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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required) - For the fiscal year ended December 31, 1994
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.)
16825 Northchase Drive, Suite 1200, Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 423-3300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock ($.125 par value) New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of February 28, 1995, 51,052,443 shares of common stock were outstanding.
The aggregate market value of the 15,091,253 shares of voting stock held by
nonaffiliates as of such date approximated $179 million.
Documents incorporated by reference:
The information required by Part III is incorporated by reference from the
registrant's definitive proxy statement to be filed with the Commission pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
PART I
ITEM 1. BUSINESS
GENERAL
NL Industries, Inc., organized as a New Jersey corporation in 1891, conducts its
operations through its principal wholly-owned subsidiaries, Kronos, Inc. and
Rheox, Inc. Valhi, Inc. and Tremont Corporation, each affiliates of Contran
Corporation, hold 52% and 18%, respectively, of NL's outstanding common stock.
Contran holds, directly or through subsidiaries, approximately 90% of Valhi's
and 44% of Tremont's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons of which Mr. Simmons is the sole
trustee. Mr. Simmons, the Chairman of the Board of NL and the Chairman of the
Board, President and Chief Executive Officer of each of Contran and Valhi and a
director of Tremont, may be deemed to control each of such companies. NL and
its consolidated subsidiaries are sometimes referred to herein collectively as
the "Company".
Kronos is the world's fourth largest producer of titanium dioxide pigments
("TiO2") with an estimated 11% share of the worldwide market. Approximately
one-half of Kronos' 1994 sales volume was in Europe, where Kronos is the second
largest producer of TiO2. Kronos accounted for 87% of the Company's sales and
72% of its operating income in 1994. Rheox is the world's largest producer of
rheological additives for solvent-based systems, supplying an estimated 40% of
the worldwide market.
The Company's objectives are to (i) focus on continued cost control, (ii)
deleverage during the current up cycle and (iii) invest in certain cost
effective debottlenecking projects to increase TiO2 production capacity.
KRONOS
INDUSTRY
Titanium dioxide pigments are chemical products used for imparting whiteness,
brightness and opacity to a wide range of products, including paints, paper,
plastics, fibers and ceramics. TiO2 is considered to be a "quality-of-life"
product with demand affected by the gross domestic product in various regions of
the world.
Demand, supply and pricing of TiO2 have historically been cyclical. The last
cyclical peak for TiO2 prices occurred in early 1990 with a cyclical low point
reached in the third quarter of 1993. The Company's average selling prices for
TiO2 began an upward trend during 1994 and prices at the end of 1994 were about
10% higher than the 1993 low point, but were still approximately 26% below those
of the last cyclical peak in 1990.
The Company believes that the TiO2 industry has significant long-term
potential. During the early 1990s, the TiO2 industry operated at lower
capacity utilization levels relative to the high utilization levels
prevalent during the late 1980s, in part because of the slow recovery from
the worldwide recession but primarily due to the impact of capacity
additions since the late 1980s. The Company expects that the TiO2 industry
will recover more slowly compared with the previous recovery in the late
1980s, primarily because of the more gradual nature of recent growth of the
worldwide economy and the impact of capacity additions since the late
1980s. Recent improvements in economic growth rates have resulted in
increased demand for TiO2. Industry capacity utilization, which the Company
believes was less than 90% during 1990 through 1993, was about 92% in 1994
and is continuing to rise due to improved demand.
Kronos has an estimated 18% share of European TiO2 sales and an estimated 9%
share of U.S. TiO2 sales. Consumption per capita in the United States and
Western Europe far exceeds that in other areas of the world and these regions
are expected to continue to be the largest geographic markets for TiO2
consumption. If the economies in Eastern Europe, the Far East and China
continue to develop, a significant market for TiO2 could emerge in those
countries and Kronos believes that it is well positioned to participate in
growth in the Eastern European market. Geographic segment information is
contained in Note 3 to the Consolidated Financial Statements.
PRODUCTS AND OPERATIONS
The Company believes that there are no effective substitutes for TiO2. However,
extenders such as kaolin clays, calcium carbonate and polymeric opacifiers are
used in a number of Kronos' markets. Generally, extenders are used to reduce to
some extent the utilization of higher cost TiO2. The use of extenders has not
significantly affected TiO2 consumption over the past decade because extenders
generally have, to date, failed to match the performance characteristics of
TiO2. The Company believes that the use of extenders will not materially alter
the growth of the TiO2 business in the foreseeable future.
Kronos currently produces over 40 different TiO2 grades, sold under the Kronos
and Titanox trademarks, which provide a variety of performance properties to
meet customers' specific requirements. Kronos' major customers include
international paint, paper and plastics manufacturers.
Kronos is one of the world's leading producers and marketers of TiO2. Kronos
and its distributors and agents sell and provide technical services for its
products to over 5,000 customers with the majority of sales in Europe, the
United States and Canada.
Kronos' international operations are conducted through Kronos International,
Inc. ("KII"), a German-based holding company formed in 1989 to manage and
coordinate the Company's manufacturing operations in Germany, Canada, Belgium
and Norway, and its sales and marketing activities in over 100 countries
worldwide. The Company believes that KII's structure allows it to capitalize on
expertise and technology developed in Germany over a 60-year period.
Kronos and its predecessors have produced and marketed TiO2 in North America and
Europe for over 70 years. As a result, Kronos believes that it has developed
considerable expertise and efficiency in the manufacture, sale, shipment and
service of its products in domestic and international markets. By volume, one-
half of Kronos' 1994 TiO2 sales were to Europe, with 36% to North America and
the balance to export markets.
Kronos is also engaged in the mining and sale of ilmenite ore (a raw material
used in the sulfate pigment production process), and the manufacture and sale of
iron-based water treatment chemicals (derived from co-products of the pigment
production processes). Water treatment chemicals are used as treatment and
conditioning agents for industrial effluents and municipal wastewater and in the
manufacture of iron pigments.
MANUFACTURING PROCESS AND RAW MATERIALS
TiO2 is manufactured by Kronos using either the chloride or sulfate pigment
production process. Although most end-use applications can use pigments
produced by either process, chloride process pigments are generally preferred in
certain segments of the coatings and plastics applications, and sulfate process
pigments are generally preferred for paper, fibers and ceramics applications.
Due to environmental factors and customer considerations, the proportion of TiO2
industry sales represented by chloride process pigments has increased relative
to sulfate process pigments in the past few years. Approximately two-thirds of
Kronos' current production capacity is based on an efficient chloride process
technology.
Kronos produced 357,000 metric tons of TiO2 in 1994, compared to 352,000 metric
tons in 1993 and 358,000 metric tons in 1992. Kronos believes its annual
attainable production capacity is approximately 380,000 metric tons, including
its one-half interest in the joint venture-owned Louisiana plant (see "TiO2
manufacturing joint venture"). The Company plans to spend $25 million in
capital expenditures over the next three years for a debottlenecking project at
its Leverkusen, Germany chloride process plant that is expected to increase the
Company's annual attainable production capacity by 20,000 metric tons to
approximately 400,000 tons in 1997.
The primary raw materials used in the TiO2 chloride production process are
chlorine, coke and titanium-containing feedstock derived from beach sand
ilmenite and rutile. Chlorine and coke are available from a number of
suppliers. Titanium-containing feedstock suitable for use in the chloride
process is available from a limited number of suppliers around the world,
principally in Australia, Africa, India and the United States. Kronos purchases
slag refined from beach sand ilmenite from Richards Bay Iron and Titanium
(Proprietary) Ltd. (South Africa), approximately 50% of which is owned by Q.I.T.
Fer et Titane Inc. ("QIT"), an indirect subsidiary of RTZ Corp. Natural rutile
ore is purchased primarily from suppliers located in Australia and Africa.
The primary raw materials used in the TiO2 sulfate production process are
sulfuric acid and titanium-containing feedstock derived primarily from rock and
beach sand ilmenite. Sulfuric acid is available from a number of suppliers.
Titanium-containing feedstock suitable for use in the sulfate process is
available from a limited number of suppliers around the world. Currently, the
principal active sources are located in Norway, Canada, Australia, India and
South Africa. As one of the few vertically-integrated producers of sulfate
process pigments, Kronos operates a rock ilmenite mine near Hauge i Dalane,
Norway, which provided all of Kronos' feedstock for its European sulfate process
pigment plants in 1994. Kronos' mine is also a commercial source of rock
ilmenite for other sulfate process producers in Europe. The Company believes it
supplies nearly 40% of the Western European demand, including the Company, for
sulfate feedstock. Kronos also purchases sulfate grade slag under contracts
negotiated annually with QIT and Tinfos Titanium and Iron K/S.
Kronos believes the availability of titanium-containing feedstock for both the
chloride and sulfate processes is adequate in the near term; however, tightening
supplies for the chloride process may be encountered in the late 1990s. Kronos
does not anticipate experiencing any interruptions of its raw material supplies.
TIO2 MANUFACTURING JOINT VENTURE
In October 1993, Kronos formed a manufacturing joint venture with Tioxide Group,
Ltd., a wholly-owned subsidiary of Imperial Chemicals Industries PLC
("Tioxide"). The joint venture, which is equally owned by subsidiaries of
Kronos and Tioxide (the "Partners"), owns and operates the Louisiana chloride
process TiO2 plant formerly owned by Kronos. Production from the plant is
shared equally by Kronos and Tioxide pursuant to separate offtake agreements.
A supervisory committee, composed of four members, two of whom are appointed by
each Partner, directs the business and affairs of the joint venture, including
production and output decisions. Two general managers, one appointed and
compensated by each Partner, manage the day-to-day operations of the joint
venture acting under the direction of the supervisory committee.
The manufacturing joint venture is intended to be operated on a break-even basis
and, accordingly, Kronos' transfer price for its share of the TiO2 produced is
equal to its share of the joint venture's production costs and interest expense.
Kronos' share of the production costs are reported as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the joint
venture's interest expense is reported as a component of interest expense.
COMPETITION
The TiO2 industry is highly competitive. During the late 1980s worldwide demand
approximated available supply and the major producers, including Kronos, were
operating at or near available capacity and customers generally were served on
an allocation basis. During the early 1990s, supply exceeded demand, primarily
due to new chloride process capacity coming on-stream. Relative supply/demand
relationships, which had a favorable impact on industry-wide prices during the
late 1980s, had a negative impact during the recent downward cycle. During
1994, demand growth resulting from improved economic conditions, coupled with
limited capacity increases, improved industry capacity utilization to about 92%
and resulted in increases in worldwide prices. During the last upturn cycle,
which ended in early 1990, peak average TiO2 prices were about 70% higher than
the previous trough.
New plant capacity additions in the worldwide TiO2 market are slow to develop
because of the significant capital expenditures and substantial lead time
(typically three to five years in the Company's experience) for, among other
things, planning, obtaining environmental approvals and construction.
Kronos competes primarily on the basis of price, product quality and technical
service, and the availability of high performance pigment grades. Although
certain TiO2 grades are considered specialty pigments, the majority of grades
and substantially all of Kronos' production are considered commodity pigments
with price generally being the most significant competitive factor. Kronos has
an estimated worldwide TiO2 market share of 11%, and believes that it is the
leading marketer of TiO2 in a number of countries, including Germany and Canada.
Kronos' principal competitors are E.I. du Pont de Nemours & Co. ("DuPont");
Imperial Chemical Industries PLC (Tioxide); Hanson PLC (SCM Chemicals); Kemira
Oy; Ishihara Sangyo Kaisha, Ltd.; Bayer AG; Thann et Mulhouse; and Kerr-McGee
Corporation. These eight competitors have estimated individual worldwide market
shares ranging from 4% to 21%, and an estimated aggregate 74% share. DuPont has
over one-half of total U.S. TiO2 production capacity and is Kronos' principal
North American competitor.
Kronos has completed a major environmental protection and improvement program
that commenced in the early 1980s to replace or modify its TiO2 production
facilities for compliance with various environmental laws by their respective
effective dates. All of Kronos' plants now use either the low waste-yielding
chloride process, or the sulfate process with reprocessing or neutralization of
waste acid. Although these upgrades increased operating costs, they are
expected to reduce future capital expenditures that Kronos would otherwise need
to incur as environmental standards are increased. See "Regulatory and
Environmental Matters".
RHEOX
PRODUCTS AND OPERATIONS
Rheological additives control the flow and leveling characteristics for a
variety of products, including paints, inks, lubricants, sealants, adhesives and
cosmetics. Organoclay rheological additives are clays which have been
chemically reacted with organic chemicals and compounds. Rheox produces
rheological additives for both solvent-based and water-based systems. Rheox
believes it is the world's largest producer of rheological additives for
solvent-based systems, supplying approximately 40% of the worldwide market, and
is also a supplier of rheological additives used in water-based systems.
Rheological additives for solvent-based systems accounted for 84% of Rheox's
sales in 1994, with the remainder being principally rheological additives for
water-based systems. Rheox introduced a number of new products during the past
three years, many of which are for water-based systems, which currently
represent a larger portion of the market than solvent-based systems. As a
result, the portion of Rheox's sales representing additives for water-based
systems has increased from 10% to 16% during the past few years. The Company
believes water-based additives will account for an increasing portion of the
market in the long term. Rheox also focused on product development for
environmental applications with new products introduced for non-volatile
additives in both water-based and solvent-based coatings.
Sales of rheological additives generally follow overall economic growth in
Rheox's principal markets and are influenced by the volume of shipments of the
worldwide coatings industry. Since Rheox's rheological additives are used in
industrial coatings, plant and equipment spending has an influence on demand for
this product line.
MANUFACTURING PROCESS AND RAW MATERIALS
The primary raw materials utilized in the production of rheological additives
are bentonite clays, hectorite clays, quaternary amines, polyethylene waxes and
castor oil derivatives. Bentonite clays are currently purchased under a three-
year contract, renewable through 2004, with a subsidiary of Dresser Industries,
Inc. ("Dresser"), which has significant bentonite reserves in Wyoming. This
contract assures Rheox the right to purchase its anticipated requirements of
bentonite clays for the foreseeable future, and Dresser's reserves are believed
to be sufficient for such purpose. Hectorite clays are mined from Company-owned
reserves in Newberry Springs, California, which the Company believes are
adequate to supply its needs for the foreseeable future. The Newberry Springs
ore body contains the largest known commercial deposit of hectorite clays in the
world. Quaternary amines are purchased primarily from a joint venture company
50%-owned by Rheox and are also generally available on the open market from a
number of suppliers. Castor oil-based rheological additives are purchased from
sources in the United States and abroad. Rheox has a supply contract with a
manufacturer of these products which may not be terminated without 180 days
notice by either party.
COMPETITION
Competition in the specialty chemicals industry is generally concentrated in the
areas of product uniqueness, quality and availability, technical service,
knowledge of end-use applications and price. Rheox's principal competitors for
rheological additives for solvent-based systems are Laporte PLC and Sud-Chemie
AG. Rheox's principal competitors for water-based systems are Rohm and Haas
Company, Hercules Incorporated, The Dow Chemical Company and Union Carbide
Corporation.
RESEARCH AND DEVELOPMENT
The Company's annual expenditures for research and development and technical
support programs have averaged approximately $10 million annually during the
past three years with Kronos accounting for approximately three-quarters of the
annual spending. Research and development activities related to TiO2 are
conducted principally at the Leverkusen, Germany facility. Such activities are
directed primarily toward improving both the chloride and sulfate production
processes, improving product quality and strengthening Kronos' competitive
position by developing new pigment applications. Activities relating to
rheological additives are conducted primarily in the United States and are
directed towards the development of new products for water-based systems,
environmental applications and new end-use applications for existing product
lines.
PATENTS AND TRADEMARKS
Patents held for products and production processes are believed to be important
to the Company and contribute to the continuing business activities of Kronos
and Rheox. The Company continually seeks patent protection for its technical
developments, principally in the United States, Canada and Europe, and from time
to time enters into licensing arrangements with third parties. In connection
with the formation of the manufacturing joint venture with Tioxide, Kronos and
certain of its subsidiaries exchanged proprietary chloride process and product
technologies with Tioxide and certain of its affiliates. Use by each recipient
of the other's technology in Europe is restricted until October 1996. See
"Kronos - TiO2 manufacturing joint venture".
The Company's major trademarks, including Kronos, Titanox and Rheox, are
protected by registration in the United States and elsewhere with respect to
those products it manufactures and sells.
FOREIGN OPERATIONS
The Company's chemical businesses have operated in international markets since
the 1920s. Most of Kronos' current production capacity is located in Europe and
Canada, and approximately one-third of Rheox's sales in the past three years
have been attributable to European production. Approximately three-quarters of
the Company's 1994 consolidated sales were attributable to non-U.S. customers,
including 13% attributable to customers in areas other than Europe and Canada.
Foreign operations are subject to, among other things, currency exchange rate
fluctuations and the Company's results of operations have in the past been both
favorably and unfavorably affected by fluctuations in currency exchange rates.
Effects of fluctuations in currency exchange rates on the Company's results of
operations are discussed in Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Political and economic uncertainties in certain of the countries in which the
Company operates may expose it to risk of loss. The Company does not believe
that there is currently any likelihood of material loss through political or
economic instability, seizure, nationalization or similar event. The Company
cannot predict, however, whether events of this type in the future could have a
material effect on its operations. The Company's manufacturing and mining
operations are also subject to extensive and diverse environmental regulation in
each of the foreign countries in which they operate. See "Regulatory and
Environmental Matters".
CUSTOMER BASE AND SEASONALITY
The Company believes that neither its aggregate sales nor those of any of its
principal product groups are concentrated in or materially dependent upon any
single customer or small group of customers. Neither the Company's business as
a whole nor that of any of its principal product groups is seasonal to any
significant extent. Due in part to the increase in paint production in the
spring to meet the spring and summer painting season demand, TiO2 sales are
generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters. Sales of rheological additives are influenced by the
worldwide industrial protective coatings industry, where second calendar quarter
sales are generally the strongest.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 3,100 persons (down
from approximately 3,200 at December 31, 1993), excluding the joint venture
employees, with approximately 400 employees in the United States and
approximately 2,700 at sites outside the United States. Hourly employees in
production facilities worldwide are represented by a variety of labor unions,
with labor agreements having various expiration dates. The Company believes its
labor relations are good.
REGULATORY AND ENVIRONMENTAL MATTERS
Certain of the Company's businesses are and have been engaged in the handling,
manufacture or use of substances or compounds that may be considered toxic or
hazardous within the meaning of applicable environmental laws. As with other
companies engaged in similar businesses, certain past and current operations and
products of the Company have the potential to cause environmental or other
damage. The Company has implemented and continues to implement various policies
and programs in an effort to minimize these risks. The policy of the Company is
to achieve compliance with applicable environmental laws and regulations at all
its facilities and to strive to improve its environmental performance. It is
possible that future developments, such as stricter requirements of
environmental laws and enforcement policies thereunder, could adversely affect
the Company's production, handling, use, storage, transportation, sale or
disposal of such substances.
The Company's U.S. manufacturing operations are governed by federal
environmental and worker health and safety laws and regulations, principally the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Toxic
Substances Control Act and the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), as well as the state counterparts of these
statutes. The Company believes that all of its U.S. plants and the Louisiana
plant owned and operated by the joint venture are in substantial compliance with
applicable requirements of these laws. From time to time, the Company's
facilities may be subject to environmental regulatory enforcement under such
statutes. Resolution of such matters typically involves the establishment of
compliance programs. Occasionally, resolution may result in the payment of
penalties, but to date such penalties have not involved amounts having a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
The Company's European and Canadian production facilities operate in an
environmental regulatory framework in which governmental authorities typically
are granted broad discretionary powers which allow them to issue operating
permits required for the plants to operate. The Company believes that all its
plants are in substantial compliance with applicable environmental laws.
While the laws regulating operations of industrial facilities in Europe vary
from country to country, a common regulatory denominator is provided by the
European Union (the "EU"). Germany, Belgium and the United Kingdom, members of
the EU, follow the initiatives of the EU. Norway, although not a member,
generally patterns its environmental regulatory actions after the EU. The
Company believes that Kronos is in substantial compliance with agreements
reached with European environmental authorities and with an EU directive to
control the effluents produced by TiO2 production facilities. The Company
believes that Rheox is in substantial compliance with the environmental
regulations in Germany and the United Kingdom.
In order to reduce sulfur dioxide emissions into the atmosphere, Kronos is
currently installing off-gas desulfurization systems at its German and Norwegian
plants at an estimated cost of $32 million and expects to complete the systems
in 1996. Kronos intends to install a $10 million off-gas desulfurization system
at its Belgian plant by 1998. The manufacturing joint venture has installed a
$17 million off-gas desulfurization system at the Louisiana plant which
commenced operation in early 1995. In addition, Kronos expects to complete an
$11 million water treatment chemical purification project at its Leverkusen,
Germany facility in 1996.
Kronos' ilmenite mine near Hauge i Dalane had a permit for the offshore disposal
of tailings through February 1994. In February 1994, Kronos completed an
onshore disposal system to replace the offshore disposal of tailings.
The Quebec provincial government has environmental regulatory authority over
Kronos' Canadian chloride and sulfate process TiO2 production facilities in
Varennes, Quebec. The provincial government regulates discharges into the St.
Lawrence River. In May 1992, the Quebec provincial government extended Kronos'
right to discharge effluents from its Canadian sulfate process TiO2 plant into
the St. Lawrence River until June 1994. Kronos completed a new $25 million
waste acid neutralization facility and discontinued discharging waste acid
effluents into the St. Lawrence River in June 1994. Notwithstanding the above-
described agreement, in March 1993 Kronos' Canadian subsidiary and two of its
directors were charged by the Canadian federal government with five violations
of the Canadian Fisheries Act relating to discharges into the St. Lawrence River
from the Varennes sulfate process TiO2 production facility. The penalty for
these violations, if proven, could be up to Canadian $15 million. Additional
charges, if brought, could involve additional penalties. The Company has moved
to dismiss the case. The Company believes that this charge is inconsistent with
the extension granted by provincial authorities, referred to above.
The Company's future capital expenditures related to its ongoing environmental
protection and improvement program are currently expected to be approximately
$57 million, including $33 million in 1995.
The Company has been named as a defendant, potentially responsible party
("PRP"), or both, pursuant to CERCLA and similar state laws, in approximately 80
governmental enforcement and private actions associated with waste disposal
sites and facilities currently or previously owned, operated or used by the
Company, many of which are on the U.S. Environmental Protection Agency's
Superfund National Priorities List or similar state lists. See Item 3 - "Legal
Proceedings".
ITEM 2. PROPERTIES
Kronos currently operates four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany; Langerbrugge, Belgium; and Fredrikstad, Norway). In North
America, Kronos has a facility in Varennes, Quebec, Canada and, through the
manufacturing joint venture described above, a one-half interest in a plant in
Lake Charles, Louisiana which commenced production in 1992. Certain of the
Company's properties collateralize long-term debt agreements. See Note 10 to
the Consolidated Financial Statements.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement, which expired in 1991 and to which an extension
through 2011 has been agreed in principle, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the Leverkusen facility. Kronos and the lessor are continuing
discussions regarding a definitive agreement for the extension of the supplies
and services agreement. Both the lease and the supplies and services agreement
restrict Kronos' ability to transfer ownership or use of the Leverkusen
facility.
All of Kronos' principal production facilities described above are owned, except
for the land under the Leverkusen facility. Kronos has a governmental
concession with an unlimited term to operate its ilmenite mine in Norway.
Specialty chemicals are produced by Rheox at facilities in Charleston, West
Virginia; Newberry Springs, California; St. Louis, Missouri; Livingston,
Scotland and Nordenham, Germany. All of such production facilities are owned.
ITEM 3. LEGAL PROCEEDINGS
LEAD PIGMENT LITIGATION
The Company was formerly involved in the manufacture of lead pigments for use in
paint and lead-based paint. The Company has been named as a defendant or third
party defendant in various legal proceedings alleging that the Company and other
manufacturers are responsible for personal injury and property damage allegedly
associated with the use of lead pigments. The Company is vigorously defending
such litigation. Considering the Company's previous involvement in the lead
pigment and lead-based paint businesses, there can be no assurance that
additional litigation, similar to that described below, will not be filed. In
addition, various legislation and administrative regulations have, from time to
time, been enacted or proposed that seek to (a) 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
(b) effectively overturn court decisions in which the Company and other pigment
manufacturers have been successful. One such bill that would subject lead
pigment manufacturers to civil liability for damages caused by lead-based paint
on the basis of market share, and that extends certain statutes of limitations,
passed the Massachusetts House of Representatives in 1993. The same bill,
reintroduced in the Massachusetts legislature in 1994 and defeated in the House
of Representatives, was again reintroduced in 1995. No legislation or
regulations have been enacted to date which are expected to have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity. The Company has not accrued any amounts for the
pending lead pigment litigation. Although no assurance can be given that the
Company will not incur future liability in respect of this litigation, based on,
among other things, the results of such litigation to date, the Company believes
that the pending lead pigment litigation is without merit. Liability, if any,
that may result is not reasonably capable of estimation.
In 1989 and 1990, the Housing Authority of New Orleans ("HANO") filed third-
party complaints for indemnity and/or contribution against the Company, other
alleged manufacturers of lead pigment (together with the Company, the "pigment
manufacturers") and the Lead Industries Association (the "LIA") in 14 actions
commenced by residents of HANO units seeking compensatory and punitive damages
for injuries allegedly caused by lead pigment. The actions in the Civil
District Court for the Parish of Orleans, State of Louisiana were dismissed by
the district court in 1990. Subsequently, HANO agreed to consolidate all the
cases and appealed eleven of them. In March 1992, the Louisiana Court of
Appeals, Fourth Circuit, dismissed HANO's appeal as untimely with respect to
three of these cases. With respect to the other eight cases included in the
appeal, the court of appeals reversed the lower court decision dismissing the
cases due to inadequate pleading of facts. These eight cases have been remanded
to the district court for further proceedings. In November 1994, the district
court granted defendants' motion for summary judgment in one of the eight
remaining cases.
In December 1991, the Company received a copy of a complaint filed in the Civil
District Court for the Parish of Orleans seeking indemnification and/or
contribution against the Company and eight other defendants for approximately
$4.5 million in settlements paid to HANO residents (Housing Authority of New
Orleans v. Hoechst Celanese Corp., et al., No. 91-28067). These claims appear
to be based upon the same theories which HANO had previously filed. The Company
has not been served.
In June 1989, a complaint was filed in the Supreme Court of the State of New
York, County of New York, against the pigment manufacturers and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess of
$50 million for monitoring and abating alleged lead paint hazards in public and
private residential buildings, diagnosing and treating children allegedly
exposed to lead paint in city buildings, the costs of educating city residents
to the hazards of lead paint, and liability in personal injury actions against
the City and the Housing Authority based on alleged lead poisoning of city
residents (The City of New York, the New York City Housing Authority and the New
York City Health and Hospitals Corp. v. Lead Industries Association, Inc., et
al., No. 89-4617). In December 1991, the court granted the defendants' motion
to dismiss claims alleging negligence and strict liability and denied the
remainder of the motion. In January 1992, defendants appealed the denial. The
Company has answered the remaining portions of the complaint denying all
allegations of wrongdoing, and the case is in discovery. In December 1992,
plaintiffs filed a motion to stay the claims of the City of New York and the New
York City Health and Hospitals Corporation pending resolution of the Housing
Authority's claim. In May 1993, the Appellate Division of the Supreme Court
affirmed the denial of the motion to dismiss plaintiffs' fraud, restitution,
conspiracy and concert of action claims. In August 1993, the defendants' motion
for leave to appeal was denied. In May 1994, the trial court granted the
defendants' motion to dismiss the plaintiffs' restitution and indemnification
claims, and plaintiffs have appealed. Defendants have moved for summary
judgment on the remaining fraud claim.
In March 1992, the Company was served with a complaint in Skipworth v. Sherwin-
Williams Co., et al. (No. 92-3069), Court of Common Pleas, Philadelphia County.
Plaintiffs are a minor and her legal guardians seeking damages from lead paint
and pigment producers, the LIA, the Philadelphia Housing Authority and the
owners of the plaintiffs' premises for bodily injuries allegedly suffered by the
minor from lead-based paint. Plaintiffs' counsel has asserted that
approximately 200 similar complaints would be served shortly, but no such
complaints have yet been served. In April 1994, the court granted defendants'
motion for summary judgment and plaintiffs appealed that decision in June 1994.
In August 1992, the Company was named as a defendant and served with an amended
complaint in Jackson, et al. v. The Glidden Co., et al., Court of Common Pleas,
Cuyahoga County, Cleveland, Ohio (Case No. 236835). Plaintiffs seek
compensatory and punitive damages for personal injury caused by the ingestion of
lead, and an order directing defendants to abate lead-based paint in buildings.
Plaintiffs purport to represent a class of similarly situated persons throughout
the State of Ohio. The amended complaint identifies 18 other defendants who
allegedly manufactured lead products or lead-based paint, and asserts causes of
action under theories of strict liability, negligence per se, negligence,
breach of express and implied warranty, fraud, nuisance, restitution, and
negligent infliction of emotional distress. The complaint asserts several
theories of liability including joint and several, market share, enterprise and
alternative liability. In October 1992, the Company and the other defendants
moved to dismiss the complaint with prejudice. In July 1993, the court
dismissed the complaint. In December 1994, the Ohio Court of Appeals reversed
the trial court dismissal and remanded the case to the trial court.
In November 1993, the Company was served with a complaint in Brenner, et al. v.
American Cyanamid, et al., Supreme Court, State of New York, Erie County
alleging injuries to two children purportedly caused by lead pigment. The
complaint seeks $24 million in compensatory and $10 million in punitive damages
for alleged negligent failure to warn, strict products liability, fraud and
misrepresentation, concert of action, civil conspiracy, enterprise liability,
market share liability, and alternative liability. In January 1994, the Company
answered the complaint, denying liability. Discovery is proceeding.
In January 1995, the Company was served with complaints in Wright (Alvin) and
Wright (Allen) v. Lead Industries, et. al., (Nos. 94-363042 and 363043), Circuit
Court, Baltimore City, Maryland. Plaintiffs are two brothers (one deceased) who
allege injuries due to exposure to lead pigment. Each complaint seeks more than
$100 million in compensatory and punitive damages for alleged strict liability,
breach of warranty, negligence, conspiracy and fraud claims.
The Company believes that the foregoing lead pigment actions are without merit
and intends to continue to deny all allegations of wrongdoing and liability and
to defend such actions vigorously.
The Company has filed declaratory judgment actions against various insurance
carriers seeking costs of defense and indemnity coverage for certain of its
environmental and lead pigment litigation. NL Industries, Inc. v. Commercial
Union Insurance Cos., et al., Nos. 90-2124, -2125 (HLS). In May 1990, the
Company filed an action in the United States District Court for the District of
New Jersey against Commercial Union Insurance Company ("Commercial Union")
seeking to recover defense costs incurred in the City of New York lead pigment
case and two other cases which have since been resolved in the Company's favor.
In July 1991, the court granted the Company's motion for summary judgment and
ordered Commercial Union to pay the Company's reasonable defense costs for such
cases. In June 1992, the Company filed an amended complaint in the United
States District Court for the District of New Jersey against Commercial Union
seeking to recover costs incurred in defending four additional lead pigment
cases which have since been resolved in the Company's favor. In August 1993,
the court granted the Company's motion for summary judgment and ordered
Commercial Union to pay the reasonable costs of defending those cases. In July
1994, the court entered judgment on the order requiring Commercial Union to pay
previously-incurred Company costs in defending those cases. Commercial Union
has appealed. Other than a magistrate's recommendation to grant motions for
summary judgment brought by two excess insurance carriers, which contended that
their policies contained unique pollution exclusion language, and a grant by the
court of certain motions regarding policy periods, the court has not made any
rulings on defense costs or indemnity coverage with respect to the Company's
pending environmental litigation or on indemnity coverage in the lead pigment
litigation. No trial dates have been set. Other than rulings to date, the
issue of whether insurance coverage for defense costs or indemnity or both will
be found to exist depends upon a variety of factors, and there can be no
assurance that such insurance coverage will exist in other cases. The Company
has not considered any insurance recoveries for lead pigment or environmental
litigation in determining related accruals.
ENVIRONMENTAL MATTERS AND LITIGATION
The Company has been named as a defendant, PRP, or both, pursuant to CERCLA and
similar state laws in approximately 80 governmental and private actions
associated with waste disposal sites and facilities currently or previously
owned, operated or used by the Company, or its subsidiaries, or their
predecessors, many of which are on the U.S. Environmental Protection Agency's
("U.S. EPA") Superfund National Priorities List or similar state lists. These
proceedings seek cleanup costs, damages for personal injury or property damage,
or both. Certain of these proceedings involve claims for substantial amounts.
Although the Company may be jointly and severally liable for such costs, in most
cases it is only one of a number of PRPs who are also jointly and severally
liable. In addition to the matters noted above, certain current and former
facilities of the Company, including several divested secondary lead smelter and
former mining locations, are the subject of environmental investigations or
litigation arising out of industrial waste disposal practices and mining
activities.
The extent of CERCLA liability cannot be determined until the Remedial
Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA issues a
record of decision and costs are allocated among PRPs. The extent of liability
under analogous state cleanup statutes and for common law equivalents are
subject to similar uncertainties. The Company believes it has provided adequate
accruals for reasonably estimable costs for CERCLA matters and other
environmental liabilities. At December 31, 1994, the Company had accrued $87
million in respect of those environmental matters which are reasonably
estimable. The Company determines the amount of accrual on a quarterly basis by
analyzing and estimating the range of possible costs to the Company. Such costs
include, among other things, remedial investigations, monitoring, studies,
clean-up, removal and remediation. 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 $160 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. The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs, or
a determination that the Company is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by the Company to be required for such matters.
Further, there can be no assurance that additional environmental matters will
not arise in the future. More detailed descriptions of certain legal
proceedings relating to environmental matters are set forth below.
The Company has been identified as a PRP by the U.S. EPA because of its former
ownership of three secondary lead smelters (battery recycling plants) in
Pedricktown, New Jersey; Granite City, Illinois; and Portland, Oregon. In all
three matters, the Company voluntarily entered into administrative consent
orders with the U.S. EPA requiring the performance of a RIFS, a study with the
objective of identifying the nature and extent of the hazards, if any, posed by
the sites, and selecting a remedial action, if necessary.
At Pedricktown, the U.S. EPA divided the site into two operable units. Operable
unit one covers contaminated ground water, surface water, soils and stream
sediments. The Company submitted the final RIFS for operable unit one to the
U.S. EPA in May 1993. In July 1994, the U.S. EPA issued the Record of Decision
for operable unit one. The U.S. EPA estimates the cost to complete operable
unit one is $18.7 million. The U.S. EPA has not yet issued a notice or an order
requiring implementation of operable unit one. In addition, the U.S. EPA has
completed the fifth phase of a removal action on the soils and sediments of a
stream at the site, at an estimated total cost of $2 million. The U.S. EPA
issued a Unilateral Administrative Order (Index No. II-CERCLA 20205) with
respect to operable unit two in March 1992 to the Company and 30 other PRPs
directing immediate removal activities including the cleanup of waste, surface
water and building surfaces. The Company has complied with the order, and the
work with respect to operable unit two is nearing completion. The Company has
paid approximately 50% of operable unit two costs, or $2.5 million.
At Granite City, the RIFS is complete, and in 1990 the U.S. EPA selected a
remedy estimated to cost approximately $28 million. In July 1991, the United
States filed an action in the U.S. District Court for the Southern District of
Illinois against the Company and others (United States of America v. NL
Industries, Inc., et al., Civ. No. 91-CV 00578) with respect to the Granite City
smelter. The complaint seeks injunctive relief to compel the defendants to
comply with an administrative order issued pursuant to CERCLA, and fines and
treble damages for the alleged failure to comply with the order. The Company
and the other parties did not comply with the order believing that the remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and not in
accordance with law. The complaint also seeks recovery of past costs of $.3
million and a declaration that the defendants are liable for future costs.
Although the action was filed against the Company and ten other defendants,
there are 330 other PRPs who have been notified by the U.S. EPA. Some of those
notified were also respondents to the administrative order. In February 1992,
the court entered a case management order directing that the remedy issues be
tried before the liability aspects are presented. In August 1994, when the U.S.
EPA reinitiated the residential yard soils remediation in Granite City after an
agreed-upon stay of the cleanup pending completion of a health study and
reopening of the administrative record, the PRPs and the City of Granite City
sought an injunction against the U.S. EPA to prevent further cleanup until after
the record was reopened for submittal of additional comments on the selected
remedy. In October 1994, the U.S. EPA issued its proposed plan for addressing
residential yard soils in Granite City. The U.S. EPA presented no estimate of
costs for this work. The administrative record was reopened for public comment,
and the Company, along with other PRPs, submitted extensive comments on the
proposed residential soils cleanup plan. In February 1995, the U.S. EPA issued
its proposed plan for the Main Industrial Area, the remaining remote fill areas
and ground water at the site, which is estimated by the U. S. EPA to cost
approximately $9.2 million. The administrative record has been reopened for
public comments on this phase of the cleanup.
Having completed the RIFS at Portland, the Company conducted predesign studies
to explore the viability of the U.S. EPA's selected remedy pursuant to a June
1989 consent decree captioned U.S. v. NL Industries, Inc., Civ. No. 89-408,
United States District Court for the District of Oregon. Subsequent to the
completion of the predesign studies, the U.S. EPA issued notices of potential
liability to approximately 20 PRPs, including the Company, directing them to
perform the remedy, which was initially estimated to cost approximately $17
million, exclusive of administrative and overhead costs and any additional
costs, for the disposition of recycled materials from the site. In January
1992, the U.S. EPA issued unilateral administrative orders Docket No. 1091-01-
10-106 to the Company and six other PRPs directing the performance of the
remedy. The Company and the other PRPs commenced performance of the remedy and,
through December 31, 1994, the Company and the other PRPs had spent
approximately $18 million. Based upon site operations to date, the remedy is
not proceeding in accordance with engineering expectations or cost projections;
therefore, the Company and the other PRPs have met with the U.S. EPA to discuss
alternative remedies for the site. The U.S. EPA authorized the Company and the
other PRPs to cease performing most aspects of the selected remedy. In
September 1994, the Company and the other PRPs submitted a focused feasibility
study ("FFS") to the U.S. EPA, which proposes alternative remedies for the site.
The U.S. EPA is considering the alternatives proposed in the FFS. Pursuant to
an interim allocation, the Company's share of remedial costs is approximately
50%. In November 1991, Gould, Inc., the current owner of the site, filed an
action, Gould Inc. v. NL Industries, Inc., No. 91-1091, United States District
Court for the District of Oregon, against the Company for damages for alleged
fraud in the sale of the smelter, rescission of the sale, past CERCLA response
costs and a declaratory judgment allocating future response costs and $5 million
in punitive damages. The court granted Gould's motion to amend the complaint to
add additional defendants (adjoining current and former landowners) and third
party defendants (generators). The amended complaint deletes the fraud and
punitive damages claims asserted against NL; thus, the pending action is
essentially one for reallocation of past and future cleanup costs. In March
1993, the parties agreed to a case management order limiting discovery until
1995. In December 1994, Gould amended its complaint adding approximately 15
additional generator defendants and two additional owner/operator defendants.
Discovery is proceeding. A trial date has been tentatively set for September
1996.
There are several actions pending relating to alleged contamination at other
properties formerly owned or operated by the Company or its subsidiaries or
their predecessors. In one of those cases, suit was filed in November 1992
against the Company asserting claims arising out of the sale of a former
business of the Company to Exxon Chemical Company (Exxon Chemical Company v. NL
Industries, Inc., United States District Court for the Southern District of
Texas, No. H-92-3360). The action sought contractual indemnification,
contribution under CERCLA for costs associated with the environmental assessment
and cleanup at nine properties included in the sale, a declaration of liability
for future environmental cleanup costs, and punitive damages for fraud.
Plaintiff asserted that past and future cleanup costs, business interruption,
and asset value losses and legal and site assessment costs were approximately
$25 million. In December 1994, this matter was settled within previously
accrued amounts.
The Company and other PRPs entered into an administrative consent order with the
U.S. EPA requiring the performance of a RIFS at two sites in Cherokee County,
Kansas, where the Company and others formerly mined lead and zinc. A
predecessor of the Company mined at the Baxter Springs subsite, where it is the
largest viable PRP. The final RIFS was submitted to the U.S. EPA in May 1993.
In August 1994, the U.S. EPA issued its proposed plan for the cleanup of the
Baxter Springs and Treece sites in Cherokee County. The proposed remedy is
estimated by U.S. EPA to cost $6 million.
In January 1989, the State of Illinois brought an action against the Company and
several other subsequent owners and operators of the former lead oxide plant in
Chicago, Illinois (People of the State of Illinois v. NL Industries, et al., No.
88-CH-11618, Circuit Court, Cook County). The complaint seeks recovery of $2.3
million of cleanup costs expended by the Illinois Environmental Protection
Agency, plus penalties and treble damages. In October 1992, the Supreme Court
of Illinois reversed the Appellate Division, which had affirmed the trial
court's earlier dismissal of the complaint, and remanded the case for further
proceedings. In December 1993, the trial court denied the State's petition to
reinstate the complaint, and dismissed the case with prejudice. The State's
appeal of this ruling is pending.
In 1980, the State of New York commenced litigation against the Company in
connection with the operation of a plant in Colonie, New York formerly owned by
the Company. Flacke v. NL Industries, Inc., No. 1842-80 ("Flacke I") and Flacke
v. Federal Insurance Company and NL Industries, Inc., No. 3131-92 ("Flacke II"),
New York Supreme Court, Albany County. The plant manufactured military and
civilian products from depleted uranium and was acquired from the Company by the
U.S. Department of Energy ("DOE") in 1984. Flacke I seeks penalties for alleged
violations of New York's Environmental Conservation Law, and of a consent order
entered into to resolve these alleged violations. Flacke II seeks forfeiture of
a $200,000 surety bond posted in connection with the consent order, plus
interest from February 1980. The Company denied liability in both actions. The
litigation had been inactive from 1984 until July 1993 when the State moved for
partial summary judgment for approximately $1.5 million on certain of its claims
in Flacke I and for summary judgment in Flacke II. In January 1994, the Company
cross-moved for summary judgment in Flacke I and Flacke II. All summary
judgment motions have been denied and both parties have appealed.
Residents in the vicinity of the Company's former Philadelphia lead chemicals
plant commenced a class action allegedly comprised of over 7,500 individuals
seeking medical monitoring and damages allegedly caused by emissions from the
plant. Wagner, et al. v. Anzon, Inc. and NL Industries, Inc., No. 87-4420,
Court of Common Pleas, Philadelphia County. The complaint sought compensatory
and punitive damages from the Company and the current owner of the plant, and
alleged causes of action for, among other things, negligence, strict liability,
and nuisance. A class was certified to include persons who resided, owned or
rented property, or who work or have worked within up to approximately three-
quarters of a mile from the plant from 1960 through the present. The Company
answered the complaint, denying liability. In November 1994, the jury returned
a verdict in favor of the Company. Plaintiffs have filed post-trial motions
requesting a new trial. Residents also filed consolidated actions in the United
States District Court for the Eastern District of Pennsylvania, Shinozaki v.
Anzon, Inc. and Wagner and Antczak v. Anzon and NL Industries, Inc. Nos. 87-
3441 and 87-3502. The consolidated action is a putative class action seeking
CERCLA response costs, including cleanup and medical monitoring, declaratory and
injunctive relief and civil penalties for alleged violations of the Resource
Conservation and Recovery Act ("RCRA"), and also asserting pendent common law
claims for strict liability, trespass, nuisance and punitive damages. The court
dismissed the common law claims without prejudice, dismissed two of the three
RCRA claims as against the Company with prejudice, and stayed the case pending
the outcome of the state court litigation.
In July 1991, a complaint was filed in the United States District Court for the
Central District of California, United States of America v. Peter Gull and NL
Industries, Inc., Civ. No. 91-4098, seeking recovery of $2 million in costs
incurred by the United States in response to the alleged release of hazardous
substances into the environment from a facility located in Norco, California,
treble damages and $1.75 million in penalties for the Company's alleged failure
to comply with the U.S. EPA's administrative order No. 88-13. The order, which
alleged that the Company arranged for the treatment or disposal of materials at
the Norco site, directed the immediate removal of hazardous substances from the
site. The Company carried out a portion of the remedy at the Norco site, but
did not complete the ordered activities because it believed they were in
conflict with California law. The Company answered the complaint denying
liability. The government claims it expended in excess of $2.7 million for this
matter. Trial was held in March and April 1993. In April 1994, the court
entered final judgment in this matter directing the Company to pay $6.3 million
plus interest. The court ruled that the Company was liable for approximately
$2.7 million in response costs plus approximately $3.6 million in penalties for
failure to comply with the administrative order. Both the Company and the
government have appealed. In August 1994, this matter was referred to
mediation, which is pending.
At a municipal and industrial waste disposal site in Batavia, New York, the
Company and six others have been identified as PRPs. The U.S. EPA has divided
the site into two operable units. Pursuant to an administrative consent order
entered into with the U.S. EPA, the Company is conducting a RIFS for operable
unit one, the closure of the industrial waste disposal section of the landfill.
The Company's RIFS costs to date are approximately $2 million. In August 1994,
the U.S. EPA issued the proposed plan for operable unit one, which is estimated
by the U.S. EPA to cost approximately $12.3 million. The Company, along with
other PRPs, submitted extensive comments on the proposed plan. With respect to
the second operable unit, the extension of the municipal water supply, the U.S.
EPA estimated the costs at $1 million plus annual operation and maintenance
costs. The Company and the other PRPs are performing the work comprising
operable unit two. The U.S. EPA has also demanded approximately $.9 million in
past costs from the PRPs.
See Item 1 - "Business - Regulatory and Environmental Matters".
OTHER LITIGATION
In January 1990, an action was filed in the United States District Court for the
Southern District of Ohio against NLO, Inc., a subsidiary of the Company, and
the Company on behalf of a putative class of former NLO employees and their
families and former frequenters and invitees of the Feed Materials Production
Center ("FMPC") in Ohio (Day, et al. v. NLO, Inc., et al, No. C-1-90-067). The
FMPC is owned by the DOE and was formerly managed under contract by NLO. The
complaint seeks damages for, among other things, emotional distress and damage
to personal property allegedly caused by exposure to radioactive and/or
hazardous materials at the FMPC and punitive damages. This action was certified
as a class action by the court. In July 1994, the parties reached a settlement
agreement pursuant to which the DOE would pay all costs of the settlement and
the Company and NLO were released.
The Company is also involved in various other environmental, contractual,
product liability and other claims and disputes incidental to its present and
former businesses, and the disposition of past properties and former businesses.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1994.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NL's common stock is listed and traded on the New York and Pacific Stock
Exchanges under the symbol "NL". As of February 28, 1995, there were
approximately 10,000 holders of record of NL common stock. The following table
sets forth the high and low sales prices for NL common stock on the New York
Stock Exchange ("NYSE") Composite Tape. On February 28, 1995, the closing price
of NL common stock according to the NYSE Composite Tape was $11-7/8.
High Low
Year ended December 31, 1993:
First quarter $ 6-1/8 $ 4-1/4
Second quarter 5-5/8 3-3/8
Third quarter 6-1/8 3-7/8
Fourth quarter 6 4-1/2
Year ended December 31, 1994:
First quarter $ 9-5/8 $ 4-3/8
Second quarter 9-1/2 6-1/8
Third quarter 11-7/8 8-3/8
Fourth quarter 13-1/4 9
The Company's Senior Notes generally limit the ability of the Company to pay
dividends to 50% of consolidated net income, as defined, subsequent to October
1993. At December 31, 1994, no amounts were available for dividends.
ITEM 6.SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto, and
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Years ended December 31,
1990 1991 1992 1993 1994
(In millions, except per share amounts)
INCOME STATEMENT DATA:
Net sales $ 906.6 $ 840.3 $ 893.5 $ 805.3 $ 888.0
Operating income 251.1 139.0 110.7 62.4 111.4
Income (loss) from continuing
operations 93.5 (24.0) (44.6) (83.2) (24.0)
Net income (loss) 92.4 (16.5) (76.4) (109.8) (24.0)
Per common share:
Income (loss) from
continuing operations $ 1.42 $ (.40) $ (.88) $ (1.63) $ (.47)
Net income (loss) 1.40 (.27) (1.50) (2.16) (.47)
Cash dividends $ .60 $ .60 $ .35 $ - $ -
BALANCE SHEET DATA
(AT YEAR-END):
Cash, cash equivalents and
current marketable
securities $ 443.1 $ 353.3 $ 187.9 $ 147.6 $ 156.3
Current assets 884.4 795.5 635.8 467.5 486.4
Total assets 1,966.7 1,831.0 1,472.1 1,206.5 1,162.4
Current liabilities 400.4 360.2 248.8 232.5 244.9
Long-term debt including
current maturities 1,269.7 1,288.9 1,035.3 870.9 789.6
Shareholders' equity
(deficit) 38.6 (58.3) (146.3) (264.8) (293.1)
OTHER DATA:
Net debt (1) $ 867.4 $ 936.0 $ 847.7 $ 723.2 $ 633.4
EBITDA (2) 242.3 126.6 115.1 67.2 101.3
Interest expense, net (3) 60.7 59.9 104.3 95.1 78.9
Cash interest expense,
net (4) 53.0 53.9 98.0 86.8 60.8
Capital expenditures 195.3 195.1 85.2 48.0 36.9
TiO2 sales volumes
(in thousands metric tons) 274 303 336 346 376
Average TiO2 selling price
index (1983=100) 175 147 139 127 131
(1)Net debt represents notes payable and long-term debt less cash, cash
equivalents and current marketable securities.
(2)EBITDA, as presented, represents operating income less corporate expense,
net, plus depreciation, depletion and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to incur and
service debt. However, EBITDA should not be considered as an alternative to (i)
operating income or net income as an indicator of a company's operating
performance or (ii) cash flows from operating activities as a measure of a
company's liquidity.
(3)Interest expense, net represents interest expense less general corporate
interest and dividend income.
(4)Cash interest expense, net represents interest expense, net less non-cash
interest expense (deferred interest expense on the Senior Secured Discount Notes
and amortization of deferred financing costs).
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company's operations are conducted in two business segments - TiO2 conducted
by Kronos and specialty chemicals conducted by Rheox. As discussed below, TiO2
selling prices increased during 1994 after four consecutive years of a declining
price trend. Kronos' operating income and margins improved significantly during
1994. Based on, among other things, the Company's near-term outlook for its
TiO2 business, the Company expects 1995 will be profitable with anticipated
continuing improvements in TiO2 prices and demand.
NET SALES AND OPERATING INCOME
Years ended December 31, % Change
1992 1993 1994 1993-92 1994-93
(In millions)
Net sales:
Kronos $784.6 $697.0 $770.1 -11% +10%
Rheox 108.9 108.3 117.9 -1% +9%
$893.5 $805.3 $888.0 -10% +10%
Operating income:
Kronos $ 81.9 $ 36.1 $ 80.5 -56% +123%
Rheox 28.8 26.3 30.8 -9% +17%
$110.7 $ 62.4 $111.3 -44% +78%
Percent change in TiO2:
Sales volume +3% +9%
Average selling prices
(in billing currencies) -8% +3%
The improvement in Kronos' 1994 results was primarily due to higher average
selling prices, higher production and sales volumes for TiO2 and higher
technology fee income. In billing currency terms, Kronos' 1994 average TiO2
selling prices were approximately 3% higher than in 1993 and were 8% lower in
1993 compared to 1992. Average TiO2 selling prices at year-end 1994 were 6%
higher than year-earlier levels and were 10% above the low point reached in
1993.
Record sales volume of 376,000 metric tons of TiO2 in 1994 represents an
increase of 9% over 1993, with increases in Europe, North America and other
regions. Due to increasing demand for TiO2 and higher sales volumes, Kronos
increased its capacity utilization to 94% after having reduced its TiO2
production rates in response to weakened demand in late 1992 and 1993. TiO2
sales volumes increased 3% in 1993 over 1992, as increases in North American
sales volumes were partially offset by declining sales volumes in European
markets. Approximately one-half of Kronos' 1994 TiO2 sales, by volume, were
attributable to markets in Europe with approximately 36% attributable to North
America and the balance to other regions.
As a result of Kronos' continued emphasis on cost reduction and containment
efforts, Kronos' unit production costs decreased slightly in 1994 and were only
slightly higher in 1993 compared to year-earlier levels.
Demand, supply and pricing of TiO2 have historically been cyclical and the last
cyclical peak for TiO2 prices occurred in early 1990. Kronos believes that its
operating income and margins for 1995 will be higher than in 1994 due
principally to the net effect of higher average TiO2 selling prices and slightly
higher sales and production volumes, offset in part by increased raw material
costs.
Rheox's operating income improved in 1994 compared to 1993 due to higher sales
volumes and lower operating costs. Operating costs increased during 1993 over
1992, contributing to the decline in Rheox's 1993 operating income. Changes in
currency exchange rates had a slightly positive effect on sales and operating
income in 1994 and a negative effect in 1993 compared to the respective prior
year.
The Company has substantial operations and assets located outside the United
States (principally Germany, Norway, Belgium and Canada). The U.S. dollar value
of the Company's foreign sales and operating costs are subject to currency
exchange rate fluctuations which may favorably or adversely impact reported
earnings and effect the comparability of period to period operating results. A
significant amount of the Company's sales are denominated in currencies other
than the U.S. dollar (67% in 1994), principally major European currencies and
the Canadian dollar. Certain raw materials, primarily titanium-containing
feedstocks, are purchased in U.S. dollars, while labor and other production
costs are primarily denominated in the local currency. Fluctuations in the
value of the U.S. dollar relative to other currencies decreased 1994 sales by $2
million compared to 1993 and decreased 1993 sales by $45 million compared to
1992.
GENERAL CORPORATE
The following table sets forth certain information regarding general corporate
income (expense).
Years ended December 31, Change
1992 1993 1994 1993-92 1994-93
(In millions)
Securities earnings $ 8.2 $ 8.5 $ 3.9 $ .3 $(4.6)
Corporate expenses, net (43.4) (41.5) (44.7) 1.9 (3.2)
Interest expense (118.5) (99.1) (83.9) 19.4 15.2
$(153.7) $(132.1) $(124.7) $21.6 $ 7.4
Securities earnings fluctuate in part based upon the amount of funds invested
and yields thereon. Amounts available for investment have declined over the
past two years. Corporate expenses, net, in 1994 were slightly higher compared
with 1993 as a $20 million gain related to the first quarter 1994 settlement of
the Company's lawsuit against Lockheed Corporation was offset by increases in
provisions for environmental remediation and litigation costs. Corporate
expenses were slightly lower in 1993 compared to 1992 as a $4 million increase
in environmental remediation costs was more than offset by a $9 million
reduction in certain proxy solicitation and litigation settlement expenses.
INTEREST EXPENSE
Lower levels of debt in 1993 and 1994, principally Kronos' Deutsche mark-
denominated debt, and lower interest rates on such debt reduced interest expense
in 1993 and 1994 compared to the respective prior-year periods. In addition,
1992 interest expense reflected the benefit of $9 million of capitalized
interest related principally to the Louisiana plant completed in March 1992.
PROVISION FOR INCOME TAXES
The principal reasons for the difference between the U.S. federal statutory
income tax rates and the Company's effective income tax rates are explained in
Note 13 to the Consolidated Financial Statements. The Company's operations are
conducted on a worldwide basis and the geographic mix of income can
significantly impact the Company's effective income tax rate. In each of the
past three years, the geographic mix, including losses in certain jurisdictions
for which no current refund was available and in which recognition of a deferred
tax asset is not currently considered appropriate, contributed significantly to
the Company's effective tax rate varying from a normally-expected rate. The
Company's deferred income tax status at December 31, 1994 is discussed in
"Liquidity and Capital Resources".
EXTRAORDINARY ITEM
See Note 16 to the Consolidated Financial Statements.
CHANGES IN ACCOUNTING PRINCIPLES
See Notes 2 and 19 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows provided by operating, investing and
financing activities for each of the past three years are presented below.
Years ended December 31,
1992 1993 1994
(In millions)
Net cash provided (used) by:
Operating activities $ (44.7) $ (7.3) $ 181.7
Investing activities 234.9 181.9 (32.8)
Financing activities (223.1) (155.3) (132.1)
Net cash provided (used) by operating,
investing and financing activities $ (32.9) $ 19.3 $ 16.8
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. During the recent TiO2
down cycle, the Company's operations used significant amounts of cash. Receipt
of the German tentative tax refund, discussed below, significantly increased the
Company's cash flow from operating activities during 1994 and was a major factor
in the Company's improved liquidity. The relative changes in the Company's
inventories, receivables and payables (excluding the effect of currency
translation) also contributed to the cash provided by operations. A $30 million
technology exchange fee received from Tioxide in October 1993, which is being
recognized as a component of operating income over three years, also favorably
impacted cash flow from operating activities in 1993.
Cash provided (used) by investing activities includes capital expenditures in
each period, and in 1993 included $161 million net cash generated from the
formation of the manufacturing joint venture with Tioxide. Cash provided by
investing activities also included net sales of marketable securities of $317
million in 1992 and $68 million in 1993, primarily used to fund debt repayments.
In 1994, proceeds of $15 million from the sale of trading securities are a
component of the cash provided from operations as a result of the adoption of
SFAS 115.
The Company's capital expenditures during the past three years include an
aggregate of $36 million related to the completion of the Louisiana chloride
process TiO2 plant and an aggregate of $63 million ($17 million in 1994) for the
Company's ongoing environmental protection and compliance programs, including a
Canadian waste acid neutralization facility, a Norwegian onshore tailings
disposal system and off-gas desulfurization systems. The Company's estimated
1995 capital expenditures are $66 million and include $33 million in the area of
environmental protection and compliance primarily related to the off-gas
desulfurization systems and water treatment chemical purification systems. The
Company plans to spend $25 million in capital expenditures ($7 million in 1995)
related to a debottlenecking project at its Leverkusen, Germany chloride process
TiO2 facility that is expected to increase the Company's annual attainable
production capacity by 20,000 metric tons. The capital expenditures of the
manufacturing joint venture are not included in the Company's capital
expenditures.
Net repayments of indebtedness in 1994 included a DM 225 million ($140 million
when paid) reduction in the DM credit facility, $15 million paid on the Rheox
bank term loan and $15 million paid on the joint venture term loan. In
addition, the Company borrowed DM 75 million ($45 million) under the DM credit
facility. Net repayments of indebtedness in 1993 included payments on the DM
credit facility of DM 552 million ($342 million when paid), a $110 million net
reduction in indebtedness related to the Louisiana plant and $350 million
proceeds from the Company's public offering of debt. Net repayments of
indebtedness in 1992 included payments on the DM term loan aggregating DM 350
million ($225 million when paid) and $61 million drawn under Kronos' Louisiana
plant credit facilities. NL and Kronos have agreed, under certain conditions,
to provide KII with up to an additional DM 125 million through January 1, 2001.
Financing activities also include dividends paid of $18 million in 1992. The
Company suspended dividend payments in October 1992.
At December 31, 1994, the Company had cash, cash equivalents and current
marketable securities aggregating $156 million (30% held by non-U.S.
subsidiaries) including restricted cash and cash equivalents of $16 million. In
addition, the Company's subsidiaries had $14 million and $195 million available
for borrowing at December 31, 1994 under existing U.S. and non-U.S. credit
facilities, respectively, of which $80 million of the non-U.S. amount is
available only for (i) permanently reducing the DM term loan or (ii) paying
future German income tax assessments, as described below.
The Company reduced its "net debt" (notes payable and long-term debt less cash,
cash equivalents and current marketable securities) by $90 million during 1994.
The Company currently expects to have sufficient liquidity to meet its
obligations including operations, capital expenditures and debt service.
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 or may propose tax deficiencies. During 1994, the German tax
authorities withdrew certain assessment reports which had proposed tax
deficiencies of DM 100 million and remitted tax refunds aggregating DM 225
million ($136 million), including interest, on a tentative basis. The Company
applied DM 174 million ($108 million) of the German tentative tax refunds to
reduce outstanding borrowings under its DM credit facility. The examination of
the Company's German income tax returns is continuing and additional substantial
proposed tax deficiency assessments are expected. Although the Company believes
that it will ultimately prevail, the Company has granted a DM 100 million ($64
million at December 31, 1994) 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 operation or liquidity. Cash received for
settlement of prior years' tax examinations aggregated $6 million in 1994 and
the Company expects to make settlement payments of approximately $20 million in
1995.
At December 31, 1994, the Company had recorded net deferred tax liabilities of
$175 million. The Company operates in numerous tax jurisdictions, in certain of
which it has temporary differences that net to deferred tax assets (before
valuation allowance). The Company has provided a deferred tax valuation
allowance of $165 million, principally related to the U.S. and Germany,
offsetting deferred tax assets which the Company believes may not currently meet
the "more likely than not" realization criteria for asset recognition.
In addition to the chemicals businesses conducted through Kronos and Rheox, the
Company also has certain interests and associated liabilities relating to
certain discontinued or divested businesses and other holdings of marketable
equity securities including securities issued by Valhi and other Contran
subsidiaries.
The Company has been named as a defendant, 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. EPA's
Superfund National Priorities List or similar state lists. On a quarterly
basis, the Company evaluates the potential range of its liability at sites where
it has been named as a PRP or defendant. The Company believes it has provided
adequate accruals for reasonably estimable costs of such matters, but the
Company's ultimate liability may be affected by a number of factors, including
changes in remedial alternatives and costs and the allocation of such costs
among PRPs. The Company is also a defendant in a number of legal proceedings
seeking damages for personal injury and property damage arising out of the sale
of lead pigments and lead-based paints. The Company has not accrued any amounts
for the pending lead pigment litigation. Although no assurance can be given
that the Company will not incur future liability in respect of this litigation,
based on, among other things, the results of such litigation to date, the
Company believes that the pending lead pigment litigation is without merit.
Liability, if any, that may result is not reasonably capable of estimation. The
Company currently believes the disposition of all claims and disputes,
individually or 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. See Item 3 - "Legal Proceedings" and Note 18 to
the Consolidated Financial Statements.
As discussed above, the Company has substantial operations located outside the
United States for which the functional currency is not the U.S. dollar. As a
result, the reported amount of the Company's assets and liabilities related to
its non-U.S. operations, and therefore the Company's consolidated net assets,
will fluctuate based upon changes in currency exchange rates. The carrying
value of the Company's net investment in its German operations is a net
liability due principally to its DM credit facility, while its net investment in
its other non-U.S. operations are net assets.
The Company periodically evaluates its liquidity requirements, capital needs and
availability of resources in view of, among other things, its debt service
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 refinance or
restructure indebtedness, raise additional capital, restructure ownership
interests, sell interests in subsidiaries, marketable securities or other
assets, or take a combination of such steps or other steps to increase or manage
its liquidity and capital resources.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in a separate section of this
Annual Report. See "Index of Financial Statements and Schedules" on page F-1.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to NL's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report (the "NL Proxy Statement").
ITEM 11.EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the NL
Proxy Statement.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the NL
Proxy Statement.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the NL
Proxy Statement. See also Note 17 to the Consolidated Financial Statements.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d)Financial Statements and Schedules
The consolidated financial statements and schedules listed by the Registrant on
the accompanying Index of Financial Statements and Schedules (see page F-1) are
filed as part of this Annual Report.
(b)Reports on Form 8-K
Reports on Form 8-K for the quarter ended December 31, 1994 and the months of
January and February 1995.
October 24, 1994 - reported items 5 and 7.
December 1, 1994 - reported items 5 and 7.
January 30, 1995 - reported items 5 and 7.
(c)Exhibits
Included as exhibits are the items listed in the Exhibit Index. NL will furnish
a copy of any of the exhibits listed below upon payment of $4.00 per exhibit to
cover the costs to NL of furnishing the exhibits. Instruments defining the
rights of holders of long-term debt issues which do not exceed 10% of
consolidated total assets will be furnished to the Securities and Exchange
Commission upon request.
Item No. Exhibit Index
3.1 By-Laws, as amended on June 28, 1990 - incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
3.2 Certificate of Amended and Restated Certificate of Incorporation dated
June 28, 1990 - incorporated by reference to Exhibit 1 to the Registrant's
Proxy Statement on Schedule 14A for the annual meeting held on June 28,
1990.
4.1 Registration Rights Agreement dated October 30, 1991, by and between the
Registrant and Tremont Corporation - incorporated by reference to Exhibit
4.3 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
4.2 Indenture dated October 20, 1993 governing the Registrant's 11.75% Senior
Secured Notes due 2003, including form of Senior Note - incorporated by
reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.
4.3 Senior Mirror Notes dated October 20, 1993 - incorporated by reference to
Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
4.4 Senior Note Subsidiary Pledge Agreement dated October 20, 1993 between
Registrant and Kronos, Inc. - incorporated by reference to Exhibit 4.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
4.5 Third Party Pledge and Intercreditor Agreement dated October 20, 1993
between Registrant, Chase Manhattan Bank (National Association) and
Chemical Bank - incorporated by reference to Exhibit 4.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993.
4.6 Indenture dated October 20, 1993 governing the Registrant's 13% Senior
Secured Discount Notes due 2005, including form of Discount Note -
incorporated by reference to Exhibit 4.6 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
4.7 Discount Mirror Notes dated October 20, 1993 - incorporated by reference
to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
4.8 Discount Note Subsidiary Pledge Agreement dated October 20, 1993 between
Registrant and Kronos, Inc. - incorporated by reference to Exhibit 4.9 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.1 Amended and Restated Loan Agreement dated as of October 15, 1993 among
Kronos International, Inc., the Banks set forth therein, Hypobank
International S.A., as Agent and Banque Paribas, as Co-agent -
incorporated by reference to Exhibit 10.17 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
10.2 Amended and Restated Liquidity Undertaking dated October 15, 1993 by the
Registrant, Kronos, Inc. and Kronos International, Inc. to Hypobank
International S.A., as agent, and the Banks set forth therein -
incorporated by reference to Exhibit 10.18 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
10.3 Credit Agreement dated as of March 20, 1991 between Rheox, Inc. and
Subsidiary Guarantors and The Chase Manhattan Bank (National Association)
and the Nippon Credit Bank, Ltd., as Co-agents -incorporated by reference
to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990.
10.4 Amendments 1 and 2 dated May 1, 1991 and February 15, 1992, respectively,
to the Credit Agreement between Rheox, Inc. and Subsidiary Guarantors and
the Chase Manhattan Bank (National Association) and the Nippon Credit
Bank, Ltd. as Co-Agents-incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on form 10-Q for the quarter ended June 30,
1992.
10.5 Third amendment to the Credit Agreement, dated March 5, 1993 between
Rheox, Inc. and Subsidiary Guarantors and the Chase Manhattan Bank
(National Association) and the Nippon Credit Bank, Ltd as Co-Agents -
incorporated by reference to Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.6 Fourth and Fifth Amendments to the Credit Agreement, dated September 23,
1994 and December 15, 1994, respectively, between Rheox, Inc. and
Subsidiary Guarantors and the Chase Manhattan Bank (National Association)
and the Nippon Credit Bank, Ltd. as Co-Agents.
10.7 Credit Agreement dated as of October 18, 1993 among Louisiana Pigment
Company, L.P., as Borrower, the Banks listed therein and Citibank, N.A.,
as Agent - incorporated by reference to Exhibit 10.11 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
10.8 Security Agreement dated October 18, 1993 from Louisiana Pigment Company,
L.P., as Borrower, to Citibank, N.A., as Agent - incorporated by reference
to Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.9 Security Agreement dated October 18, 1993 from Kronos Louisiana, Inc. as
Grantor, to Citibank, N.A., as Agent - incorporated by reference to
Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.10 KLA Consent and Agreement dated as of October 18, 1993 between Kronos
Louisiana, Inc. and Citibank, N.A., as Agent - incorporated by reference
to Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.11 Guaranty dated October 18, 1993, from Kronos, Inc., as guarantor, in favor
of Lenders named therein, as Lenders, and Citibank, N.A., as Agent -
incorporated by reference to Exhibit 10.15 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
10.12 Mortgage by Louisiana Pigment Company, L.P. dated October 18, 1993 in
favor of Citibank, N.A. - incorporated by reference to Exhibit 10.16 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.13 Lease Contract dated June 21, 1952, between Farbenfabrieken Bayer
Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung (German
language version and English translation thereof) - incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1985.
10.14 Contract dated September 9, 1971, between Farbenfabrieken Bayer
Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung
concerning supplies and services (German language version and English
translation thereof) - incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1985.
10.15 Agreement dated February 8, 1984, between Bayer AG and Kronos Titan GmbH
(German language version and English translation thereof) - incorporated
by reference to Exhibit 10.16 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1985.
10.16 Formation Agreement dated as of October 18, 1993 among Tioxide Americas
Inc., Kronos Louisiana, Inc. and Louisiana Pigment Company, L.P. -
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
10.17 Joint Venture Agreement dated as of October 18, 1993 between Tioxide
Americas Inc. and Kronos Louisiana, Inc. - incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.18 Kronos Offtake Agreement dated as of October 18, 1993 between Kronos
Louisiana, Inc. and Louisiana Pigment Company, L.P. - incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.19 Tioxide Americas Offtake Agreement dated as of October 18, 1993 between
Tioxide Americas Inc. and Louisiana Pigment Company, L.P. - incorporated
by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.20 TCI/KCI Output Purchase Agreement dated as of October 18, 1993 between
Tioxide Canada Inc. and Kronos Canada, Inc. - incorporated by reference to
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.21 TAI/KLA Output Purchase Agreement dated as of October 18, 1993 between
Tioxide Americas Inc. and Kronos Louisiana, Inc. - incorporated by
reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.22 Master Technology Exchange Agreement dated as of October 18, 1993 among
Kronos, Inc., Kronos Louisiana, Inc., Kronos International, Inc., Tioxide
Group Limited and Tioxide Group Services Limited - incorporated by
reference to Exhibit 10.8 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.23 Parents' Undertaking dated as of October 18, 1993 between ICI American
Holdings Inc. and Kronos, Inc. - incorporated by reference to Exhibit 10.9
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.24 Allocation Agreement dated as of October 18, 1993 between Tioxide Americas
Inc., ICI American Holdings, Inc., Kronos, Inc. and Kronos Louisiana, Inc.
- incorporated by reference to Exhibit 10.10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
10.25*1985 Long Term Performance Incentive Plan of NL Industries, Inc., as
adopted by the Board of Directors on February 27, 1985 - incorporated by
reference to Exhibit A to the Registrant's Proxy Statement on Schedule 14A
for the annual meeting held on April 24, 1985.
10.26 Form of Director's Indemnity Agreement between NL and the independent
members of the Board of Directors of NL - incorporated by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.27*1989 Long Term Performance Incentive Plan of NL Industries, Inc. as
adopted by the Board of Directors on February 14, 1989 - incorporated by
reference to Exhibit A to the Registrant's Proxy Statement on Schedule 14A
for the annual meeting held on May 2, 1989.
10.28 Savings Plan for Employees of NL Industries, Inc. as adopted by the Board
of Directors on February 14, 1989 - incorporated by reference to Exhibit B
to the Registrant's Proxy Statement on Schedule 14A for the annual meeting
held May 2, 1989.
10.29*NL Industries, Inc. 1992 Non-Employee Director Stock Option Plan, as
adopted by the Board of Directors on February 13, 1992 - incorporated by
reference to Appendix A to the Registrant's Proxy Statement on Schedule
14A for the annual meeting held April 30, 1992.
10.30 Intercorporate Services Agreement by and between Valhi, Inc. and the
Registrant effective as of January 1, 1994 - incorporated by reference to
Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.31 Intercorporate Services Agreement by and between Contran Corporation and
the Registrant effective as of January 1, 1994 -incorporated by reference
to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.
10.32 Insurance Sharing Agreement, effective January 1, 1990, by and between the
Registrant, NL Insurance, Ltd. (an indirect subsidiary of Tremont
Corporation) and Baroid Corporation - incorporated by reference to Exhibit
10.20 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.33*Description of terms of an executive severance agreement between the
Registrant and Joseph S. Compofelice - incorporated by reference to the
last paragraph of page 16 entitled "Employment Agreements" of the
Registrant's definitive proxy statement dated March 30, 1994.
10.34*Executive Severance Agreement effective as of December 31, 1991 by and
between the Registrant and J. Landis Martin - incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
10.35*Supplemental Executive Retirement Plan for Executives and Officers of NL
Industries, Inc. effective as of January 1, 1991 - incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedules for the year ended December 31, 1994.
99.1 Annual Report of Savings Plan for Employees of NL Industries, Inc. (Form
11-K) to be filed under Form 10-K/A to the Registrant's Annual Report on
Form 10-K within 180 days after December 31, 1994.
* Management contract, compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ J. Landis Martin
J. Landis Martin, March __, 1995
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
/s/ J. Landis Martin /s/ Harold C. Simmons
J. Landis Martin, March 6, 1995 Harold C. Simmons, March 6, 1995
Director, President and Chairman of the Board
Chief Executive Officer
/s/ Glenn R. Simmons /s/ Michael A. Snetzer
Glenn R. Simmons, March 6, 1995 Michael A. Snetzer, March 6, 1995
/s/ Kenneth R. Peak /s/ Dr. Lawrence A. Wigdor
Kenneth R. Peak, March 6, 1995 Dr. Lawrence A. Wigdor, March 6, 1994
Director Director, President and Chief Executive
Officer of Kronos and Rheox
/s/ Elmo R. Zumwalt, Jr. /s/ Joseph S. Compofelice
Elmo R. Zumwalt, Jr., March 6, 1995 Joseph S. Compofelice, March 6, 1995
Director Vice President and
Chief Financial Officer
/s/ Dennis G. Newkirk
Dennis G. Newkirk, March 6, 1995
Vice President and Controller
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By
J. Landis Martin, March 6, 1995
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
J. Landis Martin, March 6, 1995 Harold C. Simmons, March 6, 1995
Director, President and Chairman of the Board
Chief Executive Officer
Glenn R. Simmons, March 6, 1995 Michael A. Snetzer, March 6, 1995
Director Director
Kenneth R. Peak, March 6, 1995 Lawrence A. Wigdor, March 6, 1995
Director Director, President and Chief Executive
Officer of Kronos and Rheox
Elmo R. Zumwalt, Jr., March 6, 1995 Joseph S. Compofelice, March 6, 1995
Director Vice President and
Chief Financial Officer
Dennis G. Newkirk, March 6, 1995
Vice President and Controller
(Principal Accounting Officer)
NL INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
Financial Statements Page
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1993
and 1994 F-3 / F-4
Consolidated Statements of Operations - Years ended
December 31, 1992, 1993 and 1994 F-5 / F-6
Consolidated Statements of Shareholders' Deficit -
Years ended December 31, 1992, 1993 and 1994 F-7
Consolidated Statements of Cash Flows - Years ended
December 31, 1992, 1993 and 1994 F-8 / F-10
Notes to Consolidated Financial Statements F-11 / F-36
Financial Statement Schedules
Report of Independent Accountants S-1
Schedule I - Condensed financial information
of Registrant S-2 / S-7
Schedule II - Valuation and qualifying accounts S-8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of NL Industries, Inc.:
We have audited the accompanying consolidated balance sheets of NL
Industries, Inc. as of December 31, 1993 and 1994, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NL Industries,
Inc. as of December 31, 1993 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 19 to the consolidated financial statements, in
1993 the Company changed its method of accounting for certain investments in
debt and equity securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, and in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with SFAS Nos. 106 and 109, respectively.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 3, 1995
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1994
(In thousands, except per share data)
ASSETS
1993 1994
Current assets:
Cash and cash equivalents $ 106,593 $ 131,124
Marketable securities 41,045 25,165
Accounts and notes receivable, less allowance
of $3,008 and $3,749 116,355 137,753
Refundable income taxes 386 1,162
Inventories 194,167 185,173
Prepaid expenses 5,637 3,878
Deferred income taxes 3,315 2,177
Total current assets 467,498 486,432
Other assets:
Marketable securities 18,428 21,329
Refundable income taxes 91,994 -
Investment in joint ventures 190,787 187,480
Prepaid pension cost 16,307 19,329
Deferred income taxes 577 2,746
Other 42,355 37,267
Total other assets 360,448 268,151
Property and equipment:
Land 18,237 20,665
Buildings 129,582 147,370
Machinery and equipment 515,090 582,138
Mining properties 72,711 87,035
Construction in progress 30,050 9,579
765,670 846,787
Less accumulated depreciation and depletion 387,067 438,960
Net property and equipment 378,603 407,827
$1,206,549 $1,162,410
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1993 and 1994
(In thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' DEFICIT
1993 1994
Current liabilities:
Current maturities of long-term debt $ 35,716 $ 42,887
Accounts payable and accrued liabilities 177,265 168,327
Payable to affiliates 9,566 11,348
Income taxes 6,353 20,762
Deferred income taxes 3,623 1,590
Total current liabilities 232,523 244,914
Noncurrent liabilities:
Long-term debt 835,169 746,762
Deferred income taxes 138,977 178,332
Accrued pension cost 72,606 76,242
Accrued postretirement benefits cost 68,322 65,299
Other 121,309 141,518
Total noncurrent liabilities 1,236,383 1,208,153
Minority interest 2,438 2,425
Shareholders' deficit:
Preferred stock - 5,000 shares authorized,
no shares issued or outstanding - -
Common stock - $.125 par value; 150,000 shares
authorized; 66,839 shares issued 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (115,803) (125,494)
Pension liabilities (3,442) (1,635)
Marketable securities (2,164) (12)
Accumulated deficit (543,059) (567,041)
Treasury stock, at cost (15,949 and 15,787
shares) (367,963) (366,536)
Total shareholders' deficit (264,795) (293,082)
$1,206,549 $1,162,410
Commitments and contingencies (Notes 13 and 18)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1992, 1993 and 1994
(In thousands, except per share data)
1992 1993 1994
Revenues and other income:
Net sales $893,465 $ 805,323 $887,954
Other, net 14,797 22,084 44,828
908,262 827,407 932,782
Costs and expenses:
Cost of sales 629,029 612,367 649,745
Selling, general and administrative 203,736 185,689 212,516
Interest 118,511 99,119 83,926
951,276 897,175 946,187
Loss before income taxes, minority
interest, extraordinary item and
cumulative effect of changes in
accounting principles (43,014) (69,768) (13,405)
Income tax expense 459 12,713 9,734
Loss before minority interest,
extraordinary item and cumulative
effect of changes in accounting
principles (43,473) (82,481) (23,139)
Minority interest 1,123 730 843
Loss before extraordinary item and
cumulative effect of changes in
accounting principles (44,596) (83,211) (23,982)
Extraordinary item - (27,815) -
Cumulative effect of changes in
accounting principles (31,804) 1,217 -
Net loss $(76,400) $(109,809) $(23,982)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended December 31, 1992, 1993 and 1994
(In thousands, except per share data)
1992 1993 1994
Loss per share of common stock:
Before extraordinary item and cumulative
effect of changes in accounting principles $ (.88) $(1.63) $ (.47)
Extraordinary item - (.55) -
Cumulative effect of changes in accounting
principles (.62) .02 -
Net loss $(1.50) $(2.16) $ (.47)
Weighted average common shares outstanding 50,907 50,890 51,022
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1992, 1993 and 1994
(In thousands, except per share data)
Additional Adjustments
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
Balance at December 31, 1991 $8,355 $759,300 $(116,640) $ - $(5,925)
Net loss - - - - -
Common dividends declared -
$.35 per share - - - - -
Adjustments - - 4,820 - 5,029
Purchases of treasury stock - - - - -
Other, net - (19) - - -
Balance at December 31, 1992 8,355 759,281 (111,820) - (896)
Net loss - - - - -
Adjustments - - (3,983) (3,442) (51)
Cumulative effect of change in
accounting principle - - - - (1,217)
Balance at December 31, 1993 8,355 759,281 (115,803) (3,442) (2,164)
Net loss - - - - -
Treasury stock reissued - - - - -
Adjustments - - (9,691) 1,807 2,152
Balance at December 31, 1994 $8,355 $759,281 $(125,494) $(1,635) $ (12)
Accumulated Treasury
deficit stock Total
Balance at December 31, 1991 $(339,043) $(364,322) $ (58,275)
Net loss (76,400) - (76,400)
Common dividends declared -
$.35 per share (17,807) - (17,807)
Adjustments - - 9,849
Purchases of treasury stock - (3,641) (3,641)
Other, net - - (19)
Balance at December 31, 1992 (433,250) (367,963) (146,293)
Net loss (109,809) - (109,809)
Adjustments - - (7,476)
Cumulative effect of change in
accounting principle - - (1,217)
Balance at December 31, 1993 (543,059) (367,963) (264,795)
Net loss (23,982) - (23,982)
Treasury stock reissued - 1,427 1,427
Adjustments - - (5,732)
Balance at December 31, 1994 $(567,041) $(366,536) $(293,082)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Cash flows from operating activities:
Net loss $(76,400) $(109,809) $(23,982)
Depreciation, depletion and
amortization 47,829 46,340 34,592
Non-cash interest expense 6,270 8,309 18,071
Deferred income taxes (18,949) (670) 11,907
Cumulative effect of changes in
accounting principles 31,804 (1,217) -
Minority interest 1,123 730 843
Net (gains) losses from:
Securities transactions 6,018 (4,363) 1,220
Disposition of property and
equipment 1,419 199 1,981
Pension cost, net (2,024) (2,134) (2,753)
Other postretirement benefits, net 1,830 (2,422) (3,437)
Other, net 3,442 (1,349) 68
2,362 (66,386) 38,510
Change in assets and liabilities:
Accounts and notes receivable (1,776) (1,291) (13,152)
Inventories (33,814) 12,166 17,778
Prepaid expenses 207 (472) 3,221
Accounts payable and accrued
liabilities (6,111) (4,132) (17,343)
Income taxes (13,501) 1,507 109,243
Accounts with affiliates (4,106) 5,426 (2,024)
Other noncurrent assets (1,006) 8,844 2,219
Other noncurrent liabilities 13,072 37,069 28,706
Marketable trading securities:
Purchases - - (870)
Dispositions - - 15,530
Net cash provided (used) by
operating activities (44,673) (7,269) 181,818
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Cash flows from investing activities:
Capital expenditures $ (85,150) $ (47,986) $ (36,931)
Marketable securities:
Purchases (156,573) (11,053) -
Dispositions 473,935 79,398 -
Proceeds from disposition of
property and equipment 1,484 175,537 598
Investment in joint ventures, net - (14,405) 3,133
Loans to affiliates - (210) -
Other, net 1,168 670 362
Net cash provided (used) by
investing activities 234,864 181,951 (32,838)
Cash flows from financing activities:
Indebtedness:
Borrowings 61,722 452,694 44,490
Principal payments (263,093) (607,417) (175,886)
Dividends paid (17,807) - -
Other, net (3,937) (613) (742)
Net cash used by financing
activities (223,115) (155,336) (132,138)
Net change during the year from
operating, investing and
financing activities $ (32,924) $ 19,346 $ 16,842
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities $(32,924) $ 19,346 $ 16,842
Currency translation (5,013) (86) 7,689
(37,937) 19,260 24,531
Balance at beginning of year 125,270 87,333 106,593
Balance at end of year $ 87,333 $106,593 $ 131,124
Supplemental disclosures - cash paid
(received) for:
Interest, net of amounts capitalized $137,996 $ 91,576 $ 66,801
Income taxes, net 31,369 11,897 (111,418)
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 ("TiO2")) and Rheox,
Inc. (specialty chemicals).
Valhi, Inc. and Tremont Corporation, each affiliates of Contran
Corporation, hold 52% and 18%, respectively, of NL's outstanding common stock.
Contran holds, directly or through subsidiaries, approximately 90% of Valhi's
and 44% of Tremont's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons, of which Mr. Simmons is the
sole trustee. Mr. Simmons, the Chairman of the Board of NL and the Chairman of
the Board, President, and Chief Executive Officer of Contran and Valhi and a
director of Tremont, may be deemed to control each of such companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
NL and its majority-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain prior
year amounts have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenues and expenses during the reporting period.
Ultimate actual results may in some instances differ from previously estimated
amounts.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is deemed
to be other than the U.S. dollar are translated at year-end rates of exchange
and revenues and expenses are translated at weighted average exchange rates
prevailing during the year. Resulting translation adjustments and the related
income tax effects are accumulated in the currency translation adjustments
component of shareholders' deficit. Currency transaction gains and losses are
recognized in income currently.
Cash and cash equivalents
Cash equivalents include U.S. Treasury securities purchased under short-
term agreements to resell, bank deposits, and government and commercial notes
and bills with original maturities of three months or less. Cash and cash
equivalents includes $18 million and $16 million at December 31, 1993 and 1994,
respectively, which are restricted for letters of credit and certain
indebtedness agreements.
Marketable securities and securities transactions
Marketable securities are classified as either "available-for-sale" or
"trading" and are carried at market based on quoted market prices. Unrealized
gains and losses on trading securities are recognized in income currently.
Unrealized gains and losses on available-for-sale securities, and the related
deferred income tax effects, are accumulated in the marketable securities
adjustment component of shareholders' deficit. See Note 4. Realized gains or
losses are computed based on specific identification of the securities sold.
Prior to the adoption of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" as of December 31, 1993, marketable securities were generally
carried at the lower of aggregate market or amortized cost and unrealized net
gains were not recognized.
Inventories
Inventories are stated at the lower of cost (principally average cost) or
market. Amounts are removed from inventories at average cost.
Investment in joint ventures
Investments in 20% to 50%-owned entities are accounted for by the equity
method.
Intangible assets
Intangible assets, included in other noncurrent assets, are amortized by
the straight-line method over the periods expected to be benefitted, not
exceeding ten years.
Property, equipment, depreciation and depletion
Property and equipment are stated at cost. Interest costs related to
major, long-term capital projects are capitalized as a component of construction
costs. Maintenance, repairs and minor renewals are expensed; major improvements
are capitalized.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of ten to forty years for buildings and three to twenty
years for machinery and equipment. Depletion of mining properties is computed
by the unit-of-production and straight-line methods.
Long-term debt
Long-term debt is stated net of unamortized original issue discount
("OID"). OID and deferred financing costs are amortized over the life of the
applicable issue by the interest method.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Net sales
Sales are recognized as products are shipped.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in subsidiaries and unconsolidated affiliates not included in the
Company's U.S. tax group (the "NL Tax Group").
Loss per share of common stock
Loss per share of common stock is based upon the weighted average number of
common shares outstanding. Common stock equivalents are excluded from the
computation because they are antidilutive or the dilutive effect is not
material.
NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox. Titanium
dioxide pigments are used to impart whiteness, brightness and opacity to a wide
variety of products, including paints, plastics, paper, fibers and ceramics.
Specialty chemicals include rheological additives which control the flow and
leveling characteristics of a variety of products, including paints, inks,
lubricants, sealants, adhesives and cosmetics. General corporate assets consist
principally of cash, cash equivalents and marketable securities. At December
31, 1994, the net amounts of non-U.S. subsidiaries included in consolidated net
assets approximated $72 million.
Years ended December 31,
1992 1993 1994
(In thousands)
Business segments
Net sales:
Kronos $ 784,568 $ 697,048 $770,077
Rheox 108,897 108,275 117,877
$ 893,465 $ 805,323 $887,954
Operating income:
Kronos $ 81,941 $ 36,146 $ 80,515
Rheox 28,792 26,254 30,837
110,733 62,400 111,352
General corporate income (expense):
Securities earnings 8,216 8,467 3,855
Expenses, net (43,452) (41,516) (44,686)
Interest expense (118,511) (99,119) (83,926)
$ (43,014) $ (69,768) $(13,405)
Capital expenditures:
Kronos $ 81,872 $ 46,913 $ 34,522
Rheox 3,064 1,069 2,283
General corporate 214 4 126
$ 85,150 $ 47,986 $ 36,931
Depreciation, depletion and
amortization:
Kronos $ 44,360 $ 42,877 $ 31,156
Rheox 3,184 3,176 3,153
General corporate 285 287 283
$ 47,829 $ 46,340 $ 34,592
Geographic areas
Net sales - point of origin:
United States $ 238,170 $ 270,288 $ 303,475
Europe 643,670 519,064 587,291
Canada 138,656 132,930 122,957
Eliminations (127,031) (116,959) (125,769)
$ 893,465 $ 805,323 $ 887,954
Net sales - point of destination:
United States $ 204,270 $ 217,892 $ 238,568
Europe 518,711 418,072 468,915
Canada 72,692 76,078 64,374
Other 97,792 93,281 116,097
$ 893,465 $ 805,323 $ 887,954
Operating income:
United States $ 629 $ 20,981 $ 49,358
Europe 81,805 19,658 50,273
Canada 28,299 21,761 11,721
$ 110,733 $ 62,400 $ 111,352
December 31,
1992 1993 1994
(In thousands)
Identifiable assets
Business segments:
Kronos $1,246,186 $1,008,453 $ 950,200
Rheox 76,248 75,362 83,176
General corporate 149,673 122,734 129,034
$1,472,107 $1,206,549 $1,162,410
Geographic segments:
United States $ 498,029 $ 326,831 $ 308,017
Europe 671,349 622,826 594,921
Canada 153,056 134,158 130,438
General corporate 149,673 122,734 129,034
$1,472,107 $1,206,549 $1,162,410
NOTE 4 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
December 31,
1993 1994
(In thousands)
Trading securities - current U.S. Treasury
securities:
Unrealized gains (losses) $ 52 $(1,124)
Cost 40,993 26,289
Aggregate market $41,045 $25,165
Available-for-sale securities - noncurrent
marketable equity securities:
Unrealized gains $ 33 $ 3,357
Unrealized losses (2,951) (3,374)
Cost 21,346 21,346
Aggregate market $18,428 $21,329
Net gains and losses from securities transactions are composed of:
Years ended December 31,
1992 1993 1994
(In thousands)
Unrealized gains (losses) $ (565) $3,520 $(1,177)
Realized gains (losses) 478 843 (43)
Writedown of noncurrent marketable
equity securities (5,931) - -
$(6,018) $4,363 $(1,220)
NOTE 5 - INVENTORIES:
December 31,
1993 1994
(In thousands)
Raw materials $ 19,785 $ 30,118
Work in process 7,173 7,655
Finished products 135,102 112,410
Supplies 32,107 34,990
$194,167 $185,173
NOTE 6 - INVESTMENT IN JOINT VENTURES:
December 31,
1993 1994
(In thousands)
TiO2 manufacturing joint venture $188,031 $185,122
Other 2,756 2,358
$190,787 $187,480
In October 1993, Kronos Louisiana, Inc. ("KLA"), a wholly-owned subsidiary
of Kronos, formed a manufacturing joint venture, Louisiana Pigment Company, L.P.
("LPC"), with Tioxide Group, Ltd., a wholly-owned subsidiary of Imperial
Chemicals Industries PLC ("Tioxide"). LPC, which is equally owned by KLA and a
subsidiary of Tioxide, owns and operates the Louisiana chloride process TiO2
plant formerly owned by KLA. LPC has long-term debt that is collateralized by
the partnership interests of the partners and substantially all of the assets of
LPC. The long-term debt consists of two tranches, one attributable to each
partner, and each tranche is serviced through (i) the purchase of the plant's
TiO2 output in equal quantities by the partners and (ii) cash capital
contributions. KLA is required to purchase one-half of the TiO2 produced by
LPC. KLA's tranche of LPC's debt is reflected as outstanding indebtedness of
the Company because Kronos has guaranteed the purchase obligation relative to
the debt service of its tranche. See Note 10.
LPC is intended to be operated on a break-even basis and, accordingly,
Kronos' transfer price for its share of the TiO2 produced is equal to its share
of LPC's production costs and interest expense. Kronos' share of the production
costs are reported as cost of sales as the related TiO2 acquired from LPC is
sold, and its share of the interest expense is reported as a component of
interest expense.
Summary balance sheets of LPC are shown below.
December 31,
1993 1994
ASSETS (In thousands)
Current assets $ 44,477 $ 38,052
Other assets 2,376 1,969
Property and equipment, net 347,344 344,806
$394,197 $384,827
LIABILITIES AND PARTNERS' EQUITY
Long-term debt, including current portion:
Kronos tranche $104,143 $ 88,715
Tioxide tranche 102,600 81,000
Other liabilities, primarily current 16,197 12,355
222,940 182,070
Partners' equity 171,257 202,757
$394,197 $384,827
Summary income statements of LPC are shown below.
Period from
October 18, 1993 Year ended
to December 31, December 31,
1993 1994
Revenues and other income:
Kronos $12,713 $ 70,492
Tioxide 12,617 67,218
Interest income 72 462
25,402 138,172
Cost and expenses:
Cost of sales 22,803 126,972
General and administrative 443 572
Interest 2,156 10,628
25,402 138,172
Net income $ - $ -
NOTE 7 - OTHER NONCURRENT ASSETS:
December 31,
1993 1994
(In thousands)
Intangible assets, net of accumulated
amortization of $11,941 and $16,149 $15,317 $13,957
Deferred financing costs, net 18,954 16,079
Other 8,084 7,231
$42,355 $37,267
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
December 31,
1993 1994
(In thousands)
Accounts payable $ 89,010 $ 74,903
Accrued liabilities:
Employee benefits 32,350 34,209
Environmental costs 14,517 10,433
Interest 6,933 6,485
Miscellaneous taxes 2,240 7,336
Other 32,215 34,961
88,255 93,424
$177,265 $168,327
NOTE 9 - OTHER NONCURRENT LIABILITIES:
December 31,
1993 1994
(In thousands)
Environmental costs $ 70,789 $ 93,655
Insurance claims expenses 10,299 14,716
Deferred technology fee income 26,881 18,305
Employee benefits 10,084 12,322
Other 3,256 2,520
$121,309 $141,518
NOTE 10 - LONG-TERM DEBT:
December 31,
1993 1994
(In thousands)
NL Industries:
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 102,627 116,409
352,627 366,409
Kronos:
DM bank credit facility (DM 548,000 and
DM 397,610, respectively) 316,032 255,703
LPC term loan 104,143 88,715
Other 14,513 10,507
434,688 354,925
Rheox:
Bank term loan 82,500 67,500
Other 1,070 815
83,570 68,315
870,885 789,649
Less current maturities 35,716 42,887
$835,169 $746,762
The Company's $250 million principal amount of 11.75% Senior Secured Notes
due 2003 and $188 million principal amount at maturity ($100 million proceeds at
issuance) of 13% Senior Secured Discount Notes due 2005 (collectively, the
"Notes") are collateralized by a series of intercompany notes from Kronos
International, Inc. ("KII"), a wholly-owned subsidiary of Kronos, to NL, the
terms of which mirror those of the respective Notes (the "Mirror Notes"). The
Senior Secured Notes are also collateralized by a first priority lien on the
stock of Kronos and a second priority lien on the stock of Rheox. The Senior
Secured Notes and the Senior Secured Discount Notes are redeemable, at the
Company's option, after October 2000 and October 1998, respectively, except that
up to one-third of the aggregate principal amount of the Senior Secured Discount
Notes are redeemable (at 113% of the accreted value) upon any Common Stock
Offering, as defined, prior to October 1996. For redemptions, other than
redemptions pursuant to any Common Stock Offering, the redemption prices range
from 101.5% (starting October 2000) declining to 100% (after October 2001) of
the principal amount for the Senior Secured Notes and range from 106% (starting
October 1998) declining to 100% (after October 2001) of the accreted value of
the Senior Secured Discount Notes. In the event of a Change of Control, as
defined, the Company would be required to make an offer to purchase the Notes at
101% of the principal amount of the Senior Secured Notes and 101% of the
accreted value of the Senior Secured Discount Notes. The Notes are issued
pursuant to indentures which contain a number of covenants and restrictions
which, among other things, restrict the ability of the Company and its
subsidiaries to incur debt, incur liens, pay dividends or merge or consolidate
with, or sell or transfer all or substantially all of its assets to, another
entity. At December 31, 1994, there were no amounts available for payment for
dividends pursuant to the terms of the indentures. The Senior Secured Discount
Notes do not require cash interest payments for the first five years. The net
carrying value of the Senior Secured Discount Notes per $100 principal amount at
maturity was $54.73 and $62.08 at December 31, 1993 and 1994, respectively.
The DM credit facility, as amended, consists of a DM 398 million term loan
due from March 1997 to September 1999 and a DM 250 million revolving credit
facility due no later than September 2000. At December 31, 1994, all of the
revolving credit facility was available for future borrowings by KII; however,
DM 125 million is available only for (i) permanently reducing the DM term loan
or (ii) paying future German tax assessments. Borrowings bear interest at DM
LIBOR plus 1.625% (8.19% and 6.938% at December 31, 1993 and 1994,
respectively). NL and Kronos have agreed, under certain circumstances, to
provide KII with up to DM 125 million through January 1, 2001. The DM credit
facility is collateralized by pledges of the stock of certain KII subsidiaries.
The credit agreement restricts KII's ability to incur additional indebtedness,
restricts its dividends and other payments to affiliates, requires it to
maintain specified debt service coverage and other ratios, and contains other
provisions and restrictive covenants customary in lending transactions of this
type.
Borrowings under KLA's tranche of LPC's term loan bear interest at U.S.
LIBOR plus 1.625% (5.01% and 8.125% at December 31, 1993 and 1994, respectively)
and are repayable in quarterly installments through September 2000. See Note 6.
Rheox has a credit agreement providing for a seven-year term loan due in
quarterly installments through December 1997 and a $15 million revolving
credit/letter of credit facility due September 1995. Borrowings bear interest,
at Rheox's option, at prime rate plus 1.5% or U.S. LIBOR plus 2.5% (5.83% and
9.01% at December 31, 1993 and 1994, respectively), and are collateralized by
the stock of Rheox and its domestic subsidiary and by Rheox's U.S. assets. The
credit agreement restricts Rheox's ability to incur additional indebtedness,
restricts its dividend payments and contains other provisions and restrictive
covenants customary in lending transactions of this type. In connection with
the credit agreement, Rheox had entered into interest rate swap agreements to
mitigate the impact of changes in interest rates on the term loan. These swap
agreements, which matured in December 1994, effectively converted the interest
rate on $60 million of the loan from a variable rate to a fixed rate of 8.1%.
At December 31, 1993, the effective interest rate on the term loan, including
the impact of the swap agreements, was 7.3%.
Unused lines of credit available for borrowings under the Rheox U.S.
facility and non-U.S. credit facilities totalled $14 million and $195 million,
respectively, at December 31, 1994. Of the non-U.S. credit facilities
available, $80 million is available only for (i) permanently reducing the DM
term loan or (ii) paying future German tax assessments.
The aggregate maturities of long-term debt at December 31, 1994 are shown
in the table below.
Years ending December 31, Amount
(In thousands)
1995 $ 42,887
1996 41,308
1997 97,612
1998 101,354
1999 128,457
2000 and thereafter 449,122
860,740
Less unamortized original issue discount on the
Senior Secured Discount Notes 71,091
$789,649
NOTE 11 - EMPLOYEE BENEFIT PLANS:
Company-sponsored pension plans
The Company maintains various defined benefit and defined contribution
pension plans covering substantially all employees. Personnel employed by
non-U.S. subsidiaries are covered by separate plans in their respective
countries and U.S. employees are covered by various plans including the
Retirement Programs of NL Industries, Inc. (the "NL Pension Plan").
A majority of U.S. employees are eligible to participate in a contributory
savings plan with partial matching contributions by the Company. The Company's
expense related to matching contributions was $1.0 million, nil and $.3 million
in 1992, 1993 and 1994, respectively.
Defined pension benefits are generally based upon years of service and
compensation under fixed-dollar, final pay or career average formulas, and the
related expenses are based upon independent actuarial valuations. The funding
policy for U.S. defined benefit plans is to contribute amounts which satisfy
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended. Non-U.S. defined benefit pension plans are funded in accordance with
applicable statutory requirements.
The funded status of the Company's defined benefit pension plans is set
forth below. The rates used in determining the actuarial present value of
benefit obligations were (i) discount rates - 8.5% (1993 - 7% to 8.5%) and (ii)
rates of increase in future compensation levels - nil to 6%. The expected
long-term rates of return on assets used ranged from 8.5% to 9.0% (1993 - 8% to
10%). Plan assets are comprised primarily of investments in U.S. and non-U.S.
corporate equity and debt securities, short-term investments, mutual funds and
group annuity contracts.
SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit obligation exceeds the unfunded accrued pension liability. Variances
from actuarially-assumed rates, including the rate of return on pension plan
assets, will result in additional increases or decreases in accrued pension
liabilities, pension expense and funding requirements in future periods. At
December 31, 1994, approximately 60% of the projected benefit obligations in
excess of plan assets relate to non-U.S. plans.
Assets exceed Accumulated benefits
accumulated benefits exceed assets
December 31, December 31,
1993 1994 1993 1994
(In thousands)
Actuarial present value of benefit
obligations:
Vested benefits $40,612 $43,248 $137,156 $132,317
Nonvested benefits 3,160 3,390 2,893 2,155
Accumulated benefit obligations 43,772 46,638 140,049 134,472
Effect of projected salary
increases 6,235 5,938 17,664 19,620
Projected benefit obligations
("PBO") 50,007 52,576 157,713 154,092
Plan assets at fair value 63,565 66,293 88,881 108,377
Plan assets over (under) PBO 13,558 13,717 (68,832) (45,715)
Unrecognized net loss (gain) from
experience different from
actuarial assumptions 774 2,876 (4,958) (32,808)
Unrecognized prior service cost
(credit) 3,121 3,195 (3,879) (3,255)
Unrecognized transition obligations (assets)
being amortized over 15
to 18 years (1,146) (459) 2,586 2,606
Adjustment required to recognize
minimum liability - - (3,442) (1,635)
Total prepaid (accrued)
pension cost 16,307 19,329 (78,525) (80,807)
Less current portion - - (5,919) (4,565)
Noncurrent prepaid (accrued)
pension cost $16,307 $19,329 $(72,606) $(76,242)
The components of the net periodic defined benefit pension cost are set
forth below.
Years ended December 31,
1992 1993 1994
(In thousands)
Service cost benefits $ 4,272 $ 4,082 $ 4,905
Interest cost on PBO 13,804 14,430 15,371
Actual return on plan assets (12,248) (15,647) (8,039)
Net amortization and deferrals (1,346) 2,413 (5,940)
$ 4,482 $ 5,278 $ 6,297
Incentive bonus programs
The Company has incentive bonus programs for certain employees providing
for annual payments, which may be in the form of NL common stock, based on
formulas involving the profitability of Kronos and Rheox in relation to the
annual operating plan of the employee's business unit and individual
performance.
Postretirement benefits other than pensions
In addition to providing pension benefits, the Company currently provides
certain health care and life insurance benefits for eligible retired employees.
Certain of the Company's U.S. and Canadian employees may become eligible for
such postretirement health care and life insurance benefits if they reach
retirement age while working for the Company. In 1989, the Company began
phasing out such benefits for currently active U.S. employees over a ten-year
period. The majority of all retirees are required to contribute a portion of
the cost of their benefits and certain current and future retirees are eligible
for reduced health care benefits at age 65. The Company's policy is to fund
medical claims as they are incurred, net of any contributions by the retirees.
Effective January 1, 1993, the Company's postretirement medical plans were
revised to, among other things, increase the deductible and maximum out-of-
pocket amounts, increase the retiree copayment percentage and pass on future
cost increases to the participants through increased contributions or decreased
reimbursements.
The rates used in determining the actuarial present value of the
accumulated benefit obligations were (i) discount rate - 8.5% (1993 - 7%), (ii)
rate of increase in future compensation levels - 6% (1993 - 4%), (iii) rate of
increase in future health care costs - 10% in 1995, gradually declining to 5% in
2000 and thereafter and (iv) expected return on plan assets - 9%. If the health
care cost trend rate was increased by one percentage point for each year,
postretirement benefit expense would have increased approximately $.2 million in
1994, and the actuarial present value of accumulated benefit obligations at
December 31, 1994 would have increased by approximately $2.0 million.
December 31,
1993 1994
(In thousands)
Actuarial present value of accumulated benefit
obligations:
Retiree benefits $61,686 $51,895
Other fully eligible active plan participants 1,106 1,229
Other active plan participants 1,962 1,797
64,754 54,921
Plan assets at fair value 8,095 7,217
Accumulated postretirement benefit obligations
in excess of plan assets 56,659 47,704
Unrecognized net gain from experience different
from actuarial assumptions 2,390 9,251
Unrecognized prior service credit 15,145 13,672
Total accrued postretirement benefits cost 74,194 70,627
Less current portion 5,872 5,328
Noncurrent accrued postretirement benefits
cost $68,322 $65,299
The components of the Company's net periodic postretirement benefit cost
are set forth below:
Years ended December 31,
1992 1993 1994
(In thousands)
Interest cost on accumulated benefit
obligations $6,189 $ 4,911 $ 4,338
Service cost benefits earned during the year 130 127 99
Expected return on plan assets (650) (647) (688)
Net amortization and deferrals - (1,473) (1,495)
$5,669 $ 2,918 $ 2,254
NOTE 12 - SHAREHOLDERS' DEFICIT:
Common stock
Shares of common stock
Treasury
Issued stock Outstanding
(In thousands)
Balance at December 31, 1991 66,839 15,638 51,201
Purchase of treasury shares - 311 (311)
Balance at December 31, 1992 and 1993 66,839 15,949 50,890
Treasury shares reissued - (162) 162
Balance at December 31, 1994 66,839 15,787 51,052
Common stock options
The 1989 Long Term Performance Incentive Plan of NL Industries, Inc. (the
"NL Option Plan") provides for the discretionary grant of restricted common
stock, stock options, stock appreciation rights ("SARs") and other incentive
compensation to officers and other key employees of the Company. Although
certain stock options and SARs granted pursuant to similar plans which preceded
the NL Option Plan ("the Predecessor Option Plans") remain outstanding at
December 31, 1994, no additional options may be granted under the Predecessor
Option Plans.
Up to five million shares of NL common stock may be issued pursuant to the
NL Option Plan. The NL Option Plan provides for the grant of options that
qualify as incentive options and for options which are not so qualified.
Generally, stock options and SARs (collectively, "options") are granted at a
price equal to or greater than 100% of the market price at the date of grant,
vest over a five year period and expire ten years from the date of grant.
Restricted stock, forfeitable unless certain periods of employment are
completed, is held in escrow in the name of the grantee until the restriction
period expires. No SARs have been granted under the NL Option Plan. At
December 31, 1994, 100,000 shares of common stock, restricted for periods up to
14 months, are included in common shares outstanding.
Changes in outstanding options granted pursuant to the NL Option Plan and
the Predecessor Option Plans are summarized in the table below. At December 31,
1994, options to purchase 850,582 shares were exercisable and options to
purchase 388,200 shares become exercisable in 1995. Of the exercisable options
at December 31, 1994, options to purchase 468,912 shares had exercise prices
less than the Company's December 31, 1994 quoted market price of $12.625 per
share. At December 31, 1994, an aggregate of 2.7 million shares were available
for future grants under the NL Option Plan.
Amount
Exercise payable
price per upon
Shares share exercise
(In thousands, except per share amounts)
Outstanding at December 31, 1991 1,051 $8.65 - 26.17 $15,992
Granted 237 9.31 2,207
Canceled or expired (10) 9.31 - 26.17 (126)
Outstanding at December 31, 1992 1,278 8.65 - 24.19 18,073
Granted 451 5.00 - 7.00 2,645
Canceled or expired (3) 8.65 - 10.78 (27)
Outstanding at December 31, 1993 1,726 5.00 - 24.19 20,691
Granted 673 8.69 - 10.69 6,297
Exercised (13) 9.31 - 10.50 (119)
Canceled or expired (13) 5.00 - 10.13 (114)
Outstanding at December 31, 1994 2,373 $5.00 - 24.19 $26,755
Preferred stock
The Company is authorized to issue a total of five million shares of
preferred stock. The rights of preferred stock as to dividends, redemption,
liquidation and conversion are determined upon issuance.
NOTE 13 - INCOME TAXES:
The components of (i) loss before income taxes, minority interest,
extraordinary item and cumulative effect of changes in accounting principles
("pretax income (loss)"), (ii) the difference between the provision for income
taxes attributable to pretax income (loss) and the amounts that would be
expected using the U.S. federal statutory income tax rate of 35% (34% in 1992),
(iii) the provision for income taxes and (iv) the comprehensive tax provision
(benefit) are presented below.
Years ended December 31,
1992 1993 1994
(In thousands)
Pretax income (loss):
U.S. $(52,724) $(41,579) $ (6,241)
Non-U.S. 9,710 (28,189) (7,164)
$(43,014) $(69,768) $(13,405)
Expected tax benefit $(14,625) $(24,419) $ (4,692)
Non-U.S. tax rates (11,224) (15,620) (7,108)
Rate change adjustment of deferred taxes - 6,823 -
Valuation allowance 20,237 40,827 24,309
Settlement of U.S. tax audits - - (5,437)
Incremental tax on income of companies not
included in the NL Tax Group 5,385 2,553 790
Other, net 686 2,549 1,872
$ 459 $ 12,713 $ 9,734
Provision for income taxes:
Current income tax expense (benefit):
U.S. $ (2,395) $ (45) $ (4,747)
Non-U.S. 21,803 14,083 2,574
19,408 14,038 (2,173)
Deferred income tax expense (benefit):
U.S. 33 (140) 4,405
Non-U.S. (18,982) (1,185) 7,502
(18,949) (1,325) 11,907
$ 459 $ 12,713 $ 9,734
Comprehensive tax provision (benefit)
allocable to:
Pretax income (loss) $ 459 $12,713 $9,734
Shareholders' deficit, principally
deferred income taxes allocable to
currency translation and marketable
securities adjustments (1,196) (1,243) 7
$ (737) $11,470 $9,741
Changes in deferred income taxes related to the adoption of new accounting
standards are disclosed in Note 19. The Company's valuation allowance increased
in the aggregate (including the effect of foreign currency translation) by $47
million in 1993 and $31 million in 1994. The components of the net deferred tax
liability are summarized below:
December 31,
1993 1994
Deferred tax Deferred tax
Assets Liabilities Assets Liabilities
(In thousands)
Tax effect of temporary
differences relating to:
Inventories $ 3,965 $ (2,532) $ 4,275 $ (2,885)
Property and equipment 2,694 (90,356) 423 (102,817)
Accrued postretirement
benefits cost 25,955 - 24,968 -
Accrued pension cost 9,712 (9,224) 9,363 (11,529)
Accrued environmental costs 26,784 - 34,108 -
Other accrued liabilities
and deductible differences 22,070 - 32,031 -
Other taxable differences - (104,940) - (139,378)
Tax on unremitted earnings of
non-U.S. subsidiaries 577 (27,742) 452 (22,416)
Tax loss and tax credit
carryforwards 137,706 - 162,906 -
Valuation allowance (133,377) - (164,500) -
Gross deferred tax assets
(liabilities) 96,086 (234,794) 104,026 (279,025)
Reclassification, principally
netting by tax jurisdiction (92,194) 92,194 (99,103) 99,103
Net total deferred tax
assets (liabilities) 3,892 (142,600) 4,923 (179,922)
Net current deferred tax
assets (liabilities) 3,315 (3,623) 2,177 (1,590)
Net noncurrent deferred tax
assets (liabilities) $ 577 $(138,977) $ 2,746 $(178,332)
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 or may propose tax deficiencies. During 1994, the German tax
authorities withdrew certain assessment reports which had proposed tax
deficiencies of DM 100 million and remitted tax refunds aggregating DM 225
million ($136 million), including interest, on a tentative basis. The Company
applied DM 174 million ($108 million) of the German tentative tax refunds to
reduce outstanding borrowings under its DM credit facility. The examination of
the Company's 1989 and 1990 income tax returns is continuing and additional
substantial proposed tax deficiency assessments are expected. Although the
Company believes that it will ultimately prevail, the Company has granted a DM
100 million ($64 million at December 31, 1994) 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. In
November 1994, the Joint Committee on Taxation (Congressional Review) approved
the Company's settlement with the Internal Revenue Service regarding
examinations of the Company's 1985 and 1986 U.S. federal income tax returns
which resulted in a $5 million tax benefit. In 1995, the Company expects to
make examination settlement payments of $20 million in final settlement of
certain German tax examinations relating to tax years prior to 1989.
At December 31, 1994, the Company had approximately $300 million of income
tax loss carryforwards with no expiration dates, primarily in Germany. As a
result of the German tentative tax refunds and redetermination of prior year's
U.S. tax liabilities, at December 31, 1994, the Company does not anticipate
having any U.S. tax attributes, including net operating loss and alternative
minimum tax credits, available for carryforward for U.S. federal income tax
purposes.
NOTE 14 - OTHER INCOME, NET:
Years ended December 31,
1992 1993 1994
(In thousands)
Securities earnings:
Interest and dividends $14,234 $ 4,104 $ 5,075
Securities transactions (6,018) 4,363 (1,220)
8,216 8,467 3,855
Litigation settlement gains - - 22,978
Technology fee income - 2,048 10,344
Currency transaction gains, net 1,735 3,299 1,735
Royalty income 1,014 2,016 1,508
Disposition of property and equipment (1,419) (199) (1,981)
Other, net 5,251 6,453 6,389
$14,797 $22,084 $44,828
Litigation settlement gains includes $20 million related to the Company's
1994 settlement of its lawsuit against Lockheed Corporation. Technology fee
income is being amortized by the straight-line method over a three-year period
beginning October 1993.
NOTE 15 - OTHER ITEMS:
Advertising costs, expensed as incurred, were $2.6 million in 1992, $2.1
million in 1993 and $1.9 million in 1994.
Research, development and sales technical support costs, expensed as
incurred, approximated $11 million in 1992 and $10 million in both 1993 and
1994.
Interest capitalized in connection with long-term capital projects was $9
million in 1992 and $1 million in both 1993 and 1994.
NOTE 16 - EXTRAORDINARY ITEM:
The extraordinary loss in 1993 relates to the settlement of certain
interest rate swap agreements for $20 million in cash in conjunction with
prepaying the Louisiana plant indebtedness and from the write-off of deferred
financing costs related to such prepayment and the paydown of a portion of the
DM bank credit facility. The Louisiana plant indebtedness loan agreement
required the Company to enter into the interest rate swap agreements and both
the debt and related swaps were collateralized by the Louisiana plant. The
Company was required to prepay the Louisiana plant indebtedness and settle the
swaps prior to the formation of LPC (thus making the swaps inseparable from the
debt).
NOTE 17 - RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. While no
transactions of the type described above are planned or proposed with respect to
the Company, the Company from time to time considers, reviews and evaluates, and
understands that Contran, Valhi and related entities consider, review and
evaluate, such transactions. Depending upon the business, tax and other
objectives then relevant, and restrictions under the indentures and other
agreements, it is possible that the Company might be a party to one or more such
transactions in the future.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
The Company is a party to an intercorporate services agreements with Valhi
and Contran (the "Valhi and Contran ISAs") whereby Valhi and Contran provide
certain management, financial and administrative services to the Company on a
fee basis. Management services fee expense related to the Valhi and Contran
ISAs was $1.4 million in 1992, $.7 million in 1993 and $.6 million in 1994.
Baroid Corporation, a former wholly-owned subsidiary of the Company and a
subsidiary of Dresser Industries, Inc., and the Company were parties to an
intercorporate services agreement (the "Baroid ISA") pursuant to which, as
amended, Baroid agreed to make certain services available to the Company on a
fee basis subject to termination or renewal by mutual agreement. Management
services fee expense pursuant to the Baroid ISA approximated $2.3 million in
1992, $.3 million in 1993 and $.2 million in 1994.
The Company was party to an intercorporate services agreement with Tremont
(the "Tremont ISA") until June 1993 when the agreement was terminated. Under
the terms of the contract, the Company provided certain management, financial
and legal services to Tremont on a fee basis. Management services fee income
related to the Tremont ISA was $.5 million in 1992 and $.1 million in 1993.
Purchases from Tremont in the ordinary course of business pursuant to a
long-term supply contract were $.6 million in 1992, $.4 million in 1993 and nil
in 1994.
Sales to Baroid in the ordinary course of business were $2.1 million in
1992 and $1.8 million in both 1993 and 1994.
Purchases in the ordinary course of business from unconsolidated joint
ventures, including LPC, were approximately $9 million in 1992, $22 million in
1993 and $74 million in 1994.
Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
and Valhi have agreed that the Company will pay Valhi the aggregate difference
between the option price and the market value of Valhi's common stock on the
exercise date of such options. For financial reporting purposes, the Company
accounts for the related expense (nil in 1992 and 1993 and $64,000 in 1994) in a
manner similar to accounting for SARs. At December 31, 1994, employees of the
Company held options to purchase 365,000 shares (356,000 shares vested) of Valhi
common stock at exercise prices ranging from $5 to $15 per share. At December
31, 1994, 30,000 of these options were exercisable at prices less than Valhi's
quoted market price per share of $7.625.
The Company and TRE Insurance, a wholly-owned subsidiary of Tremont, are
parties to an Insurance Sharing Agreement with respect to certain loss payments
and reserves established by TRE Insurance that (i) arise out of claims against
other entities for which the Company is responsible and (ii) are subject to
payment by TRE Insurance under certain reinsurance contracts. Also, TRE
Insurance will credit the Company with respect to certain underwriting profits
or credit recoveries that TRE Insurance receives from independent reinsurers
that relate to retained liabilities.
Net amounts payable to affiliates are summarized in the following table.
December 31,
1993 1994
(In thousands)
Tremont Corporation $4,777 $ 4,780
LPC 4,789 6,565
Other - 3
$9,566 $11,348
Amounts payable to LPC are generally for the purchase of TiO2 (see Note 6),
and amounts payable to Tremont relate to the Company's Insurance Sharing
Agreement described above.
NOTE 18 - COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases, pursuant to operating leases, various manufacturing and
office space and transportation equipment. Most of the leases contain purchase
and/or various term renewal options at fair market and fair rental values,
respectively. In most cases management expects that, in the normal course of
business, leases will be renewed or replaced by other leases.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement, which expired in 1991 and to which an extension
through 2011 has been agreed in principle, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the Leverkusen facility. Kronos and the lessor are continuing
discussions regarding a definitive agreement for the extension of the supplies
and services agreement. Both the lease and the supplies and services agreements
restrict the Company's ability to transfer ownership or use of the Leverkusen
facility.
Net rent expense aggregated $9 million in 1992 and $8 million in both 1993
and 1994. At December 31, 1993, minimum rental commitments under the terms of
noncancellable operating leases were as follows:
Years ending December 31, Real Estate Equipment
(In thousands)
1995 $ 1,782 $1,582
1996 1,550 1,083
1997 1,432 602
1998 1,455 325
1999 1,325 116
2000 and thereafter 13,200 17
$20,744 $3,725
Legal proceedings
Lead pigment litigation. Since 1987, the Company, other past manufacturers
of lead pigments for use in paint and lead-based paint and the Lead Industries
Association have been named as defendants in various legal proceedings seeking
damages for personal injury and property damage allegedly caused by the use of
lead-based paints. Certain of these actions have been filed by or on behalf of
large United States cities or their public housing authorities and certain
others have been asserted as class actions. These legal proceedings seek
recovery under a variety of theories, including negligent product design,
failure to warn, breach of warranty, conspiracy/concert of action, enterprise
liability, market share liability, intentional tort, and fraud and
misrepresentation.
The plaintiffs in these actions generally seek to impose on the defendants
responsibility for lead paint abatement and asserted health concerns associated
with the use of lead-based paints, which was permitted for interior residential
use in the United States until 1973, including damages for personal injury,
contribution and/or indemnification for medical expenses, medical monitoring
expenses and costs for educational programs. Most of these legal proceedings
are in various pre-trial stages; several are on appeal.
The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending
lead pigment litigation. Considering the Company's previous involvement in the
lead and lead pigment businesses, there can be no assurance that additional
litigation similar to that currently pending will not be filed.
Environmental matters and litigation. Some of the Company's current and
former facilities, including several divested secondary lead smelters and former
mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws. Additionally, in connection with past disposal practices, the Company has
been named a potential responsible party ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act ("CERCLA") in approximately 80
governmental enforcement and private actions associated with hazardous waste
sites and former mining locations, some of which are on the U.S. Environmental
Protection Agency's Superfund National Priorities List. These actions seek
cleanup costs and/or damages for personal injury or property damage. While the
Company may be jointly and severally liable for such costs, in most cases, it is
only one of a number of PRPs who are also jointly and severally liable. In
addition, the Company is a party to a number of lawsuits filed in various
jurisdictions alleging CERCLA or other environmental claims. At December 31,
1994, the Company had accrued $87 million in respect of those environmental
matters which are reasonably estimable. It is not possible to estimate the
range of costs for certain sites. The upper end of the range of reasonably
possible costs to the Company for sites which it is possible to estimate costs
is approximately $160 million. The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs, or
a determination that the Company is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by the Company to be required for such matters. 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.
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As with
other companies engaged in similar businesses, certain operations and products
of the Company have the potential to cause environmental or other damage. The
Company continues to implement various policies and programs in an effort to
minimize these risks. The Company's policy is to comply with environmental laws
and regulations at all of its facilities and to continually strive to improve
environmental performance in association with applicable industry initiatives.
It is possible that future developments, such as stricter requirements of
environmental laws and enforcement policies thereunder, could affect the
Company's production, handling, use, storage, transportation, sale or disposal
of such substances.
Other litigation. The Company is also involved in various other
environmental, contractual, product liability and other claims and disputes
incidental to its present and former businesses.
The Company currently believes the disposition of all claims and disputes
individually or in the aggregate, should not have a material adverse effect on
the Company's consolidated financial condition, results of operations or
liquidity.
Concentrations of credit risk
Sales of TiO2 accounted for almost 90% of net sales during the past three
years. TiO2 is sold to the paint, paper and plastics industries. Such markets
are generally considered "quality-of-life" markets whose demand for TiO2 is
influenced by the relative economic well-being of the various geographic
regions. TiO2 is sold to over 5,000 customers, none of which represents a
significant portion of net sales. In each of the past three years,
approximately one-half of the Company's TiO2 sales by volume were to Europe and
approximately 33% in 1992, 38% in 1993 and 36% in 1994 of sales were
attributable to North America.
Consolidated cash and cash equivalents includes $64 million and $80 million
invested in U.S. Treasury securities purchased under short-term agreements to
resell at December 31, 1993 and 1994, respectively, of which $56 million and $73
million, respectively, of such securities are held in trust for the Company by a
single U.S. bank.
NOTE 19 - CHANGES IN ACCOUNTING PRINCIPLES:
In 1993, the Company adopted SFAS No. 115 (marketable securities) as of
December 31, 1993. In 1992, the Company (i) elected early compliance with both
SFAS No. 106 (OPEB) and SFAS No. 109 (income taxes) as of January 1, 1992; (ii)
elected immediate recognition of the OPEB transition obligation; and (iii)
elected to apply SFAS No. 109 prospectively and not restate prior years. The
cumulative effect of changes in accounting principles adjustments are shown
below.
Amount reflected in
Equity
Earnings component
(In thousands)
Increase (decrease) in net assets at
December 31, 1993 - SFAS No. 115:
Marketable securities $1,872 $(1,872)
Deferred income taxes (655) 655
$1,217 $(1,217)
Amount
(In thousands)
Increase (decrease) in net assets at
January 1, 1992 - SFAS Nos. 106 and 109:
Accrued postretirement benefits cost $(74,918)
Deferred income taxes, net 43,114
$(31,804)
NOTE 20 - FINANCIAL INSTRUMENTS:
Summarized below is the estimated fair value and related net carrying value
of the Company's financial instruments.
December 31, December 31,
1993 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
(In millions)
Cash and cash equivalents $ 106.6 $106.6 $ 131.1 $131.1
Marketable securities - classified as:
Trading securities 41.1 41.1 25.2 25.2
Available-for-sale 18.4 18.4 21.3 21.3
Notes payable and long-term debt:
Fixed rate with market quotes:
Senior Secured Notes $ 250.0 $260.0 $ 250.0 $247.1
Senior Secured Discount Notes 102.6 108.3 116.4 114.8
Rheox debt with rates fixed via
interest rate swaps 60.0 61.0 - -
Variable rate debt 458.3 458.3 423.2 423.2
Common shareholders' equity (deficit) $(264.8) $229.0 $(293.1) $644.5
Fair value of the Company's marketable securities and Notes are
based upon quoted market prices and the fair value of the Company's
common shareholder's equity (deficit) is based upon quoted market prices
for NL's common stock. The fair value of debt on which interest rates
have been effectively fixed through the use of interest rate swaps (a
portion of Rheox's U.S. term loans in 1993) is deemed to approximate the
book value of the debt plus or minus the fair value of the related swaps.
The fair value of Rheox's interest rate swaps is estimated to be a $1
million payable at December 31, 1993. Such fair value represents the
estimated amount the Company would pay if it were to terminate the
swap agreements at that date. The fair value of swap agreements is
estimated by obtaining quotes from the counter party financial
institutions. The fair value of variable interest rate debt is deemed
to approximate book value. With the exception of certain interest rate
cap agreements that have a carrying value of $.5 million and a fair value
of nil, the Company holds no derivative financial instruments at
December 31, 1994.
NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarter ended,
March 31 June 30 Sept. 30 Dec. 31
(In thousands, except per share amounts)
Year ended December 31, 1993:
Net sales $198,518 $221,378 $202,096 $183,331
Cost of sales 142,506 171,671 156,894 141,296
Operating income 23,105 15,166 12,773 11,356
Loss before extraordinary item
and cumulative effect of
change in accounting
principle $(13,490) $(28,002) $(18,722) $(22,997)
Extraordinary item - - - (27,815)
Cumulative effect of change in
accounting principle - - - 1,217
Net loss $(13,490) $(28,002) $(18,722) $(49,595)
Per share of common stock:
Loss before extraordinary
item and cumulative effect
of change in accounting
principle $ (.27) $ (.55) $ (.37) $ (.44)
Extraordinary item - - - (.55)
Cumulative effect of change
in accounting principle - - - .02
Net loss $ (.27) $ (.55) $ (.37) $ (.97)
Weighted average shares
outstanding 50,890 50,890 50,890 50,890
Year ended December 31, 1994:
Net sales $201,849 $237,113 $225,200 $223,792
Cost of sales 146,956 178,925 168,033 155,831
Operating income 22,313 26,242 27,093 35,704
Net income (loss) $ (6,367) $(15,534) $ (4,578) $ 2,497
Net income (loss) per
share of common stock $ (.12) $ (.30) $ (.09) $ .05
Weighted average shares
outstanding 50,965 51,040 51,040 51,045
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of NL Industries, Inc.
is included on page F-2 of this Annual Report on Form 10-K. As discussed in
Notes 2 and 19 to the consolidated financial statements, the Company changed its
method of accounting for marketable securities in 1993 and, the Company changed
its method of accounting for postretirement benefits other than pensions and
income taxes in 1992. In connection with our audits of such financial
statements, we have also audited the related financial statement schedules
listed in the index on page F-1.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 3, 1995
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 1993 and 1994
(In thousands)
1993 1994
Current assets:
Cash and cash equivalents $ 11,107 $ 18,371
Marketable securities 41,045 25,165
Accounts and notes receivable 2,088 1,274
Receivable from subsidiaries 980 2,854
Prepaid expenses 248 747
Total current assets 55,468 48,411
Other assets:
Marketable securities 18,428 21,329
Notes receivable from subsidiary 352,627 366,409
Investment in subsidiaries (156,615) (181,751)
Other 10,713 9,214
Total other assets 225,153 215,201
Property and equipment, net 3,925 3,732
$ 284,546 $ 267,344
Current liabilities:
Accounts payable and accrued liabilities $ 38,176 $ 33,248
Payable to affiliates 4,777 4,783
Income taxes 93 186
Deferred income taxes 3,627 1,436
Total current liabilities 46,673 39,653
Noncurrent liabilities:
Long-term debt 352,627 366,409
Deferred income taxes 27,182 9,546
Accrued pension cost 16,164 14,021
Accrued postretirement benefits cost 42,216 40,711
Other 64,479 90,086
Total noncurrent liabilities 502,668 520,773
Shareholders' deficit (264,795) (293,082)
$ 284,546 $ 267,344
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Operations
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Revenues and other income:
Equity in income (loss) of subsidiaries $(10,703) $ (49,766) $ 7,925
Interest and dividends 2,829 3,622 2,538
Interest income from subsidiary - 8,358 43,157
Securities transactions 2,691 3,637 (1,220)
Other income, net 1,791 2,597 3,135
(3,392) (31,552) 55,535
Costs and expenses:
General and administrative 45,243 44,113 69,875
Interest 1,598 13,771 44,003
46,841 57,884 113,878
Loss before income taxes,
extraordinary item and cumulative
effect of changes in accounting
principles (50,233) (89,436) (58,343)
Income tax benefit 5,637 6,225 34,361
Loss before extraordinary item
and cumulative effect of changes
in accounting principles (44,596) (83,211) (23,982)
Extraordinary item - equity in income of
subsidiaries - (27,815) -
Cumulative effect of changes in
accounting principles:
NL (30,546) 1,217 -
Equity in income of subsidiaries (1,258) - -
(31,804) 1,217 -
Net loss $(76,400) $(109,809) $(23,982)
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Cash flows from operating activities:
Net loss $(76,400) $(109,809) $(23,982)
Undistributed earnings of subsidiaries:
Equity in (income) loss before
extraordinary item and cumulative
effect of changes in accounting
principles 10,703 49,766 (7,925)
Extraordinary item - 27,815 -
Cumulative effect of changes in
accounting principles 1,258 - -
Distributions 54,000 - 30,000
Non-cash interest expense - 165 845
Deferred income taxes 843 1,510 (20,577)
Securities transactions (2,691) (3,637) 1,220
Cumulative effect of changes in
accounting principles 30,546 (1,217) -
Other, net 400 (1,268) (3,836)
18,659 (36,675) (24,255)
Change in assets and liabilities, net 6,340 14,428 23,263
Marketable trading securities:
Purchases - - (870)
Dispositions - - 15,530
Net cash provided (used) by
operating activities 24,999 (22,247) 13,668
Cash flows from investing activities:
Investment in subsidiary (3,896) (6,478) (6,630)
Capital expenditures (214) (4) (126)
Loans to subsidiaries - (341,500) -
Purchases of marketable securities (1,238) (10,899) -
Proceeds from disposition of marketable
securities 6,735 69,232 -
Other, net (768) 667 402
Net cash provided (used) by
investing activities 619 (288,982) (6,354)
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (Continued)
Condensed Statements of Cash Flows (Continued)
Years ended December 31, 1992, 1993 and 1994
(In thousands)
1992 1993 1994
Cash flows from financing activities:
Borrowings of (principal payments on):
Long-term debt $(14,873) $ 327,340 $ (170)
Loans from affiliates 12,298 (16,047) -
Dividends paid (17,807) - -
Other, net (3,660) - 120
Net cash provided (used) by
financing activities (24,042) 311,293 (50)
Cash and cash equivalents:
Increase (decrease) from:
Operating activities 24,999 (22,247) 13,668
Investing activities 619 (288,982) (6,354)
Financing activities (24,042) 311,293 (50)
Net change from operating, investing
and financing activities 1,576 64 7,264
Balance at beginning of year 9,467 11,043 11,107
Balance at end of year $ 11,043 $ 11,107 $ 18,371
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Notes to Condensed Financial Information
NOTE 1 - BASIS OF PRESENTATION:
The Consolidated Financial Statements of NL Industries, Inc. (the
"Company") and the related Notes to Consolidated Financial Statements are
incorporated herein by reference.
NOTE 2 - NET PAYABLE TO (RECEIVABLE FROM) SUBSIDIARIES AND AFFILIATES:
December 31,
1993 1994
(In thousands)
Current:
Tremont Corporation $ 4,777 $ 4,780
Other - 3
Kronos and Rheox:
Income taxes 3,123 1,043
Other, net (4,103) (3,897)
$ 3,797 $ 1,929
Noncurrent:
Note receivable - Kronos $(352,627) $(366,409)
NOTE 3 - LONG-TERM DEBT:
December 31,
1993 1994
(In thousands)
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 102,627 116,409
$352,627 $366,409
See Note 10 of the Consolidated Financial Statements for a description of
the Notes.
The aggregate maturities of the Company's long-term debt at December 31,
1994 are shown in the table below.
Amount
(In thousands)
Senior Secured Notes due 2003 $250,000
Senior Secured Discount Notes due 2005 187,500
437,500
Less unamortized original issue discount on the
Senior Secured Discount Notes 71,091
$366,409
The Company and Kronos have agreed, under certain circumstances, to provide
Kronos' principal international subsidiary with up to DM 125 million through
January 1, 2001.
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged to
beginning costs and
Description of year expenses Deductions
Year ended December 31, 1994:
Allowance for doubtful accounts and notes
receivable $ 3,008 $ 1,141 $ (616)(a)
Amortization of intangibles $ 11,941 $ 2,901 $ -
Valuation allowance for deferred income
taxes $133,377 $24,309 $ -
Year ended December 31, 1993:
Allowance for doubtful accounts and notes
receivable $ 2,385 $ 1,216 $ (476)(a)
Amortization of intangibles $ 9,792 $ 2,863 $ -
Valuation allowance for deferred income
taxes $ 86,031 $50,562(b) $ -
Year ended December 31, 1992:
Allowance for doubtful accounts and notes
receivable $ 1,749 $ 945 $ (190)(a)
Amortization of intangibles $ 7,270 $ 2,989 $ -
Valuation allowance for deferred income
taxes $ - $86,031(b) $ -
Currency
translation Balance at
Description adjustments end of year
Year ended December 31, 1994:
Allowance for doubtful accounts and notes
receivable $ 216 $ 3,749
Amortization of intangibles $ 1,307 $ 16,149
Valuation allowance for deferred income
taxes $ 6,814 $164,500
Year ended December 31, 1993:
Allowance for doubtful accounts and notes
receivable $ (117) $ 3,008
Amortization of intangibles $ (714) $ 11,941
Valuation allowance for deferred income
taxes $(3,216) $133,377
Year ended December 31, 1992:
Allowance for doubtful accounts and notes
receivable $ (119) $ 2,385
Amortization of intangibles $ (467) $ 9,792
Valuation allowance for deferred income
taxes $ - $ 86,031
(a) Amounts written off, less recoveries.
(b) Includes (i) amounts recorded at the date of adoption of SFAS 109 in 1992
reported as a component of cumulative effect of changes in
accounting principles and (ii) amounts recorded as part of
extraordinary item in 1993.