Greetings, and welcome to the LSB Industries Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carol Oden. Thank you. Ms. Oden, you may begin.

Thank you. Good morning, welcome to LSB Industries, Inc. second quarter 2014 conference call. Today, LSB’s management participants are Jack Golsen, Chairman and Chief Executive Officer; Barry Golsen, President and Chief Operating Officer; and Tony Shelby, Executive Vice President and Chief Financial Officer. This conference call is being broadcast live over the Internet and is also being recorded. An archive of the webcast will be available shortly after the call on our website at www.lsbindustries.com. After comments by management, a question-and-answer session will be held. Instructions for asking questions will be provided at that time. Information reported on this call speaks only as of today, August 8, 2014, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. After the question-and-answer session, I will have some important comments and disclaimers about forward-looking statements and our references to EBITDA. We encourage you to view the PowerPoint PDF that is posted on our website at www.lsbindustries.com in the Webcasts and Presentations section of Investors tab. Please note that the presentation starts on page 3 of the PowerPoint. Now, I’ll turn the call over to Mr. Jack Golsen.

Thank you, Carol. Thank you for joining our conference call today, which will cover a discussion of our second quarter 2014 results. We released our results in a press release this morning. Sales for the second quarter 2014 were approximately $202 million, and remained relatively flat compared to the second quarter of 2013. However, operating income increased to $23.8 million in the second quarter of 2014 from $12.2 million in the second quarter of 2013, representing a 95% increase. Net income increased to $11.1 million or $0.47 per share in the second quarter of 2014, up from $7.4 million or $0.31 per share in the second quarter of 2013, representing a 50% increase in net income, and EBITDA increased to $32.6 million in the second quarter of ‘14 from $18.9 million in the second quarter of ‘13, representing a 72% increase. These results reflect an increased profitability for the second quarter of 2014 compared to 2013, primarily resulting from improved results from our Chemical operations. Later in this call, Barry and Tony will give you details about our operations. The good news during the second quarter is that our Pryor operation sustained its targeted daily production rate of approximately 650 tons of anhydrous ammonia per day, and other than planned turnarounds and routine maintenance, we would expect that to continue. Although we expect the remainder of 2014 and 2015 to continue to be profitable, the previously announced expansion projects at El Dorado, which we believe will add significant incremental profits, will not have a significant impact until 2016 when the projects are complete and operational. Until then, we will continue to carry overhead and interest costs on debt that is earmarked for the expansion, which will continue to burden our existing profitability and cash flow. As a reminder, our expansion…

Thanks, Jack. As Jack stated, our results for the second quarter 2014 reflect significant improvement as compared to the 2013 period due to the sustained production from our chemical facilities. During this financial review, we’ll discuss these and other factors that affected results for both quarters as well as variances between quarters. For a comparison of second quarter 2014 results to 2013, please turn to page 4. Net sales for the second quarter were $202 million, essentially even with last year. Consolidated net sales for the quarter included an increase of $14 million in the Chemical Business and a decrease of approximately the same amount in the Climate Control Business. Our consolidated operating income was $24 million, compared to $12 million. The net increase in operating income of $12 million included an increase of $17 million in our Chemical Business, offset by a decrease of $5 million in our Climate Control Business. Our general corporate expenses increased $900,000 over the same period in 2013, primarily relating to personnel costs and professional and consulting fees. Interest expense for the quarter was $5.7 million, net of $3 million capitalized during the quarter, compared to $540,000, net of $600,000 capitalized in the prior period. The increase in 2014 interest expense is attributable to the interest on the 7.75% senior secured notes that were issued in August of 2013. As previously discussed, the primary use of proceeds being to fund our chemical businesses’ planned capital expansion program. After provision for income taxes of approximately 39%, net income was $11 million or $0.47 per share, compared to net income of $7.4 million, or $0.31 per share, last year. EBITDA was $33 million in the 2014 second quarter, compared to $19 million. For the trailing 12 months ended June 30, EBITDA was $175 million. On page…

Thanks, Tony. Today, I will cover what’s going on in the markets we serve, update you on major initiatives underway, and review the key value drivers that we’re focused on. Before discussing the markets we serve in our Chemical Business, it’s important to understand cost and pricing trends for the feedstock we use and the products we sell. Please turn to page 16 where you can see charts that illustrate these. Summing up this page and reinforcing Tony’s earlier financial review, over the past year, prices of natural gas have increased and the selling prices of our primary fertilizer products have generally declined, resulting in significantly reduced margins per ton in this part of our business compared to the last several years. Focusing on the general outlook for the agricultural markets we serve, page 17 lists several indicators for our agricultural products, most of which continue to be favorable. Planting levels are expected to be generally high although slightly lower than the past few years, due to record crop harvest the last couple of years. Industry expectations are that approximately 90 million acres of corn will be planted in the upcoming season. Market prices for corn and wheat are lower than a year ago, but continue to be profitable to growers, so farmers have an incentive to plant. Grain stock-to-use ratios, both worldwide and in the U.S., although higher than in the recent past, are at historic levels. We believe all of this should continue the strong demand for fertilizers in the United States, benefiting North American nitrogen fertilizer producers who currently have the lowest delivered cost, including our Chemical business. Despite general industry drivers, weather can have a significant impact on the fertilizer part of our business, and at this time the weather conditions are favorable for the next…

Thank you. (Operator Instructions) Our first question today is coming from Joe Mondillo from Sidoti & Company. Please proceed with your question. Joe Mondillo - Sidoti & Company: First question related to the chemicals side of the business, so I was a little surprised to see gross profits were only up a couple of percentage points compared to the first quarter, given the improvement that you made in terms of operations at Pryor, and also pricing was a little higher. I know there was a product mix issue when you look at the first quarter compared to the second quarter, which offset that a little bit, but I was wondering if you could give just a little bit of your thoughts on that, and sort of update us on how you thought about the profitability in chemical related to Pryor and the inventory that you had on hand going into the second quarter and the operations, how efficient they’re running, costs, anything like that?

Well, Joe, typically we’re comparing - you were talking about sequential comparisons, first quarter versus second? Joe Mondillo - Sidoti & Company: Yeah. The only reason I compare first to second is just because last year Pryor was a whole mess in terms of shutdowns, and so given the sequential improvement that you made in Pryor, first quarter to two second quarter this year, also the seasonal planting period, also pricing being up, I would have thought gross profit would have been up significant first quarter to second quarter this year and that’s the only reason why I make that comparison.

I think it really has to do with product mix and what we shipped in the first quarter out of inventory versus what we had available coming into the second quarter. And from a production standpoint, we had the plants running, and natural gas began higher, currently it’s lower than it was in the second quarter, but by and large, the prices and availability was -- in the first quarter, did you take into consideration, the insurance recovery at Cherokee? Joe Mondillo - Sidoti & Company: That doesn’t hit on the gross profit line, or does it?

Well, part of it does. I think there is $5 million in the gross profit line. Joe Mondillo - Sidoti & Company: Okay. Well, that would explain a lot if that’s the case. So, in terms of Pryor, for the second quarter because we haven’t really gotten a real great look at what kind of profitability Pryor can really produce, given the hiccups that we’ve seen over the last two years. Looking at the second quarter Chemical profits, and in particular sort of Pryor, do we still have a lot of upside given the fact that you didn’t enter 2Q with a lot of inventory at UAN probably? There still maybe some costs that are inflated that may decline throughout the next two years. Give us a little idea and what -- the profits that you realized in 2Q, barring no changes in chemical prices or natural gas prices, how you think about those profits in the profit margins that you saw in the second quarter?

I think your statement there is absolutely right. I don’t think we’ve seen the full ability to produce gross profit and profitability at Pryor yet. We still have some carryover maintenance costs and things like that we were incurring in the second quarter. You get into 2015, assuming the same prices, you’re going to see a lot more efficiencies. Joe Mondillo - Sidoti & Company: Okay. And then, just a follow-up and I’ll hop back in queue. So in terms of the third quarter and the back half of the year, could you remind us -- I’m pretty sure Cherokee did not see any downtime in the third quarter of last year because it just got up and running in May or so, is that correct?

That’s correct. Joe Mondillo - Sidoti & Company: And then, Pryor, what’s the plan for the rest of the year on Pryor? I think you might have mentioned a fourth quarter possible turnaround, but update us on what the expectations are, operations at Pryor in terms of any turnarounds or downtimes?

We’re going to have some maintenance activity going at Pryor in the third quarter, and as you know, it’s the off-season in terms of - depending on whether people stock up or not, and at this point, I think the second quarter, Pryor will have some maintenance activity, but the ammonia plant is growing very well, we’re very satisfied with the way the ammonia plant is running, and Q4, we should -- do you ask about fourth quarter?

No, I think he meant the third quarter.

Third quarter. Joe Mondillo - Sidoti & Company: I think you might have mentioned earlier in the year that maybe fourth quarter, you may do something at Pryor?

We’re going to push that into the third quarter. Joe Mondillo - Sidoti & Company: Okay. So compared to last year, you did not see any downtime at Pryor last year, did not see any downtime at Cherokee last year, because of the timing of bringing those plants up. This year, we should see some downtime at both plans in the third quarter, is that correct?

That’s correct. Joe Mondillo - Sidoti & Company: Okay. And then, in the press release, I believe, and I can’t remember if you stated in your prepared commentary that you expect profits out of Chemical in the back half of the year should be greater than the back half of the year in 2013. Given the downtime that we’re going to expect to see in the third quarter, pricing being sought of flattish it looks like, are you expecting a lot of that improvement to happen in the fourth quarter then? I would expect.

Fourth quarter should be pretty much full out. Joe Mondillo - Sidoti & Company: Okay. All right. I’ll hop back in the queue. Thanks a lot.

Thank you. Our next question today is coming from Dan Mannes from Avondale. Please proceed with your question.

First of all, I’m going to actually take the opposite approach. I’m actually pretty pleased with what we saw out of the Chemical business. Congrats on at least showing us at the front end what a clean quarter can look like. So we’re glad to see it, and I’m hoping to see it looks even better in the coming quarters. Following up with a couple of questions on that topic though, one thing that did surprise a little bit is the realized pricing in the quarter, particularly for ammonia, but even for UAM, it’s a little bit lower than we would have anticipated and certainly lower than maybe some of your peers have reported, where you guys constrained at all because you were selling all spot with no pre-sales, or are there any logistics issues that maybe impact realized pricing?

We had very little in the way of pre-sales coming into the quarter, and you know at the Pryor area, we have -- we got off to a slow start there from a forward sales standpoint, and in the Pryor plant versus the Cherokee plant, we have the distribution fee on the off-take agreement. For the most part, I think we were competitive, we were below some, but we didn’t have - we didn’t actually shipped in terms of ammonia, we didn’t ship that many tons of ammonia.

It just looked like the realized price looked a little bit lower than we would have anticipated on what you did shift?

We were at $470. But if you compare us to CF, for instance, I don’t think the CF price is a netback to factory, I think that’s a netback to their distribution point. So you get a different pricing point in terms of comparing our average sales price to theirs.

You didn’t price much above Tampa, and you’re sitting a good deal north.

I’m sorry, we didn’t price off of Tampa?

No, what was Tampa average in the quarter? It was well over 500. So even if you go from metric to short, it looks like you didn’t price much above Tampa and given the locational difference, I would have thought you would have priced better?

A lot of it has to do with the timing. If you look at the quarter in 2013 and the quarter in 2014, you can see that ammonia started out high in one quarter and declined, and in the second quarter this year, you had the opposition situation. It really depends on when you ship the product versus because currently at $520 on Tampa and it started out higher than that. So on average, it really depends on when you ship and we don’t have a lot of free ammonia to ship.

Not in the second quarter, but I assume you will in the third and fourth, correct?

Yes.

Okay. And then, switching real quick to the Climate business, obviously a little bit distorting in terms of the financial performance in the quarter, I’m just wondering can you maybe amplify your comments a little bit as it relates to shipping or to shipments? Even with incoming backlog, the revenue numbers looked pretty light, can you talk at all about maybe any deferrals or delays in shipments and maybe the risk of that continuing to occur and also maybe any rationale for it?

I think that what we saw perhaps, and this is anecdotal coming from our sales force, is in terms of delays in shipment, we had this very harsh winter and construction projects got generally behind, and so it was a domino effect in terms of shipment delays into the -- even into the second quarter. Now, I think that - but you can see that incoming orders have significantly picked up. So I would expect to see that domino effect either gone or trailing off in the future.

So you almost may have kind of a piling up issue where it sort of backs up into the third quarter, or hopefully that’s the case, where you have both the regular way business that you booked during the second quarter plus, anything that shipped delay gets pushed into the quarter as well?

Yeah, but then you’ve your plant capacity and your ability to gear up fast enough to handle it. So we have, in general, plenty of plant capacity to handle this level of business or an increased level of business. But you’ve got -- you typically flex your labor force up and down, and so that takes awhile to do. It’s not like a light switch that you turn on and off. But generally speaking, I would expect to see an increased level of shipments in the third quarter as a result of the increased level of order input in the second quarter.

That makes sense. The last thing on Climate before I turn this over would be the agreement with Carrier ended during the second quarter I believe. It looked like orders picked up pretty nicely, and I know it’s early, but any changes or anything you’ve noticed in the competitive environment now that you are competing against them versus producing for them?

No.

That was quick. Thanks, Barry.

Next question, please.

Our next question today is coming from Keith Maher from Singular Research. Please proceed with your question.

Maybe if you could expand upon, I know you touched on this on one of the earlier questions. Just so I can understand the turnaround at Pryor in Q3, it sounds like it's going to be fairly short. And also are there any planned turnarounds for El Dorado for the balance of the year?

At El Dorado, we do not have a major turnaround planned, but what we do have are some minor maintenance events that will not stop the production of the entire plant. The events are primarily on acid plants, and as you know, we have multiple acid plants there. So, they can continue production at other plants while they are doing maintenance on one plant, and so we do have some activity that will go on during the quarter, but you won’t see the entire plant stop as a result of those.

Okay, thanks. And just a general question on the agricultural business, in terms of, we're seeing obviously corn prices down a bit. What would that mean? And I guess this wouldn't really affect probably until the spring planting season, but if there is less corn planted, there's more wheat or more soybeans, what does that mean for your business? And I guess what I'm getting at is, are certain crops are more fertilizer intensive than others?

The corn price is under quite a bit of pressure right now, but there is still a significant spread on their per acre for the growers, so we expect that we’re going to continue to see in the range of 90 million acres of corn planted, which takes a lot of nitrogen, so there may be somewhat reduction in the demand for ammonia, but I think we’re well positioned to run our plans at full out at 90 million acres. And then there is also a lot of discussion about increased exports of corn, so the domestic consumption plus the potential for additional exports, I think, will continue to provide significant demand for the product, and I think we’ll be able to run our plants full-out based on 90 million acres.

Okay. That was helpful. And just, I guess, one more question before I get back in queue. In the Climate Control business, can you talk about where the strength of orders is coming from? I’m assuming that’s mainly on the commercial side, but more color on particular sectors or particular products that you sell?

It’s across the board. It’s just generally across the board. So it’s not in any one specific area.

But it is in more commercial than residential I assume?

That’s true. I was referring to the commercial side of the business.

(Operator Instructions) Our next question --.

I would like to make a comment on a previous question that might have been answered a little more distinctly. On the sequential comparison of the second quarter of ‘14 to the first quarter, we had $23 million of insurance recoveries in the first quarter gross profit.

Of last year.

First quarter, first quarter this year, so there was a question about the sequential comparison, this year’s gross profit -- the second quarter gross profit versus the first and I failed to point that out.

Thank you. Our next question today is coming from Brent Rystrom from Feltl and Company. Please proceed with your question.

Quick statement, I just want to see if you agree with this before my questions. I would assume one reason you're pretty comfortable with full uptake of your nitrogen production on 90 million acres is since 44% of the nitrogen is imported, you've got a lot of cushion if the acres go down a little bit. Is that a fair statement?

Yes.

All right, a couple of quick things then. You've hit most of the stuff I had. Can you give us a sense when you think about the loss of the Carrier business. I would assume you're going direct to a lot of the same people who would have been buying that product through Carrier, now they're buying it through you. You'll obviously lose the sales you would have had to Carrier, you're going to gain the sales in some degree that you will get direct. I would assume there's a revenue and a margin bump on each unit sold versus Carrier. Can you give us a sense of how that might look?

Actually, in general, you can say looking across the aggregate business that we were selling to Carrier, we would typically sell at a higher gross margin because it’s a non-OEM business. An OEM business is typically sold at a lower price, so the OEM customer has room for a mark-up. However, in our particular case, we had two arrangements in place. One was residential where we were selling more or less market price and paying Carrier a royalty, and the other was a traditional OEM arrangement on the commercial side of the business where we were selling them at a pretty deep OEM discount, and they were marking it up. So it’s going to depend on which sector of the business the incremental impact.

Can you give us a sense of what the mix was, commercial versus residential?

We have not really ever disclosed that, and I don’t have that number in front of me. But I would expect that, generally speaking, more of the business -- for sure more of the business was commercial than residential.

Thinking long term about what might improve the corn market, you have given the discussion about relatively cheap corn prices. When you look at the recent report out saying that Argentina is going to decrease its plantings by about 15%, the crop is going to be maybe 100 some million bushels smaller. Ukraine now talking about down plantings for next year. They're looking at several million acres lower. Those two being the other major exporters in the world, I would assume if that comes into play and then you look at the demand building from ethanol, livestock, industrial uses here, we're not far from an event that would actually start to firm corn a little bit. Do you have any particular thoughts on that?

In discussing it with our -- those issues with our sales group, they, of course, believe that if all those things were to come to play, they would be positive, but we have no assurance as to those things will happen, and it’s speculative to some degree.

Final question. I don't know to what degree you may be able to answer this or at least give some insight, but can you give us a sense of how much ammonia you produced internally in the quarter, how much ammonia was used in all of your operations, and how much ammonia was used in El Dorado?

Well, I don’t have the exact tonnage of production in front of me, but you know that we have 175,000 tons of capacity of ammonia at Cherokee; Cherokee ran pretty much full out. I’m talking about annual capacity, and 250,000; 225,000 to 250,000 on Pryor.

Brent, how about instead of throwing out some numbers that are off-the-cuff, how about if we follow up with you later.

We’ve got the capacities in our PowerPoint.

And then the only number I would be missing then would be how much ammonia you used in the quarter relative to that capacity?

I think we’re going to ask to get back to you on that one, because we have to pull it together, it’s in two or three different places.

Our next question today is a follow up from Joe Mondillo from Sidoti & Company. Please proceed with your question. Joe Mondillo - Sidoti & Company: Hi guys. Just a couple of follow-up questions. First, in terms of pricing at Climate Control, has that been fairly stable or what has pricing been like this year?

It’s still very competitive construction market out there, so it’s been very competitive, but it’s always competitive, and it really depends on a product-by-product basis, but generally, I would say it’s comparable to prior years. Joe Mondillo - Sidoti & Company: Okay. So to drive the backlog of the orders that you saw in the second quarter, nothing -- you are not sort of under-pricing or anything like that, right?

Not on a general -- as a general rule, no. Joe Mondillo - Sidoti & Company: Okay. And then also in terms of your outlook for the back half of the year at Chemical on the ag side, it sounds like given the late harvest last year, the fall application season is going to be quite strong. And also it sounds like inventories at retailers are historically low. Is that sort of what you are hearing as well? And so, the fall actually could be a pretty strong demand.

There is a waiting game right now to restock. There is always - they are waiting for a better price and the sellers are waiting for a better price also. So I think probably with some of the downtime from our standpoint, I think from the standpoint of turnaround and maintenance activities that we’ve got going on that the third quarter will be -- production will be down there, but for the industry as a whole, I think, is going to be -- the pricing is going to be at least as good or better than it is through the second quarter. Joe Mondillo - Sidoti & Company: Okay, and then just lastly. Tony, the interest expense has been falling. It fell for the second straight quarter since you hit that $7 million plus number in the fourth quarter. Is the $5.5 million range, is that -- first off, why has that been falling sequentially? And is this sort of a more of a normalized interest expense that you should expect going forward, the $5.5 million?

No, the interest rate is 7.75%. It’s going to be steady throughout. It’s really being affected by how much we are capitalizing, which is part of the GAAP requirements, and it will continue to be a capitalized portion, it will continue to go up as construction progress increases and we complete the projects. So you will see a lower interest, total interest dollar amount on a quarter-over-quarter basis as we go forward until we complete the project. Joe Mondillo - Sidoti & Company: Okay, so through 2015 it should fall, theoretically?

From a dollar amount, I reported net interest expense will continue to decline as we capitalize more and more interest as construction progress increases quarter-over-quarter.

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

We like to thank everyone for participating today, and we like to turn the session over to Carol Oden who have some important information about forward-looking statements.

Information reported on this call speaks only as of today, August 8, 2014, and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay. The comments today and the information contained in the presentation materials contain certain forward-looking statements. All these statements, other than statements of historical facts, are forward-looking statements. Statements that include the words expect, intend, plan, believe, project, anticipate, estimate and similar statements of the future or forward-looking statement nature are identified as forward-looking statements, including, but not limited to, all statements about or in references to the Architectural Building Index or any McGraw-Hill forecast, any references to natural gas costs, ammonia costs and fundamentals of the Chemical or Climate Control Business. The forward-looking statements include, but are not limited to, the following statements; we expect the remainder of 2014 and 2015 to be profitable; El Dorado expansion will add significant incremental profits; El Dorado expansion project completion date, budget and output; ratio will improve significantly when we meet our projected revenue and EBITDA growth; we will continue to have negative cash flow until the El Dorado expansion projects are completed and producing; capital expenditures and planned spending; lower production and sales in the third quarter; funding of capital spending; planned turnarounds and equipment installation; ammonia prices; gas prices; start-up dates for acid plant and concentrator and ammonia plant; outlook for architectural markets, agricultural markets; import price impact, ability to secure customers to purchase our industrial AN production; Climate Control Business, 2014 operational excellence initiatives; value drivers; recovery in construction; and growth in green market construction. You should not rely on the forward-looking statements, because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. We incorporate the risks and uncertainties being discussed under the heading Special Note Regarding Forward-Looking Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and Form 10-Qs for the period ending March 31, 2014 and June 30, 2014. We undertake no duty to update the information contained in this conference call. The term EBITDA, as used in this presentation, is net income plus interest expense, depreciation, amortization, income taxes and certain non-cash charges unless otherwise described. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to GAAP measurement. The reconciliation of GAAP and any EBITDA numbers discussed during this conference call are included on the Q2 2014 conference call presentation, which is posted on our website. Thank you and this ends our conference call.

Thank you, and that does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.