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 JUNE 30, 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 JULY 31, 1994: 114,994,214.
VALHI, INC. AND SUBSIDIARIES
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1993
and June 30, 1994 3-4
Consolidated Statements of Operations - Three months
and six months ended June 30, 1993 and 1994 5
Consolidated Statement of Stockholders' Equity - Six
months ended June 30, 1994 6
Consolidated Statements of Cash Flows - Six months
ended June 30, 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 4. Submission of Matters to a Vote of Security Holders. 29
Item 6. Exhibits and Reports on Form 8-K. 30
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1993 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,189 $ 24,380
Marketable securities 28,518 23,549
Accounts and notes receivable 61,135 73,035
Receivable from affiliates 272 7,020
Inventories 276,125 155,469
Prepaid expenses 6,126 3,925
Deferred income taxes 75 42
Total current assets 394,440 287,420
Other assets:
Marketable securities 108,800 112,132
Investment in affiliates 74,897 60,417
Timber and timberlands 51,868 53,611
Deferred income taxes 27,723 31,988
Other 42,887 39,099
Total other assets 306,175 297,247
Property and equipment:
Land 18,822 20,639
Buildings 43,522 44,455
Equipment 341,868 351,559
Construction in progress 17,344 38,358
421,556 455,011
Less accumulated depreciation 218,300 229,279
Net property and equipment 203,256 225,732
$903,871 $810,399
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
1993 1994
<S> <C> <C>
Current liabilities:
Notes payable $117,753 $111,912
Current maturities of long-term debt 16,086 22,812
Accounts payable 163,338 57,660
Accrued liabilities 60,190 54,303
Payable to affiliates 43 2,796
Income taxes 4,916 3,645
Deferred income taxes 2,494 224
Total current liabilities 364,820 253,352
Noncurrent liabilities:
Long-term debt 302,490 317,040
Deferred income taxes 1,732 2,473
Other 27,328 26,356
Total noncurrent liabilities 331,550 345,869
Stockholders' equity:
Common stock 1,244 1,245
Additional paid-in capital 33,409 33,279
Retained earnings 222,810 220,489
Adjustments:
Currency translation (17,776) (14,807)
Marketable securities 41,075 43,655
Pension liabilities (1,619) (1,535)
Common stock reacquired (71,642) (71,148)
Total stockholders' equity 207,501 211,178
$903,871 $810,399
</TABLE>
[FN]
Commitments and contingencies (Note 14)
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 1993 1994
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $193,428 $210,781 $ 364,760 $399,746
Other, net 3,551 3,107 8,003 4,693
196,979 213,888 372,763 404,439
Costs and expenses:
Cost of sales 148,284 157,072 281,227 303,375
Selling, general and administrative 29,550 30,761 55,449 58,733
Interest 9,797 8,845 21,754 17,842
187,631 196,678 358,430 379,950
Income of consolidated companies
before income taxes 9,348 17,210 14,333 24,489
Equity in losses of affiliates (19,169) (13,345) (114,718) (20,916)
Income (loss) before income taxes (9,821) 3,865 (100,385) 3,573
Provision for income taxes (benefit) (2,752) 914 (33,017) 1,322
Net income (loss) $ (7,069) $ 2,951 $ (67,368) $ 2,251
Net income (loss) per common share $(.06) $ .03 $(.59) $ .02
Cash dividends per share $ - $ .02 $ .05 $ .04
Weighted average common shares
outstanding 114,108 114,306 114,084 114,289
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 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 income - - 2,251
Dividends - - (4,572)
Adjustments, net - - -
Other, net 1 (130) -
Balance at June 30, 1994 $1,245 $33,279 $220,489
</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 income - - - - 2,251
Dividends - - - - (4,572)
Adjustments, net 2,969 2,580 84 - 5,633
Other, net - - - 494 365
Balance at June 30, 1994 $(14,807) $43,655 $(1,535) $(71,148) $211,178
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (67,368) $ 2,251
Adjustments:
Depreciation, depletion and amortization 11,589 13,142
Noncash interest expense (original issue
discount and deferred financing costs) 5,072 5,363
Deferred income tax benefit (37,503) (8,535)
Equity in losses of affiliates 114,718 20,916
Other, net (1,013) 910
Change in assets and liabilities:
Accounts and notes receivable (11,309) (12,606)
Inventories 114,709 120,656
Accounts payable and accrued liabilities (123,249) (111,984)
Accounts with affiliates (2,503) 3,005
Other, net 517 (461)
Marketable trading securities:
Sale proceeds - 29,375
Purchases - (25,000)
Total adjustments 71,028 34,781
Net cash provided by operating activities 3,660 37,032
Cash flows from investing activities:
Capital expenditures (12,924) (36,914)
Marketable securities:
Sale proceeds 354,068 -
Purchases (254,378) -
Purchases of stock of affiliates - (624)
Loans to affiliates:
Loans (7,500) (7,800)
Collections 7,500 800
Other, net 4,555 3,992
Net cash provided (used) by investing
activities 91,321 (40,546)
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Cash flows from financing activities:
Notes payable and long-term debt:
Additions $ 406,502 $ 206,779
Principal payments (526,646) (196,374)
Loans from affiliates:
Loans (3,800) -
Repayments 3,800 -
Dividends paid (5,704) (4,572)
Other, net 35 166
Net cash provided (used) by financing activities (125,813) 5,999
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities (30,832) 2,485
Currency translation (26) (294)
(30,858) 2,191
Balance at beginning of period 44,538 22,189
Balance at end of period $ 13,680 $ 24,380
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 21,164 $ 11,379
Income taxes 7,827 8,269
</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 June 30, 1994 and the consolidated statements of
operations, cash flows and stockholders' equity for the interim periods ended
June 30, 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 - BUSINESS SEGMENT INFORMATION:
BUSINESS SEGMENT PRINCIPAL ENTITIES
Consolidated operations (100%-owned)
Refined sugar The Amalgamated Sugar Company
Forest products Medite Corporation
Hardware products National Cabinet Lock, Inc.
Fast food Sybra, Inc.
Unconsolidated operations
Chemicals NL Industries, Inc. (49%-owned)*
Titanium metals Tremont Corporation (48%-owned)
[FN]
* Tremont holds an additional 18% of NL.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 1993 1994
(In millions)
<S> <C> <C> <C> <C>
Net sales:
Refined sugar $106.3 $112.3 $197.5 $216.5
Forest products 43.9 53.4 83.5 93.4
Hardware products 16.0 17.5 30.4 35.5
Fast food 27.3 27.6 53.4 54.3
$193.5 $210.8 $364.8 $399.7
Operating income:
Refined sugar $ 8.1 $ 9.7 $ 14.2 $ 16.5
Forest products 7.4 11.6 12.8 16.7
Hardware products 3.9 5.0 7.0 10.1
Fast food 2.1 2.3 4.0 3.9
21.5 28.6 38.0 47.2
Business unit disposition - - .5 -
General corporate items:
Securities earnings 1.4 1.0 4.0 1.1
General expenses and other, net (3.8) (3.6) (6.4) (6.0)
Interest expense (9.8) (8.8) (21.8) (17.8)
Income of consolidated companies
before income taxes 9.3 17.2 14.3 24.5
Equity in losses of affiliates:
NL Industries (16.0) (9.9) (25.5) (15.3)
Tremont (3.1) (3.4) (5.2) (5.6)
Provision for market value decline
of NL common stock - - (84.0) -
(19.1) (13.3) (114.7) (20.9)
Income (loss) before income taxes $ (9.8) $ 3.9 $(100.4) $ 3.6
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
DEPRECIATION,
DEPLETION AND CAPITAL
AMORTIZATION EXPENDITURES
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Refined sugar $ 3.6 $ 4.8 $ 3.6 $10.9
Forest products 3.9 4.4 7.3 18.5
Hardware products .9 .9 .9 2.0
Fast food 3.1 2.9 1.0 5.4
Corporate .1 .1 .1 .1
$11.6 $13.1 $12.9 $36.9
</TABLE>
NOTE 3 - MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30,
1993
1994
(IN THOUSANDS)
<S> <C> <C>
Current assets (trading securities):
U.S. Treasury securities $ 28,518 $ -
Global bond investments - 23,549
$ 28,518 $ 23,549
Noncurrent assets (available-for-sale) -
Dresser Industries common stock $108,800 $112,132
</TABLE>
The global bond investments consist of fixed income government securities
denominated in various currencies and related currency forward and option
contracts obtained to hedge exchange rate risk on the equivalent of
approximately $16 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 June 30, 1994, the cost of the Company's portfolio of trading
securities approximated $25 million.
Valhi holds 5.5 million shares of Dresser common stock (cost $44 million)
with a quoted market price of $20.50 at June 30, 1994, or an aggregate market
value of $112 million. The Company's Dresser stock (held in escrow for the
benefit of the Company's LYONs holders) is exchangeable for the LYONs at the
option of the LYONs holder, and the carrying value of the Dresser stock is
limited to the accreted LYONs obligation.
NOTE 4 - INVESTMENT IN AFFILIATES:
<TABLE>
<CAPTION>
December 31,
June 30,
1993
1994
(IN THOUSANDS)
<S> <C> <C>
NL Industries $60,170 $50,370
Tremont 14,727 10,047
$74,897 $60,417
</TABLE>
At June 30, 1994, the Company held 24.9 million shares of NL common stock
and 3.5 million shares of Tremont common stock. At June 30, 1994, the quoted
per share market prices of NL and Tremont common stock were $8.50 and $7.75,
respectively, or an aggregate quoted market value of $239 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 5 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Raw materials:
Sugarbeets $ 51,689 $ -
Forest products 14,704 11,632
Hardware products 1,034 967
Fast food 1,329 1,292
68,756 13,891
In process products:
Refined sugar and by-products 56,798 30,394
Forest products 1,450 2,074
Hardware products 3,179 3,719
61,427 36,187
Finished products:
Refined sugar and by-products 107,158 67,161
Forest products 1,260 900
Hardware products 1,901 2,283
110,319 70,344
Supplies 35,623 35,047
$276,125 $155,469
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Accounts payable:
Sugarbeet purchases $126,430 $23,979
Other 36,908 33,681
$163,338 $57,660
Accrued liabilities:
Sugar processing costs $ 22,301 $10,875
Inventory replacement reserve * - 3,989
Employee benefits 17,657 16,001
Interest 3,987 4,986
Other 16,245 18,452
$ 60,190 $54,303
</TABLE>
[FN]
* Effect of temporary reductions in LIFO inventory quantities expected to be
replaced by year-end.
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Notes payable - Amalgamated:
U.S. Government loans $ 75,518 $ 70,912
Bank credit agreement 42,235 41,000
$117,753 $111,912
Long-term debt:
Valhi LYONs $108,800 $113,831
Valcor Senior Notes 100,000 100,000
Amalgamated bank term loan 15,000 21,000
Medite:
U.S. bank credit agreement 61,000 75,000
Irish bank credit agreements 8,441 16,481
State of Oregon term loan 4,328 4,236
Other 267 244
74,036 95,961
Sybra:
Bank credit agreements 13,387 2,200
Capital lease obligations 7,133 6,665
Other 41 35
20,561 8,900
National Cabinet Lock 179 160
318,576 339,852
Less current maturities 16,086 22,812
$302,490 $317,040
</TABLE>
NOTE 8 - ACCOUNTS WITH AFFILIATES:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Receivable from affiliates:
Demand loan to Contran $ - $7,000
Income taxes 44 -
Other 228 20
$272 $7,020
Payable to affiliates:
Income taxes $ - $2,680
Other 43 116
$ 43 $2,796
</TABLE>
NOTE 9 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill $ 5,500 $ 5,416
Franchise fees 7,257 6,719
Other 8,323 7,946
21,080 20,081
Deferred financing costs 7,817 7,345
Prepaid pension cost 4,864 5,150
Property held for sale 3,853 4,037
Other 5,273 2,486
$42,887 $39,099
</TABLE>
NOTE 10 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Accrued OPEB cost $17,705 $17,956
Insurance claims and expenses 5,141 3,707
Other 4,482 4,693
$27,328 $26,356
</TABLE>
NOTE 11 - OTHER INCOME:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Securities earnings:
Interest and dividends $3,018 $ 2,940
Securities transactions 1,023 (1,844)
4,041 1,096
Business unit disposition 500 -
Other, net 3,462 3,597
$8,003 $ 4,693
</TABLE>
NOTE 12 - INCOME TAXES:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1993 1994
(IN MILLIONS)
<S> <C> <C>
Provision for income taxes (benefit) allocable to
income (loss) before income taxes:
Expected tax expense (benefit) $(34.1) $ 1.3
Incremental U.S. tax on income of companies not
included in the consolidated tax group 1.5 1.4
Non-U.S. tax rates (.6) (.8)
State income taxes, net .7 .8
Other, net (.5) (1.4)
$(33.0) $ 1.3
Comprehensive provision for income taxes (benefit):
Taxes currently payable $ 4.5 $ 9.9
Deferred tax benefit (36.2) (5.7)
$(31.7) $ 4.2
Allocable to:
Income (loss) before income taxes $(33.0) $ 1.3
Stockholders' equity, principally deferred taxes
allocable to adjustment components 1.3 2.9
$(31.7) $ 4.2
</TABLE>
The expected tax benefit for the 1993 period is computed at the previously-
reported U.S. federal statutory rate of 34% because the retroactive increase to
the current 35% rate was not enacted until August 1993.
NOTE 13 - 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 14 - COMMITMENTS AND CONTINGENCIES:
At June 30, 1994, the estimated cost to complete capital projects in
process approximated $36 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 $6 million of equipment purchase commitments. At June 30, 1994,
the fair value of such currency contracts approximated the contract value.
Medite has entered into interest rate swap agreements to convert $26
million of its U.S. bank term loan from a floating to a fixed interest rate. At
June 30, 1994, the estimated fair value of such swap agreements was $1.8
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", (iii) Valhi's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994 and (iv) 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
Net income was $3.0 million for the second quarter of 1994, a $10 million
improvement from the $7.1 million net loss in the 1993 quarter. For the first
half of 1994, net income was $2.3 million, almost $70 million better than the
$67.4 million net loss reported for the first half of 1993. Improved results
attributable to the Company's interest in NL Industries was a major factor in
the higher 1994 earnings. The Company's results of operations are discussed
below.
REFINED SUGAR
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Refined sugar $ 97.5 $103.3 + 6% $177.7 $195.9 +10%
By-products and other 8.8 9.0 + 3% 19.8 20.6 + 4%
$106.3 $112.3 + 6% $197.5 $216.5 +10%
Operating income $ 8.1 $ 9.7 +21% $ 14.2 $ 16.5 +16%
Operating income margin 7.6% 8.7% 7.2% 7.6%
Percentage change in:
Sugar sales volume + 6% +11%
Average sugar sales price + 0% - 1%
</TABLE>
Average sugar selling prices during the first half of 1994 were comparable
to the first half of last year and were up slightly from levels of late 1993.
The U.S. government recently announced that there will be no marketing
allotments for the crop year ending September 30, 1994, and sugar sales volume
for the last half of 1994 is currently expected to approximate that of the last
half of 1993. Sugar available for sale during the crop year beginning October
1, 1994 should be higher than last year due to a combination of the higher than
normal level of sugar inventory to be carried over into the new crop year and a
slightly larger crop to be harvested this fall.
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 sugar selling price.
As a result, changes in sugar selling prices impact costs as well as revenues.
Amalgamated's cost of sales is determined under the last-in, first-out
accounting method. Supplemental information comparing LIFO and FIFO sugar
operating income and margins is presented below.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
LIFO accounting method $8.1 $9.7 +21% $14.2 $16.5 +16%
FIFO accounting method 5.7 7.2 +28% 9.1 13.1 +44%
Operating income margin:
LIFO accounting method 7.6% 8.7% 7.2% 7.6%
FIFO accounting method 5.3% 6.5% 4.6% 6.1%
</TABLE>
The Company has tentatively agreed to sell its sugar business to a planned
agricultural cooperative of its growers for $325 million cash. The transaction
is subject to financing and other conditions and there can be no assurance that
it will be consummated.
FOREST PRODUCTS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, % June 30, %
1993 1994 Change 1993 1994 Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Medium density fiberboard $27.9 $32.3 +16% $53.2 $63.5 + 19%
Solid wood products 16.4 21.3 +30% 31.3 30.5 - 3%
Eliminations (.4) (.2) (1.0) (.6)
$43.9 $53.4 +22% $83.5 $93.4 + 12%
Operating income:
Medium density fiberboard $ 3.8 $ 7.3 +91% $ 5.6 $13.0 +133%
Solid wood products 3.6 4.3 +21% 7.2 3.7 - 48%
$ 7.4 $11.6 +57% $12.8 $16.7 + 31%
Operating income margins:
MDF 13.7% 22.7% 10.5% 20.5%
Solid wood 21.5% 20.1% 22.9% 12.2%
Total 16.8% 21.7% 15.3% 17.9%
</TABLE>
Medium density fiberboard. Higher volumes and prices both contributed to
the significant improvements in MDF earnings and margins, with average first
half selling prices up 14%. Sales of higher-priced specialty MDF products
continued to increase and represented 29% of MDF sales dollars in the first half
of 1994, up from 24% during the 1993 period.
Medite's primary strategic focus is to continue its expansion in the
growing market for MDF, including further penetration of higher-margin specialty
MDF markets. Medite's MDF plants are operating at a very high rate of capacity.
The expanded Irish plant, which will increase Medite's total MDF capacity by
about 25%, is expected to be operational by early 1995.
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 market
conditions. Solid wood sales and earnings fluctuations were in large part a
result of market-based volume decisions made by the Company, including (i)
varying the volume of logs offered for sale (comparatively reduced during the
first quarter and increased in the second quarter of 1994) and (ii) the
curtailment of veneer and lumber production during a portion of the second
quarter of 1994. Earnings in early 1993 were aided by higher volumes related to
reductions in certain inventories following the closure of Medite's plywood
operations in January 1993.
HARDWARE PRODUCTS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $16.0 $17.5 +10% $30.4 $35.5 +17%
Operating income 3.9 5.0 +28% 7.0 10.1 +45%
Operating income margin 24.5% 28.6% 23.0% 28.4%
</TABLE>
Sales, operating income and margins all improved as volumes increased in
each of the three major product lines (locks, drawer slides and computer
keyboard support arms). National Cabinet Lock's major plants are operating at a
high rate of current capacity.
FAST FOOD
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $27.3 $27.6 +1% $53.4 $54.3 +2%
Operating income 2.1 2.3 +8% 4.0 3.9 -2%
Operating income margin 7.9% 8.4% 7.5% 7.2%
Arby's restaurants operated:
At end of period 159 158 159 158
Average during the period 160 157 160 157
</TABLE>
Fast food results improved during the second quarter (and were comparable
to the first half of last year) despite fewer stores being operated. Comparable
store sales have increased slightly during 1994 and new store sales have more
than offset sales of stores closed. Year-to-date earnings comparisons were
hampered by adverse winter weather during the first quarter of 1994.
OTHER
Business unit disposition. As previously reported, the gain in 1993
related to a change in estimate of the loss accrued in 1992 related to the
closure of Medite's plywood operations.
General corporate items. Lower securities earnings in 1994 resulted
primarily from a first quarter 1994 decline in the market value of fixed-income
investments. General and other expenses were comparable as higher legal-related
expenses offset lower environmental-related charges.
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 18% decline in year-to-date
interest expense.
Approximately $137 million of subsidiary indebtedness bears interest at
fixed rates averaging 9.2%. The average interest rate on floating rate
subsidiary borrowings outstanding at June 30, 1994 was 5.3%. Periodic interest
payments are not required on Valhi's 9.25% deferred coupon LYONs.
Provision for income taxes. See Note 12 to the Consolidated Financial
Statements. 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.
UNCONSOLIDATED COMPANIES - 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 1993 six-month period also included an $84 million first
quarter charge for an "other than temporary" decline in the market value of NL
common stock. Under current accounting rules, a market value writedown of an
investment accounted for by the equity method cannot be reversed if the market
value of the stock subsequently recovers. At June 30, 1994, the Company's per
share net carrying value of NL was $2.03 (market price - $8.50) and of Tremont
was $2.84 (market price - $7.75).
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 in two business
segments, titanium dioxide pigments ("TiO2") conducted by Kronos and specialty
chemicals conducted by Rheox. NL's return to profitability, and the timing
thereof, are dependent in large part upon improved pricing for TiO2, NL's
principal product. NL's results improved significantly during the first half of
1994, as discussed below, and it expects the impact of its recently announced
TiO2 price increases will further improve operating income during the last half
of the year.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 Change 1993 1994 Change
(In millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Kronos $193.2 $206.4 + 7% $365.3 $380.7 + 4%
Rheox 28.2 30.7 + 9% 54.6 58.3 + 7%
$221.4 $237.1 + 7% $419.9 $439.0 + 5%
Operating income:
Kronos $ 7.6 $ 17.6 +135% $ 24.7 $ 33.1 +34%
Rheox 7.6 8.6 + 12% 13.6 15.5 +14%
15.2 26.2 + 73% 38.3 48.6 +27%
General corporate items:
Securities earnings 1.2 .7 4.2 .9
Expenses, net (13.4) (17.7) (22.0) (18.5)
Interest expense (26.5) (21.1) (52.8) (42.1)
(23.5) (11.9) $11.6 (32.3) (11.1) $21.2
Income tax expense (4.3) (3.4) (8.9) (10.3)
Minority interest (.2) (.2) (.3) (.5)
Net loss $(28.0) $(15.5) $12.5 $(41.5) $(21.9) $19.6
Valhi's equity in NL's losses, including
amortization of basis differences (*) $(16.0) $ (9.9) $ 6.1 $(25.5) $(15.3) $10.2
</TABLE>
[FN]
(*) Excludes market value impairment provision in the first quarter of 1993.
See Note 2 to the Consolidated Financial Statements.
Kronos' operating income increased due to higher TiO2 sales volumes,
slightly lower per unit operating costs and technology fee income. Primarily as
a result of improved pricing in Europe, Kronos' average TiO2 selling prices in
the first half of 1994 approximated both first half and full year 1993 averages.
Rheox's operating results improved primarily as a result of higher sales volume
and lower operating costs.
Year-to-date corporate expenses, net were lower as a $20 million gain
related to the first quarter 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 debt 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 NL believes recognition of a deferred
tax asset is not currently appropriate.
Tremont Corporation. Tremont's titanium metals operations are conducted
through its 75%-owned TIMET subsidiary. 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 overall results are significantly impacted by
NL's results. Tremont has reported significant losses in the past two years and
expects to report a net loss in 1994. 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 and availability of relatively inexpensive products
from Russia. TIMET's focus continues to be on improving manufacturing
processes, reducing overall costs, developing new markets and evaluating
strategic opportunities, including acquisitions and joint ventures, as part of
its efforts to return to profitability.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1993 1994 Change 1993 1994 Change
(In millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 39.7 $ 37.5 -5% $ 79.3 $ 78.4 -1%
Operating income (loss) $ .3 $ (2.2) $ (2.5) $ (1.3) $ (4.0) $ (2.7)
General corporate items, net 5.1 (1.7) 4.8 (2.1)
Interest expense (1.3) (1.3) (2.0) (2.5)
4.1 (5.2) (9.3) 1.5 (8.6) (10.1)
Equity in loss of NL:
Equity in NL's loss (5.7) (3.6) (9.1) (5.5)
Provision for market value impairment - - (29.0) -
(5.7) (3.6) 2.1 (38.1) (5.5) 32.6
Loss before income taxes (1.6) (8.8) (36.6) (14.1)
Income tax benefit (expense) (.4) - .4 (.2)
Minority interest - 1.0 - 1.8
Loss from continuing operations (2.0) (7.8) (5.8) (36.2) (12.5) 23.7
Other, net .2 - .3 (.8)
Net loss $ (1.8) $ (7.8) $ (6.0) $(35.9) $(13.3) $ 22.6
Valhi's equity in Tremont's losses,
including amortization of basis
differences (*) $ (3.1) $ (3.4) $ (.3) $ (5.2) $ (5.6) $ (.4)
</TABLE>
[FN]
* Excludes Valhi's $14 million share of Tremont's first quarter 1993 market
value impairment provision, which equity is reported as a component of
Valhi's $84 million impairment charge related to NL. See Note 2 to the
Consolidated Financial Statements.
TIMET's 1994 sales were slightly lower than in the comparable 1993 periods
as changes in product mix toward higher priced industrial products partially
offset the impact of lower average prices and a 5% decline in year-to-date
volume. The majority of TIMET's sales continue to be to aerospace markets,
where volume remains depressed. Higher production costs, in part due to certain
mechanical difficulties at the Henderson, Nevada plant, also contributed to the
increased operating losses.
The previously-reported strike at TIMET's Nevada plant ended in July 1994,
with the union accepting TIMET's last contract proposal. TIMET and union
employees at its Toronto, Ohio plant were unable to reach an agreement before
the existing contract expired July 31, 1994 and approximately 325 union
employees commenced a work stoppage. TIMET is continuing production in Ohio
through use of salaried personnel, contract labor and outside processors. At
this time, TIMET is unable to estimate the impact the strike may have on its
future operating results and liquidity.
General corporate items, net in the 1993 periods include a $5.5 million
gain from the sale of Tremont's interest in a gold mining venture. 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
Tremont believes recognition of a deferred tax asset is not currently
appropriate.
LIQUIDITY AND CAPITAL RESOURCES:
CONSOLIDATED CASH FLOWS
Operating activities. Changes in working capital levels result primarily
from the timing of production, sales and purchases, including, among other
things, significant seasonal fluctuations related to Amalgamated's refined sugar
operations as discussed below. Net changes in assets and liabilities accounted
for approximately $20 million of the comparative increase in operating cash
flow. Valhi's LYONs do not require current cash debt service, resulting in cash
interest payments being lower than aggregate interest expense.
Investing and financing activities. The higher levels of capital
expenditures in 1994 relate principally to capacity projects, including
productivity-enhancing equipment at Amalgamated, Medite's Irish MDF plant
expansion and Sybra's new restaurants. The Company's total capital expenditures
for the last half of the year are estimated at approximately $24 million,
including $11 million to substantially complete Medite's Irish MDF plant
expansion. Such capital expenditures are expected to be financed primarily from
operations or existing credit facilities.
Net sales of securities and net repayments of debt in the 1993 six-month
period relate principally to Valhi's redemption of $100 million principal amount
of 121/2% Notes in February 1993.
At June 30, 1994, unused revolving credit available to the Company's
subsidiaries aggregated $62 million. In addition, (i) Medite has term loan
availability to finance 75% of the remaining cost of its Irish medium density
fiberboard plant expansion and (ii) Amalgamated has $17 million of term loan
availability to complete certain capital projects. Sybra's $20 million
revolving bank credit agreement was recently extended one year to July 1996.
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 June 30, 1994, refined sugar inventory with a
LIFO carrying value of approximately $54 million (15.89 cents per pound) was
the sole collateral for $71 million nonrecourse Government loans.
Forest Products. As discussed above, the in-process expansion of the
Medite Irish MDF plant will increase plant capacity by approximately 75% and
increase its worldwide MDF production capacity approximately 25%.
In the solid wood portion of Medite's business, new Riparian Rights Laws in
Oregon restricting timber harvest in certain areas become effective September 1,
1994. These new laws are currently expected to impact between 15 million and 20
million board feet of company-owned merchantable timber. This amounts to less
than 3% of Medite's fee timber, and only a relatively small portion of the
effected timber is expected to be permanently lost to harvest.
Hardware Products. The Company continues to explore ways to expand this
high-margin business segment.
Fast Food. Sybra opened three new Arby's restaurants during the first half
of 1994, opened one new store in July and expects to open three more restaurants
later this year. Sybra continually evaluates the profitability of its
individual restaurants, and in this regard closed five stores early in 1994 and
may close two or three additional stores later in the year.
The terms of Sybra's Consolidated Development Agreement with Arby's, Inc.
were amended in May 1994. Under the revised agreement, Sybra retains its
exclusive development rights in the Dallas/Fort Worth area, Sybra and Arby's now
have joint development rights in the Tampa area, and Sybra's required new store
opening schedule was modified. The new schedule requires Sybra to open four
stores during the last half of 1994, eight more in 1995 and an additional 13
stores by various dates through 1997. Sybra currently anticipates that its
expansion program will meet or exceed this schedule.
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 operations conducted through its wholly-owned
subsidiaries (Medite, National Cabinet Lock and Sybra). 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.
Valhi owns 5.5 million shares of Dresser common stock, which shares are
held in escrow for the benefit of holders of the LYONs. Valhi receives the
quarterly dividends on the escrowed shares, currently $.17 per share. 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 has tentatively agreed to sell Amalgamated's sugar business,
for $325 million cash, to a planned agricultural cooperative comprised of
sugarbeet growers in Amalgamated's area of operation. The proposed transaction
is subject to significant conditions, including financing, grower commitments
and execution of a definitive purchase agreement, and no assurance can be given
that the transaction will be consummated. The net proceeds from the proposed
sale, if completed, would be available for general corporate purposes, including
expansion of Valhi's other businesses.
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 COMPANIES - NL AND TREMONT
Summarized balance sheet, cash flow and other information of NL and Tremont
is presented below.
<TABLE>
<CAPTION>
NL TREMONT
INDUSTRIES CORPORATION
DEC. 31, JUNE 30, DEC. 31, JUNE 30,
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash, equivalents and securities $ 147.6 $ 161.4 $ 20.3 $ 14.6
Inventories 194.2 179.1 52.6 50.0
Receivables and other current assets 125.7 184.7 41.1 44.0
Noncurrent securities 18.4 19.4 7.7 7.3
Investment in NL - - 22.3 18.6
Investment in joint ventures 190.8 188.5 13.6 15.1
Other noncurrent assets 151.2 82.1 18.3 16.6
Property and equipment, net 378.6 399.6 147.3 145.3
$1,206.5 $1,214.8 $323.2 $311.5
Current liabilities $ 232.5 $ 242.4 $ 66.0 $ 52.2
Long-term debt 835.2 797.5 43.5 54.0
Accrued OPEB cost 68.3 66.8 51.7 51.6
Accrued pension cost 72.6 76.4 .2 .6
Deferred income taxes 139.0 193.0 - -
Other noncurrent liabilities 121.3 130.0 16.2 21.0
Minority interest 2.4 2.7 27.2 25.3
Stockholders' equity (deficit):
Capital and retained earnings (143.4) (164.0) 126.7 113.8
Adjustments, principally currency translation (121.4) (130.0) (8.3) (7.0)
(264.8) (294.0) 118.4 106.8
$1,206.5 $1,214.8 $323.2 $311.5
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
NL TREMONT
1993 1994 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net cash provided (used) by:
Operating activities $(34.9) $111.6 $ 3.4 $ (7.3)
Investing activities:
Capital expenditures (20.0) (16.6) (12.0) (2.6)
Other, net 57.3 3.0 6.0 .3
Financing activities:
Net borrowings (repayments) (16.3) (72.9) (2.7) 5.4
Other - (.9) .1 .4
$(13.9) $ 24.2 $ (5.2) $ (3.8)
Cash, equivalents and securities at end
of period $119.1 $161.4 $ 8.6 $ 14.6
Cash paid for:
Interest, net of amount capitalized $ 53.5 $ 35.1 $ - $ 2.9
Income taxes (received) 4.8 (95.1) (2.8) .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. In the past few years,
during the down cycle since the previous peak in TiO2 selling prices in early
1990, NL's operations have used significant amounts of cash. Receipt of the
tentative German income tax refunds during the second quarter of 1994, discussed
below, significantly increased NL's cash flow from operating activities for the
first half of 1994 and was a significant factor in NL's improved liquidity.
Excluding the effects of the tentative tax refunds, NL's operations used cash
but at a significantly lower rate than last year. 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
and the previously-reported formation of a TiO2 manufacturing joint venture and
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, including Germany,
are being examined and tax authorities have or may propose tax deficiencies.
During the second quarter of 1994, the German tax authorities withdrew certain
tax assessment reports and remitted tax refunds aggregating DM 185 million ($112
million), including interest, on a tentative basis. NL applied DM 143 million
of the tentative tax refund to reduce outstanding borrowings under its DM
revolving bank credit facility. Examination of NL's German income tax returns
continues. NL understands the German tax authorities intend to remit additional
tentative tax refunds aggregating DM 35 million and issue new assessment reports
proposing tax deficiencies. NL expects to apply the additional tentative tax
refunds to reduce outstanding borrowings under its DM revolving bank credit
facility. NL has granted a DM 100 million ($63 million) lien on its Nordenham,
Germany TiO2 plant until any future assessment reports proposing tax
deficiencies are resolved. The timing of receipt of any additional tentative
tax refunds and the timing and amount of new assessments proposing tax
deficiencies remains uncertain. NL believes that it has adequately provided
accruals for additional income taxes and related interest expense which may
ultimately result from all such examinations.
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 ($87 million at June 30, 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 $136 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. Tremont, with its 75% equity interest in TIMET and
18% equity interest in NL, is principally a holding company. NL discontinued
dividends in 1992 and provisions of TIMET's bank credit agreement do not
currently permit dividend payments. At June 30, 1994, Tremont had parent-level
cash, equivalents and marketable securities of approximately $11 million and
believes it will have sufficient liquidity to meet its existing near-term parent
company obligations. At June 30, 1994, Tremont's per share net carrying value
of its investment in NL was $2.05 (market price - $8.50).
During the past few years, TIMET's combined operations, capital
expenditures and debt service have consumed significant amounts of cash,
including approximately $10 million used by such items in the first half of
1994. At June 30, 1994, TIMET had approximately $4 million of cash and $11
million of borrowing availability under its bank credit agreement. Borrowings
under this agreement are collateralized by substantially all of TIMET's assets
and the agreement, among other things, limits TIMET's additional indebtedness.
TIMET has taken and continues to take measures to manage its near-term and
long-term liquidity requirements including, among other things, the previously-
reported refinancing of certain debt in April 1994, 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. Although TIMET has taken steps to reduce inventories, such measures
have not yet resulted in significantly lower inventory levels due to work
stoppages and certain mechanical difficulties. TIMET is continuing
modifications at its Nevada plant to bring its processing reliability to
acceptable levels. It is also continuing production at its Ohio plant during
the current union work stoppage through the use of salaried personnel, contract
labor and outside processors. TIMET believes these measures, if successful,
will provide it with the liquidity to meet its near-term obligations. However,
the continued consumption of cash would have a further adverse effect on TIMET's
liquidity and financial condition and TIMET is unable to estimate, at this time,
the impact the Ohio strike may have on its future operations and cash flow.
Neither Tremont nor TIMET's other 25% shareholder (Union Titanium Sponge
Corporation or "UTSC") have guaranteed any TIMET debt nor are they obligated to
provide additional funds to TIMET. Tremont has, however, agreed to purchase
from UTSC, under certain conditions, TIMET's debt owed to UTSC ($6 million at
June 30, 1994).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1993 Annual Report and the March 31, 1994 Form 10-
Q for descriptions of certain legal proceedings.
Valhi and consolidated subsidiaries
Discovery is proceeding in the previously-reported matter of Alan Russell
Kahn v. Tremont Corporation, et al.
In the previously-reported matter Holland, et al v. Valhi, Inc., et al.
(No. 87-C-9686), the United States Court of Appeals for the Tenth Circuit has
denied the plaintiffs' and defendants' motions requesting the full Court to
rehear the matter previously ruled upon by a Panel of the Court. The Company
believes it has adequately accrued for the estimated effect of the ultimate
resolution of this matter, as well as for a similar previously-reported pending
matter, American Federation of Grain Millers International, et al. v. Valhi,
Inc. et al. (No. 29-NC-1298).
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 June 30, 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 June 30, 1994,
attached hereto as Exhibit 99.2.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Valhi's 1994 Annual Meeting of Stockholders was held on May 12, 1994.
Arthur H. Bilger, Norman S. Edelcup, Robert J. Frame, Glenn R. Simmons, Harold
C. Simmons, Michael A. Snetzer and J. Walter Tucker, Jr. were reelected as
directors, each receiving votes "For" their election of approximately 96.7% of
the 115.0 million common shares eligible to vote at the Annual Meeting. In
addition, an amendment to the Valhi, Inc. 1987 Stock Option - Stock Appreciation
Rights Plan was approved by approximately 96.3% of such eligible common shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 - Letter amendment dated May 26, 1994 to the Consolidated
Development Agreement dated August 31, 1992 between Arby's, Inc. and
Sybra, Inc. - incorporated by reference to Exhibit 10.1 of Valcor's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File
No. 33-63044).
99.1 - Part II, Item 1 of NL's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (File No. 1-640).
99.2 - Part II, Item 1 of Tremont's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 (File No. 1-10126).
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended June 30, 1994 and the month
of July 1994:
April 11, 1994 - Reported Items 5 and 7.
April 27, 1994 - Reported Items 5 and 7.
May 12, 1994 - Reported Items 5 and 7.
May 17, 1994 - Reported Items 5 and 7.
July 1, 1994 - Reported Items 5 and 7.
July 6, 1994 - Reported Items 5 and 7.
July 20, 1994 - Reported Items 5 and 7.
July 28, 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 August 5, 1994 By /s/ William C. Timm
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date August 5, 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 August 5, 1994 By
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date August 5, 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 June 30, 1994 (File No. 1-640).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 for descriptions of
certain previously-reported legal proceedings.
Coren, et al. v. Cardoza v. Sherwin-Williams, et al. and Pacheco, et al. v.
Ortiz v. The Sherwin-Williams Company, et al. In May 1994, joint stipulations
of dismissal without prejudice were filed by the third-party plaintiff and the
third-party defendants (including the Company) in each of these previously-
reported cases.
Barros v. Pires v. Sherwin-Williams Co., et al. In May 1994, the third-
party plaintiffs withdrew their motion for reconsideration or reversal of the
court's previous decision dismissing the third-party defendants, including the
Company.
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. In
May 1994, the trial court granted the defendants' motion to dismiss the
plaintiffs' restitution and indemnification claims. The plaintiffs filed a
notice of appeal.
Skipworth v. Sherwin-Williams Co., et al. In June 1994, the plaintiffs
appealed the trial court's decision dismissing the plaintiffs' case with
prejudice.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al. In July
1994, the court entered judgment on the previously-reported order requiring
Commercial Union to pay previously-incurred Company costs in defending two lead
pigment cases. The defendant's time to appeal has not yet expired.
Wagner, et al. v. Anzon and NL Industries, Inc. Defendants' motion for
summary judgment was denied; trial remains set for September 1994.
United States of America v. Peter Gull and NL Industries, Inc. In June
1994, both the Company and the U.S. Environmental Protection Agency (the "U.S.
EPA") appealed the previously-reported judgment.
Pedricktown. In July 1994, the U.S. EPA selected a remediation plan for
the remaining clean-up of operable unit one which the U.S. EPA estimates will
cost $18.7 million to complete. No agreement regarding the allocation of such
costs among the potentially responsible parties has been reached.
Dallas Smelter. The Texas Natural Resource Commission has filed a report
and petition against the Company and Mainland Land and Equipment ("Mainland")
seeking approximately $.2 million in penalties and implementation of a site
investigation plan in connection with the Company's former smelter in Dallas,
Texas. The report and petition alleges that the Company and Mainland are
responsible for the discharge of pollutants and for the failure to undertake
actions to abate and remove the discharge of pollutants. The Company has filed
an answer denying the allegations and has requested a hearing.
Day, et al. v. NLO, Inc., et al. In July 1994, the parties reached a
settlement agreement pursuant to which the Department of Energy would pay all
costs of the settlement, the plaintiffs' case would be dismissed, and the
Company and NLO would be released and dismissed. The settlement is subject to
final court approval.
Exhibit 99.2 - Part II, Item 1 of Tremont's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1994 (File No. 1-10126).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report and the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1994 for descriptions of
certain legal proceedings.
Tremont and consolidated subsidiaries
Discovery is proceeding in the previously-reported matter of Alan Russell
Kahn v. Tremont Corporation, et al.
