Schedule I - Condensed Financial Information of Registrant

Condensed Balance Sheets

Schedule I includes the condensed financial statements of the parent company only, LSB Industries, Inc.


	December 31,
	2012		2011
	(In Thousands)
Assets
Current assets:
Cash and cash equivalents	$	22,210	$	35,302
Accounts receivable, net		3		15
Supplies, prepaid items and other		9,579		5,833
Due from subsidiaries		4,392		28,785
Note receivable from a subsidiary		—		10,000

Total current assets		36,184		79,935

Property, plant and equipment, net		202		229
Investments in and due from subsidiaries		342,897		290,303
Other assets, net		2,476		2,253

	$	381,759	$	372,720

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	605	$	291
Short-term financing		9,254		5,646
Accrued and other liabilities		1,139		1,036
Redeemable, noncumulative, convertible preferred stock		—		44

Total current liabilities		10,998		7,017

Due to subsidiaries		—		56,243
Noncurrent accrued and other liabilities		5,423		5,349

Stockholders’ equity:
Preferred stocks		3,000		3,000
Common stock		2,673		2,664
Capital in excess of par value		165,006		162,092
Retained earnings		212,192		153,888

		382,871		321,644
Less treasury stock		17,533		17,533

Total stockholders’ equity		365,338		304,111

	$	381,759	$	372,720

See accompanying notes.

LSB Industries, Inc.

Schedule I - Condensed Financial Information of Registrant

Condensed Statements of Income


	Year Ended December 31,
	2012			2011			2010
	(In Thousands)
Fees under service, tax, sharing and management agreements with subsidiaries	$	6,656		$	5,406		$	3,531

Selling, general and administrative expense		5,693			5,661			5,388
Other expense (income), net		(207	)		453			(25	)

Operating income (loss)		1,170			(708	)		(1,832	)

Interest expense		1,812			1,730			3,062
Loss on extinguishment of debt		—			—			52
Interest and other non-operating income, net		(2,442	)		(1,264	)		(973	)

Income (loss) from continuing operations		1,800			(1,174	)		(3,973	)

Equity in earnings of subsidiaries		(56,986	)		(85,158	)		(33,688	)
Net loss from discontinued operations		182			142			141

Net income	$	58,604		$	83,842		$	29,574

See accompanying notes.

LSB Industries, Inc.

Schedule I - Condensed Financial Information of Registrant

Condensed Statements of Cash Flows


	Year Ended December 31,
	2012			2011			2010
	(In Thousands)
Net cash flows provided (used) by operating activities	$	23,100		$	(5,558	)	$	(3,074	)

Cash flows from investing activities:
Capital expenditures		—			—			(51	)
Payments received on note receivable from a subsidiary		10,000			—			—
Other assets		(266	)		(283	)		(439	)

Net cash provided (used) by investing activities		9,734			(283	)		(490	)

Cash flows from financing activities:
Proceeds from short-term financing		11,192			6,775			—
Payments on short-term financing		(7,584	)		(1,129	)		—
Payments associated with induced conversion of 5.5% convertible debentures		—			(558	)		—
Acquisition of 5.5% convertible debentures		—			—			(2,494	)
Payments on loans secured by cash value of life insurance policies		—			—			(380	)
Net change in due to/from subsidiaries		(50,460	)		26,512			(7,430	)
Purchases of treasury stock		—			—			(2,421	)
Proceeds from exercise of stock options		767			1,197			829
Excess income tax benefit associated with stock-based compensation		498			1,160			185
Acquisition of redeemable preferred stock		(39	)		—			—
Dividends paid on preferred stocks		(300	)		(305	)		(305	)

Net cash provided (used) by financing activities		(45,926	)		33,652			(12,016	)

Net increase (decrease) in cash and cash equivalents		(13,092	)		27,811			(15,580	)

Cash and cash equivalents at the beginning of year		35,302			7,491			23,071

Cash and cash equivalents at the end of the year	$	22,210		$	35,302		$	7,491

See accompanying notes.

LSB Industries, Inc.

Schedule I - Condensed Financial Information of Registrant

Notes to Condensed Financial Statements

1. Basis of Presentation—The accompanying condensed financial statements of the parent company include the accounts of LSB Industries, Inc. (“LSB”) only. LSB’s investments in subsidiaries are stated at cost plus equity in undistributed earnings (losses) of subsidiaries since date of acquisition. These condensed financial statements should be read in conjunction with LSB’s consolidated financial statements.

2. Commitments and Contingencies—LSB has guaranteed the payment of principal and interest under the terms of various debt agreements of its subsidiaries. Subsidiaries’ long-term debt outstanding at December 31, 2012, which is guaranteed by LSB, is as follows (in thousands):


Secured Term Loan	$	68,438
Other, most of which is collateralized by real estate		3,633

	$	72,071

In addition, LSB has guaranteed approximately $44.7 million of its subsidiaries’ credit terms with vendors (primarily relating to purchases of natural gas) and approximately $12.7 million of its subsidiaries’ insurance bonds.

See Notes 10, 12 and 21 of the notes to LSB’s consolidated financial statements for discussion of the long-term debt and commitments and contingencies.

3. Preferred Stock and Stockholders’ Equity—At December 31, 2012 and 2011, a subsidiary of LSB owns 2,451,527 shares of LSB’s common stock, which shares have been considered as issued and outstanding in the accompanying Condensed Balance Sheets included in this Schedule I—Condensed Financial Information of Registrant. See Notes 14 and 15 of the notes to LSB’s consolidated financial statements for discussion of matters relating to preferred stock and other stockholders’ equity matters.

4. Extinguishment of Debt – During 2010, LSB acquired a certain portion of the 2007 Debentures, with each purchase being negotiated. During 2011, the remaining 2007 Debentures were converted into shares of LSB common stock including the portion of 2007 debentures held by the Golsen Group as discussed in Note 10 of the notes to LSB’s consolidated financial statements. In addition for financial reporting purposes, one of the conversion transactions with an unrelated third party was considered an induced conversion. The following is a summary of transactions relating to the 2007 Debentures for each respective year:


	2012		2011		2010
	(Dollars In Thousands)
Principal amounts converted or acquired	$	—	$	26,900	$	2,500
Cash paid for acquisitions	$	—	$	—	$	2,494
Shares of LSB common stock issued		—		979,160		—

5. Interest Expense and Income – During 2012, 2011 and 2010, LSB incurred interest expense from subsidiaries of $1,307,000, $1,200,000 and $1,173,000, respectively. During 2012, 2011, and 2010, LSB earned interest income from subsidiaries of $2,168,000, $1,262,000 and $956,000, respectively.

6. Dividend Received from Subsidiary – During 2012, LSB received a dividend of $24.4 million from a subsidiary (none during 2011 or 2010), which amount is included in net cash flows provided by operating activities.