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OCR Document

June 30, 2005

Mr. Ernest Greene

Division of Corporation Finance

U. S. Securities and Exchange Commission

Washington, D.C. 20549-0510

Re:	May 25, 2005 Comment Letter

    	LSB Industries, Inc.

    	Form 10-K for the fiscal year ended December 31, 2004

    	Form 10-Q for the period ended March 31, 2005

    File No. 1-07677

Dear Mr. Greene:

This letter responds to your comment letter dated May 25, 2005, as referenced above.  We have repeated your

comments and provided our response immediately under the heading "Company response:" or in a referenced

attachment to this letter.  Where appropriate, we have provided a supplemental response showing what the

revisions will look like in future filings.  To assist you in your review of our response, we have italicized

our responses where they represent changes to previously filed disclosures.

We appreciate the courtesies you have shown us as we developed our responses, and await the results of your

review of the contents of this letter and the attachments hereto.

We respectfully acknowledge the following:

  The Company is responsible for the adequacy and accuracy of the disclosure in our filings,

  Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission

  from taking any action with respect to the filing; and

  The Company may not assert staff comments as a defense in any proceeding initiated by the Commission

  or any person under the federal securities laws of the United States.

Sincerely,

Tony M. Shelby

LSB Industries, Inc.

Executive Vice President of Finance

and Chief Financial Officer

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            FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

Comment applicable to your overall filing

1. Where a comment below requests additional disclosures or other revisions to be made, please show us

in your supplemental response what the revisions will look like. With the exception of the comments below

that specifically request an amendment, all other revisions may be included in your future filings.

Company response:

The following responses have been prepared in accordance with this comment.

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

Results of Operations, page 34

2.  Please discuss the business reasons for the changes between periods in the gross profit and operating

income (loss) of each of your segments discussed in Note 18 of your financial statements, along with

the amounts shown in the general corporate expenses and other business operations, net line item. In doing so,

please disclose the amount of each significant change in line items between periods and the business reasons

for it. In circumstances where there is more than one business reason for the change, attempt to quantify

the incremental impact of each individual business reason discussed on the overall change in the line item.

Please show us what your revised MD&A for 2004 as compared to 2003 will look like. See Item 303(a)(3) of

Regulation S-K and Financial Reporting Codification 501.04 and 501.06.

Company response:

The Company proposes to reformat our results of operations discussions contained in our MD&A in future filings

to a business segment format with appropriate quantified business reasons.

Please see attachment A for revised format. Additional information added as a result of the reformatting is in italics.

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Item 9 A - Controls and Procedures, page 44

3.  Your chief executive officer and your chief financial officer have concluded that your disclosure controls

and procedures do not contain material weaknesses. We remind you that Item 307 of Regulation S-K requires you

to disclose your conclusions regarding the effectiveness of your disclosure controls and procedures as of the

end of the period covered by the report. Please file an amendment to your Form 10-K to disclose your

conclusions regarding the effectiveness of your disclosure controls and procedures as of December 31, 2004.

Company response:

Please see attachment B for the amended Item 9A to be included in the Company's amendment to our Form 10K for

the year ended December 31, 2004, which we intend to file upon the staff's completion of their review of our

responses.

4.  Disclosure controls and procedures are now defined in Exchange Act Rules 13a-15(e) and 15d-15(e). See SEC

Release 33-8238, which became effective August 14,2003. Please refer to the appropriate locations for the

definitions.

	Company response:

Please see attachment B for the amended Item 9A to be included in the Company's amendment to our Form 10K for

the year ended December 31, 2004, which we intend to file upon the staff's completion of their review of our

responses.

5.  Please disclose any changes in your internal controls over financial reporting during the quarter ended

December 31, 2004 that materially affected, or are reasonably likely to materially affect your internal

controls over financial reporting. Refer to Item 308(c) of Regulation S-K.

Company response:

Please see attachment B for the amended Item 9A to be included in the Company's amendment to our Form 10K for

the year ended December 31, 2004, which we intend to file upon the staff's completion of their review of our

responses.

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Financial Statements

Balance Sheets, page F-3

6.  Please present your goodwill and your intangible assets as separate line items on your balance sheet. See

paragraphs 42 and 43 of SFAS 142.

	Company response:

The Company proposes to expand our balance sheet to include goodwill, our only intangible asset, as a separate

line item in future filings.

Statements of Income, page F-5

7.  Please separately present on your income statements or disclose in a note to the financial statements the

components and related amounts included in the other income (expense), net line item for each period your

statement of operations is presented. See Rules 5-03(7) and (9) of Regulation S-X.

	Company response:

The Company believes that all significant transactions reported in other income (expense) on the Consolidated

Statement of Income have been disclosed in footnotes 2, 6, 12 and the Quarterly Financial Data. However, such

disclosures are not consolidated in one footnote. For future filings, the Company proposes to provide

appropriate disclosure of components of other income (expense) in a footnote.

Statements of Shareholders' Equity, page F-6

8.  Please disclose the accumulated balances for each classification of accumulated other comprehensive income

(loss) on the face of the balance sheet or in a footnote to the financial statements as required by paragraph

26 of SFAS 130.

	Company response:

See response to Comment number 9.

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9.  Please disclose for all periods presented the amounts of the reclassification adjustments and the income

tax provision for each classification of other comprehensive income. See paragraphs 20 and 25 of SFAS 130.

	Company response:

The accumulated other comprehensive loss included in the Company's consolidated balance sheet is related to

only one item and there are no reclassification or income tax adjustments associated with this one item. The

Company proposes to expand our disclosure in future filings as follows:

Derivatives, Hedges and Financial Instruments

We account for derivatives in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging

Activities." SFAS No.133 requires the recognition of derivatives in the balance sheet and the measurement of

these instruments 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.

In 1997, we entered into an interest rate forward agreement to effectively fix the interest rate of a

long-term lease commitment (not for trading purposes). In 1999, we executed a long-term lease agreement and

terminated the forward agreement at a net cost of $2.8 million.  We historically accounted for this cash flow

hedge under the deferral method (as an adjustment of the initial term lease rentals). Upon adoption of SFAS

No. 133 in 2001, the remaining deferred cost amount was reclassified from other assets to accumulated other

comprehensive loss and is being amortized to operations over the term of the lease arrangement. At December 31,

2004 and 2003, accumulated other comprehensive loss consisted of the remaining deferred cost of $1,280,000 and

$1,570,000, respectively.  The amount amortized to operations was $290,000, $289,000 and $290,000 for 2004,

2003 and 2002, respectively. There were no income tax benefits related to these expenses.  Also see Note 8 -

Income Taxes.

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Statement of Cash Flows, page F -7

10. You indicated on page 36 of your MD&A that other income for 2004 includes a gain of $2.1 million from the

sale of non-operating assets by a non- ThermaClime subsidiary. Please clarify where this gain of $2.1 million

is located on your statement of cash flows for the year ended December 31, 2004. In your statement of cash

flows, you also indicate that you had gains of $340,000 on sales of property and equipment. Given the guidance

of paragraph 45 of SFAS 144, please tell us how you determined your income statement classification of the

$2.1 million and $340,000 gains is appropriate.

	Company response:

Non-operating assets in our discussion were assets of an idled chemical plant, primarily residue precious

metals used in chemical processes, which the Company acquired in late 2003 through a bidding process for a

nominal purchase price.  The purchase price was included as a current asset in supplies, prepaids and other

in the December 31, 2003 consolidated balance sheet.  During 2004, the Company was able to recover and sell

those assets for approximately $2.1 million in excess of costs incurred and liabilities assumed.  The $2.1

million gain is included in the Consolidated Statement of Cash Flows as a component of the $1.9 million net

income. Because the assets sold were not long-lived assets, the Company does not believe the assets sold meet

the criteria provided in paragraph 45 of SFAS 144, and therefore the Company believes that classification as

reported is appropriate.

The Company acknowledges that the $340,000 gain on sales of property and equipment should have been included

as a component of operating income in the Consolidated Statement of Income. However, the $340,000 gain was an

aggregate of several transactions, none of which were material to an evaluation of the financial statements.

The Company does not believe the amount was material enough to warrant adding a separate line to the

Consolidated Statement of Income.

11. Please explain to us how your netting of cash flows related to drafts payable and revolving debt facilities

meets the requirements of paragraph 13 of SFAS 95. Otherwise, please present the gross changes in drafts

payable and revolving debt facilities.

	Company response:

The Company believes that reporting the balance in drafts payable as a net change is appropriate for the

following reason:

The Company issues drafts for certain inventory purchases from select foreign vendors in the non-ThermaClime

"other business operations". The aggregate annual usage of these drafts is immaterial. The terms of the drafts

range from payable at sight, to payment within 120 days of presentation of documents.  We do not interpret the

phrase "three months" in paragraph 13 of SFAS 95 to be "absolute", and the amount of drafts payable with

terms in excess of three months is immaterial.

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The Company believes that it is proper to report the change in revolving debt borrowings in the Consolidated

Statements of Cash Flows on a net basis and that such reporting is consistent with the intent of paragraph

13 of SFAS 95 due to the following:

Collateral for borrowing under the revolving debt facilities is accounts receivable and inventory-assets that

turn quickly.  The increase or decrease in the debt outstanding (i.e., the "net change") under revolving debt

facilities more succinctly presents the results of the Company's operations and its cash flows. Reporting the

net change in revolving debt is more informative to the reader of financial statements than the gross numbers

which represent annual collections from customers and annual borrowings to replace those collections in the

Company's treasury.

12. Please disclose the facts and circumstances leading to the impairment of $737,000 in accordance with

paragraph 26 of SFAS 144. Given the guidance of paragraph 25 of SFAS 144, please tell us how you determined

it was appropriate to not include the impairment expense in operating income.

	Company response:

Proposed changes are presented in italics for purposes of highlighting our response.

The Company proposes to modify its disclosures in footnote #2 "Summary of Significant Accounting Policies in

future filings as follows:

Impairment of Long-Lived Assets

Long-Lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the

carrying amounts may not be recoverable. Recoverability of assets to be held and
used is measured by a

comparison of the carrying amounts of the assets to future net cash flows
expected to be generated by the

assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount

by which the carrying amounts of the assets exceed the fair values of the
assets. Assets to be disposed are

reported at the lower of the carrying amounts of the assets or fair values less
costs to sell.

We made estimates of the fair values of certain spare parts and idle assets in our Chemical Business and

certain non-core equipment included in our Corporate assets in order to determine recoverability of our

carrying amounts based on the estimated residual value of the assets. During 2004 and 2003, based on these

estimates and assumptions, we recognized impairments of $375,000 and $300,000, respectively, relating to

Corporate assets and $362,000 and $200,000, respectively, relating to the Chemical Business assets which are

included in other expense in the accompanying consolidated statements of income.

Although the Company disclosed in footnote # 2 that impairment expense is included in other expense, the

Company acknowledges that the impairment expense should have been included as a component of operating income

in the Consolidated Statement of

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Income.  The Company does not believe the amount is material enough to warrant adding a separate line to the

Consolidated Statement of Income.

Note 2 - Summary of Significant Accounting Policies, page F-9

13. Please disclose the types of expenses that you include in the cost of sales line item and the types of

expenses that you include in the selling, general and administrative expenses line item. Please tell us whether

you include inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs,

internal transfer costs, and the other costs of your distribution network in the cost of sales line item. With

the exception of warehousing costs, if you currently exclude a portion of these costs from cost of sales, please disclose:

  in a footnote the line items that these excluded costs are included in and the amounts included in each

  line item for each period presented, and

  in MD&A that your gross margins may not be comparable to those of other entities, since some entities

  include all of the costs related to their distribution network in cost of sales and others like you

  exclude a portion  of them from gross profit, including them instead in a line item, such as selling,

  general and administrative expenses.

	Company response:

Cost of sales includes materials, labor and overhead costs to manufacture the produ