spending is planned for reliability and maintenance capital
projects.

We believe that the combination of our cash on hand, the availability on our revolving credit facility, and our cash flow from
operations will be sufficient to fund our anticipated liquidity needs for the next twelve months.

Compliance with Long - Term Debt Covenants

As discussed below under “Loan Agreements,” the Working Capital Revolver Loan requires, among other things, that we meet certain
financial covenants. The Working Capital Revolver Loan does not include financial covenant requirements unless a defined covenant
trigger event has occurred and is continuing. As of December 31, 2019, no trigger event had occurred.

Loan Agreements and Redeemable Preferred Stock

Senior Secured Notes due 2023 - LSB has $435 million aggregate principal amount of the 9.625% Senior Secured Notes currently
outstanding, including the $35 million associated with the New Notes as discussed in footnote (B) of Note 7. Interest is to be paid
semiannually on May 1st and November 1st, maturing May 1, 2023. As a result of the financing transactions, our interest expense has
increased as compared to 2018.

Secured Promissory Note due 2021 – EDC is party to a secured promissory note due in March 2021. This promissory note bears
interest at the annual rate of 5.25%. Principal and interest are payable in monthly installments.

Secured Promissory Note due 2023 - EDA is party to a secured promissory note due in May 2023. Principal and interest are payable
in equal monthly installments with a final balloon payment of approximately $6.1 million. This promissory note bears interest at a rate
that is based on the monthly LIBOR rate plus a base rate for a current total rate of 6.03%.

Secured Loan Agreement - EDC entered into a $15 million secured financing arrangement with an affiliate of LSB Funding L.L.C.
(“LSB Funding”) in May 2019 with a current interest rate of 8.76%. Beginning in June 2019, principal and interest are payable in 48
equal monthly installments with a final balloon payment of approximately $3 million due on June 1, 2023. This financing arrangement
is secured by the cogeneration facility equipment and is guaranteed by LSB. During 2019, EDC entered into a secured loan agreement
with an affiliate of LSB Funding. Under the terms of the agreement, EDC has up to $7.5 million of available borrowings (the “Interim
Loan”) during the construction of a new sulfuric acid converter (the “Interim Loan Period), subject to certain conditions. During the
Interim Loan Period, interest only is payable in monthly installments. The Interim Loan will be replaced by a term loan in 2020.
Principal and interest will be payable in 60 equal monthly installments under the term loan.

Working Capital Revolver Loan - At December 31, 2019, the Working Capital Revolver Loan was undrawn and the net credit available
for borrowings under our Working Capital Revolver Loan was approximately $42.1 million, based on our eligible collateral, less
outstanding standby letters of credit as of that date. Also see discussion above under “Compliance with Long-Term Debt Covenants.

Redemption of Series E Redeemable Preferred – At December 31, 2019, there were 139,768 outstanding shares of Series E
Redeemable Preferred and the aggregate liquidation preference (par value plus accrued dividends) was $242.8 million.

At any time on or after October 25, 2023, each Series E holder has the right to elect to have such holder’s shares redeemed by us at a
redemption price per share equal to the liquidation preference per share of $1,000 plus accrued and unpaid dividends plus the participation
rights value (the “Liquidation Preference”). Additionally, at our option, we may redeem the Series E Redeemable Preferred at any time at a
redemption price per share equal to the Liquidation Preference of such share as of the redemption date. Lastly, with receipt of (i) prior
consent of the electing Series E holder or a majority of shares of Series E Redeemable Preferred and (ii) all other required approvals,
including under any principal U.S. securities exchange on which our common stock is then listed for trading, we can redeem the Series E
Redeemable Preferred by the issuance of shares of common stock having an aggregate common stock price equal to the amount of the
aggregate Liquidation Preference of such shares being redeemed in shares of common stock in lieu of cash at the redemption date.

In the event of liquidation, the Series E Redeemable Preferred is entitled to receive its Liquidation Preference before any such
distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other junior stock. In the event
of a change of control, we must make an offer to purchase all of the shares of Series E Redeemable Preferred outstanding at the
Liquidation Preference.

Since carrying values of the redeemable preferred stocks are being increased by periodic accretions (including the amount for
dividends earned but not yet declared or paid) using the interest method so that the carrying amount will equal the redemption value as
of October 25, 2023, the earliest possible redemption date by the holder, this accretion has and will continue to affect income (loss)
per common share. However, this accretion will change if the expected redemption date changes.

Also, see discussion in Note 10.

Capital Expenditures – 2019

For 2019, capital expenditures relating to PP&E were $36.1 million, which expenditures include approximately $2.0 million
associated with maintaining compliance with environmental laws, regulations and guidelines. Approximately $5.2 million related tod
the new sulfuric acid converter, which was financed, and the remaining capital expenditures were primarily funded with cash.

See discussion above under “Capitalization” for our expected annual capital expenditures for 2020.

Expenses Associated with Environmental Regulatory Compliance

We are subject to specific federal and state environmental compliance laws, regulations and guidelines. As a result, we incurred
expenses of $4.9 million in 2019 in connection with environmental projects. For 2020, we expect to incur expenses ranging from $4.5
million to $5.0 million in connection with additional environmental projects. However, it is possible that the actual costs could be
significantly different than our estimates.

Dividends

We have not paid cash dividends on our outstanding common stock in many years, and we do not currently anticipate paying cash
dividends on our outstanding common stock in the near future.

Dividends on the Series E Redeemable Preferred are cumulative and payable semi-annually (May 1 and November 1) in arrears at the
current annual rate of 14% of the liquidation value of $1,000 per share, but such annual rate will increase beginning on April 25, 2021
as discussed in Note 10. Each share of Series E Redeemable Preferred is entitled to receive a semi-annual dividend, only when
declared by our Board. In addition, dividends in arrears at the dividend date, until paid, shall compound additional dividends at the
current annual rate of 14%, but such annual rate will increase beginning on April 25, 2021. The current semi-annual compounded
dividend is approximately $118.87 per share for the current aggregate semi-annual dividend of $16.6 million. We also must declare a
dividend on the Series E Redeemable Preferred on a pro rata basis with our common stock. As long as the Purchaser holds at least
10% of the Series E Redeemable Preferred, we may not declare dividends on our common stock and other preferred stocks unless and
until dividends have been declared and paid on the Series E Redeemable Preferred for the then current dividend period in cash. As of
December 31, 2019, the amount of accumulated dividends on the Series E Redeemable Preferred was approximately $103.0 million.

Dividends on the Series D 6% cumulative convertible Class C preferred stock (the “Series D Preferred”) and Series B 12% cumulative
convertible Class C Preferred Stock (the “Series B Preferred”) are payable annually, only when declared by our Board, as follows:

•

$0.06 per share on our outstanding non-redeemable Series D Preferred for an aggregate dividend of $60,000, and

$12.00 per share on our outstanding non-redeemable Series B Preferred for an aggregate dividend of $240,000.

As of December 31, 2019, the amount of accumulated dividends on the Series D Preferred and Series B Preferred totaled
approximately $1.3 million. All shares of the Series D Preferred and Series B Preferred are owned by the Golsen Holders. There are
no optional or mandatory redemption rights with respect to the Series B Preferred or Series D Preferred.

Seasonalityy

We believe fertilizer products sold to the agricultural industry are seasonal while sales into the industrial and mining sectors generally
are less susceptible. The selling seasons for agricultural products are primarily during the spring and fall planting seasons, which
typically extend from March through June and from September through November in the geographical markets we distribute the
majority of our agricultural products. As a result, we typically increase our inventory of fertilizer products prior to the beginning of
each planting season in order to meet the demand for our products. In addition, the amount and timing of sales to the agricultural
markets depend upon weather conditions and other circumstances beyond our control.

Performance and Payment Bonds

We are contingently liable to sureties in respect of insurance bonds issued by the sureties in connection with certain contracts entered
into by subsidiaries in the normal course of business. These insurance bonds primarily represent guarantees of future performance of
our subsidiaries. As of December 31, 2019, we have agreed to indemnify the sureties for payments, up to $10 million, made by them
in respect of such bonds. All of these insurance bonds are expected to expire or be renewed in 2020.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange
Act of 1934.

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New Accounting Pronouncements

Refer to Notes 1 and 2 for recently adopted and issued accounting standards.

Critical Accounting Policies and Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of
assets, liabilities, revenues and expenses, and disclosures of contingencies and fair values. It is reasonably possible that the estimates
and assumptions utilized as of December 31, 2019, could change in the near term. The more critical areas of financial reporting
affected by management's judgment, estimates and assumptions include the following:

Contingencies – Certain conditions may exist which may result in a loss, but which will only be resolved when future events occur.
We and our legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. If the
assessment of a contingency indicates that it is probable that a loss has been incurred, we would accrue for such contingent losses
when such losses can be reasonably estimated. If the assessment indicates that a potentially material loss contingency is not probable
but reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be disclosed. Estimates of potential legal fees and other directly related
costs associated with contingencies are not accrued but rather are expensed as incurred. Loss contingency liabilities are included in
current and noncurrent accrued and other liabilities and are based on current estimates that may be revised in the near term. In
addition, we recognize contingent gains when such gains are realized or realizable and earned.

We are involved in various legal matters that require management to make estimates and assumptions, including costs relating to the
lawsuit styled City of West, Texas v CF Industries, Inc., et al, discussed under “Other Pending, Threatened or Settled Litigation” of
Note 9.

It is reasonably possible that the actual costs could be significantly different than our estimates.

Regulatory Compliance – As discussed under “Environmental, Health and Safety Matters” in Item 1 of this report, we are subject to
specific federal and state regulatory compliance laws and guidelines. We have developed policies and procedures related to regulatory
compliance. We must continually monitor whether we have maintained compliance with such laws and regulations and the operating
implications, if any, and amount of penalties, fines and assessments that may result from noncompliance. 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. However, certain conditions exist which may result in a loss, but which will only be resolved when future
events occur relating to these matters. We are involved in various environmental matters that require management to make estimates
and assumptions, including our current inability to develop a meaningful and reliable estimate (or range of estimate) as to the costs
relating to a corrective action study work plan approved by the Kansas Department of Health and Environment (“KDHE”) discussed
under footnote 3 – Other Environmental Matters of Note 9. At December 31, 2019 and 2018, liabilities totaling $0.2 million for both
periods have been accrued relating to these issues as discussed. This liability is included in current accrued and other liabilities and is
based on current estimates that may be revised in the near term. At the time that cost estimates for any corrective action are received,
we will adjust our accrual accordingly. It is reasonably possible that the adjustment to the accrual and the actual costs could be
significantly different than our current estimates.

Charge Associated with Assets Held for Sale – As discussed in Note 1, assets held for sale are generally reported at the lower of the
carrying amounts of the assets or fair values less costs to sell. During 2019, in conjunction with management’s review of our long-
range strategy, development of the 2020 budget and the completion of the 2019 Turnarounds, certain non-core long-lived assets were
identified and authorized to be sold. As a result, these assets were classified as assets held for sale. Because the estimated costs to sell
these assets (primarily to dismantle) exceeds the estimated fair values, the carrying amount of these assets were written down to a de
minimis amount and a non-cash charge of approximately $9.7 million was recognized and classified as other expense. We expect
these assets to be sold in 2020. At December 31, 2018, we had no long-lived assets classified as held for sale.

Income Tax – As discussed under “Income Taxes” in Note 1 and in Note 8, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to be recovered or settled. We establish valuation allowances if we believe it is more-
likely-than-not that some or all of deferred tax assets will not be realized. Significant judgment is applied in evaluating the need for
and the magnitude of appropriate valuation allowances against deferred tax assets. At December 31, 2019 and 2018, our valuation
allowance on deferred tax assets was $51.6 million and $45.6 million, respectively.

Redeemable Preferred Stocks – In December 2015, we issued the Series E and F Redeemable Preferred. The redeemable preferred
stocks are redeemable outside of our control and are classified as temporary/mezzanine equity on our consolidated balance sheet. In
addition, certain embedded features (the “embedded derivative”) included in the Series E Redeemable Preferred required bifurcation
and are classified as derivative liabilities.

Currently, the carrying values of the redeemable preferred stocks are being increased by periodic accretions (recorded to retained
earnings and included in determining income or loss per share) using the interest method so that the carrying amount will equal the
redemption value as of October 25, 2023, the earliest possible redemption date by the holder. Approximately $33 million of accretion
(including the amount for earned dividends) was recorded to retained earnings in 2019. At December 31, 2019, the carrying value of
these redeemable preferred stocks was $234.9 million.

For the embedded derivative, changes in fair value are recorded in our statement of operations. At December 31, 2019 and 2018, we
estimated that the embedded contingent redemption features have fair value since we estimate that it is probable that a portion of the
shares of this preferred stock would be redeemed prior to October 25, 2023.

At December 31, 2019 and 2018, the fair value of the embedded derivative was $1.1 million and $1.6 million, respectively, primarily
relating to the participation rights based on the equivalent of 303,646 shares of our common stock at $4.20 and $5.52 per share,
respectively. No valuation input adjustments were considered necessary relating to nonperformance risk for the embedded derivative
based on our current forecast. The valuation is classified as Level 3.

Management’s judgment and estimates in the above areas are based on information available from internal and external resources at
that time. Actual results could differ materially from these estimates and judgments, as additional information becomes known.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

Our results of operations and operating cash flows are affected by changes in market prices of natural gas, changes in market interest
rates and changes in market currency exchange rates.

Forward Sales Commitments Risk

Periodically, we enter into forward firm sales commitments for products to be delivered in future periods. As a result, we could be
exposed to embedded losses should our product costs exceed the firm sales prices. At December 31, 2019, we had no embedded
losses associated with sales commitments with firm sales prices.

y
Commodity Price Risk

A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply and demand
fundamentals change. We are exposed to commodity price risk as we generally do not use derivative financial instruments to manage
risks related to changes in prices of commodities. We periodically enter into contracts to purchase natural gas for anticipated
production needs. Generally, these contracts are considered normal purchases and sales because they provide for the purchase of
natural gas that will be delivered in quantities expected to be used over a reasonable period of time in the normal course of business,
these contracts are exempt from the accounting and reporting requirements relating to derivatives. At December 31, 2019, we did not
have any natural gas derivatives not meeting the definition of a normal purchase and sale.

Interest Rate Risk

Generally, we are exposed to variable interest rate risk with respect to our revolving credit facility. As of December 31, 2019, we had
no outstanding borrowings on this credit facility. We are also exposed to interest rate risk on variable rate borrowings for certain
commercial loans in the amount of approximately $17.9 million. We currently do not hedge our interest rate risk associated with these
variable interest loans.

The following table presents principal amounts and related weighted-average interest rates by maturity date for our interest rate
sensitive debt agreements as of December 31, 2019:

2020

2021

Years ending December 31,
2022
(Dollars In Thousands)

2023

2024

Thereafter

Total

Expected maturities of long-term debt (1):

Variable interest rate debt

Weighted-average interest rate

Fixed interest rate debt

$ 3,122

$ 3,335

$ 3,458

6.79%

6.72%

6.57%

8,010
6.43%

$ 6,325

$ 4,263

$ 3,311

$439,481

Weighted-average interest rate

9.56%

9.59%

9.61%

— $
—
— $
—

— $ 17,925
—
— $453,380
—

9.61%

6.57%

(1)

The variable and fixed interest rate debt balances and weighted-average interest rate are based on the aggregate amount of debt
outstanding as of December 31, 2019.

At December 31, 2019 and 2018, we did not have any financial instruments with fair values significantly different from their carrying
amounts (which excludes issuance costs, if applicable). The fair value of financial instruments is not indicative of the overall fair
value of our assets and liabilities since financial instruments do not include all assets, including intangibles, and all liabilities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We have included the financial statements and supplementary financial information required by this item immediately following
Part IV of this report and hereby incorporate by reference the relevant portions of those statements and information into this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, with the participation of our Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15 under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable
assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These include
controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our
disclosure controls and procedures were effective. There were no changes to our internal control over financial reporting during the
quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act). Our internal control system is a process, under the supervision of the Company’s Chief
Executive Officer and Chief Financial Officer, designed to provide reasonable assurance to our management and Board of Directors
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our
internal control over financial reporting as of December 31, 2019. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework).
Based on our assessment, we believe that, as of December 31, 2019, our internal control over financial reporting is effective based on
those criteria.

Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting.
This report appears on the following page.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of LSB Industries, Inc.

Opinion on Internal Control over Financial Reporting

We have audited LSB Industries, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, LSB Industries, Inc. (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2019 consolidated financial statements of the Company and our report dated February 25, 2020 expressed an
unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our u
opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only iny
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Oklahoma City, Oklahoma

February 25, 2020

ITEM 9B. OTHER INFORMATION

None.

PART III

Item 10, Item 11, Item 12, Item 13 and Item 14 are incorporated by reference to our definitive proxy statement which we intend to file
with the SEC on or before April 29, 2020.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

( ) ( )
(a) (1) Financial Statements

The following consolidated financial statements of the Company appear immediately following this Part IV:

PART IV

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2019 and 2018

Consolidated Statements of Operations for each of the three years in the period ended December 31, 2019

Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 2019

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2019

Notes to Consolidated Financial Statements

Quarterly Financial Data (Unaudited)

( ) ( )
(a) (2) Financial Statement Schedule

The Company has included the following schedule in this report:

II - Valuation and Qualifying Accounts

Page

F-2

F-3

F-5

F-6

F-7

F-9

F-35

F-37

We have omitted all other schedules because the conditions requiring their filing do not exist or because the required information
appears in our Consolidated Financial Statements, including the notes to those statements.

( )( )
(a)(3) Exhibits

Exhibit Number

3(i).1

3(ii).1

3(ii).2

3(ii).3

3(ii).4

Exhibit Title

Incorporated by Reference to the Following

Restated Certificate of Incorporation of LSB Industries, Inc.,
dated January 21, 1977, as amended August 27, 1987

Exhibit 3(i).1 to the Company’s Form 10-K filed
on February 28, 2013

Amended and Restated Bylaws of LSB Industries, Inc. dated
August 20, 2009, as amended February 18, 2010, January 17,
2014, February 4, 2014 and August 21, 2014

Exhibit 3(ii).1 to the Company’s Form 8-K filed
August 27, 2014

Fifth Amendment to the Amended and Restated Bylaws of LSB
Industries, Inc., dated as of April 26, 2015

Exhibit 3(ii) to the Company’s Form 8-K filed
April 30, 2015

Sixth Amendment to the Amended and Restated Bylaws of LSB
Industries, Inc., dated as of December 2, 2015

Exhibit 3(ii) to the Company’s Form 8-K filed
December 8, 2015

Seventh Amendment to the Amended and Restated Bylaws of
LSB Industries, Inc., dated as of December 22, 2015

Exhibit 3(ii) to the Company’s Form 8-K filed
December 29, 2015

4.1(P)

Specimen Certificate for the Company’s Series B Preferred Stock Exhibit 4.27 to the Company’s Registration

Statement on Form S-3 No. 33-9848

4.2

Specimen Certificate for the Company’s Series D 6% Cumulative,
Convertible Class C Preferred Stock

Exhibit 4.3 to the Company’s Form 10-K filed
March 3, 2011

4.3

Specimen Certificate for the Company’s Common Stock

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

Certificate of Designations of Series E Cumulative Redeemable
Class C Preferred Stock of LSB Industries, Inc., dated as of
December 4, 2015

Certificate of Designations of Series E-1 Cumulative Redeemable
Class C Preferred Stock of LSB Industries, Inc., dated as of
October 18, 2018

Certificate of Correction to Certificate of Designations of the
Series E-1 Cumulative Redeemable Class C Preferred Stock of
LSB Industries, Inc.

Certificate of Designations of Series F Cumulative Redeemable
Class C Preferred Stock of LSB Industries, Inc., dated as of
December 4, 2015

the Company’s Registration
Exhibit 4.3
Statement on Form S-3 ASR filed November 16,
2012

Exhibit 4.1 to the Company’s Form 8-K filed
December 8, 2015

Exhibit 4.1 to the Company’s Form 8-K filed
October 19, 2018

Exhibit 4.1 to the Company’s Form 8-K filed
November 2, 2018

Exhibit 4.2 to the Company’s Form 8-K filed
December 8, 2015

Certificate of Designations of Series F-1 Redeemable Class C
Preferred Stock of LSB Industries, Inc., dated as of October 18,
2018

Exhibit 4.2 to the Company’s Form 8-K filed
October 19, 2018

Renewed Rights Agreement, dated as of December 2, 2008,
between the Company and UMB Bank, n.a.

Exhibit 4.1 to the Company’s Form 8-K filed
December 5, 2008

Amendment to Renewed Rights Agreement, dated December 3,
2008, between LSB Industries, Inc. and UMB Bank, n.a.

Exhibit 4.3 to the Company’s Form 8-K filed
December 5, 2008

to Renewed Rights Agreement, dated as of
Amendment
December 4, 2015, by and between LSB Industries, Inc. and
UMB Bank, n.a., dated as of December 4, 2015

Exhibit 4.3 to the Company’s Form 8-K filed
December 8, 2015

Indenture, dated August 7, 2013, among LSB Industries, Inc., the
guarantors named therein and UMB Bank, n.a., as trustee

Exhibit 4.1 to the Company’s Form 8-K filed
August 14, 2013

First Supplemental Indenture, dated as of September 7, 2016, by
and among LSB Industries, Inc., the guarantors party thereto and
UMB Bank, n.a., as trustee and notes collateral agent

Exhibit 4.1 to the Company’s Form 8-K filed
October 4, 2016.

Exhibit Number

4.14

4.15

4.16

Exhibit Title

Incorporated by Reference to the Following

Intercreditor Agreement, dated August 7, 2013, by and among
Wells Fargo Capital Finance, Inc., as agent and UMB Bank, n.a.,
as collateral agent, and acknowledged and agreed to by LSB
Industries, Inc. and the other grantors named therein

Indenture, dated as of April 25, 2018, among LSB Industries, Inc.,
the subsidiary guarantors party thereto and Wilmington Trust,
National Association, as trustee and collateral agent.

Exhibit 99.1 to the Company’s Form 8-K filed
August 14, 2013

Exhibit 4.1 to the Company’s Form 8-K filed
April 25, 2018

Form of 9.625% Senior Secured Notes due 2023 (included in
Exhibit 4.1).

Exhibit 4.2 to the Company’s Form 8-K filed
April 25, 2018

4.17(a)

Description of Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934

10.1*

Form of Death Benefit Plan Agreement, dated April 1, 1981

Exhibit 10.2 to the Company’s Form 10-K filed
March 31, 2006

10.2*

10.3*

LSB Industries, Inc. Outside Directors Stock Purchase Plan, dated
May 24, 1999

Exhibit 99.2 to the Company’s Form 8-K filed
October 23, 2014

LSB Industries, Inc. 2008 Incentive Stock Plan, effective June 5,
2008, as amended by First Amendment, effective June 5, 2014

Exhibit 99.3 to the Company’s Form 8-K filed
June 11, 2014

10.4*

Form of Restricted Stock Agreement

10.5*

Form of Incentive Stock Option Agreement for 2008 Plan

10.6*

LSB Industries, Inc. 2016 Long Term Incentive Plan

Exhibit 10.3 to the Company’s Form 8-K filed
d
January 8, 2016

Exhibit 10.8 to the Company’s Form 10-K filed
d
February 29, 2016

Exhibit 4.8 to the Company’s Form S-8 filed June
28, 2016

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

Form of LSB Industries, Inc. 2016 Long Term Incentive Plan
Stock Option Agreement

Exhibit 4.9 to the Company’s Form S-8 filed June
28, 2016

Form of LSB Industries, Inc. 2016 Long Term Incentive Plan
Restricted Stock Unit Agreement (Director Award)

Exhibit 4.10 to the Company’s Form S-8 filed
June 28, 2016

Form of LSB Industries, Inc. 2016 Long Term Incentive Plan
Restricted Stock Agreement

Exhibit 4.11 to the Company’s Form S-8 filed
June 28, 2016

Form of Time-Based Restricted Stock Agreement of LSB
Industries, Inc.

Exhibit 10.4 to the Company’s Form 8-K filed
January 3, 2019

Form of Performance-Based Restricted Stock Agreement of LSB
Industries, Inc.

Exhibit 10.5 to the Company’s Form 8-K filed
January 3, 2019

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Mark Behrman

Exhibit 10.12 to the Company’s Form 10-K filed
February 26, 2019

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Mark Behrman

Exhibit 10.4 to the Company’s Form 10-Q filed
October 24, 2018

Employment Agreement, dated December 30, 2018, between LSB
Industries, Inc. and Mark T. Behrman

Exhibit 10.1 to the Company’s Form 8-K filed
January 3, 2019

Restricted Stock Agreement by and between LSB Industries, Inc.
and Mark Behrman, dated as of December 31, 2015

Exhibit 10.17 to the Company’s Form 10-K filed
February 29, 2016

Employment Agreement by and between LSB Industries, Inc. and
Daniel D. Greenwell, dated as of December 31, 2015

Exhibit 10.1 to the Company’s Form 8-K/A filed
January 7, 2016

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Daniel D. Greenwell

Exhibit 10.3 to the Company’s Form 10-Q filed
October 24, 2018

Exhibit Number

Exhibit Title

Incorporated by Reference to the Following

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

10.24*

10.25*

10.26*

10.27*

10.28*

10.29*

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Daniel D. Greenwell
General Release Agreement by and between LSB Industries, Inc.
and Daniel D. Greenwell, dated as of January 14, 2019

Exhibit 10.18 to the Company’s Form 10-K filed
February 26, 2019
Exhibit 10.19 to the Company’s Form 10-K filed
February 26, 2019

Restricted Stock Agreement by and between LSB Industries, Inc.
and Daniel D. Greenwell, dated as of December 31, 2015

Exhibit 10.2 to the Company’s Form 8-K/A filed
January 7, 2016

Employment Agreement by and between LSB Industries, Inc. and
Michael Foster, dated as of January 5, 2016

Exhibit 10.25 to the Company’s Form 10-K filed
February 29, 2016

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Michael J. Foster

Exhibit 10.5 to the Company’s Form 10-Q filed
October 24, 2018

Notice Period Extension Regarding Employment Agreement by
and between LSB Industries, Inc. and Michael J. Foster

Exhibit 10.23 to the Company’s Form 10-K filed
February 26, 2019

Employment Agreement, dated December 30, 2018, between LSB
Industries, Inc. and Michael J. Foster

Exhibit 10.3 to the Company’s Form 8-K filed
January 3, 2019

Restricted Stock Agreement by and between LSB Industries, Inc.
and Michael Foster, dated as of January 5, 2016

Exhibit 10.26 to the Company’s Form 10-K filed
February 29, 2016

Separation and Release Agreement by and between LSB
Industries, Inc. and Tony M. Shelby, dated as of February 22,
2016

Exhibit 10.1 to the Company’s Form 8-K filed
February 25, 2016

Employment Agreement by and between LSB Industries, Inc. and
John Diesch, executed as of July 21, 2016

Exhibit 10.1 to the Company’s Form 8-K filed
August 2, 2016

Employment Agreement by and between LSB Industries, Inc. and
John Diesch, executed as of February 8, 2019

Exhibit 10.1 to the Company’s Form 8-K filed
February 11, 2019

Employment Agreement, dated December 30, 2018, between LSB
Industries, Inc. and Cheryl Maguire

Exhibit 10.2 to the Company’s Form 8-K filed
January 3, 2019

10.30*(a)

Employment Agreement, dated December 20, 2019 and to be
effective not later than February 3, 2020, between LSB Industries,
Inc. and John Burns

10.31*

Form of Retention Bonus Agreement

10.32

10.33

10.34

Indemnification Agreement, dated October 14, 2015, by and
between the Company and Jack E. Golsen, together with a
schedule identifying other substantially identical agreements
between the Company and each of the other directors identified
on the schedule

Indemnification Agreement, dated October 14, 2015 by and
between the Company and David M. Shear, together with a
schedule identifying other substantially identical agreements
between the Company and each of its executive officers identified
on the schedule

Indemnification Agreement, dated as of December 4, 2015, by
and between LSB Industries, Inc. and Jonathan S. Bobb, together
with a schedule
identical
agreements between the Company and each of the other directors
identified on the schedule

identifying other substantially

Exhibit 10.28 to the Company’s Form 10-K filed
February 29, 2016

Exhibit 10.1 to the Company’s Form 8-K filed
October 19, 2015

Exhibit 10.2 to the Company’s Form 8-K filed
October 19, 2015

Exhibit 10.5 to the Company’s Form 8-K filed
December 8, 2015

Exhibit Number

10.35

Exhibit Title

Incorporated by Reference to the Following

Nitric Acid Supply, Operating and Maintenance Agreement, dated
October 23, 2008, by and among El Dorado Nitrogen, L.P., El
Dorado Chemical Company and Bayer MaterialScience LLC

Exhibit 10.1 to the Company’s Form 10-Q filed
November 6, 2008

DATED

CERTAIN
INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS THE
SUBJECT OF A COMMISSION ORDER CF
#30125,
2013,
GRANTING REQUEST BY THE COMPANY
FOR CONFIDENTIAL TREATMENT BY THE
SECURITIES
EXCHANGE
AND
COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT.

OCTOBER 4,

10.36

Second Amendment to the Nitric Acid Supply, Operating and
Maintenance Agreement, dated June 16, 2010, by and among El
Dorado Nitrogen, L.P., El Dorado Chemical Company and Bayer
MaterialScience LLC

10.37

Third Amendment to the Nitric Acid Supply, Operating and
Maintenance Agreement, dated June 25, 2013, by and among El
Dorado Nitrogen, L.P., El Dorado Chemical Company and Bayer
MaterialScience LLC

Exhibit 10.2 to the Company’s Form 10-Q filed
August 6, 2010

DATED

CERTAIN
INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS THE
SUBJECT OF A COMMISSION ORDER CF
#30124,
2013,
GRANTING REQUEST BY THE COMPANY
FOR CONFIDENTIAL TREATMENT BY THE
EXCHANGE
AND
SECURITIES
COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT.

OCTOBER 4,

Exhibit 10.3 to the Company’s Form 10-Q filed
d
August 9, 2013

DATED

CERTAIN
INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS
SUBJECT OF A COMMISSION ORDER CF
#30123,
2013,
GRANTING REQUEST BY THE COMPANY
FOR CONFIDENTIAL TREATMENT BY THE
EXCHANGE
AND
SECURITIES
COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT.

OCTOBER 4,

10.38

10.39

Asset Purchase Agreement, dated as of December 6, 2002, by and
among Energetic Systems Inc. LLC, UTeC Corporation, LLC,
SEC Investment Corp. LLC, DetaCorp Inc. LLC, Energetic
Properties, LLC, Slurry Explosive Corporation, Universal Tech
Corporation, El Dorado Chemical Company, LSB Chemical
Corp., LSB Industries, Inc. and Slurry Explosive Manufacturing
Corporation, LLC

Exhibits and Disclosure Letters to the Asset Purchase Agreement,
dated as of December 6, 2002, by and among Energetic Systems
Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC,
DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive
Corporation, Universal Tech Corporation, El Dorado Chemical
Company, LSB Chemical Corp., LSB Industries, Inc. and Slurry
Explosive Manufacturing Corporation, LLC

Exhibit 2.1 to the Company’s Form 8-K dated
December 27, 2002

Exhibit 10.1b to the Company’s Form 10-Q filed
August 6, 2010

Exhibit Number

10.40

Exhibit Title

Incorporated by Reference to the Following

Ammonia Purchase and Sale Agreement by and between El
Dorado Chemical Company and Koch Fertilizer, LLC, dated as of
November 2, 2015

Exhibit 10.49 to the Company’s Form 10-K filed
February 29, 2016

CERTAIN
INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS THE
SUBJECT OF A COMMISSION ORDER CF
#33502, DATED APRIL 4, 2016, GRANTING
REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE
EXCHANGE
AND
SECURITIES
COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT.

Exhibit 10.1 to the Company’s Form 10-Q filed
October 29, 2019

CERTAIN CONFIDENTIAL INFORMATION
WITHIN THIS EXHIBIT HAS BEEN
OMITTED.

Exhibit 10.1 to the Company’s Form 10-Q filed
August 8, 2016

CERTAIN
INFORMATION WITHIN THIS
EXHIBIT HAS BEEN OMITTED AS IT IS THE
SUBJECT OF A COMMISSION ORDER CF
#33783.
DATED AUGUST 30, 2016,
GRANTING REQUEST BY THE COMPANY
FOR CONFIDENTIAL TREATMENT BY THE
SECURITIES
EXCHANGE
AND
COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT.

Exhibit 10.1 to the Company’s Form 8-K filed
May 13, 2016

Exhibit 99.2 to the Company’s Form 8-K filed
December 6, 2012

Exhibit 10.1 to the Company’s Form 8-K filed
August 15, 2013

Exhibit 99.1 to the Company’s Form 8-K filed
November 12, 2013

Exhibit 99.2 to the Company’s Form 8-K filed
November 12, 2013

Exhibit 99.1 to the Company’s Form 8-K filed
January 7, 2014

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

Second Amendment to Ammonia Purchase and Sale Agreement
Between Koch Fertilizer, LLC and El Dorado Chemical
Company, dated as of September 30, 2019

Urea Ammonium Nitrate Purchase and Sale Agreement dated as
of March 3, 2016 and effective as of June 1, 2016 between
Coffeyville Resources Nitrogen Fertilizers, LLC and Pryor
Chemical Company

Stock Purchase Agreement by and among Consolidated Industries
L.L.C. The Climate Control Group, Inc., NIBE Energy Systems
Inc. and, solely for purposes of Sections 6.8, 6.19 and 11.15
therein, LSB Industries, Inc., and solely for purposes of Section
11.16 therein, NIBE Indistrier AB (publ), dated as of May 11,
2016.

Contract on the supply of Basic Engineering Package, Detail
Engineering Package, Tagged Major Equipment and related
Advisory Services, between Weatherly Inc. and El Dorado
Chemical Company, dated November 30, 2012

Engineering, Procurement and Construction Agreement, dated
August 12, 2013, between El Dorado Ammonia L.L.C. and SAIC
Constructors, LLC

Construction Agreement-DMW2, dated November 6, 2013,
between El Dorado Chemical Company and SAIC Constructors,
LLC

Construction Agreement – NACSAC, dated November 6, 2013,
between El Dorado Chemical Company and SAIC Constructors,
LLC

Engineering, Procurement and Construction Agreement, dated
December 31, 2013, between El Dorado Chemical Company and
SAIC Constructors, LLC

Exhibit Number

Exhibit Title

Incorporated by Reference to the Following

10.49

10.50

10.51

10.52

10.53

10.54

10.55

10.56

10.57

Procurement

and Construction Contract,
Engineering,
Amendment No. 1 dated October 20, 2015, by and between El
Dorado Ammonia LLC and SAIC Constructors, LLC

Settlement Agreement, dated April 26, 2015, by and among the
Company and Starboard Value LP and its certain affiliates and
associates

Consent Decree, dated May 28, 2014, by and among, LSB
Industries, Inc., El Dorado Chemical Co., Cherokee Nitrogen Co.,
Pryor Chemical Co., El Dorado Nitrogen, L.P., the U.S.
the U.S. Environmental Protection
Department of Justice,
Agency,
of Environmental
Management, and the Oklahoma Department of Environment
Quality

the Alabama Department

Second Amended and Restated Loan and Security Agreement,
dated December 31, 2013, by and among LSB Industries, Inc.,
each of its subsidiaries that are signatories thereto, the lenders
signatories thereto, and Wells Fargo Capital Finance, LLC

Amendment No. 1 to the Second Amended and Restated Loan
and Security Agreement, dated as of June 11, 2015, by and among
LSB Industries, Inc. its subsidiaries identified on the signature
pages thereof, the lenders identified on the signature pages thereof
and Wells Fargo Capital Finance, LLC, as the arranger and
administrative agent for the Lenders

Amendment No. 2 to the Second Amended and Restated Loan
and Security Agreement, dated as of November 9, 2015, by and
among LSB Industries, Inc., its subsidiaries identified on the
signature pages thereof, the lenders identified on the signature
pages thereof, and Wells Fargo Capital Finance, LLC, as the
arranger and administrative agent for the Lenders

Third Amended and Restated Loan and Security Agreement,
dated as of January 17, 2017, by and among LSB Industries, Inc.,
the subsidiaries of LSB Industries, Inc. party thereto, the lenders
party thereto, and Wells Fargo Capital Finance, LLC, as the
arranger and administrative agent.

First Amendment to Third Amended and Restated Loan and
Security Agreement, dated as of April 16, 2018, by and among
Wells Fargo Capital Finance, LLC, as
the arranger and
administrative agent, the lenders party thereto, LSB Industries,
Inc. and its subsidiaries identified on the signature pages thereto
as borrowers and the Company’s subsidiaries identified on the
signature pages thereto as guarantors.

Second Amendment to Third Amended and Restated Loan and
Security Agreement, dated as of February 26, 2019, by and
among Wells Fargo Capital Finance, LLC, as the arranger and
administrative agent, the lenders party thereto, LSB Industries,
Inc. and its subsidiaries identified on the signature pages thereto
as borrowers and the Company’s subsidiaries identified on the
signature pages thereto as guarantors.

Exhibit 10.1 to the Company’s Form 8-K filed
October 26, 2015

Exhibit 99.1 to the Company’s Form 8-K filed
April 30, 2015

Exhibit 99.1 to the Company’s Form 8-K filed
June 3, 2014

Exhibit 4.9 to the Company’s Form 10-K filed
February 27, 2014

Exhibit 99.1 to the Company’s Form 8-K filed
June 17, 2015

Exhibit 10.3 to the Company’s Form 8-K filed
November 16, 2015

Exhibit 10.1 to the Company’s Form 8-K filed
January 20, 2017

Exhibit 10.1 to the Company’s Form 8-K filed
April 20, 2018

Exhibit 4.1 to the Company’s Form 8-K filed
February 28, 2019

10.58

Security Agreement dated as of August 7, 2013, among LSB
Industries, Inc. and the other grantors identified therein in favor of
UMB Bank, N.A. as Collateral Agent

Exhibit 10.72 to the Company’s Form 10-K filed
February 29, 2016

Exhibit Number

Exhibit Title

Incorporated by Reference to the Following

10.59

10.60

10.61

10.62

10.63

10.64

10.65

10.66

10.67

10.68

10.69

10.70

10.71

10.72*

10.73

10.74

Supplement No. 1 to Security Agreement February 12, 2014
among LSB Industries, Inc. and the other grantors identified
therein in favor of UMB Bank, N.A., as Collateral Agent
Note Purchase Agreement, dated November 9, 2015, by and
among LSB Industries, Inc., the guarantors party thereto and LSB
Funding LLC

Exhibit 10.73 to the Company’s Form 10-K filed
February 29, 2016

Exhibit 10.1 to the Company’s Form 8-K filed
November 16, 2015

Promissory Note, dated November 9, 2015, by LSB Industries,
Inc.

Exhibit 10.2 to the Company’s Form 8-K filed
November 16, 2015

Joinder Agreement to Intercreditor Agreement, dated November
9, 2015, by and among LSB Funding LLC, Wells Fargo Capital
Finance, Inc., as ABL Agent, UMB Bank, N.A., as Notes Agent,
LSB Industries, Inc. and the guarantors party thereto

Amendment No. 1 to Intercreditor Agreement, dated as of April
25, 2018, among Wells Fargo Capital Finance, LLC, UMB Bank,
n.a. and Wilmington Trust, National Association, and
acknowledged by LSB Industries, Inc. and the subsidiary
guarantors party thereto.

Joinder Agreement to Security Agreement, dated November 9,
2015, by and among LSB Funding LLC, UMB Bank, N.A., as
Collateral Agent, LSB Industries, Inc. and the guarantors party
thereto

Securities Purchase Agreement by and among LSB Industries,
Inc., LSB Funding LLC, and Security Benefit Corporation, dated
as of December 4, 2015

Exhibit 10.4 to the Company’s Form 8-K filed
November 16, 2015

Exhibit 10.1 to the Company’s Form 8-K filed
April 25, 2018

Exhibit 10.5 to the Company’s Form 8-K filed
November 16, 2015

Exhibit 10.1 to the Company’s Form 8-K filed
December 8, 2015

Warrant to Purchase Common Stock issued by LSB Industries,
Inc. to LSB Funding LLC, dated as of December 4, 2015

Exhibit 10.2 to the Company’s Form 8-K filed
December 8, 2015

Board Representation and Standstill Agreement by and among
LSB Industries, Inc., LSB Funding LLC, Security Benefit
Corporation, Todd Boehly and the Golsen Holders (as defined
therein), dated as of December 4, 2015

Exhibit 10.3 to the Company’s Form 8-K filed
December 8, 2015

Registration Rights Agreement by and between LSB Industries,
Inc. and LSB Funding LLC, dated as of December 4, 2015

Exhibit 10.4 to the Company’s Form 8-K filed
December 8, 2015

Letter Agreement, dated as of August 12, 2016, by and among
LSB Industries, Inc., LSB Funding LLC and Security Benefit
Corporation

Exhibit 10.1 to the Company’s Form 8-K filed
August 12, 2016

Securities Exchange Agreement, dated as of October 18, 2018, by
and between LSB Industries, Inc. and LSB Funding LLC

Exhibit 10.1 to the Company’s Form 8-K filed
October 19, 2018

Purchase and Sale Agreement dated May 11, 2017 between Zena
Energy L.L.C and BKV Chelsea, LLC

Exhibit 10.1 to the Company’s Form 8-K filed
May 11, 2017.

Transition Agreement dated June 30, 2017 by and between Jack
E. Golsen and LSB Industries, Inc.

Exhibit 10.1 to the Company’s Form 8-K filed on
June 30, 2017

Amendment, dated October 26, 2017, to the Board Representation
and Standstill Agreement by and between LSB Industries, Inc.,
LSB Funding LLC, Security Benefit Corporation, Todd Boehly,
Jack E. Golsen, Barry H. Golsen, Linda Golsen Rappaport,
Golsen Family LLC, SBL LLC and Golsen Petroleum Corp.,
dated as of December 4, 2015

Amendment to Board Representation and Standstill Agreement,
dated as of October 18, 2018, by and among LSB Industries, Inc.,
LSB Funding LLC, Security Benefit Corporation, Todd Boehly
and the Golsen Holders (as defined therein)

Exhibit 10.1. to the Company’s Form 8-K Filed
on October 26, 2017

Exhibit 10.2 to the Company’s Form 8-K filed
October 19, 2018

Exhibit Number

Exhibit Title

Incorporated by Reference to the Following

21.1(a)

23.1(a)

31.1(a)

31.2(a)

32.1(b)

32.2(b)

Subsidiaries of the Company

Consent of Independent Registered Public Accounting Firm

Certification of Mark T. Behrman, Chief Executive Officer,
pursuant to Sarbanes-Oxley Act of 2002, Section 302

Certification of Cheryl A. Maguire, Chief Financial Officer,
pursuant to Sarbanes-Oxley Act of 2002, Section 302

Certification of Mark T. Behrman, Chief Executive Officer,
furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906

Certification of Cheryl A. Maguire, Chief Financial Officer,
furnished pursuant to Sarbanes-Oxley Act of 2002, Section 906

101.INS(a)

XBRL Instance Document

101.SCH(a)

XBRL Taxonomy Extension Schema Document

101.CAL(a)

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF(a)

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB(a)

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE(a)

XBRL Taxonomy Extension Presentation Linkbase Document

*
(a)
(b)
(P)

Executive Compensation Plan or Arrangement
Filed herewith
Furnished herewith
Paper copy filed

LSB Industries, Inc.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:
February 25, 2020

By:

/s/ Mark T. Behrman
Mark T. Behrman, President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.

Dated:
February 25, 2020

By:

/s/ Mark T. Behrman
Mark T. Behrman, President and Chief Executive Officer
(Principal Executive Officer) and Director

/s/ Cheryl A. Maguire
Cheryl A. Maguire, Executive Vice President and Chief Financial
Officer (Principal Financial Officer)

/s/ Harold L. Rieker Jr.
Harold L. Rieker Jr., Vice President - Financial Reporting
(Principal Accounting Officer)

/s/ Richard W. Roedel
Richard W. Roedel, Chairman of the Board of Directors

/s/ Jonathan S. Bobb
Jonathan S. Bobb, Director

/s/ Jack E. Golsen
Jack E. Golsen, Chairman Emeritus

/s/ Barry H. Golsen
Barry H. Golsen, Director

/s/ Kanna Kitamura
Kanna Kitamura, Director

/s/ Richard S. Sanders Jr.
Richard S. Sanders Jr., Director

/s/ Lynn F. White
Lynn F. White, Director

LSB Industries, Inc.

Consolidated Financial Statements
And Schedule for Inclusion in Form 10-K
For the Fiscal Year ended December 31, 2019

Table of Contents

Financial Statements

Report of Independent Registered Public Accounting Firm .............................................................................................................

Consolidated Balance Sheets ............................................................................................................................................................

Consolidated Statements of Operations ............................................................................................................................................

Consolidated Statements of Stockholders’ Equity............................................................................................................................

Consolidated Statements of Cash Flows ...........................................................................................................................................

Notes to Consolidated Financial Statements.....................................................................................................................................

Page

F–2

F–3

F–5

F–6

F–7

F–9

Quarterly Financial Data (Unaudited)...............................................................................................................................................

F–35

Financial Statement Schedule

Schedule II – Valuation and Qualifying Accounts ...........................................................................................................................

F–37

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of LSB Industries, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LSB Industries, Inc. (the Company) as of December 31, 2019 and
2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting
principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated February 25, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-02 (Topic 842) and No. 2014-09 (Topic 606)

As discussed in Note 1 and Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases
in the December 31, 2019 financial statements to reflect the accounting method change due to the adoption of ASU 2016-02 Leases
(Topic 842). Additionally, in the December 31, 2018 financial statements the Company changed its method of accounting for revenuen
due to the adoption of ASU 2014-09 Revenue from Contracts with Customers (Topic 606).

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required tod
be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1968.

Oklahoma City, Oklahoma

February 25, 2020

F-2

Assets
Current assets:

Cash and cash equivalents
Accounts receivable
Allowance for doubtful accounts

Accounts receivable, net

Inventories:

Finished goods
Raw materials

Total inventories

Supplies, prepaid items and other:

Prepaid insurance
Supplies
Other

Total supplies, prepaid items and other

Total current assets

Property, plant and equipment, net

Other assets:

Operating lease assets
Intangible and other assets, net

LSB Industries, Inc.

Consolidated Balance Sheets

December 31,

2019

2018

(In Thousands)

22,791
40,203
(261)
39,942

21,738
1,573
23,311

11,837
24,689
8,303
44,829
130,873

936,474

15,330
5,812
21,142

26,048
67,043
(351)
66,692

27,726
1,483
29,209

10,924
24,576
8,964
44,464
166,413

974,248

—
7,672
7,672

1,088,489

1,148,333

(Continued on following page)

F-3

LSB Industries, Inc.

Consolidated Balance Sheets (continued)

Liabilities and Stockholders' Equity
Current liabilities:

Accounts payable
Short-term financing
Accrued and other liabilities
Current portion of long-term debt

Total current liabilities

Long-term debt, net

NNoncurrent operating lease liabilities

Other noncurrent accrued and other liabilities

Deferred income taxes

Commitments and contingencies (Note 9)

Series E 14% cumulative, redeemable Class C preferred stock, no par value,
210,000 shares issued; 139,768 outstanding; aggregate liquidation preference
of $242,800,000 ($212,071,000 at December 31, 2018)
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 $3,025,000 ($2,785,000 at December 31, 2018)
Series D 6% cumulative, convertible Class C preferred stock, no par value;
1,000,000 shares issued and outstanding; aggregate liquidation preference
of $1,252,000 ($1,192,000 at December 31, 2018)
Common stock, $.10 par value; 75,000,000 shares authorized,
31,283,210 shares issued (31,283,210 shares at December 31, 2018)
Capital in excess of par value
Retained earnings

Less treasury stock, at cost:

Common stock, 2,009,566 shares (2,438,305 shares at December 31, 2018)

Total stockholders' equity

See accompanying notes.

F-4

December 31,

2019

2018

(In Thousands)

58,477
9,929
25,484
9,410
103,300

449,634

11,404

6,214

35,717

62,589
8,577
42,129
12,518
125,813

412,681

—

8,861

56,612

234,893

202,169

—

2,000

1,000

3,128
196,833
57,632
260,593

1,000

3,128
198,482
153,773
358,383

13,266
247,327
1,088,489

16,186
342,197
1,148,333

LSB Industries, Inc.

Consolidated Statements of Operations

2019

Year Ended December 31,
2018
(In Thousands, Except Per Share Amounts)

2017

NNet sales
Cost of sales
Gross profit

365,070
360,085
4,985

378,160
362,325
15,835

427,504
422,038
5,466

Selling, general and administrative expense

34,172

40,811

34,990

Other expense (income), net
Operating loss

Interest expense, net
Loss on extinguishment of debt
NNon-operating other income, net

Loss from continuing operations before provision (benefit) for income taxes
Provision (benefit) for income taxes
Loss from continuing operations

Income from discontinued operations, net of taxes
NNet loss

Dividends on convertible preferred stocks
Dividends on Series E redeemable preferred stock
Accretion of Series E redeemable preferred stock
NNet loss attributable to common stockholders

Basic and dilutive income (loss) per common share:

Loss from continuing operations
Income from discontinued operations, net of taxes
Net loss

9,904
(39,091)

46,389
—
(1,139)

(84,341)
(20,924)
(63,417)

—
(63,417)

300
30,729
1,995

(96,441) $

(1,951)
(23,025)

43,064
5,951
(1,554)

(70,486)
1,740
(72,226)

—
(72,226)

300
26,840
3,375
(102,741) $

4,567
(34,091)

37,267
—
(306)

(71,052)
(40,759)
(30,293)

1,076
(29,217)

300
23,443
6,487
(59,447)

(3.44) $
—
(3.44) $

(3.74) $
—
(3.74) $

(2.22)
0.04
(2.18)

See accompanying notes.

F-5

LSB Industries, Inc.

Consolidated Statements of Stockholders’ Equity

Treasury
Stock-
Common
Shares

Non-
Redeemable
Preferred
Stock

Common
Stock Shares

Common
Stock
Par Value

Capital in
Excess of
Par Value

(In Thousands)

Retained
Earnings

Treasury
Stock-
Common

Total

31,281

(3,005) $

3,000 $ 3,128 $192,172 $314,301 $(20,088) $492,513

1,060
(29,217)

(23,443)
(6,487)

256,214
(72,226)

(26,840)
(3,375)

153,773
(63,417)

1,060
(29,217)

(23,443)
(6,487)
5,099
(1,361)
32
(18,102) 438,196
(72,226)

1,814
172

(26,840)
(3,375)
8,358
(1,936)
20
(16,186) 342,197
(63,417)

1,916

5,099
(3,175)
(140)
193,956

8,358
(3,852)
20
198,482

317
26
(2,662)

31,281

3,000

3,128

224

2
31,283

(2,438)

3,000

3,128

(30,729)
(1,995)
2,220
(949)
3,000 $ 3,128 $196,833 $ 57,632 $(13,266) $247,327

(30,729)
(1,995)

2,220
(3,869)

2,920

31,283

428
(2,010) $

Balance at December 31, 2016
Cumulative effect of change in accounting
principle
NNet loss
Dividend accrued on redeemable preferred
stock
Accretion of redeemable preferred stock
Stock-based compensation
Issuance of restricted stock, net
Other
Balance at December 31, 2017
NNet loss
Dividend accrued on redeemable preferred
stock
Accretion of redeemable preferred stock
Stock-based compensation
Issuance of restricted stock, net
Other
Balance at December 31, 2018
NNet loss
Dividend accrued on redeemable preferred
stock
Accretion of redeemable preferred stock
Stock-based compensation
Issuance of restricted stock, net
Balance at December 31, 2019

See accompanying notes.

F-6

LSB Industries, Inc.

Consolidated Statements of Cash Flows

Cash flows from continuing operating activities
NNet loss
Adjustments to reconcile net loss to net cash provided by
continuing operating activities:

Income from discontinued operations, net of taxes
Deferred income taxes
Charge on extinguishment of debt
Depreciation, depletion and amortization of property, plant and
equipment
Amortization of intangible and other assets
Loss associated with assets held for sale
Loss (gain) on sales of businesses and other property and equipment
Stock-based compensation
Other
Cash provided (used) by changes in assets and liabilities
(net of effects of discontinued operations):

Accounts receivable
Inventories
Other supplies, prepaid items and other
Accounts payable
Accrued interest
Other current and noncurrent liabilities
NNet cash provided by continuing operating activities

Cash flows from continuing investing activities
Expenditures for property, plant and equipment
Proceeds from sales of businesses and other property and equipment
Proceeds from property insurance recovery associated with property,
plant and equipment
Net proceeds from sale of discontinued operations
Other investing activities

NNet cash used by continuing investing activities

2019

Year Ended December 31,
2018
(In Thousands)

2017

(63,417) $

(72,226) $

(29,217)

—
(20,895)
—

68,325
1,249
9,701
678
2,220
2,794

8,800
6,092
(934)
(7,987)
586
(5,113)
2,099

(36,081)
61

—
—
95
(35,925)

—
1,825
5,951

70,266
2,361
—
(1,637)
8,358
2,098

(2,167)
(6,698)
564
14,208
(6,919)
1,638
17,622

(37,050)
6,660

1,531
2,730
389
(25,740)

(1,076)
(40,445)
—

66,996
2,147
—
6,977
5,213
434

(6,321)
56
(2,139)
1,374
(1)
(1,722)
2,276

(35,425)
23,841

—
—
739
(10,845)

(Continued on following page)

F-7

LSB Industries, Inc.

Consolidated Statements of Cash Flows (continued)

2019

Year Ended December 31,
2018
(In Thousands)

2017

Cash flows from continuing financing activities

Proceeds from revolving debt facility
Payments on revolving debt facility
Net proceeds from 9.625% senior secured notes
Payments on senior secured notes
Proceeds from other long-term debt
Payments on other long-term debt
Payments of debt-related costs, including extinguishment and
modification costs
Proceeds from short-term financing
Payments on short-term financing
Payments of preferred stock modification costs
Proceeds from exercises of stock options
Taxes paid on equity awards

NNet cash provided (used) by continuing financing activities
Cash flows of discontinued operations:
Net cash used by operating activities
Net cash used by financing activities
Net cash used by discontinued operations

NNet decrease in cash and cash equivalents

5,000
(15,000)
35,086
—
20,219
(14,073)

(1,065)
12,179
(10,828)
—
—
(949)
30,569

—
—
—
(3,257)

10,000
—
390,473
(375,000)
—
(9,170)

(10,974)
10,865
(10,872)
(2,777)
20
(2,018)
547

—
—
—
(7,571)

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

26,048
22,791

33,619
26,048

See accompanying notes.

—
—
—
—
—
(14,121)

(90)
10,919
(11,479)
—
—
(1,361)
(16,132)

(1,461)
(236)
(1,697)
(26,398)

60,017
33,619

F-8

LSB Industries, Inc.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of Consolidation – LSB Industries, Inc. (“LSB”) and its subsidiaries (the “Company”, “We”, “Us”, or “Our”) are consolidated
in the accompanying consolidated financial statements. LSB is a holding company with no significant operations or assets other than
cash, cash equivalents, and investments in its subsidiaries. All material intercompany accounts and transactions have been eliminated.
Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to
current period presentation.

Nature of Business – We are engaged in the manufacture and sale of chemical products. The chemical products we primarily
manufacture, market and sell are ammonia, fertilizer grade AN (“HDAN”) and UAN for agricultural applications, high purity and
commercial grade ammonia, high purity AN, sulfuric acids, concentrated, blended and regular nitric acid, mixed nitrating acids,
carbon dioxide, and diesel exhaust fluid for industrial applications, and industrial grade AN (“LDAN”) and solutions for the mining
industry. We manufacture and distribute our products in four facilities; three of which we own and are located in El Dorado, Arkansas
(the “El Dorado Facility”); Cherokee, Alabama (the “Cherokee Facility”); and Pryor, Oklahoma (the “Pryor Facility”); and one of which
we operate on behalf of a global chemical company in Baytown, Texas (the “Baytown Facility”).

Sales to customers include farmers, ranchers, fertilizer dealers and distributors primarily in the ranch land and grain production
markets in the United States (U.S.); industrial users of acids throughout the U. S. and parts of Canada; and explosive manufacturers in
the U.S.

Other products consisted of natural gas sales from our working interests in certain natural gas properties of our former subsidiary Zena
Energy L.L.C. and sales of industrial machinery and related components, which were sold during 2017.

Use of Estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting
principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents – Investments, which consist of highly liquid investments with original maturities of three months or
less, are considered cash equivalents.

–

Accounts Receivable – Our accounts receivable are stated at net realizable value. This value includes an appropriate allowance for
estimated uncollectible accounts to reflect any loss anticipated on accounts receivable balances. Our estimate is based on historical
experience and periodic assessment of outstanding accounts receivable, particularly those accounts that are past due (based upon the
terms of the sale). Our periodic assessment of our accounts receivable is based on our best estimate of amounts that are not
recoverable. Our contract assets consist of receivables from contracts with customers. Our accounts receivable primarily relate to
these contract assets and are presented in our consolidated balance sheets.

Sales to our customers are generally unsecured. Credit is extended to customers based on an evaluation of the customer’s financial
condition and other factors. Customer payments are generally due thirty to sixty days after the invoice date. Concentrations of credit
risk with respect to trade receivables are monitored and this risk is reduced due to short-term payment terms relating to most of our
significant customers. Nine customers (including their affiliates) account for approximately 46% of our total net receivables at
December 31, 2019.

Inventories – Inventories are stated at the lower of cost (determined using the first-in, first-out (“FIFO”) basis) or net realizable value,
which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, transportation
or disposal. Finished goods include material, labor, and manufacturing overhead costs.

Inventory reserves associated with cost exceeding net realizable value were not material at December 31, 2019 and 2018.

F-9

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Property, Plant and Equipment – Property, plant and equipment (“PP&E”) are stated at cost, net of accumulated depreciation,
depletion and amortization (“DD&A”). Leases meeting finance lease criteria (formerly classified as capital leases) are capitalized in
PP&E. Major renewals and improvements that increase the life, value, or productive capacity of assets are capitalized in PP&E while
maintenance, repairs and minor renewals are expensed as incurred. In addition, maintenance, repairs and minor renewal costs relating
to planned major maintenance activities (“Turnarounds”) are expensed as they are incurred. All long-lived assets relate to domestic
operations.

Fully depreciated assets are retained in PP&E and accumulated DD&A accounts until disposal. When PP&E is retired, sold, or
otherwise disposed, the asset’s carrying amount and related accumulated DD&A is removed from the accounts and any gain or loss is
included in other income or expense.

For financial reporting purposes, depreciation of the costs of PP&E is primarily computed using the straight-line method over thet
estimated useful lives of the assets. No provision for depreciation is made on construction in progress or capital spare parts until such
time as the relevant assets are put into service.

In general, assets held for sale are reported at the lower of the carrying amounts of the assets or fair values less costs to sell. During
2019, in conjunction with management’s review of our long-range strategy, development of the 2020 budget and the completion of the
2019 Turnarounds, certain non-core long-lived assets were identified and authorized to be sold. As a result, these assets were
classified as assets held for sale. Because the estimated costs to sell these assets (primarily to dismantle) exceeds the estimated fair
values, the carrying amount of these assets were written down to a de minimis amount and a non-cash charge of approximately $9.7
million was recognized and classified as other expense. We expect these assets to be sold in 2020. At December 31, 2018, we had no
long-lived assets classified as held for sale.

Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the
carrying amount of an asset (asset group) exceeds the estimated undiscounted future cash flows expected to result from the use of the
asset (asset group) and its eventual disposition. If assets to be held and used are considered to be impaired, the impairment to be
recognized is the amount by which the carrying amounts of the assets exceed the fair values of the assets as measured by the present
value of future net cash flows expected to be generated by the assets or their appraised value. In general, and depending on the event
or change in circumstances, our asset groups are reviewed for impairment on a facility-by-facility basis (such as the Cherokee, El
Dorado or Pryor Facility).

In addition, if the event or change in circumstance relates to the probable sale of an asset (or group of assets), the specific asset (or
group of assets) is reviewed for impairment.

Concentration of Credit Risks for Cash and Cash Equivalents and Sales – Financial instruments relating to cash and cash
equivalents potentially subject us to concentrations of credit risk. These financial instruments were held by financial institutions
within the U.S. None of the financial instruments held within U.S. were in excess of the federally insured limits.

Net sales to one customer, Koch Fertilizer LLC (“Koch Fertilizer”), represented approximately 11%, 13% and 10% of our total net
sales for 2019, 2018 and 2017, respectively. Net sales to one customer, Coffeyville Resources Nitrogen Fertilizer, LLC (“CVR”),
represented approximately 11% of our total net sales for 2018. Net sales to one customer, Covestro AG (“Covestro”), represented
approximately 12% of our total net sales for 2017.

Accrued Insurance Liabilities – We are self-insured up to certain limits for group health, workers’ compensation and general
liability claims. Above these limits, we have commercial stop-loss insurance coverage for our contractual exposure on group health
claims and statutory limits under workers’ compensation obligations. We also carry umbrella insurance of $100 million for most
general liability and auto liability risks. We have a separate $50 million insurance policy covering pollution liability at our chemical
facilities. Additional pollution liability coverage for our other facilities is provided in our general liability and umbrella policies.

Our accrued self-insurance liabilities are based on estimates of claims, which include the reported incurred claims amounts plus the
reserves established by our insurance adjustors and/or estimates provided by attorneys handling the claims, if any, up to the amount of
our self-insurance limits. In addition, our accrued insurance liabilities include estimates of incurred, but not reported, claims based on
historical claims experience. The determination of such claims and the appropriateness of the related liability is periodically reviewed
and revised, if needed. Changes in these estimated liabilities are charged to operations. Potential legal fees and other directly related
costs associated with insurance claims are not accrued but rather are expensed as incurred. Accrued insurance claims are included in
accrued and other liabilities. It is reasonably possible that the actual development of claims could be different than our estimates.

F-10

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Executive Benefit Agreements – We are party to certain benefit agreements with certain key current and former executives. Costs
associated with these individual benefit agreements are accrued based on the estimated remaining service period when such benefitsff
become probable, they will be paid. Total costs accrued equal the present value of specified payments to be made after benefits
become payable.

Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the
period that includes the enactment date. We establish valuation allowances if we believe it is more-likely-than-not that some or all of
deferred tax assets will not be realized. Significant judgment is applied in evaluating the need for and the magnitude of appropriate
valuation allowances against deferred tax assets.

In addition, we do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on
audit by the relevant taxing authorities based solely on the technical merits of the associated tax position. If the recognition threshold
is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50% likely to
be realized. We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense.

Income tax benefits associated with amounts that are deductible for income tax purposes are recorded through the statement of
operations. These benefits are principally generated from exercises of non-qualified stock options and restricted stock. We reduce
income tax expense for investment tax credits in the period the credit arises and is earned.

See Note 8 – Income Taxes discussing the Tax Cuts and Jobs Act of 2017 and Staff Accounting Bulletin No. 118 ("SAB 118") issued
by the SEC.

Asset Retirement Obligations – In general, we record the estimated fair value of an asset retirement obligation (“ARO”) associated
with tangible long-lived assets in the period it is incurred and when there is sufficient information available to estimate the fair value.
An ARO associated with long-lived assets is a legal obligation under existing or enacted law, statute, written or oral contract or legal
construction. AROs, which are initially recorded based on estimated discounted cash flows, are accreted to full value over time
through charges to cost of sales. In addition, we capitalize the corresponding asset retirement cost as PP&E, which cost is depreciated
or depleted over the related asset’s respective useful life. We do not have any assets restricted for the purpose of settling our AROs.

Redeemable Preferred Stocks – Our redeemable preferred stocks that are redeemable outside of our control are classified as
temporary/mezzanine equity. The redeemable preferred stocks were recorded at fair value upon issuance, net of issuance costs or
discounts. In addition, certain embedded features included in the Series E Redeemable Preferred required bifurcation and are
classified as derivative liabilities. The carrying values of the redeemable preferred stocks are being increased by periodic accretions
(including the amount for dividends earned but not yet declared or paid) using the interest method so that the carrying amount will
equal the redemption value as of October 25, 2023, the earliest possible redemption date by the holder. The accretion was recorded to
retained earnings.

However, this accretion will change if the expected redemption date changes.

Equity Awards – Equity award transactions with employees are measured based on the estimated fair value of the equity awards
issued. For equity awards with service conditions that have a graded vesting period, we recognize compensation cost on a straight-line
basis over the requisite service period for the entire award. Forfeitures are accounted for as they occur. Historically, we issue new
shares of common stock upon the exercise of stock options, but treasury shares may be used.

F-11

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Revenue Recognition and Other Information

Revenue Recognition and Performance Obligations

We determine revenue recognition through the following steps:

•

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, we satisfy a performance obligation.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in
ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as,
the performance obligation is satisfied. Generally, satisfaction occurs when control of the promised goods is transferred to thet
customer or as services are rendered or completed in exchange for consideration in an amount for which we expect to be entitled.
Generally, control is transferred when the preparation for shipment of the product to a customer has been completed. Most of our
contracts contain a single performance obligation with the promise to transfer a specific product. When the terms of a contract include
the transfer of multiple products, each distinct product is identified as a separate performance obligation.

Most of our revenue is recognized from performance obligations satisfied at a point in time, however, we have a performance
obligation to perform certain services that are satisfied over a period of time. Revenue is recognized from this type of performance
obligation as services are rendered and are based on the amount for which we have a right to invoice, which reflects the amount of
expected consideration that corresponds directly with the value of the services performed.

We only offer assurance-type warranties for our products to meet specifications defined by our contracts with customers, and do not
have any material performance obligations related to warranties, return, or refunds.

Transaction Price Constraints and Variable Consideration

For most of our contracts within the scope of Accounting Standards Codification, Revenue from Contracts with Customers (Topic
606) (“ASC 606”), the transaction price from the inception of a contract is constrained to a short period of time (generally one month)
as these contracts contain terms with variable consideration related to both price and quantity. These contract prices are often based
on commodity indexes (such as NYMEX natural gas index) published monthly and the contract quantities are typically based on
estimated ranges. The quantities become fixed and determinable over a period of time as each sale order is received from the
customer.

The nature of our contracts also gives rise to other types of variable consideration, including volume discounts and rebates, make-
whole provisions, other pricing concessions, and short-fall charges. We estimate these amounts based on the expected amount to be
provided to customers, which result in a transaction price adjustment reducing revenue (net sales) with the offset increasing contract or
refund liabilities. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We
reassess these estimates on a quarterly basis.

The aforementioned constraints over transaction prices in conjunction with the variable consideration included in our material
contracts prevent a practical assignment of a specific dollar amount to performance obligations at the beginning and end of the period.
Therefore, we have applied the variable consideration allocation exception.

Future revenues to be earned from the satisfaction of performance obligations will be recognized when control transfers as goods are
loaded and weighed or services are performed over the remaining duration of our contracts. Although most of our contracts have an
original expected duration of one year or less, for our contracts with a duration greater than one year, the average remaining expected
duration was approximately 15 months at December 31, 2019.

Practical Expedients and Other Information

We have applied the following practical expedients:

•

to recognize revenue in the amount we have the right to invoice relating to certain services that are performed for
customers and, not disclosing the value of unsatisfied performance obligations related to such services.

not disclosing the value of unsatisfied performance obligations for contracts with an original expected duration of one
year or less.

not adjusting the promised amount of consideration for the effects of a significant financing component if we expect the
financing time period to be one year or less.

expense as incurred any incremental costs of obtaining a contract if the associated period of benefit is one year or less.

F-12

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

All net sales and long-lived assets relate to domestic operations for the periods presented. In addition, net sales to non-U.S. customers
were minimal.

Recognition of Incentive Tax Credits (Other Than Credits Associated with Income Taxes) – If an incentive tax credit relates to a
recovery of taxes (other than income taxes) incurred, we recognize the incentive tax credit when it is probable and reasonably
estimable. If an incentive tax credit relates to an amount in excess of taxes incurred, the incentive tax credit is a contingent gain,
which we recognize the incentive tax credit when it is realized or when the contingencies have been resolved (generally at the time a
settlement has been reached). Amounts recoverable from the taxing authorities, if any, are included in accounts receivable. The same
financial statement classification is used for an incentive tax credit as the associated tax incurred.

During 2017, we received notification from the State of Arkansas that incentive tax credits had been approved associated with certain
capital expenditures associated with the El Dorado Facility’s expansion projects completed primarily in the fourth quarter of 2015 and
the second quarter of 2016. As a result, in 2017, we recognized a current and noncurrent receivable totaling approximately $8.1
million associated with these incentive tax credits with the offset reducing PP&E (covered by the tax credit) by approximately $7.4
million and the remaining balance of $0.7 million as a reduction to cost of sales (recovery of previously incurred depreciation expense
related to the PP&E). At December 31, 2019 and 2018, our incentive tax credits receivable totaled $2.3 million and $3.1 million,
respectively.

Recognition of Insurance Recoveries – If an insurance claim relates to a recovery of our losses, we recognize the recovery when it is
probable and reasonably estimable. If our insurance claim relates to a contingent gain, we recognize the recovery when it is realized
or when the contingencies have been resolved (generally at the time a settlement has been reached). Amounts recoverable from our
insurance carriers, if any, are included in accounts receivable. An insurance recovery in excess of recoverable costs relating to a
business interruption claim, if any, is a reduction to cost of sales.

Cost of Sales – Cost of sales includes materials, labor and overhead costs to manufacture the products sold plus inbound freight,
purchasing and receiving costs, inspection costs, internal transfer costs, loading and handling costs, warehousing costs, railcar lease
costs and outbound freight. Maintenance, repairs and minor renewal costs relating to Turnarounds are included in cost of sales as they
are incurred. Precious metals used as a catalyst and consumed during the manufacturing process are included in cost of sales.
Recoveries and gains from precious metals and business interruption insurance claims, if any, are reductions to cost of sales.

Selling, General and Administrative Expense – Selling, general and administrative expense (“SG&A”) includes costs associated
with the sales, marketing and administrative functions. Such costs include personnel costs, including benefits, professional fees, office
and occupancy costs associated with the sales, marketing and administrative functions. Also included in SG&A are any distribution
fees paid to third parties to distribute our products.

Derivatives, Hedges and Financial Instruments – Derivatives are recognized in the balance sheet and are measured at fair value.
Changes in fair value of derivatives are recorded in results of operations unless the normal purchase or sale exceptions apply, or hedge
accounting is elected.

The fair value amounts recognized for our derivative contracts executed with the same counterparty under a master netting
arrangement may be offset. We have the choice to offset or not, but that choice must be applied consistently. A master netting
arrangement exists if the reporting entity has multiple contracts with a single counterparty that are subject to a contractual agreement
that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or
termination of any one contract. Offsetting the fair values recognized for the derivative contracts outstanding with a single
counterparty results in the net fair value of the transactions being reported as an asset or a liability in the balance sheet. We have
chosen to present the fair values of our derivative contracts under master netting agreements using a gross fair value presentation as
there were no derivatives with fair values that were eligible to be offset as of December 31, 2019 and 2018.

Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of
inputs to the valuation as of the measurement date:

Level 1 - Valuations of contracts classified as Level 1 are based on quoted prices in active markets for identical contracts. At
December 31, 2019 and 2018, we did not have any contracts classified as Level 1.

Level 2 - Valuations of contracts classified as Level 2 are based on quoted prices for similar contracts and valuation inputs other
than quoted prices that are observable for these contracts. At December 31, 2019 and 2018, we did not have any significant
contracts classified as Level 2.

F-13

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Level 3 - Valuations of assets and liabilities classified as Level 3 are based on prices or valuation techniques that require inputs
that are both unobservable and significant to the overall fair value measurement. See Note 10 for further discussion of our
embedded derivative which is classified as Level 3.

At December 31, 2019 and 2018, we did not have any financial instruments with fair values significantly different from their carrying
amounts (excluding issuance costs, if applicable). The fair value of financial instruments is not indicative of the overall fair value of
our assets and liabilities since financial instruments do not include all assets, including intangibles, and all liabilities.

Income (Loss) per Common Share – Net income (loss) attributable to common stockholders is computed by adjusting net income
(loss) by the amount of dividends and dividend requirements on preferred stocks and the accretion of redeemable preferred stocks, if
applicable. Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding, excluding contingently returnable common shares (unvested restricted stock), if
applicable. For periods we earn net income, a proportional share of net income is allocated to participating securities, if applicable,
determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and
participating securities (the “two-class method”). Certain securities (Series E Redeemable Preferred and restricted stock units)
participate in dividends declared on our common stock and are therefore considered to be participating securities.

Participating securities have the effect of diluting both basic and diluted income per common share during periods of net income. For
periods we incur a net loss, no loss is allocated to participating securities because they have no contractual obligation to share in our
losses. Diluted loss per common share is computed after giving consideration to the dilutive effect of our potential common stock
instruments that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

Segment Information - We operate in one principal business segment – our chemical business.

Recently Adopted Accounting Pronouncements

ASU 2016-02 and related ASUs – In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), which supersedes the
lease requirements in Topic 840, Leases. In addition, the FASB issued various other ASUs further amending lease accounting
guidance (together “ASC 842”). On January 1, 2018, we adopted ASC 842 as discussed in Note 2.

–

Recently Issued Accounting Pronouncements

–

2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
ASU 2019-12 – In December 2019, the FASB issued ASU
Income Taxes which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to
simplify and reduce the cost of accounting for income taxes. The ASU removes certain exceptions to the general framework and also
seeks to simplify and/or clarify accounting for income taxes by adding certain requirements that would simplify GAAP for financial
statement preparers. The effective date of ASU 2019-12 is fiscal years (and interim periods within those fiscal years) beginning after
Dec. 15, 2020. Early adoption is permitted but requires simultaneous adoption of all provisions of the new standard. We continue to
evaluate the effect of our pending adoption of this ASU on our consolidated financial statements and related disclosures at this time.

2. Adoption of ASC 842

On January 1, 2019, we adopted ASC 842 using the additional transition method option provided by ASU 2018-11. Under this
transition method, we applied the new accounting guidance on the date of adoption. Upon adoption, a cumulative effect adjustment
was not required; however, the effect of this guidance on our consolidated financial statements impacted our balance sheet
presentation by increasing the amount of our noncurrent assets for the inclusion of right-of-use assets of $15.9 million and increasing
the amount of our liabilities for the inclusion of the associated lease obligations of $15.9 million, most of which were classified as
noncurrent.

Under the transition option we elected, ASC 842 is applied only to the most current period presented in the financial statements and
our reporting for the comparative periods presented in the financial statements continue to be in accordance with Topic 840, including
disclosures. Upon adoption, we elected the following accounting policies or practical expedients related to ASC 842:

•

not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any
expired or existing leases, and not reassess initial direct costs for any existing leases;

apply accounting similar to Topic 840 operating leases accounting to leases that meet the definition of short-term leases;
and

not evaluate land easements that exist or expired before January 1, 2019 and that were not previously accounted for as
leases under Topic 840.

F-14

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

2. Adoption of ASC 842 (continued)

Subsequent to adoption, we determine if an arrangement is a lease at inception. Since our leases generally do not provide an implicit
rate, we use our incremental borrowing rate based on the lease term and other information available at the commencement date in
determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Currently,
most of our leases are classified as operating leases under which we are the lessee and primarily relate to railcars, other equipment and
office space. In addition, our leases that are classified as finance leases (previously classified as capital leases) and other leases under
which we are the lessor are not material. Most of our leases do not include options to extend or terminate the lease prior to the end of
the term. As of December 31, 2019, we have executed operating leases with lease terms greater than one year, totaling approximately
$10.8 million that have not yet commenced.

Components of lease expense:

Operating lease cost
Short-term lease cost
Other cost (1)

Total lease cost
Supplemental cash flow information related to leases:

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases

Cash paid for amounts included in the measurement of lease liabilities

Right-of-use assets obtained in exchange for new operating lease liabilities
Other lease-related information:
Weighted-average remaining lease term - operating leases (in years)
Weighted-average remaining lease term - finance leases (in years)
Weighted-average discount rate - operating leases
Weighted-average discount rate - finance leases

(1)

Includes variable and finance lease costs.

Maturities of operating lease liabilities as of December 31, 2019 are as follows:

2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities

2019
(Dollars In Thousands)

7,270
2,665
64
9,999

7,677
16
61
7,754

5,967

4.6
3.8
8.70%
8.94%

Operating Leases
(In thousands)

5,189
3,951
3,282
2,969
1,715
1,603
18,709
(3,239)
15,470

Additionally, under Topic 840, expenses associated with our operating lease agreements, including month-to-month leases, were
$10,235,000 in 2018 and $9,813,000 in 2017.

F-15

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

3. Income (loss) per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share:

NNumerator:
NNet loss

Adjustments for basic net loss per common share:

Dividend requirements on Series E Redeemable Preferred
Dividend requirements on Series B Preferred
Dividend requirements on Series D Preferred
Accretion of Series E Redeemable Preferred

Numerator for basic and dilutive net loss per common
share - net loss attributable to common stockholders

Denominator:

Denominator for basic and dilutive net loss per common
share - adjusted weighted-average shares (1)

Basic and dilutive net income (loss) per common share:

Loss from continuing operations
Income from discontinued operations, net of taxes
Net loss

2017
2018
2019
(Dollars In Thousands, Except Per Share Amounts)

(63,417) $

(72,226) $

(29,217)

(30,729)
(240)
(60)
(1,995)

(26,840)
(240)
(60)
(3,375)

(23,443)
(240)
(60)
(6,487)

(96,441) $

(102,741) $

(59,447)

28,039,625

27,490,717

27,250,876

(3.44) $
—
(3.44) $

(3.74) $
—
(3.74) $

(2.22)
0.04
(2.18)

(1) All periods exclude the weighted-average shares of unvested restricted stock that are contingently issuable.

The following weighted-average shares of securities were not included in the computation of diluted net income (loss) per common
share as their effect would have been antidilutive:

Convertible preferred stocks
Restricted stock and stock units
Series E redeemable preferred stock - embedded derivative
Stock options

4. Property, Plant and Equipment

Machinery, equipment and automotive
Buildings and improvements
Land improvements
Furniture, fixtures and store equipment
Construction in progress
Capital spare parts
Land

Less accumulated depreciation and
amortization

(1) Weighted average useful lives as of December 31, 2019.

F-16

2019

916,666
832,103
303,646
124,000
2,176,415

2018

916,666
1,183,622
303,646
175,454
2,579,388

2017

916,666
1,187,525
303,646
215,067
2,622,904

Average
useful lives (1)

December 31,

2019

2018

(In Thousands)

25
26
34
3
N/A
N/A
N/A

1,204,695
38,810
8,223
1,122
31,575
24,245
4,575
1,313,245

1,189,438
39,032
8,076
1,122
28,753
28,945
4,583
1,299,949

376,771
936,474

325,701
974,248

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

4. Property, Plant and Equipment (continued)

Machinery, equipment and automotive primarily includes the categories of property and equipment and estimated useful lives as
follows: processing plants and plant infrastructure (15-30 years); certain processing plant components (3-10 years); and trucks,
automobiles, trailers, and other rolling stock (2-7 years).

5. Current and Noncurrent Accrued and Other Liabilities

Accrued interest
Accrued payroll and benefits (1)
Current portion of operating lease liabilities
Deferred revenue
Accrued death and other executive benefits
Series E redeemable preferred - embedded derivative
Accrued health and worker compensation insurance claims
Customer deposits
Accrued litigation settlement (See Note 9)
Other

Less noncurrent portion
Current portion of accrued and other liabilities

December 31,

2019

2018

(In Thousands)
7,091 $
5,385
4,066
3,443
2,564
1,084
966
132
—
6,967
31,698
6,214
25,484 $

6,505
7,259
—
5,216
2,777
1,642
1,107
1,783
18,450
6,251
50,990
8,861
42,129

(1)

At December 31, 2018, the amount includes certain severance benefits as discussed in Note 14.

6. Asset Retirement Obligations

Currently, we have various legal requirements related to operations at our chemical facilities mainly for the disposal of wastewater
generated at certain of these facilities. At December 31, 2019 and 2018, our accrued liability for AROs was $100,000. However, the
facilities and some of the water related assets have an indeterminate life and as a result there is insufficient information to estimate the
fair value for certain of our AROs. We will continue to review these obligations and record a liability when a reasonable estimate of
the fair value can be made.

7. Long-Term Debt

Working Capital Revolver Loan, with a current interest rate of
5.25% (A)
Senior Secured Notes due 2023 (B)
Secured Promissory Note due 2021, with an interest rate
of 5.25% (C)
Secured Promissory Note due 2023, with a current interest rate
of 6.03% (D)
Secured Financing due 2023, with an interest rate
of 8.32% (E)
Secured Loan Agreement, with an interest rate
of 8.76% (E)
Secured Promissory Note due 2019 (E)
Other
Unamortized discount, net of premium, and debt
issuance costs

Less current portion of long-term debt (F)
Long-term debt due after one year, net (F)

December 31,

2019

2018

(In Thousands)

— $

435,000

10,000
400,000

4,746

8,090

12,705

14,685

13,476

5,219
—
159

—

—
7,165
221

(12,261)
459,044
9,410
449,634

(14,962)
425,199
12,518
412,681

F-17

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)

(A) As amended in February 2019, our revolving credit facility (the “Working Capital Revolver Loan”) provides for advances up to $75
million, based on specific percentages of eligible accounts receivable and inventories and up to $10 million of standby letters of credit, the
outstanding amount of which reduces the available for borrowing under the Working Capital Revolver Loan. At December 31, 2019, our
available borrowings under our Working Capital Revolver Loan were approximately $42.1 million, based on our eligible collateral,
less outstanding letters of credit. The maturity date of the Working Capital Revolver Loan is February 26, 2024. The Working Capital
Revolver Loan also provides for a springing financial covenant (the “Financial Covenant”), which requires that, if the borrowing
availability is less than 10.0% of the total revolver commitments, then the borrowers must maintain a minimum fixed charge coverage
ratio of not less than 1.00 to 1.00. The Financial Covenant, if triggered, is tested monthly.

Interest accrues on outstanding borrowings under the Working Capital Revolver Loan at a rate equal to, at our election, either (a)
LIBOR for an interest period selected by us plus an applicable margin equal to 1.50% per annum or 1.75% per annum, depending on
borrowing availability under the Working Capital Revolver Loan, or (b) Wells Fargo Capital Finance’s prime rate plus an applicablea
margin equal to 0.50% per annum or 0.75% per annum, depending on borrowing availability under the Working Capital Revolver
Loan. Interest is paid monthly, if applicable.

The Working Capital Revolver Loan contains customary covenants including limitations on asset sales, liens, debt incurrence,
restricted payments, investments, dividends and transactions with affiliates.

The Working Capital Revolver Loan includes customary events of default. Upon the occurrence of any event of default, the
obligations under the Working Capital Revolver Loan may be accelerated and the revolver commitments may be terminated.

Obligations under the Working Capital Revolver Loan are secured by a first priority security interest in substantially all of our current
assets, including accounts receivable and inventory, subject to certain customary exceptions.

(B) On April 25, 2018, LSB completed the issuance and sale of $400 million aggregate principal amount of its 9.625% Senior Secured
Notes due 2023 (the “Notes”). The Notes were issued pursuant to an indenture, dated as of April 25, 2018 (the “Indenture”), by and
among LSB, the subsidiary guarantors named therein, and Wilmington Trust, National Association, a national banking association, as
trustee and collateral agent (the “Notes Trustee”). The Notes were issued at a price equal to 99.509% of their face value.

On June 21, 2019, LSB completed the issuance and sale of $35 million aggregate principal amount of its 9.625% Senior Secured
Notes due 2023 (the “New Notes”). The New Notes were issued pursuant to the Indenture (the Notes together with the New Notes, thett
“Senior Secured Notes”). The New Notes were issued at a price equal to 102.125% of their face value, plus accrued interest from
May 1, 2019 to June 21, 2019, in a transaction exempt from the registration requirements under the Securities Act of 1933 (the
“Securities Act”) sold to eligible purchasers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in accordance
with Regulation S under the Securities Act.

As it relates to the issuance of the Notes in April 2018, a portion of the net proceeds from the Notes were used to purchase/redeem the
$375 million aggregate principal amount of senior secured notes scheduled to mature in 2019. The remaining net proceeds were
primarily used to pay related transaction fees and expenses, redemption premiums, and accrued interest on the senior secured notes
purchased/redeemed.

A portion of this transaction was accounted for as an extinguishment of debt and a portion was accounted for as a non-substantial debt
modification. As a result, approximately $15.2 million of the fees/redemption premiums/discount was deferred and included in
discount and debt issuance costs and approximately $0.9 million of fees were expensed, as incurred, and are included in interest
expense in 2018. In addition, we recognized a loss on extinguishment of debt of approximately $6.0 million in 2018, primarily
consisting of a portion of the redemption premiums paid and the expensing of a portion of debt issuance costs associated with thet
senior secured notes.

The Senior Secured Notes will mature on May 1, 2023 and rank senior in right of payment to all of our debt that is expressly
subordinated in right of payment to the notes and will rank pari passu in right of payment with all of our liabilities that are not so
subordinated, including the Working Capital Revolver Loan. LSB’s obligations under the Senior Secured Notes are jointly and
severally guaranteed by the subsidiary guarantors named in the Indenture on a senior secured basis.

Interest on the Senior Secured Notes accrues at a rate of 9.625% per annum and is payable semi-annually in arrears on May 1 and
November 1 of each year.

F-18

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)

LSB may redeem the Senior Secured Notes at its option, in whole or in part, subject to the payment of a premium ranging from a
“make-whole” premium to a premium of 3.609% of the principal amount so redeemed, in the case of any optional redemption prior to
May 1, 2022. If LSB experiences a change of control, it must offer to purchase the notes at 101% of their principal amount, plus
accrued and unpaid interest, if any, to but excluding the date of purchase.

The Indenture contains covenants that limit, among other things, LSB and certain of its subsidiaries’ ability to (1) incur additional
indebtedness; (2) declare or pay dividends, redeem stock or make other distributions to stockholders; (3) make other restricted
payments, including investments; (4) create dividend and other payment restrictions affecting its subsidiaries; (5) create liens or use
assets as security in other transactions; (6) merge or consolidate, or sell, transfer, lease or dispose of all or substantially all of our
assets; and (7) enter into transactions with affiliates. Further, during any such time when the Senior Secured Notes are rated
investment grade by each of Moody’s Investors Service, Inc. and Standard & Poor’s Investors Ratings Services and no Default (as
defined in the Indenture) has occurred and is continuing, certain of the covenants will be suspended with respect to the Senior Secured
Notes.

The Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include
nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain
judgments and certain events of bankruptcy and insolvency.

Obligations in respect of the Senior Secured Notes are secured by a first priority security interest in substantially all of our fixed
assets, subject to certain customary exceptions.

(C) EDC is party to a secured promissory note due in March 2021. Principal and interest are payable in monthly installments.

(D) El Dorado Ammonia L.L.C. (“EDA”), one of our subsidiaries, is party to a secured promissory note due in May 2023. Principal
and interest are payable in equal monthly installments with a final balloon payment of approximately $6.1 million.

(E) On May 28, 2019, EDC entered into a $15 million secured financing arrangement with an affiliate of LSB Funding L.L.C. (“LSB
Funding”). Beginning in June 2019, principal and interest are payable in 48 equal monthly installments with a final balloon payment
of approximately $3 million due on June 1, 2023. This financing arrangement is secured by the cogeneration facility equipment and is
guaranteed by LSB. A portion of the proceeds from this secured financing arrangement was used to pay off the Secured Promissory
Note that was scheduled to mature in June 2019.

During 2019, EDC entered into a secured loan agreement with an affiliate of LSB Funding. Under the terms of the agreement, EDC
has up to $7.5 million of available borrowings (the “Interim Loan”) during the construction of certain equipment (the “Interim Loan
Period), subject to certain conditions. During the Interim Loan Period, interest only is payable in monthly installments. The Interim
Loan will be replaced by a term loan in 2020. Principal and interest will be payable in 60 equal monthly installments under the term
loan.

(F) Maturities of long-term debt for each of the five years after December 31, 2019 are as follows (in thousands):

2020
2021
2022
2023
2024
Thereafter

Less: Discount, net of premium, and debt issuance costs

9,447
7,598
6,769
447,491
—
—
12,261
459,044

F-19

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

8. Income Taxes

In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Cut Act”), making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate of 21%,
additional limitations on executive compensation, and limitations on the deductibility of interest.

The FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available,
prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the
Tax Cut Act.

In 2017 and the first nine months of 2018, we recorded provisional amounts for certain enactment-date effects of the Tax Cut Act by
applying the guidance in SAB 118 because we had not yet completed our enactment-date accounting for these effects. In 2018 and
2017, we recorded tax expense related to these effects including the decrease in the federal corporate tax rate, additional limitations on
executive compensation, and limitations on the deductibility of interest. During the fourth quarter of 2018, we completed the
accounting for tax reform and there was no adjustment to provisional amounts recorded.

Provision (benefit) for income taxes from continuing operations are as follows:

Current:

Federal
State

Total Current

Deferred:
Federal
State

Total Deferred

Provision (benefit) for income taxes

2019

2018
(In Thousands)

2017

— $
(29)
(29) $

11
(96)
(85) $

67
(381)
(314)

(14,739) $
(6,156)
(20,895) $
(20,924) $

1,415
410
1,825
1,740

$
$

(50,084)
9,639
(40,445)
(40,759)

$
$

The current provision for federal income taxes shown above includes regular federal income tax after the consideration of permanent
and temporary differences between income for GAAP and tax purposes. The current benefit for state income taxes includes regular
state income tax and provisions for uncertain income tax positions, and other similar adjustments.

The deferred tax provision (benefit) results from the recognition of changes in our prior year deferred tax assets and liabilities, and the
utilization of state NOL carryforwards and other temporary differences. We reduce income tax expense for tax credits in the year they
arise and are earned. At December 31, 2019, our gross amount of tax credits available to offset state income taxes was not material.
Most of these tax credits do not expire and carryforward indefinitely. The gross amount of federal tax credits was $8.1 million. These
credits carryforward for 20 years and begin expiring in 2034. The current year deferred benefit is primarily due to changes to the state
deferred tax assets and liabilities resulting from state tax law changes enacted during 2019 and due to federal and state indefinite lived
carryforward benefits that can be realized through the reversal of deferred tax liabilities.

We utilized approximately $3.4 million, which includes the impact of changes in tax law, of state NOL carryforwards to reduce tax
liabilities in 2018 (minimal in 2019 and none in 2017). At December 31, 2019, we have remaining federal and state tax NOL
carryforwards of $611.0 million and $734.9 million, respectively. The federal NOL carryforwards begin expiring in 2033 and the
state NOL carryforwards began expiring in 2019.

We considered both positive and negative evidence in our determination of the need for valuation allowances for the deferred tax
assets associated with federal and state NOLs and federal credits and in conjunction with the IRC Section 382 limitation. Information
evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax
liabilities and tax carrybacks, as well as an evaluation of currently available information about future years. In the second quarter of
2018, we established a valuation allowance on a portion of our federal deferred tax assets. Valuation allowances are reflective of our
quarterly analysis of the four sources of taxable income, including the calculation of the reversal of existing tax assets and liabilities,
the impact of the recent financing activities and our results of operations. Based on our analysis, we currently believe that it is more-
likely-than-not that a portion of our federal deferred tax assets will not be able to be utilized and the valuation allowance recorded for
2019 is approximately $2.7 million. For 2019, 2018 and 2017, we determined it was more-likely-than-not that approximately $698.4
million, $608.9 million and $536.0 million, respectively, of the state deferred tax assets would not be able to be utilized before
expiration and a valuation allowance was maintained for the deferred tax assets associated with these carryforwards, net of federal
benefit, of approximately $34.2 million and $31.0 million at December 31, 2019 and 2018, respectively. This includes a reversal of
approximately $2.3 million of valuation allowance related to tax law changes in 2018.

F-20

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

Deferred tax assets and liabilities include temporary differences and carryforwards as follows:

December 31,

2019

2018

Deferred compensation
Other accrued liabilities
Interest expense carryforward
NNet operating loss
Other

Less valuation allowance on deferred tax assets

Total deferred tax assets

Property, plant and equipment
Prepaid and other insurance reserves
Total deferred tax liabilities

Net deferred tax liabilities

(In Thousands)
2,073
1,051
23,164
163,750
14,994
(51,589)
153,443

2,637
1,579
11,267
154,914
12,581
(45,625)
137,353

(182,572)
(6,588)
(189,160) $

(191,369)
(2,596)
(193,965)

(35,717) $

(56,612)

All of our loss before taxes relates to domestic operations. Detailed below are the differences between the amount of the provision
(benefit) for income taxes and the amount which would result from the application of the federal statutory rate to “Loss from
continuing operations before provision (benefit) for income taxes”.

Benefit for income taxes at federal statutory rate
State current and deferred income tax benefit
Valuation allowance - Federal
Valuation allowance - State
State tax law changes
Tax reform
Other
Provision (benefit) for income taxes

2019

2018
(In Thousands)

2017

(17,712) $
(5,282)
2,739
2,961
(4,388)
—
758
(20,924) $

(14,802) $
(4,089)
14,604
4,112
—
—
1,915
1,740

(24,868)
(2,699)
—
7,651
—
(22,988)
2,145
(40,759)

A reconciliation of the beginning and ending amount of uncertain tax positions is as follows:

Balance at beginning of year
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Balance at end of year

2019

2018
(In Thousands)
618
$
—
(41)
577

577
—
(58)
519

2017

657
11
(50)
618

We expect that the amount of unrecognized tax benefits may change as the result of ongoing operations, the outcomes of audits, and
the expiration of statute of limitations. This change is not expected to have a significant effect on our results of operations or financial
condition. For 2019, 2018, and 2017, if recognized, the effect on the effective tax rate from unrecognized tax benefits would be
insignificant.

F-21

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

We record interest related to unrecognized tax positions in interest expense and penalties in operating other expense. We recognized
$0.1 million of interest and penalties associated with unrecognized tax benefits in 2017 (minimal amounts in 2019 and 2018). At
December 31, 2019 and 2018, approximately $0.3 million and $0.2 million, respectively is accrued for interest and penalties.

LSB and certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few
exceptions, the 2016-2019 years remain open for all purposes of examination by the U.S. Internal Revenue Service (“IRS”) and other
major tax jurisdictions. During 2018, the IRS concluded their examination of our 2015 tax return and there are no changes to our
financial position, results of operations or cash flow resulting from the audit.

9. Commitments and Contingencies

Purchase and Sales Commitments – We have the following significant purchase and sales commitments.

UAN supply agreement – The Pryor Chemical Company (“PCC”) is party to an agreement with CVR. CVR has the exclusive right
(but not the obligation) to purchase all the tons of UAN that are produced by PCC with certain limitations. If CVR fails to take
delivery of certain tons, PCC pursuant to the terms of the agreement may immediately sell such unpurchased product to a third-party
without restriction. The current term of the agreement expires in May 2020, but includes automatic renewals for one or more
additional one-year terms unless terminated by either party. However, CVR may unilaterally terminate the agreement upon 180 days’
advance written notice of termination to PCC; provided, however, that each party’s rights and obligations pertaining to UAN that
CVR committed to purchase before such advance notice will survive termination. Additionally, PCC can terminate the agreement
upon 90 days’ advance written notice of termination to CVR; provided, however, that each party’s rights and obligations pertaining to
UAN that PCC committed to sell prior to such advance notice will survive termination.

Ammonia supply agreement – EDC is party to an agreement, as amended, with Koch Fertilizer under which Koch Fertilizer agrees to
purchase, with minimum purchase requirements, the ammonia that (a) will be produced at the El Dorado Facility and (b) a portion that
is in excess of EDC’s needs as defined. As amended, the term of the agreement expires in June 2022 but automatically continues for
one or more additional one-year terms unless terminated by either party by delivering a notice of termination at least nine months prior
to the end of term in effect.

Covestro agreement – El Dorado Nitrogen LLC (“EDN”) and EDC, are party to an agreement (the “Covestro Agreement”) with
Covestro. EDN operates the Baytown Facility located within Covestro’s chemical manufacturing complex located in Baytown, Texas.
Under the terms of the Covestro Agreement, EDN is responsible for the maintenance and operation of the Baytown Facility, which
facility produces all of Covestro’s requirements for nitric acid for use in Covestro’s chemical manufacturing complex. If there is a
change in control of EDN, Covestro has the right to terminate the Covestro Agreement upon payment of certain fees to EDN. The
Covestro Agreement expires in June 2021, with options for renewal.

Natural Gas Purchase and Other Commitments – Certain of our subsidiaries are parties to contracts to purchase natural gas for
anticipated production needs at certain of our facilities. Since these contracts are considered normal purchases because they provide
for the purchase of natural gas that will be delivered in quantities expected to be used over a reasonable period of time in the normal
course of business and are documented as such, these contracts are exempt from the accounting and reporting requirements relating to
derivatives. At December 31, 2019, our natural gas contracts, which qualify as normal purchases under GAAP and thus are not mark-
to-market, included volume purchase commitments with fixed costs of approximately 7.0 million MMBtus of natural gas. These
contracts extend through December 2020 at a weighted-average cost of $2.23 per MMBtu ($15.7 million) and a weighted-average
market value of $2.06 per MMBtu ($14.5 million).

In addition, we had standby letters of credit outstanding of approximately $2.8 million at December 31, 2019.

Wastewater Pipeline Operating Agreement – EDC is party to an operating agreement for the right to use a pipeline to dispose its
wastewater. EDC is contractually obligated to pay a portion of the operating costs of the pipeline, which portion is estimated to be
$100,000 to $150,000 annually. The initial term of the operating agreement is through December 2053.

–

Performance and Payment Bonds – We are contingently liable to sureties in respect of certain insurance bonds issued by the sureties
in connection with certain contracts entered into by certain subsidiaries in the normal course of business. These insurance bonds
primarily represent guarantees of future performance of our subsidiaries. As of December 31, 2019, we have agreed to indemnify the
sureties for payments, up to $10 million, made by them in respect of such bonds. All of these insurance bonds are expected to expire
or be renewed in 2020.

–

F-22

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

9. Commitments and Contingencies (continued)

Employment and Severance Agreements - We have employment and severance agreements with several of our officers. The
agreements, as amended, provide for annual base salaries, bonuses and other benefits commonly found in such agreements. In the
event of termination of employment due to a change in control (as defined in the agreements), the agreements provide for payments
aggregating $8.3 million at December 31, 2019. Also see Note 14-Related Party Transactions.

Settlement of a Gain Contingency - During 2018, we and a vendor mediated a settlement relating primarily to a business interruption
claim caused by defective work performed by the vendor at our Pryor Facility. As a result of the settlement, the vendor paid us $4.0
million. As part of the settlement, we paid the vendor $0.5 million to settle $1.1 million of invoices that were held in our accounts
payable. As a result, we recognized a recovery from this settlement totaling $4.6 million of which $4.4 million was classified as a
reduction to cost of sales (primarily relating to our business interruption claim) and the remaining balance of $0.2 million as a
reduction to PP&E.

Legal Matters - Following is a summary of certain legal matters involving the Company:

A. Environmental Matters

Our facilities and operations are subject to numerous federal, state and local environmental laws and to other laws regarding health
and safety matters (collectively, the “Environmental and Health Laws”), many of which provide for certain performance obligations,
substantial fines and criminal sanctions for violations. Certain Environmental and Health Laws impose strict liability as well as joint
and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been
stored or released. We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities
of third parties that received waste generated by our operations regardless of whether such contamination resulted from 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.

In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety
effects of our operations.

There can be no assurance that we will not incur material costs or liabilities in complying with such laws or in paying 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 made against us. The Environmental and Health Laws and related enforcement policies 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 our wastes were disposed of), penalties or other liabilities relating to the handling, manufacture, use, emission, discharge or
disposal of hazardous or toxic materials at or from our facilities or the use or disposal of certain of its chemical products. Further, a
number of our facilities are dependent on environmental permits to operate, the loss or modification of which could have a material
adverse effect on their operations and our financial condition.

Historically, significant capital expenditures have been incurred by our subsidiaries in order to comply with the Environmental and
Health Laws, and significant capital expenditures are expected to be incurred in the future. We will also be obligated to manage
certain discharge water outlets and monitor groundwater contaminants at our facilities should we discontinue the operations of a
facility.

As of December 31, 2019, our accrued liabilities for environmental matters totaled $183,000 relating primarily to the matters
discussed below. It is reasonably possible that a change in the estimate of our liability could occur in the near term. Also, see
discussion in Note 6 – Asset Retirement Obligations.

–

1. Discharge Water Matters

Each of our manufacturing facilities generates process wastewater, which may include cooling tower and boiler water quality control
streams, contact storm water and miscellaneous spills and leaks from process equipment. The process water discharge, storm-water
runoff and miscellaneous spills and leaks are governed by various permits generally issued by the respective state environmental
agencies as authorized and overseen by the U.S. Environmental Protection Agency. These permits limit the type and amount of
effluents that can be discharged and control the method of such discharge.

F-23

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

9. Commitments and Contingencies (continued)

In October 2017, PCC filed a Permit Renewal Application for its Non-Hazardous Injection Well Permit at the Pryor Facility.
Although the Injection Well Permit expired in 2018, PCC continues to operate the injection well pending the Oklahoma Department of
Environmental Quality (“ODEQ”) action on the Permit Renewal Application. PCC and ODEQ are engaged in ongoing discussions
related to the renewal of the injection well to address the wastewater stream.

Our El Dorado Facility is subject to a National Pollutant Discharge Elimination System (“NPDES”) permit issued by the Arkansas
Department of Environmental Quality (“ADEQ”) in 2004. In 2010, the ADEQ issued a draft NPDES permit renewal for the El
Dorado Facility, which contained more restrictive discharge limits than the previous 2004 permit. In August 2017, ADEQ issued a
final NPDES permit with new dissolved mineral limits. EDC filed an appeal in September 2017 and a Permit Appeal Resolution
(“PAR”) was signed in July 2018. EDC is in compliance with the revised permit limits agreed upon in the PAR.

In November 2006, the El Dorado Facility entered into a Consent Administrative Order (“CAO”) that recognizes the presence of
nitrate contamination in the shallow groundwater. The CAO required EDC to perform semi-annual groundwater monitoring, continue
operation of a groundwater recovery system, submit a human health and ecological risk assessment, and submit a remedial action plan.
The risk assessment was submitted in August 2007. In February 2015, the ADEQ stated that El Dorado Chemical was meeting the
requirements of the CAO and should continue semi-annual monitoring. Subsequent to the PAR mentioned previously, a new CAO
was signed in October 2018, which required an Evaluation Report of the data and effectiveness of the groundwater remedy for nitrate
contamination. In February 2019, the Evaluation Report was submitted to the ADEQ and the ADEQ approved the report in August
2019.

No liability has been established at December 31, 2019, in connection with this ADEQ matter.

2. Other Environmental Matters

In 2002, certain of our subsidiaries sold substantially all of their operating assets relating to a Kansas chemical facility (the “Hallowell
Facility”) but retained ownership of the real property where the facility is located. Our subsidiary retained the obligation to be
responsible for, and perform the activities under, a previously executed consent order to investigate the surface and subsurface
contamination at the real property and develop a corrective action strategy based on the investigation. In addition, certain of our
subsidiaries agreed to indemnify the buyer of such assets for these environmental matters.

As the successor to a prior owner of the Hallowell Facility, Chevron Environmental Management Company (“Chevron”) has agreed in
writing, within certain limitations, to pay and has been paying one-half of the costs of the investigation and interim measures relating
to this matter as approved by the Kansas Department of Health and Environment (the “KDHE”), subject to reallocation.

Our subsidiary and Chevron have retained an environmental consultant to prepare and perform a corrective action study work plan as
to the appropriate method to remediate the Hallowell Facility. The proposed strategy includes long-term surface and groundwater
monitoring to track the natural decline in contamination. The KDHE is currently evaluating the corrective action strategy, and, thus, it
is unknown what additional work the KDHE may require, if any, at this time.

We accrued our allocable portion of costs primarily for the additional testing, monitoring and risk assessments that could be
reasonably estimated, which is included in our accrued liabilities for environmental matters discussed above. The estimated amount is
not discounted to its present value. As more information becomes available, our estimated accrual will be refined.

B. Other Pending, Threatened or Settled Litigation

In 2013, an explosion and fire occurred at the West Fertilizer Co. (“West Fertilizer”) located in West, Texas, causing death, bodily injury
and substantial property damage. West Fertilizer is not owned or controlled by us, but West Fertilizer was a customer of EDC, and
purchased AN from EDC from time to time. LSB and EDC received letters from counsel purporting to represent subrogated insurance
carriers, personal injury claimants and persons who suffered property damages informing LSB and EDC that their clients are conducting
investigations into the cause of the explosion and fire to determine, among other things, whether AN manufactured by EDC and supplied
to West Fertilizer was stored at West Fertilizer at the time of the explosion and, if so, whether such AN may have been one of the
contributing factors of the explosion. Initial lawsuits filed named West Fertilizer and another supplier of AN as defendants.

dd
uu

In 2014, EDC and LSB were named as defendants, together with other AN manufacturers and brokers that arranged the transport and
delivery of AN to West Fertilizer, in the case styled City of West, Texas vs. CF Industries, Inc., et al., in the District Court of
McLennan County, Texas. The plaintiffs allege, among other things, that LSB and EDC were negligent in the production and
marketing of fertilizer products sold to West Fertilizer, resulting in death, personal injury and property damage. EDC retained a firm
specializing in cause and origin investigations with particular experience with fertilizer facilities, to assist EDC in its own
investigation. LSB and EDC placed its liability insurance carrier on notice, and the carrier is handling the defense for LSB and EDC
concerning this matter.

F-24

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

9. Commitments and Contingencies (continued)

Our product liability insurance policies have aggregate limits of general liability totaling $100 million, with a self-insured retention of
$250,000, which retention limit has been met relating to this matter. In August 2015, the trial court dismissed plaintiff’s negligence
claims against us and EDC based on a duty to inspect but allowed the plaintiffs to proceed on claims for design defect and failure to
warn.

Subsequently, we and EDC have entered into confidential settlement agreements (with approval of our insurance carriers) with several
plaintiffs that had claimed wrongful death and bodily injury and insurance companies asserting subrogation claims for damages from
the explosion. These settlements have been paid by the insurer as of December 31, 2019. While these settlements resolve the claims
of a number of the claimants in this matter for us, we continue to be party to litigation related to this explosion by other plaintiffs, in
addition to indemnification or defense obligations we may have to other defendants. We continue to defend these lawsuits vigorously
and we are unable to estimate a possible range of loss at this time if there is an adverse outcome in this matter as to EDC. As of
December 31, 2019, no liability reserve has been established in connection with this matter.

In 2015, a case styled Dennis Wilson vs. LSB Industries, Inc., et al., was filed in the United States District Court for the Southern
District of New York. The plaintiff purports to represent a class of our shareholders and asserts that we violated federal securities
laws by allegedly making material misstatements and omissions about delays and cost overruns at our El Dorado Chemical Company
manufacturing facility and about our financial well-being and prospects. The lawsuit, which also names certain current and former
officers, sought an unspecified amount of damages.

In October 2018, LSB entered into a preliminary, binding term sheet to settle Dennis Wilson vs. LSB Industries, Inc., et al., which was
subject to approval by the court. On January 17, 2019, the parties entered into a Stipulation and Agreement of Settlement (the “Wilson
Settlement Agreement”), pursuant to which the settlement amount of approximately $18.5 million was paid in March by our insurers
on behalf of LSB and certain current and former officers in exchange for, among other things, a release of all claims. On May 23,
2019, one request for exclusion from the settlement class was made. On June 28, 2019, the court held a settlement hearing and entered
a Judgement Approving Class Action Settlement, which includes a provision whereby the party requesting exclusion may withdraw its
exclusion from the settlement and file by July 23, 2019 to rejoin the class. On July 23, 2019, LSB reached a preliminary settlement
and the requesting party withdrew its request for exclusion from the class. Subsequently, during the third quarter of 2019, this
additional settlement was executed, and the settlement amount was paid to the requesting party by our insurers on behalf of LSB and
certain current and former officers in exchange for, among other things, an appropriate release of claims. As a result, no liability in
relation to this matter remains outstanding as of December 31, 2019.

In 2015, we and EDA received formal written notice from Global Industrial, Inc. (“Global”) of Global’s intention to assert mechanic
liens for labor, service, or materials furnished under certain subcontract agreements for the improvement of the new ammonia plant at
our El Dorado Facility. Global is a subcontractor of Leidos Constructors, LLC (“Leidos”), the general contractor for EDA for the
construction for the ammonia plant. Leidos terminated the services of Global with respect to their work performed at our El Dorado
Facility.

LSB and EDA intend to pursue recovery of any damage or loss caused by Global’s work performed at our El Dorado Facility. In
March 2016, EDC and we were served a summons in a case styled Global Industrial, Inc. d/b/a Global Turnaround vs. Leidos
Constructors, LLC et al., in the Circuit court of Union County, Arkansas, wherein Global seeks damages under breach of contract and
other claims. We have requested indemnifications from Leidos under the terms of our contracts which they have denied, and we
intend to vigorously defend against the allegation made by Global and seek reimbursement of legal expenses from Leidos under our
contracts. We are also seeking damages from Leidos for their wrongdoing during the expansion, including breach of contract, fraud,
gross negligence, professional negligence and gross negligence.

Except for the invoices totaling approximately $3.5 million that were not approved by Leidos for payment that are included in our
accounts payable, no liability has been established in connection with the claims asserted by Global. On September 25, 2018, the
Court bifurcated the case into: (1) Global’s claims against Leidos and LSB, and (2) the cross-claims between Leidos and LSB. Part
(1) of the case was tried to the Court during the fall of 2018. The Court took the matter under advisement, will consider the evidence
and render judgment. LSB intends to vigorously prosecute its claims against Leidos in Part (2) of the matter. Trial is scheduled for
Part (2) of the matter in March of 2020.

We are also involved in various other claims and legal actions (including matters involving gain contingencies). It is possible that the
actual future development of claims could be different from our estimates but, after consultation with legal counsel, we believe that
changes in our estimates will not have a material effect on our business, financial condition, results of operations or cash flows.

F-25

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

10. Redeemable Preferred Stocks

Series E Redeemable Preferred

The Series E Redeemable Preferred has a 14% annual dividend rate and a participating right in dividends and liquidating distributions
equal to 303,646 shares of common stock (participation rights value). Dividends accrue semi-annually in arrears and are compounded.
Dividends are payable only when and if declared by the Board of Directors (the “Board”).

Pursuant to the terms of the Series E Redeemable Preferred, the annual dividend rate will increase (a) by 0.50% in April 2021 (b) by
an additional 0.50% in April 2022 and (c) by an additional 1.0% in April 2023.

Additionally, we must declare a dividend on the Series E Redeemable Preferred on a pro rata basis with the common stock. As long
as LSB Funding holds at least 10% of the Series E Redeemable Preferred, we may only declare dividends on Junior Stock unless and
until dividends have been declared and paid on the Series E Redeemable Preferred for the then current dividend period in cash. The
Series E Redeemable Preferred has a liquidation preference per share of $1,000 plus accrued and unpaid dividends plus the
participation rights value (the “Liquidation Preference”). The participation rights value is the product of the pro rata number of Series
E Redeemable Preferred shares being redeemed and the price of our common stock as of such date.

During 2018, in connection with the issuance and sale of the Notes as discussed in Note 7, we entered into a letter agreement with the
holder of our Series E Redeemable Preferred. The letter agreement extended the date upon which the holder of the Series E
Redeemable Preferred has the right to elect to redeem the Series E Redeemable Preferred shares from August 2, 2019 to October 25,
2023. The letter agreement also provided for the amendment of certain other terms relating to the Series E Redeemable Preferred,
including an increase in the per annum dividend rate payable in respect of the Series E Redeemable Preferred as described above. To
reflect the changes stated in the letter agreement, we subsequently entered into a securities exchange agreement by and between LSB
and the holder and entered into the Certificate of Designations setting forth the rights, preferences, privileges and restrictions currently
applicable to the Series E Redeemable Preferred and Series F Redeemable Preferred, as filed with the Secretary of State of the State of
Delaware (the “Series E COD” and “Series F COD”). The Series E COD authorizes 139,768 shares of Series E Redeemable
Preferred, which is the number of shares outstanding at December 31, 2019 and 2018.

The transaction associated with the letter agreement was determined to be a non-substantial modification. As a result, a fee of
approximately $2.8 million paid to the holder was deferred (reducing the Series E Redeemable Preferred balance) and will be
periodically accreted using the interest method through October 25, 2023, the earliest possible redemption date by the holder. In
addition, the letter agreement included a contingent redemption feature, which was bifurcated from the Series E Redeemable Preferred
based on the estimated fair value of approximately $0.3 million at the time of bifurcation.

With respect to the distribution of assets upon liquidation, dissolution or winding up of LSB, whether voluntary or involuntary, the
Series E Redeemable Preferred ranks (i) senior to the common stock, the Series B 12% Cumulative Convertible Preferred Stock, the
Series D 6% Cumulative Convertible Class C Preferred Stock, the Series 4 Junior Participating Class C Preferred Stock and any other
class or series of stock of LSB (other than Series E Redeemable Preferred) that ranks junior to the Series E Redeemable Preferred
either or both as to the payment of dividends and/or as to the distribution of assets on any liquidation, dissolution or winding up of the
Corporation (the “Junior Stock”); (ii) on a parity with the other shares of Series E Redeemable Preferred and any other class or series
of stock of LSB (other than Series E Redeemable Preferred) created after the date of the Series E COD (that specifically ranks pari
passu to the Series E Redeemable Preferred) and (iii) junior to any other class or series of stock of LSB created after the date of the
Series E COD that specifically ranks senior to the Series E Redeemable Preferred.

Generally, the holders of the Series E Redeemable Preferred Shares (the “Series E Holders”) will not have any voting rights or
powers, and consent of the Series E Holders will not be required for taking of any action by us. However, the Series E Holders’
consent is required for:

•

amendments to increase or decrease the authorized amount of Series E Redeemable Preferred,

the creation or increase of any shares of any class or series of capital stock of LSB ranking pari passu with or senior to the
Series E Redeemable Preferred, or

any amendment that adversely affect the powers, preferences or special rights of the Series E Redeemable Preferred.

F-26

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

10. Redeemable Preferred Stocks (continued)

At any time on or after October 25, 2023, each Series E Holder has the right to elect to have such holder’s shares redeemed by us at a
redemption price per share equal to the Liquidation Preference of such share as of the redemption date. Additionally, we, at our
option, may redeem the Series E Redeemable Preferred at any time at a redemption price per share equal to the Liquidation Preference
of such share as of the redemption date. Lastly, with receipt of (i) prior consent of the electing Series E Holder or a majority of shares
of Series E Redeemable Preferred and (ii) all other required approvals, including under any principal U.S. securities exchange on
which our common stock is then listed for trading, we can redeem the Series E Redeemable Preferred by the issuance of shares of
common stock having an aggregate common stock price equal to the amount of the aggregate Liquidation Preference of such shares
being redeemed in shares of common stock in lieu of cash at the redemption date.

In the event of liquidation, the Series E Redeemable Preferred is entitled to receive its Liquidation Preference before any such
distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other Junior Stock. In the event
of a change of control, we must make an offer to purchase all of the shares of Series E Redeemable Preferred outstanding.

The Series E Redeemable Preferred is redeemable outside of our control and is therefore classified as temporary/mezzanine equity.
As a result of an analysis performed on the embedded derivatives within the Series E Redeemable Preferred, certain contingent
redemption features were determined to not be clearly and closely related to the debt-like host and also did not meet any other scope
exceptions for derivative accounting. Therefore, these redemption features and participation rights value are being accounted for as
derivative instruments and the fair value of these derivative instruments were bifurcated from the Series E Redeemable Preferred and
recorded as a liability as discussed below under Embedded Derivative.

Series F Redeemable Preferred

The Series F COD authorizes one (1) shares of Series F Redeemable Preferred.

As of December 31, 2019, the Series F Redeemable Preferred has voting rights (the “Series F Voting Rights”) to vote as a single class
on all matters which the common stock have the right to vote and is entitled to a number of votes equal to 456,225 shares of our
common stock.

With respect to the distribution of assets upon liquidation, dissolution or winding up of LSB, whether voluntary or involuntary, the
Series F Redeemable Preferred ranks (i) senior to our common stock and (ii) ranks junior to LSB’s Series B 12% Cumulative
Convertible Preferred Stock, Series D 6% Cumulative Convertible Class C Preferred Stock, Series 4 Junior Participating Class C
Preferred Stock, Series E Redeemable Preferred and any other class or series of stock of LSB after the date of the Series F COD that
specifically ranks senior to the Series F Redeemable Preferred.

The Series F Redeemable Preferred will be automatically redeemed by LSB, in whole and not in part, for $0.01 immediately following
the date upon which the Series F Voting Rights have been reduced to zero.

In the event of liquidation, the Series F Redeemable Preferred is entitled to receive its liquidation preference of $100 before any such
distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other stock junior to the Series F
Redeemable Preferred.

Changes in our Series E and Series F Redeemable Preferred are as follows:

Balance at December 31, 2018

Accretion relating to liquidation preference on
preferred stock
Accretion for discount and issuance costs on
preferred stock
Accumulated dividends
Balance at December 31, 2019

Series E Redeemable Preferred

Series F Redeemable Preferred

Amount

139,768

(Dollars In Thousands)
202,169

—

1,067

—
—
139,768

928
30,729
234,893

—

—
—
1

—

—
—
—

F-27

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

10. Redeemable Preferred Stocks (continued)

Embedded Derivative

Certain embedded features (“embedded derivative”) relating to the redemption of the Series E Redeemable Preferred, which includes
certain contingent redemption features and the participation rights value have been bifurcated from the Series E Redeemable Preferred
and recorded as a liability. At December 31, 2019 and 2018, we estimate that the contingent redemption features have fair value since
we estimate that it is probable that a portion of the shares of this preferred stock would be redeemed prior to October 25, 2023. For
certain other embedded features, we estimated no fair value based on our assessment that there is a remote probability that these
features will be exercised.

The fair value of the embedded derivative was valued using discounted cash flow models and primarily based on the difference in the
present value of estimated future cash flows with no redemptions prior to October 25, 2023 compared to certain redemptions deemed
probable during the same period and applying the effective dividend rate of the Series E Redeemable Preferred. In addition, at
December 31, 2019 and 2018, the fair value of the embedded derivative included the valuation of the participation rights, which was
based on the equivalent of 303,646 shares of our common stock at $4.20 and $5.52 per share, respectively.

The valuations of the embedded derivative are classified as Level 3. This derivative is valued using market information,
management’s redemption assumptions, the underlying number of shares as defined in the terms of the Series E Redeemable
Preferred, and the market price of our common stock. In addition, no valuation input adjustments were considered necessary relating
to nonperformance risk for the embedded derivative.

At December 31, 2019 and 2018, the fair value of the embedded derivative was $1.1 million and $1.6 million, respectively, and area
included in our noncurrent accrued and other liabilities. Due to the change in fair value of the embedded derivative, we recognized an
unrealized gain of approximately $0.5 million and approximately $1.2 million in 2019 and 2018, respectively (a minimal unrealized
loss in 2017). These unrealized gains and losses are included in non-operating income and expense.

11. Stockholders’ Equity

2016 Long Term Incentive Plan – During 2016, our Board adopted our 2016 Long Term Incentive Plan (the “2016 Plan”), which
plan was approved by our shareholders at our annual meeting of shareholders held on June 2, 2016. The effective date of the 2016
Plan is April 19, 2016 and no awards may be granted under the 2016 Plan on and after the tenth anniversary of its effective date.

In addition, no further awards will be granted under our 2008 Incentive Stock Plan (the “2008 Plan”) on or after the effective date of
the 2016 Plan. Any awards that remain outstanding under the 2008 Plan will continue to be governed by the respective plan’s terms
and the terms of the specific award agreement, as applicable.

The maximum aggregate number of shares reserved and available for issuance under the 2016 Plan shall not exceed 2,750,000 shares
plus any shares that become available for reissuance under the share counting provisions of the 2008 Plan following the effective date
of the 2016 Plan, subject to adjustment as permitted under the 2016 Plan. Shares subject to any award that is canceled, forfeited,
expires unexercised, settled in cash in lieu of common stock or otherwise terminated without a delivery of shares to a participant will
again be available for awards under the 2016 Plan to the extent allowable by law. Under the 2016 Plan, awards may be made to
employees, directors and consultants (for services rendered) of LSB or our subsidiaries subject to limitations as defined by the 2016
Plan.

The 2016 Plan will be administered by the compensation committee (the “Committee”) of our Board. Our Board or the Committee
may amend the 2016 Plan, except that if any applicable statute, rule or regulation requires shareholder approval with respect to any
amendment of the 2016 Plan, then to the extent so required, shareholder approval will be obtained. Shareholder approval will also be
obtained for any amendment that would increase the number of shares stated as available for issuance under the 2016 Plan.

The following may be granted by the Committee under the 2016 Plan:

Stock Awards, Restricted Stock, Restricted Stock Units, and Other Awards – The Committee may grant awards of restricted
stock, restricted stock units, and other stock and cash-based awards, which may include the payment of stock in lieu of cash (including
cash payable under other incentive or bonus programs) or the payment of cash (which may or may not be based on the price of our
common stock).

Stock Appreciation Rights (“SARs”) – The Committee may grant SARs as a right in tandem with the number of shares underlying
stock options granted under the 2016 Plan or on a stand-alone basis. SARs are the right to receive payment per share of the SAR
exercised in stock or in cash equal to the excess of the share’s fair market value, as defined in the 2016 Plan, on the date of exercise
over its fair market value on the date the SAR was granted. Exercise of a SAR issued in tandem with stock options will result in the
reduction of the number of shares underlying the related stock option to the extent of the SAR exercise.

F-28

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

11. Stockholders’ Equity (continued)

Stock Options – The Committee may grant either incentive stock options or non-qualified stock options. The Committee sets option
exercise prices and terms, except that the exercise price of a stock option may be no less than 100% of the fair market value, as
defined in the 2016 Plan, of the shares on the date of grant. At the time of grant, the Committee will have sole discretion in
determining when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed 10 years
subject to certain conditions.

Stock Incentive Plans - The following information relates to our long-term incentive plans:

Maximum number of securities for issuance
NNumber of awards available to be granted (1)
NNumber of unvested restricted stock/performance-based
restricted stock/restricted stock units outstanding
NNumber of options outstanding
NNumber of options exercisable

December 31, 2019

2016 Plan
2,750,000
1,285,922

925,851
—
—

2008 Plan

—
124,000
111,750

.
(1)

Includes 2008 Plan shares canceled, forfeited, expired unexercised, which became available for reissuance under the 2016 Plan after the
effective date of the 2016 Plan.

Restricted Stock and Restricted Stock Units – During 2019, 2018, and 2017, the Committee approved various grants under the 2016
Plan of shares of restricted stock to certain executives and employees. Most of these shares vest at the end of each one-year period at the
rate of one-third per year for three years while a portion of these grants vest 100% at the end of three years. The unvested restricted
shares carry dividend and voting rights. Sales of these shares are restricted prior to the date of vesting. Pursuant to the terms of the
underlying restricted stock agreements, unvested restricted shares will immediately vest upon the occurrence of a change in control (as
defined by agreement), termination without cause or death. The unvested shares carry dividend and voting rights. Sales of these shares
are restricted prior to the date of vesting.

On December 31, 2019, the Committee approved the grant of 275,119 shares of performance-based restricted stock (“PBRS”) to
certain executives. However, key information to finalize the performance targets and range of vesting shares are based on projections,
which required approval from the Board. As the approval was obtained in February 2020, the grant date for financial reporting
purposes is February 2020. Therefore, these PBRS shares are not reflected in the information below.
purposes is February 2020. Therefore, these PBRS shares are not reflected in the information below.

On December 30, 2018, the Committee approved the grant of 210,602 shares of PBRS to certain executives. Key information to
finalize the performance targets and range of vesting shares was approved by the Board during January 2019, which is the grant date
for financial reporting purposes. The terms of this PBRS grant are discussed below and these PBRS shares are reflected in the 2019
information below.

During 2019, 2018, and 2017, the Committee approved the grant of shares of restricted stock units (“RSU”) to our non-employee
directors for payment of a portion of their director fees under the 2016 Plan. Each RSU represents a right to receive one share of our
common stock following the grant date and are non-forfeitable. Vesting occurs upon the earliest to occur: (i) the director’s separation
from service, (ii) the third anniversary of the grant date, or (iii) the occurrence of a change of control as defined by the agreement.
Based on terms of the RSU agreements, the grant date fair value was recognized as stock-based compensation expense (SG&A) on the
grant date in 2019, 2018, and 2017.

F-29

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

11. Stockholders’ Equity (continued)

A summary of restricted stock activity during 2019 is presented below:

Unvested restricted stock outstanding at
beginning of year
Granted
Vested
Cancelled or forfeited
Unvested restricted stock outstanding at end
of year

Restricted Stock

Performance-Based
Restricted Stock

Restricted Stock Units

Weighted-
Average
Grant Date
Fair Value

7.79
4.28
8.27
—

$
739,465
285,956
$
(407,349) $
— $

221,439

— $
$
— $
— $

618,072

5.42

221,439

Weighted-
Average
Grant Date
Fair Value

—
7.26
—
—

7.26

Weighted-
Average
Grant Date
Fair Value

8.23
5.89
13.56
—

$
68,334
31,833
$
(13,827) $
— $

86,340

6.51

Shares of restricted stock granted
Total fair value of restricted stock granted
Weighted-average fair value per restricted stock granted during year
Stock-based compensation expense - Cost of sales
Stock-based compensation expense - SG&A (1)
Income tax benefit
Total weighted-average remaining vesting period in years
Total fair value of restricted stock vested during the year

Shares of PBRS granted
Total fair value of PBRS granted
Weighted-average fair value per PBRS granted during year
Stock-based compensation expense - Cost of sales
Stock-based compensation expense - SG&A
Income tax benefit
Total weighted-average remaining vesting period in years
Total fair value of PBRS vested during the year

Shares of RSU granted
Total fair value of RSU granted
Weighted-average fair value per RSU granted during year
Stock-based compensation expense - SG&A
Income tax benefit
Total weighted-average remaining vesting period in years
Total fair value of RSU vested during the year

$
$
$
$
$

$
$
$
$

2019
285,956
1,223,000
4.28
255,000
1,263,000
(374,000)
2.18
3,371,000

Restricted Stock
2017
2018
469,465
369,350
4,277,000
$
2,019,000
9.11
$
5.47
312,000
$
385,000
7,574,000
3,987,000
$
(398,000) $ (1,659,000)
1.95
3,124,000

1.78
7,355,000

$
$
$
$
$

Performance-Based
Restricted Stock

2019 (2)

$
$
$
$
$

2019

Restricted Stock Units
2018

31,833
187,000
5.89
187,000
(46,000)
1.57
187,000

$
$
$
$

35,511
$
187,000
$
5.28
187,000
$
(34,000) $
1.75
125,000

221,439
1,608,000
7.26
53,000
290,000
(84,000)
1.85
-

2017

37,992
375,000
9.87
375,000
(115,000)
3.05
250,000

(1)
(2)

As it relates to 2018, see Note 14-Related Party Transactions.
The PBRS restricted stock grants are tied to our free cash flow, fixed costs per ton of ammonia measured annually over a three-year period and
modified based on our ranking relative to total stockholder return (share price appreciation plus dividends reinvested) (“TSR”) versus the
companies in our 2019 peer group (“Peer Group”) over a three-year measurement period. The actual number of shares that will vest at the end
of the third year will be based on our performance against the metrics set in the award. The threshold performance for free cash flow is 70%
and for fixed costs per ton of ammonia is 50% of the targeted improvement with a maximum for each of 120% of target. The TSR modifier
will adjust the overall actual performance up or down by as much as 25% based on the our TSR versus the Peer Group average TSR. We
estimate the fair value of each PBRS on the date of grant using a Monte Carlo simulation.

F-30

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

11. Stockholders’ Equity (continued)

Stock Options – No stock options have been granted under the 2016 Plan during 2019, 2018 or 2017. As it relates to stock options
granted under the 2008 plan, the exercise price of the outstanding options granted were equal to the market value of our common stock
at the date of grant and vest at the end of each one-year period at the rate of 16.5% per year for the first five years and the remaining
unvested options will vest at the end of the sixth year. The fair value for of the stock options granted under the 2008 Plan were
estimated, using an option pricing model, as of the date of the grant, which date was also the service inception date.

A summary of stock option activity in 2019 is presented below:

2019

Weighted-Average
Exercise Price

Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year

124,000

$
— $
— $
— $
$
$

124,000
111,750

33.86
—
—
—
33.86
33.91

Stock-based compensation expense - Cost of sales
Stock-based compensation expense - SG&A
Income tax benefit
Total intrinsic value of options exercised during the year
Total fair value of options vested during the year
Total intrinsic value of options outstanding at end of year
Total intrinsic value of options exercisable at end of year
Total weighted-average remaining vesting period in years
Total weighted-average remaining contractual life period in years (options outstanding)
Total weighted-average remaining contractual life period in years (options exercisable)

— $

2018
$ 141,000
71,000
$

2017
2019
$ 317,000
$ 122,000
$
$ 108,000
50,000
$ (42,000) $ (54,000) $ (164,000)
$
—
$ 451,000
$ 169,000
16,000
$
16,000
$
1.53
5.10
4.44

— $
— $

1.05
4.61
4.31

0.49
3.61
3.47

$ 169,000

— $

Stock-based Compensation Expense Not Yet Recognized – At December 31, 2019, the total stock-based compensation expense not
yet recognized is $3,378,000, relating to all forms of non-vested restricted stocks and stock options, which we will be amortizing
(subject to adjustments for actual forfeitures) through the respective remaining vesting periods through December 2022.

–

Other – As of December 31, 2019, we have reserved 1.4 million shares of common stock issuable upon potential conversion of
preferred stocks and equity awards pursuant to their respective terms.

12. Non-Redeemable Preferred Stock

Series Non-Redeemable B Preferred – The 20,000 shares of Series B 12% cumulative, convertible preferred stock (“Series B
Preferred”), $100 par value, are convertible, in whole or in part, into 666,666 shares of our common stock (33.3333 shares of common
stock for each share of preferred stock) at any time at the option of the holder and entitle the holder to one vote per share. The Series
B Preferred provides for annual cumulative dividends of 12% ($12.00 per share) from date of issue, payable when and as declared.
All of the outstanding shares of the Series B Preferred are owned by the Golsen Holders.

Series Non-Redeemable D Preferred – The 1,000,000 shares of Series D 6% cumulative, convertible Class C preferred stock
(“Series D Preferred”) have no par value and are convertible, in whole or in part, into 250,000 shares of our common stock (1 share of
common stock for 4 shares of preferred stock) at any time at the option of the holder. Dividends on the Series D Preferred are
cumulative and payable annually in arrears at the rate of 6% per annum ($0.06 per share) of the liquidation preference of $1.00 per
share. Each holder of the Series D Preferred shall be entitled to .875 votes per share. All of the outstanding shares of Series D
Preferred are owned by the Golsen Holders.

See discussions concerning dividends on the Series B and D Preferred in Note 14 – Related Party Transactions.

F-31

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

12. Non-Redeemable Preferred Stock (continued)

Other – At December 31, 2019, we are authorized to issue an additional 230,000 shares of $100 par value preferred stock and an
additional 3,860,000 shares of no-par value preferred stock. Upon issuance, our Board will determine the specific terms and
conditions of such preferred stock.

13. Executive Benefit Agreement, Employee Savings Plans and Collective Bargaining Agreements

We are party to a death benefit agreement (“2005 Agreement”) with Jack E. Golsen, who retired as discussed in Note 14-Related Party
Transactions.

The 2005 Agreement provides that, upon Mr. Golsen’s death, we will pay to the designated beneficiary, a lump-sum payment of
$2,500,000 to be funded from the net proceeds received by us under certain life insurance policies on his life that are owned by us.
We are obligated to keep in existence life insurance policies with a total face amount of no less than $2,500,000 of the stated death
benefit.

The following table includes information about these agreements:

Total undiscounted death benefit
Total accrued death benefit

December 31,

2019

2018

(In Thousands)
2,500 $
2,564 $

2,500
2,585

$
$

Costs associated with these death benefits were not material for 2019, 2018 and 2017.

The accrued executive benefit under the 2005 Agreement is included in noncurrent accrued and other liabilities. We accrue for such
liabilities when they become probable and discount the liabilities to their present value.

To assist us in funding the 2005 Agreement and for other business reasons, we purchased life insurance policies on various individuals
in which we are the beneficiary. Some of these life insurance policies have cash surrender values that we have borrowed against. The
net cash surrender values of these policies are included in other assets.

The following table summarizes certain information about these life insurance policies.

Total face value of life insurance policies

Total cash surrender values of life insurance policies
Loans on cash surrender values
Net cash surrender values

December 31,

2019

2018

(In Thousands)
4,500

4,500

1,727
(1,629)
98

1,656
(1,559)
97

Cost of life insurance premiums
Decreases (increases) in cash surrender values
NNet cost of life insurance premiums included in SG&A

2019

2018
(In Thousands)
54
$
149
203

215
(70)
145

2017

14
162
176

Employee Savings Plans - We sponsor a savings plan under Section 401(k) of the Internal Revenue Code under which participation is
available to substantially all full-time employees. Beginning in January 2019, we began matching 50% of an employee’s contribution,
up to 6%, for substantially all full-time employees. Prior to 2019, we did not contribute to this plan except for certain employees. The
amounts contributed to this plan were not material for 2019, 2018 and 2017.

Collective Bargaining Agreements - As of December 31, 2019, we employed 593 persons, 162 of whom are represented by unions
under agreements, including agreements being negotiated, that expire in July 2021 through November 2022.

F-32

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

14. Related Party Transactions

During 2019, we entered into two separate financing arrangements with an affiliate of LSB Funding as discussed in footnotes (E) of
Note 7, which transactions included debt issuance costs totaling approximately $0.1 million paid to this affiliate. In June 2019, we
incurred a consent fee of approximately $0.3 million from LSB Funding associated with the issuance of the New Notes discussed in
footnote (B) of Note 7. Also, LSB Funding holds all outstanding shares of the Series E and Series F Redeemable Preferred discussed
in Note 10. During 2018, we sold $50.0 million and $0.5 million principal amount of notes to an affiliate of Security Benefit
Corporation (“SBC”) and Daniel D. Greenwell, respectively, associated with the issuance and sale of the Notes discussed in footnote
(B) of Note 7. As discussed in Note 10, we paid a fee of $2.7 million to an affiliate of SBC relating to the letter agreement amending
the terms of the Series E Redeemable Preferred. As discussed in Note 10, all outstanding shares of the Series E and Series F
Redeemable Preferred are held by this affiliate. Pursuant to the terms of the Board Representation and Standstill Agreement, our
Board includes two directors that are employees of SBC and affiliates. During 2019, 2018 and 2017, we incurred director fees
associated with these directors totaling approximately $0.3 million for each respective year.

Effective December 30, 2018, Daniel D. Greenwell elected not to enter into a new employment agreement and resigned from the
Board and his roles as Chairman and our Chief Executive Officer. Subject to the execution of a release agreement, which was
executed in January 2019, Mr. Greenwell was entitled to certain severance benefits pursuant to the terms of his employment
agreement. At December 31, 2018, our accrued and other liabilities included approximately $2.8 million relating primarily to
severance benefits owed to Mr. Greenwell. In addition, approximately $2.7 million of share-based compensation was incurred in 2018
due to the accelerated vesting of 312,369 shares of restricted stock.

No dividends were declared during 2019, 2018 and 2017. At December 31, 2019, accumulated dividends on the Series B and Series D
Preferred totaled approximately $1.3 million. The Series B Preferred and Series D Preferred are non-redeemable preferred stocks
issued in 1986 and 2001, respectively, of which all outstanding shares are owned by the Golsen Holders.

During 2019, 2018 and 2017, we incurred director fees associated with Barry H. Golsen totaling approximately $0.1 million for each
respective year.

As the result of Jack E. Golsen (“J. Golsen”) informing the Board of his election to retire as Executive Chairman effective December
31, 2017, we determined not to extend the employment agreement with J. Golsen beyond its current term expiring on December 31,
2017 (the “Retirement Date”) and, in accordance with the terms his employment agreement, delivered a notice of non-renewal to J.
Golsen. J. Golsen remains a member of the Board and, following the Retirement Date, has the title of Chairman Emeritus.

During 2017, we entered into a transition agreement (the “Transition Agreement”) with J. Golsen that commenced on January 1, 2018
and ends upon the earlier of his death or a change in control as defined in the Transition Agreement. During the term, J. Golsen will
receive an annual cash retainer of $480,000 and an additional monthly amount of $4,400 to cover certain expenses. In accordance
with the terms of the Transition Agreement, we will also reimburse J. Golsen for his cost of certain medical insurance coverage until
his death. Effective as of the Retirement Date, the previous existing severance agreement with J. Golsen was terminated. In
consideration for his services, including as Chairman Emeritus, we will pay J. Golsen a one-time payment equal to $2,320,000 upon
the consummation of a change in control that occurs prior to his death.

During 2017, a death benefit agreement with J. Golsen was terminated pursuant to the terms of the agreement that allowed us to
terminate at any time and for any reason prior to the death of the employee. As a result, the liability of approximately $1.4 million for
the estimated death benefit associated with this agreement was extinguished and derecognized with the offset classified as operating
other income in 2017.

During 2017, we sold our engineered products business (industrial machinery and related components) to Industrial Acquisitions LLC
and Industrial Products LLC (both entities are owned by immediate family members of J. Golsen) for $3.5 million which sale resulted
in a loss of approximately $0.8 million, classified as operating other expense.

During 2016, we entered into a consulting agreement with Steven J. Golsen (“S. Golsen”), son of J. Golsen and former employee and
President and Chief Operating Officer of our former climate control business. Pursuant to the terms of the agreement, S. Golsen
provided services relating to the sale of the climate control business and subsequent services to improve the transition process from
LSB to NIBE Industrier AB (publ). The total consulting fee was approximately $0.4 million and the term of the agreement was for 2
years through May 2018.

F-33

LSB Industries, Inc.

Notes to Consolidated Financial Statements (continued)

15. Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:

Cash payments (refunds) for:

Interest on long-term debt and other, net of capitalized
interest
Income taxes, net

NNoncash investing and financing activities:

Incentive tax credit receivable associated with property,
plant and equipment
Supplies and accounts payable associated with
additions of property, plant and equipment
Dividend accrued on Series E Redeemable Preferred
Accretion of Series E Redeemable Preferred

$
$

$
$
$

2019

2018
(In Thousands)

2017

42,184

$
(65) $

$
35,719
(1,138) $

34,274
(674)

— $

8,125

18,350
30,729
1,995

$
$
$

16,484
26,840
3,375

$
$
$

17,105
23,443
6,487

16. Net Sales

Disaggregated Net Sales

As discussed in Note 1, we primarily derive our revenues from the sales of various chemical products. The following table presents
our net sales disaggregated by our principal markets, which disaggregation is consistent with other financial information utilized or
provided outside of our consolidated financial statements:

NNet sales:

Agricultural products
Industrial acids and other chemical products
Mining products
Other products

Total net sales

2019

2018
(Dollars In Thousands)

2017(a)

187,641
139,643
37,786
—
365,070

187,164
148,598
42,398
—
378,160

184,054
196,029
38,854
8,567
427,504

(a) Upon adoption of ASC 606, nets sales have not been adjusted under the modified retrospective method.

Other Information

Liabilities associated with contracts with customers (contract liabilities) primarily relate to deferred revenue and customer deposits
associated with cash payments received in advance from customers for volume shortfall charges and product shipments. We had
approximately $3.6 million and $7.0 million of contract liabilities as of December 31, 2019 and 2018, respectively. During 2019,
revenues of $3.5 million were recognized and included in the balance at the beginning of the period.

17. Discontinued Operations

During 2016, LSB completed the sale of all the stock of Climate Control Group Inc. (an indirect subsidiary that conducted LSB’s
former climate control business) pursuant to the terms of the stock purchase agreement. Additionally, pursuant to the stock purchase
agreement, we agreed to have a certain portion of the purchase price proceeds deposited in an indemnity escrow account. In 2018, we
received approximately $ 2.7 million representing an indemnity escrow balance. For 2017, we recognized income from discontinued
operations of $1.1 million, net of income taxes of $1.5 million. For 2017, cash flow information of discontinued operations included
deferred income taxes of $2.5 million.

F-34

LSB Industries, Inc.

Supplementary Information

Quarterly Financial Data (Unaudited)

Summarized unaudited quarterly financial data for 2019 and 2018 are as follows.

2019
NNet sales
Gross profit (loss) (1)
NNet income (loss) (1) (2)
NNet loss attributable to common stockholders

NNet sales
Gross profit (loss) (1)
NNet loss (1) (2)
NNet loss attributable to common stockholders

Three months ended

March 31

June 30

September 30

December 31

(In Thousands, Except Per Share Amounts)

$
94,152
7,318
$
(11,540) $
(19,367) $

$
121,527
$
19,677
6,631
$
(1,530) $

75,495
$
(9,733) $
(30,794) $
(39,133) $

73,896
(12,277)
(27,714)
(36,411)

(0.69) $

(0.05) $

(1.39) $

(1.30)

$
100,450
10,093
$
(5,591) $
(13,603) $

$
103,199
$
3,073
(27,506) $
(35,011) $

79,781
$
(9,742) $
(26,084) $
(33,422) $

94,730
12,411
(13,045)
(20,705)

(0.49) $

(1.27) $

(1.22) $

(0.75)

$
$
$
$

F-35

LSB Industries, Inc.

Supplementary Financial Data

Quarterly Financial Data (Unaudited)

(1)

The following income (expense) items impacted gross profit (loss) and net income (loss):

Turnaround expense: (A)

March 31

June 30

September 30

December 31

Three months ended

(In Thousands)

— $

(604) $

(7,232) $

(5,374)

(302) $

(1,412) $

(7,939) $

(115)

— $

4,419

(2)

The following income (expense) items impacted net income (loss):

Charge associated with assets held for sale

Severance benefits and accelerated stock-based compensation

(B)

2018

— $

(9,701)

— $

(5,951) $

—

— $

(5,300)

(400) $

5,733

483

922

(4,324) $

2,426

15,108

(764)

(A) Turnaround expenses do not include the impact on operating results relating to lost absorption or reduced margins due to the

associated plants being shut down.

(B) The deferred tax benefit for the three-month period ended December 31, 2019 is primarily due to federal and state indefinite

lived carryforward benefits that can be realized through the reversal of deferred tax liabilities.

F-36

LSB Industries, Inc.

Schedule II - Valuation and Qualifying Accounts

Years ended December 31, 2019, 2018, and 2017

(In Thousands)

Accounts receivable - allowance for doubtful accounts:

Description (1)

2018

2017

Deferred tax assets - valuation allowance:

2018

2017

Balance at
Beginning of
Year

Additions-
Charges to
(Recovery of)
Costs and
Expenses

Deductions-
Write-
offs/Costs
Incurred

Balance at
End of Year

351

303

357

45,626

26,920

13,128

175 $

124

265

(54) $

— $

261

351

303

8,279 $

2,316

51,589

45,626

2,336

21,042

13,792

— $

26,920

(1) Deducted in the consolidated balance sheet from the related assets to which the reserve applies.

Other valuation and qualifying accounts are detailed in our notes to consolidated financial statements.

F-37

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PERFORMANCE GRAPH & PEER GROUP LIST

[THIS PAGE INTENTIONALLY LEFT BLANK]

Stock Performance Graph

The following table compares the cumulative total stockholder return for the last five fiscal years of (a) LSB
Industries, Inc. (the “Company”), (b) the NYSE Composite Stock Index (“NYSE Composite Index”), (c) two
peer groups of entities (“Peer Group Index”), which represented publicly traded chemical companies that are
primarily included in the Standard Industrial Classification (SIC) code section of chemical and allied products.
The table set forth below covers the period from year-end 2014 through year-end 2019.

2014

2015

2016

2017

2018

2019

160

140

120

100

LSB Industries, Inc.

NYSE Composite Index

New Peer Group

Old Peer Group

LSB Industries, Inc.

NYSE Composite Index

2019 (New) Peer Group

2019 (Old) Peer Group

2014

2015

2016

2017

2018

2019

100.00

23.06

26.78

27.86

17.56

13.36

100.00

96.03

107.62

127.96

116.72

146.76

100.00

70.46

100.00

70.48

75.86

85.85

80.56

80.52

85.88

85.82

Assumes $100 invested at year-end 2014 in the common stock of the Company, the NYSE Composite Index and
the Peer Group Index, and the reinvestment of dividends, if any.

The above Performance Graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report into any filing under the Securities Act of 1933 (as amended, the
“Securities Act”) or the Securities Exchange Act of 1934 (as amended, the “Exchange Act” (and together, the
“Acts”), except to the extent that the Company specifically incorporates this information by reference, and shall
not otherwise be deemed to be soliciting material or to be filed under such Acts.

AdvanSix, Inc.
American Vanguard Corporation
Balchem Corporation
CF Industries Holdings, Inc.
CVR Partners, LP
Flotek Industries, Inc.

2019 (New) Peer Group

H. B. Fuller Company
Hawkins, Inc.
lnnospec Inc.
Landec Corporation
Nutrien, LTO.
OMNOVA Solutions Inc.

2019 (Old) Peer Group

PolyOne Corporation
Quaker Chemical Corporation
Stepan Company
The Mosaic Company
Yara International ASA

AdvanSix, Inc.
American Vanguard Corporation
Balchem Corporation
CF Industries Holdings, Inc.
China Green Agriculture, Inc.
CVR Partners, LP

Flotek Industries, Inc.
H. B. Fuller Company
Hawkins, Inc.
lnnospec Inc.
Landec Corporation
Nutrien, LTO.

OMNOVA Solutions Inc.
PolyOne Corporation
Quaker Chemical Corporation
Stepan Company
The Mosaic Company
Yara International ASA

[THIS PAGE INTENTIONALLY LEFT BLANK]

LSB DIRECTORS

Mark T. Behrman
President and Chief Executive Officer

Jonathan S. Bobb
Director, Eldridge Industries

Barry H. Golsen
GOL Capital, LLC
Former President and CEO LSB Industries, Inc.

Jack E. Golsen
Chairman Emeritus of the Board

Kanna Kitamura
Senior Director and Head of Human Resources,
Eldridge Industries

Diana M. Peninger
CEO, Geneva Lake Partners LLC
Former Vice President,
Celanese Corp.

Richard W. Roedel
Chairman of the Board
Retired Chairman and CEO
BDO Seidman, LLP

Richard S. Sanders, Jr.
President, Circle S Consulting, Inc.
Former Vice President of Manufacturing,
Terra Industries, Inc.

Lynn F. White
Founder and Managing Director,
Twemlow Group, LLC

LSB EXECUTIVE OFFICERS

Mark T. Behrman
President and Chief Executive Officer

John P. Burns
Executive Vice President-Manufacturing

Michael J. Foster
Executive Vice President,
General Counsel, and Secretary

Cheryl Maguire
Executive Vice President and Chief Financial
Officer

Kristy D. Carver
Senior Vice President and Treasurer

HEADQUARTERS

LSB Industries, Inc.
3503 NW 63rd Street, Suite 500,
Oklahoma City, OK 73116
Tel: (405) 235-4546
Fax: (405) 235-5067
Email: info@lsbindustries.com

TRANSFER AGENT &
REGISTRAR

Computershare Trust Company, N.A.
462 S. 4th Street, Suite 1600
Louisville, KY 40202
Tel: (800) 884-4225 (US & Canada)
(781) 575-2879 (outside US & Canada)

INVESTOR RELATIONS

WEBSITE

Cheryl Maguire
Executive Vice President and Chief Financial
Officer Tel: (405) 235-4546
Fax: (405) 235-5067
Email: cmaguire@lsbindustries.com

INDEPENDENT AUDITORS

Ernst & Young LLP
Oklahoma City, OK

www.lsbindustries.com

Visit our website for details about our plants,
products, operations and policies.

SECURITY LISTING

Common Stock listed on the New York Stock
Exchange, NYSE Ticker Symbol: LXU

3503 NW 63rd Street, Suite 500,
Oklahoma City, OK 73116
(405) 235-4546
www.lsbindustries.com