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PRESS RELEASE
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FOR IMMEDIATE RELEASE CONTACT:
Valhi, Inc. Bobby D. O'Brien
Three Lincoln Centre Vice President
5430 LBJ Freeway, Suite 1700 (972) 233-1700
Dallas, Texas 75240-2697
(972) 233-1700
VALHI REPORTS THIRD QUARTER RESULTS
DALLAS, TEXAS . . November 8, 2006. Valhi, Inc. (NYSE: VHI) reported income
from continuing operations of $19.6 million, or $.17 per diluted share, in the
third quarter of 2006 compared to income of $13.4 million, or $.11 per diluted
share, in the third quarter of 2005. For the first nine months of 2006, Valhi
reported income from continuing operations of $60.8 million, or $.52 per diluted
share, compared to income of $66.8 million, or $.56 per diluted share, in the
first nine months of 2005.
Chemicals sales increased $39.5 million in the third quarter of 2006
compared to the third quarter of 2005, and increased $85.3 million in the first
nine months of 2006 compared to the same period in 2005, due principally to
higher TiO2 sales volumes, which increased 11% in both the quarter and
year-to-date periods. For each of the 2006 periods, higher sales volumes in the
United States, Europe and export markets more than offset the effect of lower
volumes in Canada. Kronos' TiO2 sales volumes in the first nine months of 2006
were a new record for Kronos. Also impacting chemicals sales comparisons were
fluctuations in foreign currency exchange rates, which increased TiO2 sales by
approximately $9 million in the quarter but decreased sales by approximately $11
million in the year-to-date period. In addition, Kronos' average TiO2 selling
prices were about 1% lower in the third quarter of 2006 as compared to the third
quarter of 2005; for the first nine months of 2006, Kronos' average TiO2 selling
prices approximated those of the first nine months of 2005. The following table
at the end of this press release shows how each of these items impacted the
overall increase in chemicals sales.
Chemicals operating income comparisons were favorably impacted by record
high TiO2 production volumes, which were 3% higher in both the quarter and
year-to-date periods. Kronos' TiO2 production facilities were operating at near
full capacity for both 2005 and 2006. Chemicals operating income comparisons
were negatively impacted by higher manufacturing costs, particularly raw
materials and energy costs, and by fluctuations in foreign currency exchange
rates, which decreased chemicals operating income by approximately $3 million
for the quarter and $18 million for the year-to-date period.
Component products sales increased in the third quarter and first nine
months of 2006 as compared to the same periods of 2005 due mainly to the net
effect of sales volumes generated from the August 2005 and April 2006
acquisitions of two marine component businesses, higher sales volumes of
security products due to improved demand and lower sales volumes for furniture
component products resulting from competition from lower-priced Asian
manufacturers. In addition, component products sales comparisons were favorably
impacted by fluctuations in foreign currency exchange rates, which increased
sales by approximately $265,000 in the quarter and $1.0 million in the first
nine months of the year. Component products operating income comparisons were
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favorably impacted by an improved product mix due to a decline in lower-margin
furniture components sales and an increase in sales of higher-margin security
and marine component products, as well as the favorable impact of a continuous
focus on reducing costs across all product lines. In addition, component
products operating income comparison were negatively impacted by fluctuations in
foreign currency exchange rates, which decreased operating income by
approximately $226,000 in the quarter and $1.2 million in the year-to-date
period.
Waste management sales increased, and the waste management operating loss
decreased, in the first nine months of 2006 as compared to the same period in
2005 as the Company obtained new customers and existing customers increased
their utilization of our waste management services.
During 2006, TIMET has benefit from significantly increased demand for
titanium from commercial aerospace and military sectors that has driven melted
and mill titanium prices to record levels. TIMET's sales increased from $190.0
million in the third quarter of 2005 to $271.8 million in the third quarter of
2006, and increased from $529.0 million in the first nine months of 2005 to
$859.6 million in the first nine months of this year. TIMET's operating income
also improved from $51.7 million to $84.6 million in the quarter, and from
$108.1 million to $273.3 million in the year-to-date period. TIMET's average
selling prices for melted and milled products in the third quarter of 2006
increased 68% and 37%, respectively, over the same period in 2005. For the first
nine months of 2006, these average selling prices increased 95% and 43%,
respectively. TIMET's sales volumes of mill products increased 7% in the third
quarter of 2006 as compared to the third quarter of 2005, while sales volumes of
TIMET's melted products declined 5%. In the year-to-date period, such sales
volumes were up 13% and 4%, respectively. TIMET's operating income comparisons
were favorably impacted by improved plant operating rates, which increased to
88% in the first nine months of 2006 from 78% in the first nine months of 2005.
TIMET's operating income comparisons were negatively impacted by higher costs
for raw materials, primarily titanium sponge and scrap, increased employee
compensation costs as a result of personnel added to support the expansion of
TIMET's business and certain relocation costs. TIMET's results in the first nine
months of 2005 include a second quarter pre-tax gain of $13.9 million ($2.6
million, or $.02 per diluted share, net of income taxes and minority interest to
Valhi) related to the sale of certain real property adjacent to TIMET's facility
in Nevada. TIMET's results in the first nine months of 2005 also include a $41.3
million income tax benefit ($11.1 million, or $.09 per diluted share, net of
minority interest to Valhi) related to the reversal of the valuation allowances
attributable to TIMET's deferred income tax assets in the U.S. and the U.K.
Net securities transactions gains in the first nine months of 2005 relate
principally to (i) NL's sale of shares of Kronos common stock in market
transactions of $14.7 million ($6.6 million, or $.05 per diluted share, net of
income taxes and minority interest) and (ii) a second quarter $5.4 million gain
($2.4 million, or $.02 per diluted share, net of income taxes and minority
interest) related to Kronos' sale of its passive interest in a Norwegian
smelting operation. Insurance recoveries represent NL's recovery from certain
former insurance carriers in settlements of claims related to certain
environmental, indemnity and past litigation defense costs. These net-of-tax
insurance recoveries aggregated $.01 per diluted share in each of the first nine
months of 2005 and 2006. The $22.3 million loss on prepayment of debt in 2006
($10.3 million, or $.09 per diluted share, net of income tax benefit and
minority interest) relates to Kronos' May 2006 redemption of its 8.875% Senior
Secured Notes.
The Company's effective income tax rate varies significantly from the U.S.
statutory federal income tax rate in 2006 due primarily to an aggregate net
income tax benefit of Kronos of $9.2 million ($6.6 million, or $.05 per diluted
share, net of minority interest) related to the net effect of the withdrawal of
certain income tax assessments previously made by the Belgian and Norwegian tax
authorities, the favorable resolution of certain income tax issues related to
Kronos' German and Belgian operations, the unfavorable resolution of certain
other income tax issues related to Kronos' German operations, an increase in
Kronos' income tax contingency reserve principally related to ongoing income tax
audits in Germany and the enactment of a reduction in the Canadian federal
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income tax rate. Such net $9.5 million income tax benefit includes a net income
tax benefit of $12.8 million recognized in the first six months of 2006, and a
net $3.3 million provision for income taxes ($2.3 million, or $.02 per diluted
share, net of minority interest) in the third quarter of the year. The Company's
provision for income taxes in 2005 includes a third quarter non-cash income tax
expense of $9.8 million ($6.0 million, or $.05 per diluted share, net of
minority interest) related to the aggregate effect of developments of certain
income tax audits of Kronos and NL and a change in CompX's permanent
reinvestment conclusion regarding certain of its non-U.S. subsidiaries.
The statements in this press 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 the Company's 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 Possible disruption of business or increases in the cost of doing
business resulting from terrorist activities or global conflicts,
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 timing and amount of insurance recoveries,
o The ability of the Company to renew or refinance credit facilities,
o The extent to which our subsidiaries were to become unable to pay
dividends,
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 currently forecasted or
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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.
Valhi, Inc. is engaged in the titanium dioxide pigments, component products
(security products, furniture components and performance marine components),
titanium metals products and waste management industries.
* * * * *
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VALHI, INC. AND SUBSIDIARIES
CONDENSED SUMMARY OF OPERATIONS
(Unaudited)
(In millions, except earnings per share)
Three months ended Nine months ended
September 30, September 30,
--------------------- ------------------------
2005 2006 2005 2006
------ ----- -------- -----
(unaudited)
Net sales
Chemicals $292.1 $331.6 $ 895.7 $ 981.0
Component products 47.1 48.8 139.7 146.0
Waste management 3.0 2.7 7.5 10.0
------ ------ -------- --------
Total net sales $342.2 $383.1 $1,042.9 $1,137.0
====== ====== ======== ========
Operating income
Chemicals $ 35.5 $ 32.0 $ 134.2 $ 98.5
Component products 4.9 6.2 13.8 17.0
Waste management (2.8) (2.4) (9.1) (6.1)
------ ------ -------- --------
Total operating income 37.6 35.8 138.9 109.4
Equity in:
TIMET 15.5 19.2 48.1 61.7
Other 2.6 4.6 2.4 2.6
General corporate items, net
Interest and dividend income 9.4 10.4 28.9 30.8
Securities transaction gains, net - .2 20.2 .4
Insurance recoveries 1.2 .1 2.4 2.9
General expenses, net (7.2) (10.5) (23.1) (25.5)
Loss on prepayment of debt - - - (22.3)
Interest expense (16.7) (15.8) (52.4) (51.8)
------ ------ -------- --------
Income before income taxes 42.4 44.0 165.4 108.2
Provision for income taxes 29.4 22.1 88.7 40.2
Minority interest in after-tax earnings (.4) 2.3 9.9 7.2
------ ------ -------- --------
Income from continuing operations 13.4 19.6 66.8 60.8
Discontinued operations, net of tax - - (.3) (.1)
------ ------ -------- --------
Net income $ 13.4 $ 19.6 $ 66.5 $ 60.7
====== ====== ======== ========
Basic and diluted earnings per share
Income from continuing operations $ .11 $ .17 $ .56 $ .52
Discontinued operations - - - -
------ ------ -------- --------
Net income $ .11 $ .17 $ .56 $ .52
====== ====== ======== ========
Shares used in calculation of per share amounts
Basic earnings 117.5 116.1 118.6 116.4
====== ====== ======== ========
Diluted earnings 117.9 116.5 119.0 116.8
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VALHI, INC. AND SUBSIDIARIES
IMPACT OF PERCENTAGE CHANGE IN CHEMICALS SALES
Three months ended Nine months ended
September 30, September 30,
2006 vs. 2005 2006 vs. 2005
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(unaudited)
Percent change in sales:
TiO2 product pricing (1)% - %
TiO2 sales volumes 11 % 11 %
TiO2 product mix 1 % - %
Changes in foreign currency exchange rates 3 % (1)%
---- ----
Total 14 % 10 %
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