LSB Industries (LXU) 8-K LSB Industries, Inc. Reports Record Results

COMPANY CONTACT:Investor Relations Contact:

Tony M. Shelby, Chief Financial Officer      Linda Latman (212) 836-9609

(405) 235-4546    Lena Cati (212) 836-9611

     The Equity Group Inc.

FOR IMMEDIATE RELEASE

LSB INDUSTRIES, INC. REPORTS RECORD RESULTS

FOR THE 2007 SECOND QUARTER

Oklahoma City, Oklahoma . . . August 7, 2007 . . . LSB Industries, Inc. (AMEX:LXU), today reported results for the second quarter ended June 30, 2007.

Second Quarter 2007 Compared to Second Quarter 2006:

§   Net sales increased 18% to $156.8 million from $132.4 million;

§   Operating income rose 75% to $15.2 million from $8.7 million;

§   Net income rose 111% to $13.2 million from $6.3 million;

§   After deducting preferred stock dividend requirements of $.2 million, net income applicable to common stock was $13.0 million, compared to $5.7 million;

§   Diluted income per common share rose to $.58 per share from $.32 per share.

Six Months 2007 Compared to Six Months 2006:

§   Net sales increased 25% to $304.1 million from $244.2 million;

§   Operating income rose 99% to $28.7 million from $14.4 million;

§   Net income rose 160% to $24.0 million from $9.2 million;

§   After deducting preferred stock dividend requirements, net income applicable to common stock was $18.6 million, compared to $8.1 million;

§   Diluted income per common share rose to $.87 per share from $.46 per share.

Business Overview

Jack Golsen, LSB’s Chairman & CEO stated, “The current second quarter produced favorable results for sales and even stronger gains in profits. At the same time, we continued to reduce our debt to equity ratio. Our Climate Control business performed extremely well, with a 44% increase in sales, highlighted by a favorable mix as we increased our market position in certain higher margin products. While Chemical sales were only up modestly due in part to excessive rainfall in some of our markets, operating profits rose nearly 65% due to strong margins in the agricultural sector.”

(more)

Conference Call

LSB’s management will host a conference call covering the second quarter results on Wednesday, August 8, 2007 at 11:00 am EDT/10:00 am CDT to discuss these results and recent corporate developments. Participating in the call will be CEO, Jack E. Golsen; President and COO, Barry H. Golsen; and Executive Vice President and CFO, Tony M. Shelby. Interested parties may participate in the call by dialing 706-679-3079. Please call in ten minutes before the conference is scheduled to begin and ask for the LSB conference call.

To listen to a webcast of the call, please go to the Company’s website at www.lsb-okc.com at least 15 minutes before the conference call to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website for 90 days. We suggest listeners use Microsoft Explorer as their web browser.

LSB Industries, Inc.

LSB is a manufacturing, marketing and engineering company. LSB’s principal business activities consist of the manufacture and sale of commercial and residential climate control products, such as geothermal and water source heat pumps, hydronic fan coils, large custom air handlers, the manufacture and sale of chemical products for the mining, agricultural and industrial markets, and the provision of specialized engineering services and other activities

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See Accompanying Tables

LSB Industries, Inc.

Unaudited Financial Highlights (Notes)

Six and Three Months Ended June 30, 2007 and 2006

(unaudited)

Six Months Three Months

2007 2006 2007 2006

(In Thousands, Except Per Share Amounts)

Net sales	$	304,141		$	244,248		$	156,756		$	132,391
Cost of sales		237,432			199,274			122,099			107,596
Gross profit		66,709			44,974			34,657			24,795
Selling, general and administrative expense		36,994			29,722			18,693			15,570
Provisions for losses on accounts receivable		621			282			363			82
Other expense		518			691			494			585
Other income		(100	)		(148	)		(46	)		(101	)
Operating income		28,676			14,427			15,153			8,659
Interest expense		4,580			5,761			1,992			2,886
Non-operating other income, net		(73	)		(497	)		(31	)		(467	)
Income from continuing operations before provision for income taxes and equity in earnings of affiliate		24,169			9,163			13,192			6,240
Provisions for income taxes		532			200			188			150
Equity in earnings of affiliate		(431	)		(405	)		(216	)		(200	)
Income from continuing operations		24,068			9,368			13,220			6,290
Net loss from discontinued operations		29			131			-			31
Net income		24,039			9,237			13,220			6,259
Dividend requirements and stock dividend on preferred stock exchanged in March 2007		4,971			497			-			249
Other preferred stock dividend requirements		434			607			217			303
Net income applicable to common stock	$	18,634		$	8,133		$	13,003		$	5,707
Weighted average common shares:
Basic		18,615			13,769			19,713			13,776
Diluted		21,950			20,914			22,923			20,988
Income (loss) per common share:
Basic:
Income from continuing operations	$	1.00		$	.60		$	.66		$	.41
Net loss from discontinued operations		-			(.01	)		-			-
Net income	$	1.00		$	.59		$	.66		$	.41
Diluted:
Income from continuing operations	$	.87		$	.47		$	.58		$	.32
Net loss from discontinued operations		-			(.01	)		-			-
Net income	$	.87		$	.46		$	.58		$	.32

(See accompanying notes)

LSB Industries, Inc.

Notes to Unaudited Financial Highlights

Six Months Ended June 30, 2007 and 2006

Note 1: Net income applicable to common stock is computed by adjusting net income by the amount of preferred stock dividend requirements and stock dividends. Basic income per common share is based upon net income applicable to common stock and the weighted average number of common shares outstanding during each period. Diluted income per share is based on net income applicable to common stock plus preferred stock dividend requirements on preferred stock assumed to be converted, if dilutive, and interest expense including amortization of debt issuance costs, net of income taxes, on convertible debt assumed to be converted, if dilutive, and the weighted average number of common shares and dilutive common equivalent shares outstanding, and the assumed conversion of dilutive convertible securities outstanding.

Note 2: In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. AUG AIR-1 (“FSP”), accounting for planned major maintenance activities (“Turnarounds”). Effective January 1, 2007, we changed from the accrue-in-advance method which we were using to the preferred direct expensing method in accordance with the FSP. As a result of the change, net income for the six months ended June 30, 2006 as presented in the Unaudited Financial Highlights has been increased $35,000 and the net income for the three months ended June 30, 2006 has been decreased $387,000, as a result of the retrospective application of the FSP.

Note 3: Information about the Company’s operations in different industry segments for the six and three months ended June 30, 2007 and 2006 is detailed on the following page.

LSB INDUSTRIES, INC.

Notes to Unaudited Financial Highlights (Continued)

Six and Three Months Ended June 30, 2007 and 2006

(Unaudited)

Six Months Three Months

2007 2006 2007 2006

(In Thousands)

Net sales:
Climate Control	$	145,823		$	99,035		$	74,518		$	51,673
Chemical		153,142			140,697			79,422			78,167
Other		5,176			4,516			2,816			2,551
	$	304,141		$	244,248		$	156,756		$	132,391
Gross profit: (a)
Climate Control	$	42,628		$	30,509		$	21,921		$	15,702
Chemical		22,242			12,899			11,710			8,198
Other		1,839			1,566			1,026			895
	$	66,709		$	44,974		$	34,657		$	24,795
Operating income (loss): (b)
Climate Control	$	18,125		$	11,577		$	9,617		$	6,004
Chemical		15,646			6,626			7,936			4,817
General corporate expenses and other business operations, net		(5,095	)		(3,776	)		(2,400	)		(2,162	)
		28,676			14,427			15,153			8,659
Interest expense		(4,580	)		(5,761	)		(1,992	)		(2,886	)
Non-operating other income (expenses), net		(73	)		497			(31	)		467
Provisions for income taxes		(532	)		(200	)		(188	)		(150	)
Equity in earnings of affiliate-Climate Control		431			405			216			200
Income from continuing operations	$	24,068		$	9,368		$	13,220		$	6,290

Notes:

(a)Gross profit by industry segment represents net sales less cost of sales. Gross profit classified as “Other” relates to industrial machinery and components.

(b) Operating income by industry segment represents gross profit by industry segment less selling, general and administrative expenses (“SG&A”) incurred by each industry segment plus other income and other expense earned/incurred by each industry segment before general corporate expenses and other business operations, net. General corporate expenses and other business operations, net consist of unallocated portions of gross profit, SG&A, other income and other expense.

LSB INDUSTRIES, INC.

Unaudited Condensed Consolidated Balance Sheets

(Information at June 30, 2007 is Unaudited)

June 30, 2007 December 31, 2006

(In Thousands)

Assets
Current assets:
Cash and cash equivalents	$	30,884		$	4,734
Accounts receivable, net		78,608			67,571
Inventories		46,159			45,449
Supplies, prepaid items and other		17,323			14,741
Total current assets		172,974			132,495
Property, plant and equipment, net		78,453			76,404
Total other assets		13,972			11,028
	$	265,399		$	219,927
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other	$	38,300		$	45,856
Accrued and other liabilities		23,742			26,816
Current portion of long-term debt		2,729			11,579
Total current liabilities		64,771			84,251
Long-term debt		121,738			86,113
Noncurrent accrued and other liabilities		6,554			5,929
Stockholders' equity:
Series B 12% cumulative, convertible preferred stock, $100 par value; 20,000 shares issued and outstanding		2,000			2,000
Series 2 $3.25 convertible, exchangeable Class C preferred stock, $50 stated value; 211,595 shares issued (517,402 in 2006)		10,580			25,870
Series D 6% cumulative, convertible Class C preferred stock, no par value; 1,000,000 shares issued		1,000			1,000
Common stock, $.10 par value; 23,291,033 shares issued (20,215,339 in 2006)		2,329			2,022
Capital in excess of par value		111,762			79,838
Accumulated other comprehensive loss		(556	)		(701	)
Accumulated deficit		(36,346	)		(47,962	)
		90,769			62,067
Less treasury stock at cost:
Series 2 Preferred, 18,300 shares		797			797
Common stock, 3,447,754 shares		17,636			17,636
Total stockholders’ equity		72,336			43,634
	$	265,399		$	219,927

(see accompanying notes)

LSB INDUSTRIES, INC.

Notes To Unaudited Condensed Consolidated Balance Sheets

(a) Information at December 31, 2006, is audited and is from the Company’s Form 10K/A Amendment No. 1, filed July 18, 2007.

(b) During the six months ended June 30, 2007, $4 million of the Company’s 7% Convertible Senior Subordinated Debentures due 2011, was converted into 564,790 shares of common stock.

(c) Also during the six months ended June 30, 2007, as a result of a tender offer completed on March 13, 2007, the Company issued 2,262,965 shares of its common stock for 305,807 shares of Series 2 Preferred that were tendered. Also as a result of this tender offer, an aggregate of approximately $7.3 million in accrued and unpaid dividends were waived. At June 30, 2007, the amount of unpaid dividends in arrears on our Series 2 Preferred totaled approximately $4.9 million.

(d) On July 11, 2007, our Board of Directors approved the redemption of all of the Company’s outstanding Series 2 Preferred. We mailed a notice of redemption to all holders of record of Series 2 Preferred on July 12, 2007. The redemption date is scheduled for August 27, 2007, and each share of Series 2 Preferred that is redeemed shall receive a redemption price of $50.00 plus $26.25 per share in accrued and unpaid dividends pro-rata to the date of redemption. As of July 12, 2007, 193,295 shares of Series 2 Preferred were outstanding (net of treasury stock). If none of the outstanding shares of the Series 2 Preferred are converted (as discussed below), the Company would pay the holders of the Series 2 Preferred a total of approximately $14.7 million.

The holders of shares of Series 2 Preferred have the right to convert each share into 4.329 shares of the Company’s common stock, which right to convert terminates 10 days prior to the redemption date. If a holder converts its shares of Series 2 Preferred, the holder would not be entitled to any accrued and unpaid dividends as to the shares of the Series 2 Preferred converted. If all of the outstanding shares of Series 2 Preferred are converted, 836,774 shares of the Company’s common stock would be issuable.