NL INDUSTRIES, INC.
Form 10-Q
For the quarter ended September 30, 1994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 13-5267260
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Two Greenspoint Plaza, 16825 Northchase Dr., Suite 1200, Houston, TX 77060-2544
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 423-3300
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) had been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding on November 7, 1994: 51,042,443
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1993
and September 30, 1994 3-4
Consolidated Statements of Operations - Three and
nine months ended September 30, 1993 and 1994 5
Consolidated Statement of Shareholders' Deficit
- Nine months ended September 30, 1994 6
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1993 and 1994 7-8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19-20
Item 6. Exhibits and Reports on Form 8-K 20
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS December 31, September 30,
1993 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 106,593 $ 194,086
Marketable securities 41,045 25,474
Accounts and notes receivable 116,355 150,767
Refundable income taxes 386 9,797
Inventories 194,167 167,812
Prepaid expenses 5,637 9,461
Deferred income taxes 3,315 3,704
Total current assets 467,498 561,101
Other assets:
Marketable securities 18,428 20,549
Refundable income taxes 91,994 -
Investment in joint ventures 190,787 188,383
Prepaid pension cost 16,307 19,066
Other 42,932 39,349
Total other assets 360,448 267,347
Property and equipment:
Land 18,237 20,345
Buildings 129,582 142,306
Machinery and equipment 515,090 570,952
Mining properties 72,711 77,313
Construction in progress 30,050 39,369
765,670 850,285
Less accumulated depreciation and depletion 387,067 441,169
Net property and equipment 378,603 409,116
$1,206,549 $1,237,564
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, September 30,
1993 1994
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 35,716 $ 43,316
Accounts payable and accrued liabilities 177,265 192,467
Payable to affiliates 9,566 10,605
Income taxes 6,353 7,204
Deferred income taxes 3,623 2,392
Total current liabilities 232,523 255,984
Noncurrent liabilities:
Long-term debt 835,169 790,990
Deferred income taxes 138,977 204,576
Accrued pension cost 72,606 79,503
Accrued postretirement benefits cost 68,322 65,946
Other 121,309 132,891
Total noncurrent liabilities 1,236,383 1,273,906
Minority interest 2,438 2,892
Shareholders' deficit:
Common stock 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (115,803) (122,699)
Pension liabilities (3,442) (3,442)
Marketable securities (2,164) (519)
Accumulated deficit (543,059) (569,538)
Treasury stock (367,963) (366,656)
Total shareholders' deficit (264,795) (295,218)
$1,206,549 $1,237,564
</TABLE>
[FN]
Commitments and contingencies (Note 13)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $202,096 $225,200 $621,992 $664,162
Other, net 4,474 8,365 14,851 36,579
206,570 233,565 636,843 700,741
Costs and expenses:
Cost of sales 156,894 168,033 471,071 493,914
Selling, general and
administrative 42,527 47,162 138,166 157,423
Interest 23,211 20,923 75,963 63,059
222,632 236,118 685,200 714,396
Loss before income taxes
and minority interest (16,062) (2,553) (48,357) (13,655)
Income tax expense (2,502) (1,901) (11,357) (12,204)
Loss before minority
interest (18,564) (4,454) (59,714) (25,859)
Minority interest (158) (124) (500) (620)
Net loss $(18,722) $ (4,578) $(60,214) $(26,479)
Net loss per share of common
stock $ (.37) $ (.09) $ (1.18) $ (.52)
Weighted average common shares
outstanding 50,890 51,040 50,890 51,014
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Nine months ended September 30, 1994
(In thousands)
<TABLE>
<CAPTION>
Additional Adjustments
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $8,355 $759,281 $(115,803) $(3,442) $(2,164)
Net loss - - - - -
Adjustments - - (6,896) - 1,645
Other, net - - - - -
Balance at September 30, 1994 $8,355 $759,281 $(122,699) $(3,442) $ (519)
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury
deficit stock Total
<S> <C> <C> <C>
Balance at December 31, 1993 $(543,059) $(367,963) $(264,795)
Net loss (26,479) - (26,479)
Adjustments - - (5,251)
Other, net - 1,307 1,307
Balance at September 30, 1994 $(569,538) $(366,656) $(295,218)
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1993 and 1994
(In thousands)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $(60,214) $(26,479)
Adjustments:
Depreciation, depletion and amortization 38,123 26,752
Deferred income taxes (1,045) 35,479
Other, net (1,528) (2,458)
(24,664) 33,294
Change in assets and liabilities:
Accounts and notes receivable (21,097) (24,721)
Inventories 4,811 37,605
Prepaid expenses (2,422) (2,384)
Accounts payable and accrued liabilities 1,629 14,610
Income taxes 2,715 89,285
Other, net 12,024 24,911
Marketable trading securities, net - 14,262
Net cash provided (used) by operating
activities (27,004) 186,862
Cash flows from investing activities:
Capital expenditures (33,518) (25,061)
Marketable securities:
Purchases (1,949) -
Dispositions 70,335 -
Proceeds from disposition of property
and equipment 275 182
Investment in joint ventures, net - 2,600
Other, net 623 381
Net cash provided (used) by investing
activities 35,766 (21,898)
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months ended September 30, 1993 and 1994
(In thousands)
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Cash flows from financing activities:
Notes payable and long-term debt:
Additions $ 7,493 $ 45,192
Principal payments (30,108) (129,553)
Deferred financing costs (745) (687)
Distributions to minority interest (33) (202)
Net cash used by financing activities (23,393) (85,250)
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities (14,631) 79,714
Currency translation (1,523) 7,779
Balance at beginning of period 87,333 106,593
Balance at end of period $ 71,179 $ 194,086
Supplemental disclosures - cash paid (received) for:
Interest, net of amounts capitalized $ 75,213 $ 43,251
Income taxes 10,040 (112,066)
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
NL Industries, Inc. is primarily a holding company and conducts its
operations through its wholly-owned subsidiaries, Kronos, Inc. (titanium dioxide
pigments, or "TiO2") and Rheox, Inc. (specialty chemicals). At September 30,
1994, Valhi, Inc. held approximately 49% of NL's outstanding common stock and
Tremont Corporation, a 48%-owned affiliate of Valhi, held an additional 18% of
NL's outstanding common stock. Together, Tremont and Valhi may be deemed to
control NL. Contran Corporation holds, directly or through subsidiaries,
approximately 90% of Valhi's outstanding common stock.
The consolidated balance sheet of NL Industries, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1993 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1994 and the consolidated statements
of operations, shareholders' deficit and cash flows for the interim periods
ended September 30, 1993 and 1994, have been prepared by the Company, without
audit. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows have been made. The results of
operations for the interim periods are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain prior-year amounts have been
reclassified to conform to the 1994 presentation. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "1993 Annual Report").
NOTE 2 - LOSS PER SHARE OF COMMON STOCK:
Loss per share of common stock is based on the weighted average number of
common shares outstanding. Common stock equivalents are excluded from the
computation because they are antidilutive.
NOTE 3 - BUSINESS SEGMENT INFORMATION:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
(In thousands)
<S> <C> <C> <C> <C>
Net sales:
Kronos $174,008 $194,146 $539,286 $574,813
Rheox 28,088 31,054 82,706 89,349
$202,096 $225,200 $621,992 $664,162
Operating income:
Kronos $ 5,728 $ 18,746 $ 30,414 $ 51,769
Rheox 7,045 8,347 20,630 23,879
12,773 27,093 51,044 75,648
General corporate income
(expense):
Securities earnings, net 1,514 1,254 5,682 2,097
Corporate expenses, net (7,138) (9,977) (29,120) (28,341)
Interest expense (23,211) (20,923) (75,963) (63,059)
$(16,062) $ (2,553) $(48,357) $(13,655)
</TABLE>
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
Raw materials $ 19,785 $ 25,887
Work in process 7,173 6,655
Finished products 135,102 99,475
Supplies 32,107 35,795
$194,167 $167,812
</TABLE>
NOTE 5 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
Current - U.S. Treasury securities:
Unrealized gains (losses) $ 52 $ (819)
Cost 40,993 26,293
Aggregate market $41,045 $25,474
Noncurrent - marketable equity securities:
Unrealized gains $ 33 $ 2,296
Unrealized losses (2,951) (3,093)
Cost 21,346 21,346
Aggregate market $18,428 $20,549
</TABLE>
The Company has classified its U.S. Treasury securities as trading
securities and its marketable equity securities as available-for-sale.
Net gains and losses from securities transactions are composed of:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
(In thousands)
<S> <C> <C> <C> <C>
Unrealized gains (losses):
Marketable equity securities $ 323 $ - $ 387 $ -
Other securities 128 - 414 (871)
Realized gains (losses) - other
securities 104 (96) 1,736 (438)
$ 555 $(96) $2,537 $(1,309)
</TABLE>
NOTE 6 - INVESTMENT IN JOINT VENTURES:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
TiO2 manufacturing joint venture $188,031 $185,546
Other 2,756 2,837
$190,787 $188,383
</TABLE>
NOTE 7 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
Intangible assets, net $15,317 $14,786
Deferred financing costs, net 18,954 16,847
Other 8,661 7,716
$42,932 $39,349
</TABLE>
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
Accounts payable $ 89,010 $ 72,114
Accrued liabilities:
Employee benefits 32,350 38,461
Environmental costs 14,517 24,548
Interest 6,933 13,877
Miscellaneous taxes 2,240 1,018
Other 32,215 42,449
88,255 120,353
$177,265 $192,467
</TABLE>
NOTE 9 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
Environmental costs $ 70,789 $ 83,449
Deferred technology fee income 26,881 20,905
Insurance claims and expenses 10,299 15,601
Employee benefits 10,084 11,809
Other 3,256 1,127
$121,309 $132,891
</TABLE>
NOTE 10 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
(In thousands)
<S> <C> <C>
NL Industries:
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 102,627 112,762
352,627 362,762
Kronos:
DM bank credit facility (DM 548,000
and DM 455,206) 316,032 294,609
Joint venture term loan 104,143 92,572
5% to 8% bank loans payable through 2000 12,338 10,606
Other 2,175 1,656
434,688 399,443
Rheox:
Bank term loan 82,500 71,250
Other 1,070 851
83,570 72,101
870,885 834,306
Less current maturities 35,716 43,316
$835,169 $790,990
</TABLE>
NOTE 11 - INCOME TAXES:
The difference between the provision for income tax expense attributable to
loss before income taxes and minority interest and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% is presented
below.
<TABLE>
<CAPTION>
Nine months ended
September 30,
1993 1994
(In thousands)
<S> <C> <C>
Expected tax benefit $ 16,925 $ 4,779
Non-U.S. tax rates 10,886 3,838
Incremental tax on income of companies not included
in NL's consolidated U.S. federal income tax return (2,071) (982)
Rate change adjustment of deferred taxes (6,811) -
Valuation allowance (29,888) (18,987)
U.S. state income taxes (417) (410)
Other, net 19 (442)
Income tax expense $(11,357) $(12,204)
</TABLE>
NOTE 12 - OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1994 1993 1994
(In thousands)
<S> <C> <C> <C> <C>
Securities earnings:
Interest and dividends $ 959 $1,350 $ 3,145 $ 3,406
Securities transactions 555 (96) 2,537 (1,309)
1,514 1,254 5,682 2,097
Litigation settlement gains - 1,200 - 21,240
Technology fee income - 2,519 - 7,781
Royalty income 377 413 1,438 1,433
Currency transaction gains, net 1,417 379 3,093 745
Disposition of property and equipment (283) (244) (876) (1,523)
Other, net 1,449 2,844 5,514 4,806
$4,474 $8,365 $14,851 $36,579
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Part II, Item 1 -"Legal Proceedings," (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994 and (iii) the
1993 Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company's chemical operations are conducted in two business segments -
TiO2 conducted by Kronos and specialty chemicals conducted by Rheox. The
Company's return to profitability, and the timing thereof, are dependent in
large part upon improved pricing for TiO2. The Company's results improved
significantly during the first nine months of 1994, as discussed below, and the
Company anticipates that TiO2 prices will further improve in 1995. The Company
continues to expect to report a net loss for calendar 1994.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1994 % Change 1993 1994 % Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Kronos $174.0 $194.1 +12% $539.3 $574.9 +7%
Rheox 28.1 31.1 +11% 82.7 89.3 +8%
$202.1 $225.2 +11% $622.0 $664.2 +7%
Operating income:
Kronos $ 5.8 $ 18.8 +227% $ 30.4 $ 51.7 +70%
Rheox 7.0 8.3 +18% 20.6 23.9 +16%
$ 12.8 $ 27.1 +112% $ 51.0 $ 75.6 +48%
Percent changes in TiO2:
Sales volume +4% +7%
Average selling prices
(in billing currencies) +6% +1%
</TABLE>
Kronos' TiO2 operating income in the third quarter and first nine months of
1994 increased from the comparable 1993 periods due to higher average selling
prices, higher sales volumes, slightly lower per unit operating costs and higher
technology fee income. As a result of improved pricing in all major markets,
Kronos' average TiO2 selling prices in the third quarter of 1994 were 6% higher
than the comparable period of 1993 and were 3% higher than the second quarter of
1994. A significant amount of sales are denominated in currencies other than
the U.S. dollar, and fluctuations in the value of the U.S. dollar relative to
other currencies increased the dollar value of sales for the third quarter of
1994 by $4 million and decreased the dollar value of sales in the first nine
months of 1994 by $10 million compared to the 1993 periods. Rheox's operating
results for both the third quarter and first nine months of 1994 improved
compared to the 1993 periods primarily as a result of higher sales volumes and
lower operating costs.
The following table sets forth certain information regarding general
corporate income (expense).
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, Difference September 30, Difference
1993 1994 1993 1994
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Securities earnings $ 1.5 $ 1.3 $ (.2) $ 5.7 $ 2.1 $(3.6)
Corporate expenses, net (7.1) (10.0) (2.9) (29.1) (28.3) .8
Interest expense (23.2) (21.0) 2.2 (76.0) (63.1) 12.9
$(28.8) $(29.7) $ (.9) $(99.4) $(89.3) $10.1
</TABLE>
Year-to-date corporate expenses, net were lower as a $20 million gain
related to the first-quarter 1994 settlement of the Company's lawsuit against
Lockheed Corporation was partially offset by increased provisions for
environmental remediation and other costs. Interest expense declined due to
lower debt outstanding and lower average interest rates on Deutsche mark-
denominated debt, partially offset by the higher interest rates on the Company's
Senior Notes.
The Company's operations are conducted on a worldwide basis. In both 1993
and 1994, the Company's income tax expense was impacted by losses in certain
countries for which no current benefit is available and for which the Company
believes recognition of a deferred tax asset is not currently appropriate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the nine months ended September 30, 1993 and 1994 are
presented below.
<TABLE>
<CAPTION>
Nine months ended
September 30,
1993 1994
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $(27.0) $186.8
Investing activities 35.8 (21.9)
Financing activities (23.4) (85.2)
Net cash provided (used) by operating,
investing and financing activities $(14.6) $ 79.7
</TABLE>
The TiO2 industry is cyclical, with the previous peak in selling prices in
early 1990 and the latest trough in the third quarter of 1993. During the
recent TiO2 down cycle, the Company's operations have used significant amounts
of cash. Receipt of the German tentative tax refund, discussed below,
significantly increased the Company's cash flow from operating activities during
the 1994 period and was a major factor in the Company's improved liquidity. The
relative changes in the Company's inventories, receivables and payables
(excluding the effect of currency translation) also contributed to the cash
provided by operations. Excluding the impact of the German tentative tax
refund, the Company expects cash provided by operations for calendar 1994 will
be lower than that provided for the nine-month period due to, among other
things, certain seasonal working capital fluctuations and the timing of interest
payments on the Senior Notes. The Company has taken and continues to take
measures to manage its near-term and long-term liquidity requirements, including
cost reduction efforts, tightening of controls over working capital, the
formation of a TiO2 manufacturing joint venture and the refinancing of certain
debt in 1993. The Company currently expects to have sufficient liquidity to
meet its obligations including operations, capital expenditures and debt
service.
Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany, are being examined and tax authorities have
proposed or may propose tax deficiencies. During the first nine months of 1994,
the German tax authorities withdrew certain tax assessment reports and remitted
tax refunds aggregating DM 211 million ($127 million), including interest, on a
tentative basis. The Company applied DM 168 million ($103 million) of the
German tentative tax refunds to reduce outstanding borrowings under its DM
revolving credit facility. In October, the German tax authorities remitted
additional tentative tax refunds aggregating DM 14 million ($9 million) and the
Company applied DM 8 million ($5 million) to reduce further the outstanding
borrowings under its DM bank credit facility. The examination of the Company's
German income tax returns continues and the Company has received certain
assessment reports proposing tax deficiencies and understands the German tax
authorities intend to issue additional assessment reports. Although the Company
believes that it will ultimately prevail, the Company has granted a DM 100
million ($65 million at September 30, 1994) lien on its Nordenham, Germany TiO2
plant in favor of the German tax authorities until the assessments proposing tax
deficiencies are resolved. The Company believes that it has adequately provided
accruals for additional income taxes and related interest expense which may
ultimately result from all such examinations.
Repayments of indebtedness in the first nine months of 1994 include
payments of DM 168 million of the DM credit facility ($103 million), $11 million
on the Rheox bank term loan and $12 million on the joint venture term loan. In
addition, the Company borrowed DM 75 million ($45 million) under the DM credit
facility. During October 1994, the Company repaid an aggregate of DM 58 million
($37 million) of the DM credit facility. The Company has reduced its "net debt"
(notes payable and long-term debt less cash, cash equivalents and securities) by
$271 million during the last 12 months.
At September 30, 1994, the Company had cash, cash equivalents and current
marketable securities aggregating $220 million (42% held by non-U.S.
subsidiaries) including restricted cash, cash equivalents and current marketable
securities of $15 million. In addition, the Company's subsidiaries had $192
million available for borrowing under existing non-U.S. credit facilities, of
which $109 million is available only for (i) permanently reducing the DM term
loan or (ii) paying future German income tax assessments, as described above.
The Company has been named as a defendant, potentially responsible party,
or both, in a number of legal proceedings associated with environmental matters,
including waste disposal sites or facilities currently or formerly owned,
operated or used by the Company, many of which disposal sites or facilities are
on the U.S. Environmental Protection Agency's Superfund National Priorities List
or similar state lists. The Company believes it has adequate accruals
($84 million at September 30, 1994) for reasonably estimable costs of such
matters. It is not possible to estimate the range of costs for certain sites.
The Company has estimated that the upper end of the range of reasonably possible
costs to the Company for sites for which it is possible to estimate costs is
approximately $142 million. No assurance can be given that actual costs will
not exceed accrued amounts or the upper end of the range for sites for which
estimates have been made, and no assurance can be given that costs will not be
incurred with respect to sites as to which no estimate presently can be made.
Further, there can be no assurance that additional environmental matters will
not arise in the future. The Company is also a defendant in a number of legal
proceedings seeking damages for personal injury and property damage arising out
of the sale of lead pigments and lead-based paints. Based on, among other
things, the results of such litigation to date, the Company believes that the
pending lead pigment litigation is without merit and has not accrued any amounts
for such pending lead pigment litigation. The Company currently believes the
disposition of all claims and disputes, individually and in the aggregate,
should not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity. There can be no
assurance that additional matters of these types will not arise in the future.
In addition, various legislation and administrative regulations have, from time
to time, been enacted or proposed at the state, local and federal levels that
seek to impose various obligations on present and former manufacturers of lead
pigment and lead-based paint with respect to asserted health concerns associated
with the use of such products and effectively overturn court decisions in which
the Company and other pigment manufacturers have been successful.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its debt
service requirements, capital expenditure requirements and estimated future
operating cash flows. As a result of this process, the Company has in the past
and may in the future seek to refinance or restructure indebtedness, raise
additional capital, restructure ownership interests, sell interests in
subsidiaries, marketable securities or other assets, or take a combination of
such steps or other steps to increase its liquidity and capital resources.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Reference is made to the 1993 Annual Report and the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994 for
descriptions of certain previously-reported legal proceedings.
HANO. In October 1994, the Company moved for summary judgment in one of
the eight remaining third-party complaints filed by HANO.
The City of New York, the New York City Housing Authority and the New York
City Health and Hospitals Corp. v. Lead Industries Association, Inc., et al. In
May 1994, the trial court granted the defendants' motion to dismiss the
plaintiffs' restitution and indemnification claims. The plaintiffs filed a
notice of appeal. Defendants have moved for summary judgment on the remaining
fraud claim.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al. The
defendant, Commercial Union, has appealed the previously-reported order
requiring it to pay certain previously-incurred Company defense costs.
Wagner, et al. v. Anzon and NL Industries, Inc. Defendants' motion for
summary judgment was denied; jury trial in this class action began in September
1994 and a jury verdict is expected in November 1994.
Granite City. In August 1994, the U.S. Environmental Protection Agency
("U.S. EPA") recommenced a limited cleanup of the residential yard soils in
Granite City. In October 1994, the U.S. EPA released a proposed plan for
residential soil cleanup and reopened the administrative record for public
comment. The period for public comment has not yet expired. In the proposed
plan, the U.S. EPA also indicated that it is developing remedial plans for the
remaining industrial area and for groundwater.
Batavia, New York. In August 1994, the U.S. EPA issued a proposed plan for
remediation of the landfill. The estimated cost of the proposed remedy is $12
million. No allocation of the remedial costs among the Company and the other
potentially responsible parties ("PRP"s) has been determined.
Cherokee County. In August 1994, the U.S. EPA issued a proposed remedial
plan for the Baxter Springs and Treece subsites. The estimated cost of the
proposed remedies is $6 million. The allocation among PRPs, including the
Company, has not yet been determined. Remedial plans have not been proposed for
the remaining subsites in Cherokee County.
Flacke v. NL Industries, Inc. In August 1994, the court denied the State's
and the Company's motions for summary judgment.
Portland. In September 1994, the PRPs submitted to the U.S. EPA a focused
feasibility study proposing changes in the remedy at this site. The estimated
cost of the remedies analyzed ranges from approximately $15 million to $57
million.
Exxon Chemical Company v. NL Industries, Inc. The Company has agreed in
principle to settle this matter, within previously accrued amounts, and the
Court has dismissed the case. The parties are negotiating a settlement
agreement, execution of which is a condition of the settlement, and the
plaintiff has sought to reinstate the case pending completion of those
negotiations.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a)EXHIBITS
27.1 - Financial Data Schedules for the nine-month period ended
September 30, 1994.
(b)REPORTS ON FORM 8-K
Reports on Form 8-K for the quarter ended September 30, 1994 and for the
month of October 1994:
July 25, 1994 - reported Items 5 and 7.
October 24, 1994 - reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
Date: November 9, 1994 By /s/ Joseph S. Compofelice
Joseph S. Compofelice
Vice President and
Chief Financial Officer
Date: November 9, 1994 By /s/ Dennis G. Newkirk
Dennis G. Newkirk
Vice President and Controller
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
Date: November 9, 1994 By
Joseph S. Compofelice
Vice President and
Chief Financial Officer
Date: November 9, 1994 By
Dennis G. Newkirk
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 194,086
<SECURITIES> 25,474
<RECEIVABLES> 136,008
<ALLOWANCES> 3,561
<INVENTORY> 167,812
<CURRENT-ASSETS> 561,101
<PP&E> 850,285
<DEPRECIATION> 441,169
<TOTAL-ASSETS> 1,237,564
<CURRENT-LIABILITIES> 255,984
<BONDS> 790,990
<COMMON> 8,355
0
0
<OTHER-SE> (303,573)
<TOTAL-LIABILITY-AND-EQUITY> 1,237,564
<SALES> 664,162
<TOTAL-REVENUES> 664,162
<CGS> 493,914
<TOTAL-COSTS> 493,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 334
<INTEREST-EXPENSE> 63,059
<INCOME-PRETAX> (13,655)
<INCOME-TAX> 12,204
<INCOME-CONTINUING> (26,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,479)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
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