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, 1995 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, 1995: 113,838,414.
VALHI, INC. AND SUBSIDIARIES
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1994
and March 31, 1995 3-4
Consolidated Statements of Operations - Three
months ended March 31, 1994 and 1995 5
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 1995 6
Consolidated Statements of Cash Flows - Three
months ended March 31, 1994 and 1995 7-8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 25
Item 6. Exhibits and Reports on Form 8-K. 25
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 170,747 $ 134,126
Marketable securities 49,233 26,516
Accounts and notes receivable 202,172 260,699
Receivable from affiliates 5,411 15,184
Inventories 498,097 470,460
Prepaid expenses 8,198 13,006
Deferred income taxes 2,276 2,198
Total current assets 936,134 922,189
Other assets:
Marketable securities 115,527 128,868
Investment in joint ventures 187,480 189,718
Natural resource properties 93,400 95,098
Prepaid pension cost 24,496 26,432
Goodwill 248,097 257,523
Deferred income taxes 2,827 1,343
Other 65,011 65,061
Total other assets 736,838 764,043
Property and equipment:
Land 38,393 41,185
Buildings 184,009 196,609
Equipment 809,758 849,116
Construction in progress 18,267 37,478
1,050,427 1,124,388
Less accumulated depreciation 242,696 260,905
Net property and equipment 807,731 863,483
$2,480,703 $2,549,715
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
1994 1995
<S> <C> <C>
Current liabilities:
Notes payable $ 124,893 $ 190,731
Current long-term debt 62,625 61,432
Accounts payable 267,047 155,592
Accrued liabilities 157,646 170,843
Payable to affiliates 11,358 13,589
Income taxes 24,192 28,456
Deferred income taxes 8,461 2,147
Total current liabilities 656,222 622,790
Noncurrent liabilities:
Long-term debt 1,086,654 1,123,698
Accrued pension cost 76,344 82,841
Accrued OPEB cost 83,300 82,456
Accrued environmental costs 93,655 102,342
Deferred income taxes 226,789 258,420
Other 56,890 56,204
Total noncurrent liabilities 1,623,632 1,705,961
Minority interest 2,425 2,724
Stockholders' equity:
Common stock 1,245 1,245
Additional paid-in capital 33,341 33,788
Retained earnings 209,071 218,036
Adjustments:
Currency translation (12,128) (10,007)
Marketable securities 37,669 46,296
Pension liabilities (506) (506)
Common stock reacquired (70,268) (70,612)
Total stockholders' equity 198,424 218,240
$2,480,703 $2,549,715
</TABLE>
[FN]
Commitments and contingencies (Note 13)
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro forma*
1994 1994 1995
<S> <C> <C> <C>
Revenues and other income:
Net sales $188,965 $390,814 $467,629
Other, net 1,586 24,629 5,658
190,551 415,443 473,287
Costs and expenses:
Cost of sales 146,303 295,721 340,128
Selling, general and administrative 27,972 86,170 76,352
Interest 8,997 30,062 32,842
183,272 411,953 449,322
Income of consolidated companies
before income taxes 7,279 3,490 23,965
Equity in losses of NL prior to
consolidation (6,217) - -
Income before income taxes 1,062 3,490 23,965
Provision for income taxes 882 5,440 11,205
Minority interest - 249 345
Income from continuing operations 180 $ (2,199) 12,415
Discontinued operations (880) -
Net income (loss) $ (700) $ 12,415
Earnings per common share:
Continuing operations $ - $(.02) $ .11
Discontinued operations (.01) -
Net income (loss) $(.01) $.11
Cash dividends per share $ .02 $ .02 $.03
Average common shares outstanding 114,273 114,273 114,392
</TABLE>
[FN]
* Assuming the Company had consolidated NL Industries effective at the
beginning of 1994. See Note 1.
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
<S> <C> <C> <C>
Balance at December 31, 1994 $1,245 $33,341 $209,071
Net income - - 12,415
Dividends - - (3,450)
Adjustments, net - - -
Other, net - 447 -
Balance at March 31, 1995 $1,245 $33,788 $218,036
</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, 1994 $(12,128) $37,669 $(506) $(70,268) $198,424
Net income - - - - 12,415
Dividends - - - - (3,450)
Adjustments, net 2,121 8,627 - - 10,748
Other, net - - - (344) 103
Balance at March 31, 1995 $(10,007) $46,296 $(506) $(70,612) $218,240
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma*
1994 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (700) $ (2,199) $ 12,415
Depreciation, depletion and
amortization 7,953 21,066 23,337
Noncash interest expense 2,635 7,100 7,543
Deferred income taxes (2,387) 157 4,530
Equity in NL prior to consolidation 6,217 - -
Other, net 1,827 756 (3,534)
15,545 26,880 44,291
Change in assets and liabilities:
Accounts and notes receivable (751) (30,390) (45,210)
Inventories 41,223 42,092 39,882
Accounts payable/accrued liabilities:
Sugarbeet purchases (102,262) (102,262) (123,143)
Other, net 658 (8,727) 16,845
Other, net 76 4,991 272
Trading securities:
Sale proceeds 25,000 25,000 24,184
Purchases (25,000) (25,870) (762)
Net cash used by operating
activities (45,511) (68,286) (43,641)
Cash flows from investing activities:
Capital expenditures (13,278) (20,526) (28,141)
Purchase of NL common stock - - (11,511)
Loans to affiliates:
Loans - - (28,300)
Collections - - 13,300
Other, net (9) 2,301 (3,293)
Net cash used by investing
activities (13,287) (18,225) (57,945)
</TABLE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro forma*
1994 1994 1995
<S> <C> <C> <C>
Cash flows from financing activities:
Indebtedness:
Borrowings $ 160,410 $174,459 $ 216,924
Principal payments (89,437) (97,337) (152,443)
Dividends paid (2,286) (2,286) (3,450)
Other, net 116 (74) 66
Net cash provided by financing
activities 68,803 74,762 61,097
Net increase (decrease) 10,005 (11,749) (40,489)
Currency translation (219) 642 3,868
Cash and equivalents, beginning of period 22,189 128,782 170,747
Cash and equivalents, end of period $ 31,975 $117,675 $ 134,126
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 3,232 $ 13,835 $ 10,094
Income taxes 2,946 6,223 4,422
</TABLE>
[FN]
* Assuming the Company had consolidated NL Industries effective at the
beginning of 1994. See Note 1.
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, 1994 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1995 and the consolidated statements of
operations, cash flows and stockholders' equity for the interim periods ended
March 31, 1994 and 1995 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.
Valhi increased its ownership of NL Industries, Inc. (Commission File
No. 1-640) from approximately 49% to more than 50% in December 1994 and,
accordingly, consolidated NL's financial position effective December 31, 1994
and commenced consolidating NL's results of operations and cash flows effective
January 1, 1995. The accompanying consolidated financial statements include,
for comparative purposes, certain 1994 pro forma financial information as if the
Company had consolidated NL as of the beginning of that year.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted and certain prior year amounts have been reclassified to conform to the
1995 presentation. 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, 1994 (the "1994 Annual Report").
Contran Corporation holds, directly or through subsidiaries, approximately
90% of Valhi's outstanding common stock.
NOTE 2 - EARNINGS PER COMMON SHARE:
Earnings 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:
% OWNED
BUSINESS SEGMENT PRINCIPAL ENTITIES AT MARCH 31, 1995
Chemicals NL Industries, Inc. 53%
Refined sugar The Amalgamated Sugar Company 100%
Building products Medite Corporation 100%
Hardware products National Cabinet Lock, Inc. 100%
Fast food Sybra, Inc. 100%
<TABLE>
<CAPTION>
Three months ended March 31,
Pro forma
1994 1994 1995
(In millions)
<S> <C> <C> <C>
Net sales:
Chemicals $ - $201.8 $250.9
Refined sugar 104.2 104.2 111.2
Building products 40.0 40.0 58.6
Hardware products 18.0 18.0 20.1
Fast food 26.7 26.7 26.8
$188.9 $390.7 $467.6
Operating income:
Chemicals $ - $ 17.7 $ 36.9
Refined sugar 6.8 6.8 6.4
Building products 5.1 5.1 10.3
Hardware products 5.1 5.1 5.5
Fast food 1.6 1.6 1.1
18.6 36.3 60.2
General corporate items:
Securities earnings .1 .3 3.8
General expenses, net (2.4) (3.0) (7.3)
Interest expense (9.0) (30.1) (32.8)
Income of consolidated companies
before income taxes 7.3 3.5 23.9
Equity in NL prior to consolidation (6.2) - -
Income before income taxes $ 1.1 $ 3.5 $ 23.9
</TABLE>
NL's chemicals operations are conducted through Kronos, Inc. (titanium
dioxide pigments or "TiO2") and Rheox, Inc. (specialty chemicals). The
Company's building products (Medite), hardware products (National Cabinet Lock)
and fast food (Sybra) subsidiaries are owned by Valcor, Inc., a wholly-owned
subsidiary of Valhi.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
DEPRECIATION, DEPLETION
AND AMORTIZATION CAPITAL EXPENDITURES
PRO FORMA PRO FORMA
1994 1995 1994 1995
(In millions)
<S> <C> <C> <C> <C>
Chemicals $13.0 $14.3 $ 7.2 $12.4
Refined sugar 3.9 4.0 4.0 7.1
Building products 2.0 2.9 5.5 3.4
Fast food and other 2.2 2.1 3.8 5.2
$21.1 $23.3 $20.5 $28.1
</TABLE>
NOTE 4 - MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
(In thousands)
<S> <C> <C>
Current assets (trading securities):
U.S. Treasury securities $ 25,165 $ 26,516
Global bond investments 24,068 -
$ 49,233 $ 26,516
Noncurrent assets (available-for-sale):
Dresser Industries common stock $103,243 $116,234
Other common stocks 12,284 12,634
$115,527 $128,868
</TABLE>
Valhi holds 5.5 million shares of Dresser common stock with a quoted market
price of $21.25 at March 31, 1995, or an aggregate market value of $116 million
(cost $44 million). Such Dresser stock is exchangeable for Valhi's LYONs, at
the option of the LYONs holder, and the carrying value of the Dresser stock is
limited to the accreted LYONs obligation. At March 31, 1995, the aggregate cost
of other available-for-sale securities was approximately $16 million and the
aggregate amortized cost of trading securities was approximately $27 million.
NOTE 5 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Raw materials:
Chemicals $ 30,118 $ 38,399
Sugarbeets 86,868 -
Other 15,789 12,944
132,775 51,343
In process products:
Chemicals 7,654 9,483
Refined sugar and by-products 54,700 75,364
Other 5,918 5,915
68,272 90,762
Finished products:
Chemicals 113,276 115,095
Refined sugar and by-products 107,236 137,246
Other 5,221 5,169
225,733 257,510
Supplies 71,317 70,845
$498,097 $470,460
</TABLE>
NOTE 6 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Natural resource properties:
Timber and timberlands $53,114 $53,704
Mining properties 40,286 41,394
$93,400 $95,098
Franchise fees and other intangible assets $27,831 $28,133
Deferred financing costs 23,102 22,786
Other 14,078 14,142
$65,011 $65,061
</TABLE>
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Accounts payable:
Sugarbeet purchases $146,638 $ 23,495
Other 120,409 132,097
$267,047 $155,592
Accrued liabilities:
Employee benefits $ 50,929 $ 46,098
Sugar processing costs 20,132 20,076
Environmental costs 13,276 11,162
Interest 11,363 26,482
Miscellaneous taxes 9,080 5,751
Other 52,866 61,274
$157,646 $170,843
</TABLE>
NOTE 8 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Insurance claims and expenses $18,155 $18,160
Employee benefits 15,440 16,397
Deferred technology fee income 18,305 16,765
Other 4,990 4,882
$56,890 $56,204
</TABLE>
NOTE 9 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Notes payable - Amalgamated:
United States Government loans $ 79,893 $ 117,036
Bank credit agreements 45,000 73,695
$ 124,893 $ 190,731
Long-term debt:
Valhi:
LYONS $ 119,096 $ 121,802
Bank credit agreement - 10,000
119,096 131,802
NL Industries:
Senior Secured Notes 250,000 250,000
Senior Secured Discount Notes 116,409 120,091
Deutsche mark bank credit facility
(DM 397,610 and DM 397,610) 255,703 286,239
Joint venture term loan 88,715 84,858
Rheox bank term loan 67,500 59,263
Other 11,322 14,252
789,649 814,703
Amalgamated - bank term loan 26,000 31,000
Valcor:
Valcor - Senior Notes 100,000 99,000
Medite:
Bank term loans 89,411 81,411
Bank working capital facilities 8,802 6,656
Other 4,360 4,311
102,573 92,378
Other:
Sybra bank credit agreements 5,500 10,000
Sybra capital lease obligations 6,321 6,117
National Cabinet Lock 140 130
11,961 16,247
1,149,279 1,185,130
Less current maturities 62,625 61,432
$1,086,654 $1,123,698
</TABLE>
Valcor Senior Notes at March 31, 1995 are stated net of $1 million
principal amount held by Valhi.
NOTE 10 - OTHER INCOME:
<TABLE>
<CAPTION>
Three months ended March 31,
Pro forma
1994 1994 1995
(In thousands)
<S> <C> <C> <C>
Securities earnings:
Interest and dividends $ 1,403 $ 2,405 $ 3,227
Securities transactions (1,310) (2,111) 639
93 294 3,866
Technology fee income - 2,409 2,586
Currency transactions, net 233 97 (2,241)
Litigation settlement gain - 20,040 -
Other, net 1,260 1,789 1,447
$ 1,586 $24,629 $ 5,658
</TABLE>
NOTE 11 - PROVISION FOR INCOME TAXES - CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
Three months ended March 31,
Pro forma
1994 1994 1995
(In millions)
<S> <C> <C> <C>
Expected tax expense $ .4 $ 1.2 $ 8.4
Non-U.S. tax rates (.4) (2.4) (2.7)
Incremental tax and rate differences on
equity in earnings of non-tax group
companies 1.0 (1.9) 6.1
Change in NL's deferred income tax
valuation allowance - 7.7 (1.3)
Other, net (.1) .8 .7
$ .9 $ 5.4 $11.2
</TABLE>
NOTE 12 - OTHER:
Investment in joint ventures consists principally of Kronos' 50% interest
in a TiO2 manufacturing joint venture.
Receivable from affiliates at March 31, 1995 includes demand loans to
Contran of $15 million. Such loans, made principally for overall cash
management purposes, are supported by Contran's unused revolving credit
availability.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
At March 31, 1995, the estimated cost to complete capital projects in
process approximated $122 million, most of which relates to NL's environmental
protection and improvement programs and productivity-enhancing programs at both
NL and Amalgamated.
Medite has entered into interest rate swaps to mitigate the impact of
changes in interest rates for $26 million of its U.S. bank term loan due in
1998-2000 that results in a weighted average interest rate of 7.6% for such
borrowings. At March 31, 1995, the fair value of the interest rate swaps, based
upon quotes obtained from the counter party financial institution, is a $1.7
million receivable, representing the estimated amount Medite would receive if it
were to terminate the swap agreements at that date.
Medite has entered into the equivalent of approximately $9 million of
forward currency contracts to mitigate certain exchange rate fluctuation risk
for a portion of its future sales denominated in European Currency Units. These
contracts expire throughout 1995 and the counter parties are major international
financial institutions. At March 31, 1995, the aggregate fair value of these
contracts, based upon quotes obtained from the counter party institutions,
approximated the aggregate contract amount.
For information concerning certain legal proceedings, income tax and other
commitments and contingencies related to Valhi and its consolidated
subsidiaries, 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 1994 Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
Net income was $12.4 million, or $.11 per share, for the first quarter of
1995, the Company's highest first quarter earnings since 1990. Operating income
of $60 million was up 66% on a 20% increase in sales to $468 million (%
comparisons to 1994 pro forma results). Overall, operating margins were 13% for
the first quarter of 1995, up from 9% in 1994. Improved sales, earnings and
margins were driven by higher prices and volumes for TiO2 and MDF.
CHEMICALS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
PRO FORMA
1994 1995 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Kronos $174.2 $217.4 + 25%
Rheox 27.6 33.5 + 22%
$201.8 $250.9 + 24%
Operating income:
Kronos $ 11.1 $ 27.8 +151%
Rheox 6.6 9.1 + 38%
$ 17.7 $ 36.9 +109%
Operating income margins:
Kronos 6.3% 12.8%
Rheox 24.0% 27.2%
Aggregate margin 8.8% 14.7%
</TABLE>
The improvement in Kronos' 1995 TiO2 results was primarily due to higher
average selling prices and higher sales and production volumes. In billing
currency terms, Kronos' first quarter 1995 average TiO2 selling prices were
approximately 11% higher than in the same period of 1994 and were 5% higher than
year-end 1994 levels, as pricing improved in all of NL's major markets. TiO2
sales volume increased 9%, with higher volume in both in Europe and North
America. Rheox's operating results improved primarily as a result of higher
sales volume. A significant amount of NL's sales are denominated in currencies
other than the U.S. dollar, and fluctuations in the value of the U.S. dollar
relative to other currencies increased the dollar value of first quarter 1995
sales by $13 million compared to the 1994 period.
The Company's chemicals operating income differs from that separately
reported by NL due to amortization of basis differences (principally
depreciation, depletion and amortization expense) arising from purchase
accounting adjustments made in conjunction with the Company's acquisition of its
interest in NL. Such additional non-cash expense reduces operating income by
approximately $20 million per year compared to amounts separately reported by
NL.
REFINED SUGAR
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1995 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Refined sugar $ 92.6 $ 95.7 + 3%
By-products and other 11.6 15.5 +34%
$104.2 $111.2 + 7%
Operating income:
FIFO basis $ 5.9 $ 5.0 -14%
LIFO adjustment .9 1.4
LIFO (reporting) basis $ 6.8 $ 6.4 - 5%
Operating income margin:
FIFO accounting method 5.6% 4.5%
LIFO accounting method 6.5% 5.8%
</TABLE>
Refined sugar sales increased due to 11/2% increases in both volume and
average selling prices. U.S. Government-imposed marketing allotments on
domestic processors are in effect for the crop year ending September 30, 1995.
Based on Amalgamated's estimated allotment of 16 million hundredweight ("cwt")
and sales to date, its aggregate domestic sugar sales volume during the next six
months should be slightly higher than in the comparable 1994 period. To help
reduce the relatively high level of sugar inventories resulting from the
combined effects of a record crop and marketing allotments, Amalgamated expects
to make limited sales into foreign markets, which are excluded from allotments.
Foreign sales are typically at lower prices than domestic sales.
The large sugarbeet crop and adverse weather conditions resulted in the
longest and most difficult processing campaign in recent years. These factors,
along with a lower sugar content of the beets, contributed to an 8% increase in
per cwt processing costs. By-product sales increased due primarily to higher
pulp volume, reflecting the larger crop.
Due primarily to an abnormally high yield per acre, Amalgamated's sugar
production from the crop harvested in the fall of 1994 is currently expected to
be about 10% higher than its previous record crop. Amalgamated currently
expects contracted acreage for the crop to be planted in the spring of 1995 will
approximate the acreage harvested in 1994. However, the abnormally high yield
per acre is unlikely to recur and production is therefore expected to be more in
line with historical levels of the past few years.
BUILDING PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1995 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Medium density fiberboard $31.2 $45.5 + 46%
Traditional timber products 9.2 13.6 + 48%
Eliminations (.4) (.5)
$40.0 $58.6 + 46%
Operating income:
Medium density fiberboard $ 5.7 $ 9.6 + 70%
Traditional timber products (.6) .7
$ 5.1 $10.3 +101%
Operating income margins:
Medium density fiberboard 18.2% 21.2%
Traditional timber products -5.9% 5.1%
Aggregate margin 12.8% 17.6%
</TABLE>
MDF volume increased 13% (specialty products +23% and standard products
+11%) principally due to production from Medite's expanded Irish MDF plant
completed in October 1994. Average MDF selling prices (in billing currency
terms) were 24% above year-ago levels due to the combined effect of higher
product selling prices and product mix, however the Company has recently
experienced some softening in customer orders and lower prices quoted by
competitors. The expanded MDF plant in Ireland is expected to continue to
result in higher year-to-year volume comparisons for both specialty and standard
products.
MDF margins improved from 18% to 21% as average selling price increases
outpaced increases in per-unit costs. Wood costs continue to be influenced by
demand from paper and pulp producers while resin costs rose throughout 1994 due
to shortages of methanol, a primary element in resin manufacture. Recent
declines in methanol prices are beginning to result in some reductions in resin
prices. Fluctuations in the value of the U.S. dollar relative to other
currencies increased MDF sales by approximately $2 million in the first quarter
of 1995 compared to the same period in 1994, and similarly contributed to the
increase in average per-unit MDF costs.
Traditional timber products results improved due primarily to the net
effect of higher veneer sales volume, higher log and veneer selling prices and
lower selling prices for stud lumber. Operating results in 1994 were also
adversely impacted by startup costs associated with the veneer and chipping
plant.
HARDWARE PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1995 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales $18.0 $20.1 +12%
Operating income 5.1 5.5 + 8%
Operating income margin 28.3% 27.3%
</TABLE>
Volumes increased in each of the Company's three major hardware products
lines (locks, computer keyboard/workstation supports and drawer slides).
Operating margins were impacted slightly by higher raw material costs (zinc,
copper and steel). In response to the higher material costs, certain selling
prices were increased in April 1995. Fluctuations in the value of the U.S.
dollar relative to the Canadian dollar have continued to favorably impact
operating results. National Cabinet Lock continues to add new products to its
STOCK LOCKS product line as well as to its Waterloo Furniture Components support
arm and drawer slide lines.
FAST FOOD
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1995 % CHANGE
(IN MILLIONS)
<S> <C> <C> <C>
Net sales $26.7 $26.8 + 0%
Operating income 1.6 1.1 -34%
Operating income margin 6.0% 3.9%
</TABLE>
The fast food industry continues to be very competitive. Same store sales
declined 2.5% in 1995 as declines in Sybra's Michigan and Florida regions more
than offset increases in other regions. Despite stable to lower food costs,
higher marketing and labor costs hampered operating margins. Sybra's
competitive responses have been to increase promotions and discounts, and demand
for labor has been strong in all of the Company's markets.
During the first quarter of 1995, Sybra opened one new store and closed
five stores and at March 31, 1995 operated a total of 158 Arby's restaurants.
Sybra expects to open four new Arby's restaurants in the second quarter and
three to five more during the last half of 1995. In addition, it may close one
or two more stores later in the year.
OTHER
General corporate items. Securities earnings increased primarily because
the first quarter of 1994 included a market value decline of fixed-income
investments. Net general expenses increased compared to the 1994 pro forma
amount as lower environmental remediation and other expenses were more than
offset by the $20 million 1994 litigation settlement gain related to NL's
settlement of a lawsuit against Lockheed Corporation.
Interest expense. Interest expense increased slightly compared to 1994 pro
forma expense as lower borrowing levels associated with NL's DM bank term loan
were more than offset by higher average U.S. variable interest rates, higher
borrowing levels associated with facilities expansion and changes in currency
exchange rates. At March 31, 1995, approximately $650 million of consolidated
indebtedness, principally publicly-traded debt, bears interest at fixed rates
averaging 10.9%. The weighted average interest rate on outstanding floating
rate borrowings at March 31, 1995 was 7.4%, comparable to December 31, 1994 but
up from 4.4% at year-end 1993.
Minority interest. Minority interest relates to certain partially-owned
foreign subsidiaries of NL. At March 31, 1995, NL separately reported a
shareholders' deficit of approximately $288 million and, as a result, no
minority interest related to the Company's interest in NL Industries is recorded
in the Company's consolidated financial statements. Until such time as NL
reports positive shareholders' equity in its separate financial statements,
future changes in NL's equity, including all undistributed earnings, will accrue
to the Company for financial reporting purposes.
Provision for income taxes. Income tax rates vary by jurisdiction (country
and/or state), and relative changes in the geographic mix of the Company's pre-
tax earnings can result in fluctuations in the effective income tax rate. In
1994, such geographic mix included losses in certain of NL's tax jurisdictions
for which no current refund was available and for which recognition of a
deferred tax asset was not considered appropriate. In addition, because certain
subsidiaries, including NL, are not members of the consolidated U.S. tax group,
Valhi's incremental income taxes on its after-tax earnings or losses
attributable to such subsidiaries can also increase the Company's overall
effective tax rate. See Note 11 to the Consolidated Financial Statements.
Equity in earnings of NL prior to consolidation. The Company's interest in
NL was reported by the equity method during 1994.
Discontinued operations. Discontinued operations represents the Company's
former interest in Tremont Corporation's titanium metals operations.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flow from operating activities. Cash flow from operating activities
before changes in assets and liabilities of $44 million was $17 million higher
than the 1994 pro forma amount reflecting the Company's improved operating
results. Changes in assets and liabilities, which used cash in both first
quarter periods, result primarily from the timing of production, sales and
purchases, generally tend to even out over time and include the impact of
significant seasonal fluctuations related to Amalgamated's refined sugar
operations. As a result of the seasonal purchase and processing of sugarbeets,
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 $78 million of
cash in the first quarter of 1995 compared to $61 million in 1994.
Cash flow from investing and financing activities. Capital spending for
calendar 1995 is estimated at approximately $126 million, up 15% from 1994 pro
forma of $110 million, and includes certain facility expansion, productivity-
enhancing programs and environmental protection and improvement programs.
Net first quarter borrowings include Amalgamated's seasonal increases ($66
million in 1995 and $60 million in 1994).
Credit facilities. At March 31, 1995, unused revolving credit facilities
aggregated $298 million, including $232 million attributable to NL. Of such
amount, $90 million is available only for (i) permanently reducing NL's DM term
loan or (ii) paying future NL German income tax assessments, as discussed below.
Valhi has not guaranteed any subsidiary indebtedness.
NL Industries. The TiO2 industry is cyclical, with the previous peak in
selling prices in early 1990 and the latest trough in the third quarter of 1993.
Reflecting the improvement in Kronos' operating results, NL generated $27
million in cash from operating activities before changes in assets and
liabilities in the first quarter of 1995 compared to $11 million in the 1994
period. NL has reduced its "net debt" (notes payable and long-term debt less
cash, cash equivalents and securities) by $87 million during the last twelve
months. At March 31, 1995, approximately 36% of NL's $134 million of aggregate
cash, cash equivalents and current marketable securities was held by its non-
U.S. subsidiaries. NL's $25 million ($7 million in 1995) debottlenecking
project at its Leverkusen, Germany chloride process TiO2 facility is expected to
increase NL's attainable TiO2 production capacity by 20,000 metric tons to
400,000 tons.
Certain of NL's U.S. and non-U.S. income tax returns, including Germany,
are being examined and tax authorities have proposed tax deficiencies.
Additional substantial German proposed tax deficiency assessments are expected.
Although NL believes it will ultimately prevail, NL has granted a DM 100 million
($72 million at March 31, 1995) lien on its Nordenham, Germany TiO2 plant and
may be required to provide additional security in favor of the German tax
authorities until the assessments proposing tax deficiencies are resolved. NL
believes that it has adequately provided accruals for additional income taxes
and related interest expense which may ultimately result from all such
examinations and believes that the ultimate disposition of such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
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 ($92 million at March 31, 1995)
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 $166 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 or
that actual costs will not exceed accrued amounts of the upper end of the range
for sites for which estimates have been made. 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.
NL periodically evaluates its 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, NL has in the past and may in the
future 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 its
liquidity and capital resources.
Amalgamated. Seasonal cash requirements are financed with short-term
borrowings under the government sugar price support loan program and bank credit
agreements. In view of higher inventory levels resulting from the combined
effect of the record crop and the imposition of marketing allotments,
Amalgamated has obtained a $10 million increase in certain of the seasonally
adjusted maximum borrowing limits of its $75 million revolving working capital
facility for the current crop year. Amalgamated has requested a $10 million
permanent increase in such facility along with a one-year extension to September
1997, and expects to have a new agreement in place during the second quarter.
Other subsidiaries. In addition to the recent completion of the second MDF
production line in Ireland, Medite intends to add other new MDF production
capacity during the next two to three years. Although there are no plans or
arrangements in place with respect to such capacity additions, Medite is
actively exploring expansion opportunities through acquisitions, strategic joint
ventures and new construction. The Company also continues to explore additional
expansion and/or acquisition opportunities for its high-margin hardware products
business.
Sybra's Consolidated Development Agreement with Arby's, Inc. requires it to
open another 20 new stores through 1997. Sybra increased its revolving credit
facilities by $8 million as of March 1995 and anticipates that its planned
expansion program will meet or exceed the CDA requirements.
Valhi general corporate. Valhi's operations are conducted principally
through subsidiaries (NL, Amalgamated and Valcor). Valcor is an intermediate
parent company with operations conducted through its subsidiaries (Medite,
National Cabinet Lock and Sybra). Accordingly, the Company's long-term ability
to meet its corporate level obligations is dependent in large measure on the
receipt of dividends or other distributions from 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
obligations.
During the first quarter of 1995, Valhi purchased an additional 962,000
shares (2%) of NL common stock at an average price of $12 per share. Valhi has
agreed in principle to increase its $20 million revolving credit facility to $50
million, which borrowing availability would be available for general corporate
purposes.
As previously reported, the Company has tentatively agreed to sell
Amalgamated's sugar business to an 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 any such 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 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, 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. 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. From time to time, the Company and related entities also evaluate
the restructuring of ownership interests among their respective subsidiaries and
related companies. In April 1995, due to unfavorable market conditions, Valhi
withdrew its proposed public offering of Medite common stock.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1994 Annual Report for descriptions of certain
legal proceedings.
In April 1995, the U.S. District Court for the District of Utah approved
the previously-reported settlement in the matter of Holland, et al. v. Valhi,
Inc., et al.
Wright (Alvin) and Wright (Allen) v. Lead Industries, et al. In April
1995, NL answered the complaint in this previously-reported case denying
liability.
Wagner, et al. vs Anzon, Inc. and NL Industries, Inc. In April 1995,
plaintiff's post-trial motions in this previously-reported case were denied.
The time for plaintiffs' to appeal has not yet expired.
NL has been named as a defendant in various lawsuits alleging personal
injuries as a result of exposure to asbestos in connection with formerly-owned
operations. To date, NL has always been dismissed from such actions prior to
trial without payment of any money in judgment or settlement. Various of these
actions remain pending. One such case, In re: Asbestos III 92-C-888 (Circuit
Court of Kanawha County, West Virginia), involving approximately 4,500
plaintiffs, is scheduled to begin trial in July 1995. NL intends to defend the
case vigorously.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 - Financial Data Schedule for the three-month period ended
March 31, 1995.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 1995 and the month
of April 1995:
January 31, 1995 - Reported Items 5 and 7.
March 1, 1995 - Reported Items 5 and 7.
March 9, 1995 - Reported Items 5 and 7.
April 18, 1995 - Reported Items 5 and 7.
April 26, 1995 - 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 9, 1995 By /s/ William C. Timm
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date May 9, 1995 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 9, 1995 By
William C. Timm
Vice President - Finance and
Treasurer
(Principal Financial Officer)
Date May 9, 1995 By
J. Thomas Montgomery, Jr.
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VALHI, INC.'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 134,126
<SECURITIES> 26,516
<RECEIVABLES> 261,266
<ALLOWANCES> 4,710
<INVENTORY> 470,460
<CURRENT-ASSETS> 922,189
<PP&E> 1,124,388
<DEPRECIATION> 260,905
<TOTAL-ASSETS> 2,549,715
<CURRENT-LIABILITIES> 622,790
<BONDS> 1,123,698
<COMMON> 1,245
0
0
<OTHER-SE> 216,995
<TOTAL-LIABILITY-AND-EQUITY> 2,549,715
<SALES> 467,629
<TOTAL-REVENUES> 467,629
<CGS> 340,128
<TOTAL-COSTS> 340,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 32,842
<INCOME-PRETAX> 23,965
<INCOME-TAX> 11,205
<INCOME-CONTINUING> 12,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,415
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
