NL Industries, Inc. Contact: Gregory M. Swalwell
Three Lincoln Centre Vice President, Finance and
5430 LBJ Freeway, Suite 1700 Chief Financial Officer
Dallas, TX 75240-2697 (972) 233-1700
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News Release
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FOR IMMEDIATE RELEASE
[LOGO GOES HERE]
NL REPORTS THIRD QUARTER RESULTS
DALLAS, TEXAS - November 6, 2006 - NL Industries, Inc. (NYSE:NL) today reported
income from continuing operations of $3.1 million, or $.06 per diluted share, in
the third quarter of 2006 compared to income of $2.8 million, or $.06 per
diluted share, in the third quarter of 2005. For the first nine months of 2006,
NL reported income from continuing operations of $12.7 million, or $.26 per
diluted share, compared to income of $27.5 million, or $.57 per diluted share,
in the first nine months of 2005.
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 effects of
sales volumes generated from the August 2005 and April 2006 acquisitions of two
marine components businesses, higher sales volume of security products customers
due to improved demand and lower sales volumes from furniture components
products resulting from competition from lower-priced Asian manufacturers. In
addition, component products sales 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 compared to
the same periods in 2005. Component products income from operations comparisons
were favorably impacted by an improved product mix due to a decline in
lower-margin furniture component 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 income from operations comparisons were negatively impacted
by fluctuations in foreign currency exchange rates, which decreased income from
operations by approximately $226,000 in the quarter and $1.2 million in the
year-to-date period.
Kronos' 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. Net sales increased in the third
quarter of 2006 primarily due to higher TiO2 sales volumes and the favorable
effect of fluctuations in foreign currency exchange rates, which increased sales
by approximately $9 million, partially offset by lower average TiO2 selling
prices. For the year-to-date period, net sales increased due to higher TiO2
sales volumes, partially offset by the unfavorable effect of fluctuations in
foreign currency exchange rates, which decreased sales by approximately $11
million. Kronos' average TiO2 selling prices in the first nine months of 2006
approximated those of the first nine months of 2005. The table at the end of
this release shows how each of these items impacted the overall increase in TiO2
sales.
The increase in Kronos' TiO2 sales volumes in 2006 was attributable primarily to
higher sales volumes in the United States, Europe and in export markets, which
were somewhat offset by lower sales volumes in Canada. Operating income
comparisons were favorably impacted by higher TiO2 production volumes, which
were 3% higher in both the third quarter and first nine months of 2006 as
compared to the same periods in 2005. Kronos' TiO2 production facilities
operated at near-full capacity in all periods. Both TiO2 sales and production
volumes set records for Kronos in the first nine months of 2006. Kronos' income
from operations comparison was negatively impacted by higher manufacturing
costs, particularly raw materials and energy costs, and by fluctuations in
foreign currency exchange rates, which decreased Kronos' income from operations
by approximately $3 million for the quarter and $18 million for the year-to-date
period.
Kronos recognized a $22.3 million pre-tax charge in the second quarter of 2006
related to the early redemption of its 8.875% Senior Secured Notes (NL's equity
interest, net of tax benefit, was $3.4 million, or $.07 per diluted share, net
of tax benefit). In April 2006 Kronos' wholly-owned subsidiary, Kronos
International, Inc. ("KII") issued an aggregate principal amount of euro 400
million new 6.5% Senior Secured Notes due April 2013. KII used the proceeds from
the issuance of the 6.5% Senior Secured Notes to redeem all of its 8.875% Senior
Secured Notes in May 2006 at 104.437% of the aggregate principal amount of euro
375 million. In the second quarter of 2005, Kronos recognized a $5.4 million
gain (NL's equity interest, net of income taxes, was $.8 million, or $.02 per
diluted share) related to the sale of its passive interest in a Norwegian
smelting operation.
In the first nine months of 2006, Kronos recognized an aggregate $9.2 million
income tax benefit (NL's equity interest was $2.1 million after tax, or $.04 per
diluted share) related to the net effects of the withdrawal of certain income
tax assessments previously made by the Belgian and Norwegian tax authorities,
favorable developments with respect to certain income tax issues in Belgium and
Germany, the unfavorable resolution of certain other income tax issues in
Germany, 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 income tax rate. In the first nine months of 2005,
Kronos recognized a net provision for income taxes of $5.0 million (NL's equity
interest was $1.2 million after tax, or $.02 per diluted share) related to the
effect of developments of certain of its non-U.S. income tax audits.
Securities transactions gains in 2005 relate principally to a $14.7 million gain
($8.0 million, or $.17 per diluted share, net of income taxes) related to the
Company's sale of shares of Kronos common stock in market transactions.
Insurance recoveries in the first nine months of 2006 of $2.9 million ($1.9
million or $.04 per diluted share, net of tax) represent NL's recovery from
certain former insurance carriers in settlement of claims related to certain
environmental, indemnity and past litigation defense costs. NL had insurance
recoveries in the first nine months of 2005 of $2.4 million ($1.6 million or
$.03 per diluted share, net of tax).
Corporate expenses were higher in the third quarter and first nine months of
2006 as compared to the same periods of 2005 due to higher environmental and
legal expenses.
The Company's provision for income taxes in the third quarter of 2005 includes a
net $4.8 million provision for income taxes ($.10 per diluted share) related to
the net effects of a change in CompX's permanent reinvestment conclusion
regarding certain of its non-U.S. subsidiaries and favorable developments with
respect to certain of the Company's income tax audits.
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 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 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 the Company's subsidiaries were to become unable to pay
dividends to the Company,
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
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 accounting principles generally
accepted in the United States of America ("GAAP"), the Company has disclosed
certain non-GAAP information, which the Company believes provides useful
information to investors:
o The Company discloses segment profit, which is used by the Company's
management to assess the performance of its component products
operations. The Company believes disclosure of segment profit provides
useful information to investors because it allows investors to analyze
the performance of the Company's operations in the same way that the
Company's management assesses performance. The Company defines segment
profit as income before income taxes, interest expense and certain
general corporate items. Corporate items excluded from the
determination of segment profit include corporate expense and interest
income not attributable to the Company's operations.
NL Industries, Inc. is engaged in the component products (security products,
furniture components and performance marine components), chemicals (titanium
dioxide pigments) and other businesses.
NL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except earnings per share)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
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2005 2006 2005 2006
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Net sales $ 47.1 $ 48.8 $ 139.7 $ 146.0
Cost of sales 36.1 35.9 107.9 109.2
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Gross margin 11.0 12.9 31.8 36.8
Selling, general and administrative expense 6.0 6.7 18.0 19.8
Other operating income (expense):
General corporate expenses, net (4.0) (7.7) (13.9) (18.3)
Insurance recoveries 1.2 .1 2.4 2.9
Other, net - .1 .2 -
----------- ----------- ----------- ---------
Income (loss) from operations 2.2 (1.3) 2.5 1.6
General corporate items:
Interest and dividend income from affiliates .7 .5 1.9 1.4
Other interest income .8 .9 2.5 2.7
Securities transactions gains, net (.1) .1 14.6 .1
Interest expense (.1) (.1) (.3) (.1)
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3.5 .1 21.2 5.7
Equity in earnings of Kronos Worldwide, Inc. 2.8 4.1 22.4 14.4
----------- ----------- ----------- ---------
Income from continuing operations before
income taxes and minority interest 6.3 4.2 43.6 20.1
Provision for income taxes 5.4 - 16.5 4.4
Minority interest in after-tax earnings (losses) (1.9) 1.1 (.4) 3.0
----------- ----------- ----------- ---------
Income from continuing operations 2.8 3.1 27.5 12.7
Discontinued operations, net - - (.3) (.2)
----------- ----------- ----------- ---------
Net income $ 2.8 $ 3.1 $ 27.2 $ 12.5
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Basic and diluted net income per share $ .06 $ .06 $ .56 $ .26
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Weighted-average shares used in the
calculation of earnings per share:
Basic shares 48.6 48.6 48.5 48.6
Dilutive impact of stock options - - .1 -
----------- ----------- ----------- ---------
Diluted shares $ 48.6 $ 48.6 $ 48.6 $ 48.6
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NL INDUSTRIES, INC.
RECONCILIATION OF SEGMENT PROFIT TO
INCOME FROM OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------
--------------------------------------------------
2005 2006 2005 2006
--------------------------------------------------
--------------------------------------------------
Segment profit - component products $ 4.8 $ 6.2 $ 13.6 $ 16.8
Insurance recoveries 1.2 .1 2.4 2.9
Corporate expense (4.0) (7.7) (13.9) (18.3)
Other, net .2 .1 .4 .2
--------- --------- --------- ---------
Income from operations $ 2.2 $ (1.3) $ 2.5 $ 1.6
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NL INDUSTRIES, INC.
CHANGE IN KRONOS' TiO2 SALES
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2006 vs. 2005 2006 vs. 2005
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Percentage change in sales:
TiO2 product pricing (1)% -
TiO2 sales volume 11 % 11 %
TiO2 product mix 1 % -
Changes in foreign currency exchange rates 3 % (1)%
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Total 14 % 10 %
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