SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1994 COMMISSION FILE NUMBER 1-5467
VALHI, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0110150
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ FREEWAY, SUITE 1700, DALLAS, TEXAS 75240-2697
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 233-1700
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS.
YES X NO
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON APRIL 30, 1994: 114,977,814.
VALHI, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1993
and March 31, 1994 3-4
Consolidated Statements of Operations - Three
months ended March 31, 1993 and 1994 5
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 1994 6
Consolidated Statements of Cash Flows - Three
months ended March 31, 1993 and 1994 7-8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 29
Item 6. Exhibits and Reports on Form 8-K. 30
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1993 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,189 $ 31,975
Marketable securities 28,518 28,107
Accounts and notes receivable 61,135 60,921
Receivable from affiliates 272 368
Inventories 276,125 234,902
Prepaid expenses 6,126 6,080
Deferred income taxes 75 75
Total current assets 394,440 362,428
Other assets:
Marketable securities 108,800 111,271
Investment in affiliates 74,897 69,681
Timber and timberlands 51,868 52,085
Deferred income taxes 27,723 28,452
Other 42,887 42,259
Total other assets 306,175 303,748
Property and equipment:
Land 18,822 19,924
Buildings 43,522 43,848
Equipment 341,868 341,582
Construction in progress 17,344 28,307
421,556 433,661
Less accumulated depreciation 218,300 225,026
Net property and equipment 203,256 208,635
$903,871 $874,811
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
1993 1994
<S> <C> <C>
Current liabilities:
Notes payable $117,753 $177,928
Current maturities of long-term debt 16,086 22,873
Accounts payable 163,338 56,059
Accrued liabilities 60,190 64,860
Payable to affiliates 43 1,500
Income taxes 4,916 3,588
Deferred income taxes 2,494 1,454
Total current liabilities 364,820 328,262
Noncurrent liabilities:
Long-term debt 302,490 308,972
Deferred income taxes 1,732 1,936
Other 27,328 27,887
Total noncurrent liabilities 331,550 338,795
Stockholders' equity:
Common stock 1,244 1,244
Additional paid-in capital 33,409 33,132
Retained earnings 222,810 219,824
Adjustments:
Currency translation (17,776) (16,740)
Marketable securities 41,075 42,980
Pension liabilities (1,619) (1,535)
Common stock reacquired (71,642) (71,151)
Total stockholders' equity 207,501 207,754
$903,871 $874,811
</TABLE>
[FN]
Commitments and contingencies (Note 14)
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Revenues and other income:
Net sales $171,332 $188,965
Other, net 4,452 1,586
175,784 190,551
Costs and expenses:
Cost of sales 132,943 146,303
Selling, general and administrative 25,899 27,972
Interest 11,957 8,997
170,799 183,272
Income of consolidated companies before
income taxes 4,985 7,279
Equity in losses of affiliates (95,549) (7,571)
Loss before income taxes (90,564) (292)
Provision for income tax benefit (expense) 30,265 (408)
Net loss $(60,299) $ (700)
Net loss per common share $(.53) $(.01)
Cash dividends per share $ .05 $ .02
Weighted average common shares outstanding 114,060 114,273
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
<S> <C> <C> <C>
Balance at December 31, 1993 $1,244 $33,409 $222,810
Net loss - - (700)
Dividends - - (2,286)
Adjustments, net - - -
Other, net - (277) -
Balance at March 31, 1994 $1,244 $33,132 $219,824
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS COMMON TOTAL
CURRENCY MARKETABLE PENSION STOCK STOCKHOLDERS'
TRANSLATION SECURITIES LIABILITIES REACQUIRED EQUITY
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $(17,776) $41,075 $(1,619) $(71,642) $207,501
Net loss - - - - (700)
Dividends - - - - (2,286)
Adjustments, net 1,036 1,905 84 - 3,025
Other, net - - - 491 214
Balance at March 31, 1994 $(16,740) $42,980 $(1,535) $(71,151) $207,754
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (60,299) $ (700)
Adjustments:
Depreciation, depletion and amortization 6,697 7,953
Noncash interest expense (original issue
discount and deferred financing costs) 2,526 2,635
Deferred income tax benefit (30,660) (2,861)
Equity in losses of affiliates 95,549 7,571
Other, net (1,014) 947
Change in assets and liabilities:
Accounts and notes receivable 1,686 (751)
Inventories 40,769 41,223
Accounts payable and accrued liabilities (127,357) (101,604)
Accounts with affiliates (2,923) 1,361
Other, net (1,236) (1,285)
Marketable trading securities:
Sale proceeds - 25,000
Purchases - (25,000)
Total adjustments (15,963) (44,811)
Net cash used by operating activities (76,262) (45,511)
Cash flows from investing activities:
Capital expenditures (3,773) (13,278)
Marketable securities:
Sale proceeds 299,952 -
Purchases (213,733) -
Loans to affiliates:
Loans (7,500) -
Collections 7,500 -
Other, net 4,667 (9)
Net cash provided (used) by investing
activities 87,113 (13,287)
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Cash flows from financing activities:
Notes payable and long-term debt:
Additions $ 174,049 $ 160,410
Principal payments (206,049) (89,437)
Dividends paid (5,704) (2,286)
Other, net 35 116
Net cash provided (used) by financing activities (37,669) 68,803
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities (26,818) 10,005
Currency translation 78 (219)
(26,740) 9,786
Balance at beginning of period 44,538 22,189
Balance at end of period $ 17,798 $ 31,975
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 17,792 $ 3,232
Income taxes 3,453 2,946
</TABLE>
VALHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet of Valhi, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1993 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1994 and the consolidated statements of
operations, cash flows and stockholders' equity for the interim periods ended
March 31, 1993 and 1994 have been prepared by the Company, without audit. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for the interim periods are not necessarily indicative of the operating results
for a full year or of future operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Annual Report").
Contran Corporation holds, directly or through subsidiaries, approximately
90% of Valhi's outstanding common stock.
NOTE 2 - INCOME (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) per share is based on the weighted average number of common
shares outstanding. Common stock equivalents are excluded from the computation
because they are either antidilutive or the dilutive effect is not material.
NOTE 3 - BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
BUSINESS SEGMENT PRINCIPAL ENTITIES
<S> <C>
Consolidated business segments (100%-owned)
Refined sugar The Amalgamated Sugar Company
Valcor, Inc.:
Forest products Medite Corporation
Fast food Sybra, Inc.
Hardware products National Cabinet Lock, Inc.
Unconsolidated affiliates
Chemicals NL Industries, Inc. (49%-owned)*
Titanium metals Tremont Corporation (48%-owned)
</TABLE>
[FN]
* Tremont holds an additional 18% of NL.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994
(IN MILLIONS)
<S> <C> <C>
Net sales:
Refined sugar $ 91.2 $104.2
Forest products 39.6 40.0
Fast food 26.1 26.7
Hardware products 14.4 18.0
$171.3 $188.9
Operating income:
Refined sugar $ 6.1 $ 6.8
Forest products 5.4 5.1
Fast food 1.9 1.6
Hardware products 3.1 5.1
16.5 18.6
Business unit disposition .5 -
General corporate items:
Securities earnings 2.6 .1
General expenses (2.6) (2.2)
Other, net - (.2)
Interest expense (12.0) (9.0)
Income of consolidated companies before
income taxes 5.0 7.3
Equity in losses of affiliates:
NL Industries (9.5) (5.4)
Tremont (2.1) (2.2)
Provisions for other than temporary market value
impairment of NL common stock (84.0) -
(95.6) (7.6)
Loss before income taxes $(90.6) $ (.3)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
DEPRECIATION,
DEPLETION AND CAPITAL
AMORTIZATION EXPENDITURES
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Refined sugar $2.8 $3.9 $ .7 $ 4.0
Forest products 1.9 2.0 2.4 5.5
Fast food 1.5 1.5 .3 2.8
Hardware products .4 .5 .3 .9
Corporate .1 .1 .1 .1
$6.7 $8.0 $3.8 $13.3
</TABLE>
NOTE 4 - MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31,
1993
1994
(IN THOUSANDS)
<S> <C> <C>
Current assets (trading securities):
U.S. Treasury securities $ 28,518 $ 4,355
Global bond investments - 23,752
$ 28,518 $ 28,107
Noncurrent assets (available-for-sale) -
Dresser Industries common stock $108,800 $111,271
</TABLE>
The global bond investments consist of fixed income securities denominated
in various currencies and related currency forward and option contracts obtained
to hedge exchange rate risk on the equivalent of approximately $18 million of
bond principal amount. Realized and unrealized gains and losses on trading
securities, including related global bond investment currency gains and losses,
are reported as a component of securities transactions. At March 31, 1994, the
aggregate amortized cost of the Company's portfolio of trading securities was
approximately $30 million.
At March 31, 1994, Valhi held 5.5 million shares of Dresser common stock
(cost $44 million) with a quoted market price of $21.25, or an aggregate market
value of $116 million. However, because the Dresser common stock is
exchangeable for the Company's LYONs at the option of the LYONs holder, the
carrying value of the Dresser stock is limited to the accreted LYONs obligation.
NOTE 5 - INVESTMENT IN AFFILIATES:
<TABLE>
<CAPTION>
DECEMBER 31,
March 31,
1993
1994
(IN THOUSANDS)
<S> <C> <C>
NL Industries $60,170 $56,818
Tremont 14,727 12,863
$74,897 $69,681
</TABLE>
The Company holds 24.8 million shares of NL common stock and 3.5 million
shares of Tremont common stock. At March 31, 1994, the quoted per share market
prices of NL and Tremont common stock were $6.50 and $6.375, respectively, or an
aggregate quoted market value of $184 million. Summarized information relating
to the results of operations, financial position and cash flows of NL and
Tremont is presented in Item 2 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NOTE 6 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Raw materials:
Sugarbeets $ 51,689 $ -
Forest products 14,704 12,994
Fast food 1,329 1,253
Hardware products 1,034 1,117
68,756 15,364
In process products:
Refined sugar and by-products 56,798 61,406
Forest products 1,450 2,362
Hardware products 3,179 3,235
61,427 67,003
Finished products:
Refined sugar and by-products 107,158 116,987
Forest products 1,260 935
Hardware products 1,901 2,167
110,319 120,089
Supplies 35,623 32,446
$276,125 $234,902
</TABLE>
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Accounts payable:
Sugarbeet purchases $126,430 $ 24,168
Other 36,908 31,891
$163,338 $ 56,059
Accrued liabilities:
Sugar processing costs $ 22,301 $ 21,841
Employee benefits 17,657 15,133
Interest 3,987 7,066
Inventory replacement reserve * - 5,267
Other 16,245 15,553
$ 60,190 $ 64,860
</TABLE>
[FN]
* Effect of temporary reductions in LIFO inventory quantities expected to be
replaced by year-end.
NOTE 8 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Notes payable - Amalgamated:
U.S. Government loans $ 75,518 $117,389
Bank credit agreement 42,235 60,539
$117,753 $177,928
Long-term debt:
Valhi - LYONs $108,800 $111,271
Amalgamated - bank term loan 15,000 19,000
Valcor:
Valcor - Senior Notes 100,000 100,000
Medite:
U.S. bank credit agreement:
Term loan 61,000 75,000
Revolving credit facility - 4,000
Irish bank credit agreements:
Term loan 1,700 2,860
Revolving credit facility 6,741 6,786
State of Oregon term loan 4,328 4,282
Other 267 268
74,036 93,196
Sybra:
Bank credit agreements 13,387 1,231
Capital lease obligations 7,133 6,939
Other 41 39
20,561 8,209
National Cabinet Lock 179 169
318,576 331,845
Less current maturities 16,086 22,873
$302,490 $308,972
</TABLE>
NOTE 9 - ACCOUNTS WITH AFFILIATES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Receivable from affiliates:
Income taxes $ 44 $ -
Other 228 368
$272 $ 368
Payable to affiliates:
Income taxes $ - $1,472
Other 43 28
$ 43 $1,500
</TABLE>
NOTE 10 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill $ 5,500 $ 5,457
Franchise fees 7,257 6,995
Other 8,323 8,129
21,080 20,581
Deferred financing costs 7,817 7,680
Prepaid pension cost 4,864 4,870
Property held for sale 3,853 3,901
Other 5,273 5,227
$42,887 $42,259
</TABLE>
NOTE 11 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Accrued OPEB cost $17,705 $18,081
Insurance claims and expenses 5,141 5,153
Accrued pension cost 110 108
Other 4,372 4,545
$27,328 $27,887
</TABLE>
NOTE 12 - OTHER INCOME:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Securities earnings:
Interest and dividends $1,803 $ 1,403
Securities transactions 757 (1,310)
2,560 93
Business unit disposition 500 -
Other, net 1,392 1,493
$4,452 $ 1,586
</TABLE>
NOTE 13 - INCOME TAXES:
<TABLE>
<CAPTION>
Three months ended
March 31,
1993 1994
(In millions)
<S> <C> <C>
Provision for income tax benefit (expense) allocable to
loss before income taxes:
Expected tax benefit $30.8 $ .1
Incremental U.S. tax on income of companies not
included in the consolidated U.S. income tax group (.7) (1.0)
Non-U.S. tax rates .3 .4
State income taxes, net (.3) (.3)
Other, net .2 .4
$30.3 $ (.4)
Comprehensive provision for income tax benefit
(expense):
Deferred tax benefit $30.1 $ 1.5
Taxes currently payable (.4) (3.3)
$29.7 $(1.8)
Allocable to:
Loss before income taxes $30.3 $ (.4)
Stockholders' equity, principally deferred taxes
allocable to adjustment components (.6) (1.4)
$29.7 $(1.8)
</TABLE>
The expected tax benefit for the 1993 period is computed at the previously-
reported 34% rate because the retroactive increase in the U.S. federal statutory
income tax rate to the current 35% was not enacted until August 1993.
The components of net deferred tax assets (liabilities) are summarized
below.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 MARCH 31, 1994
ASSETS LIABILITIES ASSETS LIABILITIES
(IN MILLIONS)
<S> <C> <C> <C> <C>
Tax effect of temporary differences relating to:
Inventories $ .1 $ (8.8) $ .1 $ (8.5)
Marketable securities - (23.5) - (23.9)
Timber and timberlands - (11.3) - (11.3)
Property and equipment - (18.6) - (18.4)
Capital lease assets and obligations 1.4 - 1.4 -
Accrued OPEB cost 7.2 - 7.2 -
Accrued liabilities and other deductible differences 13.1 - 13.8 -
Other taxable differences - (16.9) - (17.4)
Investments in subsidiaries and affiliates not
members of the consolidated tax group 80.8 - 82.1 -
Non-U.S. tax loss carryforwards .1 - .1 -
Valuation allowance - - - -
Gross deferred tax assets (liabilities) 102.7 (79.1) 104.7 (79.5)
Netting of items by tax jurisdiction (74.9) 74.9 (76.1) 76.1
27.8 (4.2) 28.6 (3.4)
Less net current deferred tax asset (liability) .1 (2.5) .1 (1.5)
Net noncurrent deferred tax asset (liability) $ 27.7 $ (1.7) $ 28.5 $ (1.9)
</TABLE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
At March 31, 1994, the estimated cost to complete capital projects in
process approximated $66 million, most of which relates to sugar extraction
equipment at Amalgamated and to an expansion of Medite's medium density
fiberboard plant in Ireland. Medite's Irish subsidiary has entered into certain
currency forward contracts to hedge exchange rate risk on the equivalent of
approximately $8 million of equipment purchase commitments related to its
expansion. At March 31, 1994, the fair value of such currency contracts
approximated the contract value.
Medite has entered into interest rate swap agreements to effectively
convert $26 million of its U.S. bank term loan from a floating to a fixed
interest rate. At March 31, 1994, the estimated fair value of such swap
agreements was $1.2 million, which represents the estimated payment Medite would
receive if the swap agreements were terminated at that date.
For information concerning certain legal proceedings, income tax and other
commitments and contingencies related to Valhi and consolidated subsidiaries and
NL and Tremont, see (i) Item 2 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations," (ii) Part II, Item 1 -- "Legal
Proceedings" and (iii) the 1993 Annual Report, including certain information
concerning NL's and Tremont's legal proceedings incorporated therein by
reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
GENERAL
Sales increased 10% to $189 million, operating income increased 13% to
$18.6 million, interest expense declined 25% to $9 million and the Company's
equity in losses of NL and Tremont of $7.6 million were significantly lower than
one year ago. The results of operations of the Company's consolidated business
segments, general corporate and other items and the Company's equity in losses
of NL and Tremont are discussed below.
REFINED SUGAR
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Refined sugar $ 80.2 $ 92.6 +15%
By-products and other 11.0 11.6 + 5%
$ 91.2 $104.2 +14%
Operating income $ 6.1 $ 6.8 +10%
Operating income margin 6.7% 6.5%
Percentage change in:
Sugar sales volume +17%
Average sugar sales price - 1%
</TABLE>
There were no major movements in sugar selling prices during the first
quarter of 1994, and average prices were down slightly year-to-year but up
slightly from late 1993. Sugar production from the crop harvested in the fall
of 1993 is expected to slightly exceed that of the prior crop. Fluctuations in
quarterly sugar sales volume can be impacted by relative timing of sales during
the October to September crop year, which contributed to the year-to-year volume
increase. Amalgamated's contracted acreage for the 1994 crop approximates that
harvested in 1993, and planting by the growers has been substantially completed.
Sugarbeet purchase cost is the largest cost component of producing refined
sugar and the price Amalgamated pays for sugarbeets is, under the terms of its
contracts with sugarbeet growers, a function of the average selling price of
Amalgamated's refined sugar. As a result, changes in sugar selling prices
impact sugarbeet purchase costs as well as revenues. Amalgamated's cost of
sales is determined under the last-in, first-out accounting method.
Supplemental information comparing refined sugar segment operating income and
margins computed on a LIFO basis and on a FIFO basis is presented below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Operating income:
LIFO accounting method $6.1 $6.8 +10%
FIFO accounting method 3.4 5.9 +70%
Operating income margin:
LIFO accounting method 6.7% 6.5%
FIFO accounting method 3.8% 5.6%
</TABLE>
FOREST PRODUCTS
Medite's forest products operations are grouped into two components: medium
density fiberboard ("MDF") operations (engineered wood products) and solid wood
operations (logs, lumber, veneer and wood chips). Medite's primary strategic
focus is to continue its expansion in the growing market for MDF.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
MDF $25.3 $31.2 + 23%
Solid wood 14.9 9.2 - 38%
Eliminations (.6) (.4)
$39.6 $40.0 + 1%
Operating income:
MDF $ 1.8 $ 5.7 +222%
Solid wood 3.6 (.6) -115%
$ 5.4 $ 5.1 - 5%
Operating income margins:
MDF 6.9% 18.2%
Solid wood 24.4% -5.9%
Total 13.6% 12.8%
</TABLE>
Medium density fiberboard. MDF sales, operating income and margins
improved in large part as a result of a 10% increase in volume and a 12%
increase in average selling prices, in U.S. dollar terms. Sales of higher-
margin specialty MDF products continue to increase and represented 28% of MDF
sales dollars (20% of MDF volume), up from 21% and 12%, respectively, in the
1993 period. As previously reported, certain currency fluctuations and minor
production interruptions during the first quarter of 1993 hampered MDF results
and, accordingly, aided the 1994 comparisons to 1993.
The Company's MDF operations are operating at a high rate of capacity.
While total MDF volume is not expected to increase significantly prior to
completion of the Irish plant expansion in 1995, Medite plans to continue to
pursue further penetration of higher-margin specialty MDF markets.
Solid wood products. Medite actively manages its timber resources and
varies its manufacture of wood products such as lumber and veneer, and
emphasizes or de-emphasizes the direct sale of logs, depending upon the
Company's evaluation of market conditions. Solid wood sales, earnings and
margins declined in 1994 in large part due to a significant reduction in the
volume of logs offered for sale by the Company. An ample supply of second-
growth logs from non-industrial private land owners has served to moderate
recent logs prices, although they have generally remained above year-ago levels.
In addition, log volumes in the 1993 period were aided significantly by the
Company's sale of log inventories in conjunction with the permanent closure of
its plywood plant in January 1993. Costs associated with delays in achieving
planned capacity levels at Medite's new Rogue River veneer plant also hampered
first quarter 1994 results.
Despite a relatively strong housing market, prices for veneer and lumber
have recently fallen below year-ago levels. Absent an improvement in prices and
margins, Medite may curtail its solid wood manufacturing operations during the
second quarter.
FAST FOOD
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales $26.1 $26.7 + 2%
Operating income 1.9 1.6 -13%
Operating income margin 7.1% 6.0%
Arby's restaurants operated:
At end of period 160 157 - 2%
Average during the period 160 158 - 1%
</TABLE>
Comparable store sales increased approximately 3% for the quarter despite
unusually severe winter weather which hampered customer traffic and resulted in
a decline in comparable store sales in January 1994 after 16 straight months of
increases. Increased promotion of value-priced sandwiches aided 1994 sales
comparisons and dampened margin comparisons.
HARDWARE PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales $14.4 $18.0 +25%
Operating income 3.1 5.1 +65%
Operating income margin 21.4% 28.3%
</TABLE>
Sales, operating income and margins all improved due primarily to increased
volumes in National Cabinet Lock's three major product lines: lock sales
dollars increased 27%, drawer slides increased 39% and computer keyboard support
arms increased 22%. A new lock contract with a U.S. Government agency covering
May 1993 through 1994, at higher than prior contract volume levels, contributed
significantly to the lock volume increase. Currency fluctuations also favorably
impacted operating income comparisons in 1994.
GENERAL CORPORATE AND OTHER ITEMS
Business unit disposition. As previously reported, the gain in 1993
related to a change in estimate of the aggregate loss related to the closure of
Medite's plywood operations.
General corporate. The unfavorable year-to-year comparison of general
corporate items is due principally to lower securities earnings resulting
primarily from a decline in the market value of fixed-income investments. See
Notes 4 and 12 to the Consolidated Financial Statements.
INTEREST EXPENSE
The previously-reported redemptions of Valhi's 121/2% Senior Subordinated
Notes during 1993, funded in part using proceeds of lower-cost borrowings, was a
principal reason for the decline in interest expense.
Approximately $138 million of subsidiary indebtedness bears interest at
fixed rates averaging 9.2%. The average interest rate on floating rate
subsidiary borrowings outstanding at March 31, 1994 was 4.5%. Periodic interest
payments are not required on Valhi's 9.25% deferred coupon LYONs.
PROVISION FOR INCOME TAXES
Income tax rates vary by jurisdiction (country and/or state), and relative
changes in the geographic source of the Company's pre-tax earnings can result in
fluctuations in the Company's consolidated effective income tax rate. See
Note 13 to the Consolidated Financial Statements.
UNCONSOLIDATED AFFILIATES - NL AND TREMONT
The Company's equity in earnings (losses) of NL and Tremont is different
than its percentage ownership in their separately-reported results due to
amortization of accounting basis differences that generally reduce earnings, or
increase losses, as reported by Valhi. The Company's loss attributable to
affiliates in the first quarter of 1993 also included an $84 million charge for
an other than temporary decline in the market value of NL common stock. While
accounting rules may require an investment in a security accounted for by the
equity method to be written down if the market value of that security declines,
they do not permit a writeup if the market value subsequently recovers. At
March 31, 1994, the Company's per share net carrying value of NL and Tremont was
$2.23 and $3.64, respectively (quoted market price at March 31, 1994 of $6.50
and $6.375, respectively).
The information included below related to NL and Tremont has been
summarized from the separate reports filed with the Securities and Exchange
Commission by NL (File No. 1-640) and Tremont (File No. 1-10126), which reports
contain more detailed information concerning such companies, including financial
statements and contingencies.
NL Industries. NL's chemical operations are conducted through its wholly-
owned subsidiaries Kronos, Inc. (titanium dioxide pigments, or "TiO2") and
Rheox, Inc. (specialty chemicals). NL has reported significant losses in the
past few years and its future profitability is dependent upon, among other
things, improved pricing for TiO2, NL's principal product. Based on NL's
current near-term outlook for its TiO2 business, NL expects to report a net loss
for 1994, although its results for the remainder of the year should be improved
compared to 1993.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 CHANGE
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Net sales:
Kronos $172.1 $174.2 + 1%
Rheox 26.4 27.6 + 4%
$198.5 $201.8 + 2%
Operating income:
Kronos $ 17.2 $ 15.3 -10%
Rheox 5.9 7.0 +17%
23.1 22.3 - 3%
General corporate items:
Securities earnings 2.9 .2
Expenses, net (8.7) (.6)
Interest expense (26.1) (21.1)
(8.8) .8 $9.6
Income tax expense (4.5) (7.0)
Minority interest (.2) (.2)
Net loss $(13.5) $ (6.4) $7.1
Valhi's equity in NL's losses, including
amortization of basis differences (*) $ (9.5) $ (5.4) $4.1
</TABLE>
[FN]
(*) Excludes market value impairment provision in 1993. See Note 3 to the
Consolidated Financial Statements.
Kronos' TiO2 operating income declined as the effects of a 3% year-to-year
decline in selling prices were only partially offset by the aggregate effects of
higher sales volumes, higher production levels, royalty income and slightly
lower production costs. Kronos' average TiO2 selling prices at the end of March
1994 approximated both year-end 1993 levels and full year 1993 averages.
Rheox's operating results improved primarily as a result of higher sales volume
and slightly lower operating costs.
Corporate expenses, net were lower as a $20 million gain related to the
1994 settlement of NL's lawsuit against Lockheed Corporation was partially
offset by increased provisions for environmental remediation and other costs.
Interest expense declined due to lower average levels of indebtedness and lower
interest rates on Deutsche mark denominated debt, partially offset by the higher
interest rates on NL's Senior Notes issued in October 1993.
NL's operations are conducted on a worldwide basis. In both 1993 and 1994,
NL's income tax expense was impacted by losses in certain countries for which no
current refund is available and for which recognition of a deferred tax asset is
not currently considered appropriate.
Tremont Corporation. Tremont's titanium metals operations are conducted
through its 75%-owned TIMET subsidiary. As previously reported, the titanium
metals business has been adversely affected by, among other things, excess
worldwide production capacity and changes in market conditions, including weak
demand in aerospace markets. TIMET continues to focus on improving
manufacturing processes, reducing overall costs, developing new markets and
evaluating strategic opportunities in its effort to return to profitability.
Tremont also holds approximately 18% of NL's outstanding common stock and
reports its interest in NL by the equity method. As a result, Tremont's results
are significantly impacted by NL.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 CHANGE
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Net sales $ 39.6 $ 40.9 + 3%
Operating loss $ (1.6) $ (1.8) $ (.2)
General corporate items, net (.3) (.4)
Interest expense (.7) (1.2)
(2.6) (3.4) (.8)
Equity in loss of NL:
Equity in NL's loss (3.3) (1.9)
Provision for market value impairment (29.0) -
(32.3) (1.9) 30.4
Loss before income taxes (34.9) (5.3)
Income tax benefit (expense) .8 (.2)
Minority interest - .8
Loss from continuing operations (34.1) (4.7) 29.4
Other, net .1 (.8)
Net loss $(34.0) $ (5.5) $28.5
Valhi's equity in Tremont's losses, including
amortization of basis differences (*) $ (2.1) $ (2.2) $ (.1)
</TABLE>
[FN]
(*) Excludes Valhi's $14 million share of Tremont's 1993 market value
impairment provision, which equity is reported as a component of Valhi's
$84 million impairment charge related to NL. See Note 3 to the
Consolidated Financial Statements.
TIMET's modest sales increase reflected a shift in product mix toward
industrial titanium products, increased sales in European markets and lower
volume in aerospace products. Higher production costs contributed to the
slightly increased operating loss.
Interest expense increased primarily due to ceasing to capitalize interest
following completion of TIMET's new titanium sponge production facility in 1993.
In both 1993 and 1994, Tremont's income tax provision was impacted by
losses, including amounts related to NL, for which no benefit is currently
available and for which recognition of a deferred tax asset is not currently
considered appropriate.
LIQUIDITY AND CAPITAL RESOURCES:
CONSOLIDATED CASH FLOWS
Operating activities. Changes in assets and liabilities relate to the
relative timing of sales, production and purchases, including, among other
things, significant seasonal fluctuations related to Amalgamated's refined sugar
operations. Amalgamated's operations use significant amounts of cash in the
first and fourth quarters and generate significant amounts of cash in the second
and third quarters. Changes in Amalgamated's assets and liabilities used $61
million of cash in the first quarter of 1994, down from $74 million used in the
1993 period. In addition, interest payments on Valhi's 121/2% Notes (redeemed
in 1993) were $15 million in the first quarter of 1993 while semi-annual
interest payments on Valcor's 95/8% Senior Notes do not begin until May 1994.
Investing activities. The higher levels of capital expenditures in 1994
relate principally to capacity projects, including productivity-enhancing
equipment at Amalgamated and National Cabinet Lock, Medite's Irish MDF plant
expansion and new Sybra restaurants. The Company's total capital expenditures
for 1994 are estimated at approximately $70 million and are expected to be
financed primarily from the respective unit's operations or existing credit
facilities.
Financing activities. Net first quarter borrowings (repayments) include
seasonal increases in Amalgamated's short-term borrowings ($60 million in 1994
and $66 million in 1993) and Valhi's redemption of $100 million principal amount
of 121/2% Notes in 1993. A portion of the net proceeds from the November 1993
Valcor Senior Note issue were retained within the Valcor group for general
corporate purposes, including the temporary reduction of subsidiary revolving
borrowings. At March 31, 1994, approximately $17 million of Valcor's corporate
cash availability had been used for this purpose, down from $22 million at the
end of 1993.
At March 31, 1994, unused credit available to the Company's subsidiaries
under existing facilities aggregated $63 million, of which $15 million is based
upon 75% of capital expenditures not yet incurred related to the expansion of
the Irish MDF plant.
CONSOLIDATED COMPANIES
Refined Sugar. Amalgamated's cash requirements are seasonal in that a
major portion of the total payments for sugarbeets is made, and the costs of
processing the sugarbeets are incurred, in the fall and winter of each year.
Accordingly, Amalgamated's operating activities use significant amounts of cash
in the first and fourth calendar quarters and provide significant cash flow in
the second and third quarters of each year. To meet its seasonal cash needs,
Amalgamated obtains short-term borrowings pursuant to the Government's sugar
price support loan program and bank credit facilities. Borrowings under the
Government loan program are secured by refined sugar inventory and are otherwise
nonrecourse to Amalgamated. At March 31, 1994, approximately 5.6 million
hundredweight of refined sugar inventory with a LIFO carrying value of
approximately $105 million (19 cents per pound) was the sole collateral for
nonrecourse Government loans of $117 million.
In May 1994, Amalgamated amended its principal bank credit agreement to,
among other things, extend the $75 million revolving facility one year to
September 1996, increase the term loan facility by $17 million to finance
planned capital expenditures and extend the final maturity of the term loan to
July 1998. As part of this amendment, Amalgamated's minimum equity requirement
was increased from $20 million to $30 million, and Valhi made a $10 million
capital contribution to Amalgamated.
Forest Products. The Irish MDF plant expansion, which will increase plant
production capacity by approximately 75% and increase Medite's worldwide MDF
capacity by approximately 25%, is expected to be completed by early 1995.
Fast Food. Sybra currently plans to open eight to ten new Arby's
restaurants during 1994, including one store opened in each of February and
April with the next store scheduled for May. Sybra also continually evaluates
the profitability of its individual restaurants, and in this regard closed four
stores in January 1994, closed one store in April and may close two or three
additional stores later in 1994.
General corporate. Valhi's operations are conducted through its wholly-
owned subsidiaries (Amalgamated and Valcor) and through NL and Tremont,
publicly-held affiliates which Valhi may be deemed to control. Valcor is an
intermediate parent company with its operations conducted through its wholly-
owned subsidiaries (Medite, Sybra and National Cabinet Lock). Accordingly,
Valhi's and Valcor's long-term ability to meet their respective corporate
obligations is dependent in large measure on the receipt of dividends or other
distributions from their respective subsidiaries, the realization of their
investments through the sale of interests in such entities and investment
income. Various credit agreements to which subsidiaries are parties contain
customary limitations on the payment of dividends, typically a percentage of net
income or cash flow; however, such restrictions have not significantly impacted
the Company's ability to service parent company level obligations. Valhi has
not guaranteed any indebtedness of its subsidiaries or of NL or Tremont, and
Valcor has not guaranteed any indebtedness of its subsidiaries.
Valcor was formed in 1993 to enable the Company to obtain lower cost
borrowings than could have been obtained through a similar-sized issue of Valhi
notes. The Company believes that distributions from Valcor's operating
subsidiaries will be sufficient to enable Valcor to meet its obligations, which
consist principally of the Valcor 95/8% Senior Notes Due 2003. Valhi's parent
company debt consists solely of the LYONs, which do not require current cash
debt service. Valhi dividends, at the current quarterly rate of $.02 per share,
aggregate approximately $9 million annually. The Company believes that
distributions from Amalgamated and Valcor will be more than sufficient to enable
Valhi to satisfy its net expenditures. In addition, at March 31, 1994, Valhi
had cash, equivalents and marketable trading securities aggregating $41 million
and Valcor had cash availability of $28 million (including amounts advanced to
its subsidiaries to temporarily pay down revolving debt).
Valhi owns 5.5 million shares of Dresser common stock, which shares are
held in escrow for the benefit of holders of the LYONs. The LYONs are
exchangeable, at the option of the holder, for the Dresser shares owned by
Valhi. Exchanges of LYONs for Dresser stock would result in the Company
reporting income related to the disposition of the Dresser stock for both
financial reporting and income tax purposes, although no cash proceeds would be
generated by such exchanges.
The Company routinely compares its liquidity requirements and alternative
uses of capital against the estimated future cash flows to be received from its
subsidiaries and affiliates, and the estimated sales value of those units. As a
result of this process, the Company has in the past and may in the future seek
to raise additional capital, refinance or restructure indebtedness, modify its
dividend policy, consider the sale of interests in subsidiaries or affiliates,
business units, marketable securities or other assets, or take a combination of
such steps or other steps, to increase liquidity, reduce indebtedness and fund
future activities. Such activities have in the past and may in the future
involve related companies. From time to time, the Company also evaluates the
restructuring of ownership interests among its subsidiaries and related
companies. The Company routinely evaluates acquisitions of interests in, or
combinations with, companies, including related companies, perceived by
management to be undervalued in the marketplace. These companies may or may not
be engaged in businesses related to the Company's current businesses. The
Company intends to consider such acquisition activities in the future and, in
connection with this activity, may consider issuing additional equity securities
and increasing the indebtedness of the Company, its subsidiaries and related
companies.
UNCONSOLIDATED AFFILIATES - NL AND TREMONT
Summarized balance sheet, cash flow and other information of NL and Tremont
is presented below.
<TABLE>
<CAPTION>
NL INDUSTRIES TREMONT CORPORATION
DEC. 31, MARCH 31, DEC. 31, MARCH 31,
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash, equivalents and securities $ 147.6 $ 126.8 $ 20.3 $ 14.3
Other current assets 319.9 360.7 93.7 93.4
Noncurrent securities 18.4 18.8 7.7 7.6
Investment in NL - - 22.3 21.2
Investment in joint ventures 190.8 188.9 13.6 14.4
Other noncurrent assets 151.2 156.6 18.3 17.0
Property and equipment 378.6 385.5 147.3 145.2
$1,206.5 $1,237.3 $323.2 $313.1
Current liabilities $ 232.5 $ 228.5 $ 66.0 $ 57.4
Long-term debt 835.2 857.4 43.5 47.2
Accrued OPEB costs 68.3 67.9 51.7 51.5
Deferred income taxes 139.0 147.9 - -
Other noncurrent liabilities 193.9 207.1 16.4 17.3
Minority interest 2.4 2.5 27.2 26.2
Stockholders' equity (deficit):
Capital and retained earnings (143.4) (148.4) 126.7 121.3
Adjustments, principally currency translation (121.4) (125.6) (8.3) (7.8)
(264.8) (274.0) 118.4 113.5
$1,206.5 $1,237.3 $323.2 $313.1
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
NL TREMONT
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net cash provided (used) by:
Operating activities $(33.1) $(22.8) $ 4.0 $ (3.7)
Investing activities:
Capital expenditures (8.0) (7.2) (9.0) (.4)
Other, net 9.7 2.3 .4 .1
Financing activities:
Net borrowings (repayments) (3.3) 6.1 (1.2) (1.0)
Other - (.2) (.1) -
$(34.7) $(21.8) $ (5.9) $ (5.0)
Cash paid for:
Interest, net of amount capitalized $ 23.9 $ 10.6 $ - $ 1.0
Income taxes 1.5 3.3 .1 .1
</TABLE>
NL and Tremont periodically evaluate their respective liquidity
requirements, capital needs and availability of resources in view of, among
other things, debt service requirements, capital expenditure requirements and
estimated future operating cash flows. As a result of this process, such
companies may seek to raise additional capital, restructure ownership interests,
refinance or restructure indebtedness, sell interests in subsidiaries or other
assets, or take a combination of such steps or other steps to increase their
respective liquidity and capital resources. Such activities have in the past
and may in the future involve related companies.
NL Industries. The TiO2 industry is cyclical, with the previous peak in
selling prices occurring in early 1990. In the past few years, during the
current down cycle, NL's operations have used significant amounts of cash. NL
has taken and continues to take measures to manage its near-term and long-term
liquidity requirements, including cost reduction efforts, tightening of controls
over working capital, suspension of dividends in 1992 and the previously-
reported formation of a TiO2 manufacturing joint venture and the refinancing of
certain debt in 1993. NL currently expects to have sufficient liquidity to meet
its obligations including operations, capital expenditures and debt service.
Certain of NL's U.S. and non-U.S. income tax returns are being examined and
tax authorities have or may propose tax deficiencies. NL believes that it has
adequately provided accruals for additional income taxes and related interest
expense which may ultimately result from all such examinations. At March 31,
1994, approximately DM 160 million ($96 million) of refundable German income
taxes are recorded as a noncurrent asset. In April 1994, the German tax
authorities withdrew certain previously-reported tax assessment reports. NL
understands that the German tax authorities intend to refund a portion of NL's
refund claims on a tentative basis and issue new assessment reports proposing
tax deficiencies. NL has granted a DM 100 million ($60 million) lien on its
Nordenham, Germany TiO2 plant until any assessments proposing tax deficiencies
are resolved. NL anticipates that any tentative German tax refund received will
be applied to the outstanding amount of its DM bank credit facility.
NL has been named as a defendant, potentially responsible party, or both,
in a number of legal proceedings associated with environmental matters,
including waste disposal sites currently or formerly owned, operated or used by
NL, many of which disposal sites or facilities are on the U.S. Environmental
Protection Agency's Superfund National Priorities List or similar state lists.
NL believes it has provided adequate accruals ($77 million at March 31, 1994)
for reasonably estimable costs of such matters, and has estimated that the upper
end of the range of reasonably possible costs to NL for sites for which it is
possible to estimate costs is approximately $120 million. NL 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. Based on, among other things, the results of such litigation to date,
NL believes that the pending lead pigment litigation is without merit and has
not accrued any amounts for the pending lead pigment litigation. NL currently
believes the disposition of all claims and disputes, individually and in the
aggregate, should not have a material adverse effect on NL's consolidated
financial position, results of operations or liquidity. There can be no
assurance that additional matters of these types will not arise in the future.
In addition, various legislation and administrative regulations have, from time
to time, been enacted or proposed at the state, local and federal levels that
seek to impose various obligations on present and former manufacturers of lead
pigment and lead-based paint with respect to asserted health concerns associated
with the use of such products and effectively overturn court decisions in which
NL and other pigment manufacturers have been successful.
Tremont Corporation. During the past few years, TIMET's combined
operations, capital expenditures and debt service have used significant amounts
of cash. TIMET has taken and continues to take measures to manage its near-term
and long-term liquidity requirements including, among other things, continued
cost reduction efforts, deferral and reduction of capital expenditures, sale of
certain assets, deferral of certain payments and other efforts to reduce the
level of working capital, including reducing production rates and closing
certain facilities, and the 1994 debt refinancing discussed below. TIMET is
also currently negotiating for a further deferral of $6 million of interest to
its 25% shareholder (Union Titanium Sponge Corporation or "UTSC") currently due
in June 1994. TIMET believes these measures will provide it with the liquidity
to meet its near-term obligations including operations, capital expenditures and
debt service. However, the continued consumption of cash would have a further
adverse effect on TIMET's liquidity and financial condition. Neither Tremont
nor UTSC have guaranteed any indebtedness of TIMET nor are they obligated to
provide additional funds to TIMET.
In April 1994, TIMET obtained a new $65 million credit facility with a
group of commercial lenders. The new facility, collateralized by substantially
all of TIMET's assets, includes a two-year $50 million formula-based revolver
and a five-year $15 million term loan. Approximately $47 million of the initial
availability was used to repay existing bank debt and replace letters of credit.
Tremont, with its 75% equity interest in TIMET and 18% equity interest in
NL, is principally a holding company. Tremont believes it will have sufficient
liquidity to meet its existing near-term parent company obligations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1993 Annual Report for descriptions of certain
legal proceedings.
Valhi and consolidated subsidiaries
In the previously-reported matter of Alan Russell Kahn v. Tremont
Corporation, et al., the court heard oral arguments for the defendants' motion
to dismiss in April 1994. The court denied the motion to dismiss and lifted the
existing stay on discovery.
In April 1994, a Panel of the United States Court of Appeals for the Tenth
Circuit issued a decision on the appeals in the previously-reported matter
Holland, et al v. Valhi, Inc., et al. (No. 87-C-9686). The Appeals Court Panel
ruled the District Court had committed certain errors in calculating the
participants' share of the reversion, and remanded the case to the District
Court for further proceedings to determine the distribution of the reversion
between the parties. While such a redetermination based upon the Appeals Court
Panel's decision should result in a reduction of the plaintiffs' share of the
reversion from that originally calculated by the District Court, the Company
believes the Panel overlooked certain relevant authority in reaching its
decision. The Company intends to request a rehearing by the full Appeals Court,
and continues to believe it will prevail in this matter. Both the plaintiffs
and defendants have filed a motion requesting an extension of time to petition
the Court for a rehearing on this matter.
NL Industries
Information called for by this Item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
attached hereto as Exhibit 99.1.
Tremont Corporation
Information called for by this Item regarding Tremont's legal proceedings
is incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
Tremont's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
attached hereto as Exhibit 99.2.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99.1 - Part II, Item 1 of NL's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 (File No. 1-640).
99.2 - Part II, Item 1 of Tremont's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 (File No. 1-10126).
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 1994 and the month
of April 1994:
February 11, 1994 - Reported Items 5 and 7.
March 10, 1994 - Reported Items 5 and 7.
April 11, 1994 - Reported Items 5 and 7.
April 27, 1994 - Reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALHI, INC.
(Registrant)
Date May 10, 1994 By /s/ William C. Timm
William C. Timm
Vice President - Finance and
Administration
(Principal Financial Officer)
Date May 10, 1994 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President and Controller
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALHI, INC.
(Registrant)
Date May 10, 1994 By
William C. Timm
Vice President - Finance and
Administration
(Principal Financial Officer)
Date May 10, 1994 By
J. Thomas Montgomery, Jr.
Vice President and Controller
(Principal Accounting Officer)
Exhibit 99.1 - Part II, Item 1 of NL's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1994 (File No. 1-640).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report for descriptions of certain
previously-reported legal proceedings.
Skipworth v. Sherwin Williams Co., et al. In April 1994, the court granted
defendants' motion for summary judgment. The plaintiff's time to appeal has not
yet expired.
In May 1994, the court declined to grant summary judgment in the Company's
favor in one of the eight pending third-party complaints filed by the Housing
Authority of New Orleans ("HANO"), concluding that fact issues remained
regarding product identification. Discovery is proceeding.
EXXON Chemical Company v. NL Industries, Inc. Mediation is set for May
1994.
Wagner, et al. v. Anzon and NL Industries, Inc. Trial in this matter has
been postponed until September 1994. Defendants have moved for summary judgment
against a portion of the class based on the statute of limitations and for
decertification of the class.
United States of America v. Peter Gull and NL Industries, Inc. In April
1994, the court entered judgment against the Company in the amount of $6.4
million, with post-judgment interest thereon accruing. The Company's motion to
waive the bond requirement and stay the judgment has been granted pending an
appeal. The parties have until June 1994 to appeal the decision.
Day, et. al v. NLO, Inc., et al. The trial is this matter is set for July
1994.
Exhibit 99.2 - Part II, Item 1 of Tremont's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1994 (File No. 1-10126).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report for descriptions of certain
legal proceedings.
Tremont and consolidated subsidiaries
In the previously-reported matter of Alan Russell Kahn v. Tremont
Corporation, et al., the court heard oral arguments for the defendants' motion
to dismiss in April 1994. The court denied the motion to dismiss and lifted the
existing stay on discovery.
In the previously-reported lawsuits arising out of the crash of a DC-10
aircraft in Iowa on July 19, 1989, TIMET, along with the other defendants in the
dismissed cases, appealed the court's decision to allow dismissal of the earlier
cases without first ruling on TIMET's pending motion for summary judgment. Oral
arguments on this issue were heard by the Illinois Court of Appeals on November
16, 1993. On March 29, 1994, the appellate court ruled in favor of TIMET and
remanded the case to the trial court with directions that it exercise its
discretion in considering TIMET's pending motion for summary judgment. The
decision of the appellate court is statutorily stayed pending any appeal to the
Illinois Supreme Court by the parties involved.
