SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended JuneSeptember 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 13-5267260
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Two Greenspoint Plaza, 16825 Northchase Dr., Suite 1200, Houston, TX 77060-2544
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 423-3300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding on July 28,October 25, 1995: 51,068,71651,071,118
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1994
and JuneSeptember 30, 1995 3-4
Consolidated Statements of Operations - Three and
sixnine months ended JuneSeptember 30, 1994 and 1995 5
Consolidated Statement of Shareholders' Deficit
- SixNine months ended JuneSeptember 30, 1995 6
Consolidated Statements of Cash Flows - SixNine
months ended JuneSeptember 30, 1994 and 1995 7-8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 1919-20
Item 6. Exhibits and Reports on Form 8-K 20
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, JuneSeptember 30,
1994 1995
Current assets:
Cash and cash equivalents $ 131,124 $ 137,264152,795
Marketable securities 25,165 2,387-
Accounts and notes receivable 137,753 187,524169,539
Refundable income taxes 1,162 11,3098,626
Inventories 185,173 195,608208,958
Prepaid expenses 3,878 9,7047,676
Deferred income taxes 2,177 2,4952,254
Total current assets 486,432 546,291549,848
Other assets:
Marketable securities 21,329 22,41426,819
Investment in joint ventures 187,480 185,989185,863
Prepaid pension cost 19,329 21,68421,712
Deferred income taxes 2,746 692711
Other 37,267 36,01132,961
Total other assets 268,151 266,790268,066
Property and equipment:
Land 20,665 22,68922,523
Buildings 147,370 166,709163,961
Machinery and equipment 582,138 647,873636,605
Mining properties 87,035 93,37191,691
Construction in progress 9,579 7,52317,934
846,787 938,165932,714
Less accumulated depreciation and depletion 438,960 486,949484,181
Net property and equipment 407,827 451,216448,533
$1,162,410 $1,264,297$1,266,447
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, JuneSeptember 30,
1994 1995
Current liabilities:
Notes payable $ - $ 21,78221,707
Current maturities of long-term debt 42,887 40,92141,149
Accounts payable and accrued liabilities 168,327 174,797175,330
Payable to affiliates 11,348 10,5099,631
Income taxes 20,762 10,19411,368
Deferred income taxes 1,590 1,6661,510
Total current liabilities 244,914 259,869260,695
Noncurrent liabilities:
Long-term debt 746,762 765,478750,683
Deferred income taxes 178,332 209,100207,769
Accrued pension cost 76,242 78,95675,295
Accrued postretirement benefits cost 65,299 63,22162,026
Other 141,518 147,955144,643
Total noncurrent liabilities 1,208,153 1,264,7101,240,416
Minority interest 2,425 2,8262,830
Shareholders' deficit:
Common stock 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (125,494) (130,142)(124,876)
Pension liabilities (1,635) (1,635)
Marketable securities (12) 4303,294
Accumulated deficit (567,041) (532,977)(515,551)
Treasury stock (366,536) (366,420)(366,362)
Total shareholders' deficit (293,082) (263,108)(237,494)
$1,162,410 $1,264,297$1,266,447
Commitments and contingencies (Note 13)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember 30,
1994 1995 1994 1995
Revenues and other income:
Net sales $237,113 $283,474 $438,962 $534,349$225,200 $255,339 $664,162 $789,688
Other, net 5,200 6,121 28,214 9,015
242,313 289,595 467,176 543,3648,365 7,060 36,579 16,075
233,565 262,399 700,741 805,763
Costs and expenses:
Cost of sales 178,925 187,896 325,881 357,664168,033 169,058 493,914 526,722
Selling, general and
administrative 54,250 50,448 110,261 94,62047,162 48,317 157,423 142,937
Interest 21,071 21,052 42,136 41,728
254,246 259,396 478,278 494,01220,923 20,325 63,059 62,053
236,118 237,700 714,396 731,712
Income (loss) before
income taxes and
minority interest (11,933) 30,199 (11,102) 49,352(2,553) 24,699 (13,655) 74,051
Income tax expense (3,354) (9,056) (10,303) (14,802)(1,901) (7,413) (12,204) (22,215)
Income (loss) before
minority interest (15,287) 21,143 (21,405) 34,550(4,454) 17,286 (25,859) 51,836
Minority interest (247) (141) (496) (486)(124) 140 (620) (346)
Net income (loss) $(15,534) $ 21,002 $(21,901)(4,578) $ 34,06417,426 $(26,479) $ 51,490
Net income (loss) per share
of common stock $ (.30)(.09) $ .41.34 $ (.43)(.52) $ .661.00
Weighted average common and
common equivalent shares
outstanding 51,040 51,552 51,002 51,46951,628 51,014 51,522
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
SixNine months ended JuneSeptember 30, 1995
(In thousands)
Additional Adjustments
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
Balance at December 31, 1994 $8,355 $759,281 $(125,494) $(1,635) $(12)$ (12)
Net income - - - - -
Adjustments - - (4,648)618 - 4423,306
Treasury stock reissued - - - - -
Balance at JuneSeptember 30, 1995 $8,355 $759,281 $(130,142)$(124,876) $(1,635) $430$3,294
Accumulated Treasury
deficit stock Total
Balance at December 31, 1994 $(567,041) $(366,536) $(293,082)
Net income 34,06451,490 - 34,06451,490
Adjustments - - (4,206)3,924
Treasury stock reissued - 116 116174 174
Balance at JuneSeptember 30, 1995 $(532,977) $(366,420) $(263,108)$(515,551) $(366,362) $(237,494)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SixNine months ended JuneSeptember 30, 1994 and 1995
(In thousands)
1994 1995
Cash flows from operating activities:
Net income (loss) $(21,901)$(26,479) $ 34,06451,490
Depreciation, depletion and amortization 17,481 19,29126,752 29,208
Noncash interest expense 8,921 9,54713,415 14,368
Deferred income taxes 30,195 16,25935,479 18,245
Other, net (894) (5,073)
33,802 74,088(2,458) (8,382)
46,709 104,929
Change in assets and liabilities:
Accounts and notes receivable (46,791) (37,759)(24,721) (23,161)
Inventories 22,715 3,053
Prepaid expenses (2,503) (5,151)37,605 (14,067)
Accounts payable and accrued liabilities (848) (7,013)4,475 (2,905)
Income taxes 75,490 (22,447)89,285 (18,217)
Other, net 15,459 (606)19,247 (5,096)
Marketable trading securities, net 14,254 23,94314,262 26,337
Net cash provided by operating activities 111,578 28,108186,862 67,820
Cash flows from investing activities:
Capital expenditures (16,564) (26,200)(25,061) (42,572)
Investment in joint ventures, net 2,405 1,4862,600 1,664
Other, net 562 33563 68
Net cash used by investing activities (13,597) (24,681)(21,898) (40,840)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SixNine months ended JuneSeptember 30, 1994 and 1995
(In thousands)
1994 1995
Cash flows from financing activities:
Indebtedness:
Borrowings $ 31,93744,505 $ 25,83938,840
Principal payments (105,472) (27,326)(129,553) (47,401)
Other, net (202) 102159
Net cash used by financing activities (73,737) (1,385)(85,250) (8,402)
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities 24,244 2,04279,714 18,578
Currency translation 4,942 4,0987,779 3,093
Balance at beginning of period 106,593 131,124
Balance at end of period $ 135,779 $137,264194,086 $152,795
Supplemental disclosures - cash paid (received) for:
Interest, net of amounts capitalized $ 35,13043,251 $ 28,27337,079
Income taxes (95,134) 21,296(112,066) 22,388
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
NL Industries, Inc. conducts its operations primarily through its wholly-
owned subsidiaries, Kronos, Inc. (titanium dioxide pigments, or "TiO2") and
Rheox, Inc. (specialty chemicals). Valhi, Inc. and Tremont Corporation, each
affiliates of Contran Corporation, hold 53% and 18%, respectively, of NL's
outstanding common stock. Contran holds, directly or indirectly, approximately
90%91% of Valhi's and 44% of Tremont's outstanding common stock.
The consolidated balance sheet of NL Industries, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1994 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at JuneSeptember 30, 1995 and the consolidated statements
of operations, shareholders' deficit and cash flows for the interim periods
ended JuneSeptember 30, 1994 and 1995, have been prepared by the Company, without
audit. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows have been made. The results of
operations for the interim periods are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain prior year amounts have been
reclassified to conform to the 1995 presentation. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 (the "1994 Annual Report").
NOTE 2 - NET INCOME (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) per share of common stock is based on the weighted
average number of common shares and equivalents outstanding. Common stock
equivalents, primarilyconsisting of non-qualified stock options, are excluded from the
computation when their effect is antidilutive.
NOTE 3 - BUSINESS SEGMENT INFORMATION:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox.
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember 30,
1994 1995 1994 1995
(In thousands)
Net sales:
Kronos $206,407 $249,393 $380,667 $466,721$194,146 $222,799 $574,813 $689,520
Rheox 30,706 34,081 58,295 67,628
$237,113 $283,474 $438,962 $534,34931,054 32,540 89,349 100,168
$225,200 $255,339 $664,162 $789,688
Operating income:
Kronos $ 17,66418,746 $ 47,10040,828 $ 33,023 $ 79,55351,769 $120,381
Rheox 8,578 10,449 15,532 19,964
26,242 57,549 48,555 99,5178,347 9,762 23,879 29,726
27,093 50,590 75,648 150,107
General corporate income
(expense):
Securities earnings, net 642 1,926 843 4,3951,254 1,489 2,097 5,884
Expenses, net (17,746) (8,224) (18,364) (12,832)(9,977) (7,055) (28,341) (19,887)
Interest expense (21,071) (21,052) (42,136) (41,728)
$(11,933)(20,923) (20,325) (63,059) (62,053)
$ 30,199 $(11,102)(2,553) $ 49,35224,699 $(13,655) $ 74,051
NOTE 4 - INVENTORIES:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Raw materials $ 30,118 $ 27,79132,195
Work in process 7,655 9,0858,541
Finished products 112,410 120,309132,028
Supplies 34,990 38,42336,194
$185,173 $195,608$208,958
NOTE 5 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Current - U.S. Treasury securities:
Unrealized losses $(1,124) $ (10)-
Cost 26,289 2,397-
Aggregate market $25,165 $ 2,387-
Noncurrent - marketable equity securities:
Unrealized gains $ 3,357 $ 2,8185,067
Unrealized losses (3,374) (2,156)-
Cost 21,346 21,752
Aggregate market $21,329 $22,414$26,819
The Company has classified its U.S. Treasury securities as trading
securities and its marketable equity securities as available-for-sale.
Net gains and losses from securities transactions are composed of:
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember 30,
1994 1995 1994 1995
(In thousands)
Unrealized gains (losses) $(387) $422 $ (775) $1,115- $ 7 $ (871) $1,122
Realized gains (losses) (25) 154(96) - (438) 50
$(412) $576 $(1,213) $1,165$(96) $ 7 $(1,309) $1,172
NOTE 6 - INVESTMENT IN JOINT VENTURES:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
TiO2 manufacturing joint venture $185,122 $183,636$183,458
Other 2,358 2,3532,405
$187,480 $185,989$185,863
NOTE 7 - OTHER NONCURRENT ASSETS:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Intangible assets, net $13,957 $13,863$12,583
Deferred financing costs, net 16,079 15,37714,163
Other 7,231 6,7716,215
$37,267 $36,011$32,961
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Accounts payable $ 74,903 $ 70,23656,502
Accrued liabilities:
Employee benefits 34,209 36,77242,299
Environmental costs 10,433 10,433
Interest 6,485 10,44617,068
Miscellaneous taxes 7,336 2,6493,006
Other 34,961 44,26146,022
93,424 104,561118,828
$168,327 $174,797$175,330
NOTE 9 - OTHER NONCURRENT LIABILITIES:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Environmental costs $ 93,655 $102,666$103,312
Insurance claims and expenses 14,716 14,64914,555
Employee benefits 12,322 14,31913,557
Deferred technology fee income 18,305 14,06411,112
Other 2,520 2,2572,107
$141,518 $147,955$144,643
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:
December 31, JuneSeptember 30,
1994 1995
(In thousands)
Notes payable - Kronos $ - $ 21,78221,707
Long-term debt:
NL Industries:
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 116,409 123,976127,897
366,409 373,976377,897
Kronos:
DM bank credit facility (DM 397,609) 255,703 286,756276,498
Joint venture term loan 88,715 81,00077,143
Other 10,507 13,66214,441
354,925 381,418368,082
Rheox:
Bank term loan 67,500 50,26345,263
Other 815 742590
68,315 51,00545,853
789,649 806,399791,832
Less current maturities 42,887 40,92141,149
$746,762 $765,478$750,683
NOTE 11 - INCOME TAXES:
The difference between the provision for income tax expense attributable to
income before income taxes and minority interest and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% is presented
below.
SixNine months ended
JuneSeptember 30,
1994 1995
(In thousands)
Expected tax benefit (expense) $ 3,886 $(17,273)4,779 $(25,918)
Non-U.S. tax rates 2,703 2,2633,838 1,501
Incremental tax on income of companies not included
in NL's consolidated U.S. federal income tax return (1,096) (2,462)(982) (1,007)
Valuation allowance (15,138) 2,479(18,987) 3,183
U.S. state income taxes (283) (350)(410) (584)
Other, net (375) 541(442) 610
Income tax expense $(10,303) $(14,802)$(12,204) $(22,215)
NOTE 12 - OTHER INCOME, NET:
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember, 30,
1994 1995 1994 1995
(In thousands)
Securities earnings:
Interest and dividends $1,054 $1,350 $1,482 $ 2,0563,406 $ 3,2304,712
Securities transactions (412) 576 (1,213) 1,165
642 1,926 843 4,395(96) 7 (1,309) 1,172
1,254 1,489 2,097 5,884
Litigation settlement gaingains 1,200 - - 20,04021,240 -
Technology fee income 2,453 2,719 4,862 5,3052,519 2,685 7,781 7,990
Currency transaction gains,
(losses), net 502 716 366 (1,917)
Disposition of property and
equipment (292) (591) (1,279) (1,385)
Royalty income 594 - 1,020 -379 1,122 745 (795)
Other, net 1,301 1,351 2,362 2,617
$5,200 $6,121 $28,214 $ 9,0153,013 1,764 4,716 2,996
$8,365 $7,060 $36,579 $16,075
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Part II, Item 1 -"Legal Proceedings," (ii) the Company's Quarterly ReportReports on
Form 10-Q for the quarterquarters ended March 31, 1995 and June 30, 1995, and (iii) the
1994 Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company's chemical operations are conducted in two business segments -
TiO2 conducted by Kronos and specialty chemicals conducted by Rheox. The
Company's results improved significantly during the first sixnine months of 1995,
as discussed below, and the Company expects to remain profitable forin the remainder
of the year.fourth
quarter and in 1996.
Three months ended % SixNine months ended %
JuneSeptember 30, Change JuneSeptember 30, Change
1994 1995 1994 1995
(In millions) (In millions)
Net sales:
Kronos $206.4 $249.4 +21% $380.7 $466.7 +23%$194.1 $222.8 +15% $574.9 $689.5 +20%
Rheox 30.7 34.1 +11% 58.3 67.6 +16%
$237.1 $283.5 +20% $439.0 $534.3 +22%31.1 32.5 +5% 89.3 100.2 +12%
$225.2 $255.3 +13% $664.2 $789.7 +19%
Operating income:
Kronos $ 17.618.8 $ 47.0 +167%40.8 +118% $ 33.151.7 $120.4 +133%
Rheox 8.3 9.8 +17% 23.9 29.7 +24%
$ 79.5 +141%
Rheox 8.6 10.5 +22% 15.5 20.0 +29%27.1 $ 26.250.6 +87% $ 57.5 +119% $ 48.6 $ 99.5 +105%75.6 $150.1 +98%
Percent changes in TiO2:
Sales volume -6% +1%-1%
Average selling prices (in billing
currencies) +19% +15%+18% +16%
Kronos' operating income in the first nine months of 1995 increased
compared to the 1994 period due to higher average selling prices, partially
offset by lower sales volumes and slightly higher production costs. Kronos'
TiO2 operating income in the secondthird quarter of 1995 increased from the secondthird
quarter of 1994 primarily due to higher average selling prices. AsKronos' average
TiO2 selling prices in the third quarter of 1995 were 18% higher than the third
quarter of 1994 as a result of increased pricing in all major markets, Kronos' average TiO2markets. Average
selling prices in the secondthird quarter of 1995 were 19%2% higher than the second
quarter of 1994 and 6% higher than1995 with increases in all major markets except the first quarter of 1995.U.S. market,
where selling prices remained flat.
Kronos' year-to-date sales
volumes for 1995 approximated sales volumes for the same period in 1994;
however, secondthird quarter 1995 sales volumes were 6% below the secondthird quarter of
1994 and year-to-date sales volumes for 1995 were slightly lower than sales
volumes for the same period in 1994. Economies worldwide have continued growing
in 1995, but at lower rates than 1994. Kronos believes this contributed to its
1% lower sales volumes in the first nine months of 1995 compared to the same
period in 1994.
Rheox's operating results for both the secondthird quarter and first halfnine months
of 1995 improved compared to the 1994 periods primarily as a result of higher
sales volumes and average selling prices.
A significant amount of sales are denominated in currencies other than the
U.S. dollar, and fluctuations in the value of the U.S. dollar relative to other
currencies increased the dollar value of sales for the secondthird quarter and first
halfnine months of 1995 by $20$12 million and $32$46 million, respectively, compared to
the 1994 periods.
The following table sets forth certain information regarding general
corporate income (expense).
Three months ended SixNine months ended
JuneSeptember 30, Difference JuneSeptember 30, Difference
1994 1995 1994 1995
Securities earnings $ .71.3 $ 1.91.5 $ 1.2.2 $ .92.1 $ 4.4 $3.55.9 $ 3.8
Corporate expenses, net (17.7) (8.2) 9.5 (18.5) (12.8) 5.7(10.0) (7.1) 2.9 (28.3) (19.9) 8.4
Interest expense (21.1) (21.1) - (42.1) (41.7) .4
$(38.1) $(27.4) $10.7 $(59.7) $(50.1) $9.6(20.9) (20.3) .6 (63.1) (62.1) 1.0
$(29.6) $(25.9) $3.7 $(89.3) $(76.1) $13.2
Corporate expenses, net in the sixnine months ended JuneSeptember 30, 1995 were
lower than the comparable 1994 period due to lower provisions for environmental
remediation and other costs, partially offset by the effect of thea $20 million
gain related to thea first-quarter 1994 settlement of the Company's lawsuit
against Lockheed Corporation.a lawsuit. Corporate
expenses, net in the secondthird quarter of 1995 were lower than 1994 due to reduced
provisions for environmental remediation and other costs.remediation. Interest expense in the first sixnine
months of 1995 was slightly lower due to the lower level of debt partially
offset by the impact of changes in currency exchange rates and higher variable
U.S. interest rates.
The Company's operations are conducted on a worldwide basis. In 1994, the
Company's income tax expense was impacted by losses in certain countries for
which no current benefit was available and for which the Company believed
recognition of a deferred tax asset was not appropriate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the sixnine months ended JuneSeptember 30, 1994 and 1995 are
presented below.
SixNine months ended
JuneSeptember 30,
1994 1995
(In millions)
Net cash provided (used) by:
Operating activities $111.6$186.8 $ 28.167.8
Investing activities (13.6) (24.7)(21.9) (40.8)
Financing activities (73.8) (1.4)(85.2) (8.4)
Net cash provided by operating, investing and
financing activities $ 24.279.7 $ 2.018.6
The TiO2 industry is cyclical, with the previous peak in selling prices in
early 1990 and the latest trough in the third quarter of 1993. Excluding the
effects of the receipt of the German tentative tax refunds in the first halfnine
months of 1994, the Company's cash flows from operations improved during the
first sixnine months of 1995 compared to the 1994 period, primarily due to increased TiO2
selling pricesthe
improvement in Kronos' operating results and proceeds from the sale of $24$26
million in current marketableof U.S. Treasury securities. ChangesNet changes in the Company's inventories,
receivables and payables (excluding the effect of currency translation) used
cash in both periods.the first nine months of 1995 and provided cash in the same period in
1994.
Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany, are being examined and tax authorities have
proposed tax deficiencies. Additional substantial German proposed tax
deficiency assessments are expected. Although the Company believes that it will
ultimately prevail, the Company has granted a DM 100 million ($7270 million at
JuneSeptember 30, 1995) lien on its Nordenham, Germany TiO2 plant and may be
required to provide additional security in favor of the German tax authorities
until the assessments proposing tax deficiencies are resolved. The Company
believes that it has adequately provided accruals for additional income taxes
and related interest expense which may ultimately result from all such
examinations and believes that the ultimate disposition of such examinations
should not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
During the second quarterfirst nine months of 1995, a non-U.S. subsidiarysubsidiaries borrowed $22$33
million under short-term lines of credit. Repayments of indebtedness in the
first sixnine months of 1995 include payments of $17$22 million on the Rheox bank term
loan, $12 million on the joint venture term loan and $11 million on short-term
borrowings. Net repayments of indebtedness in the first nine months of 1994
include payments of DM 168 million of the DM credit facility ($103 million), $11
million on the Rheox bank term loan and $8 million on the joint venture term loan. Net repayments of
indebtedness in the first half of 1994 include payments of DM 143 million of the
DM credit facility ($87 million), $8 million on the Rheox bank term loan and $8$12 million on the joint venture term
loan, and borrowings under the DM bank credit facility of DM 5575 million ($3345
million).
At JuneSeptember 30, 1995, the Company had cash and cash equivalents
and current
marketable securities aggregating $140$153 million (28%(34% held by non-U.S. subsidiaries) including
restricted cash and cash equivalents and current marketable
securities of $16 million. The Company's subsidiaries
had $228$212 million available for borrowing under existing credit facilities, of
which $90$87 million is available only for (i) permanently reducing the DM term
loan or (ii) paying future German income tax assessments, as described above.
The Company has been named as a defendant, potentially responsible party
("PRP"), or both, in a number of legal proceedings associated with environmental
matters, including waste disposal sites or facilities currently or formerly
owned, operated or used by the Company, many of which disposal sites or
facilities are on the U.S. Environmental Protection Agency's (the "U.S. EPA")
Superfund National Priorities List or similar state lists. The Company believes
it has adequate accruals ($9495 million at JuneSeptember 30, 1995) for reasonably
estimable costs of such matters. It is not possible to estimate the range of
costs for certain sites. The Company has estimated that the upper end of the
range of reasonably possible costs to the Company for sites for which it is
possible to estimate costs is approximately $162$168 million. No assurance can be
given that actual costs will not exceed accrued amounts or the upper end of the
range for sites for which estimates have been made, and no assurance can be
given that costs will not be incurred with respect to sites as to which no
estimate presently can be made. Further, there can be no assurance that
additional environmental matters will not arise in the future.
The Company is also a defendant in a number of legal proceedings seeking
damages for personal injury and property damage arising from the sale of lead
pigments and lead-based paints. Based on, among other things, the results of
such litigation to date, the Company believes that the pending lead pigment
litigation is without merit and has not accrued any amounts for such pending
lead pigment litigation. The Company currently believes the disposition of all
claims and disputes, individually and in the aggregate, should not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity. There can be no assurance that additional
matters of these types will not arise in the future. In addition, various
legislation and administrative regulations have, from time to time, been enacted
or proposed at the state, local and federal levels that seek to impose various
obligations on present and former manufacturers of lead pigment and lead-based
paint with respect to asserted health concerns associated with the use of such
products and to effectively overturn court decisions in which the Company and
other pigment manufacturers have been successful.
The Company periodically evaluates its liquidity requirements, alternative
uses of capital, capital needs and availability of resources in view of, among
other things, its debt service and capital expenditure requirements and
estimated future operating cash flows. As a result of this process, the Company
has in the past and may in the future seek to reduce, refinance or restructure
indebtedness, raise additional capital, restructure ownership interests, sell
interests in subsidiaries or other assets, or take a combination of such steps
or other steps to manage its liquidity and capital resources. In the normal
course of its business, the Company may review opportunities for the acquisition
of businesses and assets in the chemicals industry. In the event of any future
acquisition, the Company may consider using available cash, issuing equity
securities or increasing its indebtedness to the extent permitted by the
agreements governing the Company's existing debt.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1994 Annual Report and the Company's
Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, 1995 and June
30, 1995 for descriptions of certain previously-reported legal proceedings.
Wright (Alvin) and Wright (Allen)NL Industries, Inc. v. Lead Industries, et.Commercial Union Insurance Cos., et al. In
an
AprilSeptember 1995, amended complaint, plaintiffs voluntarily dismissed their breachthe U.S. Court of warranty claimAppeals for the Third Circuit reversed and
added an unfair and deceptive trade practices claim. In July
1995,remanded for further consideration the previously-reported decision by the trial
court grantedthat Commercial Union was obligated to pay the Company's reasonable
defense costs in partcertain of the defendants' motionlead pigment cases. The trial court had made
its decision applying New Jersey law; the appeals court concluded that New York
and not New Jersey law applied and remanded the case to dismiss, and
dismissed the plaintiffs' fraud and unfair and deceptive trade practices claims.
A trial date has been set in these consolidated casescourt for October 1996.a
determination under New York law.
HANO Third-Party Complaints. In June 1995, the District Court
granted motions for summary judgment in several of the remaining cases and,
after such grant, two cases remained pending. The time in which plaintiffs may file
an appeal of the District Court's June 1995 grant of summary judgment in favor
of the defendants in several of the remaining cases has not yet expired.expired with no appeals
having been filed. Two cases remain pending.
The Company understands that thehas received a copy of a complaint from plaintiffs'
counsel in the HANO cases, but has indicated an intention to file a class
actionnot been served with the complaint. The
complaint, Jefferson v. Lead Industry Association, et al. (No. 95-2835), filed
in the U.S. District Court for the Eastern District of Louisiana, asserts claims
against the LIA and the lead pigment defendants on behalf of a class of
allegedly injured plaintiffs.
Wagner,children in Louisiana. The complaint purports to allege
claims for strict liability, negligence, failure to warn, breach of alleged
warranties, fraud and misrepresentation, and conspiracy, and seeks actual and
punitive damages. The complaint asserts several theories of liability,
including joint and several and market share liability.
New York City, et al. v. Anzon, Inc. andLead Industries Association, et al. In
August 1995, the trial court denied defendants' motion for summary judgment on
the remaining fraud count. Defendants have noticed an appeal.
Skipworth v. Sherwin-Williams Co., et al. In October 1995, the
Supreme Court of Pennsylvania affirmed the previously-reported grant of
defendants' motion for summary judgment. The time in which plaintiffs may seek
review by the Pennsylvania Supreme Court has not yet expired.
Granite City: United States of America v. NL Industries, Inc.
In May 1995,
plaintiffs filed a notice of appeal.
In re: Asbestos III. The trial date has been delayed until
August 1995.
Rhodes, et al. v. ACF Industries, Inc., et al. (Circuit CourtIn September 1995, U.S. EPA released its decision selecting cleanup
remedies for the Granite City site. The cost of Putnam County, West Virginia, No. 95-C-261). Twelve plaintiffs brought this
action against the remedies selected by the
U.S. EPA aggregates, in its estimation, $40.8 million to $67.8 million,
although its decision states that the higher amount is not considered to be
representative of expected costs. The Company believes that certain
components of the U.S. EPA's estimated costs may be erroneous and
presently intends to challenge portions of the U.S. EPA's selection of the
remedy. There is no allocation among the PRPs for these costs.
Batavia Landfill. In September 1995, the U.S. EPA and certain PRPs
entered into an administrative order on consent for the remedial design phase of
the remedy for operable unit one. The Company and various other defendantsPRPs entered into an
interim cost sharing arrangement for this phase of work.
In re Asbestos III (subsequently redesignated as In re Asbestos IV).
All claims in July 1995.
Plaintiffs allege that they were employed by demolition and disposal
contractors, and claim that as a result of the defendants' negligence they were
exposed to asbestos during such activities on defendants' premises in West
Virginia. Plaintiffs allege personal injuries and seek compensatory damages
totaling $18.5 million and punitive damages totaling $55.5 million. The Company
intends to file an answer denying plaintiffs' allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 3, 1995.
The onlythis matter voted upon was the election of directors, and all the nominees
for director were elected. The vote with respect to each was as follows:
Director Vote For Vote Withheld
Joseph S. Compofelice 47,186,917 150,618
J. Landis Martin 47,189,309 148,226
Kenneth R. Peak 47,229,178 108,357
Glenn R. Simmons 47,189,690 147,845
Harold C. Simmons 47,185,803 151,732
Lawrence A. Wigdor 47,201,790 135,745
Admiral Elmo R. Zumwalt, Jr. 47,228,836 117,499
have been dismissed or settled.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 - Contract on Supplies and Services among Bayer AG, Kronos
Titan-GmbH and Kronos International, Inc. dated June 30, 1995
(English translation from German language document.)
27.1 - Financial Data Schedule for the six-monthnine-month period ended
JuneSeptember 30, 1995.
(b) REPORTS ON FORM 8-K
Reports on Form 8-K for the quarter ended JuneSeptember 30, 1995 and
for the monthperiod up to the date of this report.
July 1995:
April 25,20, 1995 - reported Items 5 and 7.
July 20,October 19, 1995 - reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
Date: July 28,October 26, 1995 By /s/ Joseph S. Compofelice
Joseph S. Compofelice
Vice President and
Chief Financial Officer
Date: July 28,October 26, 1995 By /s/ Dennis G. Newkirk
Dennis G. Newkirk
Vice President and Controller
(Principal Accounting Officer)