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, 2000 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: (972) 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 28, 2000: 114,628,514.
<PAGE>
VALHI, INC. AND SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1999
and March 31, 2000 3-4
Consolidated Statements of Income -
Three months ended March 31, 1999 and 2000 5
Consolidated Statements of Comprehensive Income (Loss) -
Three months ended March 31, 1999 and 2000 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 2000 7-8
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2000 9
Notes to Consolidated Financial Statements 10-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-31
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 32
Item 6. Exhibits and Reports on Form 8-K. 33
<PAGE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1999 2000
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents .................. $ 174,982 $ 185,760
Accounts and other receivables ............. 202,200 207,505
Refundable income taxes .................... 5,146 1,696
Receivable from affiliates ................. 14,606 15,670
Inventories ................................ 219,618 209,075
Prepaid expenses ........................... 7,221 6,667
Deferred income taxes ...................... 14,330 12,496
---------- ----------
Total current assets ................... 638,103 638,869
---------- ----------
Other assets:
Marketable securities ...................... 266,362 267,081
Investment in affiliates ................... 256,982 248,532
Loans and notes receivable ................. 83,268 83,156
Mining properties .......................... 17,035 15,242
Prepaid pension costs ...................... 23,271 22,373
Goodwill ................................... 356,523 351,796
Deferred income taxes ...................... 2,672 1,974
Other ...................................... 22,467 22,817
---------- ----------
Total other assets ..................... 1,028,580 1,012,971
---------- ----------
Property and equipment:
Land ....................................... 25,952 25,044
Buildings .................................. 167,100 160,710
Equipment .................................. 550,145 533,229
Construction in progress ................... 13,843 18,617
---------- ----------
757,040 737,600
Less accumulated depreciation .............. 188,554 192,115
---------- ----------
Net property and equipment ............. 568,486 545,485
---------- ----------
$2,235,169 $2,197,325
========== ==========
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
1999 2000
---- ----
Current liabilities:
<S> <C> <C>
Notes payable .............................. $ 57,076 $ 54,075
Current maturities of long-term debt ....... 27,846 43,210
Accounts payable ........................... 70,971 58,368
Accrued liabilities ........................ 163,556 170,941
Payable to affiliates ...................... 25,266 23,324
Income taxes ............................... 7,203 8,254
Deferred income taxes ...................... 326 777
----------- -----------
Total current liabilities .............. 352,244 358,949
----------- -----------
Noncurrent liabilities:
Long-term debt ............................. 609,339 622,710
Accrued OPEB costs ......................... 58,756 57,926
Accrued pension costs ...................... 39,612 34,700
Accrued environmental costs ................ 73,062 66,212
Deferred income taxes ...................... 266,752 258,852
Other ...................................... 45,164 44,276
----------- -----------
Total noncurrent liabilities ........... 1,092,685 1,084,676
----------- -----------
Minority interest ............................ 200,826 167,026
----------- -----------
Stockholders' equity:
Common stock ............................... 1,256 1,257
Additional paid-in capital ................. 43,444 43,868
Retained earnings .......................... 538,744 543,438
Accumulated other comprehensive income:
Marketable securities .................... 127,837 128,834
Currency translation ..................... (40,833) (50,376)
Pension liabilities ...................... (5,775) (4,834)
Treasury stock ............................. (75,259) (75,513)
----------- -----------
Total stockholders' equity ............. 589,414 586,674
----------- -----------
$ 2,235,169 $ 2,197,325
=========== ===========
</TABLE>
Commitments and contingencies (Note 1)
<PAGE>
See accompanying notes to consolidated financial statements.
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1999 and 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 2000
---- ----
Revenues and other income:
<S> <C> <C>
Net sales .......................................... $ 256,774 $ 301,728
Other, net ......................................... 16,087 15,872
--------- ---------
272,861 317,600
--------- ---------
Costs and expenses:
Cost of sales ...................................... 188,515 214,603
Selling, general and administrative ................ 44,612 49,973
Interest ........................................... 18,411 17,348
--------- ---------
251,538 281,924
--------- ---------
21,323 35,676
Equity in earnings of:
Titanium Metals Corporation ("TIMET") .............. -- (4,321)
Other .............................................. -- 276
Tremont Corporation* ............................... (701) --
Waste Control Specialists* ......................... (5,224) --
--------- ---------
Income before income taxes ....................... 15,398 31,631
Provision for income taxes ........................... 5,111 14,772
Minority interest in after-tax earnings .............. 7,924 6,374
--------- ---------
Net income ....................................... $ 2,363 $ 10,485
========= =========
Basic and diluted earnings per share ................. $ .02 $ .09
========= =========
Cash dividends per share ............................. $ .05 $ .05
========= =========
Shares used in the calculation of per share amounts:
Basic earnings per common share .................... 114,982 115,090
Dilutive impact of outstanding stock options ....... 1,202 1,106
--------- ---------
Diluted earnings per share ......................... 116,184 116,196
========= =========
</TABLE>
*Prior to consolidation.
<PAGE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Net income ........................................... $ 2,363 $ 10,485
-------- --------
Other comprehensive income (loss), net of tax:
Marketable securities adjustment:
Unrealized gains arising during the period ....... 1,784 997
Less reclassification for gains included
in net income ................................... (17) --
-------- --------
1,767 997
Currency translation adjustment .................... (9,942) (9,543)
Pension liabilities adjustment ..................... (3,568) 941
-------- --------
Total other comprehensive income (loss), net ..... (11,743) (7,605)
-------- --------
Comprehensive income (loss) .................... $ (9,380) $ 2,880
======== ========
</TABLE>
<PAGE>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
1999 2000
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income ......................................... $ 2,363 $ 10,485
Depreciation, depletion and amortization ........... 16,157 18,620
Noncash interest expense ........................... 2,457 2,276
Deferred income taxes .............................. 4,120 5,939
Minority interest .................................. 7,924 6,374
Other, net ......................................... (2,569) (1,434)
Equity in:
TIMET ............................................ -- 4,321
Other ............................................ -- (276)
Tremont Corporation .............................. 701 --
Waste Control Specialists ........................ 5,224 --
Distributions from:
Manufacturing joint venture ...................... 6,500 3,500
Other ............................................ -- 81
Tremont Corporation .............................. 216 --
-------- --------
43,093 49,886
Change in assets and liabilities:
Accounts and other receivables ................... (26,321) (11,420)
Inventories ...................................... 8,215 8,400
Accounts payable and accrued liabilities ......... (15,068) (3,663)
Accounts with affiliates ......................... (6,847) (2,061)
Income taxes ..................................... (2,348) 4,712
Other, net ....................................... (3,318) (1,320)
-------- --------
Net cash provided (used) by operating
activities .................................. (2,594) 44,534
-------- --------
Cash flows from investing activities:
Capital expenditures ............................... (13,416) (11,040)
Purchases of:
Business units ................................... (52,110) (9,409)
Tremont common stock ............................. -- (20,681)
NL common stock .................................. -- (10,331)
CompX common stock ............................... (624) --
Investment in Waste Control Specialists (prior
to consolidation) ................................. (10,000) --
Collection of loans to affiliates .................. 6,000 --
Other, net ......................................... 2,153 316
-------- --------
Net cash used by investing activities ........ (67,997) (51,145)
-------- --------
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 1999 and 2000
(In thousands)
<TABLE>
<CAPTION>
1999 2000
---- ----
Cash flows from financing activities:
Indebtedness:
<S> <C> <C>
Borrowings ....................................... $ 76,271 $ 28,062
Principal payments ............................... (60,791) (643)
Loans from affiliate:
Loans ............................................ 17,300 11,180
Repayments ....................................... (6,800) (12,482)
Valhi dividends paid ............................... (5,784) (5,791)
Distributions to minority interest ................. (759) (2,482)
Other, net ......................................... 247 802
--------- ---------
Net cash provided by financing activities ...... 19,684 18,646
--------- ---------
Cash and cash equivalents - net change from:
Operating, investing and financing activities ...... (50,907) 12,035
Currency translation ............................... (1,609) (1,507)
Business units acquired ............................ 4,157 250
Cash and equivalents at beginning of period .......... 224,572 174,982
--------- ---------
Cash and equivalents at end of period ................ $ 176,213 $ 185,760
========= =========
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized ............. $ 8,385 $ 7,520
Income taxes, net ................................ 9,264 6,409
Business unit acquired - net assets consolidated:
Cash and cash equivalents ........................ $ 4,157 $ 250
Goodwill and other intangible assets ............. 14,826 2,514
Other non-cash assets ............................ 52,799 8,429
Liabilities ...................................... (19,672) (1,784)
--------- ---------
Cash paid ........................................ $ 52,110 $ 9,409
========= =========
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
VALHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2000
(In thousands)
Additional Accumulated other comprehensive income Total
Common paid-in Retained Marketable Currency Pension Treasury Stockholders'
stock capital earnings securities translation liabilities stock equity
------ --------- -------- ---------- ----------- ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 .. $ 1,256 $ 43,444 $ 538,744 $ 127,837 $ (40,833) $ (5,775) $ (75,259) $ 589,414
Net income .................... -- -- 10,485 -- -- -- -- 10,485
Dividends ..................... -- -- (5,791) -- -- -- -- (5,791)
Other comprehensive income, net -- -- -- 997 (9,543) 941 -- (7,605)
Other, net .................... 1 424 -- -- -- -- (254) 171
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 2000 ..... $ 1,257 $ 43,868 $ 543,438 $ 128,834 $ (50,376) $ (4,834) $ (75,513) $ 586,674
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
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, 1999 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 2000, and the consolidated statements of
income, comprehensive income (loss), stockholders' equity and cash flows for the
interim periods ended March 31, 1999 and 2000, 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 prior year amounts have been reclassified to conform to the current year
presentation, and 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, 1999 (the "1999 Annual Report").
Basic earnings per share of common stock is based upon the weighted
average number of common shares actually outstanding during each period. Diluted
earnings per share of common stock includes the impact of outstanding dilutive
stock options.
Commitments and contingencies are discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Legal
Proceedings" and the 1999 Annual Report.
Contran Corporation holds, directly or through subsidiaries,
approximately 93% of Valhi's outstanding common stock. Substantially all of
Contran's outstanding voting stock is held either by trusts established for the
benefit of certain children and grandchildren of Harold C. Simmons, of which Mr.
Simmons is sole trustee, or by Mr. Simmons directly. Mr. Simmons, the Chairman
of the Board and Chief Executive Officer of Valhi and Contran, may be deemed to
control such companies.
The Company will adopt Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, no later than the first quarter of 2001. Under SFAS No. 133, all
derivatives will be recognized as either assets or liabilities and measured at
fair value. The accounting for changes in fair value of derivatives will depend
upon the intended use of the derivative. The impact on the Company of adopting
SFAS No. 133, if any, has not yet been determined but will be dependent upon the
extent to which the Company is a party to derivative contracts or hedging
activities covered by SFAS No. 133 at the time of adoption, including
derivatives embedded in non-derivative host contracts. As permitted by the
transition requirements of SFAS No. 133, as amended, the Company will exempt
from the scope of SFAS No. 133 all host contracts containing embedded
derivatives which were issued or acquired prior to January 1, 1999.
<PAGE>
Note 2 - Business segment information:
% owned at
Operations Principal entities March 31, 2000
Chemicals NL Industries, Inc. 60%*
Component products CompX International Inc. 64%
Titanium metals Tremont Corporation 61%*
Waste management Waste Control Specialists 69%
* Tremont is a holding company which owns an additional 20% of NL and 39% of
TIMET. NL owns an additional 9% of Tremont.
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 2000
---- ----
(In millions)
Net sales:
<S> <C> <C>
Chemicals ........................................ $201.6 $231.0
Component products ............................... 55.2 66.1
Waste management (after consolidation) ........... -- 4.6
------ ------
Total net sales ................................ $256.8 $301.7
====== ======
Operating income:
Chemicals ........................................ $ 26.0 $ 39.8
Component products ............................... 9.5 10.9
Waste management (after consolidation) ........... -- (1.6)
------ ------
Total operating income ......................... 35.5 49.1
General corporate items:
Interest and dividend income ..................... 10.6 11.5
Expenses, net .................................... (6.4) (7.6)
Interest expense ................................... (18.4) (17.3)
------ ------
21.3 35.7
Equity in:
TIMET ............................................ -- (4.3)
Other ............................................ -- .3
Tremont Corporation .............................. (.7) --
Waste Control Specialists ........................ (5.2) --
------ ------
Income before income taxes ..................... $ 15.4 $ 31.7
====== ======
</TABLE>
In January 2000, CompX acquired a lock producer for an aggregate of $9
million cash consideration. The Company accounted for this acquisition by the
purchase method. During the first quarter of 2000, (i) NL purchased shares of
its common stock in market transactions for an aggregate of $10.3 million and
(ii) Valhi and NL each purchased shares of Tremont common stock in market
transactions for an aggregate of $20.7 million. The Company accounted for such
increases in its ownership of NL and Tremont by the purchase method (step
acquisitions).
Each of NL (NYSE: NL), CompX (NYSE: CIX), Tremont (NYSE: TRE) and TIMET
(NYSE: TIE) file periodic reports pursuant to the Securities Exchange Act of
1934, as amended.
Note 3 - Marketable securities:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Noncurrent assets (available-for-sale):
<S> <C> <C>
The Amalgamated Sugar Company LLC .............. $170,000 $170,000
Halliburton Company common stock ............... 91,825 93,910
Other common stocks ............................ 4,537 3,171
-------- --------
$266,362 $267,081
======== ========
</TABLE>
At March 31, 2000, Valhi held 2.7 million shares of Halliburton common
stock (aggregate cost of $22 million) with a quoted market price of $41.13 per
share, or an aggregate market value of $110 million. Valhi's LYONs are
exchangeable at any time, at the option of the LYON holder, for such Halliburton
shares, and the carrying value of the Halliburton stock is limited to the
accreted LYONs obligation. See Note 7. See the 1999 Annual Report for a
discussion of the Company's investment in The Amalgamated Sugar Company LLC. The
aggregate cost of other available-for-sale common stocks is approximately $8
million at March 31, 2000.
Note 4 - Inventories:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Raw materials:
<S> <C> <C>
Chemicals .................................. $ 54,861 $ 42,900
Component products ......................... 9,038 14,005
-------- --------
63,899 56,905
-------- --------
In process products:
Chemicals .................................. 8,065 7,328
Component products ......................... 8,669 8,993
-------- --------
16,734 16,321
-------- --------
Finished products:
Chemicals .................................. 100,973 98,342
Component products ......................... 9,898 11,323
-------- --------
110,871 109,665
-------- --------
Supplies (primarily chemicals) ............... 28,114 26,184
-------- --------
$219,618 $209,075
======== ========
</TABLE>
Note 5 - Other noncurrent assets:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Investment in affiliates:
<S> <C> <C>
TiO2 manufacturing joint venture ............. $157,552 $154,052
TIMET ........................................ 85,772 80,627
Other ........................................ 13,658 13,853
-------- --------
$256,982 $248,532
======== ========
Loans and notes receivable:
Snake River Sugar Company .................... $ 80,000 $ 80,000
Other ........................................ 7,259 5,938
-------- --------
87,259 85,938
Less current portion ......................... 3,991 2,782
-------- --------
Noncurrent portion ........................... $ 83,268 $ 83,156
======== ========
Intangible assets .............................. $ 6,979 $ 6,652
Deferred financing costs ....................... 3,668 3,481
Other .......................................... 11,820 12,684
-------- --------
$ 22,467 $ 22,817
======== ========
</TABLE>
At March 31, 1999, Tremont held 12.3 million shares of TIMET common
stock with a quoted market price of $4.38 per share, or an aggregate of $53.7
million. At March 31, 2000, TIMET reported total assets and stockholders' equity
of $818.8 million and $390.3 million, respectively. TIMET's total assets at such
date include current assets of $291.4 million, property and equipment of $323.1
million and goodwill and other intangible assets of $69.1 million. TIMET's total
liabilities at such date include current liabilities of $143.1 million,
long-term debt of $35.5 million, accrued OPEB costs of $20.1 million and
convertible preferred securities of $201.3 million. During the first quarter of
2000, TIMET reported net sales of $104.7 million, an operating loss of $18.4
million and a net loss of $15.1 million.
Note 6 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Current:
<S> <C> <C>
Employee benefits .......................... $ 45,674 $ 42,985
Environmental costs ........................ 48,891 55,845
Interest ................................... 7,210 14,774
Deferred income ............................ 7,924 6,962
Other ...................................... 53,857 50,375
-------- --------
$163,556 $170,941
======== ========
Noncurrent:
Insurance claims and expenses .............. $ 21,690 $ 21,990
Employee benefits .......................... 11,403 11,675
Deferred income ............................ 9,573 8,543
Other ...................................... 2,498 2,068
-------- --------
$ 45,164 $ 44,276
======== ========
</TABLE>
Note 7 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Notes payable -
<S> <C> <C>
Kronos - non-U.S. bank credit agreements ........... $ 57,076 $ 54,075
======== ========
Long-term debt:
Valhi:
Snake River Sugar Company ........................ $250,000 250,000
LYONs ............................................ 91,825 93,910
Bank credit facility ............................. 21,000 37,000
-------- --------
362,825 380,910
-------- --------
NL Industries:
Senior Secured Notes ............................. 244,000 244,000
Other ............................................ 478 369
-------- --------
244,478 244,369
-------- --------
Other subsidiaries:
CompX bank credit facility ....................... 20,000 32,000
Waste Control Specialists bank term loan ......... 4,304 4,196
Valcor Senior Notes .............................. 2,431 2,431
Other ............................................ 3,147 2,014
-------- --------
29,882 40,641
-------- --------
637,185 665,920
Less current maturities ............................ 27,846 43,210
-------- --------
$609,339 $622,710
======== ========
</TABLE>
Note 8 - Accounts with affiliates:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Receivables from affiliates:
<S> <C> <C>
Income taxes receivable from Contran ............. $13,124 $14,654
TIMET ............................................ 907 693
Other ............................................ 575 323
------- -------
$14,606 $15,670
======= =======
Payables to affiliates:
Demand loan from Contran:
Tremont ........................................ $13,743 $14,723
Valhi .......................................... 2,282 --
Louisiana Pigment Company ........................ 8,381 7,566
Other, net ....................................... 860 1,035
------- -------
$25,266 $23,324
======= =======
</TABLE>
<PAGE>
Note 9 - Other income:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 2000
---- ----
(In thousands)
Securities earnings:
<S> <C> <C>
Dividends and interest ..................... $10,616 $11,482
Securities transactions .................... 26 --
------- -------
10,642 11,482
Noncompete agreement income .................. 1,000 1,000
Currency transactions, net ................... 1,395 1,325
Other, net ................................... 3,050 2,065
------- -------
$16,087 $15,872
======= =======
</TABLE>
Note 10 - Provision for income taxes:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 2000
---- ----
(In millions)
<S> <C> <C>
Expected tax expense ..................................... $ 5.4 $11.1
Incremental U.S. tax and rate differences on
equity in earnings of non-tax group companies ........... 1.2 2.1
Change in NL's and Tremont's deferred income tax
valuation allowance, net ................................ (1.9) .4
No tax benefit for goodwill amortization ................. 1.0 1.3
U.S. state income taxes, net ............................. .4 .4
Non-U.S. tax rates ....................................... (.3) --
Other, net ............................................... (.7) (.5)
----- -----
$ 5.1 $14.8
===== =====
Comprehensive provision (benefit)
for income taxes allocated to:
Net income ............................................. $ 5.1 $14.8
Other comprehensive income:
Marketable securities ................................ .4 .5
Currency translation ................................. (4.5) (6.9)
Pension liabilities .................................. (2.2) .6
----- -----
$(1.2) $ 9.0
===== =====
</TABLE>
Note 11 - Minority interest:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(In thousands)
Minority interest in net assets:
<S> <C> <C>
NL Industries .............................. $ 57,723 $ 52,988
Tremont Corporation ........................ 81,451 51,430
CompX International ........................ 53,487 54,395
Subsidiaries of NL ......................... 3,903 3,976
Subsidiaries of Tremont .................... 4,159 4,237
Subsidiaries of CompX ...................... 103 --
-------- --------
$200,826 $167,026
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 2000
---- ----
(In thousands)
Minority interest in net earnings (losses):
<S> <C> <C>
NL Industries .............................. $ 5,835 $ 4,796
Tremont Corporation ........................ -- (939)
CompX International ........................ 2,120 2,351
Subsidiaries of NL ......................... 11 91
Subsidiaries of Tremont .................... -- 78
Subsidiaries of CompX ...................... (42) (3)
------- -------
$ 7,924 $ 6,374
======= =======
</TABLE>
As previously reported, all of Waste Control Specialists aggregate net
losses to date have accrued to the Company for financial reporting purposes, and
all of Waste Control Specialists future net income or net losses will also
accrue to the Company until Waste Control Specialists reports positive equity
attributable to its other owner. Accordingly, no minority interest in Waste
Control Specialists' net assets or net losses is reported at March 31, 2000.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
The Company reported net income of $10.5 million, or $.09 per diluted
share, in the first quarter of 2000 compared to net income of $2.4 million, or
$.02 per diluted share, in the first quarter of 1999. Total operating income in
the first quarter of 2000 increased 38% to $49.1 million compared to the first
quarter of 1999 due principally to higher chemicals earnings at NL.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Quarterly Report on Form 10-Q relating to matters that are not historical facts,
including, but not limited to, statements found in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
forward-looking statements that represent management's beliefs and assumptions
based on currently available information. Forward-looking statements can be
identified by the use of words such as "believes," "intends," "may," "should,"
"anticipates," "expected" or comparable terminology, or by discussions of
strategies or trends. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it cannot give any
assurances that these expectations will prove to be correct. Such statements by
their nature involve substantial risks and uncertainties that could
significantly impact expected results, and actual future results could differ
materially from those described in such forward-looking statements. While it is
not possible to identify all factors, the Company continues to face many risks
and uncertainties. Among the factors that could cause actual future results to
differ materially are the risks and uncertainties discussed in this Quarterly
Report and those described from time to time in the Company's other filings with
the Securities and Exchange Commission including, but not limited to, future
supply and demand for the Company's products, the extent of the dependence of
certain of the Company's businesses on certain market sectors (such as the
dependence of TIMET's titanium metals business on the aerospace industry), the
cyclicality of certain of the Company's businesses (such as NL's TiO2 operations
and TIMET's titanium metals operations), the impact of certain long-term
contracts on certain of the Company's businesses (such as the impact of TIMET's
long-term contracts with certain of its customers and such customers'
performance thereunder and the impact of TIMET's long-term contracts with
certain of its vendors on its ability to reduce or increase supply or achieve
lower costs), customer inventory levels, the possibility of labor disruptions,
general global economic conditions, competitive products and substitute
products, customer and competitor strategies, the impact of pricing and
production decisions, competitive technology positions, potential difficulties
in integrating completed acquisitions (such as CompX's acquisitions of two slide
producers in 1999 and its acquisition of a lock producer in January 2000),
environmental matters (such as those requiring emission and discharge standards
for existing and new facilities), government regulations and possible changes
therein, the ultimate resolution of pending litigation (such as NL's lead
pigment litigation and litigation surrounding environmental matters of NL,
Tremont and TIMET) and possible future litigation. Should one or more of these
risks materialize (or the consequences of such a development worsen), or should
the underlying assumptions prove incorrect, actual results could differ
materially from those forecasted or expected. The Company disclaims any
intention or obligation to update or revise any forward-looking statement
whether as a result of new information, future events or otherwise.
<PAGE>
Chemicals
NL's titanium dioxide pigments ("TiO2") operations are conducted
through its wholly-owned subsidiary Kronos, Inc.
<TABLE>
<CAPTION>
Three months ended
March 31, %
1999 2000 Change
---- ---- ------
(In millions)
<S> <C> <C> <C>
Net sales ........................... $ 201.6 $ 231.0 +15%
Operating income .................... 26.0 39.8 +53%
</TABLE>
Kronos' sales and operating income in the first quarter of 2000
increased compared to the first quarter of 1999 due primarily to record
first-quarter TiO2 sales volumes and strong TiO2 production volumes. Kronos'
first quarter 2000 sales volumes increased 24% from the first quarter of 1999
and was even with the fourth quarter of last year, reflecting sustained strong
demand in all major regions. Kronos' production volumes in the first quarter of
2000 were 16% higher than the comparable period in 1999, with utilization rates
near full capacity versus 86% capacity utilization in the first quarter of 1999.
Excluding the effect of fluctuations in the value of the U.S. dollar relative to
other currencies, Kronos' average TiO2 selling prices (in billing currencies) in
the first quarter of 2000 were even with the first quarter of 1999, and were 3%
higher than the fourth quarter of 1999. During the first quarter of 2000, Kronos
announced additional price increases in Europe that are effective in the second
quarter of this year. NL believes demand for TiO2 will remain strong in the near
term as a result of seasonally high sales to the coatings industry, resulting in
continued upward pressure on selling prices.
NL expects its TiO2 sales volumes in 2000 will be slightly higher than
its sales volumes in 1999. If TiO2 demand remains robust in the second half of
2000, NL expects additional price increases could be announced later in 2000.
The successful implementation of any such price increase will depend on market
conditions. As a result of anticipated higher TiO2 average selling prices and
production volumes and continued focus on controlling costs, NL expects its
chemicals operating income in 2000 will be higher than 1999. The extent of the
improvement will be determined primarily by the magnitude of realized price
increases.
NL has substantial operations and assets located outside the United
States (principally Germany, Belgium, Norway and Canada). A significant amount
of NL's sales generated from its non-U.S. operations are denominated in
currencies other than the U.S. dollar, primarily the Euro, other major European
currencies and the Canadian dollar. In addition, a portion of NL's sales
generated from its non-U.S. operations are denominated in the U.S. dollar.
Certain raw materials, primarily titanium-containing feedstocks, are purchased
in U.S. dollars, while labor and other production costs are denominated
primarily in local currencies. Consequently, the translated U.S. dollar value of
NL's foreign sales and operating results are subject to currency exchange rate
fluctuations which may favorably or adversely impact reported earnings and may
affect the comparability of period-to-period operating results. Including the
effect of fluctuations in the value of the U.S. dollar relative to other
currencies, Kronos' average TiO2 selling prices (in billing currencies) in the
first quarter of 2000 were approximately 6% lower than the first quarter of
1999. Overall, fluctuations in the value of the U.S. dollar relative to other
currencies, primarily the Euro, decreased TiO2 sales in the first quarter of
2000 by a net $14 million compared to the first quarter of 1999. Fluctuations in
the value of the U.S. dollar relative to other currencies similarly impacted
NL's foreign currency-denominated operating expenses, and the net impact of
currency exchange rate fluctuations on NL's operating income comparisons was not
significant during the first quarter of 2000 compared to the same period in
1999.
Chemicals operating income, as presented above, is stated net of
amortization of Valhi's purchase accounting adjustments made in conjunction with
its acquisitions of its interest in NL. Such adjustments result in additional
depreciation, depletion and amortization expense beyond amounts separately
reported by NL. Such additional non-cash expenses reduced chemicals operating
income, as reported by Valhi, by approximately $5.0 million and $4.8 million in
the first quarter of 1999 and 2000, respectively, as compared to amounts
separately reported by NL. As discussed below, the Company commenced
consolidating Tremont's results of operations effective January 1, 2000. Tremont
owns 20% of NL and accounts for its interest in NL by the equity method. Tremont
also has purchase accounting adjustments made in conjunction with the
acquisitions of its interest in NL. Prior to the Company's consolidation of
Tremont's results of operations effective January 1, 2000, amortization of such
purchase accounting adjustments were included in the Company's equity in
earnings of Tremont. In the first quarter of 2000, amortization of such Tremont
purchase accounting adjustments further reduced chemicals operating income, as
reported by Valhi, compared to amounts separately reported by NL by
approximately $1.6 million. Had the Company consolidated Tremont's results of
operations effective January 1, 1999, amortization of Tremont's purchase
accounting adjustments related to NL would have further reduced chemicals
operating income, as presented above, for the first quarter of 1999 by $1.7
million.
Component Products
<TABLE>
<CAPTION>
Three months ended
March 31, %
1999 2000 Change
---- ---- ------
(In millions)
<S> <C> <C> <C>
Net sales .......................... $ 55.2 $ 66.1 +20%
Operating income ................... 9.5 10.9 +14%
</TABLE>
Component products sales and operating income increased in the first
quarter of 2000 compared to the same period in 1999 due primarily to increased
demand for CompX's office furniture products, market share gains for its slide
products and the effect of acquisitions. Excluding the effect of acquisitions,
component products net sales increased 7% in the first quarter of 2000 compared
to the first quarter of 1999, with sales of slides increasing 13%, ergonomic
products sales increasing 7% and sales of security products essentially flat.
Component products operating income margins decreased in the first quarter of
2000 compared to the first quarter of 1999 due to lower-margin sales generated
by the lock operations acquired in January 2000 and due to a change in product
mix with increased sales of certain lower-margin slide products.
CompX has substantial operations and assets located outside the United
States (principally Canada, The Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar, principally the Canadian dollar, the Dutch Guilder and the
Euro. In addition, a portion of CompX's sales generated from its non-U.S.
operations (principally in Canada) are denominated in the U.S. dollar. Most raw
materials, labor and other production costs for such non-U.S. operations are
denominated primarily in local currencies. Consequently, the translated U.S.
dollar value of CompX's foreign sales and operating results are subject to
currency exchange rate fluctuations which may favorably or unfavorably impact
reported earnings and may affect comparability of period-to-period operating
results. During the first quarter of 2000, weakness in the Euro negatively
impacted component products sales and operating income comparisons (principally
with respect to slide products). Excluding the effect of currency and
acquisitions, component products sales increased 9% in the first quarter of 2000
compared to the first quarter of 1999, and operating income increased 16%.
Waste Management
As previously reported, the Company commenced consolidating Waste
Control Specialists' results of operations in the third quarter of 1999. Prior
to consolidation, the Company reported its interest in Waste Control Specialists
by the equity method. During the first quarter of 1999, Waste Control
Specialists reported sales of $3.6 million, an operating loss (net loss before
interest expense) of $5.1 million and a net loss of $5.2 million. During the
first quarter of 2000, Waste Control Specialists reported sales of $4.6 million
and an operating loss of $1.6 million. The improvement in Waste Control
Specialists' results of operations is due primarily to the favorable effect of
certain cost control measures implemented during the second half of 1999.
Waste Control Specialists currently has permits which allow it to
treat, store and dispose of a broad range of hazardous and toxic wastes, and to
treat and store a broad range of low-level and mixed radioactive wastes. The
hazardous waste industry (other than low-level and mixed radioactive waste)
currently has excess industry capacity caused by a number of factors, including
a relative decline in the number of environmental remediation projects
generating hazardous wastes and efforts on the part of generators to reduce the
volume of waste and/or manage wastes onsite at their facilities. These factors
have led to reduced demand and increased price pressure for non-radioactive
hazardous waste management services. While Waste Control Specialists believes
its broad range of permits for the treatment and storage of low-level and mixed
radioactive waste streams provides certain competitive advantages, a key element
of Waste Control Specialists' long-term strategy to provide "one-stop shopping"
for hazardous, low-level and mixed radioactive wastes includes obtaining
additional regulatory authorizations for the disposal of low-level and mixed
radioactive wastes.
The current state law in Texas (where Waste Control Specialists'
disposal facility is located) prohibits the applicable Texas regulatory agency
from issuing a permit for the disposal of low-level radioactive waste to a
private enterprise. During the latest Texas legislative session which ended in
May 1999, Waste Control Specialists was supporting a proposed change in state
law which would allow the regulatory agency to issue a disposal permit to a
private entity. While the legislative session ended without any change in state
law, Waste Control Specialists has been pursuing other alternatives with respect
to the disposal of low-level and mixed radioactive wastes, including obtaining
certain modifications to its existing permits that would allow Waste Control
Specialists to dispose of certain types of low-level and mixed radioactive
wastes. Waste Control Specialists has obtained additional authority that allows
Waste Control Specialists to dispose of certain categories of low-level
radioactive materials, including naturally occurring radioactive material and
exempt level materials (radioactive materials that do not exceed certain
specified radioactive concentrations and are exempt from licensing). Although
there are other categories of low-level and mixed radioactive wastes that
continue to be ineligible for disposal under the increased authority, Waste
Control Specialists will continue to pursue permit modifications to further
expand its treatment and disposal capabilities for low-level and mixed
radioactive wastes. In addition, Waste Control Specialists currently expects to
continue to support a change in state law, as discussed above, during the next
Texas legislative session which begins in January 2001. Expenditures associated
with any additional permit modifications concerning the disposal of low-level
and mixed radioactive wastes in the next few quarters are expected to be
significantly lower than those incurred in connection with the Texas legislative
session which ended in May 1999. There can be no assurance that Waste Control
Specialists will be successful in obtaining any future permit modifications.
Waste Control Specialists has entered into an agreement with an
independent contractor pursuant to which the contractor will operate certain
indirect thermal desorption equipment owned by the contractor on behalf of Waste
Control Specialists at its West Texas facility. This equipment and related
technology is expected to allow Waste Control Specialists to process and dispose
of new hazardous waste streams (principally refinery wastes) beginning in the
second quarter of 2000.
The completion of the Texas legislative session in May 1999 resulted in
a significant reduction in the Company's expenditures for permitting during the
last half of 1999 and first quarter of 2000 compared to the first half of 1999.
Waste Control Specialists' program to improve operating efficiencies at its West
Texas facility and to curtail certain of its corporate and administrative costs
has also reduced operating costs in the last half of 1999 and the first quarter
of 2000 compared to the first half of 1999. Waste Control Specialists is also
refocusing its sales and marketing efforts to (i) emphasize opportunities where
Waste Control Specialists believes it has unique permitting capabilities for the
treatment and storage of mixed radioactive wastes that currently provide Waste
Control Specialists with certain competitive advantages and (ii) capitalize on
the recent permit modifications regarding disposal of certain types of low-level
radioactive wastes. Realizing significant sales volumes from these types of
waste streams may involve lengthy negotiations and due diligence processes
necessary to satisfy potential customers of the adequacy of Waste Control
Specialists' permitting ability for its facility and compliance with regulatory
procedures. The ability of Waste Control Specialists to achieve increased
volumes of these waste streams, together with improved operating efficiencies
through further cost reductions and increased capacity utilization, are
important factors in Waste Control Specialists' ability to achieve improved cash
flows. The Company currently believes Waste Control Specialists can become a
viable, profitable operation with its current operating permits. However, there
can be no assurance that Waste Control Specialists' efforts will prove
successful in improving its cash flows. In the event such efforts are not
successful or Waste Control Specialists is not successful in expanding its
disposal capabilities for low-level radioactive wastes, it is possible that
Valhi will consider other strategic alternatives with respect to Waste Control
Specialists.
Tremont Corporation and TIMET
As previously reported, the Company commenced consolidating Tremont's
balance sheet at December 31, 1999, and commenced consolidating Tremont's
results of operations and cash flows effective January 1, 2000. Prior to
December 31, 1999, the Company accounted for its interest in Tremont by the
equity method.
Tremont accounts for its interests in both NL and TIMET by the equity
method. NL's results of operations are discussed above. Tremont's equity in
earnings of TIMET differs from the amounts that would be expected by applying
Tremont's ownership percentage to TIMET's separately-reported earnings because
of the effect of amortization of purchase accounting adjustments made by Tremont
in conjunction with Tremont's acquisitions of its interests in TIMET.
Amortization of such basis differences generally increases earnings (or reduces
losses) attributable to TIMET as reported by Tremont compared to amounts
separately-reported by TIMET.
During the first quarter of 2000, TIMET reported sales of $104.7
million, an operating loss of $18.4 million and a net loss of $15.1 million
compared to sales of $134.1 million, an operating loss of $1.4 million and a net
loss or $3.9 million in the first quarter of 1999. TIMET's results in the first
quarter of 2000 were below those of the same period in 1999 due principally to a
11% decline in mill products sales volumes and a 6% decline in mill products
average selling prices. In addition, TIMET's sales volumes of ingot and slab in
the first quarter of 2000 decreased 30% compared to the first quarter of 1999,
and average selling prices for ingot and slab declined 2%. Compared to the
fourth quarter of last year, TIMET's mill products sales volumes decreased 4% in
the first quarter of 2000, while average selling prices increased 4%. Sales
volumes of ingot and slab in the first quarter of 2000 increased 38% from the
relatively-weak sales volumes of the fourth quarter of 1999, and average selling
prices increased slightly. TIMET's results in the first quarter of 2000 also
include $9.2 million of special items, consisting of restructuring charges ($3.7
million), equipment-related impairment charges ($3.4 million) and environmental
remediation charges ($3.3 million), offset by a $1.2 million gain from the sale
of its castings joint venture. The restructuring charge relates to
previously-announced personnel reductions of about 250 employees, approximately
two-thirds of which were accomplished as of March 31, 2000, with substantially
all of the remainder expected to be accomplished by the end of June 2000.
TIMET's customers and end-users continue to indicate that a substantial
titanium inventory overhang exists throughout the aerospace industry supply
chain that, along with the competitive environment, continues to place downward
pressure on TIMET's sales volumes and selling prices in selected products. It is
very difficult for TIMET to predict what will happen for the balance of 2000.
Early indications are that TIMET's production volumes and operating margins,
exclusive of special charges, will be somewhat lower in the remaining three
quarters of 2000 compared to the first quarter. TIMET is seeking to stem this
potential deterioration through a stronger sales effort, selective price
reductions and additional cost reductions. It is too early for TIMET to
determine how successful these efforts will be. TIMET's backlog was
approximately $185 million at March 31, 2000, compared to $195 million at
December 31, 1999 and $350 million at December 31, 1998.
In March 2000, TIMET filed a lawsuit against Boeing in Colorado state
court seeking damages for Boeing's repudiation and breach of TIMET's long-term
sales agreement with Boeing. TIMET's complaint seeks damages from Boeing that
TIMET believes are in excess of $600 million and a declaration from the court of
TIMET's rights under the contract. Boeing has not yet filed a formal response to
TIMET's complaint. TIMET and Boeing have begun discussions to determine if a
settlement of this litigation can be reached. No assurance can be given that any
settlement will be reached.
Tremont periodically evaluates the net carrying value of its long-term
assets, principally its investments in NL and TIMET, to determine if there has
been any decline in value below their net carrying amounts that is other than
temporary and would, therefore, require a write-down which would be accounted
for as a realized loss. At December 31, 1999, after considering what it believed
to be all relevant factors, including, among other things, TIMET's operating
results, financial position, estimated asset values and prospects, the Company
recorded a non-cash charge to earnings to reduce the net carrying value of its
investment in TIMET for an other than temporary impairment. In determining the
amount of the impairment charge, Tremont considered, among other things,
then-recent ranges of TIMET's NYSE market price and estimates of TIMET's future
operating losses which would further reduce Tremont's carrying value of its
investment in TIMET as it records additional equity in losses of TIMET. At March
31, 2000, Tremont's net carrying value of its investment in TIMET was $6.57 per
share compared to a NYSE market price at that date of $4.38.
General corporate and other items
General corporate. General corporate interest and dividend income
increased in the first quarter of 2000 compared to the first quarter of 1999 due
primarily to a higher level of distributions received from The Amalgamated Sugar
Company LLC. However, as discussed below, aggregate general corporate interest
and dividend income is currently expected to be lower during the remainder of
2000 compared to the same periods in 1999 due primarily to a lower level of LLC
distributions expected to be received.
Securities transactions in the first quarter of 1999 relate principally
to the disposition of a portion of the shares of Halliburton Company common
stock held by the Company when certain holders of the Company's LYONs debt
obligations exercised their right to exchange their LYONs for such Halliburton
shares. See Notes 3 and 7 to the Consolidated Financial Statements. Any
additional exchanges in 2000 or thereafter would similarly result in additional
securities transaction gains. Absent significant additional LYONs exchanges in
2000, the Company currently expects securities transactions in 2000 will be
nominal.
Interest expense. Interest expense declined in the first quarter of
2000 compared to the first quarter of 1999 due primarily to a lower average
level of outstanding indebtedness and lower average European borrowing rates at
NL. Assuming interest rates do not increase significantly from current levels
and that there is not a significant reduction in the amount of outstanding LYONs
indebtedness from exchanges, interest expense in 2000 is not expected to be
significantly different from interest expense in 1999 due principally to the net
effects of (i) lower expected levels of outstanding indebtedness and interest
rates with respect to NL, (ii) higher levels of outstanding indebtedness with
respect to CompX and (iii) the consolidation of Tremont's results of operations
effective January 1, 2000.
Provision for income taxes. The principal reasons for the difference
between the Company's effective income tax rates and the U.S. federal statutory
income tax rates are explained in Note 10 to the Consolidated Financial
Statements. 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. Certain subsidiaries,
including NL, Tremont and CompX, are not members of the consolidated U.S. tax
group and the Company provides incremental income taxes on such earnings.
During the first quarter of 2000, NL reduced its deferred income tax
valuation allowance by $1.3 million primarily as a result of utilization of
certain tax attributes for which the benefit had not been previously recognized
under the "more-likely-than-not" recognition criteria. During the first quarter
of 2000, Tremont increased its deferred income tax valuation allowance by $1.7
million primarily due to its equity in losses of TIMET for which recognition of
a deferred tax benefit is not currently considered appropriate under the
"more-likely-than-not" recognition criteria.
Minority interest., See Note 11 to the Consolidated Financial
Statements. As discussed above, the Company commenced consolidating Tremont's
results of operations beginning in 2000. Consequently, the Company commenced
reporting minority interest in Tremont's net earnings or losses beginning in
2000. Minority interest in earnings of Tremont's subsidiaries in 2000 relates to
TRECO L.L.C., a 75%-owned subsidiary of Tremont that holds Tremont's interests
in certain joint ventures. Minority interest in earnings of NL's subsidiaries
relates principally to NL's majority-owned environmental management subsidiary,
NL Environmental Management Services, Inc. ("EMS").
LIQUIDITY AND CAPITAL RESOURCES:
Consolidated cash flows
Operating activities. Trends in cash flows from operating annual
activities (excluding the impact of significant asset dispositions and relative
changes in assets and liabilities) are generally similar to trends in the
Company's earnings. Changes in assets and liabilities generally result from the
timing of production, sales, purchases and income tax payments.
Investing and financing activities. Approximately 55% of the Company's
aggregate capital expenditures during the first quarter of 2000 relate to NL,
and substantially all of the remainder relates to CompX.
During the first quarter of 2000, (i) CompX acquired a lock producer
for $9 million using borrowings under its unsecured revolving bank credit
facility, (ii) NL purchased $10.3 million of shares of its common stock and
(iii) NL and Valhi purchased an aggregate of $20.7 million of shares of Tremont
common stock.
During the first quarter of 2000, (i) CompX borrowed $12 million under
its unsecured revolving bank credit facility, (ii) Valhi borrowed an aggregate
of $16 million under its bank credit facility, (iii) Valhi repaid a net $2.3
million of short-term borrowings from Contran and (iv) Tremont increased its
short-term borrowings from Contran by a net of $1 million.
At March 31, 2000, unused credit available under existing credit
facilities approximated $91 million, which was comprised of $68 million
available to CompX under its revolving senior credit facility discussed below,
$11 million available to NL under non-U.S. credit facilities and $12 million
available to Valhi under its revolving bank credit facility.
Chemicals - NL Industries
In November 1999, NL's board of directors authorized NL to purchase up
to 1.5 million shares of its common stock in open market or privately-negotiated
transactions over an unspecified period of time. Through March 31, 2000, NL had
purchased 1.3 million of its shares pursuant to such authorization for an
aggregate of $17.5 million, including $10.3 million purchased in the first
quarter of 2000.
Certain of NL's U.S. and non-U.S. tax returns are being examined and
tax authorities have or may propose tax deficiencies, including non-income
related items and interest.
During 1997, NL received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($6 million at March
31, 2000) relating to 1994. NL appealed the 1994 assessment, and in February
2000 the Norwegian local court ruled in favor of the Norwegian tax authorities
on the primary issue, but asserted such tax authorities' assessment was
overstated by NOK 34 million ($4 million). In March 2000, the tax authorities
agreed with the Norwegian local court and reduced the 1994 assessment to NOK 17
million ($2 million). The tax authorities recently issued a NOK 13 million ($2
million) assessment for 1996, which was computed on a basis similar to the
revised 1994 assessment. NL has appealed the local court's decision on the
primary issue related to the 1994 assessment to a higher court, and the outcome
of the 1996 assessment is dependent upon the eventual outcome of the 1994 case.
NL has granted a lien for the 1994 tax assessment on its Norwegian Ti02 plant in
favor of the Norwegian tax authorities, and NL expects to grant an additional
lien on the plant related to the 1996 assessment.
No assurance can be given that these tax matters will be resolved in
NL's favor in view of the inherent uncertainties involved in court proceedings.
NL believes that it has provided adequate accruals for additional 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, PRP, or both, in a number of legal
proceedings associated with environmental matters, including waste disposal
sites, mining locations and facilities currently or previously owned, operated
or used by NL, certain of which are on the U.S. EPA's Superfund National
Priorities List or similar state lists. On a quarterly basis, NL evaluates the
potential range of its liability at sites where it has been named as a PRP or
defendant, including sites for which EMS has contractually assumed NL's
obligation. NL believes it has provided adequate accruals ($110 million at March
31, 2000) for reasonably estimable costs of such matters, but NL's ultimate
liability may be affected by a number of factors, including changes in remedial
alternatives and costs and the allocation of such costs among PRPs. It is not
possible to estimate the range of costs for certain sites. The upper end of the
range of reasonably possible costs to NL for sites for which it is possible to
estimate costs is approximately $150 million. NL's estimates of such liabilities
have not been discounted to present value, and NL has not recognized any
potential insurance recoveries. No assurance can be given that actual costs will
not exceed accrued amounts or the upper end of the range for sites for which
estimates have been made and no assurance can be given that costs will not be
incurred with respect to sites as to which no estimate presently can be made. NL
is also a defendant in a number of legal proceedings seeking damages for
personal injury, property damage and government expenditures allegedly arising
from the sale of lead pigments and lead-based paints. NL has not accrued any
amounts for the pending lead pigment and lead-based paint litigation. There is
no assurance that NL will not incur future liability in respect of this pending
litigation in view of the inherent uncertainties involved in court and jury
rulings in pending and possible future cases. However, based on, among other
things, the results of such litigation to date, NL believes that the pending
lead pigment and lead-based paint litigation is without merit. Liability that
may result, if any, cannot reasonably be estimated. In addition, various
legislation and administrative regulations have, from time to time, been enacted
or proposed 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 to effectively
overturn court decisions in which NL and other pigment manufacturers have been
successful. Examples of such proposed legislation include bills which would
permit civil liability for damages on the basis of market share, rather than
requiring plaintiffs to prove that the defendant's product caused the alleged
damage, and bills which would revive actions currently barred by statutes of
limitations. NL currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse effect on
its 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.
On May 3, 2000, a confederation of labor organizations in Norway
implemented a work stoppage directed at various Norwegian employers, including
NL's 30,000 metric ton TiO2 facility and ilmenite mining operations. NL does not
expect the work stoppage will be lengthy or to have a material adverse effect on
NL's consolidated financial position, results of operations or liquidity.
NL periodically evaluates its liquidity requirements, alternative uses
of capital, capital needs and availability of resources in view of, among other
things, its capital resources, debt service and 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 reduce, refinance, repurchase or
restructure indebtedness, raise additional capital, issue additional securities,
repurchase shares of its common stock, modify its dividend policy, restructure
ownership interests, sell interests in subsidiaries or other assets, or take a
combination of such steps or other steps to manage its liquidity and capital
resources. In the normal course of its business, NL may review opportunities for
the acquisition, divestiture, joint venture or other business combinations in
the chemicals industry or other industries. In the event of any such
transaction, NL may consider using its available cash, issuing its equity
securities or refinancing or increasing its indebtedness to the extent permitted
by the agreements governing NL's existing debt. In this regard, the indentures
governing NL's publicly-traded debt contain provisions which limit the ability
of NL and its subsidiaries to incur additional indebtedness or hold
noncontrolling interests in business units.
Component products - CompX International
In January 2000, CompX acquired a lock producer for $9 million cash
consideration using primarily borrowings under its bank credit facility.
Certain of CompX's sales generated by its Canadian operations are
denominated in U.S. dollars. To manage a portion of the foreign exchange rate
market risk associated with such receivables, at March 31, 2000 CompX had
entered into a series of short-term forward exchange contracts maturing through
June 2000 to exchange an aggregate of $9 million for an equivalent amount of
Canadian dollars at exchange rates of approximately Cdn. $1.46 per U.S. dollar.
Subsequent to March 31, 2000, to manage exchange rate risk associated with its
future sales, CompX entered into additional forward exchange contracts to
exchange an aggregate of $18 million for an equivalent amount of Canadian
dollars at exchange rates between approximately Cdn. $1.46 and Cdn. $1.47. Such
contracts mature through December 2000.
CompX periodically evaluates its liquidity requirements, alternative
uses of capital, capital needs and available resources in view of, among other
things, its capital expenditure requirements in light of its capital resources
and estimated future operating cash flows. As a result of this process, CompX
may in the future seek to raise additional capital, refinance or restructure
indebtedness, issue additional securities, modify its dividend policy or take a
combination of such steps or other steps to manage its liquidity and capital
resources. In the normal course of business, CompX may review opportunities for
acquisitions, joint ventures or other business combinations in the component
products industry. In the event of any such transaction, CompX may consider
using available cash, issuing additional equity securities or increasing the
indebtedness of CompX or its subsidiaries.
Tremont Corporation and Titanium Metals Corporation
Tremont. Tremont is primarily a holding company which, at March 31,
2000, owned approximately 39% of TIMET and 20% of NL. At March 31, 2000, the
market value of the 12.3 million shares of TIMET and the 10.2 million shares of
NL held by Tremont was approximately $54 million and $133 million, respectively.
In 1998, Tremont entered into a revolving advance agreement with
Contran. Through March 31, 2000, Tremont had net borrowings of $14.7 million
from Contran under such facility, primarily to fund Tremont's purchases of
shares of NL and TIMET common stock. Tremont expects to begin to repay such loan
from Contran in 2000 as the cash received from its dividends from NL, which
increased its quarterly dividend rate to $.15 per share beginning in 2000, is
expected to exceed its other cash requirements (including its dividends).
In 1997, Tremont's board of directors authorized Tremont to purchase up
to 2 million shares of its common stock in open market or privately-negotiated
transactions over an unspecified period of time. As of March 31, 2000, Tremont
had acquired 1.2 million shares under such authorization. No such shares were
acquired in 1999 or the first quarter of 2000. To the extent Tremont acquires
additional shares of its common stock, the Company's ownership interest in
Tremont would increase as a result of the fewer number of Tremont shares
outstanding.
Based upon certain technical provisions of the Investment Company Act
of 1940 (the "1940 Act"), Tremont might arguably be deemed to be an "investment
company" under the 1940 Act, despite the fact that Tremont does not now engage,
nor has it engaged or intended to engage, in the business of investing,
reinvesting, owning, holding or trading of securities. Tremont has taken the
steps necessary to give itself the benefits of a temporary exemption under the
1940 Act and has sought an order from the Securities and Exchange Commission
that Tremont is primarily engaged, through TIMET and NL, in a non-investment
company business.
Tremont periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt and
equity capital and estimated future operating cash flows. As a result of this
process, Tremont has in the past and may in the future seek to obtain financing
from related parties or third parties, raise additional capital, modify its
dividend policy, restructure ownership interests of subsidiaries and affiliates,
incur, refinance or restructure indebtedness, purchase shares of its common
stock, consider the sale of interests in subsidiaries, affiliates, marketable
securities or other assets, or take a combination of such steps or other steps
to increase or manage liquidity and capital resources. In the normal course of
business, Tremont may investigate, evaluate, discuss and engage in acquisition,
joint venture and other business combination opportunities. In the event of any
future acquisition or joint venture opportunities, Tremont may consider using
available cash, issuing equity securities or incurring indebtedness.
TIMET. At March 31, 2000, TIMET had net debt of approximately $73
million ($79 million of notes payable and long-term debt and $6 million of cash
and equivalents). In February 2000, TIMET entered into a new $125 million U.S.
revolving credit agreement which replaced its previous U.S. credit facility.
Borrowings under the new facility are limited to a formula-determined borrowing
base derived from the value of accounts receivable, inventories and equipment.
The new facility limits additional indebtedness of TIMET, prohibits the payment
of common stock dividends and contains other covenants customary in lending
transactions of this type. In addition, in February 2000 TIMET also entered into
a new U.K. credit facility denominated in Pound Sterling which replaced its
prior U.K. credit facility. At March 31, 2000, TIMET had $95 million of
borrowing availability, principally under these new facilities. TIMET believes
these two new credit facilities will provide TIMET with the liquidity necessary
for its current market and operating conditions.
At March 31, 2000, TIMET had $201.3 million outstanding of its 6.625%
convertible preferred securities. Such convertible preferred securities do not
require principal amortization, and TIMET has the right to defer dividend
payments for one or more quarters of up to 20 consecutive quarters. TIMET is
prohibited from, among other things, paying dividends on its common stock while
dividends are being deferred on the convertible preferred securities. TIMET
suspended the payment of dividends on its common stock during the fourth quarter
of 1999 in view of, among other things, the continuing weakness in demand for
titanium metals products. TIMET's new U.S. credit facility prohibits the payment
of dividends on TIMET's common stock, and the facility also prohibits the
payment of dividends on the convertible preferred securities under certain
conditions. In April 2000, TIMET exercised its rights under the convertible
preferred securities and commenced deferring future dividend payments on these
securities. Although the dividend payments are deferred, interest will continue
to accrue at the coupon rate on the principal and unpaid dividends. TIMET has
stated that its goal is to resume dividends on the convertible preferred
securities when the outlook for its results of operations improves
substantially.
In October 1998, TIMET purchased for cash $80 million of Special Metals
Corporation 6.625% convertible preferred stock (the "SMC Preferred Stock"), in
conjunction with, and concurrent with, SMC's acquisition of a business unit from
Inco Limited. Dividends on the SMC Preferred Stock are being accrued but,
through March 31, 2000, have not been paid due to limitations imposed by SMC's
bank credit agreement. As a result, TIMET has classified its accrued dividends
on the SMC preferred securities ($8 million at March 31, 2000) as a non-current
asset. In April 2000, TIMET received a $1.3 million quarterly dividend payment
on the SMC Preferred Stock. There can be no assurance that TIMET will receive
additional dividends during the remainder of 2000. TIMET currently believes it
will realize the carrying value of its investment in the SMC Preferred Stock.
A preliminary study of environmental issues at TIMET's Nevada facility
was completed late in the first quarter of 2000. TIMET accrued $3.3 million
based on the estimated cost of groundwater remediation activities described in
the study. The undiscounted environmental remediation charges are expected to be
paid over a period of up to thirty years.
TIMET periodically evaluates its liquidity requirements, capital needs
and availability of resources in view of, among other things, its alternative
uses of capital, its debt service requirements, the cost of debt and equity
capital, and estimated future operating cash flows. As a result of this process,
TIMET has in the past and may in the future seek to raise additional capital,
modify its common and preferred dividend policies, restructure ownership
interests, incur, refinance or restructure indebtedness, repurchase shares of
capital stock, sell assets, or take a combination of such steps or other steps
to increase or manage its liquidity and capital resources. In the normal course
of business, TIMET investigates, evaluates, discusses and engages in
acquisition, joint venture, strategic relationship and other business
combination opportunities in the titanium and related industries. In the event
of any future acquisition or joint venture opportunities, TIMET may consider
using then-available liquidity, issuing equity securities or incurring
additional indebtedness.
General corporate - Valhi
Valhi's operations are conducted primarily through its subsidiaries (NL
Industries, CompX, Tremont and Waste Control Specialists). Accordingly, Valhi's
long-term ability to meet its parent company level corporate obligations is
dependent in large measure on the receipt of dividends or other distributions
from its subsidiaries. NL increased its quarterly dividend to from $.035 per
share to $.15 per share in the first quarter of 2000. At the current $.15 per
share quarterly rate, and based on the 30.1 million NL shares held by Valhi at
March 31, 2000, Valhi would receive aggregate annual dividends from NL of
approximately $18.1 million. Tremont's quarterly dividend is currently $.07 per
share. At that rate, and based upon the 3.8 million Tremont shares owned by
Valhi at March 31, 2000 (which includes Tremont shares purchased late in the
first quarter of 2000), Valhi would receive aggregate annual dividends from
Tremont of approximately $1 million. CompX commenced quarterly dividends of
$.125 per share in the fourth quarter of 1999. At this current rate and based on
the 10.4 million CompX shares held by Valhi and Valcor, Valhi/Valcor would
receive annual dividends from CompX of $5.2 million. Various credit agreements
to which certain subsidiaries or affiliates 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 Valhi's
ability to service its parent company level obligations. Valhi has not
guaranteed any indebtedness of its subsidiaries or affiliates. At March 31,
2000, Valhi had $12 million of parent level cash and cash equivalents, including
a portion held by Valcor which could be distributed to Valhi, and had $37
million of outstanding borrowings under its revolving bank credit agreement. In
addition, Valhi had $12 million of borrowing availability under its bank credit
facility.
Valhi's LYONs do not require current cash debt service. At March 31,
2000, Valhi held 2.7 million shares of Halliburton common stock, which shares
are held in escrow for the benefit of holders of the LYONs. The LYONs are
exchangeable at any time, at the option of the holder, for the Halliburton
shares owned by Valhi. Exchanges of LYONs for Halliburton stock result in the
Company reporting income related to the disposition of the Halliburton stock for
both financial reporting and income tax purposes, although no cash proceeds are
generated by such exchanges. Valhi's potential cash income tax liability that
would have been triggered at March 31, 2000, assuming exchanges of all of the
outstanding LYONs for Halliburton stock at such date, was approximately $28
million. Valhi continues to receive regular quarterly Halliburton dividends
(currently $.125 per share) on the escrowed shares. At March 31, 2000, the LYONs
had an accreted value equivalent to approximately $35.00 per Halliburton share,
and the market price of the Halliburton common stock was $41.13 per share.
Valhi received approximately $73 million cash in early 1997 at the
transfer of control of its refined sugar operations previously conducted by the
Company's wholly-owned subsidiary, The Amalgamated Sugar Company, to Snake River
Sugar Company, an agricultural cooperative formed by certain sugarbeet growers
in Amalgamated's area of operation. Pursuant to the transaction, Amalgamated
contributed substantially all of its net assets to The Amalgamated Sugar Company
LLC, a limited liability company controlled by Snake River, on a tax-deferred
basis in exchange for a non-voting ownership interest in the LLC. As part of the
transaction, Snake River made certain loans to Valhi aggregating $250 million in
January 1997. Such loans bear interest (which is paid monthly) at a weighted
average fixed interest rate of 9.4%, are presently nonrecourse to Valhi and are
collateralized by the Company's investment in the LLC ($170 million carrying
value at March 31, 2000). Snake River's sources of funds for its loans to Valhi,
as well as for the $14 million it contributed to The Amalgamated Sugar Company
LLC for its voting interest in the LLC, included cash capital contributions by
the grower members of Snake River and $192 million in debt financing provided by
Valhi in January 1997, of which $100 million was subsequently prepaid in 1997
when Snake River obtained $100 million of third-party term loan financing. In
addition, another $12 million of loans from Valhi were prepaid during 1997.
After these prepayments, $80 million of Valhi's loans to Snake River Sugar
Company remain outstanding. See Notes 3, 5 and 7 to the Consolidated Financial
Statements.
The terms of the LLC provide for annual "base level" of cash dividend
distributions (sometimes referred to distributable cash) by the LLC of $26.7
million, from which the Company is entitled to a 95% preferential share.
Distributions from the LLC are dependent, in part, upon the operations of the
LLC. Each month, the LLC estimates its distributable cash for the year and makes
a distribution based on such estimated distributable cash. Revisions during the
year of such estimated distributable cash result in adjustments to the amount of
dividend distributions paid by the LLC in the month such revisions are made. The
Company records dividend distributions from the LLC as income upon receipt,
which is the same month in which they are declared by the LLC. To the extent the
LLC's distributable cash is below this base level in any given year, the Company
is entitled to an additional 95% preferential share of any future annual LLC
distributable cash in excess of the base level until such shortfall is
recovered.
The Company has the ability to temporarily take control of the LLC in
the event the Company's cumulative distributions from the LLC fall below
specified levels. Over the past year, the refined sugar industry has been
experiencing, among other things, downward pressure on selling prices due
principally to relative supply/demand relationships. Snake River's board of
directors are authorized to require the sugarbeet growers to make capital
contributions to Snake River in the form of "unit retains." Such unit retain
capital contributions are deducted from the payments made to the growers for
supplying the LLC with sugarbeets, thereby decreasing the LLC's raw material
costs. During each of 1998 and 1999, Snake River's board of directors authorized
such unit retains in order to (i) increase the profitability and cash flows of
the LLC and (ii) maintain the Company's cumulative distributions above the
specified levels. Through March 31, 2000, the Company's cumulative distributions
from the LLC had not fallen below such specified levels, in part because of the
LLC's previous estimate of the amount it would ultimately pay the growers for
supplying sugarbeets to the LLC during 2000, including the effect of unit
retains.
Effective April 2000, the LLC increased its estimate of the amount it
would pay the growers for supplying sugarbeets to the LLC during 2000, which
reduced previous estimates of the LLC's distributable cash for 2000.
Consequently, the LLC did not pay a distribution to the Company during April
2000. Although this resulted in the Company's cumulative distributions from the
LLC becoming lower than the specified levels referred to above, to date the
Company has not yet exercised its right to temporarily take control of the LLC.
If the Company exercises such right, it would be required to escrow certain
funds pursuant to an agreement with Snake River's third-party senior lender,
unless the Company and Snake River's third-party lender otherwise mutually
agree. While the Company did not receive a distribution from the LLC in April
2000, the Company did pay the April 2000 interest payment owed under its $250
million in loans from Snake River.
The LLC will continue to estimate its distributable cash each month for
the remainder of 2000 and, if such estimates warrant, make additional dividend
distributions at that time. The Company received $6.6 million of LLC
distributions in the first quarter of 2000. If the LLC's actual distributable
cash for 2000 (which will not be known until the first quarter of 2001 when the
LLC's audited financial statements for 2000 are issued) is less than this $6.6
million plus the amount, if any, of LLC distributions received during the
remainder of 2000, the Company would be required to refund such shortfall at the
time such actual distributable cash for 2000 is determined.
Certain covenants contained in Snake River's third-party senior debt
limit the amount of debt service payments (principal and interest) which Snake
River is permitted to remit to Valhi under Valhi's $80 million loan to Snake
River, and such loan is subordinated to Snake River's third-party senior debt.
Due to these covenants, Snake River was limited in the amount of debt service it
could pay on the $80 million loan to $3 million in 1998, $7.2 million in 1999
and $950,000 in the first quarter of 2000. At March 31, 2000, the accrued and
unpaid interest on the $80 million loan to Snake River aggregated $14 million.
The Company is presently uncertain whether it will receive additional payments
for debt service on the $80 million loan during the remainder of 2000 due to the
covenants contained in Snake River's third-party senior debt. The Company
currently believes it will ultimately realize both the $80 million principal
amount and the $14 million of accrued and unpaid interest, whether through cash
generated from the future operations of Snake River and the LLC or otherwise
(including any liquidation of Snake River/LLC).
Redemption of the Company's interest in the LLC would result in the
Company reporting income related to the disposition of its LLC interest for both
financial reporting and income tax purposes. The cash proceeds that would be
generated from such a disposition would likely be less than the specified
redemption price due to Snake River's ability to simultaneously call its $250
million loans to Valhi. As a result, the net cash proceeds generated by
redemption of the Company's interest in the LLC could be less than the income
taxes that would become payable as a result of the disposition.
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, repurchase
indebtedness in the market or otherwise, modify its dividend policies, consider
the sale of interests in subsidiaries, 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.
The Company and related entities routinely evaluate 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 this regard, the indentures
governing the publicly-traded debt of NL contain provisions which limit the
ability of NL and its subsidiaries to incur additional indebtedness or hold
noncontrolling interests in business units.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the 1999 Annual Report for descriptions of certain
legal proceedings.
In April 2000, a complaint was filed in the United States District
Court, District of Utah, Central Division against Waste Control Specialists LLC
(Envirocare of Utah, Inc., et al. v. Waste Control Specialists LLC, et al., No.
2-00CV-0324J). The complaint alleges, among other things, that the defendants,
individually and in concert, published defamatory and disparaging statements
regarding plaintiffs and have engaged in other conduct causing injury to
plaintiffs in Utah. The complaint seeks unspecified damages for defamation per
se, defamation, false light invasion of privacy, injurious falsehood and
tortious interference with current and prospective economic advantage. Waste
Control Specialists believes the complaint is without merit and intends to deny
all allegations of wrongdoing and to defend the action vigorously.
Brenner, et al. v. American Cyanamid, et al. (No. 12596-93). In March
2000, the Fourth Department intermediate appellate court denied plaintiffs'
request to seek review.
Sweet, et al. v. Sheahan, et al. (No. 97-CV-1666/LEK-DNH), In March
2000, plaintiffs voluntarily dismissed all defendants other than the landlord
without prejudice.
Cofield, et al. v. Lead Industries Association, et al. (No.
24-C-099-004491). In March 2000, the Federal trial court (No. MJG-99-3277)
denied plaintiffs' motion to remand to State Court. In April 2000, defendants
filed an additional motion to dismiss all claims for lack of product
identification.
City of St. Louis v. Lead Industries Association, et al. (No. 002-245,
Division 1). In March 2000, defendants removed the case to Missouri federal
court. In April 2000, plaintiff filed a motion to remand to State Court and an
amended complaint seeking to add additional Missouri defendant residents.
In April 2000, NL was served with a complaint in County of Santa Clara
v. Atlantic Richfield Company, et al. (Superior Court of the State of
California, County of Santa Clara, Case No. CV788657). The County of Santa Clara
seeks to represent a class of all public entities in California. The County
seeks from defendants (eight present or former pigment or paint manufacturing
companies, including NL, and the Lead Industries Association) compensatory
damages for funds the plaintiffs have expended for medical treatment,
educational expenses, abatement or other costs due to exposure to, or potential
exposure to, lead paint, disgorgement of profits and punitive damages. Plaintiff
alleges causes of action for violations of the California Business and
Professions Code, strict product liability, negligence, fraud and concealment,
unjust enrichment and indemnity, and includes market share liability
allegations. NL intends to deny all allegations of wrongdoing and liability and
to defend the case vigorously.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 - Financial Data Schedule for the three-month period ended
March 31, 2000.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 2000.
February 10, 2000 - Reported Items 5 and 7.
February 15, 2000 - Reported Items 5 and 7.
<PAGE>
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 12, 2000 By /s/ Bobby D. O'Brien
---------------- ------------------------------
Bobby D. O'Brien
(Vice President and Treasurer,
Principal Financial Officer)
Date May 12, 2000 By /s/ Gregory M. Swalwell
---------------- ------------------------------
Gregory M. Swalwell
(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,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000059255
<NAME> Valhi, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 185,760
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<RECEIVABLES> 200,023
<ALLOWANCES> 6,340
<INVENTORY> 209,075
<CURRENT-ASSETS> 638,869
<PP&E> 737,600
<DEPRECIATION> 192,115
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<CURRENT-LIABILITIES> 358,949
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0
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<COMMON> 1,257
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<SALES> 301,728
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