----

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| [X]                                                                                                                                                                                                                                                                                                                                      | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | For the quarterly period      ended             June      30, 2009            |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | OR                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
| [       ]                                                                                                                                                                                                                                                                                                                           | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                     |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | For      the transition period from        _____________to______________                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | Commission      file      number                  1-7677       |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                 LSB      Industries, Inc.                                                                                                                                                    |
| Exact      name of Registrant as specified in its charter                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                     |
|            Delaware                                                                                                                                                                                                   |      73-1015226                                                                                                                 |
| State      or other jurisdiction of incorporation      or organization                                                                                                                                                                                                                                                                   | I.R.S.      Employer Identification No.                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                     |
|         16 South Pennsylvania      Avenue, Oklahoma City, Oklahoma                     73107                                                         |
|              Address of      principal executive offices                            (Zip      Code)                                   |
|                                                                                                                                                                                                                                                                                                                                     |
|                (405)      235-4546                                                                                                                                  |
|        Registrant's      telephone number, including area code                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                     |
|           __             None            _        ___           |
| Former      name, former address and former fiscal year, if  changed since last      report.                                                                                                                                                                                                                                        |

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Table of Contents

TABLE OF CONTENTS

|                          |                                                                                            |   |
|-------------------------------|-------------------------------------------------------------------------------------------------|--------|
|                          |                                                                                            |   |
|                          | PART      I – Financial Information                                                       | Page   |
|                          |                                                                                            |   |
| Item      1.                  | Financial      Statements                                                                       | 4      |
|                          |                                                                                            |   |
| Item      2.                  | Management's Discussion and      Analysis of Financial Condition and Results of      Operations | 37     |
|                          |                                                                                            |   |
| Item      3.                  | Quantitative and Qualitative      Disclosures About Market Risk                                 | 63     |
|                          |                                                                                            |   |
| Item      4.                  | Controls and      Procedures                                                                    | 64     |
|                          |                                                                                            |   |
| Special      Note   | Regarding Forward-Looking      Statements                                                       | 65     |
|                          |                                                                                            |   |
|                          | PART      II – Other Information                                                          |   |
|                          |                                                                                            |   |
| Item      1.                  | Legal      Proceedings                                                                          | 68     |
|                          |                                                                                            |   |
| Item      1A.                 | Risk      Factors                                                                               | 69     |
|                          |                                                                                            |   |
| Item      2.                  | Unregistered Sales      of Equity Securities and Use of Proceeds                                | 70     |
|                          |                                                                                            |   |
| Item      3.                  | Defaults Upon      Senior Securities                                                            | 72     |
|                          |                                                                                            |   |
| Item      4.                  | Submission of      Matters to a Vote of Security Holders                                        | 72     |
|                          |                                                                                            |   |
| Item      5.                  | Other      Information                                                                          | 72     |
|                          |                                                                                            |   |
| Item      6.                  | Exhibits                                                                                        | 73     |

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Table of Contents

|   |   | June      30,2009 |   | December      31,2008 |
|--------|--------|-------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Assets                                       |   |    |   |   |    |   |
|----------------------------------------------|--------|---------|--------|--------|---------|--------|
| Current      assets:                         |   |    |   |   |    |   |
| Cash      and cash equivalents               | $      | 63,008  |   | $      | 46,204  |   |
| Restricted      cash                         |   | 375     |   |   | 893     |   |
| Accounts      receivable, net                |   | 64,122  |   |   | 78,846  |   |
| Inventories:                                 |   |    |   |   |    |   |
| Finished      goods                          |   | 27,716  |   |   | 30,679  |   |
| Work      in process                         |   | 2,589   |   |   | 2,954   |   |
| Raw      materials                           |   | 21,376  |   |   | 27,177  |   |
| Total      inventories                       |   | 51,681  |   |   | 60,810  |   |
| Supplies,      prepaid items and other:      |   |    |   |   |    |   |
| Prepaid      insurance                       |   | 1,467   |   |   | 3,373   |   |
| Precious      metals                         |   | 14,575  |   |   | 14,691  |   |
| Supplies                                     |   | 4,800   |   |   | 4,301   |   |
| Other                                        |   | 1,841   |   |   | 1,378   |   |
| Total      supplies, prepaid items and other |   | 22,683  |   |   | 23,743  |   |
| Deferred      income taxes                   |   | 7,777   |   |   | 11,417  |   |
| Total      current assets                    |   | 209,646 |   |   | 221,913 |   |
|                                         |   |    |   |   |    |   |
| Property,      plant and equipment, net      |   | 108,780 |   |   | 104,292 |   |
|                                         |   |    |   |   |    |   |
| Other      assets:                           |   |    |   |   |    |   |
| Debt      issuance costs, net                |   | 1,988   |   |   | 2,607   |   |
| Investment      in affiliate                 |   | 3,766   |   |   | 3,628   |   |
| Goodwill                                     |   | 1,724   |   |   | 1,724   |   |
| Other,      net                              |   | 1,812   |   |   | 1,603   |   |
| Total      other assets                      |   | 9,290   |   |   | 9,562   |   |
|                                         | $      | 327,716 |   | $      | 335,767 |   |

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Table of Contents

|   |   | June      30,2009 |   | December      31,2008 |
|--------|--------|-------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Liabilities      and Stockholders’ Equity                                                                                  |   |    |   |   |    |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|
| Current      liabilities:                                                                                                        |   |    |   |   |    |   |
| Accounts      payable                                                                                                            | $      | 31,222  |   | $      | 43,014  |   |
| Short-term      financing                                                                                                        |   | 452     |   |   | 2,228   |   |
| Accrued      and other liabilities                                                                                               |   | 26,393  |   |   | 39,236  |   |
| Current      portion of long-term debt                                                                                           |   | 2,036   |   |   | 1,560   |   |
| Total      current liabilities                                                                                                   |   | 60,1039 |   |   | 86,038  |   |
|                                                                                                                             |   |    |   |   |    |   |
| Long-term      debt                                                                                                              |   | 97,305  |   |   | 103,600 |   |
|                                                                                                                             |   |    |   |   |    |   |
| Noncurrent      accrued and other liabilities                                                                                    |   | 9,950   |   |   | 9,631   |   |
|                                                                                                                             |   |    |   |   |    |   |
| Deferred      income taxes                                                                                                       |   | 8,528   |   |   | 6,454   |   |
|                                                                                                                             |   |    |   |   |    |   |
| Contingencies      (Note 10)                                                                                                     |   |    |   |   |    |   |
|                                                                                                                             |   |    |   |   |    |   |
| Stockholders'      equity:                                                                                                       |   |    |   |   |    |   |
| Series      B 12% cumulative, convertible preferred stock, $100 par value;      20,000 shares issued and outstanding             |   | 2,000   |   |   | 2,000   |   |
| 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; 75,000,000 shares authorized, 25,348,770      shares issued (24,958,330 at December 31, 2008) |   | 2,535   |   |   | 2,496   |   |
| Capital      in excess of par value                                                                                              |   | 129,076 |   |   | 127,337 |   |
| Accumulated      other comprehensive loss                                                                                        |   | -       |   |   | (120    | )      |
| Retained      earnings                                                                                                           |   | 39,671  |   |   | 19,804  |   |
|                                                                                                                             |   | 174,582 |   |   | 152,517 |   |
| Less      treasury stock at cost:                                                                                                |   |    |   |   |    |   |
| Common      stock, 3,867,462 shares (3,848,518 at December 31, 2008)                                                             |   | 22,752  |   |   | 22,473  |   |
| Total      stockholders' equity                                                                                                  |   | 151,830 |   |   | 130,044 |   |
|                                                                                                                             | $      | 327,716 |   | $      | 335,767 |   |

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Table of Contents

|   | Six      Months |   | Three      Months |
|--------|-----------------|--------|-------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands, Except Per ShareAmounts) |
|--------|----------------------------------------------|

| Net      sales                                                                                                     | $      | 288,760      |   |   | $      | 358,507      |   |   | $      | 138,563      |   |   | $      | 198,052      |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|--------|--------------|--------|--------|--------|--------------|--------|--------|--------|--------------|--------|
| Cost      of sales                                                                                                 |   | 210,205      |   |   |   | 277,009      |   |   |   | 100,736      |   |   |   | 154,311      |   |
| Gross      profit                                                                                                  |   | 78,555       |   |   |   | 81,498       |   |   |   | 37,827       |   |   |   | 43,741       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Selling,      general and administrative expense                                                                   |   | 44,421       |   |   |   | 40,222       |   |   |   | 23,046       |   |   |   | 21,458       |   |
| Provisions      for losses on accounts receivable                                                                  |   | 28           |   |   |   | 292          |   |   |   | (24          | )      |   |   | 202          |   |
| Other      expense                                                                                                 |   | 334          |   |   |   | 657          |   |   |   | 291          |   |   |   | 476          |   |
| Other      income                                                                                                  |   | (190         | )      |   |   | (8,329       | )      |   |   | (28          | )      |   |   | (7,719       | )      |
| Operating      income                                                                                              |   | 33,962       |   |   |   | 48,656       |   |   |   | 14,542       |   |   |   | 29,324       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Interest      expense                                                                                              |   | 2,939        |   |   |   | 3,720        |   |   |   | 1,028        |   |   |   | 1,266        |   |
| Gains      on extinguishment of debt                                                                               |   | (1,743       | )      |   |   | -            |   |   |   | (421         | )      |   |   | -            |   |
| Non-operating      other income, net                                                                               |   | (34          | )      |   |   | (862         | )      |   |   | (11          | )      |   |   | (345         | )      |
| Income      from continuing operations before provisions for income taxes and equity      in earnings of affiliate |   |  32,800 |   |   |   |  45,798 |   |   |   |  13,946 |   |   |   |  28,403 |   |
| Provisions      for income taxes                                                                                   |   | 12,800       |   |   |   | 17,429       |   |   |   | 5,451        |   |   |   | 10,709       |   |
| Equity      in earnings of affiliate                                                                               |   | (488         | )      |   |   | (462         | )      |   |   | (248         | )      |   |   | (230         | )      |
| Income      from continuing operations                                                                             |   | 20,488       |   |   |   | 28,831       |   |   |   | 8,743        |   |   |   | 17,924       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Net      loss from discontinued operations                                                                         |   | 15           |   |   |   | 17           |   |   |   | 13           |   |   |   | 17           |   |
| Net      income                                                                                                    |   | 20,473       |   |   |   | 28,814       |   |   |   | 8,730        |   |   |   | 17,907       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Dividends,      dividend requirements and stock dividend on preferred    stocks                                    |   | 306          |   |   |   | 306          |   |   |   | -            |   |   |   | -            |   |
| Net      income applicable to common stock                                                                         | $      | 20,167       |   |   | $      | 28,508       |   |   | $      | 8,730        |   |   | $      | 17,907       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Weighted-average      common shares:                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Basic                                                                                                              |   | 21,174       |   |   |   | 21,115       |   |   |   | 21,238       |   |   |   | 21,172       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Diluted                                                                                                            |   | 23,587       |   |   |   | 24,908       |   |   |   | 23,674       |   |   |   | 24,827       |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Income      per common share:                                                                                      |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Basic                                                                                                              | $      | .95          |   |   | $      | 1.35         |   |   | $      | .41          |   |   | $      | .85          |   |
|                                                                                                               |   |         |   |   |   |         |   |   |   |         |   |   |   |         |   |
| Diluted                                                                                                            | $      | .89          |   |   | $      | 1.21         |   |   | $      | .38          |   |   | $      | .75          |   |

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Table of Contents

|   |  Common      Stock Shares |   | Non-Redeemable      Preferred Stock |   |  CommonStock      Par Value |   |  Capital      in Excess      of Par      Value |   | Accumulated      Other      Comprehensive      Loss |   |   Retained      Earnings |   |  Treasury      Stock-Common |   |    Total |
|--------|--------------------------------|--------|-------------------------------------|--------|----------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|-------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at December 31, 2008                                       |   | 24,958  | $      | 3,000  | $      | 2,496  | $      | 127,337   |   | $      | (120   | )      | $      | 19,804 |   |   | $      | (22,473 | )      | $      | 130,044   |   |
|-------------------------------------------------------------------------|--------|---------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                    |   |    |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |    |   |   |      |   |
| Net      income                                                         |   |    |   |   |   |   |   |      |   |   |   |   |   | 20,473 |   |   |   |    |   |   | 20,473    |   |
| Amortization      of cash flow hedge                                    |   |    |   |   |   |   |   |      |   |   | 120    |   |   |   |   |   |   |    |   |   | 120       |   |
| Total      comprehensive income                                         |   |    |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |    |   |   | 20,593    |   |
| Dividends      paid on preferred stock                                  |   |    |   |   |   |   |   |      |   |   |   |   |   | (306   | )      |   |   |    |   |   | (306      | )      |
| Stock-based      compensation                                           |   |    |   |   |   |   |   | 514       |   |   |   |   |   |   |   |   |   |    |   |   | 514       |   |
| Exercise      of stock options                                          |   | 389     |   |   |   | 39     |   | 740       |   |   |   |   |   |   |   |   |   | (279    | )      |   | 500       |   |
| Excess      income tax benefit associated with stock-basedcompensation  |   |    |   |   |   |   |   |  481 |   |   |   |   |   |   |   |   |   |    |   |   |  481 |   |
| Conversion      of shares of redeemable preferred stock to common stock |   |  2 |   |   |   |   |   |  4   |   |   |   |   |   |   |   |   |   |    |   |   |  4   |   |
| Balance      at June 30, 2009                                           |   | 25,349  | $      | 3,000  | $      | 2,535  | $      | 129,076   |   | $      | -      |   | $      | 39,971 |   |   | $      | (22,752 | )      | $      | 151,830   |   |

----

Table of Contents

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Cash      flows from continuing operating activities:                                                          |   |    |   |   |   |    |   |
|----------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|
| Net      income                                                                                                | $      | 20,473  |   |   | $      | 28,814  |   |
| Adjustments      to reconcile net income to net cash provided by continuing      operating activities:         |   |    |   |   |   |    |   |
| Net      loss from discontinued operations                                                                     |   | 15      |   |   |   | 17      |   |
| Deferred      income taxes                                                                                     |   | 5,538   |   |   |   | 4,185   |   |
| Gain      on extinguishment of debt                                                                            |   | (1,743  | )      |   |   | -       |   |
| Gain      on litigation judgment associated with property, plant and      equipment                            |   | -       |   |   |   | (3,943  | )      |
| Losses      on sales and disposals of property and equipment                                                   |   | 220     |   |   |   | 82      |   |
| Depreciation      of property, plant and equipment                                                             |   | 7,684   |   |   |   | 6,269   |   |
| Amortization                                                                                                   |   | 451     |   |   |   | 554     |   |
| Stock-based      compensation                                                                                  |   | 514     |   |   |   | 384     |   |
| Provisions      for losses on accounts receivable                                                              |   | 28      |   |   |   | 292     |   |
| Provision      for (realization of) losses on inventory                                                        |   | (3,024  | )      |   |   | 184     |   |
| Provision      for losses on firm sales commitments                                                            |   | 514     |   |   |   | -       |   |
| Provision      for impairment of long-lived assets                                                             |   | -       |   |   |   | 192     |   |
| Equity      in earnings of affiliate                                                                           |   | (488    | )      |   |   | (462    | )      |
| Distributions      received from affiliate                                                                     |   | 350     |   |   |   | 280     |   |
| Changes      in fair value of commodities contracts                                                            |   | 969     |   |   |   | (861    | )      |
| Changes      in fair value of interest rate contracts                                                          |   | (649    | )      |   |   | (709    | )      |
| Cash      provided (used) by changes in assets and liabilities:                                                |   |    |   |   |   |    |   |
| Accounts      receivable                                                                                       |   | 15,790  |   |   |   | (25,338 | )      |
| Inventories                                                                                                    |   | 12,153  |   |   |   | (12,085 | )      |
| Other      supplies and prepaid items                                                                          |   | 1,315   |   |   |   | (1,764  | )      |
| Accounts      payable                                                                                          |   | (11,703 | )      |   |   | 11,129  |   |
| Customer      deposits                                                                                         |   | (2,121  | )      |   |   | (1,395  | )      |
| Deferred      rent expense                                                                                     |   | (1,424  | )      |   |   | (4,733  | )      |
| Other      current and noncurrent liabilities                                                                  |   | (9,730  | )      |   |   | 1,932   |   |
| Net      cash provided by continuing operating activities                                                      |   | 35,132  |   |   |   | 3,024   |   |
|                                                                                                           |   |    |   |   |   |    |   |
| Cash      flows from continuing investing activities:                                                          |   |    |   |   |   |    |   |
| Capital      expenditures                                                                                      |   | (12,406 | )      |   |   | (14,751 | )      |
| Proceeds      from litigation judgment associated with property, plant and      equipment                      |   | -       |   |   |   | 5,948   |   |
| Payment      of legal costs relating to litigation judgment associated with property,      plant and equipment |   | -       |   |   |   | (1,884  | )      |
| Proceeds      from sales of property and equipment                                                             |   | 3       |   |   |   | 58      |   |
| Proceeds      from restricted cash                                                                             |   | 518     |   |   |   | 172     |   |
| Other      assets                                                                                              |   | (209    | )      |   |   | (352    | )      |
| Net      cash used by continuing investing activities                                                          |   | (12,094 | )      |   |   | (10,809 | )      |

----

Table of Contents

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Cash      flows from continuing financing activities:                                                             |   |     |   |   |   |     |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------|----------|--------|
| Proceeds      from revolving debt facilities                                                                      | $      | 281,103  |   |   | $      | 288,793  |   |
| Payments      on revolving debt facilities                                                                        |   | (281,103 | )      |   |   | (288,793 | )      |
| Proceeds      from other long-term debt, net of fees                                                              |   | 2,565    |   |   |   | -        |   |
| Acquisition      of 5.5% convertible debentures                                                                   |   | (7,134   | )      |   |   | -        |   |
| Payments      on other long-term debt                                                                             |   | (687     | )      |   |   | (519     | )      |
| Payments      on short-term financing                                                                             |   | (1,776   | )      |   |   | (788     | )      |
| Proceeds      from exercise of stock options                                                                      |   | 500      |   |   |   | 673      |   |
| Purchase      of treasury stock                                                                                   |   | -        |   |   |   | (3,421   | )      |
| Excess      income tax benefit associated with stock-based compensation                                           |   | 657      |   |   |   | 2,552    |   |
| Dividends      paid on preferred stock                                                                            |   | (306     | )      |   |   | (306     | )      |
| Net      cash used by continuing financing activities                                                             |   | (6,181   | )      |   |   | (1,809   | )      |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      flows of discontinued operations:                                                                       |   |     |   |   |   |     |   |
| Operating      cash flows                                                                                         |   | (53      | )      |   |   | (106     | )      |
| Net      increase (decrease) in cash and cash equivalents                                                         |   | 16,804   |   |   |   | (9,700   | )      |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      and cash equivalents at beginning of period                                                        |   | 46,204   |   |   |   | 58,224   |   |
| Cash      and cash equivalents at end of period                                                                   | $      | 63,008   |   |   | $      | 48,524   |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Supplemental      cash flow information:                                                                          |   |     |   |   |   |     |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      payments for income taxes, net of refunds                                                               | $      | 6,459    |   |   | $      | 9,582    |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Noncash      investing and financing activities:                                                                  |   |     |   |   |   |     |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Receivable      associated with a property insurance claim                                                        | $      | 1,135    |   |   | $      | -        |   |
| Current      other assets, accounts payable and long-term debt associated with      property, plant and equipment | $      | 4,164    |   |   | $      | 2,618    |   |
| Debt      issuance costs associated with the acquisition of the 5.5% convertible      debentures                  | $      | 323      |   |   | $      | -        |   |
|                                                                                                              |   |     |   |   |   |     |   |

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|   |   | June      30,2009 |   | December      31,2008 |
|--------|--------|-------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Trade      receivables               | $      | 62,606 |   |   | $      | 78,092 |   |
|--------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Insurance      claims                |   | 1,271  |   |   |   | 252    |   |
| Other                                |   | 910    |   |   |   | 1,231  |   |
|                                 |   | 64,787 |   |   |   | 79,575 |   |
| Allowance      for doubtful accounts |   | (665   | )      |   |   | (729   | )      |
|                                 | $      | 64,122 |   |   | $      | 78,846 |   |

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at beginning of period         | $      | 4,141  |   |   | $      | 473 |   |   | $      | 1,109 |   |   | $      | 610 |   |
|---------------------------------------------|--------|--------|--------|--------|--------|-----|--------|--------|--------|-------|--------|--------|--------|-----|--------|
| Provisions      for (realization of) losses |   | (3,024 | )      |   |   | 184 |   |   |   | 8     |   |   |   | 15  |   |
| Write-offs/disposals                        |   | (53    | )      |   |   | (74 | )      |   |   | (53   | )      |   |   | (42 | )      |
| Balance      at end of period               | $      | 1,064  |   |   | $      | 583 |   |   | $      | 1,064 |   |   | $      | 583 |   |

|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Precious      metals expense       | $      | 3,279  |   |   | $      | 4,354 |   |   | $      | 1,552 |   |   | $      | 1,894 |   |
|------------------------------------|--------|--------|--------|--------|--------|-------|--------|--------|--------|-------|--------|--------|--------|-------|--------|
| Recoveries      of precious metals |   | (2,222 | )      |   |   | (792  | )      |   |   | (9    | )      |   |   | (792  | )      |
| Precious      metals expense, net  | $      | 1,057  |   |   | $      | 3,562 |   |   | $      | 1,543 |   |   | $      | 1,102 |   |

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at beginning of period      | $      | 2,820  |   |   | $      | 1,944  |   |   | $      | 2,864  |   |   | $      | 2,056  |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Add:      Charged to costs and expenses  |   | 3,146  |   |   |   | 2,287  |   |   |   | 1,288  |   |   |   | 1,556  |   |
| Deduct:      Costs and expenses incurred |   | (2,928 | )      |   |   | (1,953 | )      |   |   | (1,114 | )      |   |   | (1,334 | )      |
| Balance      at end of period            | $      | 3,038  |   |   | $      | 2,278  |   |   | $      | 3,038  |   |   | $      | 2,278  |   |

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|   | June      30,2009 |   | December      31,2008 |
|--------|-------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Fair      value of derivatives                                                        | $      | 4,555  |   | $      | 8,347  |
|---------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Deferred      revenue on extended warranty contracts                                  |   | 4,518  |   |   | 4,028  |
| Accrued      payroll and benefits                                                     |   | 4,439  |   |   | 6,422  |
| Accrued      warranty costs                                                           |   | 3,038  |   |   | 2,820  |
| Accrued      death benefits                                                           |   | 3,017  |   |   | 2,687  |
| Accrued      insurance                                                                |   | 2,707  |   |   | 2,971  |
| Accrued      income taxes                                                             |   | 1,850  |   |   | 1,704  |
| Accrued      contractual manufacturing obligations                                    |   | 1,477  |   |   | 2,230  |
| Accrued      property and franchise taxes                                             |   | 1,343  |   |   | 693    |
| Accrued      commissions                                                              |   | 1,291  |   |   | 2,433  |
| Customer      deposits                                                                |   | 1,121  |   |   | 3,242  |
| Billings      in excess of costs and estimated earnings on uncompleted      contracts |   | 1,075  |   |   | 1,882  |
| Accrued      executive benefits                                                       |   | 1,065  |   |   | 1,111  |
| Accrued      interest                                                                 |   | 822    |   |   | 2,003  |
| Accrued      precious metals costs                                                    |   | 284    |   |   | 1,298  |
| Deferred      rent expense                                                            |   | -      |   |   | 1,424  |
| Other                                                                                 |   | 3,741  |   |   | 3,572  |
|                                                                                  |   | 36,343 |   |   | 48,867 |
| Less      noncurrent portion                                                          |   | 9,950  |   |   | 9,631  |
| Current      portion of accrued and other liabilities                                 | $      | 26,393 |   | $      | 39,236 |

|   | June      30, |   | December      31, |
|--------|---------------|--------|-------------------|
|   | 2009          |   | 2008              |

|   | (In      Thousands) |
|--------|---------------------|

| Working      Capital Revolver Loan due 2012 (A)                                                                                           | $      | -      |   |   | $      | -       |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|
| 5.5%      Convertible Senior Subordinated Notes due 2012 (B)                                                                              |   | 31,300 |   |   |   | 40,500  |   |
| Secured      Term Loan due 2012 (C)                                                                                                       |   | 50,000 |   |   |   | 50,000  |   |
| Other,      with a current weighted-average interest rate of 6.56%, most of which is      secured by machinery, equipment and real estate |   | 18,041 |   |   |   | 14,660  |   |
|                                                                                                                                      |   | 99,341 |   |   |   | 105,160 |   |
| Less      current portion of long-term debt                                                                                               |   | 2,036  |   |   |   | 1,560   |   |
| Long-term      debt due after one year                                                                                                    | $      | 97,305 |   |   | $      | 103,600 |   |

----

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|   | · | incur      additional indebtedness, |
|--------|--------|-------------------------------------|

|   | · | incur      liens, |
|--------|--------|-------------------|

|   | · | make      restricted payments or loans to affiliates who are not      Borrowers, |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | engage      in mergers, consolidations or other forms of recapitalization,      or |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | dispose      assets. |
|--------|--------|----------------------|

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| A. | Environmental      Matters |
|----|----------------------------|

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|   |
|--------|

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|   | · | for      a period of five years from the completion of an exchange or tender to      repurchase, redeem or otherwise acquire shares of our common stock,      without approval of the outstanding Series 2 Preferred irrespective that      dividends are accrued and unpaid with respect to the Series 2 Preferred;      or |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | to      provide that holders of Series 2 Preferred may not elect two directors to      our Board of Directors when dividends are unpaid on the Series 2 Preferred      if less than 140,000 shares of Series 2 Preferred remain      outstanding. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | fraudulent      inducement and fraud, |
|--------|--------|---------------------------------------|

|   | · | violation      of 10(b) of the Exchange Act and Rule10b-5, |
|--------|--------|------------------------------------------------------------|

|   | · | violation      of 17-12A501 of the Kansas Uniform Securities Act,  and |
|--------|--------|------------------------------------------------------------------------|

|   | · | breach      of contract. |
|--------|--------|--------------------------|

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|   | Fair      Value Measurements at June      30, 2009 Using |
|--------|---------------------------------------------------------------|

|     Description |   |  Total      FairValue      atJune      30,2009 |   | Quoted      Prices in      ActiveMarkets      for Identical      Assets (Level      1) |   | SignificantOtherObservableInputs(Level      2) |   |  Significant      Unobservable Inputs(Level      3) |   |  Total      FairValue      atDecember      31,2008 |
|-------------------------------------|--------|-----------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Assets      – Supplies, prepaid items      and other:                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      exchange contracts                                                          | $      | -      |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $      | 35     |   |
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      – Current and noncurrent      accrued and other      liabilities: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commodities      contracts                                                               | $      | 2,767  |   | $      | 224    |   |   | $      | 2,543  |   |   | $      | -      |   |   | $      | 5,910  |   |
| Interest      rate contracts                                                             |   | 1,788  |   |   | -      |   |   |   | 1,788  |   |   |   | -      |   |   |   | 2,437  |   |
| Total                                                                                    | $      | 4,555  |   | $      | 224    |   |   | $      | 4,331  |   |   | $      | -      |   |   | $      | 8,347  |   |

|   | Commodities      Contracts |
|--------|----------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Beginning      balance                                            |   | $      | (1,388 | )      |
|-------------------------------------------------------------------|--------|--------|--------|--------|
| Total      realized and unrealized gain included      in earnings |   |   | 493    |   |
| Purchases,      issuances, and settlements                        |   |   | 895    |   |
| Transfers      in and/or out of Level 3                           |   |   | -      |   |
| Ending      balance                                               |   | $      | -      |   |

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Total      gains (losses) included in earnings:       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cost      of sales – Commodities contracts      | $      | (1,148 | )      |   | $      | 4,488  |   |   | $      | 8      |   |   | $      | 1,291  |   |
| Cost      of sales – Foreign exchange contracts |   | (31    | )      |   |   | (35    | )      |   |   | (1     | )      |   |   | (35    | )      |
| Interest      expense – Interest rate contracts |   | 158    |   |   |   | 708    |   |   |   | 427    |   |   |   | 877    |   |
|                                                  | $      | (1,021 | )      |   | $      | 5,161  |   |   | $      | 434    |   |   | $      | 2,133  |   |

| Change      in unrealized gains and losses relating to contracts still held at period      end: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cost      of sales – Commodities contracts                                                | $      | (969   | )      |   | $      | 861    |   |   | $      | 30     |   |   | $      | 808    |   |
| Cost      of sales – Foreign exchange contracts                                           |   | -      |   |   |   | (15    | )      |   |   | -      |   |   |   | (15    | )      |
| Interest      expense – Interest rate contracts                                           |   | 649    |   |   |   | 709    |   |   |   | 719    |   |   |   | 896    |   |
|                                                                                            | $      | (320   | )      |   | $      | 1,555  |   |   | $      | 749    |   |   | $      | 1,689  |   |

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|   | June      30, 2009 |   | December      31, 2008 |
|--------|--------------------|--------|------------------------|

|   | Estimated      Fair      Value |   | Carrying      Value |   | Estimated      Fair      Value |   | Carrying Value |
|--------|--------------------------------|--------|---------------------|--------|--------------------------------|--------|---------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Variable      Rate:                             |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Secured      Term Loan                          |   | $      | 23,548 |   |   | $      | 50,000 |   |   | $      | 20,939 |   |   | $ | 50,000 |   |
| Working      Capital Revolver Loan              |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Other      bank debt and financing              |   |   | 2,608  |   |   |   | 2,608  |   |   |   | 8      |   |   |   | 8 |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed      Rate:                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 5.5%      Convertible Senior Subordinated Notes |   |   | 27,857 |   |   |   | 31,300 |   |   |   | 27,338 |   |   |   | 40,500 |   |
| Other      bank debt and equipment financing    |   |   | 15,793 |   |   |   | 15,433 |   |   |   | 14,949 |   |   |   | 14,652 |   |
|                                            |   | $      | 69,806 |   |   | $      | 99,341 |   |   | $      | 63,234 |   |   | $ | 105,160 |   |

|   | · | we      issued 389,000 shares of our common stock as the result of the exercise of      stock options, |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | we      acquired $9,200,000 aggregate principal amount of our 2007 Debentures;      and |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | we      paid cash dividends on our Series B 12% cumulative, convertible preferred      stock (“Series B Preferred”), Series D 6% cumulative, convertible Class C      preferred stock (“Series D Preferred”) and noncumulative redeemable      preferred stock (“Noncumulative Preferred”) totaling approximately      $240,000, $60,000 and $6,000,respectively. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | we      acquired 200,000 shares of our commonstock; |
|--------|--------|-----------------------------------------------------|

|   | · | we      issued 367,304 shares of our common stock as the result of the exercise of      stock options; |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | we      paid cash dividends on our Series B Preferred, Series D Preferred and      Noncumulative Preferred totaling approximately $240,000, $60,000 and      $6,000, respectively. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

| Numerator:                                                                                                                                                        |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|
| Net      income                                                                                                                                                   | $      | 20,473                                                           |   |   | $      | 28,814                                                           |   |   | $      | 8,730                                                                                                         |   |   | $      |         17,907                                                  |   |
| Dividends      on Series B Preferred                                                                                                                              |   |           (240 | )      |   |   |           (240 | )      |   |   |                   - |   |   |   |                  - |   |
| Dividends      on Series D Preferred                                                                                                                              |   | (60                                                              | )      |   |   | (60                                                              | )      |   |   | -                                                                                                             |   |   |   |                  - |   |
| Dividends      on Noncumulative Preferred                                                                                                                         |   | (6                                                               | )      |   |   | (6                                                               | )      |   |   | -                                                                                                             |   |   |   |                  - |   |
| Total      dividends on preferred stock                                                                                                                           |   | (306                                                             | )      |   |   |           (306 | )      |   |   | -                                                                                                             |   |   |   |                  - |   |
| Numerator      for basic net income per common share - net income applicable to common      stock                                                                 |   |  20,167                                                     |   |   |   |  28,508                                                     |   |   |   |  8,730                                                                                                   |   |   |   |  17,907                                                                                            |   |
| Dividends      on preferred stock assumed to be converted, if dilutive                                                                                            |   | 306                                                              |   |   |   | 306                                                              |   |   |   | -                                                                                                             |   |   |   | -                                                                                                       |   |
| Interest      expense including amortization of debt      issuance costs, net of income taxes, on convertible debt assumed to be      converted, if      dilutive |   |  627                                                        |   |   |   |  1,203                                                      |   |   |   |  314                                                                                                     |   |   |   |  601                                                                                               |   |
| Numerator      for diluted net income per common share                                                                                                            | $      | 21,100                                                           |   |   | $      | 30,017                                                           |   |   | $      | 9,044                                                                                                         |   |   | $      | 18,508                                                                                                  |   |
|                                                                                                                                                              |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
| Denominator:                                                                                                                                                      |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
| Denominator      for basic net income per common share - weighted-average      shares                                                                             |   | 21,174,210                                                       |   |   |   | 21,114,506                                                       |   |   |   | 21,237,904                                                                                                    |   |   |   | 21,172,227                                                                                              |   |
| Effect      of dilutive securities:                                                                                                                               |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
| Convertible      notes payable                                                                                                                                    |   | 1,143,320                                                        |   |   |   | 2,188,000                                                        |   |   |   | 1,143,320                                                                                                     |   |   |   | 2,188,000                                                                                               |   |
| Convertible      preferred stock                                                                                                                                  |   | 938,006                                                          |   |   |   | 940,016                                                          |   |   |   | 937,825                                                                                                       |   |   |   | 939,966                                                                                                 |   |
| Stock      options                                                                                                                                                |   | 331,607                                                          |   |   |   | 665,198                                                          |   |   |   | 354,899                                                                                                       |   |   |   | 526,801                                                                                                 |   |
| Dilutive      potential common shares                                                                                                                             |   | 2,412,933                                                        |   |   |   | 3,793,214                                                        |   |   |   | 2,436,044                                                                                                     |   |   |   | 3,654,767                                                                                               |   |
| Denominator      for diluted net income per common share - adjusted weighted-average shares      and assumed conversions                                          |   |  23,587,143                                                 |   |   |   |  24,907,720                                                 |   |   |   |  23,673,948                                                                                              |   |   |   |  24,826,994                                                                                        |   |
|                                                                                                                                                              |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
| Basic      net income per common share                                                                                                                            | $      | .95                                                              |   |   | $      | 1.35                                                             |   |   | $      | .41                                                                                                           |   |   | $      | .85                                                                                                     |   |
|                                                                                                                                                              |   |                                                             |   |   |   |                                                             |   |   |   |                                                                                                          |   |   |   |                                                                                                    |   |
| Diluted      net income per common share                                                                                                                          | $      | .89                                                              |   |   | $      | 1.21                                                             |   |   | $      | .38                                                                                                           |   |   | $      | .75                                                                                                     |   |

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

| Stock      options | 766,646 |   | 425,000 |   | 412,363 |   | 425,000 |
|--------------------|---------|--------|---------|--------|---------|--------|---------|

|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Federal                       | $      | 6,490 |   |   | $      | 11,520 |   |   | $      | 1,682 |   |   | $      | 6,625 |   |
|-------------------------------|--------|-------|--------|--------|--------|--------|--------|--------|--------|-------|--------|--------|--------|-------|--------|
| State                         |   | 772   |   |   |   | 1,724  |   |   |   | 182   |   |   |   | 909   |   |
| Total      current provisions | $      | 7,262 |   |   | $      | 13,244 |   |   | $      | 1,864 |   |   | $      | 7,534 |   |

| Federal                          | $      | 4,970  |   |   | $      | 3,539  |   |   | $      | 3,219 |   |   | $      | 2,709  |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|--------|--------|--------|--------|
| State                            |   | 568    |   |   |   | 646    |   |   |   | 368   |   |   |   | 466    |   |
| Total      deferred provisions   |   | 5,538  |   |   |   | 4,185  |   |   |   | 3,587 |   |   |   | 3,175  |   |
| Provisions      for income taxes | $      | 12,800 |   |   | $      | 17,429 |   |   | $      | 5,451 |   |   | $      | 10,709 |   |

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Other      expense:                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Losses      on sales and disposals of property and equipment        | $      | 220    |   |   | $      | 82     |   |   | $      | 207    |   |   | $      | 82     |   |
| Potential      litigation settlements                               |   | 75     |   |   |   | 367    |   |   |   | 75     |   |   |   | 192    |   |
| Impairment      of long-lived assets (1)                            |   | -      |   |   |   | 192    |   |   |   | -      |   |   |   | 192    |   |
| Other      miscellaneous expense (2)                                |   | 39     |   |   |   | 16     |   |   |   | 9      |   |   |   | 10     |   |
| Total      other expense                                            | $      | 334    |   |   | $      | 657    |   |   | $      | 291    |   |   | $      | 476    |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income:                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Litigation      judgment, settlements and potential settlements (3) | $      | 50     |   |   | $      | 8,235  |   |   | $      | -      |   |   | $      | 7,710  |   |
| Other      miscellaneous income (2)                                 |   | 140    |   |   |   | 94     |   |   |   | 28     |   |   |   | 9      |   |
| Total      other income                                             | $      | 190    |   |   | $      | 8,329  |   |   | $      | 28     |   |   | $      | 7,719  |   |
|                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-operating      other income, net:                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                                | $      | 78     |   |   | $      | 899    |   |   | $      | 33     |   |   | $      | 358    |   |
| Miscellaneous      income (2)                                       |   | -      |   |   |   | 11     |   |   |   | -      |   |   |   | 11     |   |
| Miscellaneous      expense (2)                                      |   | (44    | )      |   |   | (48    | )      |   |   | (22    | )      |   |   | (24    | )      |
| Total      non-operating other income, net                          | $      | 34     |   |   | $      | 862    |   |   | $      | 11     |   |   | $      | 345    |   |

| (1) | Based      on an unsuccessful effort to sell certain corporate assets in an auction,      we recognized an impairment of long-lived  assets. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Amounts      represent numerous unrelated transactions, none of which are individually      significant requiring separatedisclosure. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

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| (3) | For      the six and three months ended June 30, 2008, income from litigation      judgment and settlements included approximately $7.6 million, net of      attorneys’ fees, relating to a litigation judgment involving a subsidiary      within our Chemical Business. On June 6, 2008, we received proceeds of      approximately $11.2 million for this litigation judgment, which includes      interest of approximately $1.4 million and from which we paid attorneys’      fees of approximately $3.6 million. The payment of attorneys’ fees of      31.67% of our recovery was contingent upon the cash receipt of the      litigation judgment. Cash flows relating to this litigation judgment are      included in cash flows from continuing operating activities, except for      the portion of the judgment associated with the recovery of damages      relating to property, plant and equipment and its pro-rata portion of the      attorneys’ fees. These cash flows are included in cash flows from      continuing investing activities. In addition during the six months ended      June 30, 2008, a settlement was reached for $0.4 million for the recovery      of certain environmental-related costs incurred in previous periods      relating to property used by Corporate and other business      operations. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Net      sales:                                                        |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
|------------------------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
| Climate      Control                                                   | $      | 139,030 |   |   | $      | 146,949 |   |   | $      | 66,982  |   |   | $      | 80,626  |   |
| Chemical                                                               |   | 144,371 |   |   |   | 204,788 |   |   |   | 69,893  |   |   |   | 113,458 |   |
| Other                                                                  |   | 5,359   |   |   |   | 6,770   |   |   |   | 1,688   |   |   |   | 3,968   |   |
|                                                                   | $      | 288,760 |   |   | $      | 358,507 |   |   | $      | 138,563 |   |   | $      | 198,052 |   |
|                                                                   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Gross      profit: (1)                                                 |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Climate      Control (2)                                               | $      | 47,426  |   |   | $      | 47,454  |   |   | $      | 24,998  |   |   | $      | 25,932  |   |
| Chemical      (3)                                                      |   | 29,429  |   |   |   | 31,852  |   |   |   | 12,281  |   |   |   | 16,499  |   |
| Other                                                                  |   | 1,700   |   |   |   | 2,192   |   |   |   | 548     |   |   |   | 1,310   |   |
|                                                                   | $      | 78,555  |   |   | $      | 81,498  |   |   | $      | 37,827  |   |   | $      | 43,741  |   |
|                                                                   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Operating      income (loss): (4)                                      |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Climate      Control (2)                                               | $      | 21,204  |   |   | $      | 21,182  |   |   | $      | 12,226  |   |   | $      | 11,855  |   |
| Chemical      (3) (5) (6)                                              |   | 18,835  |   |   |   | 32,627  |   |   |   | 6,197   |   |   |   | 20,502  |   |
| General      corporate expenses and other business operations, net (7) |   | (6,077  | )      |   |   | (5,153  | )      |   |   | (3,881  | )      |   |   | (3,033  | )      |
|                                                                   |   | 33,962  |   |   |   | 48,656  |   |   |   | 14,542  |   |   |   | 29,324  |   |
|                                                                   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Interest      expense                                                  |   | (2,939  | )      |   |   | (3,720  | )      |   |   | (1,028  | )      |   |   | (1,266  | )      |
| Gains      on extinguishment of debt                                   |   | 1,743   |   |   |   | -       |   |   |   | 421     |   |   |   | -       |   |
| Non-operating      other income (expense), net:                        |   |    |   |   |   |    |   |   |   |    |   |   |   |
| Climate      Control                                                   |   | -       |   |   |   | 1       |   |   |   | -       |   |   |   | -       |   |
| Chemical                                                               |   | 6       |   |   |   | 64      |   |   |   | 3       |   |   |   | 60      |   |
| Corporate      and other business operations                           |   | 28      |   |   |   | 797     |   |   |   | 8       |   |   |   | 285     |   |
| Provisions      for income taxes                                       |   | (12,800 | )      |   |   | (17,429 | )      |   |   | (5,451  | )      |   |   | (10,709 | )      |
| Equity      in earnings of affiliate-Climate Control                   |   | 488     |   |   |   | 462     |   |   |   | 248     |   |   |   | 230     |   |
| Income      from continuing operations                                 | $      | 20,488  |   |   | $      | 28,831  |   |   | $      | 8,743   |   |   | $      | 17,924  |   |

| (1) |   Gross      profit by industry segment represents net sales less cost of sales. Gross      profit classified as “Other” relates to the sales of industrial machinery      and related components. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | During      the six and three months ended June 30, 2009, we recognized gains totaling      $789,000 and $326,000, respectively, on our futures contracts for copper.      During the six and three months ended June 30, 2008, we recognized gains      on our copper futures contracts totaling $2,685,000 and $109,000,      respectively. These gains contributed to an increase in gross profit and      operating income. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (3) | As      the result of entering into sales commitments with higher firm sales      prices during 2008, we recognized sales with a gross profit of $3,558,000      and $1,058,000 higher than our comparable product sales made at lower      market prices available during the six and three months ended June 30, of      2009, respectively. In addition, during the six and three months ended      June 30, 2009, we recognized recoveries of precious metals totaling      $2,222,000 and $9,000, respectively, compared to $792,000 for each of the      same periods in 2008. These transactions contributed to an increase in      gross profit and operating income for each respective period. During the      six and three months ended June 30, 2009, we recognized losses totaling      $1,937,000 and $318,000, respectively, on our futures/forward contracts      for natural gas and ammonia compared to gains totaling $1,803,000 and      $1,182,000 for each of the same periods in 2008, respectively. These      losses contributed to a decrease (gains contributed to an increase) in      gross profit and operating income for each respective    period. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Our      chief operating decision makers use operating income by industry segment      for purposes of making decisions which include resource allocations and      performance evaluations. Operating income by industry segment represents      gross profit by industry segment less selling, general and administration      expense (“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. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | For      each of the six and three-month periods ended June 30, 2008, we recognized      income of $7,560,000, net of attorneys’ fees, relating to a litigation      judgment. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | During      the six and three months ended June 30, 2009, we incurred expenses of      $5,213,000 and $3,217,000, respectively, associated with the start up of      our idle chemical facility located in Pryor, Oklahoma (the “Pryor      Facility”) that we are in the process of activating. For the six and three      months ended June 30, 2008, we incurred expenses of $919,000 and $498,000,      respectively, associated with maintaining the Pryor    Facility. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | The      amounts included are not allocated to our Climate Control and Chemical      Businesses since these items are not included in the operating results      reviewed by our chief operating decision makers for purposes of making      decisions as discussed above. A detail of these amounts are as      follows: |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Six      Months EndedJune      30, |   | Three      Months EndedJune      30, |
|--------|------------------------------------|--------|--------------------------------------|

|   | 2009 |   | 2008 |   | 2009 |   | 2008 |
|--------|------|--------|------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Gross      profit-Other                                                     | $      | 1,700  |   |   | $      | 2,192  |   |   | $      | 548    |   |   | $      | 1,310  |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Selling,      general and administrative:                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Personnel                                                                   |   | (4,326 | )      |   |   | (4,070 | )      |   |   | (2,601 | )      |   |   | (2,478 | )      |
| Professional      fees                                                      |   | (1,818 | )      |   |   | (1,987 | )      |   |   | (834   | )      |   |   | (806   | )      |
| Office      overhead                                                        |   | (345   | )      |   |   | (377   | )      |   |   | (157   | )      |   |   | (201   | )      |
| Maintenance      and repairs                                                |   | (174   | )      |   |   | (85    | )      |   |   | (152   | )      |   |   | (61    | )      |
| Property,      franchise and other taxes                                    |   | (160   | )      |   |   | (216   | )      |   |   | (77    | )      |   |   | (90    | )      |
| Advertising                                                                 |   | (132   | )      |   |   | (137   | )      |   |   | (62    | )      |   |   | (67    | )      |
| All      other                                                              |   | (733   | )      |   |   | (677   | )      |   |   | (370   | )      |   |   | (410   | )      |
| Total      selling, general and administrative                              |   | (7,688 | )      |   |   | (7,549 | )      |   |   | (4,253 | )      |   |   | (4,113 | )      |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income                                                           |   | 133    |   |   |   | 704    |   |   |   | 23     |   |   |   | 169    |   |
| Other      expense                                                          |   | (222   | )      |   |   | (500   | )      |   |   | (199   | )      |   |   | (399   | )      |
| Total      general corporate expenses and other business operations,    net | $      | (6,077 | )      |   | $      | (5,153 | )      |   | $      | (3,881 | )      |   | $      | (3,033 | )      |

|   |   | June      30,2009 |   | December      31,2008 |
|--------|--------|-------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Climate      Control            |   | $      | 110,466 |   |   | $      | 117,260 |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|
| Chemical                        |   |   | 134,563 |   |   |   | 145,518 |   |
| Corporate      assets and other |   |   | 82,687  |   |   |   | 72,989  |   |
| Total      assets               |   | $      | 327,716 |   |   | $      | 335,767 |   |

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Management’sDiscussion and Analysis of Financial Condition and Results of Operations

|   | · | Climate      Control Business manufactures and sells a broad range of air conditioning      and heating products in the niche markets we serve consisting of      geothermal and water source heat pumps, hydronic fan coils, large custom      air handlers and other related products used to control the environment in      commercial and residential new building construction, renovation of      existing buildings and replacement of existing systems.  For the      first six months of 2009, approximately 48% of our consolidated net sales      relates to the Climate ControlBusiness. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Chemical      Business manufactures and sells nitrogen based chemical products produced      from three plants located in Arkansas, Alabama and Texas for the      industrial, mining and agricultural markets. Our products include      industrial and fertilizer grade ammonium nitrate (“AN”), urea ammonium      nitrate (“UAN”), nitric acid in various concentrations, nitrogen solutions      and various other products. For the first six months of 2009,      approximately 50% of our consolidated net sales relates to the Chemical      Business. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | nitric      acid, sulfuric acid and anhydrous ammonia sold to industrial customers;      and |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | industrial      grade AN and nitrogen solutions sold to mining  customers. |
|--------|--------|----------------------------------------------------------------------------|

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|   | · | AN      produced at our El Dorado Facility from purchased anhydrous      ammonia, |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | UAN      produced at our Cherokee Facility from natural gas,  and |
|--------|--------|-------------------------------------------------------------------|

|   | · | Other      products sold through our agricultural distribution    centers. |
|--------|--------|----------------------------------------------------------------------------|

|   |   | Percentage      Change of |
|--------|--------|---------------------------|

|   |   | Tons |   | Dollars |
|--------|--------|------|--------|---------|

|                    | Increase  (Decrease) |
|-------------------------|--------------------------------|
| Chemical      products: |                           |

|            Agricultural                       |   |   | 10.3  |  % |   |   | (13.6 | )      % |
|------------------------------------------------------------------------------------------------------|--------|--------|-------|---------|--------|--------|-------|----------|
|            Mining                             |   |   | (4.3  | )%      |   |   | (36.5 | )      % |
|            Industrial      acids and other    |   |   | (26.2 | )%      |   |   | (40.9 | )      % |
|            Total      weighted-average change |   |   | (10.5 | )%      |   |   | (29.5 | )      % |

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|   | Increase(Decrease) |
|--------|--------------------|

|   | (In      Millions) |
|--------|--------------------|

| Litigation      judgment in 2008                                       | $      | (7.6  | )      |   |
|------------------------------------------------------------------------|--------|-------|--------|--------|
| Gross      profit margins – UAN                                  |   | (3.1  | )      |   |
| Expenses      – Pryor Facility                                   |   | (2.7  | )      |   |
| Losses      – Natural gas contracts                              |   | (1.5  | )      |   |
| Recoveries      of precious metals                                     |   | (0.8  | )      |   |
| Other      miscellaneous items                                         |   | 0.3   |   |   |
| Gross      profit margins – sales commitments from prior periods |   | 1.1   |   |   |
| Total      effect on change in operating income                        | $      | (14.3 | )      |   |

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|   | · | Multi-Family |
|--------|--------|--------------|

|   | · | Lodging |
|--------|--------|---------|

|   | · | Education |
|--------|--------|-----------|

|   | · | Healthcare |
|--------|--------|------------|

|   | · | Offices |
|--------|--------|---------|

|   | · | Manufacturing |
|--------|--------|---------------|

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|   | Second      Quarter |
|--------|---------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

| Natural      gas average price per MMBtu based upon Tennessee      500 pipeline pricing point | $ | 3.46 |   |   | $ | 10.89 |   |
|----------------------------------------------------------------------------------------------------|---|------|--------|--------|---|-------|--------|
| Ammonia      average price based upon low Tampa metric      price per ton                     | $ | 261  |   |   | $ | 552   |   |
| Sulfur      price based upon Tampa average quarterly price per      long ton                       | $ | -    |   |   | $ | 450   |   |

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|   | June      30,2009  |   | December      31,2008 |
|--------|--------------------|--------|-----------------------|
|   | (In      Millions) |

| Cash      and cash equivalents        | $      | 63.0   |   | $      | 46.2   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |
| Long-term      debt:                  |   |   |   |   |   |   |
| 2007      Debentures due 2012         | $      | 31.3   |   | $      | 40.5   |   |
| Secured      Term Loan due 2012       |   | 50.0   |   |   | 50.0   |   |
| Other                                 |   | 18.0   |   |   | 14.7   |   |
| Total      long-term debt             | $      | 99.3   |   | $      | 105.2  |   |
|                                  |   |   |   |   |   |   |
| Total      stockholders’ equity | $      | 151.8  |   | $      | 130.0  |   |

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|   | · | the      amount of income taxes that ThermaClime would be required to pay if they      were not consolidated with us; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | an      amount not to exceed fifty percent (50%) of ThermaClime's consolidated net      income during each fiscal year determined in accordance with generally      accepted accounting principles plus amounts paid to us within the first      bullet above, provided that certain other conditions are    met; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      amount of direct and indirect costs and expenses incurred by us on behalf      of ThermaClime pursuant to a certain services  agreement; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      amount under a certain management agreement between us and ThermaClime,      provided certain conditions are met,and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | outstanding      loans entered into subsequent to November 2, 2007 not to exceed $2.0      million at any time. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | Series      D Preferred, all of which is owned by the Golsen Group, at the rate of      $.06 a share payable on October 9, which dividend is      cumulative; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Series      B Preferred, all of which is owned by the Golsen Group, at the rate of      $12.00 a share payable January 1, which dividend is cumulative;      and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Noncumulative      Preferred at the rate of $10.00 a share payable April 1, which is      noncumulative. |
|--------|--------|----------------------------------------------------------------------------------------------------------|

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                          |   |    |   |   |   |    |   |   |   |    |   |   |   |          |
|----------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------------|
| Geothermal      and water source heat pumps              | $      | 95,069  |   |   | $      | 82,469  |   |   | $      | 12,600  |   |   | 15.3   |   % |
| Hydronic      fan coils                                  |   | 26,157  |   |   |   | 44,226  |   |   |   | (18,069 | )      |   | (40.9  | )      %      |
| Other      HVAC products                                 |   | 17,804  |   |   |   | 20,254  |   |   |   | (2,450  | )      |   | (12.1  | )      %      |
| Total      Climate Control                               | $      | 139,030 |   |   | $      | 146,949 |   |   | $      | (7,919  | )      |   | (5.4   | )      %      |
|                                                     |   |    |   |   |   |    |   |   |   |    |   |   |   |          |
| Gross      profit – Climate Control                | $      | 47,426  |   |   | $      | 47,454  |   |   | $      | (28     | )      |   | (0.1   | )      %      |
|                                                     |   |    |   |   |   |    |   |   |   |    |   |   |   |          |
| Gross      profit percentage – Climate Control (1) |   | 34.1    |   | %      |   | 32.3    |   | %      |   | 1.8     |   | %      |   |          |
|                                                     |   |    |   |   |   |    |   |   |   |    |   |   |   |          |
| Operating      income – Climate Control            | $      | 21,204  |   |   | $      | 21,182  |   |   | $      | 22      |   |   | 0.1    |  %       |

| · | Net sales of      our geothermal and water source heat pump products increased primarily as      a result of a 20% increase in our average selling price per unit, although      unit sales decreased by 6%.  Approximately 25% of the average      selling price increase was due to increasing list prices with the balance      due to a change in product mix as more residential GHP products, having      higher selling prices, and accessories were sold. During the first half of      2009, we continued to maintain a market share leadership position of      approximately 40%, based on data supplied by the Air-Conditioning, Heating      and Refrigeration Institute(“AHRI”); |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our hydronic fan coils decreased primarily due to a 43% decrease      in the number of units sold partially offset by favorable pricing and      product mix to yield a 41% overall reduction in sales. During the first      half of 2009, we have a market share leadership position of approximately      30%, based on data supplied by theAHRI; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our other HVAC products decreased primarily as the result of      decrease in sales of large custom air handlers partially offset by an      increase in engineering and construction services completed on      construction contracts. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                   |   |    |   |   |   |    |   |   |   |    |   |   |   |     |
|---------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|----------|
| Agricultural      products                        | $      | 67,171  |   |   | $      | 77,743  |   |   | $      | (10,572 | )      |   | (13.6  | )      % |
| Industrial      acids and other chemical products |   | 46,697  |   |   |   | 79,004  |   |   |   | (32,307 | )      |   | (40.9  | )      % |
| Mining      products                              |   | 30,503  |   |   |   | 48,041  |   |   |   | (17,538 | )      |   | (36.5  | )      % |
| Total      Chemical                               | $      | 144,371 |   |   | $      | 204,788 |   |   | $      | (60,417 | )      |   | (29.5  | )      % |
|                                              |   |    |   |   |   |    |   |   |   |    |   |   |   |     |
| Gross      profit – Chemical                | $      | 29,429  |   |   | $      | 31,852  |   |   | $      | (2,423  | )      |   | (7.6   | )      % |
|                                              |   |    |   |   |   |    |   |   |   |    |   |   |   |     |
| Gross      profit percentage – Chemical (1) |   | 20.4    |   | %      |   | 15.6    |   | %      |   | 4.8     |   | %      |   |     |
|                                              |   |    |   |   |   |    |   |   |   |    |   |   |   |     |
| Operating      income – Chemical            | $      | 18,835  |   |   | $      | 32,627  |   |   | $      | (13,792 | )      |   | (42.3  | )      % |

| · | Sales      prices at the El Dorado Facility decreased 26% related, in part, to the      lower cost of raw material, anhydrous ammonia, part of which is passed      through to our customers pursuant to contacts and/or pricing arrangements      that include raw material feedstock as a pass-through component in the      sales price. Additionally, pricing for agricultural nitrogen-based      products |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | has      decreased due to lower demand that resulted, in part, because of      unfavorable weather conditions in certain parts of the United States      coupled with falling commodity markets. However, volume at the El Dorado      Facility increased 21% or 62,000 tons compared to the same period in 2008      primarily attributable to agriculturalAN. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices and volumes at the Cherokee Facility decreased 32% and 17%,      respectively, primarily related to the lower market-driven demand for UAN      in the first half of 2009. Many distributors are working off higher priced      inventories and have been unwilling to fill available storage due to      falling prices. In addition, this situation has been compounded by      unfavorable weather conditions in Cherokee’s primary market resulting in      lower application.  Sales prices also decreased with the pass      through of our lower natural gas costs in the first half of 2009 compared      to 2008, under pricing arrangements with certain of our industrial      customers. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices decreased approximately 22% at the Baytown Facility due to lower      ammonia costs which is a pass through to the customer. Overall volumes      decreased 40% as the result of a decline in customer demand primarily due      to the economic downturn. The lower sales prices and lower volumes had      only a minimum impact to gross profit and operating income due to the      provisions of the supply agreement. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales – Other                                      | $      | 5,359  |   |   | $      | 6,770  |   |   | $      | (1,411 | )      |   | (20.8  | )%            |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |          |
| Gross      profit – Other                                   | $      | 1,700  |   |   | $      | 2,192  |   |   | $      | (492   | )      |   | (22.4  | )      %      |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |          |
| Gross      profit percentage – Other (1)                    |   | 31.7   |   | %      |   | 32.4   |   | %      |   | (0.7   | )      | %      |   |          |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |          |
| General      corporate expense and other business operations, net | $      | (6,077 | )      |   | $      | (5,153 | )      |   | $      | (924   | )      |   | 17.9   |        % |

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                          |   |   |   |   |   |   |   |   |   |    |   |   |   |           |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|----------------|
| Geothermal      and water source heat pumps              | $      | 44,587 |   |   | $      | 45,695 |   |   | $      | (1,108  | )      |   | (2.4   | )      %       |
| Hydronic      fan coils                                  |   | 12,591 |   |   |   | 23,652 |   |   |   | (11,061 | )      |   | (46.8  | )      %       |
| Other      HVAC products                                 |   | 9,804  |   |   |   | 11,279 |   |   |   | (1,475  | )      |   | (13.1  | )  % |
| Total      Climate Control                               | $      | 66,982 |   |   | $      | 80,626 |   |   | $      | (13,644 | )      |   | (16.9  | )      %       |
|                                                     |   |   |   |   |   |   |   |   |   |    |   |   |   |           |
| Gross      profit – Climate Control                | $      | 24,998 |   |   | $      | 25,932 |   |   | $      | (934    | )      |   | (3.6   | )      %       |
|                                                     |   |   |   |   |   |   |   |   |   |    |   |   |   |           |
| Gross      profit percentage – Climate Control (1) |   | 37.3   |   | %      |   | 32.2   |   | %      |   | 5.1     |   | %      |   |           |
|                                                     |   |   |   |   |   |   |   |   |   |    |   |   |   |           |
| Operating      income – Climate Control            | $      | 12,226 |   |   | $      | 11,855 |   |   | $      | 371     |   |   | 3.1    |   %  |

| · | Net      sales of our geothermal and water source heat pump products decreased      slightly primarily as a result of a 23% reduction in unit shipments of      commercial and export products offset by a 24% increase in unit shipments      of residential products.  Although our commercial and export      products have a higher total unit volume compared to our residential      products, our residential products have higher unit      prices.  Overall, our unit sales declined by      18%.  However, our average list prices increased by      4%. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our hydronic fan coils decreased primarily due to a 46% decrease      in the number of units sold and a slight reduction in the average unit      selling price due to productmix.  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our other HVAC products decreased primarily as the result of      decrease in sales of large custom air handlers and engineering and      construction services, partially offset by an increase in sales of modular      chillers. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                   |   |   |   |   |   |    |   |   |   |    |   |   |   |     |
|---------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|----------|
| Agricultural      products                        | $      | 34,333 |   |   | $      | 43,176  |   |   | $      | (8,843  | )      |   | (20.5  | )      % |
| Industrial      acids and other chemical products |   | 21,466 |   |   |   | 42,122  |   |   |   | (20,656 | )      |   | (49.0  | )      % |
| Mining      products                              |   | 14,094 |   |   |   | 28,160  |   |   |   | (14,066 | )      |   | (50.0  | )      % |
| Total      Chemical                               | $      | 69,893 |   |   | $      | 113,458 |   |   | $      | (43,565 | )      |   | (38.4  | )      % |
|                                              |   |   |   |   |   |    |   |   |   |    |   |   |   |     |
| Gross      profit – Chemical                | $      | 12,281 |   |   | $      | 16,499  |   |   | $      | (4,218  | )      |   | (25.6  | )      % |
|                                              |   |   |   |   |   |    |   |   |   |    |   |   |   |     |
| Gross      profit percentage – Chemical (1) |   | 17.6   |   | %      |   | 14.5    |   | %      |   | 3.1     |   | %      |   |     |
|                                              |   |   |   |   |   |    |   |   |   |    |   |   |   |     |
| Operating      income – Chemical            | $      | 6,197  |   |   | $      | 20,502  |   |   | $      | (14,305 | )      |   | (69.8  | )%       |

| · | Sales      prices at the El Dorado Facility decreased 27% related, in part, to the      lower cost of raw materials, anhydrous ammonia and sulfur, part of which      is passed through to our customers |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | pursuant      to contacts and/or pricing arrangements that include raw material      feedstock as a pass-through component in the sales price. Additionally,      pricing for agricultural nitrogen based products has decreased due to      lower demand that resulted, in part, because of unfavorable weather      conditions in certain parts of the United States coupled with      fallingcommodity markets. However, volume at the El Dorado Facility      increased 5% or 9,000 tons. The increase in tons sold was primarily      attributable to (i) 28,000 more tons of agricultural AN primarily due to      more favorable weather conditions in El Dorado’s market area compared to      the same period in 2008, partially offset by (ii) 22,000 fewer tons of      industrial grade AN, utilized in the mining industry, all of which is sold      under a multi-year supply agreement contract. During the second quarter of      2009, the customer ordered and we shipped less than the contractual      minimum volumes.  Pursuant to the terms of the contract, EDC      invoiced the customer for certain unrecovered fixed costs on the minimum      volume not taken during the second quarter of  2009. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices and volumes at the Cherokee Facility decreased 45% and 21%,      respectively, primarily related to the market-driven low demand for UAN in      the second quarter of 2009. Many distributors are working off higher      priced inventories and have been unwilling to fill available storage due      to falling prices. In addition, this situation has been compounded by      unfavorable weather conditions in Cherokee’s primary market which we      believe resulted in lower applications of UAN. Sales prices also decreased      with the pass through of our lower natural gas costs in the second quarter      of 2009 compared to 2008, under pricing arrangements with certain of our      industrial and mining customers. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices decreased approximately 28% at the Baytown Facility due to lower      ammonia costs which is a pass through to the customer. Overall volumes      decreased 34% as the result of a decline in customer demand primarily due      to the economic downturn. The lower sales prices and lower volumes had      only a minimum impact to gross profit and operating income due to the cost      pass through provisions of the supplyagreement. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales – Other                                      | $      | 1,688  |   |   | $      | 3,968  |   |   | $      | (2,280 | )      |   | (57.5  | )      % |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |     |
| Gross      profit – Other                                   | $      | 548    |   |   | $      | 1,310  |   |   | $      | (762   | )      |   | (58.2  | )      % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |     |
| Gross      profit percentage – Other (1)                    |   | 32.5   |   | %      |   | 33.0   |   | %      |   | (0.5   | )      | %      |   |     |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |     |
| General      corporate expense and other business operations, net | $      | (3,881 | )      |   | $      | (3,033 | )      |   | $      | (848   | )      |   | 28.0   | %        |

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|   | · | a      decrease of $8.6 million in the Chemical Business primarily as the result      of lower sales prices and tons sold from our  Cherokee and      Baytown Facilities, |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      net decrease of $5.7 million in the Climate Control Business due, in part,      to the decrease in sales relating to our hydronic fan coil and an      improvement in the timing of collections,and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $1.3 million in the industrial machinery business due      primarily to a decrease in sales of large  machinery. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | a      decrease of $10.8 million in the Chemical Business primarily relating to      the increase in sales volume of AN at the El Dorado Facility and the      decrease in costs of our raw material feedstocks  and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $1.4 million in the Climate Control Business due primarily to      the decrease in certain raw material purchases associated with our fan      coil products and a decrease in certain raw material  costs. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $6.4 million in the Chemical Business due, in part, to the      decrease in costs of our raw material feedstocks  and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $4.7 million in the Climate Control Business primarily as the      result of a reduction in raw material purchases and a decrease in certain      raw material costs. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $1.1 million in the Chemical  Business, |
|--------|--------|------------------------------------------------------------|

|   | · | a      decrease of $0.5 million in the Climate Control Business,    and |
|--------|--------|-------------------------------------------------------------------------|

|   | · | a      decrease of $0.5 million in our industrial machinery    business. |
|--------|--------|--------------------------------------------------------------------------|

|   | · | a      decrease in the fair value of commodities contracts of $4.1 million      associated with contracts settled during the first half of      2009, |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease in accrued payroll and benefits of $2.0 million due primarily to      the timing of our payroll-relatedpayments, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | decrease      in accrued interest of $1.2 million relating primarily to the semi-annual      interest payment on the 2007 Debentures and the acquisition of a portion      of the 2007 Debentures during the first half of  2009, |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease in accrued commissions of $1.1 million due primarily to lower      sales volume in related distributionchannels, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease in accrued precious metals cost of $1.0 million primarily due to      the timing of payments for and the replacement of precious metals used at      the Baytown Facility, and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease in billings in excess of costs and estimated earnings on      uncompleted contracts of $0.8 million primarily due to costs incurred      during the first half of 2009 associated with these construction      contracts. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | long-term      debt, |
|--------|--------|----------------------|

|   | · | interest      payments on long-term debt, |
|--------|--------|-------------------------------------------|

|   | · | interest      rate contracts, |
|--------|--------|-------------------------------|

|   | · | capital      expenditures, |
|--------|--------|----------------------------|

|   | · | operating      leases, |
|--------|--------|------------------------|

|   | · | futures/forward      contracts, |
|--------|--------|---------------------------------|

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|  | · | contractual      manufacturing obligations, |
|--|--------|---------------------------------------------|

|   | · | purchase      obligations and |
|--------|--------|-------------------------------|

|   | · | other      contractual obligations. |
|--------|--------|-------------------------------------|

|   | · | as      the result of Bayer exercising its option to purchase from the third party      all of the assets comprising the Baytown Facility, except certain assets      owned by EDN, the operating lease relating to the Baytown Facility      terminated in June 2009, |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our      contractual obligations relating to futures/forward contracts were $10.5      million as of June 30, 2009 and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | our      committed capital expenditures were approximately $9.4 million for the      remainder of 2009. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

Quantitativeand Qualitative Disclosures about Market Risk

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Controls and Procedures

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FORWARD-LOOKING STATEMENTS

| · | however, due to      reductions in the commercial and residential construction industries, as      well as general industrial production in North      America, we don’t believe these results are sustainable in the      second half of the year, |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | with theadded pressure      of competition in the markets we serve, plus recent increases in the cost      of raw materials, we expect to see some erosion in our Climate Control      Business’ results in the      short-term, |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | we      are continuing to increase our sales and marketing efforts for all of our      Climate Control products, |
|--------|------------------------------------------------------------------------------------------------------------------|

| · | over      time, we believe that the recently enacted federal tax credits for GHPs      should have a positive impact on sales of those highly energy efficient      and greenproducts, |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | due      to the current economic conditions and a decline in business activity in      these markets, we believe that our sales and margins for the remainder of      the year will be lower than the first half of the      year, |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | recent      cost increases in market prices of raw materials,      especially copper and aluminum, are expected to impact gross margins      negatively going  forward,  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | producing      ammonia at the Pryor Facility in August 2009 and shortly start up the      nitric acid plant, soon to be followed by the start of the urea plant and      shipments of UAN are scheduled to begin as product is available, probably      in September 2009, |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      economy continues to create significant uncertainty relative to the      industrial, construction and agricultural markets that we      serve,                                                                                                                    |
| · | continue      to adjust our controllable costs when and as market conditions      dictate,                                                                                                                                                                                 |
| · | lower      sales volumes for most of our Climate Control products for the remainder      of 2009, as compared to 2008,                                                                                                                                                     |
| · | the      longer term outlook after 2009 will depend upon the recovery of the credit      and capital markets and the general economy,                                                                                                                                      |
| · | the      new tax credits and other GHP incentives should stimulate demand for these      products,                                                                                                                                                                         |
| · | many      of these mining and industrial customers will take less product in 2009      than in 2008 due to the downturn in housing, automotive and other      sectors,                                                                                                     |
| · | until      the economy begins to rebound, our volume of industrial products will      probably remain at the current lower levels,                                                                                                                                         |
| · | global      demand for corn, wheat and other grains will continue to be the      fundamental drivers of nitrogen demand and that, for the long-term, the      supply and demand fundamentals for nitrogen fertilizer are      favorable,                                   |
| · | pricing      and margins for UAN will be weak in the third and fourth quarters of 2009      compared to 2008 and that there will be a resurgence of demand in the      spring of 2010, which should provide for improved  margins,                                         |

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| · | profitability      in our Chemical Business is also contingent upon producing at certain      volume levels,                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      actual results for agricultural products will depend upon the global and      domestic demand for nitrogen fertilizer in addition to traditional      seasonal factors, |
| · | economic      indications are that a significant rebound in 2009 is      unlikely,                                                                                               |
| · | we      will continue to make changes to our controllable cost structure, as      conditions dictate,                                                                            |

| · | our      Climate Control Business will continue to launch new products and product      upgrades in an effort to maintain our current market position and to      establish presence in new markets,                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | potential      sales level for our Climate Control Business remains      uncertain,                                                                                                                                                                                                             |
| · | certain product      lines of our Climate Control Business have      good long-term      prospects,                                                                                                                                                                                             |
| · | we      continue to focus our sales efforts on sales agreements and/or pricing      formulas that provide for the pass through of raw material and other      variable costs and certain fixed costs,                                                                                           |
| · | our      Chemical Business continues to focus on growing our non-seasonal      industrial customer base with an emphasis on customers accepting the risk      inherent with raw material costs, while at the same time, maintaining a      strong presence in the seasonal agricultural sector, |
| · | our      long-term strategy includes optimizing production efficiency of our      facilities, thereby lowering the fixed cost of each ton      produced,                                                                                                                                        |
| · | our      capital structure and liquidity reflect a reasonably sound financial      position,                                                                                                                                                                                                    |
| · | our      primary cash needs will be for working capital and capital      expenditures,                                                                                                                                                                                                          |
| · | plan      to rely upon internally generated cash flows, cash on hand, secured      property and equipment financing, and the borrowing availability under the      Working Capital Revolver Loan to fund operations and pay      obligations,                                                   |
| · | continue      to monitor the possible effects upon our internally generated cash flows      if we experience significant declines in our sales  volumes,                                                                                                                                        |
| · | ThermaClime’s      Working Capital Revolver Loan is available to fund its working capital      requirements, if necessary, through April 13, 2012,                                                                                                                                        |
| · | cash      and borrowing availability under our Working Capital Revolver Loan is      adequate to fund operations during the remainder of 2009, subject to the      financial viability of the lender,                                                                                           |
| · | continue      recognizing and paying federal income taxes at regular corporate tax rates      during the remainder of 2009,                                                                                                                                                                     |
| · | we      are unable to determine the amount or likelihood of penalties, if any,      resulting from this request, and, if any of these facilities need to be      retrofitted, what equipment needs to be installed and the related amount      of capital expenditures,                         |
| · | while      future emission regulations or new laws appear likely, it is too early to      predict how these regulations, if and when adopted, will affect our      businesses, operations, liquidity or financial results,                                                                      |
| · | net      sales will decrease as a result of the elimination of the Baytown      Facility’s lease expense that was a pass-through cost component in our      sales price,                                                                                                                  |
| · | we      believe that we have adequate insurance in connection with the fire at the      Bryan, Texas distribution center and that the foreseeable losses from the      fire should not have a material adverse effect on us or our Chemical      Business,                                      |
| · | backlog      consists of confirmed customer purchase orders for product to be shipped      at a future date,                                                                                                                                                                                    |
| · | the      amount of committed and planned capital expenditures for the Climate      Control and Chemical Businesses, including the Pryor Facility, and how it      will be funded,                                                                                                               |
| · | the      amount to be incurred relating Turnarounds during the remainder of      2009,                                                                                                                                                                                                          |
| · | not      paying dividends on our common stock in the foreseeable      future,                                                                                                                                                                                                                   |

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| · | the      products and amount of products to be produced from the Pryor Facility and      remaining start-up costs to be expensed, |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| · | the      agricultural products are the only significant seasonal      products,                                                   |
| · | meeting      all required covenant tests for all the remaining quarters of 2009 and the      year ending in 2009, and             |

| ·         | environmental and      health laws and enforcement policies thereunder could result, in      compliance expenses, cleanup costs, penalties or other liabilities      relating to the handling, manufacture, use, emission, discharge or      disposal of pollutants or other substances at or from our facilities or      the use or disposal of certain of its chemical      products.  |
|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | decline      in general economic conditions, both domestic and  foreign,                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | material      reduction in revenues,                                                                                                                     |
| · | material      changes in interest rates,                                                                                                                 |
| · | ability      to collect in a timely manner a material amount of      receivables,                                                                        |
| · | increased      competitive pressures,                                                                                                                    |
| · | changes      in federal, state and local laws and regulations, especially environmental      regulations, or in interpretation of such, pending,         |
| · | additional      releases (particularly air emissions) into the  environment,                                                                             |
| · | material      increases in equipment, maintenance, operating or labor costs not      presently anticipated by us,                                        |
| · | the      requirement to use internally generated funds for purposes not presently      anticipated,                                                      |
| · | the      inability to pay or secure additional financing for planned capital      expenditures,                                                          |
| · | material      changes in the cost of certain precious metals, anhydrous ammonia, natural      gas, copper and steel,                                     |
| · | changes      in competition,                                                                                                                             |
| · | the      loss of any significant customer,                                                                                                               |
| · | changes      in operating strategy or development plans,                                                                                                 |
| · | inability      to fund the working capital and expansion of our    businesses,                                                                           |
| · | changes      in the production efficiency of our facilities,                                                                                             |
| · | adverse      results in any of our pending litigation,                                                                                                   |
| · | modifications      to or termination of the suspension agreement between the United States      and Russia,                                              |
| · | activating      operations at the Pryor Facility,                                                                                                        |
| · | inability      to obtain necessary raw materials, and                                                                                                    |
| · | other      factors described in "Management's Discussion and Analysis of Financial      Condition and Results of Operation" contained in this    report. |

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LegalProceedings

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RiskFactors

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Unregistered Sales of EquitySecurities and Use of Proceeds

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Table of Contents

|       Period |  (a)      Total number      of shares      of common      stock      acquired      (1) |   (b)      Average price      paid   per      shareof      commonstock      (1) |  (c)      Total number of shares      of common stock      purchased aspart      of publiclyannounced      plansor      programs (2) | (d)      Maximum number(or      approximatedollar      value) of sharesof      common stock that      may yetbe      purchased underthe      plans or programs |
|--------------------------------------------|---------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| April      1, 2009 -  April      30, 2009                                                  |  -      |   |  $ |  -     |   |         |
|------------------------------------------------------------------------------------------------------|--------------|--------|---------|-------------|--------|--------------|
|                                                                                                 |         |   |    |        |   |         |
| May      1, 2009      -          May      31, 2009 |  14,444 |   |  $ |  14.09 |   |         |
|                                                                                                 |         |   |    |        |   |         |
| June      1, 2009 -June      30, 2009                                                                |  4,500  |   |  $ |  16.97 |   |         |
| Total                                                                                                | 18,944       |   | $       | 14.77       |   | See      (2) |

|      Period |   (a)      Total numberof      units acquired      (A) |    (b)      Average price      paidper      unit (A) |  (c)      Total number of units      purchased aspart      of publiclyannounced      plansor      programs | (d)      Maximum number(or      approximatedollar      value) ofunits      that may yetbe      purchased underthe      plans or programs |
|--------------------------------------|------------------------------------------------------------------|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| April      1, 2009 - April      30, 2009              |  -     |   |  $ |  -      |  -     |   |
|-------------------------------------------------------|-------------|--------|---------|--------------|-------------|--------|
|                                                  |        |   |    |         |        |   |
| May      1, 2009 -   May      31, 2009 |  2,500 |   |  $ |  830.00 |  2,500 |   |
|                                                  |        |   |    |         |        |   |
| June      1, 2009 -June      30, 2009                 |  1,000 |   |  $ |  885.00 |  1,000 |   |
| Total                                                 | 3,500       |   | $       | 845.71       | 3,500       | 31,300 |

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Defaults upon SeniorSecurities

Submission of Matters to aVote of Security Holders

|     Name |   |   Number      of Shares "For" |   | Number      of Shares      “Against”      or      "Withhold      Authority" |
|------------------------------|--------|----------------------------------------------|--------|-----------------------------------------------------------------------------------------|

| Robert      C. Brown, M.D. |   | 12,877,047.5 |   | 6,139,871 |
|----------------------------|--------|--------------|--------|-----------|
| Barry      H. Golsen, J.D. |   | 12,879,037.5 |   | 6,137,881 |
| David      R. Goss         |   | 12,890,142.5 |   | 6,126,776 |
| John      A. Shelley       |   | 12,972,456.5 |   | 6,044,462 |

|  Number      ofShares      "For" |   |  Number      of Shares"Against" |   | Number      ofAbstentionsVotes |
|---------------------------------------|--------|--------------------------------------|--------|--------------------------------|

| 18,381,220.5 |   | 623,468 |   | 12,230 |
|--------------|--------|---------|--------|--------|

OtherInformation

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Exhibits

|    | (a) |   Exhibits The      Company has included the following exhibits in this  report: |
|--------------|-----|--------------------------------------------------------------------------------------------|

|   | 10.1   | Business      Loan Agreement, dated effective June 30, 2009, between Prime Financial      Corporation and INTRUST Bank, N.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.2   | Promissory      Note, dated July 6, 2009, between Prime Financial Corporation and INTRUST      Bank, N.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.3   | Urea      Ammonium Nitrate Purchase and Sale Agreement, dated May 7, 2009, between      Pryor Chemical Company and Koch Nitrogen Company, LLC., which the Company      hereby incorporates by reference from Exhibit 99.1 to the Company's Form      8-K, filed May 13, 2009. CERTAIN      INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF A      COMMISSION ORDER CF#23659, DATED JUNE 9, 2009, GRANTING REQUEST BY THE      COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE      COMMISSION UNDER THE FREEDOM OF INFORMATION ACT.                                                                                                                                         |
|   | 10.4   | Railcar      Management Agreement, dated May 7, 2009, between Pryor Chemical Company      and Koch Nitrogen Company, LLC, which the Company hereby incorporates by      reference from Exhibit 99.2 to the Company's Form 8-K, filed May 13,      2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.5   | Omnibus      Termination Agreement, dated June 23, 2009, by and among Bayer      MaterialScience LLC (as successor in interest to Bayer Corporation); El      Dorado Nitrogen, L.P. (as successor in interest to El Dorado Nitrogen      Company); El Dorado Chemical Company; Wells Fargo Bank Northwest, N.A. (as      successor in interest to Boatmen’s Trust Company of Texas); Bal Investment      & Advisory, Inc. (as successor in interest to Security Pacific Leasing      Corporation); Wilmington Trust Company; and Bayerische Landesbank, New      York Branch, which the Company hereby incorporates by reference from      Exhibit 99.1 to the Company's Form 8-K, filed June 29,      2009. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 10.6   | Assignment      of Fixed Price Purchase Option, dated June 23, 2009, between El Dorado      Nitrogen, L.P. and Bayer MaterialScience LLC., which the Company hereby      incorporates by reference from Exhibit 99.2 to the Company's Form 8-K,      filed June 29, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 31.1   | Certification      of Jack E. Golsen, Chief Executive Officer, pursuant to Sarbanes-Oxley Act      of 2002, Section 302.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 31.2   | Certification      of Tony M. Shelby, Chief Financial Officer, pursuant to Sarbanes-Oxley Act      of 2002, Section 302.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 32.1   | Certification      of Jack E. Golsen, Chief Executive Officer, furnished pursuant to      Sarbanes-Oxley Act of 2002, Section 906.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 32.2   | Certification      of Tony M. Shelby, Chief Financial Officer, furnished pursuant to      Sarbanes-Oxley Act of 2002, Section906.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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Table of Contents

|   | LSB      INDUSTRIES, INC. |
|--------|---------------------------|

|   | By:      /s/ Tony M. Shelby                                                                                               |   |
|--------|---------------------------------------------------------------------------------------------------------------------------|--------|
|   | Tony      M. ShelbyExecutive      Vice President of Finance and Chief Financial Officer(Principal      Financial Officer) |

|   | By:      /s/ Harold L. Rieker, Jr.                                            |   |
|--------|-------------------------------------------------------------------------------|--------|
|   | Harold      L. Rieker, Jr.Vice      President and Principal AccountingOfficer |

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