SecProbe.io

CORRESP
1
filename1.htm

    form_corres.htm

      FOIA
        CONFIDENTIAL TREATMENT

      OF
        LIMITED PORTIONS REQUESTED

      BY
        LSB INDUSTRIES, INC.

      UNDER
        17 C.F.R. SECTION 200.83

      January
        22, 2008

      Ms.
        Nudrat Salik

      Division
        of Corporation Finance

      U.
        S.
        Securities and Exchange Commission

      Washington,
        D.C. 20549-7010

      Re:           LSB
        Industries, Inc.

      Form
        10-K/A for the fiscal year ended
        December 31, 2006, filed July 18, 2007

      Form
        10-K for the fiscal year ended
        December 31, 2006, filed March 27, 2007

      Form
        10-Q for the period ended
        September 30, 2007, filed November 5, 2007

      File
        No.
        1-7677

      Dear
        Ms.
        Salik:

      This
        letter responds to the comment letter dated December 18, 2007 from the U.S.
        Securities and Exchange Commission (the “Commission”), as referenced above. We
        have repeated your comments and provided our response immediately under the
        heading “Company Response” or in a referenced exhibit to this letter. Where
        appropriate, we have provided in our response 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

      Based
        on
        general comment number 1, any revisions or changes noted by our responses
        to
        your comments relating to our filings identified above will be made in future
        filings.

      FORM
        10-K/A#1 FOR THE YEAR ENDED DECEMBER 31, 2006

      General

      Comment
        Number 1:

      Where
        a
        comment below requests additional disclosures or other revision to be made,
        please show us in your supplemental response what the revisions will look
        like.
        These revisions should be included in your future filings.

      Company
        Response

      The
        following responses have been prepared in accordance with this comment. Where
        revisions to disclosures have been requested, revisions will be included
        in our
        future filings.

          Confidential
            Treatment Requested by LSB Industries, Inc.

        1

    Financial
      Statements

    Note
      3. Summary of Significant Accounting Policies

    Accrued
      Insurance Liabilities, page F-16

    Comment
      Number 2:

    Please
      disclose the levels of excess loss coverage by type of risk
      self-insured.

    Company
      Response

    Following
      is our proposed revised footnote to disclose the levels of excess loss coverage
      by type of risk self-insured.

    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 insurance coverage for our contractual
      exposure on group health claims and statutory limits under workers’ compensation
      obligations. We also carry excess umbrella insurance of $50 million for most
      general liability risks excluding environmental risks. We have a separate $30
      million insurance policy covering pollution liability at our El Dorado and
      Cherokee Facilities. Our accrued insurance liabilities are based on
      estimates of the self-insured portions of the claims, which include the incurred
      claims amounts plus estimates of future claims development calculated by
      applying our historical claims development factors to our incurred claims
      amounts. We also consider the reserves established by our insurance adjustors
      and/or estimates provided by attorneys handling the claims, if any. In addition,
      our accrued insurance liabilities include estimates of incurred, but not
      reported, claims and other insurance-related costs. At December 31, 2006 and
      2005, our claims liabilities were $1,646,000 and $1,426,000, respectively,
      which
      are included in accrued and other liabilities. It is possible that the actual
      development of claims could exceed our estimates.

      Income
        (Loss) Per Common Share, page F-21

        Comment
          Number 3:

      Please
        help us better understand the components of the line item described on the
        face
        of your statement of income as dividend requirements and stock dividend on
        preferred stock for the year ended December 31, 2006. Please provide us with
        a
        more detailed listing of the components and corresponding amounts than that
        provided on page F-22. Please also revise your footnote disclosures to better
        explain the components as well. Given that you disclose on page F-51 that
        you
        recorded a charge of $2,882,000 to accumulated deficit for the induced
        conversion of the Series 2 Preferred Stock, it is not clear how you arrived
        at
        the amount of $2,630,000. Refer to EITF Topic D-42. Please also tell us how
        you
        accounted for and reflected the holders waiving their rights to accrued,
        unpaid
        dividends in your financial statements.

          Confidential
            Treatment Requested by LSB Industries, Inc.

        2

    Company
      Response

      A:
        The
        $2,882,000 disclosed on page F-51 is the amount recorded as a charge to
        accumulated deficit. This amount is the excess of the fair value of the common
        stock issued to the holders pursuant to the exchange agreements over the
        fair
        value of the common stock to be issued to the holders under the original
        terms
        of the Series 2 Preferred in accordance with EITF Topic D-42 and SFAS 84
        as
        shown in Exhibit A. The $2,882,000 effectively included the dividends in
        arrears
        at the time of the exchange agreements. The $2,630,000 is the total
        dividend requirements and stock dividend deducted from net income to determine
        net income applicable to common stock as shown below. The holders of the
        shares
        of Series 2 Preferred pursuant to the exchange agreements received consideration
        in excess of the dividends in arrears at the time of the exchange agreements
        as
        shown below. Because these dividends in arrears have been deducted from income
        (loss) applicable to common stock in previous years, only $705,000 was included
        in dividend requirements and stock dividend for 2006 associated with shares
        of
        Series 2 Preferred pursuant to the exchange agreements as shown below. A
        more
        detailed list of the components and corresponding amounts of the line item
        described on the face of the statement of income as dividend requirements
        and
        stock dividend on preferred stock for the year ended December 31, 2006 and
        related line items on page F-22 and supporting calculations on how we arrived
        at
        the amount of $2,630,000 are as follows:

    2006
      dividend requirements for cumulative preferred stock:

              ($000’s
                omitted)

              20,000
                shares of Series B 12% Cumulative, Convertible Preferred Stock ($12
                per
                share)

              $

              240

              A
                range of 499,102 to 500,702 shares outstanding of Series 2 $3.25
                Convertible, Exchangeable Class C Preferred Stock which were not
                pursuant
                to any exchange agreements ($3.25 per share)

              1,624

              104,548
                shares of Series 2 $3.25 Convertible, Exchangeable Class C Preferred
                Stock
                pursuant to
                exchange agreements (see calculation below)

              705

              1,000,000
                shares of Series D 6% Cumulative, Convertible Class C Preferred Stock
                ($0.06 per share)

              60

              A
                range of 683 to 871 shares of Noncumulative Redeemable Preferred
                Stock
                ($1.24 per share)

              1

              Total
                dividend requirements and stock dividend

              $

              2,630

    Calculation
      of dividend requirements and stock dividend on Series 2 Preferred pursuant
      to
      exchange agreements:

              2006
                dividend requirements prior to exchange agreements (104,548
                shares x $0.8125 x 3 quarters)

              $

              255

              Excess
                of stock dividend (see discussion and calculation in Exhibit
                A and discussion in proposed footnote in Exhibit
                B) over dividends in arrears at time of exchange agreements
                (2,882,203 less (104,548 x $23.2625))

              450

              Total
                dividend requirements and stock dividend relating to
                exchange

              $

              705

            Confidential
              Treatment Requested by LSB Industries, Inc.

          3

      B:
        See
Exhibit B for our proposed revised footnote to better explain
        the components used in determining net income (loss) per share which
        modifications in presentation, if applicable, would be applied to all periods
        presented in future filings.

      C:
        We
        have referred to the dividends that have accumulated under the terms of
        cumulative preferred stocks but which are not due and payable as such have
        not
        been declared by our Board of Directors, as “accrued and unpaid”, based on the
        discussion in Exhibit C. Because these dividends had not been
        declared, they were not accrued as a liability, but instead the liquidation
        preference was disclosed and the dividends in arrears were deducted in arriving
        at net income applicable to common stock in the periods to which the dividend
        pertained. As noted above as the consideration paid in the exchange exceeded
        the
        aggregate liquidation preference of the securities, the holders effectively
        received these unpaid dividends. The consideration received in excess of
        the
        liquidation preference was deducted in arriving at net income applicable
        to
        common stock as discussed in (A) above.

      We
        propose replacing the phrase “accrued and unpaid” with the phrase “dividends in
        arrears” in the various disclosures relating to this transaction in future
        filings.

      Comment
        Number 4:

      You
        excluded the effect of certain shares of convertible preferred stock from
        your
        determination of diluted net income (loss) per share as their effect would
        have
        been anti-dilutive. Please disclose which series of Preferred Stock was
        excluded. In light of the requirements of EITF Topic D-53, please tell us
        what
        consideration you gave to the induced conversion of certain shares of Series
        2
        Preferred Stock in your determination of whether the preferred stock was
        dilutive.

      Company
        Response

      A:
        See Exhibit B for our proposed revised footnote for future
        filings to disclose the series of preferred stock which were
        anti-dilutive.

      B:
        In computing diluted net income per share for 2006, we followed the guidance
        of
        EITF Topic No, D-53. For computing purposes, we separated the Series 2 Preferred
        shares relating to the exchange agreements from the other convertible
        securities. We applied the “if converted” method from the beginning of 2006 to
        the date of the exchange agreements using both the 2006 dividend requirements
        prior to exchange agreements and the excess of the stock dividend over dividends
        in arrears at the time of exchange agreements (redemption premium) which
        totaled
        approximately $705,000 (see calculation under Comment Number 3). As a result,
        the $705,000 of dividend requirements and stock dividend on these shares
        of
        Series 2 Preferred was more dilutive than the underlying 348,366
        weighted-average shares which were outstanding from the beginning of 2006
        to the
        date of the exchange agreements.

          Confidential
            Treatment Requested by LSB Industries, Inc.

        4

    Note
      5. Inventories, page F-25

      Comment
        Number 5:

    In
      2006,
      you recorded a reduction to cost of sales of $711,000 for the realization and
      reversal of losses related to inventory reserves. For each period presented,
      please tell us the gross amount for which cost of sales was reduced for the
      reversal of losses. Please help us understand how you determined it was
      appropriate to reverse previously recorded losses related to inventory. Refer
      to
      SAB Topic 5:BB.

    Company
      Response

    A:
      Our disclosure used the terminology “realization and reversal of losses”. As
      explained below, cost of sales was not reduced by the “reversal” of losses
      relating to inventory, only the realization of losses on inventory sold during
      the subsequent period. However for your information, the following is the detail
      of the net amounts which impacted cost of sales and included in our
      disclosure:

              2006

              2005

              2004

                ($000’s
                  omitted)

              Slow-moving
                inventory:

              Provision
                for losses

            $

              258

            $

              121

            $

              303

              Cost
                exceeding net realizable value inventory:

              Provision
                for losses

              426

              1,395

              1,277

              Realization
                of losses

            (1,395
            )

            (1,277
            )

            (563
            )

              Net
                total

            $
            (711
            )

            $

              239

            $

              1,017

    B:
      We follow the
      accounting guidance as discussed in SAB Topic 5:BB. The inventories which had
      these “lower of cost or market” reserves at the end of each respective year were
      sold during the subsequent year and therefore realized. We have excluded the
      use
      of the term “reversal” in our disclosure for 2007 and future Form 10K and Form
      10Q filings.

    Note
      12. Long-Term Debt, page F-29

      Comment
        Number 6:

    You
      state that the conversion rates on
      your 7% Convertible Senior Subordinated Debentures due 2011 will be adjusted
      to
      reflect dividends, stock splits, issuances of rights to purchase shares of
      common stock and other events, as set forth in the Indenture. Please further
      expand your disclosure to describe the types of other events and types of
      issuances of rights to purchase shares of common stock which would result
      in a change to the conversion rates. Please clarify in your disclosure, if
      true,
      that the changes are due to standard antidilution provisions as discussed in
      paragraph 8 of EITF 05-2.

            Confidential
              Treatment Requested by LSB Industries, Inc.

          5

    Company
      Response

    The
      following is our p