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PRESS RELEASE
VALHI REPORTS 2004 RESULTS
DALLAS, TEXAS . . March 30, 2005. Valhi, Inc. (NYSE: VHI) reported
income from continuing operations of $9.9 million, or $.08 per diluted share, in
the fourth quarter of 2004 compared to $11.1 million, or $.09 per diluted share,
in the fourth quarter of 2003. For the full year of 2004, the Company reported
income from continuing operations of $308.7 million, or $2.56 per diluted share,
compared to income of $41.8 million, or $.35 per diluted share, for 2003.
Chemicals sales increased $37.8 million in the fourth quarter of 2004
compared to the fourth quarter of 2003 due to the favorable effect of
fluctuations in foreign currency exchange rates, which increased chemicals sales
by approximately $14 million, and higher titanium dioxide pigments ("Ti02")
average selling prices and sales volumes. For the full year of 2004, chemicals
sales increased $120.4 million as the favorable effect of fluctuations in
foreign currency exchange rates, which increased chemicals sales by $60 million,
and higher TiO2 sales volumes more than offset the impact of lower average TiO2
selling prices. Kronos' TiO2 sales volumes in the fourth quarter of 2004
increased 5% compared to the fourth quarter of 2003, as higher volumes in Europe
and North America more than offset the effect of lower volumes in export
markets, and volumes were 8% higher for the year. Excluding the effect of
fluctuations in the value of the U.S. dollar relative to other currencies,
Kronos' average TiO2 selling prices in billing currencies in the fourth quarter
of 2004 were 3% higher than the fourth quarter of 2003, and were 2% lower for
the full year. Expressed in U.S. dollars computed using actual foreign currency
exchange rates prevailing during the respective periods, Kronos' average TiO2
selling prices in the fourth quarter of 2004 were 8% higher than the fourth
quarter of 2003, and 4% higher for the year. Reflecting the partial
implementation of prior price increase announcements, Kronos' average TiO2
selling prices in billing currencies in the fourth quarter of 2004 were 2%
higher than the third quarter of 2004.
Kronos' operating income comparisons were favorably impacted by higher
production levels, which increased 2% in 2004 as compared to 2003 (fourth
quarter 2004 production volumes were slightly lower than the same quarter in
2003). Kronos' operating rates were at near full capacity in all periods
presented, and Kronos' sales and production volumes in 2004 were both new
records for Kronos for the third consecutive year. Operating income comparisons
were also impacted by higher raw material and maintenance costs in 2004, as well
as fluctuations in currency exchange rates, which increased chemicals operating
income in 2004 by $6 million as compared to 2003 (the effect of currency
exchange rate fluctuations was not significant in the fourth quarter). In
addition, chemicals operating income in 2004 includes a second quarter gain of
$6.3 million ($3.5 million, or $.03 per diluted share, net of income taxes and
minority interest) related to the settlement of a contract dispute with a
customer.
Component products sales were higher in the fourth quarter and full
year of 2004 as compared to the same periods in 2003 due primarily to increases
in certain precision slide and ergonomic products surcharges and prices to
recover increase in raw material steel prices experienced during 2004. Sales
comparisons were also favorably impacted by the strengthening of the Canadian
dollar in relation to the U.S. dollar. Component products operating income
comparisons were favorably impacted by the effect of certain cost improvement
initiatives previously undertaken, partially offset by increases in the cost of
steel.
Waste management sales increased, and its operating loss declined in
2004 as compared to 2003, due to higher utilization of waste management
services, offset in part by higher expenses associated with the additional
staffing and consulting requirements related to licensing efforts to expand
low-level and mixed radioactive waste storage and disposal capabilities.
TIMET's sales increased from $100.6 million in the fourth quarter of
2003 to $137.0 million in the fourth quarter of 2004. Despite the increase in
sales, TIMET's operating income declined from $14.3 million in the fourth
quarter of 2003 to $13.1 million in the fourth quarter of 2004 as the
unfavorable effect of LIFO inventory accounting, which decreased TIMET's
operating income in the fourth quarter of 2004 by $11.7 million as compared to
the fourth quarter of 2003, and higher costs in 2004 related to employee
compensation more than offset the favorable effects of increases in sales
volumes of mill and melted products of 20% and 16%, respectively, and increases
in selling prices for mill and melted products of 12% and 8%, respectively. In
addition, equity in earnings of TIMET in the fourth quarter of 2004 includes
income of $1.7 million ($1.1 million, or $.01 per diluted share, net of taxes)
related to an income tax benefit recognized by TIMET resulting from utilization
of a capital loss carryforward, the benefit of which had not been previously
recognized by TIMET.
Equity in earnings of TIMET in 2004 also includes income in the third
quarter of $6.3 million ($4.1 million, or $.03 per diluted share, net of income
taxes) related to a nonoperating gain recognized by TIMET upon the exchange of
substantially all of its convertible preferred debt securities for a new issue
of TIMET preferred stock. TIMET's results in 2003 include a third quarter $6.8
million charge related to the termination of TIMET's purchase and sales
agreement with a customer.
Net securities transactions gains in the fourth quarter of 2004 include
a $2.2 million gain ($1.2 million, or $.01 per diluted share, net of income
taxes and minority interest) related to NL's sale of shares of Kronos common
stock in market transactions. General corporate expenses were lower in 2004 as
compared to the same periods of 2003 due primarily to lower environmental
remediation and legal expenses of NL. The gain on the disposal of fixed assets,
which aggregated $5.7 million, or $.05 per diluted share, net of income taxes
and minority interest in 2003 ($1.0 million, or $.01 per diluted share, in the
fourth quarter), related primarily to the sale of certain real property of NL.
Kronos recognized a $268.6 million income tax benefit in the second
quarter of 2004 ($230.2 million, or $1.91 per diluted share, net of minority
interest) related to the reversal of a deferred income tax asset valuation
allowance attributable to Kronos' income tax attributes in Germany (principally
net operating loss carryforwards). The reversal of the German valuation
allowance reflected the Company's revised estimate of its ability to utilize its
German net operating loss carryforwards in the future under the
"more-likely-than-not" recognition criteria. During the fourth quarter of 2004,
Kronos determined it should have recognized an additional $17.3 million net
deferred income tax benefit during the second quarter of 2004, primarily related
to the amount of the German valuation allowance which should have been reversed.
While the additional tax benefit is not material to the Company's second quarter
2004 results, the quarterly results of operations for 2004, as presented herein,
reflects this additional tax benefit. The effect to the Company of such
adjustment was to increase income from continuing operations in the second
quarter of 2004 by $14.8 million, comprised of the additional deferred income
tax benefit of $17.3 million and an additional minority interest in earnings of
$2.5 million.
In the second quarter of 2004, NL recognized a $43.7 million income tax
benefit ($36.4 million, or $.30 per diluted share, net of minority interest)
related to income tax attributes of NL Environmental Management Services, Inc.
("EMS"), a subsidiary of NL. This income tax benefit resulted from a settlement
agreement reached with the U.S. IRS concerning the IRS' previously-reported
examination of a certain restructuring transaction involving EMS, and included
(i) a $12.6 million tax benefit related to a reduction in the amount of
additional income taxes and interest which NL estimates it will be required to
pay related to this matter as a result of the settlement agreement and (ii) a
$31.1 million tax benefit related to the reversal of a deferred income tax asset
valuation allowance related to certain tax attributes of EMS (including a U.S.
net operating loss carryforward) which NL now believes meet the
"more-likely-than-not" recognition criteria.
The Company recognized a $24.6 million income tax benefit in 2003
($20.8 million, or $.17 per diluted share, net of minority interest) related to
Kronos' previously-reported second quarter favorable German court ruling
concerning Kronos' claim for refund suit.
In December 2004, CompX's board of directors committed to a formal plan
to dispose of its Thomas Regout operations in The Netherlands. Such operations,
which previously were included in the Company's component products operating
segment, met all of the criteria under accounting principles generally accepted
in the United States of America ("GAAP") to be classified as an asset held for
sale at December 31, 2004, and accordingly the results of operations of Thomas
Regout have been classified as discontinued operations for all periods
presented. In classifying the net assets of the Thomas Regout operations as an
asset held for sale, CompX concluded that the carrying amount of the net assets
of such operations exceeded the estimated fair value less costs to sell of such
operations, and accordingly in the fourth quarter of 2004 the Company recognized
a $6.5 million impairment charge to write-down its investment in the Thomas
Regout operations to its estimated net realizable value. Such impairment charge
represented an impairment of goodwill. CompX completed the sale of such
operations in January 2005 for an amount approximating the estimated net
realizable value. Discontinued operations in the fourth quarter of 2004 also
includes a $4.2 million tax benefit associated with the U.S. capital loss
expected to be realized in the first quarter of 2005 upon the completion of the
sale of the Thomas Regout operations. Recognition of the benefit of such capital
loss by the Company is appropriate under GAAP at the time such operations were
classified as held for sale.
The cumulative effect of the change in accounting principle in 2003
related to the Company's first quarter adoption of Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
effective January 1, 2003. Such change in accounting relates principally to
accounting for closure and post-closure obligations at the Company's waste
management operations.
The statements in this release relating to matters that are not
historical facts are forward-looking statements that represent management's
beliefs and assumptions based on currently available information. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it cannot give any assurances that these expectations
will prove to be correct. Such statements by their nature involve substantial
risks and uncertainties that could significantly impact expected results, and
actual future results could differ materially from those described in such
forward-looking statements. While it is not possible to identify all factors,
the Company continues to face many risks and uncertainties. Among the factors
that could cause actual future results to differ materially include, but are not
limited to:
o Future supply and demand for the Company's products,
o The extent of the dependence of certain of the Company's businesses on
certain market sectors,
o The cyclicality of certain of the Company's businesses,
o The impact of certain long-term contracts on certain of the Company's
businesses,
o Customer inventory levels,
o Changes in raw material and other operating costs,
o The possibility of labor disruptions,
o General global economic and political conditions,
o Competitive products and substitute products,
o Customer and competitor strategies,
o The impact of pricing and production decisions,
o Competitive technology positions,
o The introduction of trade barriers,
o Fluctuations in currency exchange rates,
o Operating interruptions,
o The ability to implement headcount reductions in certain operations in a
cost effective manner within the constraints of non-U.S. governmental
regulations, and the timing and amount of any such cost savings realized,
o The ability of the Company to renew or refinance credit facilities,
o Uncertainties associated with new product development,
o The ultimate outcome of income tax audits, tax settlement initiatives or
other tax matters,
o The ultimate ability to utilize income tax attributes, the benefit of which
has been recognized under the "more-likely-than-not" recognition criteria,
o Environmental matters,
o Government laws and regulations and possible changes therein,
o The ultimate resolution of pending litigation, and o Possible future
litigation.
Should one or more of these risks materialize (or the consequences of such a
development worsen), or should the underlying assumptions prove incorrect,
actual results could differ materially from those forecasted or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of changes in information, future
events or otherwise.
In an effort to provide investors with additional information regarding
the Company's results of operations as determined by GAAP, the Company has
disclosed certain non-GAAP information which the Company believes provides
useful information to investors:
o The Company discloses percentage changes in Kronos' average TiO2 selling
prices in billing currencies, which excludes the effects of foreign
currency translation. The Company believes disclosure of such percentage
changes allows investors to analyze such changes without the impact of
changes in foreign currency exchange rates, thereby facilitating
period-to-period comparisons of the relative changes in average selling
prices in the actual various billing currencies. Generally, when the U.S.
dollar either strengthens or weakens against other currencies, the
percentage change in average selling prices in billing currencies will be
higher or lower, respectively, than such percentage changes would be using
actual exchange rates prevailing during the respective periods.
Valhi, Inc. is engaged in the titanium dioxide pigments, component
products (ergonomic computer support systems, precision ball bearing slides and
security products), titanium metals products and waste management industries.
* * * * *
VALHI, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME
(Unaudited)
(In millions, except earnings per share)
Three months ended Years ended
December 31, December 31,
------------------ -------------------
2003 2004 2003 2004
Net sales
Chemicals $245.7 $283.5 $1,008.2 $1,128.6
Component products 45.7 46.5 173.9 182.6
Waste management 1.1 2.3 4.1 8.9
------ ------ -------- --------
$292.5 $332.3 $1,186.2 $1,320.1
====== ====== ======== ========
Operating income
Chemicals $ 28.2 $ 19.3 $ 122.3 $ 103.5
Component products 2.4 3.7 9.1 16.2
Waste management (2.8) (2.9) (11.5) (10.2)
------ ------ -------- --------
Total operating income 27.8 20.1 119.9 109.5
Equity in:
TIMET 5.6 5.8 1.9 19.5
Other .1 (.3) .8 2.2
General corporate items, net:
Interest and dividend income 8.3 9.2 33.7 34.6
Securities transaction gains, net - 2.1 .5 2.1
Gain on disposal of fixed assets 1.8 - 10.3 .6
Legal settlement gains, net .1 - .8 .5
General expenses, net (9.3) (6.4) (64.0) (28.0)
Interest expense (14.7) (17.0) (58.5) (62.9)
------ ------ -------- --------
Income before income taxes 19.7 13.5 45.4 78.1
Provision for income taxes (benefit) 6.3 1.0 (8.5) (288.1)
Minority interest in after-tax earnings 2.3 2.6 12.1 57.5
------ ------ -------- --------
Income from continuing operations 11.1 9.9 41.8 308.7
Discontinued operations (.4) 3.3 (2.9) 3.7
Cumulative effect of change in accounting
principle - - .6 -
------ ------ -------- --------
Net income $ 10.7 $ 13.2 $ 39.5 $ 312.4
====== ====== ======== ========
VALHI, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
(In millions, except earnings per share)
Three months ended Years ended
December 31, December 31,
---------------------- ------------------------
2003 2004 2003 2004
---------------------- ------------------------
Basic earnings per share
Continuing operations $ .09 $ .08 $ .35 $ 2.57
Discontinued operations - .03 (.03) .03
Cumulative effect of change in accounting
principle - - .01 -
------ ------ ------ ------
Net income $ .09 $ .11 $ .33 $ 2.60
====== ====== ====== ======
Diluted earnings per share
Continuing operations $ .09 $ .08 $ .35 $ 2.56
Discontinued operations - .03 (.03) .03
Cumulative effect of change in accounting
principle - - .01 -
------ ------ ------ ------
Net income $ .09 $ .11 $ .33 $ 2.59
====== ====== ====== ======
Shares used in calculation of per share amounts
Basic earnings 120.2 120.2 119.7 120.2
====== ====== ====== ======
Diluted earnings 120.5 120.5 119.9 120.4
====== ====== ====== ======
VALHI, INC. AND SUBSIDIARIES
RECONCILIATION OF PERCENT CHANGE IN
KRONOS' AVERAGE TIO2 SELLING PRICES
(Unaudited)
Percent change- Percent change-
Three months ended Years ended
December 31, December 31,
2004 vs. 2003 2004 vs. 2003
--------------------------------------------------------
Percent change in average selling prices:
Using actual foreign currency exchange rates +8% +4%
Impact of changes in foreign currency
exchange rates -5% -6%
-- --
In billing currencies +3% -2%
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