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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 {Fee Required} - For the fiscal year ended December 31, 1993
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)
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New Jersey 13-5267260
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 North Sam Houston Parkway East, Houston, Texas 77032
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 987-5000
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Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Name of each exchange on
Title of each class which registered
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Common stock ($.125 par value) New York Stock Exchange
Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None.
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. { }
As of February 28, 1994, 50,889,943 shares of common stock were outstanding.
The aggregate market value of the 17,037,953 shares of voting stock held by
nonaffiliates as of such date approximated $151 million.
Documents incorporated by reference:
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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PART I
ITEM 1. BUSINESS
GENERAL
NL Industries, Inc., organized as a New Jersey corporation in 1891,
conducts its operations through its principal wholly-owned subsidiaries,
Kronos, Inc. and Rheox, Inc. At December 31, 1993, Valhi, Inc. held
approximately 49% of NL's outstanding stock and Tremont Corporation, a
48%-owned affiliate of Valhi, held an additional 18% of NL's outstanding common
stock. Contran Corporation holds, directly or through subsidiaries,
approximately 90% of Valhi's outstanding common stock. All of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons of which Mr. Simmons is the
sole trustee. Mr. Simmons, the Chairman of the Board of each of Contran, Valhi
and NL and a director of Tremont, may be deemed to control each of such
companies. NL and its consolidated subsidiaries are sometimes referred to
herein collectively as the "Company".
Kronos is the world's fourth largest producer of titanium dioxide
pigments ("TiO2") with an estimated 11% share of the worldwide market.
Approximately one-half of Kronos' 1993 sales volume was in Europe, where Kronos
is the second largest producer of TiO2. Kronos accounted for 87% of the
Company's sales and 58% of its operating income in 1993. Rheox is the world's
largest producer of rheological additives for solvent-based systems, supplying
an estimated 40% of the worldwide market.
KRONOS
INDUSTRY
Titanium dioxide pigments are chemical products used for imparting
whiteness, brightness and opacity to a wide range of products, including
paints, paper, plastics, fibers and ceramics. TiO2 is considered to be a
"quality-of-life" product with demand affected by the gross domestic product in
various regions of the world.
Demand, supply and pricing of TiO2 have historically been cyclical and
the last cyclical peak for TiO2 prices occurred in early 1990. While prices
for TiO2 are currently depressed, the Company believes that the TiO2 industry
has significant long-term potential. However, the Company expects that the
TiO2 industry will continue to operate at lower capacity utilization levels
over the next few years relative to the high utilization levels prevalent
during the late 1980s, primarily because of the slow recovery from the
worldwide recession and the impact of capacity additions since the late 1980s.
The economic recovery has been particularly slow in Europe where a significant
portion of the Company's TiO2 manufacturing facilities are located. Kronos has
an estimated 17% share of European TiO2 sales and an estimated 9% share of U.S.
TiO2 sales. Consumption per capita in the United States and Western Europe far
exceeds that in other areas of the world and these regions are expected to
continue to be the largest geographic markets for TiO2 consumption. However,
if the economies in Eastern Europe, the Far East and China continue to develop,
a significant market for TiO2 could emerge in those countries and Kronos
believes that it is well positioned to participate in the Eastern European
market.
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PRODUCTS AND OPERATIONS
The Company believes that there are no effective substitutes for TiO2.
However, extenders such as kaolin clays, calcium carbonate and polymeric
opacifiers are used in a number of Kronos' markets. Generally, extenders are
used to reduce to some extent the utilization of higher cost TiO2. The use of
extenders has not significantly affected TiO2 consumption over the past decade
because extenders generally have, to date, failed to match the performance
characteristics of TiO2. The Company believes that the use of extenders will
not materially alter the growth of the TiO2 business in the foreseeable future.
Kronos currently produces over 40 different TiO2 grades, sold under the
Kronos and Titanox trademarks, which provide a variety of performance
properties to meet customers' specific requirements. Kronos' major customers
include international paint, paper and plastics manufacturers.
Kronos is one of the world's leading producers and marketers of TiO2.
Kronos and its distributors and agents sell and provide technical services for
its products to over 5,000 customers with the majority of sales in Europe, the
United States and Canada.
Kronos' international operations are conducted through Kronos
International, Inc. ("KII"), a German-based holding company formed in 1989 to
manage and coordinate the Company's manufacturing operations in Germany,
Canada, Belgium and Norway and its sales and marketing activities in over 100
countries worldwide. The Company believes that KII's structure allows it to
capitalize on expertise and technology developed in Germany over a 60-year
period.
Kronos and its predecessors have produced and marketed TiO2 in North
America and Europe for over 70 years. As a result, Kronos believes that it has
developed considerable expertise and efficiency in the manufacture, sale,
shipment and service of its products in domestic and international markets. By
volume, one-half of Kronos' 1993 TiO2 sales were to Europe, with 38% to North
America and the balance to export markets.
Kronos is also engaged in the mining and sale of ilmenite ores (a raw
material used in the sulfate pigment production process), and the manufacture
and sale of iron-based water treatment chemicals (derived from co-products of
the pigment production processes). Water treatment chemicals are used as
treatment and conditioning agents for industrial effluents and municipal
wastewater and in the manufacture of iron pigments.
MANUFACTURING PROCESS AND RAW MATERIALS
TiO2 is manufactured by Kronos using either the chloride or sulfate
pigment production process. Although most end-use applications can use
pigments produced by either process, chloride process pigments are generally
preferred in certain segments of the coatings and plastics applications, and
sulfate process pigments are generally preferred for paper, fibers and ceramics
applications. Due to environmental factors and customer considerations, the
proportion of TiO2 industry sales represented by chloride process pigments has
increased relative to sulfate process pigments. Approximately two-thirds of
Kronos' current production capacity is based on an efficient chloride process
technology.
Kronos produced approximately 352,000 metric tons of TiO2 in 1993,
compared to approximately 358,000 metric tons in 1992 and 293,000 metric tons
in 1991. The increase in production during 1992 was primarily at Kronos'
chloride process
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plants, including the plant in Lake Charles, Louisiana. Kronos achieved record
production levels of chloride process pigments in 1992 through improved
operational efficiencies. In response to weakened demand, production rates
were reduced in late 1992 and during 1993 in order to reduce inventory levels.
Kronos believes its annual attainable production capacity is approximately
380,000 metric tons, including its one- half interest in the Louisiana plant.
The primary raw materials used in the TiO2 chloride production process
are chlorine, coke and titanium-containing feedstock derived from beach sand
ilmenite and rutile. Chlorine and coke are available from a number of
suppliers. Titanium-containing feedstock suitable for use in the chloride
process is available from a limited number of suppliers around the world,
principally in Australia, Africa, India and the United States. Kronos
purchases slag refined from beach sand ilmenite from Richards Bay Iron and
Titanium (Proprietary) Ltd. (South Africa), approximately 50% of which is owned
by Q.I.T. Fer et Titane Inc. ("QIT"), an indirect subsidiary of RTZ Corp.
Natural rutile ore is purchased from a number of sources.
The primary raw materials used in the TiO2 sulfate production process
are sulfuric acid and titanium-containing feedstock derived primarily from rock
and beach sand ilmenite. Sulfuric acid is available from a number of
suppliers. Titanium-containing feedstock suitable for use in the sulfate
process is available from a limited number of suppliers around the world.
Currently, the principal active sources are located in Norway, Canada,
Australia, India and South Africa. As one of the few vertically-integrated
producers of sulfate process pigments, Kronos operates a rock ilmenite mine
near Hauge i Dalane, Norway, which provided all of Kronos' feedstock for its
European sulfate process pigment plants in 1993. Kronos' mine is also a
commercial source of rock ilmenite for other sulfate process producers in
Europe supplying, the Company believes, nearly 40% of the European demand,
including the Company, for sulfate feedstock. Additionally, Kronos purchases
sulfate grade slag under contracts negotiated annually with QIT and Tinfos
Titanium and Iron K/S.
Kronos believes the availability of titanium-containing feedstock for
both the chloride and sulfate processes is adequate in the near term; however,
tightening supplies for the chloride process may be encountered in the late
1990s. Kronos does not anticipate experiencing any interruptions of its raw
material supplies.
TIO2 MANUFACTURING JOINT VENTURE
In October 1993, Kronos formed a manufacturing joint venture with
Tioxide Group, Ltd., a wholly-owned subsidiary of Imperial Chemicals Industries
PLC ("Tioxide"). The joint venture, which is equally owned by subsidiaries of
Kronos and Tioxide (the "Partners"), owns and operates the Louisiana chloride
process TiO2 plant formerly owned by Kronos. Under the terms of the joint
venture and related agreements, Kronos contributed the plant to the joint
venture, Tioxide paid an aggregate of approximately $205 million, including its
tranche of the joint venture debt, and Kronos and certain of its
subsidiaries exchanged proprietary chloride process and product technologies
with Tioxide and certain of its affiliates. Of the total consideration paid
by Tioxide, $30 million was attributable to the exchange of technologies and
is being reported as a component of operating income ratably over three years
beginning in October 1993. Production from the plant is being shared equally
by Kronos and Tioxide pursuant to separate offtake agreements. The formation
of the manufacturing joint venture resulted in a 12% decrease in Kronos' total
TiO2 production capacity; however, Kronos' remaining capacity is 10% higher
than 1993 sales volume, and is believed to be sufficient to provide Kronos with
the
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capability to meet current market requirements and continue its worldwide
presence in future years.
A supervisory committee, composed of four members, two of whom are
appointed by each Partner, directs the business and affairs of the joint
venture, including production and output decisions. Two general managers, one
appointed and compensated by each Partner, manage the day- to-day operations of
the joint venture acting under the direction of the supervisory committee.
Upon formation, the joint venture obtained $216 million in new financing
consisting of two equal tranches, one attributable to each Partner, which is
serviced through the purchase of the plant's TiO2 output in equal quantities by
the Partners. The Partners are each required to make capital contributions to
the joint venture to pay principal on their respective portion of the joint
venture indebtedness. Kronos' pro rata share of the joint venture debt is
reflected as outstanding indebtedness of the Company because Kronos has
guaranteed the purchase obligation relative to the debt service of its tranche.
The manufacturing joint venture is intended to be operated on a
break-even basis and, accordingly, Kronos' transfer price for its share of the
TiO2 produced is equal to its share of the joint venture's operating expenses
(fixed and variable costs of production and interest expense). Kronos' share
of the fixed and variable production costs are reported as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the
joint venture's interest expense is reported as a component of interest
expense.
COMPETITION
The TiO2 industry is highly competitive. During the late 1980s
worldwide demand approximated available supply and the major producers,
including Kronos, were operating at or near available capacity. In the past
few years, supply has exceeded demand, in part due to new chloride process
capacity coming on-stream. Relative supply/demand relationships, which had a
favorable impact on industry-wide prices during the late 1980s, have had a
negative impact since prices peaked in early 1990. Worldwide capacity
additions in the TiO2 market are slow to develop because of the significant
capital expenditures and substantial lead time (typically three to five years
in the Company's experience) for, among other things, planning, obtaining
environmental approvals and construction.
Kronos competes primarily on the basis of price, product quality and
technical service, and the availability of high performance pigment grades.
Although certain TiO2 grades are considered specialty pigments, the majority of
grades and substantially all of Kronos' production are considered commodity
pigments with price generally being the most significant competitive factor.
Kronos has an estimated worldwide TiO2 market share of 11%, and believes that
it is the leading marketer of TiO2 in a number of countries, including Germany
and Canada.
Kronos' principal competitors are E.I. du Pont de Nemours & Co.
("DuPont"); Imperial Chemical Industries PLC (Tioxide); Hanson PLC (SCM
Chemicals); Kemira Oy; Bayer AG; and Ishihara Sangyo Kaisha, Ltd.. These six
competitors have estimated individual worldwide market shares ranging from 5%
to 21%, and an estimated aggregate 65% share. DuPont has over one-half of
total U.S. TiO2 production capacity and is Kronos' principal North American
competitor.
Kronos has substantially completed a major environmental protection and
improvement program commenced in the early 1980s to replace or modify its
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European TiO2 production facilities for compliance with various environmental
laws by their respective effective dates. All of Kronos' European plants now
use either the low-waste yielding chloride process, or the sulfate process with
reprocessing or neutralization of waste acid. Kronos has commenced
construction of a $25 million waste acid neutralization facility for its
Canadian sulfate process TiO2 plant, which is expected to be completed in
mid-1994. Although these upgrades increased operating costs, they are expected
to reduce future capital expenditures that Kronos would otherwise need to incur
as environmental standards are increased. The Company believes that certain
competitors have not upgraded their facilities and are expected to do so in the
future or be forced to curtail production due to lack of environmental
compliance. See "Regulatory and Environmental Matters".
RHEOX
PRODUCTS AND OPERATIONS
Rheological additives control the flow and leveling characteristics for
a variety of products, including paints, inks, lubricants, sealants, adhesives
and cosmetics. Organoclay rheological additives are clays which have been
chemically reacted with organic chemicals and compounds. Rheox produces
rheological additives for both solvent-based and water-based systems. Rheox is
the world's largest producer of rheological additives for solvent-based
systems, supplying, the Company believes, approximately 40% of the worldwide
market, and is also a supplier of rheological additives used in water-based
systems. Rheological additives for solvent-based systems accounted for
approximately 90% of Rheox's sales in 1993, with the remainder being
principally rheological additives for water-based systems. Rheox introduced a
number of new products during the past three years, many of which are for
water-based systems, which currently represent a larger portion of the market
than solvent-based systems and which the Company believes, in the long term,
will account for an increasing portion of the market. Rheox also focused on
product development for environmental applications with new products introduced
for de-inking recycled paper and soil stabilization at contaminated sites.
Sales of rheological additives generally follow overall economic growth
in Rheox's principal markets and are influenced by the volume of shipments of
the worldwide coatings industry. Since Rheox's rheological additives are also
used in industrial coatings, plant and equipment spending also has an influence
on demand for this product line.
MANUFACTURING PROCESS AND RAW MATERIALS
The primary raw materials utilized in the production of rheological
additives are bentonite clays, hectorite clays, quaternary amines, polyethylene
waxes and castor oil derivatives. Bentonite clays are currently purchased
under a three-year contract, renewable through 2004, with a subsidiary of
Dresser Industries, Inc. ("Dresser"), which has significant bentonite reserves
in Wyoming. This contract assures Rheox the right to purchase its anticipated
requirements of bentonite clays for the foreseeable future and Dresser's
reserves are believed to be sufficient for such purpose. Hectorite clays are
mined from Company-owned reserves in Newberry Springs, California, which the
Company believes are adequate to supply its needs for the foreseeable future.
The Newberry Springs ore body contains the largest known commercial deposit of
hectorite clays in the world. Quaternary amines are purchased primarily from a
joint venture company 50%-owned by Rheox and are also generally available on
the open market from a number of suppliers. Castor oil-based rheological
additives
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are purchased from sources in the United States and abroad. Rheox has a supply
contract with a manufacturer of these products which may not be terminated
without 180 days notice by either party.
COMPETITION
Competition in the specialty chemicals industry is generally
concentrated in the areas of product uniqueness, quality and availability,
technical service, knowledge of end-use applications and price. Rheox's
principal competitors for rheological additives for solvent-based systems are
Laporte PLC, Sud-Chemie AG and Akzo NV. Rheox's principal competitors for
water-based systems are Rohm and Haas Company, Hercules Incorporated, The Dow
Chemical Company and Union Carbide Corporation.
RESEARCH AND DEVELOPMENT
The Company's annual expenditures for research and development and
technical support programs have averaged approximately $10 million annually
during the past three years with Kronos accounting for approximately
three-quarters of the annual total. Research and development activities
related to TiO2 are conducted principally at the Leverkusen, Germany facility.
Such activities are directed primarily toward improving both the chloride and
sulfate production processes, improving product quality and strengthening
Kronos' competitive position by developing new pigment applications.
Activities relating to rheological additives are conducted primarily in the
United States and are directed towards the development of new products for
water-based systems, environmental applications and new end-use applications
for existing product lines.
PATENTS AND TRADEMARKS
Patents held for products and production processes are believed to be
important to the Company and contribute to the continuing business activities
of Kronos and Rheox. The Company continually seeks patent protection for its
technical developments, principally in the United States, Canada and Europe,
and from time to time enters into licensing arrangements with third parties.
In connection with the formation of the manufacturing joint venture with
Tioxide, Kronos and certain of its subsidiaries exchanged proprietary chloride
process and product technologies with Tioxide and certain of its affiliates.
Use by each recipient of the other's technology in Europe is restricted until
October 1996. See "Kronos - TiO2 manufacturing joint venture".
The Company's major trademarks, including Kronos, Titanox and Rheox, are
protected by registration in the United States and elsewhere with respect to
those products it manufactures and sells.
FOREIGN OPERATIONS
The Company's chemical businesses have operated in international markets
since the 1920s. Most of Kronos' current production capacity is located in
Europe and Canada, and approximately one-third of Rheox's sales in the past
three years have been attributable to European production. Approximately
three-quarters of the Company's 1993 consolidated sales were attributable to
non-U.S. customers, including 12% attributable to customers in areas other than
Europe and Canada. See Note 3 to the Consolidated Financial Statements.
Political and economic uncertainties in certain of the countries in
which the Company operates may expose it to risk of loss. The Company does not
believe
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that there is currently any likelihood of material loss through political or
economic instability, seizure, nationalization or similar event. The Company
cannot predict, however, whether events of this type in the future could have a
material effect on its operations. NL's manufacturing and mining operations
are also subject to extensive and diverse environmental regulation in each of
the foreign countries in which they operate. See "Regulatory and Environmental
Matters".
CUSTOMER BASE AND SEASONALITY
The Company believes that neither its aggregate sales nor those of any
of its principal product groups are concentrated in or materially dependent
upon any single customer or small group of customers. Neither the Company's
business as a whole nor that of any of its principal product groups is seasonal
to any significant extent. Due in part to the increase in paint production in
the spring to meet the spring and summer painting season demand, TiO2 sales are
generally higher in the second and third calendar quarters than in the first
and fourth calendar quarters. Sales of rheological additives are influenced by
the worldwide industrial protective coatings industry, where second calendar
quarter sales are generally the strongest.
EMPLOYEES
As of December 31, 1993, the Company employed approximately 3,200
persons, excluding the joint venture employees, with approximately 400
employees in the United States and approximately 2,800 at sites outside the
United States. Hourly employees in production facilities worldwide are
represented by a variety of labor unions, with labor agreements having various
expiration dates. The Company believes its labor relations are good.
REGULATORY AND ENVIRONMENTAL MATTERS
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As
with other companies engaged in similar businesses, certain past and current
operations and products of the Company have the potential to cause
environmental or other damage. The Company has implemented and continues to
implement various policies and programs in an effort to minimize these risks.
The policy of the Company is to achieve compliance with applicable
environmental laws and regulations at all its facilities and to strive to
improve environmental performance. It is possible that future developments,
such as stricter requirements of environmental laws and enforcement policies
thereunder, could affect the Company's production, handling, use, storage,
transportation, sale or disposal of such substances.
The Company's U.S. manufacturing operations are governed by federal
environmental and worker health and safety laws and regulations, principally
the Resource Conservation and Recovery Act, the Occupational Safety and Health
Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Toxic Substances Control Act and the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), as well as the state counterparts of these
statutes. The Company believes that all of its U.S. plants and the Louisiana
plant owned and operated by the joint venture are in substantial compliance
with applicable requirements of these laws. From time to time, the Company's
facilities may be subject to environmental regulatory enforcement under such
statutes. Resolution of such
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matters typically involves the establishment of compliance programs.
Occasionally, resolution may result in the payment of penalties, but to date
such penalties have not involved amounts having a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
The Company's European and Canadian production facilities operate in an
environmental regulatory framework in which governmental authorities typically
are granted broad discretionary powers which allow them to issue operating
permits required for the plants to operate. The Company believes all its
European plants are in substantial compliance with applicable environmental
laws.
While the laws regulating operations of industrial facilities in Europe
vary from country to country, a common regulatory denominator is provided by
the European Union (the "EU"). Germany, Belgium and the United Kingdom,
members of the EU, follow the initiatives of the EU. Norway, although not a
member, generally patterns its environmental regulatory actions after the EU.
The Company believes Kronos is in substantial compliance with agreements
reached with European environmental authorities and with an EU directive to
control the effluents produced by TiO2 production facilities. The Company
believes Rheox is in substantial compliance with the environmental regulations
in Germany and the United Kingdom.
In order to reduce sulfur dioxide emissions into the atmosphere, Kronos
is installing off-gas desulfurization systems at its German plants at an
estimated cost of $24 million. The manufacturing joint venture is installing
an off-gas desulfurization system at the Louisiana plant at an estimated cost
of $15 million. The German systems are scheduled to be completed in 1996 and
the Louisiana system is scheduled for completion in 1995.
Kronos' ilmenite mine near Hauge i Dalane had a permit for the offshore
disposal of tailings through February 1994. In February 1994, Kronos completed
the $15 million onshore disposal system to replace the offshore disposal of
tailings. Onshore disposal will result in a modest increase in the mine's
operating costs.
The Quebec provincial government is an environmental regulatory body
with authority over Kronos' Canadian TiO2 production facilities in Varennes,
Quebec, which currently consist of plants utilizing both the chloride and
sulfate process technologies. The provincial government regulates discharges
into the St. Lawrence River. In May 1992, the Quebec provincial government
extended Kronos' right to discharge effluents from its Canadian sulfate process
TiO2 plant into the St. Lawrence River until June 1994, at which time Kronos'
new $25 million waste acid neutralization facility is expected to be completed.
In January 1993, the Quebec provincial government granted a permit to Kronos to
construct the facility and established the future permit parameters, which
Kronos will be required to meet upon completion of the facility.
Notwithstanding the above-described agreement, in March 1993 Kronos'
Canadian subsidiary and two of its directors were charged by the Canadian
federal government with five violations of the Canadian Fisheries Act relating
to discharges into the St. Lawrence River from the Varennes sulfate process
TiO2 production facility. The penalty for these violations, if proven, could
be up to Canadian $15 million. Additional charges, if brought, could involve
additional penalties. The Company has moved to dismiss the case on
constitutional grounds. The Company believes that this charge is inconsistent
with the extension granted by provincial authorities, referred to above.
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The Company's future capital expenditures related to its ongoing
environmental protection and improvement program are currently expected to be
approximately $75 million, including $30 million in 1994.
The Company has been named as a defendant, PRP, or both, pursuant to
CERCLA and similar state laws, in approximately 80 governmental enforcement and
private actions associated with waste disposal sites and facilities currently
or previously owned, operated or used by the Company, many of which are on the
U.S. Environmental Protection Agency's Superfund National Priorities List or
similar state lists. See Item 3 - "Legal Proceedings".
ITEM 2. PROPERTIES
Kronos currently operates four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany; Langerbrugge, Belgium; and Fredrikstad, Norway), a facility
in Varennes, Quebec, Canada and through the manufacturing joint venture
described above, a one-half interest in a plant in Lake Charles, Louisiana
which commenced production in 1992. Prior to October 1993, Kronos owned all of
the Louisiana plant.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement, which expired in 1991 and to which an
extension through 2011 has been agreed in principle, the lessor provides some
raw materials, auxiliary and operating materials and utilities services
necessary to operate the Leverkusen facility. Kronos and the lessor are
continuing discussions regarding a definitive agreement for the extension of
the supplies and services agreement. Both the lease and the supplies and
services agreement restrict Kronos' ability to transfer ownership or use of the
Leverkusen facility.
All of Kronos' principal production facilities described above are
owned, except for the land under the Leverkusen facility. Kronos has a
governmental concession through 2007 to operate its ilmenite mine in Norway.
Specialty chemicals are produced by Rheox at facilities in Charleston,
West Virginia; Newberry Springs, California; St. Louis, Missouri; Livingston,
Scotland and Nordenham, Germany. All of such production facilities are owned.
ITEM 3. LEGAL PROCEEDINGS
LEAD PIGMENT LITIGATION
The Company was formerly involved in the manufacture of lead pigments
for use in paint and lead-based paint. The Company has been named as a
defendant or third party defendant in various legal proceedings alleging that
the Company and other manufacturers are responsible for personal injury and
property damage allegedly associated with the use of lead pigments. The
Company is vigorously defending such litigation. Considering the Company's
previous involvement in the lead pigment and lead-based paint businesses, there
can be no assurance that additional litigation, similar to that described
below, will not be filed. 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
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to (a) 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 (b) effectively overturn court
decisions in which the Company and other pigment manufacturers have been
successful. One such bill that would subject lead pigment manufacturers to
civil liability for damages caused by lead- based paint on the basis of market
share, and extends certain statutes of limitations, passed the Massachusetts
House of Representatives in 1993. The same bill has been reintroduced in the
Massachusetts legislature in 1994. No legislation or regulations have been
enacted to date which are expected to have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company has not accrued any amounts for the pending lead pigment
litigation. Although no assurance can be given that the Company will not incur
future liability in respect of this litigation, based on, among other things,
the results of such litigation to date, the Company believes that the pending
lead pigment litigation is without merit. Any liability that may result is not
reasonably capable of estimation.
In 1987, an action was filed against the Company and other defendants
for injuries allegedly caused by lead pigment purportedly supplied by the
defendants (Spriggs v. Sherwin-Williams, et al., No. LE3121-5-87 Housing Court
of Massachusetts, Hampden County). The complaint sought compensatory and
punitive damages for alleged negligent product design, failure to warn, breach
of warranty, and concert of action from the Company, other alleged
manufacturers of lead pigment (together with the Company, the "pigment
manufacturers") and the Lead Industries Association (the "LIA"). In November
1993, a stipulation of dismissal with prejudice was filed with the court.
In July 1992, the Company was served with a complaint entitled Boston
Housing Authority v. Sherwin-Williams Company, C.A. No. 92-10624- Y, United
States District Court for the District of Massachusetts. The complaint
asserted a claim for contribution from the Company, other pigment manufacturers
and the LIA based on their alleged negligence in product design, manufacture
and distribution; negligent failure to warn; breach of warranty; aiding and
abetting; and conspiracy. The plaintiff sought contribution to its $1.45
million cost of settling a claim by an individual who was allegedly injured by
exposure to lead pigment in the period from 1973 to 1977. In November 1993,
the parties filed a stipulation of dismissal with prejudice with the court.
In November and December 1990, the Company and others were served with
third-party complaints in actions entitled Coren, et al. v. Cardozo v.
Sherwin-Williams, et al. (No. 29101) and Pacheco, et al. v. Ortiz v. The
Sherwin-Williams Company, et al. (No. 90-3067-B) in the Housing Court of
Massachusetts, Suffolk County. The third-party complaints against the pigment
manufacturers and the LIA contain allegations similar to those in the Spriggs
action and also seek contribution and indemnification for any relief awarded to
plaintiffs. In Coren, the third-party defendants removed the case to federal
court. In 1992, the federal court dismissed the direct claims and remanded the
indemnification and contribution claims to the housing court. Thereafter, the
housing court granted the third-party defendants' motion to stay discovery,
pending trial on the main action. The Company has answered the third-party
complaint, denying all allegations of wrongdoing. In Pacheco, plaintiffs
settled with the defendant landlords for less than $100,000. The third-party
claims are in discovery. Third-party plaintiffs have proposed a stay of this
matter pending the outcome of the appeal in another personal injury action,
which was thereafter resolved in the Company's favor.
In October 1991, the Company and others were served with a third-party
- 10 -
<PAGE> 12
complaint by the owner of the plaintiff's apartment in an action entitled
Barros v. Pires v. Sherwin-Williams Co., et al., (Civ. No. 01011), in the
Housing Court of Massachusetts, Suffolk County. The third party complaint
against the pigment manufacturers and the LIA alleges negligent product design,
negligent failure to warn, breach of warranty, aiding and abetting, and concert
of action, and also seeks contribution and indemnification for any relief
awarded to plaintiff for damages allegedly suffered due to exposure to
lead-based paint. In May 1992, the court granted the third-party defendants'
motion to dismiss. In June 1992, the third-party plaintiffs moved for
reconsideration or for reversal of the dismissal.
In 1989 and 1990, the Housing Authority of New Orleans ("HANO") filed
third-party complaints for indemnity and/or contribution against the pigment
manufacturers and the LIA in 14 actions commenced by residents of HANO units
seeking compensatory and punitive damages for injuries allegedly caused by lead
pigment. The actions are pending in the Civil District Court for the Parish of
Orleans, State of Louisiana. Subsequently, HANO agreed to dismiss all such
complaints and to consolidate them for purposes of appeal. In March 1992, the
Louisiana Court of Appeals, Fourth Circuit, dismissed HANO's appeal as untimely
with respect to three of these cases. With respect to the other eight cases
also included in the appeal, the court of appeals reversed the lower court
decision dismissing the cases due to inadequate pleading of facts. These eight
cases have been remanded to the district court for further proceedings.
Discovery is proceeding.
In December 1991, the Company received a copy of a complaint filed in
the Civil District Court for the Parish of Orleans seeking indemnification
and/or contribution against the Company and eight other defendants for
approximately $4.5 million in settlements paid to Housing Authority residents
(Housing Authority of New Orleans v. Hoechst Celanese Corp., et al., No.
91-28067). These claims appear to be based upon the same theories which HANO
had previously filed. The Company has not been served.
In June 1989, a complaint was filed in the Supreme Court of the State of
New York, County of New York, against the pigment manufacturers and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess
of $50 million for monitoring and abating alleged lead paint hazards in public
and private residential buildings, diagnosing and treating children allegedly
exposed to lead paint in city buildings, the costs of educating city residents
to the hazards of lead paint, and liability in personal injury actions against
the City and the Housing Authority based on alleged lead poisoning of city
residents (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., No. 89-4617). In December 1991, the court granted the defendants'
motion to dismiss claims alleging negligence and strict liability and denied
the remainder of the motion. In January 1992, defendants appealed the denial.
The Company has answered the remaining portions of the complaint denying all
allegations of wrongdoing, and the case is in discovery. In December 1992,
plaintiffs filed a motion to stay the claims of the City of New York and the
New York City Health and Hospitals Corporation pending resolution of the
Housing Authority's claim. In May 1993, the Appellate Division of the Supreme
Court affirmed the denial of the motion to dismiss plaintiffs' fraud,
restitution, conspiracy and concert of action claims. In August 1993, the
defendants' motion for leave to appeal was denied. Discovery is proceeding.
In March 1992, the Company was served with a complaint in Skipworth v.
- 11 -
<PAGE> 13
Sherwin-Williams Co., et al. (No. 92-3069), Court of Common Pleas, Philadelphia
County. Plaintiffs are a minor and her legal guardians seeking damages from
lead paint and pigment producers, the LIA, the PHA and the owners of the
plaintiffs' premises for bodily injuries allegedly suffered by the minor from
lead-based paint. Plaintiffs' counsel asserted that approximately 200 similar
complaints would be served shortly, but no such complaints have yet been
served. Defendants moved to dismiss various claims, but the court dismissed
only the claim for loss of consortium. Defendants answered the complaint
denying allegations of wrongdoing. The case is in discovery.
In August 1992, the Company was named as a defendant and served with an
amended complaint in Jackson, et al. v. The Glidden Co., et al., Court of
Common Pleas, Cuyahoga County, Cleveland, Ohio (Case No. 236835). Plaintiffs
seek compensatory and punitive damages for personal injury caused by the
ingestion of lead, and an order directing defendants to abate lead-based paint
in buildings. Plaintiffs purport to represent a class of similarly situated
persons throughout the State of Ohio. The amended complaint identifies 18
other defendants who allegedly manufactured lead products or lead-based paint,
and asserts causes of action under theories of strict liability, negligence per
se, negligence, breach of express and implied warranty, fraud, nuisance,
restitution, and negligent infliction of emotional distress. The complaint
asserts several theories of liability including joint and several, market
share, enterprise and alternative liability. In October 1992, the Company and
the other defendants moved to dismiss the complaint with prejudice. In July
1993, the court dismissed the complaint. In September 1993, the plaintiffs
appealed.
In November 1993, the Company was served with a complaint in Brenner, et
al. v. American Cyanamid, et al., Supreme Court, State of New York, Erie County
alleging injuries to two children purportedly caused by lead pigment. The
complaint seeks $24 million in compensatory and $10 million in punitive damages
for alleged negligent failure to warn, strict products liability, fraud and
misrepresentation, concert of action, civil conspiracy, enterprise liability,
market share liability, and alternative liability. In January 1994, the
Company answered the complaint, denying liability.
The Company believes that the foregoing lead pigment actions are without
merit and intends to continue to deny all allegations of wrongdoing and
liability and to defend such actions vigorously.
The Company has filed declaratory judgment actions against various
insurance carriers seeking costs of defense and indemnity coverage for certain
of its environmental and lead pigment litigation. NL Industries, Inc. v.
Commercial Union Insurance Cos., et al., Nos. 90-2124, -2125 (HLS). In May
1990, the Company filed an action in the United States District Court for the
District of New Jersey against Commercial Union Insurance Company ("Commercial
Union") seeking to recover defense costs incurred in the City of New York lead
pigment case and two other cases which have since been resolved in the
Company's favor. In July 1991, the court granted the Company's motion for
summary judgment and ordered Commercial Union to pay the Company's reasonable
defense costs for such cases. In June 1992, the Company filed an amended
complaint in the United States District Court for the District of New Jersey
against Commercial Union seeking to recover costs incurred in defending four
additional lead pigment cases which have since been resolved in the Company's
favor. In August 1993, the court granted the Company's motion for summary
judgment and ordered Commercial Union to pay the reasonable costs of defending
those cases. The court has not made any rulings on defense costs or indemnity
coverage with respect to the Company's pending environmental litigation or on
indemnity coverage in the lead pigment
- 12 -
<PAGE> 14
litigation. No trial dates have been set. Other than rulings to date, the
issue of whether insurance coverage for defense costs or indemnity or both will
be found to exist depends upon a variety of factors, and there can be no
assurance that such insurance coverage will exist in other cases. The Company
has not included amounts in any accruals in anticipation of insurance coverage
for lead pigment or environmental litigation.
ENVIRONMENTAL MATTERS AND LITIGATION
The Company has been named as a defendant, PRP, or both, pursuant to
CERCLA and similar state laws in approximately 80 governmental and private
actions associated with waste disposal sites and facilities currently or
previously owned, operated or used by the Company, or its subsidiaries, or
their predecessors, many of which are on the U.S. Environmental Protection
Agency's ("U.S. EPA") Superfund National Priorities List or similar state
lists. These proceedings seek cleanup costs, damages for personal injury or
property damage, or both. Certain of these proceedings involve claims for
substantial amounts. Although the Company may be jointly and severally liable
for such costs, in most cases, it is only one of a number of PRPs who are also
jointly and severally liable. In addition to the matters noted above, certain
current and former facilities of the Company, including several divested
secondary lead smelter and former mining locations, are the subject of
environmental investigations or litigation arising out of industrial waste
disposal practices and mining activities.
The extent of CERCLA liability cannot be determined until the Remedial
Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA issues a
record of decision and costs are allocated among PRPs. The extent of liability
under analogous state cleanup statutes and for common law equivalents are
subject to similar uncertainties. The Company believes it has provided
adequate accruals for reasonably estimable costs for CERCLA matters and other
environmental liabilities. At December 31, 1993, the Company had accrued $70
million in respect of those environmental matters which are reasonably
estimable. The Company determines the amount of accrual on a quarterly basis
by analyzing and estimating the range of possible costs to the Company. Such
costs include, among other things, remedial investigations, monitoring,
studies, clean-up, removal and remediation. 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 $105 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. The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs,
or a determination that the Company is potentially responsible for the release
of hazardous substances at other sites could result in expenditures in excess
of amounts currently estimated by the Company to be required for such matters.
Further, there can be no assurance that additional environmental matters will
not arise in the future. More detailed descriptions of certain legal
proceedings relating to environmental matters are set forth below.
The Company has been identified as a PRP by the U.S. EPA because of its
former ownership of three secondary lead smelters (battery recycling plants) in
Pedricktown, New Jersey; Granite City, Illinois; and Portland, Oregon. In all
three matters, the Company voluntarily entered into administrative consent
orders
- 13 -
<PAGE> 15
with the U.S. EPA requiring the performance of a RIFS, a study with the
objective of identifying the nature and extent of the hazards, if any, posed by
the sites, and selecting a remedial action, if necessary.
At Pedricktown, the U.S. EPA divided the site into two operable units.
Operable unit one covers contaminated ground water, surface water, soils and
stream sediments. The Company submitted the final RIFS for operable unit one
to the U.S. EPA in May 1993. In July 1993, the U.S. EPA issued the proposed
remediation plan for operable unit one, which the U.S. EPA estimates will cost
approximately $24.5 million. In addition, the U.S. EPA proposed that a removal
action be performed on the soils and sediments of a stream at the site,
estimated to cost approximately $1.3 million. The U.S. EPA has not yet issued
the record of decision. The U.S. EPA issued a Unilateral Administrative Order
(Index No. II-CERCLA 20205) with respect to operable unit two in March 1992 to
the Company and 30 other PRPs directing immediate removal activities including
the cleanup of waste, surface water and building surfaces. The Company has
agreed to pay approximately 50% of the operable unit two costs, up to $2.5
million.
At Granite City, the RIFS is complete, and the U.S. EPA selected a
remedy estimated to cost approximately $28 million. In July 1991, the United
States filed an action in the U.S. District Court for the Southern District of
Illinois against the Company and others (United States of America v. NL
Industries, Inc., et al., Civ. No. 91-CV 00578) with respect to the Granite
City smelter. The complaint seeks injunctive relief to compel the defendants
to comply with an administrative order issued pursuant to CERCLA, and fines and
treble damages for the alleged failure to comply with the order. The Company
and the other parties did not comply with the order believing that the remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and not in
accordance with law. The complaint also seeks recovery of past costs of $.3
million and a declaration that the defendants are liable for future costs.
Although the action was filed against the Company and ten other defendants,
there are 330 other PRPs who have been notified by the U.S. EPA. Some of those
notified were also respondents to the administrative order. In February 1992,
the court entered a case management order directing that the remedy issues be
tried before the liability aspects are presented. At a status conference in
January 1993, the court ordered the parties to consider the submission of
proposals to a Technical Advisory Committee, whose role would be to advise the
court as to the technical issues in the case. The government has opposed the
establishment of a Technical Advisory Committee. The court has not ruled on
the matter. The government has agreed to reopen the administrative record to
receive additional public comments on the selected remedy and the court stayed
the action until the record is again closed.
Having completed the RIFS at Portland, the Company conducted predesign
studies to explore the viability of the U.S. EPA's selected remedy pursuant to
a June 1989 consent decree captioned U.S. v. NL Industries, Inc., Civ. No.
89-408, United States District Court for the District of Oregon. Subsequent to
the completion of the predesign studies, the U.S. EPA issued notices of
potential liability to approximately 20 PRPs, including the Company, directing
them to perform the remedy, which was initially estimated to cost approximately
$17 million, exclusive of administrative and overhead costs and any additional
costs for the disposition of recycled materials from the site. In January
1992, the U.S. EPA issued unilateral administrative orders Docket No.
1091-01-10-106 to the Company and six other PRPs directing the performance of
the remedy. The Company and others have commenced performance of the remedy
and, through December 31, 1993, the Company and the PRPs had spent
approximately $5.5 million. Based upon
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<PAGE> 16
site operations to-date, the remedy is not proceeding in accordance with
engineering expectations or cost projections; therefore, the Company and the
other PRPs have met with the U.S. EPA to discuss alternative remedies.
Pursuant to an interim allocation, the Company's share of remedial costs is
approximately 50%. In November 1991, Gould Inc., the current owner of the site,
filed an action, Gould Inc. v. NL Industries, Inc., No. 91-1091, United States
District Court for the District of Oregon, against the Company for damages for
alleged fraud in the sale of the smelter, rescission of the sale, past CERCLA
response costs and a declaratory judgment allocating future response costs and
$5 million in punitive damages. The court granted Gould's motion to amend the
complaint to add additional defendants (adjoining current and former
landowners) and third party defendants (generators). The amended complaint
deletes the fraud and punitive damages claims asserted against NL; thus, the
pending action is essentially one for allocation of past and future cleanup
costs. In March 1993, the parties agreed to a case management order limiting
discovery until 1995, after which time full discovery will proceed. A trial
date has been tentatively set for September 1996.
There are several actions pending relating to alleged contamination at
other properties formerly owned or operated by the Company or its subsidiaries
or their predecessors. In one of those cases, suit was filed in November 1992
against the Company asserting claims arising out of the sale of a former
business of the Company to Exxon Chemical Company (Exxon Chemical Company v. NL
Industries, Inc., United States District Court for the Southern District of
Texas, No. H-92-3360). The action seeks contractual indemnification,
contribution under CERCLA for costs associated with the environmental
assessment and cleanup at nine properties included in the sale, a declaration
of liability for future environmental cleanup costs, and punitive damages for
fraud. Plaintiff has asserted that past and future cleanup costs, business
interruption, and asset value losses and legal and site assessment costs are
approximately $25 million. In February 1994, the court entered an order
referring the case to mediation which is to occur by April 1994.
The Company and other PRPs entered into an administrative consent order
with the U.S. EPA requiring the performance of a RIFS at two sites in Cherokee
County, Kansas, where the Company and others formerly mined lead and zinc. The
Company mined at the Baxter Springs subsite, where it is the largest viable
PRP. The final RIFS was submitted to the U.S. EPA in May 1993. The estimated
cost of proposed remedies at the Baxter Springs subsite ranges from
approximately $1 million to $28 million, plus annual operation and maintenance
costs.
In January 1989, the State of Illinois brought an action against the
Company and several other subsequent owners and operators of the former lead
oxide plant in Chicago, Illinois (People of the State of Illinois v. NL
Industries, et al., No. 88-CH-11618, Circuit Court, Cook County). The
complaint seeks recovery of $2.27 million of cleanup costs expended by the
Illinois Environmental Protection Agency, plus penalties and treble damages.
In October 1992, the Supreme Court of Illinois reversed the Appellate Division,
which had affirmed the trial court's earlier dismissal of the complaint, and
remanded the case for further proceedings. In December 1993, the trial court
denied the State's petition to reinstate the complaint, and dismissed the case
with prejudice. In February 1994, the State filed a notice of appeal.
In 1980, the State of New York commenced litigation against the Company
in connection with the operation of a plant in Colonie, New York formerly owned
by the Company. Flacke v. NL Industries, Inc., No. 1842-80 ("Flacke I") and
Flacke v. Federal Insurance Company and NL Industries, Inc., No. 3131-92
("Flacke II"), New York Supreme Court, Albany County. The plant manufactured
military and
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<PAGE> 17
civilian products from depleted uranium and was acquired from the Company by
the U.S. Department of Energy ("DOE") in 1984. Flacke I seeks penalties for
alleged violations of New York's Environmental Conservation Law, and of a
consent order entered into to resolve these alleged violations. Flacke II
seeks forfeiture of a $200,000 surety bond posted in connection with the
consent order, plus interest from February 1980. The Company denied liability
in both actions. The litigation had been inactive since 1984. In July 1993,
the State moved for partial summary judgment for approximately $1.5 million on
certain of its claims in Flacke I and for summary judgment in Flacke II. In
January 1994, the Company cross-moved for summary judgment in Flacke I and
Flacke II.
Residents in the vicinity of the Company's former Philadelphia lead
chemicals plant commenced a class action allegedly comprised of over 7,500
individuals seeking medical monitoring and damages allegedly caused by
emissions from the plant. Wagner, et al. v. Anzon and NL Industries, Inc., No.
87-4420, Court of Common Pleas, Philadelphia County. The complaint seeks
compensatory and punitive damages from the Company and the current owner of the
plant, and alleges causes of action for, among other things, negligence, strict
liability, and nuisance. A class was certified to include persons who reside,
owned or rented property, or who work or have worked within up to approximately
three- quarters of a mile from the plant from 1960 through the present. The
Company has answered the complaint, denying liability. The case is in
discovery. Residents also filed consolidated actions in the United States
District Court for the Eastern District of Pennsylvania, Shinozaki v. Anzon,
Inc. and Wagner and Antczak v. Anzon and NL Industries, Inc. Nos. 87-3441 and
87-3502. The consolidated action is a putative class action seeking CERCLA
response costs, including cleanup and medical monitoring, declaratory and
injunctive relief and civil penalties for alleged violations of the Resource
Conservation and Recovery Act ("RCRA"), and also asserting pendent common law
claims for strict liability, trespass, nuisance and punitive damages. The
court dismissed the common law claims without prejudice, dismissed two of the
three RCRA claims as against the Company with prejudice, and stayed the case
pending the outcome of the state court litigation. The trial is set for June
1994.
In July 1991, a complaint was filed in the United States District Court
for the Central District of California, United States of America v. Peter Gull
and NL Industries, Inc., Civ. No. 91-4098. The complaint seeks to recover $2
million in costs incurred by the United States in response to the alleged
release of hazardous substances into the environment from a facility located in
Norco, California, treble damages and $1.75 million in penalties for the
Company's alleged failure to comply with the U.S. EPA's administrative order
No. 88-13. The order, which alleged that the Company arranged for the
treatment or disposal of materials at the Norco site, directed the immediate
removal of hazardous substances from the site. The Company carried out a
portion of the remedy at the Norco site, but did not complete the ordered
activities because it believed they were in conflict with California law. The
Company answered the complaint denying liability. The government now claims it
expended in excess of $2.7 million for this matter. Trial was held in March
and April 1993. The judge has preliminarily indicated that the Company will be
ordered to pay response costs plus an amount which is the product of a
multiplier of 1.625 to be applied to a portion of those costs, which amount has
not yet been determined. In May 1993, the government submitted Proposed
Supplemental Findings of Fact and Conclusions of Law Regarding Response Costs
and Penalty Amount stating that the amount owed is $6.7 million. The Company's
response states that the total of recoverable response costs and penalty is
$6.4 million. The Court has not yet entered final judgment in this matter.
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<PAGE> 18
At a municipal and industrial waste disposal site in Batavia, New York,
the Company and six others have been identified as PRPs. The U.S. EPA has
divided the site into two operable units. Pursuant to an administrative
consent order entered into with the U.S. EPA, the Company is conducting a RIFS
for operable unit one, the closure of the industrial waste disposal section of
the landfill. The Company's RIFS costs to date are approximately $1.9 million.
With respect to the second operable unit, the extension of the municipal water
supply, the U.S. EPA estimated the costs at $1 million plus annual operation
and maintenance costs. The Company and the other PRPs are performing the work
comprising operable unit two. The U.S. EPA has also demanded approximately $.9
million in past costs from the PRPs.
In July 1990, the Company notified the U.S. EPA that it was
investigating the possibility that certain chemicals manufactured during the
period in which Kronos owned a former subsidiary were not appropriately listed
with the U.S. EPA pursuant to the Toxic Substances Control Act. The Company
believes that the manufacture of the chemicals in question was initiated by a
prior owner of the subsidiary. The Company intends to cooperate fully with the
U.S. EPA in investigating this matter and determining whether any manufacture
of non-listed chemicals occurred. If such manufacture is found to have
occurred, the U.S. EPA may levy fines against the Company and possibly others.
If any fines are levied, the Company will attempt to seek reimbursement from
the prior owner of the subsidiary.
See Item 1 - "Business - Regulatory and Environmental Matters".
OTHER LITIGATION
In April 1990, the Company filed a complaint in the United States
District Court for the Central District of California against Lockheed
Corporation and its directors in connection with Lockheed's 1990 annual meeting
of stockholders, (NL Industries, Inc. v. Lockheed Corporation, et al., No.
CV-90-1950 RMT (Bx)), which complaint was subsequently amended. In December
1992, a unanimous jury verdict was returned in the Company's favor in the
amount of $30 million, which award is a gain contingency not recorded as income
by the Company. The jury found that Lockheed violated the federal securities
laws by making false and misleading public statements about Lockheed's employee
stock ownership plan. Lockheed has appealed. The Company has cross appealed
with respect to its claims against Lockheed's directors. On February 24, 1994,
the case was settled with a cash payment to the Company by Lockheed of $27
million resulting in net proceeds to the Company of approximately $20 million.
In January 1990, an action was filed in the United States District Court
for the Southern District of Ohio against NLO, Inc., a subsidiary of the
Company, and the Company on behalf of a putative class of former NLO employees
and their families and former frequenters and invitees of the Feed Materials
Production Center ("FMPC") in Ohio (Day, et al. v. NLO, Inc., et al, No.
C-1-90-067). The FMPC is owned by the DOE and was formerly managed under
contract by NLO. The complaint seeks damages for, among other things,
emotional distress and damage to personal property allegedly caused by exposure
to radioactive and/or hazardous materials at the FMPC and punitive damages. A
trial was held separately on the defendants' defense that the statute of
limitations barred the plaintiffs' claims. In November 1991, the jury returned
a verdict against six of the ten named plaintiffs, finding that their claims
were time barred. Without denying the plaintiffs' motion to vacate the
verdict, the court certified this action as a class action. A merits trial is
expected to be held in 1994. Although no assurance can be given, the Company
believes that, consistent with a July 1987
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<PAGE> 19
DOE contracting officer's decision, the DOE will indemnify NLO in the event of
an adverse decision just as it did when two previous cases relating to NLO's
management of the FMPC were settled; therefore, the resolution of the Day
matter is not expected to have a material adverse affect on the Company. In
the 1987 decision, the contracting officer affirmed NLO's entitlement to
indemnification under its contract for the operation of the FMPC for all
liability, including the cost of defense, arising out of those two previous
cases.
The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
present and former businesses, and the disposition of past properties and
former businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
NL's common stock is listed and traded on the New York and Pacific Stock
Exchanges under the symbol "NL". As of February 28, 1994, there were
approximately 11,000 holders of record of NL common stock. The following table
sets forth the high and low sales prices for NL common stock on the New York
Stock Exchange ("NYSE") Composite Tape, and dividends declared during the
periods indicated. On February 28, 1994, the closing price of NL common stock
according to the NYSE Composite Tape was $8-7/8.
<TABLE>
<CAPTION>
Dividends
High Low declared
------- ------- ---------
<S> <C> <C> <C>
Year ended December 31, 1992:
First quarter $12-7/8 $ 7-1/4 $.15
Second quarter 8-7/8 7-5/8 .15
Third quarter 8-1/2 6 .05
Fourth quarter 6-1/4 4 -
Year ended December 31, 1993:
First quarter $ 6-1/8 $ 4-1/4 -
Second quarter 5-5/8 3-3/8 -
Third quarter 6-1/8 3-7/8 -
Fourth quarter 6 4-1/2 -
</TABLE>
____________________
The Company suspended its regular quarterly dividend in October 1992, in
view of, among other things, the continuing weakness in TiO2 prices. The
Company's Senior Notes generally limit the ability of the Company to pay
dividends to 50% of consolidated net income, as defined, subsequent to October
1993. At December 31, 1993, no amounts were available for dividends.
- 18 -
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and Notes thereto,
and Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,000.9 $ 906.6 $ 840.3 $ 893.5 $ 805.3
Operating income 308.5 251.1 139.0 110.7 62.4
Income (loss) from continuing
operations 170.3 93.5 (24.0) (44.6) (83.2)
Net income (loss) 172.9 92.4 (16.5) (76.4) (109.8)
Per common share:
Income (loss) from
continuing operations $ 2.57 $ 1.42 $ (.40) $ (.88) $ (1.63)
Net income (loss) 2.61 1.40 (.27) (1.50) (2.16)
Cash dividends $ .45 $ .60 $ .60 $ .35 $ -
BALANCE SHEET DATA
(AT YEAR-END):
Cash, cash equivalents and
current marketable securities $ 295.6 $ 443.1 $ 353.3 $ 187.9 $ 147.6
Current assets 586.2 884.4 795.5 635.8 467.5
Total assets 1,512.3 1,966.7 1,831.0 1,472.1 1,206.5
Current liabilities 647.0 400.4 360.2 248.8 232.5
Long-term debt including
current maturities 403.0 1,269.7 1,288.9 1,035.3 870.9
Common shareholders' equity
(deficit) 132.3 38.6 (58.3) (146.3) (264.8)
OTHER DATA:
EBITDA (1) $ 290.6 $ 242.3 $ 126.6 $ 115.1 $ 67.2
Interest expense, net (2) 24.5 60.7 59.9 104.3 95.1
Cash interest expense, net (3) 24.1 53.0 53.9 98.0 86.8
Capital expenditures 83.4 195.3 195.1 85.2 48.0
</TABLE>
(1) EBITDA, as presented, represents operating income less corporate
expense, net, plus depreciation depletion and amortization.
(2) Interest expense, net represents interest expense less general corporate
interest and dividend income.
(3) Cash interest expense, net represents interest expense, net less
deferred interest expense on the Senior Secured Discount Notes and
amortization of deferred financing costs.
- 19 -
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox. The future
profitability of the Company is dependent upon, among other things, improved
pricing for TiO2. Selling prices for TiO2 are significantly influenced by
industry capacity and demand. As discussed below, TiO2 selling prices declined
significantly from their peak in early 1990, and largely as a result thereof,
Kronos' operating income and margins significantly declined during the past
three years. In the fourth quarter of 1993, selling prices increased slightly
in certain markets. Based on, among other things, the Company's current
near-term outlook for its TiO2 business, the Company expects its results for
1994, while improved from 1993, will still result in a net loss for the year.
NET SALES AND OPERATING INCOME
<TABLE>
<CAPTION>
Years ended December 31, % Change
--------------------------------- -------------------
1991 1992 1993 1992-91 1993-92
---- ---- ---- ------- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Kronos $732.1 $784.6 $697.0 +7% -11%
Rheox 108.2 108.9 108.3 +1% -1%
------ ------ ------
$840.3 $893.5 $805.3 +6% -10%
====== ====== ======
Operating income:
Kronos $110.8 $ 81.9 $ 36.1 -26% -56%
Rheox 28.2 28.8 26.3 +2% -9%
------ ------ ------
$139.0 $110.7 $ 62.4 -20% -44%
====== ====== ======
Percent change in TiO2:
Sales volume +11% +3%
Average selling prices
(in billing currencies) -6% -8%
</TABLE>
- 20 -
<PAGE> 22
The worldwide TiO2 industry continues to be adversely affected by, among
other things, production capacity in excess of current demand. Largely as a
result thereof, TiO2 selling prices continued to decline during most of 1993
and Kronos' operating income and margins significantly declined. Recessionary
economic conditions in Europe and changes in the relative values of European
currencies were principal additional factors influencing demand and pricing
levels during 1993. In billing currency terms, Kronos' 1993 average TiO2
selling prices were approximately 8% lower than in 1992 and were 6% lower in
1992 than in 1991. 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 further decreased 1993 sales by $45 million
compared to 1992 and increased 1992 sales by $22 million compared to 1991.
Average TiO2 prices at the end of 1993 were approximately 5% below year-end
1992 levels and approximately one-third below those of the last cyclical peak
in early 1990. While TiO2 prices are significantly below prior year levels,
most of the 1993 decline occurred in the first half of the year as average
prices declined only slightly during the third quarter and increased slightly
during the fourth quarter.
TiO2 sales volume of 346,000 metric tons in 1993 increased 3% compared
to 1992, as increases in North American sales volume more than offset weakened
demand in Europe. In response to weakened demand, and in order to reduce
inventories, Kronos made further reductions in its TiO2 production rates during
1993. TiO2 sales volume increased 11% in 1992 compared to 1991, primarily in
U.S. and European markets. Approximately one-half of Kronos' 1993 TiO2 sales,
by volume, were attributable to markets in Europe with approximately 38%
attributable to North America and the balance to export markets.
As a result of continued cost reduction and containment efforts, Kronos'
raw material and production costs increased only slightly in 1993 compared to
year-ago levels. Start-up costs at the chloride process plant in Lake Charles,
Louisiana, which commenced production during the first half of 1992,
unfavorably impacted operating income in 1992. Kronos' 1992 operating income
was also impacted by slightly lower unit production costs resulting from its
continued emphasis on cost reduction efforts and increased production volumes.
Kronos' water treatment chemicals business, which utilizes TiO2 co-products,
increased its contribution to operating income in 1992 but such contribution
was lower in 1993 than in 1992.
Demand, supply and pricing of TiO2 have historically been cyclical and,
as noted above, the last cyclical peak for TiO2 prices occurred in early 1990.
Kronos believes that its operating income and margins for 1994 will be higher
than in 1993 due principally to slightly higher sales and production volumes,
and the favorable effect of the joint venture. However, the Company expects
that the TiO2 industry will continue to operate at lower capacity utilization
levels over the next few years relative to the high utilization levels
prevalent during the late 1980s, primarily because of the slow recovery from
worldwide recession and the impact of capacity additions since the late 1980s.
The economic recovery has been particularly slow in Europe, where a significant
portion of Kronos' TiO2 manufacturing facilities are located.
During the current period of depressed TiO2 prices, the Company has
operated with a strategy to maintain its competitive position. During the past
three years, Kronos has increased its estimated worldwide market share from 10%
to 11%. Kronos has implemented a cost reduction and control program which
favorably impacted Kronos' operating results, and Kronos has continued its
environmental improvement efforts. In October 1993, the Company formed a
manufacturing joint
- 21 -
<PAGE> 23
venture with Tioxide and refinanced certain debt which, among other things,
increased the Company's liquidity, reduced its aggregate debt level and
extended its debt maturities. See also "Liquidity and Capital Resources".
The manufacturing joint venture, which is equally owned by subsidiaries
of Kronos and Tioxide, owns and operates the chloride process TiO2 plant in
Lake Charles, Louisiana formerly owned by Kronos. Under the terms of the joint
venture and related agreements, Kronos contributed the plant to the joint
venture, Tioxide paid an aggregate of approximately $205 million, including its
tranche of the joint venture debt, and Kronos and certain subsidiaries exchanged
proprietary chloride process and product technologies with Tioxide and certain
of its affiliates. Of the total consideration paid by Tioxide, $30 million was
attributable to the exchange of technologies and is being reported as a
component of operating income ratably over three years from October 1993.
Production from the plant is being shared equally by Kronos and Tioxide
pursuant to separate offtake agreements. The formation of the joint venture
resulted in a 12% decrease in Kronos' total TiO2 production capacity; however,
Kronos' remaining capacity is about 10% higher than Kronos' 1993 sales volume.
Rheox's operating results have been relatively consistent during the
past three years. Changes in currency exchange rates had a negative effect in
1993 and a positive effect in 1992 compared to the respective prior year, and
operating costs generally increased during both years.
The Company has substantial operations and assets located outside the
United States. Foreign operations are subject to currency exchange rate
fluctuations and the Company's results of operations have in the past been both
favorably and unfavorably affected by the fluctuations in currency exchange
rates. To the extent the Company both manufactures and sells in a given
country, the impact of currency exchange rate fluctuations is to some extent
mitigated.
GENERAL CORPORATE
The following table sets forth certain information regarding general
corporate income (expense).
<TABLE>
<CAPTION>
Years ended December 31, Increase (decrease)
-------------------------------- ---------------------
1991 1992 1993 1992-91 1993-92
---- ---- ---- ------- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Interest and dividends $ 40.5 $ 14.2 $ 4.1 $(26.3) $(10.1)
Securities transactions (53.1) (6.0) 4.4 47.1 10.4
Corporate expenses, net (44.9) (43.4) (41.5) 1.5 1.9
------ ------ ------ ------ ------
$(57.5) $(35.2) $(33.0) $ 22.3 $ 2.2
====== ====== ====== ====== ======
</TABLE>
Interest and dividend income fluctuates based upon the amount of funds
invested and yields thereon. Amounts available for investment and the yields
thereon in 1993 were lower than in 1992 and 1991.
After the two unsuccessful attempts to gain representation on the board
of directors of Lockheed Corporation, the Company disposed of its interest in
Lockheed in 1991, and the significant securities transactions loss in 1991
relates principally to that disposition. Securities transactions in 1992 and
1993 relate principally to U.S. Treasury securities. The Company does not
- 22 -
<PAGE> 24
anticipate acquiring marketable securities (other than U.S. Treasury or similar
securities) in the foreseeable future.
The Company adopted the accounting for certain marketable debt and
equity securities prescribed by SFAS No. 115 effective December 31, 1993.
Accordingly, the timing of recognition of gains and losses related to
marketable securities beginning in 1994 will, in certain respects, be different
than in prior years.
Corporate expenses, net have decreased slightly during each of the past
two years. In 1992, reductions in certain proxy solicitation and litigation
settlement expenses of $5 million and $9 million, respectively, compared to
1991, were partially offset by an $11 million increase in environmental
remediation costs.
INTEREST EXPENSE
Lower levels of indebtedness in 1993, principally Kronos' Deutsche
Mark-denominated bank credit facility, and lower DM interest rates reduced the
Company's interest expense in 1993 compared to the 1992 periods. In addition,
1992 interest expense reflected the benefit of $9 million of capitalized
interest related principally to the Louisiana plant completed in March 1992.
Interest expense increased from 1991 to 1992 due to the net effects of lower
average levels of indebtedness, a $17 million decline in capitalized interest
and a $9 million reduction in the Company's accrual for income tax related
interest in 1991. Overall, the Company expects its October 1993 reduction and
refinancing of certain indebtedness will result in a modest decrease in the
Company's interest expense. See "Liquidity and Capital Resources".
PROVISION FOR INCOME TAXES
The principal reasons for the difference between the U.S. federal
statutory income tax rates and the Company's effective income tax rates are
explained in Note 14 to the Consolidated Financial Statements. The Company's
operations are conducted on a worldwide basis and the geographic mix of income
can significantly impact the Company's effective income tax rate. In both 1992
and 1993, the geographic mix, including losses in certain jurisdictions for
which no current refund was available and in which recognition of a deferred
tax asset is not currently considered appropriate, contributed significantly to
the Company's effective tax rate varying from a normally expected rate. The
Company's deferred income tax status at December 31, 1993 is discussed in
"Liquidity and Capital Resources". In 1991, realization of the available
capital loss carryback of the Company's securities transactions at a relatively
low rate due to the alternative minimum tax rates in prior years also
significantly impacted the Company's effective tax rate.
EXTRAORDINARY ITEMS
See Note 16 to the Consolidated Financial Statements.
CHANGES IN ACCOUNTING PRINCIPLES
See Notes 2 and 19 to the Consolidated Financial Statements.
Statement of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits", requires the accrual
method of accounting for benefits provided to former employees after employment
but before
- 23 -
<PAGE> 25
retirement. The Company expects to adopt SFAS No. 112 in the first quarter of
1994. Adoption is not expected to have a material impact on the Company's
consolidated financial position, results of operations or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows provided by operating, investing
and financing activities for each of the past three years are presented below.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1991 1992 1993
---- ---- ----
(In millions)
<S> <C> <C> <C>
Net cash provided (used) by:
Operating activities $ 58.1 $ (44.7) $ (7.3)
Investing activities (109.4) 234.9 181.9
Financing activities (243.8) (223.1) (155.3)
-------- -------- --------
Net cash provided (used) by operating,
investing and financing activities $(295.1) $ (32.9) $ 19.3
======= ======= =======
</TABLE>
During 1993, the Company's operations continued to use significant
amounts of cash. TiO2 production rates were reduced in late 1992 and during
1993 in order to reduce inventory levels. The $30 million received from
Tioxide in October 1993 related to the exchange of technologies, which is being
recognized as a component of operating income over three years, favorably
impacted 1993 cash flow from operating activities. Other relative changes in
working capital items, which result principally from the timing of purchases,
production and sales, also contributed to the comparative decrease in the
Company's cash used by operating activities in 1993. The significant
deterioration in the Company's cash flow from operating activities from 1991 to
1992 resulted primarily from the decline in earnings and the relative change in
the Company's receivables, inventories and payables.
Cash provided by investing activities relates primarily to net sales of
marketable securities in each period to fund debt repayments, capital
expenditures and operations, and in 1993 includes $161 million net cash
generated related to the formation of the manufacturing joint venture with
Tioxide.
The Company's capital expenditures during the past three years include
an aggregate of $204 million related to the completion of the Louisiana
chloride process TiO2 plant and an aggregate of $57 million ($30 million in
1993) for the Company's ongoing environmental protection and compliance
programs, including a Canadian waste acid neutralization facility, a Norwegian
onshore tailings disposal system and off-gas desulfurization systems. The
Company's estimated 1994 capital expenditures are $44 million and include $30
million in the area of environmental protection and compliance primarily
related to the Canadian waste acid neutralization facility and the German
off-gas desulfurization systems. The capital expenditures of the manufacturing
joint venture are not included in the Company's capital expenditures.
Net repayments of indebtedness in 1993 included payments on the DM bank
credit facility of DM 552 million ($342 million when paid), a $110 million net
reduction in indebtedness related to the Louisiana plant and $350 million
proceeds from the Company's October 1993 public offering of debt, all as
- 24 -
<PAGE> 26
discussed below. Net repayments of indebtedness in 1992 included payments on
the DM term loan aggregating DM 350 million ($225 million when paid) and $61
million drawn under Kronos' Louisiana plant credit facilities. Net borrowings
in 1991 included a $115 million Rheox term loan, a $52 million increase in the
Louisiana plant term construction loan and a DM 150 million ($87 million when
paid) reduction in the DM term loan. NL and Kronos have agreed, under certain
conditions, to provide Kronos' principal international subsidiary with up to an
additional DM 125 million through January 1, 2001.
In October 1993, the Company (i) completed the formation of the
manufacturing joint venture with Tioxide, including related refinancing of the
Louisiana plant indebtedness, (ii) completed a public offering of $250 million
of 11.75% Senior Secured Notes due 2003 and $100 million proceeds ($188 million
principal amount at maturity) of 13% Senior Secured Discount Notes due 2005
(collectively, the "Notes"), (iii) prepaid DM 552 million ($342 million when
paid) of the DM bank credit facility and amended the DM loan agreement, and
(iv) redeemed the remaining $10 million of the Company's 7.5% sinking fund
debentures.
The DM bank credit facility, as amended, consists of a DM 448 million
term loan and a DM 250 million revolving credit facility, of which DM 100
million is outstanding and DM 150 million was available for future borrowings
at December 31, 1993. During February 1994, the Company borrowed an additional
DM 25 million under the revolving credit facility. The final maturities of the
term and revolving portion of the DM credit facility were extended to 1999 and
2000, respectively, with the first payment of the term loan due in 1997.
Upon formation, the manufacturing joint venture obtained $216 million in
new financing consisting of two equal tranches, one attributable to each
Partner, which is serviced through the purchase of the plant's TiO2 output in
equal quantities by the Partners. The Partners are required to make capital
contributions to the joint venture to pay principal on their respective portion
of the joint venture indebtedness. Kronos' pro rata share of the joint venture
debt is reflected as outstanding indebtedness of the Company because Kronos has
guaranteed the purchase obligation relative to the debt service of its tranche.
Formation of the joint venture and related refinancing,
issuance of the Notes and prepayment of a portion of the DM bank credit
facility significantly improved the Company's liquidity and financial
flexibility by (i) increasing cash and cash equivalents by approximately $75
million, (ii) reducing total outstanding indebtedness by approximately $109
million, (iii) providing for approximately DM 150 million of borrowing
availability under the revolving portion of the amended DM bank credit
facility, (iv) eliminating the near-term principal amortization requirements
and extending the remaining principal amortization schedule of the DM bank
credit facility, and (v) replacing approximately $100 million of outstanding
debt with the Senior Secured Discount Notes which do not require cash interest
payments for five years.
Financing activities also include treasury stock purchases, including
$181 million expended in 1991 in connection with a "Dutch auction" self-tender
offer. Dividends paid were $35 million in 1991 and $18 million in 1992. The
Company suspended dividend payments in October 1992.
- 25 -
<PAGE> 27
At December 31, 1993, the Company had cash, cash equivalents and current
marketable securities aggregating $148 million (25% held by non-U.S.
subsidiaries) including restricted cash and cash equivalents of $18 million.
The Company's subsidiaries had $14 million and $117 million available for
borrowing at December 31, 1993 under existing U.S. and non-U.S. credit
facilities, respectively.
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, deferral and reduction of
capital expenditures, discontinuance of unrelated business acquisition
activities, suspension of dividends, formation of the manufacturing joint
venture and the refinancing discussed above. The Company currently expects to
have sufficient liquidity to meet near-term obligations including operations,
capital expenditures and debt service. A prolonged period of depressed selling
prices and continued use of cash by operations would, however, over the long
term, have an adverse effect on liquidity and financial condition.
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. In June 1993, German tax authorities
issued assessment reports in connection with examinations of the Company's
German income tax returns disallowing the Company's claims for refunds,
primarily for 1989 and 1990, aggregating DM 160 million ($92 million at
year-end exchange rates), and proposing additional taxes of approximately DM
100 million ($58 million). The Company has applied for administrative relief
from collection procedures and may grant a lien on certain German assets while
the Company contests the proposed adjustments. Although the Company believes
that it will ultimately prevail, in June 1993 the Company reclassified the DM
160 million of refundable income tax claims disallowed by the German tax
authorities from current assets to noncurrent assets due to the uncertain
timing of a resolution. The Company believes that it has adequately provided
accruals for additional income taxes and related interest expense which may
ultimately result from such examinations and believes that the ultimate
disposition of all such examinations should not have a material adverse effect
on the Company's consolidated financial position, results of operations or
liquidity. Pursuant to the amended DM bank credit facility, any receipt of the
refundable German income taxes will be applied ratably to prepay installments
of the term portion of the DM bank credit facility, with any remaining proceeds
of the tax refund used to permanently reduce the revolving credit portion.
At December 31, 1993, the Company had recorded net deferred tax
liabilities of $139 million. The Company operates in several tax
jurisdictions, in certain of which it has temporary differences that net to
deferred tax assets (before valuation allowance). The Company has provided a
deferred tax valuation allowance of $133 million, principally related to the
U.S. and Germany, for deferred tax assets which the Company believes may not
currently meet the "more likely than not" realization criteria for asset
recognition.
In addition to the chemicals businesses conducted through Kronos and
Rheox, the Company also has certain interests and associated liabilities
relating to certain discontinued or divested businesses and other holdings of
marketable equity securities including securities issued by Valhi and another
Contran subsidiary.
- 26 -
<PAGE> 28
The Company has been named as a defendant, PRP, or both, in a number of
legal proceedings associated with environmental matters, including waste
disposal sites currently or formerly owned, operated or used by the Company,
many of which disposal sites or facilities are on the U.S. EPA's Superfund
National Priorities List or similar state lists. On a regular basis, the
Company evaluates the potential range of its liability at sites where it has
been named as a PRP or defendant. The Company believes it has provided
adequate accruals for reasonably estimable costs of such matters, but the
Company'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. 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. The Company has not accrued any
amounts for the pending lead pigment litigation. Although no assurance can be
given that the Company will not incur future liability in respect of this
litigation, based on, among other things, the results of such litigation to
date, the Company believes that the pending lead pigment litigation is without
merit. Any liability that may result is not reasonably capable of estimation.
The Company currently believes the disposition of all claims and disputes,
individually or 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. See Item 3 - "Legal Proceedings" and Note 18 to
the Consolidated Financial Statements.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its debt
service 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 or
manage its liquidity and capital resources.
- 27 -
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
NL's definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report (the "NL Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the NL Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the NL Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the NL Proxy Statement. See also Note 17 to the Consolidated Financial
Statements.
- 28 -
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedules
The consolidated financial statements and schedules listed
by the Registrant on the accompanying Index of Financial
Statements and Schedules (see page F-1) are filed as part
of this Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended December 31, 1993.
October 13, 1993 - reported items 5 and 7.
October 19, 1993 - reported items 5 and 7.
October 20, 1993 - reported items 5 and 7.
October 26, 1993 - reported items 5 and 7.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit
Index. NL will furnish a copy of any of the exhibits
listed below upon payment of $4.00 per exhibit to cover the
costs to NL of furnishing the exhibits. Instruments
defining the rights of holders of long-term debt issues
which do not exceed 10% of consolidated total assets will
be furnished to the Securities and Exchange Commission upon
request.
Item No. Exhibit Index
- -------- -------------
3.1 By-Laws, as amended on June 28, 1990 - incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990.
3.2 Certificate of Amended and Restated Certificate of
Incorporation dated June 28, 1990 - incorporated by
reference to Exhibit 1 to the Registrant's Proxy Statement
on Schedule 14A for the annual meeting held on June 28,
1990.
4.1 Registration Rights Agreement dated October 30, 1991, by
and between the Registrant and Tremont Corporation -
incorporated by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
4.2 Indenture dated October 20, 1993 governing the Registrant's
11.75% Senior Secured Notes due 2003, including form of
Senior Note - incorporated by reference to Exhibit 4.1 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
4.3 Senior Mirror Notes dated October 20, 1993 - incorporated
by reference to Exhibit 4.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
- 29 -
<PAGE> 31
4.4 Senior Note Subsidiary Pledge Agreement dated October 20,
1993 between Registrant and Kronos, Inc. - incorporated by
reference to Exhibit 4.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
4.5 Third Party Pledge and Intercreditor Agreement dated
October 20, 1993 between Registrant, Chase Manhattan Bank
(National Association) and Chemical Bank - incorporated by
reference to Exhibit 4.5 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
4.6 Indenture dated October 20, 1993 governing the Registrant's
13% Senior Secured Discount Notes due 2005, including form
of Discount Note - incorporated by reference to Exhibit 4.6
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
4.7 Discount Mirror Notes dated October 20, 1993 - incorporated
by reference to Exhibit 4.8 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
4.8 Discount Note Subsidiary Pledge Agreement dated October 20,
1993 between Registrant and Kronos, Inc. - incorporated by
reference to Exhibit 4.9 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
10.1 Amended and Restated Loan Agreement dated as of October 15,
1993 among Kronos International, Inc., the Banks set forth
therein, Hypobank International S.A., as Agent and Banque
Paribas, as Co-agent - incorporated by reference to Exhibit
10.17 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.
10.2 Amended and Restated Liquidity Undertaking dated October
15, 1993 by the Registrant, Kronos, Inc. and Kronos
International, Inc. to Hypobank International S.A., as
agent, and the Banks set forth therein - incorporated by
reference to Exhibit 10.18 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
10.3 Credit Agreement dated as of March 20, 1991 between Rheox,
Inc. and Subsidiary Guarantors and The Chase Manhattan Bank
(National Association) and the Nippon Credit Bank, Ltd., as
Co-agents -incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.4 Amendments 1 and 2 dated May 1, 1991 and February 15, 1992,
respectively, to the Credit Agreement between Rheox, Inc.
and Subsidiary Guarantors and the Chase Manhattan Bank
(National Association) and the Nippon Credit Bank, Ltd. as
Co-Agents- incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on form 10-Q for the quarter
ended June 30, 1992.
- 30 -
<PAGE> 32
10.5 Third amendment to the Credit Agreement, dated March 5, 1993
between Rheox, Inc. and Subsidiary Guarantors and the Chase
Manhattan Bank (National Association) and the Nippon Credit
Bank, Ltd as Co-Agents - incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.6 Credit Agreement dated as of October 18, 1993 among
Louisiana Pigment Company, L.P., as Borrower, the Banks
listed therein and Citibank, N.A., as Agent - incorporated
by reference to Exhibit 10.11 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
10.7 Security Agreement dated October 18, 1993 from Louisiana
Pigment Company, L.P., as Borrower, to Citibank, N.A., as
Agent - incorporated by reference to Exhibit 10.12 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.8 Security Agreement dated October 18, 1993 from Kronos
Louisiana, Inc. as Grantor, to Citibank, N.A., as Agent -
incorporated by reference to Exhibit 10.13 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.9 KLA Consent and Agreement dated as of October 18, 1993
between Kronos Louisiana, Inc. and Citibank, N.A., as Agent
- incorporated by reference to Exhibit 10.14 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.10 Guaranty dated October 18, 1993, from Kronos, Inc., as
guarantor, in favor of Lenders named therein, as Lenders,
and Citibank, N.A., as Agent - incorporated by reference to
Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.11 Mortgage by Louisiana Pigment Company, L.P. dated October
18, 1993 in favor of Citibank, N.A. - incorporated by
reference to Exhibit 10.16 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
10.12 Lease Contract dated June 21, 1952, between Farbenfabrieken
Bayer Aktiengesellschaft and Titangesellschaft mit
beschrankter Haftung (German language version and English
translation thereof) - incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1985.
10.13 Contract dated September 9, 1971, between Farbenfabrieken
Bayer Aktiengesellschaft and Titangesellschaft mit
beschrankter Haftung concerning supplies and services
(German language version and English translation thereof) -
incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1985.
- 31 -
<PAGE> 33
10.14 Agreement dated February 8, 1984, between Bayer AG and
Kronos Titan GmbH (German language version and English
translation thereof) - incorporated by reference to Exhibit
10.16 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1985.
10.15 Formation Agreement dated as of October 18, 1993 among
Tioxide Americas Inc., Kronos Louisiana, Inc. and Louisiana
Pigment Company, L.P. - incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.16 Joint Venture Agreement dated as of October 18, 1993 between
Tioxide Americas Inc. and Kronos Louisiana, Inc. -
incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.17 Kronos Offtake Agreement dated as of October 18, 1993
between Kronos Louisiana, Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.18 Tioxide Americas Offtake Agreement dated as of October 18,
1993 between Tioxide Americas Inc. and Louisiana Pigment
Company, L.P. - incorporated by reference to Exhibit 10.5
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.19 TCI/KCI Output Purchase Agreement dated as of October 18,
1993 between Tioxide Canada Inc. and Kronos Canada, Inc. -
incorporated by reference to Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.20 TAI/KLA Output Purchase Agreement dated as of October 18,
1993 between Tioxide Americas Inc. and Kronos Louisiana,
Inc. - incorporated by reference to Exhibit 10.7 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.21 Master Technology Exchange Agreement dated as of October 18,
1993 among Kronos, Inc., Kronos Louisiana, Inc., Kronos
International, Inc., Tioxide Group Limited and Tioxide
Group Services Limited - incorporated by reference to
Exhibit 10.8 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
10.22 Parents' Undertaking dated as of October 18, 1993 between
ICI American Holdings Inc. and Kronos, Inc. - incorporated
by reference to Exhibit 10.9 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.
10.23 Allocation Agreement dated as of October 18, 1993 between
Tioxide Americas Inc., ICI American Holdings, Inc., Kronos,
Inc. and Kronos Louisiana, Inc. - incorporated by reference
to Exhibit 10.10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
- 32 -
<PAGE> 34
10.24* 1985 Long Term Performance Incentive Plan of NL Industries,
Inc., as adopted by the Board of Directors on February 27,
1985 - incorporated by reference to Exhibit A to the
Registrant's Proxy Statement on Schedule 14A for the annual
meeting held on April 24, 1985.
10.25 Form of Director's Indemnity Agreement between NL and
the independent members of the Board of Directors of NL -
incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987.
10.26* 1989 Long Term Performance Incentive Plan of NL Industries,
Inc. as adopted by the Board of Directors on February 14,
1989 - incorporated by reference to Exhibit A to the
Registrant's Proxy Statement on Schedule 14A for the annual
meeting held on May 2, 1989.
10.27 Savings Plan for Employees of NL Industries, Inc. as
adopted by the Board of Directors on February 14, 1989 -
incorporated by reference to Exhibit B to the Registrant's
Proxy Statement on Schedule 14A for the annual meeting held
May 2, 1989.
10.28* NL Industries, Inc. 1992 Non-Employee Director Stock
Option Plan, as adopted by the Board of Directors on
February 13, 1992 - incorporated by reference to Appendix A
to the Registrant's Proxy Statement on Schedule 14A for the
annual meeting held April 30, 1992.
10.29 Intercorporate Services Agreement by and between Valhi,
Inc. and the Registrant effective as of January 1, 1994.
10.30 Intercorporate Services Agreement by and between Contran
Corporation and the Registrant effective as of
January 1, 1994.
10.31 Insurance Sharing Agreement, effective January 1, 1990, by
and between the Registrant, NL Insurance, Ltd. (an indirect
subsidiary of Tremont Corporation) and Baroid Corporation -
incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.32* Employment Agreement dated as of January 1, 1990 among
Kronos, Inc., the Registrant and Dr. Lawrence A. Wigdor -
incorporated by reference to Exhibit 10.19 to Amendment 2
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989.
10.33* Executive Severance Agreement effective as of December
31, 1991 by and between the Registrant and J. Landis Martin
- incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.34* Supplemental Executive Retirement Plan for Executives
and Officers of NL Industries, Inc. effective as of January
1, 1991 - incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
* Management contract, compensatory plan or arrangement.
- 33 -
<PAGE> 35
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
99.1 Annual Report of Savings Plan for Employees of NL
Industries, Inc. (Form 11-K) to be filed under Form 8 to
the Registrant's Annual Report on Form 10-K within 180 days
after December 31, 1993.
- 34 -
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ J. LANDIS MARTIN
---------------------------------------
J. Landis Martin, March 1, 1994
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<S> <C>
/s/ J. LANDIS MARTIN /s/ HAROLD C. SIMMONS
- ---------------------------------- ---------------------------------------
J. Landis Martin, March 1, 1994 Harold C. Simmons, March 1, 1994
Director, President and Chairman of the Board
Chief Executive Officer
/s/ GLENN R. SIMMONS /s/ MICHAEL A. SNETZER
- ----------------------------------- ---------------------------------------
Glenn R. Simmons, March 1, 1994 Michael A. Snetzer, March 1, 1994
Director Director
/s/ KENNETH R. PEAK /s/ DR. LAWRENCE A. WIGDOR
- ----------------------------------- ---------------------------------------
Kenneth R. Peak, March 1, 1994 Dr. Lawrence A. Wigdor, March 1, 1994
Director Director, President and Chief Executive
Officer of Kronos and Rheox
/s/ ELMO R. ZUMWALT, JR. /s/ JOSEPH S. COMPOFELICE
- ----------------------------------- ---------------------------------------
Elmo R. Zumwalt,Jr., March 1, 1994 Joseph S. Compofelice, March 1, 1994
Director Vice President and
Chief Financial Officer
/s/ DENNIS G. NEWKIRK
- -----------------------------------
Dennis G. Newkirk, March 1, 1994
Vice President and Controller
(Principal Accounting Officer)
</TABLE>
- 35 -
<PAGE> 37
NL INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1992 and 1993 F-3/F-4
Consolidated Statements of Operations - Years ended
December 31, 1991, 1992 and 1993 F-5/F-6
Consolidated Statements of Shareholders' Deficit - Years ended
December 31, 1991, 1992 and 1993 F-7
Consolidated Statements of Cash Flows - Years ended
December 31, 1991, 1992 and 1993 F-8/F-10
Notes to Consolidated Financial Statements F-11/F-38
Financial Statement Schedules
- -----------------------------
Report of Independent Accountants S-1
Schedule I - Marketable securities S-2
Schedule III - Condensed financial information of Registrant S-3/S-8
Schedule V - Property and equipment S-9
Schedule VI - Accumulated depreciation and depletion of
property and equipment S-10
Schedule VIII - Valuation and qualifying accounts S-11
Schedule IX - Short-term borrowings S-12
Schedule X - Supplementary income statement information S-13
</TABLE>
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of NL Industries, Inc.:
We have audited the accompanying consolidated balance sheets of NL
Industries, Inc. as of December 31, 1992 and 1993, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NL
Industries, Inc. as of December 31, 1992 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 19 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for certain investments in
debt and equity securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, and in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with SFAS Nos. 106 and 109, respectively.
COOPERS & LYBRAND
Houston, Texas
February 9, 1994 except for
Note 21, as to which the
date is February 24, 1994
F-2
<PAGE> 39
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1992 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 87,333 $ 106,593
Marketable securities 100,607 41,045
Accounts and notes receivable, less allowance
of $2,385 and $3,008 123,020 116,355
Refundable income taxes 101,537 386
Inventories 216,232 194,167
Prepaid expenses 5,413 5,637
Deferred income taxes 1,676 3,315
---------- ----------
Total current assets 635,818 467,498
---------- ----------
Other assets:
Marketable securities 23,581 18,428
Refundable income taxes - 91,994
Investment in joint ventures 2,434 190,787
Prepaid pension cost 16,056 16,307
Deferred income taxes - 577
Other 48,241 42,355
---------- ----------
Total other assets 90,312 360,448
---------- ----------
Property and equipment:
Land 29,863 18,237
Buildings 208,056 129,582
Machinery and equipment 811,531 515,090
Mining properties 75,731 72,711
Construction in progress 21,042 30,050
---------- ----------
1,146,223 765,670
Less accumulated depreciation and depletion 400,246 387,067
---------- ----------
Net property and equipment 745,977 378,603
---------- ----------
$1,472,107 $1,206,549
========== ==========
</TABLE>
F-3
<PAGE> 40
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1992 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 315 $ -
Current maturities of long-term debt 43,328 35,716
Accounts payable and accrued liabilities 189,638 177,265
Payable to affiliates 4,086 9,566
Income taxes 6,825 6,353
Deferred income taxes 4,573 3,623
---------- ----------
Total current liabilities 248,765 232,523
---------- ----------
Noncurrent liabilities:
Long-term debt 991,956 835,169
Deferred income taxes 145,745 138,977
Accrued pension cost 73,956 72,606
Accrued postretirement benefits cost 71,761 68,322
Other 83,878 121,309
---------- ----------
Total noncurrent liabilities 1,367,296 1,236,383
---------- ----------
Minority interest 2,339 2,438
---------- ----------
Shareholders' deficit:
Preferred stock - 5,000 shares authorized,
no shares issued or outstanding - -
Common stock - $.125 par value; 150,000 shares
authorized; 66,839 shares issued 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (111,820) (115,803)
Pension liabilities - (3,442)
Marketable securities (896) (2,164)
Accumulated deficit (433,250) (543,059)
---------- ----------
221,670 103,168
Less treasury stock, at cost (15,949 shares) 367,963 367,963
---------- ----------
Total shareholders' deficit (146,293) (264,795)
---------- ----------
$1,472,107 $1,206,549
========== ==========
</TABLE>
Commitments and contingencies (Notes 14 and 18)
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 41
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1991, 1992 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Revenues and other income:
Net sales $840,295 $893,465 $ 805,323
Interest and dividends 47,293 19,618 7,872
Securities transactions (53,092) (6,018) 4,363
Other, net 7,043 1,197 9,849
-------- -------- ---------
841,539 908,262 827,407
-------- -------- ---------
Costs and expenses:
Cost of sales 566,608 629,029 612,367
Selling, general and administrative 193,481 203,736 185,689
Interest 100,412 118,511 99,119
-------- -------- ---------
860,501 951,276 897,175
-------- -------- ---------
Loss before income taxes, minority
interest, extraordinary items and
cumulative effect of changes in
accounting principles (18,962) (43,014) (69,768)
Income tax expense 3,910 459 12,713
-------- -------- ---------
Loss before minority interest,
extraordinary items and cumulative
effect of changes in accounting
principles (22,872) (43,473) (82,481)
Minority interest 1,113 1,123 730
-------- -------- ---------
Loss before extraordinary items and
cumulative effect of changes in
accounting principles (23,985) (44,596) (83,211)
Extraordinary items 7,523 - (27,815)
Cumulative effect of changes in
accounting principles - (31,804) 1,217
-------- -------- ---------
Net loss $(16,462) $(76,400) $(109,809)
======== ======== =========
</TABLE>
F-5
<PAGE> 42
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended December 31, 1991, 1992 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Loss per share of common stock:
Before extraordinary items and
cumulative effect of changes in
accounting principles $(.40) $ (.88) $(1.63)
Extraordinary items .13 - (.55)
Cumulative effect of changes in
accounting principles - (.62) .02
----- ------ ------
Net loss $(.27) $(1.50) $(2.16)
===== ====== ======
Weighted average common shares
outstanding 60,233 50,907 50,890
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 43
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1991, 1992 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
Adjustments
Additional ------------------------------------------
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
-------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $8,355 $759,273 $(136,277) $ - $(143,123)
Net loss - - - - -
Common dividends declared - $.60 per share - - - - -
Adjustments - - 19,637 - 137,198
Purchases of treasury stock - - - - -
Other, net - 27 - - -
------ -------- --------- ------- ---------
Balance at December 31, 1991 8,355 759,300 (116,640) - (5,925)
Net loss - - - - -
Common dividends declared - $.35 per share - - - - -
Adjustments - - 4,820 - 5,029
Purchases of treasury stock - - - - -
Other, net - (19) - - -
------ -------- --------- ------- ---------
Balance at December 31, 1992 8,355 759,281 (111,820) - (896)
Net loss - - - - -
Adjustments - - (3,983) (3,442) (51)
Cumulative effect of change in
accounting principle - - - - (1,217)
------ -------- --------- ------- ---------
Balance at December 31, 1993 $8,355 $759,281 $(115,803) $(3,442) $ (2,164)
====== ======== ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury
deficit stock Total
----------- ------- --------
<S> <C> <C> <C>
Balance at December 31, 1990 $(287,857) $(161,803) $38,568
Net loss (16,462) - (16,462)
Common dividends declared - $.60 per share (34,724) - (34,724)
Adjustments - - 156,835
Purchases of treasury stock - (202,519) (202,519)
Other, net - - 27
--------- --------- ---------
Balance at December 31, 1991 (339,043) (364,322) (58,275)
Net loss (76,400) - (76,400)
Common dividends declared - $.35 per share (17,807) - (17,807)
Adjustments - - 9,849
Purchases of treasury stock - (3,641) (3,641)
Other, net - - (19)
--------- --------- ---------
Balance at December 31, 1992 (433,250) (367,963) (146,293)
Net loss (109,809) - (109,809)
Adjustments - - (7,476)
Cumulative effect of change in
accounting principle - - (1,217)
--------- --------- ---------
Balance at December 31, 1993 $(543,059) $(367,963) $(264,795)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 44
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(16,462) $(76,400) $(109,809)
-------- -------- ---------
Adjustments:
Depreciation, depletion and
amortization 32,581 47,829 46,340
Deferred income taxes (14,665) (18,949) (670)
Cumulative effect of changes in
accounting principles - 31,804 (1,217)
Minority interest 1,113 1,123 730
Net (gains) losses from:
Securities transactions 53,092 6,018 (4,363)
Disposition of property and equipment 1,009 1,419 199
Pension cost, net (377) (2,024) (2,134)
Other postretirement benefits, net - 1,830 (2,422)
Other, net (8,872) 3,442 (1,349)
Change in assets and liabilities:
Accounts and notes receivable (6,430) (1,776) (1,291)
Inventories 6,582 (33,814) 12,166
Prepaid expenses 4,885 207 (472)
Accounts payable and accrued
liabilities 30,218 (6,111) (1,567)
Income taxes (43,629) (13,501) 1,507
Accounts with affiliates 5,328 (4,106) 5,426
Other noncurrent assets 4,604 5,264 14,588
Other noncurrent liabilities 9,143 13,072 37,069
--------- -------- ---------
Total adjustments 74,582 31,727 102,540
-------- -------- ---------
Net cash provided (used) by
operating activities 58,120 (44,673) (7,269)
-------- -------- ---------
</TABLE>
F-8
<PAGE> 45
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures $(195,146) $ (85,150) $ (47,986)
Marketable securities:
Purchases (536,435) (156,573) (11,053)
Dispositions 623,937 473,935 79,398
Proceeds from disposition of
property and equipment 1,033 1,484 175,537
Investment in joint venture - - (14,405)
Loans to affiliates:
Loans (150,000) - (210)
Collections 150,000 - -
Other, net (2,819) 1,168 670
--------- --------- ---------
Net cash provided (used) by
investing activities (109,430) 234,864 181,951
--------- --------- ---------
Cash flows from financing activities:
Notes payable and long-term debt:
Additions 178,195 63,603 465,554
Principal payments (174,565) (263,093) (607,417)
Deferred financing costs (8,188) (1,881) (12,860)
Repayments of loans from affiliates (1,126) - -
Distributions to minority interest (869) (277) (613)
Dividends paid (34,724) (17,807) -
Purchases of treasury stock and other (202,492) (3,660) -
--------- --------- ---------
Net cash used by financing
activities (243,769) (223,115) (155,336)
--------- --------- ---------
Net change during the year from
operating, investing and
financing activities $(295,079) $ (32,924) $ 19,346
========= ========= =========
</TABLE>
F-9
<PAGE> 46
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities $(295,079) $(32,924) $ 19,346
Currency translation (14,907) (5,013) (86)
---------- -------- --------
(309,986) (37,937) 19,260
Balance at beginning of year 435,256 125,270 87,333
--------- -------- --------
Balance at end of year $ 125,270 $ 87,333 $106,593
========= ======== ========
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 107,638 $137,996 $ 91,576
Income taxes 54,628 31,369 11,897
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 47
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 ("TiO2")) and Rheox, Inc. (specialty chemicals).
At December 31, 1993, 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. Contran
Corporation holds, directly or through subsidiaries, approximately 90% of
Valhi's outstanding common stock. All of Contran's outstanding voting stock is
held by trusts established for the benefit of the children and grandchildren of
Harold C. Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons, the
Chairman of the Board of each of Contran, Valhi and NL and a director of
Tremont, may be deemed to control each of such companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of NL and its majority-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain
prior year amounts have been reclassified to conform to the 1993 presentation.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is
deemed to be other than the U.S. dollar are translated at year-end rates of
exchange and revenues and expenses are translated at weighted average exchange
rates prevailing during the year. Resulting translation adjustments, gains and
losses from hedges of investments in non-U.S. entities and the related income
tax effects are accumulated in the currency translation adjustments component
of shareholders' deficit. Currency transaction gains and losses are recognized
in income currently.
Cash and cash equivalents
Cash equivalents include U.S. Treasury securities purchased under
short-term agreements to resell, bank deposits, and government and commercial
notes and bills with original maturities of three months or less. Cash and
cash equivalents includes $6 million and $18 million at December 31, 1992 and
1993, respectively, which are restricted for letters of credit and certain
indebtedness agreements.
F-11
<PAGE> 48
Marketable securities and securities transactions
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" effective December 31, 1993, and the Company's marketable
securities were classified as either "available-for-sale" or "trading" and are
carried at market. Unrealized gains and losses on trading securities are
recognized in income currently. Unrealized gains and losses on
available-for-sale securities, and the related deferred income tax effects, are
accumulated in the marketable securities adjustment component of shareholders'
deficit. See Notes 4 and 19.
SFAS No. 115 superseded SFAS No. 12 under which marketable securities
were generally carried at the lower of aggregate market or amortized cost and
unrealized net gains were not recognized.
Realized gains or losses are computed based on specific identification
of the securities sold.
Inventories
Inventories are stated at the lower of cost (principally average cost)
or market. Amounts are removed from inventories at average cost.
Investment in joint ventures
Investments in 20% to 50%-owned entities are accounted for by the equity
method.
Intangible assets
Intangible assets, included in other noncurrent assets, are amortized by
the straight-line method over the periods expected to be benefitted.
Property, equipment, depreciation and depletion
Property and equipment are stated at cost. Interest costs related to
major, long-term capital projects are capitalized as a component of
construction costs. Maintenance, repairs and minor renewals are expensed;
major improvements are capitalized.
Depreciation is computed principally by the straight-line method over
the estimated useful lives of ten to 40 years for buildings and three to 20
years for machinery and equipment. Depletion of mining properties is computed
by the unit-of-production and straight-line methods.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Net sales
Sales are recognized as products are shipped.
F-12
<PAGE> 49
Income taxes
Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the income
tax and financial reporting carrying amounts of assets and liabilities,
including investments in subsidiaries and unconsolidated affiliates not
included in the Company's U.S. tax group (the "NL Tax Group").
Loss per share of common stock
Loss per share of common stock is based upon the weighted average
number of common shares outstanding. Common stock equivalents are excluded
from the computation because they are antidilutive.
NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox. Titanium
dioxide pigments are used to impart whiteness, brightness and opacity to a wide
variety of products, including paints, plastics, paper, fibers and ceramics.
Specialty chemicals include rheological additives which control the flow and
leveling characteristics of a variety of products, including paints, inks,
lubricants, sealants, adhesives and cosmetics. General corporate assets consist
principally of cash, cash equivalents and marketable securities.
F-13
<PAGE> 50
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Business segments
Net sales:
Kronos $ 732,108 $ 784,568 $697,048
Rheox 108,187 108,897 108,275
--------- --------- --------
$ 840,295 $ 893,465 $805,323
========= ========= ========
Operating income:
Kronos $ 110,767 $ 81,941 $ 36,146
Rheox 28,194 28,792 26,254
--------- --------- --------
138,961 110,733 62,400
General corporate income (expense):
Interest and dividends 40,502 14,234 4,104
Securities transactions (53,092) (6,018) 4,363
Expenses, net (44,921) (43,452) (41,516)
Interest expense (100,412) (118,511) (99,119)
--------- --------- --------
$ (18,962) $ (43,014) $(69,768)
========= ========= ========
Capital expenditures:
Kronos $ 189,475 $ 81,872 $ 46,913
Rheox 5,358 3,064 1,069
General corporate 313 214 4
--------- --------- --------
$ 195,146 $ 85,150 $ 47,986
========= ========= ========
Depreciation, depletion and
amortization:
Kronos $ 29,324 $ 44,360 $ 42,877
Rheox 2,974 3,184 3,176
General corporate 283 285 287
--------- --------- --------
$ 32,581 $ 47,829 $ 46,340
========= ========= ========
</TABLE>
F-14
<PAGE> 51
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Geographic areas
Net sales - point of origin:
United States $ 207,762 $ 238,170 $ 270,288
Europe 623,036 643,670 519,064
Canada 136,316 138,656 132,930
Eliminations (126,819) (127,031) (116,959)
--------- --------- ---------
$ 840,295 $ 893,465 $ 805,323
========= ========= =========
Net sales - point of destination:
United States $ 180,883 $ 204,270 $ 217,892
Europe 485,784 518,711 418,072
Canada 79,198 72,692 76,078
Other 94,430 97,792 93,281
--------- --------- ---------
$ 840,295 $ 893,465 $ 805,323
========= ========= =========
Operating income:
United States $ 16,578 $ 629 $ 20,981
Europe 99,646 81,805 19,658
Canada 22,737 28,299 21,761
--------- --------- ---------
$ 138,961 $ 110,733 $ 62,400
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Identifiable assets
Business segments:
Kronos $1,246,186 $1,008,453
Rheox 76,248 75,362
General corporate 149,673 122,734
---------- ----------
$1,472,107 $1,206,549
========== ==========
Geographic segments:
United States $ 498,029 $ 326,831
Europe 671,349 622,826
Canada 153,056 134,158
General corporate 149,673 122,734
---------- ----------
$1,472,107 $1,206,549
========== ==========
</TABLE>
F-15
<PAGE> 52
NOTE 4 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
<TABLE>
<CAPTION>
December 31,
-------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Current:
Marketable equity securities $ 6,996 $ -
U.S. Treasury securities 93,611 41,045
-------- -------
$100,607 $41,045
======== =======
Noncurrent:
Marketable equity securities $ 9,192 $18,428
U.S. Treasury securities 14,389 -
-------- -------
$ 23,581 $18,428
======== =======
Marketable equity securities:
Current:
Unrealized gains $ 13 $ -
Unrealized losses (4,233) -
Cost 11,216 -
-------- -------
Aggregate market $ 6,996 $ -
======== =======
Noncurrent:
Unrealized gains $ - $ 33
Unrealized losses (979) (2,951)
Cost 10,171 21,346
-------- -------
Aggregate market $ 9,192 $18,428
======== =======
Current U.S. Treasury securities:
Unrealized gains (losses) $ (59) $ 52
Cost 93,670 40,993
-------- -------
Aggregate market $ 93,611 $41,045
======== =======
</TABLE>
Upon adoption of SFAS No. 115 as of December 31, 1993, the Company
classified its portfolio of U.S. Treasury Securities as trading securities and
its marketable equity securities as available-for-sale.
F-16
<PAGE> 53
Net gains and losses from securities transactions are composed of:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Unrealized gains (losses):
Marketable equity securities $ (517) $ (52) $2,348
Other securities 2,337 (513) 1,172
Realized gains (losses):
Marketable equity securities (52,813) (528) (9)
Other securities 4,437 1,006 852
Writedown of noncurrent marketable
equity securities (6,536) (5,931) -
-------- ------- ------
$(53,092) $(6,018) $4,363
======== ======= ======
</TABLE>
NOTE 5 - INVENTORIES:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 43,773 $ 19,785
Work in process 9,201 7,173
Finished products 123,317 135,102
Supplies 39,941 32,107
-------- --------
$216,232 $194,167
======== ========
</TABLE>
NOTE 6 - INVESTMENT IN JOINT VENTURES:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
TiO2 manufacturing joint venture $ - $188,031
Other 2,434 2,756
------ --------
$2,434 $190,787
====== ========
</TABLE>
In October 1993, Kronos Louisiana, Inc. ("KLA"), a wholly-owned
subsidiary of Kronos, formed a manufacturing joint venture with Tioxide Group,
Ltd., a wholly-owned subsidiary of Imperial Chemicals Industries PLC
("Tioxide"). Under the terms of the joint venture and related agreements, KLA
contributed the Louisiana plant to the joint venture, Tioxide paid an aggregate
of approximately $205 million, including its tranche of the joint venture debt,
and Kronos and certain of its subsidiaries exchanged proprietary chloride
process and product technologies with Tioxide and certain of its affiliates. Of
the total consideration paid by Tioxide, $30 million is attributable to the
exchange of technologies. The manufacturing joint venture, which was equally
owned by KLA and a subsidiary of Tioxide, owns and operates the Louisiana
chloride process TiO2 plant formerly owned by KLA. Upon formation, the
F-17
<PAGE> 54
joint venture obtained $216 million in new financing, which is collateralized
by the partnership interests of the partners and substantially all of the
assets of the joint venture. The new financing consists of two equal tranches,
one attributable to each partner, and each tranche is serviced through (i) the
purchase of the plant's TiO2 output in equal quantities by the partners and
(ii) cash capital contributions. KLA has entered into an Offtake Agreement
which requires the purchase of one-half of the TiO2 produced by the joint
venture. Kronos' pro rata share of the joint venture debt is reflected as
outstanding indebtedness of the Company because Kronos has guaranteed the
purchase obligation relative to the debt service of its tranche. See Note 10.
The manufacturing joint venture is intended to be operated on a
break-even basis and, accordingly, Kronos' transfer price for its share of the
TiO2 produced is equal to its share of the joint venture's operating expenses
(fixed and variable costs of production and interest expense). Kronos' share
of the fixed and variable production costs are reported as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the
joint venture's interest expense is reported as a component of interest
expense.
A summary balance sheet of the manufacturing joint venture is shown
below.
<TABLE>
<CAPTION>
December 31,
1993
------------
(In thousands)
<S> <C>
ASSETS
Current assets $ 44,477
Other assets 2,376
Property and equipment, net 347,344
--------
$394,197
========
LIABILITIES AND PARTNERS' EQUITY
Long-term debt, including current portion:
Kronos tranche $104,143
Tioxide tranche 102,600
Other liabilities, primarily current 16,197
--------
222,940
Partners' equity 171,257
--------
$394,197
========
</TABLE>
F-18
<PAGE> 55
NOTE 7 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
December 31,
-----------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Intangible assets, net of accumulated
amortization of $9,792 and $11,941 $19,127 $15,317
Deferred financing costs, net 20,533 18,954
Other 8,581 8,084
------- -------
$48,241 $42,355
======= =======
</TABLE>
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
December 31,
------------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Accounts payable $ 98,990 $ 89,010
-------- --------
Accrued liabilities:
Employee benefits 38,506 32,350
Environmental costs 12,080 14,517
Interest 4,376 6,933
Miscellaneous taxes 3,980 2,240
Other 31,706 32,215
-------- --------
90,648 88,255
-------- --------
$189,638 $177,265
======== ========
</TABLE>
NOTE 9 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
December 31,
-----------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Environmental costs $59,403 $ 70,789
Insurance claims expenses 10,014 10,299
Employee benefits 10,392 10,084
Deferred technology fee income - 26,881
Other 4,069 3,256
------- --------
$83,878 $121,309
======= ========
</TABLE>
F-19
<PAGE> 56
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
----------------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Notes payable - non-U.S. credit agreements $ 315 $ -
========== ========
Long-term debt:
NL Industries:
11.75% Senior Secured Notes $ - $250,000
13% Senior Secured Discount Notes - 102,627
7.5% sinking fund debentures 14,374 -
---------- --------
14,374 352,627
---------- --------
Kronos:
DM bank credit facility 681,560 316,032
Joint venture term loan - 104,143
Kronos Louisiana credit facility 215,000 -
Canadian bank credit agreement 3,942 -
5% to 8% bank loans payable through 2000 19,367 12,338
Other 2,230 2,175
---------- --------
922,099 434,688
---------- --------
Rheox:
Bank term loan 97,500 82,500
Other 1,311 1,070
---------- --------
98,811 83,570
---------- --------
1,035,284 870,885
Less current maturities 43,328 35,716
---------- --------
$ 991,956 $835,169
========== ========
</TABLE>
In October 1993, NL issued $250 million principal amount of 11.75%
Senior Secured Notes due 2003 and $188 million principal amount at maturity
($100 million proceeds at issuance) of 13% Senior Secured Discount Notes due
2005 (collectively, the "Notes"). The Notes are collateralized by a series of
intercompany notes from Kronos International, Inc. ("KII"), a wholly-owned
subsidiary of Kronos, to NL, the terms of which mirror those of the respective
Notes (the "Mirror Notes"). The Senior Secured Notes are also collateralized by
a first priority lien on the stock of Kronos and a second priority lien on the
stock of Rheox. The Senior Secured Notes and the Senior Secured Discount Notes
are redeemable, at the Company's option, after October 2000 and October 1998,
respectively, except that up to one-third of the aggregate principal amount of
the Senior Secured Discount Notes are redeemable (at 113% of the then-accreted
value) upon any Common Stock Offering, as defined, prior to October 1996. For
redemptions, other than redemptions pursuant to any Common Stock Offering, the
redemption prices range from 101.5% (starting October 2000) declining to 100%
(after October 2001) of the principal amount for the Senior Secured Notes and
range from 106% (starting October 1998) declining to 100% (after October 2001)
of the then-accreted value of the Senior Secured Discount Notes. In the event
of a Change of Control, as defined, the Company would be required to make an
offer to purchase the Notes at 101% of the principal amount of the Senior
Secured Notes and 101% of the then-accreted value of the Senior Secured Discount
Notes. The Notes are issued
F-20
<PAGE> 57
pursuant to indentures which contain a number of covenants and restrictions
which, among other things, restrict the ability of the Company and its
subsidiaries to incur debt, incur liens, pay dividends or merge or consolidate
with, or sell or transfer all or substantially all of its assets to, another
entity. At December 31, 1993, there were no amounts available for payment for
dividends pursuant to the terms of the indentures. The Senior Secured Discount
Notes do not require cash interest payments for the first five years. At
December 31, 1993, the quoted market price per $100 principal amount at
maturity of the Senior Secured Notes and the Senior Secured Discount Notes was
$104 and $57.75, respectively.
The DM credit facility, as amended, consists of a DM 448 million term
loan due from 1997 to 1999 and a DM 250 million revolving credit facility due
no later than 2000, of which DM 100 million is outstanding and DM 150 million
was available for future borrowings by KII at December 31, 1993. During
February 1994, the Company borrowed an additional DM 25 million under the
revolving credit facility. Borrowings bear interest at DM LIBOR plus 1.625%
(8.19% at December 31, 1993). KII has entered into agreements with certain
banks in the syndicate which caps DM LIBOR at 10.5% on DM 520 million principal
amount of the loan. The principal amount subject to the cap declines as the
loan is repaid. NL and Kronos have agreed, under certain circumstances, to
provide KII with up to DM 125 million through January 1, 2001.
The DM credit facility is collateralized by pledges of the stock of
certain KII subsidiaries. The credit agreement restricts KII's ability to
incur additional indebtedness, restricts its dividends and other payments to
affiliates, requires it to maintain specified debt service coverage and other
ratios, and contains other provisions and restrictive covenants customary in
lending transactions of this type.
Borrowings under KLA's tranche of the joint venture term loan bear
interest at LIBOR plus 1.625% (5.01% at December 31, 1993) and are repayable in
quarterly installments through September 2000. See Note 6.
Rheox has a credit agreement providing for a seven-year term loan due in
quarterly installments through December 1997 and a $15 million revolving
credit/letter of credit facility due March 1994. At December 31, 1993, letters
of credit aggregating $1 million were outstanding. Borrowings bear interest,
at Rheox's option, at prime rate plus 1.5% or LIBOR plus 2.5% (5.83% at
December 31, 1993), and are collateralized by the stock of Rheox and its
domestic subsidiary and by Rheox's U.S. assets. The credit agreement restricts
Rheox's ability to incur additional indebtedness, restricts its dividend
payments and contains other provisions and restrictive covenants customary in
lending transactions of this type. The Company has initiated discussions with
the agent bank regarding the extension of the revolving credit/letter of credit
facility.
In connection with the credit agreement, Rheox has entered into interest
rate swap agreements to mitigate the impact of changes in interest rates on the
term loan. These swap agreements, which mature December 31, 1994, effectively
convert the interest rate on $60 million of the loan (at December 31, 1993)
from a variable rate to a fixed rate of 8.1% The effective interest rate on
the Rheox term loan was 7.3% at December 31, 1993, including the impact of the
swap agreements. At December 31, 1993, the fair value of the swap agreements
payable is estimated to be $1 million, which amount represents the estimated
cost to the Company if it were to terminate the swap agreements at that date.
Rheox is exposed to interest rate risk in the event of nonperformance by the
other parties to the agreements. However, Rheox does not anticipate
nonperformance by such
F-21
<PAGE> 58
parties.
Unused lines of credit available for short-term borrowings under U.S.
and non-U.S. credit facilities approximated $14 million and $117 million,
respectively, at December 31, 1993.
Other loans consist of non-U.S. mortgage and other borrowings of the
Company's subsidiaries denominated primarily in non-U.S. currencies.
Substantially all of the long-term debt of subsidiaries, except to the
extent of the interest rate swap agreements relating to the Rheox term loan as
noted above, have variable interest rates which adjust with changes in market
interest rates or have short terms to maturity, and the book value of such
indebtedness is deemed to approximate fair value.
The aggregate maturities of long-term debt at December 31, 1993 are
shown in the table below.
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------- --------------
(In thousands)
<S> <C>
1994 $ 35,716
1995 39,327
1996 40,940
1997 101,100
1998 102,186
1999 and thereafter 636,489
--------
955,758
Less unamortized original issue discount on the
Senior Secured Discount Notes 84,873
--------
$870,885
========
</TABLE>
NOTE 11 - EMPLOYEE BENEFIT PLANS:
Company-sponsored pension plans
The Company maintains various defined benefit and defined contribution
pension plans covering substantially all employees. Personnel employed by
non-U.S. subsidiaries are covered by separate plans in their respective
countries and U.S. employees are covered by various plans including the
Retirement Programs of NL Industries, Inc. (the "NL Pension Plan").
A majority of U.S. employees are eligible to participate in a
contributory savings plan with partial matching contributions by the Company.
The Company's expense related to matching contributions was $.6 million, $1.0
million and nil in 1991, 1992 and 1993, respectively.
Defined pension benefits are generally based upon years of service and
compensation under fixed-dollar, final pay or career average formulas, and the
related expenses are based upon independent actuarial valuations. The funding
policy for U.S. defined benefit plans is to contribute amounts which satisfy
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended. Non-U.S. defined benefit pension plans are funded in accordance with
applicable statutory requirements.
F-22
<PAGE> 59
The funded status of the Company's defined benefit pension plans is set
forth below. The rates used in determining the actuarial present value of
benefit obligations were (i) discount rates - 7% to 8.5% (1992 - 8% to 9%) and
(ii) rates of increase in future compensation levels - nil to 6% (1992 - nil to
7%). The expected long-term rates of return on assets used ranged from 8% to
10% in both 1992 and 1993. Plan assets are comprised primarily of investments
in U.S. and non-U.S. corporate equity and debt securities, short-term
investments, mutual funds and group annuity contracts.
SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated
pension benefit obligation exceeds the unfunded accrued pension liability.
Variances from actuarially assumed rates, including the rate of return on
pension plan assets, will result in additional increases or decreases in
accrued pension liabilities, pension expense and funding requirements in future
periods.
<TABLE>
<CAPTION>
Assets exceed Accumulated benefits
accumulated benefits exceed assets
-------------------- ---------------------
December 31, December 31,
-------------------- ---------------------
1992 1993 1992 1993
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $27,874 $40,612 $141,909 $137,156
Nonvested benefits 933 3,160 3,297 2,893
------- ------- -------- --------
Accumulated benefit obligations 28,807 43,772 145,206 140,049
Effect of projected salary
increases 6,289 6,235 8,762 17,664
------- ------- -------- --------
Projected benefit obligations 35,096 50,007 153,968 157,713
Plan assets at fair value 50,579 63,565 102,553 88,881
------- ------- -------- --------
Plan assets over (under) projected
benefit obligations 15,483 13,558 (51,415) (68,832)
Unrecognized net loss (gain) from
experience different from
actuarial assumptions 718 774 (29,744) (4,958)
Unrecognized prior service cost
(credit) 3,646 3,121 (4,284) (3,879)
Unrecognized transition obligations
(assets) being amortized over 15
to 18 years (3,791) (1,146) 5,017 2,586
Adjustment required to recognize
minimum liability - - - (3,442)
------- ------- -------- --------
Total prepaid (accrued)
pension cost 16,056 16,307 (80,426) (78,525)
Less current portion - - (6,470) (5,919)
------- ------- -------- --------
Noncurrent prepaid (accrued)
pension cost $16,056 $16,307 $(73,956) $(72,606)
======= ======= ======== ========
</TABLE>
F-23
<PAGE> 60
The components of the net periodic defined benefit pension cost are
set forth below.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned during the year $ 5,151 $ 4,272 $ 4,082
Interest cost on projected benefit obligations 12,705 13,804 14,430
Actual return on plan assets (13,147) (12,248) (15,647)
Net amortization and deferrals 439 (1,346) 2,413
-------- -------- --------
$ 5,148 $ 4,482 $ 5,278
======== ======== ========
</TABLE>
Incentive bonus programs
The Company has incentive bonus programs for certain employees providing
for annual payments, which may be in the form of NL common stock, based on
formulas involving the profitability of Kronos and Rheox in relation to the
annual operating plan of the employee's business unit and individual
performance.
Postretirement benefits other than pensions
In addition to providing pension benefits, the Company currently
provides certain health care and life insurance benefits for eligible retired
employees. Certain of the Company's U.S. and Canadian employees may become
eligible for such postretirement health care and life insurance benefits if
they reach retirement age while working for the Company. In 1989, the Company
began phasing out such benefits for currently active U.S. employees over a
ten-year period. The majority of all retirees are required to contribute a
portion of the cost of their benefits and certain current and future retirees
are eligible for reduced health care benefits at age 65. The Company's policy
is to fund medical claims as they are incurred, net of any contributions by the
retirees. Effective January 1, 1993, the Company's postretirement medical
plans were revised to, among other things, increase the deductible and maximum
out-of-pocket amounts, increase the retiree copayment percentage and pass on
future cost increases to the participants through increased contributions or
decreased reimbursements.
The rates used in determining the actuarial present value of the
accumulated benefit obligations were (i) discount rate - 7% (1992 - 7.75%),
(ii) rate of increase in future compensation levels - 4% (1992 - 5%), (iii)
rate of increase in future health care costs - 11% in 1994, gradually declining
to 5% in 2000 and thereafter (1992 - 14% in 1993, gradually declining to 6% in
2000 and thereafter) and (iv) return on plan assets - 9% in both 1992 and 1993.
If the health care cost trend rate was increased by one percentage point for
each year, postretirement benefit expense would have increased approximately
$.4 million in 1993, and the actuarial present value of accumulated benefit
obligations at December 31, 1993 would have increased by approximately $3.5
million.
F-24
<PAGE> 61
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Retiree benefits $62,696 $61,686
Other fully eligible active plan participants 1,151 1,106
Other active plan participants 2,336 1,962
------- -------
66,183 64,754
Plan assets at fair value 7,640 8,095
------- -------
Accumulated postretirement benefit obligations
in excess of plan assets 58,543 56,659
Unrecognized net gain from experience different
from actuarial assumptions 1,588 2,390
Unrecognized prior service credit 16,618 15,145
------- -------
Total accrued postretirement benefits cost 76,749 74,194
Less current portion 4,988 5,872
------- -------
Noncurrent accrued postretirement benefits cost $71,761 $68,322
======= =======
</TABLE>
The components of the Company's net periodic postretirement benefit cost
pursuant to SFAS No. 106 for 1992 and 1993 are set forth below:
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Interest cost on accumulated benefit obligations $6,189 $ 4,911
Service cost benefits earned during the year 130 127
Expected return on plan assets (650) (647)
Net amortization and deferrals - (1,473)
------ -------
$5,669 $ 2,918
====== =======
</TABLE>
The aggregate net pay-as-you-go cost to the Company for these benefits
approximated $7 million in 1991.
NOTE 12 - SHAREHOLDERS' DEFICIT:
Common stock
<TABLE>
<CAPTION>
Shares of common stock
-------------------------------------
Treasury
Issued stock Outstanding
------ -------- -----------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1990 66,839 2,704 64,135
Purchase of treasury shares - 12,934 (12,934)
------ ------ -------
Balance at December 31, 1991 66,839 15,638 51,201
Purchase of treasury shares - 311 (311)
------ ------ -------
Balance at December 31, 1992 and 1993 66,839 15,949 50,890
====== ====== =======
</TABLE>
F-25
<PAGE> 62
During 1990, NL's Board of Directors authorized the purchase of up to
five million shares of NL's common stock over an unspecified period of time, to
be held as treasury shares available for general corporate purposes. Pursuant
to this authorization, the Company purchased 1.6 million and .3 million shares
of its common stock in the open market at an aggregate cost of $21 million and
$4 million in 1991 and 1992, respectively. In September 1991, the Company
purchased 11.3 million shares of its common stock pursuant to a "Dutch auction"
self-tender offer for an aggregate cost of $181 million, including 10.9 million
shares purchased from Valhi for $175 million.
Common stock options
The 1989 Long Term Performance Incentive Plan of NL Industries, Inc.
(the "NL Option Plan") provides for the discretionary grant of restricted
common stock, stock options, stock appreciation rights ("SARs") and other
incentive compensation to officers and other key employees of the Company.
Although certain stock options and SARs granted pursuant to similar plans which
preceded the NL Option Plan ("the Predecessor Option Plans") remain outstanding
at December 31, 1993, no additional options may be granted under the
Predecessor Option Plans.
Up to five million shares of NL common stock may be issued pursuant to
the NL Option Plan. The NL Option Plan provides for the grant of options that
qualify as incentive options and for options which are not so qualified.
Generally, stock options and SARs (collectively, "options") are granted at a
price equal to 100% of the market price at the date of grant, vest over a five
year period and expire ten years from the date of grant. Restricted stock,
forfeitable unless certain periods of employment are completed, is held in
escrow in the name of the grantee until the restriction period expires. No
SARs have been granted under the NL Option Plan.
Changes in outstanding options granted pursuant to the NL Option Plan
and the Predecessor Option Plans are summarized in the table below. At
December 31, 1993, options to purchase 610,081 shares were exercisable and
options to purchase 259,000 shares become exercisable in 1994. At December 31,
1993, an aggregate of 3.5 million shares were available for future grants under
the NL Option Plan.
F-26
<PAGE> 63
<TABLE>
<CAPTION>
Amount
Exercise payable
price per upon
Shares share exercise
------ --------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Outstanding at December 31, 1990 533 $ 8.65 - 26.17 $10,550
Granted 522 10.50 5,486
Exercised (4) 8.65 - 11.66 (44)
----- -------------- -------
Outstanding at December 31, 1991 1,051 8.65 - 26.17 15,992
Granted 237 9.31 2,207
Canceled or expired (10) 9.31 - 26.17 (126)
----- -------------- -------
Outstanding at December 31, 1992 1,278 8.65 - 24.19 18,073
Granted 451 5.00 - 7.00 2,645
Canceled or expired (3) 8.65 - 10.78 (27)
----- -------------- -------
Outstanding at December 31, 1993 1,726 $ 5.00 - 24.19 $20,691
===== ============== =======
</TABLE>
Preferred stock
The Company is authorized to issue a total of five million shares of
preferred stock. The rights of preferred stock as to dividends, redemption,
liquidation and conversion are determined upon issuance.
NOTE 13 - OTHER INCOME, NET:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Currency transaction gains, net $ 1,594 $ 1,735 $ 3,299
Technology fee income - - 2,048
Royalty income 2,547 1,014 2,016
Disposition of property and equipment (1,009) (1,419) (199)
Other, net 3,911 (133) 2,685
------- ------- -------
$ 7,043 $ 1,197 $ 9,849
======= ======= =======
</TABLE>
F-27
<PAGE> 64
NOTE 14 - INCOME TAXES:
The components of (i) loss before income taxes, minority interest,
extraordinary items and cumulative effect of changes in accounting principles
("pretax income (loss)"), (ii) the difference between the provision for income
taxes attributable to pretax income (loss) and the amounts that would be
expected using the U.S. federal statutory income tax rate of 34% in 1991 and
1992 and 35% in 1993, (iii) the provision for income taxes and (iv) the
comprehensive tax provision (benefit) are presented below.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Pretax income (loss):
U.S. $(25,330) $(52,724) $(41,579)
Non-U.S. 6,368 9,710 (28,189)
-------- -------- --------
$(18,962) $(43,014) $(69,768)
======== ======== ========
Expected tax benefit $ (6,447) $(14,625) $(24,419)
Non-U.S. tax rates (4,681) (11,224) (15,620)
Rate difference on capital loss carryback
and capital loss for which no carryback
was available 14,351 - -
Rate change adjustment of deferred taxes - - 6,823
Valuation allowance - 20,237 40,827
Incremental tax on income of companies not
included in the NL Tax Group 3,198 5,385 2,553
U.S. state income taxes 2,605 353 486
Other, net (5,116) 333 2,063
-------- -------- --------
$ 3,910 $ 459 $ 12,713
======== ======== ========
Provision for income taxes:
Current income tax expense (benefit):
U.S. federal $ (6,180) $ (2,103) $ (915)
U.S. state 2,604 (292) 870
Non-U.S. 14,904 21,803 14,083
-------- -------- --------
11,328 19,408 14,038
-------- -------- --------
Deferred income tax expense (benefit):
U.S. federal 7,658 (612) 244
U.S. state - 645 (384)
Non-U.S. (15,076) (18,982) (1,185)
-------- -------- --------
(7,418) (18,949) (1,325)
-------- -------- --------
$ 3,910 $ 459 $ 12,713
======== ======== ========
</TABLE>
F-28
<PAGE> 65
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Comprehensive tax provision (benefit)
allocable to:
Pretax loss $ 3,910 $ 459 $12,713
Extraordinary items, principally
deferred income taxes (7,241) - -
Shareholders' deficit, principally deferred
income taxes allocable to currency
translation and marketable securities
adjustments 1,023 (1,196) (1,243)
------- ------- -------
$(2,308) $ (737) $11,470
======= ======= =======
</TABLE>
Changes in deferred income taxes related to the adoption of new
accounting standards are disclosed in Note 19. During 1993, the Company's
valuation allowance, in the aggregate, increased by $47 million. The
components of the net deferred tax liability are summarized below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1992 1993
---- ----
Deferred tax Deferred tax
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In thousands)
<S> <C> <C> <C> <C>
Tax effect of temporary differences relating
to:
Inventories $ 3,823 $ (2,986) $ 3,965 $ (2,532)
Property and equipment 261 (101,409) 2,694 (90,356)
Accrued postretirement
benefits cost 26,112 - 25,955 -
Accrued pension cost 7,808 (9,770) 9,712 (9,224)
Accrued environmental costs 21,404 - 26,784 -
Other accrued liabilities and
deductible differences 14,484 - 22,070 -
Other taxable differences - (95,892) - (104,940)
Tax on unremitted earnings of
non-U.S. subsidiaries 619 (39,277) 577 (27,742)
Tax loss and tax credit
carryforwards 112,212 - 137,706 -
Valuation allowance (86,031) - (133,377)
-------- --------- --------- ---------
Gross deferred tax assets
(liabilities) 100,692 (249,334) 96,086 (234,794)
Reclassification, principally
netting by tax jurisdiction (99,016) 99,016 (92,194) 92,194
-------- --------- --------- ---------
Net total deferred tax assets
(liabilities) 1,676 (150,318) 3,892 (142,600)
Net current deferred tax
assets (liabilities) 1,676 (4,573) 3,315 (3,623)
-------- --------- --------- ---------
Net noncurrent deferred tax
assets (liabilities) $ - $(145,745) $ 577 $(138,977)
======== ========= ========= =========
</TABLE>
F-29
<PAGE> 66
The components of the provision for deferred income taxes for 1991 (a
disclosure no longer required upon the adoption of SFAS No. 109) is summarized
below.
<TABLE>
<CAPTION>
Year ended
December 31,
1991
------------
(In thousands)
<S> <C>
Depreciation $ 2,525
Cash basis income and expense (1,607)
Undistributed income of subsidiaries (8,747)
Other, net 411
-------
$(7,418)
=======
</TABLE>
At December 31, 1993, the Company had $250 million of non-U.S. income
tax loss carryforwards with no expiration dates. In addition, the Company had,
for U.S. federal income tax purposes, capital loss carryforwards of $17 million
which expire during 1996, net operating loss carryforwards of $30 million, of
which $7 million expires in 2007 and $23 million expires in 2008, and an
alternative minimum tax credit carryforward of $11 million with no expiration
date.
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. In June 1993, the German tax
authorities issued assessment reports in connection with examinations of the
Company's German income tax returns, disallowing the Company's claims for
refunds, primarily for 1989 and 1990, aggregating DM 160 million ($92 million
at December 31, 1993) and proposing additional taxes of DM 100 million ($58
million at December 31, 1993). The Company has applied for administrative
relief from collection procedures and may grant a lien on certain German assets
while the Company contests the proposed adjustments. Although the Company
believes it will ultimately prevail, in June 1993, the Company reclassified
refundable income tax claims of approximately DM 160 million ($92 million) from
current assets to noncurrent assets due to the uncertain timing of a
resolution. The Company believes that it has adequately provided accruals for
additional income taxes and related interest expense which may ultimately
result from such examinations and believes that the ultimate disposition of
such examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity. In July
1992, the Company paid $15 million of previously accrued interest and income
taxes related to the settlement of examinations of the Company's U.S. federal
income tax returns for the years ended December 31, 1979 through 1984.
In 1991, based upon revisions in the Company's estimate of liabilities
for income taxes and related interest expense which may ultimately result from
the examinations referred to above, the Company reduced its accrual for income
tax related interest by $9 million. This change in estimate considered, among
other things, the Company's settlement with the IRS of a matter related to the
qualified status of certain of the Company's defined benefit pension plans,
which plans were determined to be qualified with respect to the periods in
question.
F-30
<PAGE> 67
NOTE 15 - OTHER ITEMS:
Research, development and sales technical support expense approximated
$9 million in 1991, $11 million in 1992 and $10 million in 1993.
Interest capitalized in connection with long-term capital projects was
$26 million in 1991, $9 million in 1992 and $1 million in 1993.
NOTE 16 - EXTRAORDINARY ITEMS:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1991 1992 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Gain (loss) on early extinguishment of
indebtedness:
7.5% sinking fund debentures $ 282 $ - $ -
Kronos Louisiana term loan and
DM credit facility - - (27,815)
Provision for income taxes (6) - -
------ ------ --------
276 - (27,815)
Income tax benefit of utilization of tax
loss and tax credit carryforwards 7,247 - -
------ ------ --------
$7,523 $ - $(27,815)
====== ====== ========
</TABLE>
The extraordinary loss in 1993 relates to the settlement of certain
interest rate swap agreements for $20 million in cash in conjunction with
repaying the Louisiana plant indebtedness and the write-off of deferred
financing costs related to such repayment and the paydown of a portion of the
DM bank credit facility.
Upon adoption of SFAS No. 109 in 1992, utilization of tax loss and tax
credit carryforwards are not classified as extraordinary items.
NOTE 17 - RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. While no
transactions of the type described above are planned or proposed with respect
to the Company, the Company from time to time considers, reviews and evaluates,
and understands that Contran, Valhi and related entities consider, review and
evaluate, such transactions. Depending upon the business, tax and other
objectives then relevant, and restrictions under the indentures and other
agreements, it is possible that the Company might be a party to one or more
such transactions in the future.
F-31
<PAGE> 68
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
During August 1991, the Company entered into a revolving demand loan
agreement with Valhi in an amount not to exceed the lesser of $200 million or
the amount Valhi has available under bank credit agreements. The Company
advanced $150 million pursuant to this agreement which Valhi repaid in
September 1991. Interest income on the amount advanced under the demand loan
agreement was $.6 million in 1991.
Baroid Corporation, a former wholly-owned subsidiary of the Company and
currently a subsidiary of Dresser Industries, Inc., and the Company are parties
to an intercorporate services agreement (the "Baroid ISA") pursuant to which,
as amended, Baroid agreed to make certain services available to the Company on
a fee basis subject to termination or renewal by mutual agreement. Management
services fee expense pursuant to the Baroid ISA approximated $4.3 million in
1991, $2.3 million in 1992 and $.3 million in 1993.
The Company is a party to an intercorporate services agreement with
Valhi (the "Valhi ISA") whereby Valhi provides certain management, financial
and administrative services to the Company on a fee basis. Management services
fee expense related to the Valhi ISA was $1.5 million in 1991, $1.4 million in
1992 and $.7 million in 1993.
The Company was party to an intercorporate services agreement with
Tremont (the "Tremont ISA") until June 1993 when the agreement was terminated.
Under the terms of the contract, the Company provided certain management,
financial and legal services to Tremont on a fee basis. Management services
fee income related to the Tremont ISA was $.3 million in 1991, $.5 million in
1992 and $.1 million in 1993.
Purchases from Tremont in the ordinary course of business pursuant to a
long-term supply contract were $.6 million in 1991, $.6 million in 1992 and $.4
million in 1993.
Sales to Baroid in the ordinary course of business were $1.8 million in
1991, $2.1 million in 1992 and $1.8 million in 1993.
Purchases in the ordinary course of business from unconsolidated joint
ventures were approximately $9 million in 1991 and 1992 and $22 million in
1993.
Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
and Valhi have agreed that the Company will pay Valhi the aggregate difference
between the option price and the market value of Valhi's common stock on the
exercise date of such options. For financial reporting purposes, the Company
accounts for the related expense (nil in 1991, 1992 and 1993) in a manner
similar to accounting for SARs. At December 31, 1993, employees of the Company
held options to purchase 365,000 shares (347,000 shares vested) of Valhi common
stock at exercise prices ranging from $5 to $15 per share.
In conjunction with the formation of Baroid, the Company and Baroid
entered into a Cross-Indemnification Agreement pursuant to which, as amended,
the Company
F-32
<PAGE> 69
agreed to indemnify Baroid with regard to all liabilities not expressly assumed
by Baroid and Baroid agreed to indemnify the Company with regard to all
liabilities assumed by Baroid.
Net amounts payable to affiliates are summarized in the following table.
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1993
---- ----
(In thousands)
<S> <C> <C>
Tremont Corporation $4,056 $4,777
Louisiana Pigment Company, L.P. - 4,789
Valhi, Inc. 30 -
------ ------
$4,086 $9,566
====== ======
</TABLE>
NOTE 18 - COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases, pursuant to operating leases, various manufacturing
and office space and transportation equipment. Most of the leases contain
purchase and/or various term renewal options at fair market and fair rental
values, respectively. In most cases management expects that, in the normal
course of business, leases will be renewed or replaced by other leases. In
addition, Kronos has a governmental concession through 2007 to operate its
ilmenite mine in Norway.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement, which expired in 1991 and to which an
extension through 2011 has been agreed in principle, the lessor provides some
raw materials, auxiliary and operating materials and utilities services
necessary to operate the Leverkusen facility. Kronos and the lessor are
continuing discussions regarding a definitive agreement for the extension of
the supplies and services agreement. Both the lease and the supplies and
services agreements restrict the Company's ability to transfer ownership or use
of the Leverkusen facility.
F-33
<PAGE> 70
Net rent expense aggregated $6 million in 1991, $9 million in 1992 and
$8 million in 1993. At December 31, 1993, minimum rental commitments under the
terms of noncancellable operating leases were as follows:
<TABLE>
<CAPTION>
Years ending December 31, Real Estate Equipment
- ------------------------- ----------- ---------
(In thousands)
<S> <C> <C>
1994 $ 1,234 $1,776
1995 1,306 1,413
1996 1,307 777
1997 1,291 548
1998 1,263 468
1999 and thereafter 13,193 15
------- ------
$19,594 $4,997
======= ======
</TABLE>
Legal proceedings
Lead pigment litigation. Since 1987, the Company, other past
manufacturers of lead pigments for use in paint and lead-based paint and the
Lead Industries Association have been named as defendants in various legal
proceedings seeking damages for personal injury and property damage allegedly
caused by the use of lead-based paints. Certain of these actions have been
filed by or on behalf of large United States cities or their public housing
authorities. These legal proceedings seek recovery under a variety of
theories, including negligent product design, failure to warn, breach of
warranty, conspiracy/concert of action, enterprise liability, market share
liability, intentional tort, and fraud and misrepresentation.
The plaintiffs in these actions generally seek to impose on the
defendants responsibility for lead paint abatement and asserted health concerns
associated with the use of lead-based paints, which was permitted for interior
residential use in the United States until 1973, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical
monitoring expenses and costs for educational programs. Most of these legal
proceedings are in various pre-trial stages; several are on appeal.
The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
actions vigorously. Considering the Company's previous involvement in the lead
and lead pigment businesses, there can be no assurance that additional
litigation similar to that currently pending will not be filed.
Environmental matters and litigation. Some of the Company's current and
former facilities, including several divested secondary lead smelters and
former mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws. Additionally, in connection with past disposal practices, the Company
has been named a potential responsible party ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act ("CERCLA") in
approximately 80 governmental enforcement and private actions associated with
hazardous waste sites and former mining locations, some of which are on the
U.S. Environmental
F-34
<PAGE> 71
Protection Agency's Superfund National Priorities List. These actions seek
cleanup costs and/or damages for personal injury or property damage. While the
Company may be jointly and severally liable for such costs, in most cases, it
is only one of a number of PRPs who are also jointly and severally liable. In
addition, the Company is a party to a number of lawsuits filed in various
jurisdictions alleging CERCLA or other environmental claims. At December 31,
1993, the Company had accrued $70 million in respect of those environmental
matters which are reasonably estimable. It is not possible to estimate the
range of costs for certain sites. The upper end of the range of reasonably
possible costs to the Company for sites which it is possible to estimate costs
is approximately $105 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. The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs or allocation of such costs among PRPs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters. Further, there can
be no assurance that additional environmental matters will not arise in the
future.
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As
with other companies engaged in similar businesses, certain operations and
products of the Company have the potential to cause environmental or other
damage. The Company continues to implement various policies and programs in an
effort to minimize these risks. The Company's policy is to comply with
environmental laws and regulations at all of its facilities and to continually
strive to improve environmental performance in association with applicable
industry initiatives. It is possible that future developments, such as
stricter requirements of environmental laws and enforcement policies
thereunder, could affect the Company's production, handling, use, storage,
transportation, sale or disposal of such substances.
Other litigation. The Company is involved in other litigation,
including litigation regarding the Feed Materials Production Center in Ohio
owned by the U.S. Department of Energy, formerly managed under contract by NLO,
Inc., a wholly-owned subsidiary of the Company, and other matters.
The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
present and former businesses.
The Company currently believes the disposition of all claims and
disputes individually or in the aggregate, should not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liquidity.
F-35
<PAGE> 72
Concentrations of credit risk
Sales of TiO2 accounted for almost 90% of net sales during the past
three years. TiO2 is sold to the paint, paper and plastics industries. Such
markets are generally considered "quality-of-life" markets whose demand for
TiO2 is influenced by the relative economic well- being of the various
geographic regions. TiO2 is sold to over 5,000 customers, none of which
represents a significant portion of net sales. In the past three years,
approximately one-half of the Company's TiO2 sales by volume were to Europe and
approximately one-third in 1991 and 1992 and 38% in 1993 of sales were
attributable to North America.
Consolidated cash and cash equivalents includes $22 million and $64
million invested in U.S. Treasury securities purchased under short- term
agreements to resell at December 31, 1992 and 1993, respectively. Such
securities are held in trust for the Company by a single U.S. bank.
NOTE 19 - CHANGES IN ACCOUNTING PRINCIPLES:
In 1993, the Company adopted SFAS No. 115 (marketable securities) as of
December 31, 1993. In 1992, the Company (i) elected early compliance with both
SFAS No. 106 (OPEB) and SFAS No. 109 (income taxes) as of January 1, 1992; (ii)
elected immediate recognition of the OPEB transition obligation; and (iii)
elected to apply SFAS No. 109 prospectively and not restate prior years. The
cumulative effect of changes in accounting principles adjustments are shown
below.
<TABLE>
<CAPTION>
Amount reflected in
-----------------------------
Equity
Earnings component
-------- ---------
(In thousands)
<S> <C> <C>
Increase (decrease) in net assets at
December 31, 1993 - SFAS No. 115:
Marketable securities $1,872 $(1,872)
Deferred income taxes (655) 655
------ -------
$1,217 $(1,217)
====== =======
</TABLE>
<TABLE>
<CAPTION>
Amount
----------
(In thousands)
<S> <C>
Increase (decrease) in net assets at
January 1, 1992 - SFAS Nos. 106 and 109:
Accrued postretirement benefits cost $(74,918)
Deferred income taxes, net 43,114
--------
$(31,804)
========
</TABLE>
F-36
<PAGE> 73
NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Quarter ended,
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Year ended December 31, 1992:
Net sales $226,091 $235,603 $232,297 $199,474
Cost of sales 158,891 169,896 164,133 136,109
Operating income 25,610 26,302 29,282 29,539
Loss before cumulative effect
of changes in accounting
principles $ (7,510) $ (8,467) $(11,331) $(17,288)
Cumulative effect of changes in
accounting principles (31,804) - - -
-------- -------- -------- --------
Net loss $(39,314) $ (8,467) $(11,331) $(17,288)
======== ======== ======== ========
Per share of common stock:
Loss before cumulative effect
of changes in accounting
principles $ (.15) $ (.17) $ (.22) $ (.34)
Cumulative effect of changes in
accounting principles (.62) - - -
-------- -------- -------- --------
Net loss $ (.77) $ (.17) $ (.22) $ (.34)
======== ======== ======== ========
Weighted average shares
outstanding 50,959 50,890 50,890 50,890
======== ======== ======== ========
Year ended December 31, 1993:
Net sales $198,518 $221,378 $202,096 $183,331
Cost of sales 142,506 171,671 156,894 141,296
Operating income 23,105 15,166 12,773 11,356
Loss before extraordinary item
and cumulative effect of change
in accounting principle $(13,490) $(28,002) $(18,722) $(22,997)
Extraordinary item - - - (27,815)
Cumulative effect of change in
accounting principle - - - 1,217
-------- -------- -------- --------
Net loss $(13,490) $(28,002) $(18,722) $(49,595)
======== ======== ======== ========
</TABLE>
F-37
<PAGE> 74
<TABLE>
<CAPTION>
Quarter ended,
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Per share of common stock:
Loss before extraordinary item
and cumulative effect of change
in accounting principle $(.27) $(.55) $(.37) $(.44)
Extraordinary item - - - (.55)
Cumulative effect of change in
accounting principle - - - .02
----- ----- ----- -----
Net loss $(.27) $(.55) $(.37) $(.97)
===== ===== ===== =====
Weighted average shares
outstanding 50,890 50,890 50,890 50,890
====== ====== ====== ======
</TABLE>
NOTE 21 - SUBSEQUENT EVENT:
On February 24, 1994, the Company settled its lawsuit against Lockheed
Corporation and its directors in connection with Lockheed's 1990 annual meeting
of stockholders. Under the terms of the settlement, Lockheed made a cash
payment to the Company of $27 million with net proceeds to the Company of
approximately $20 million.
F-38
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of NL Industries, Inc.
is included on page F-2 of this Annual Report on Form 10-K. As discussed in
Notes 2 and 19 to the consolidated financial statements, in 1993 the Company
changed its method of accounting for marketable securities, and in 1992 the
Company changed its method of accounting for postretirement benefits other than
pensions and income taxes. In connection with our audits of such financial
statements, we have also audited the related financial statement schedules
listed in the index on page F-1.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Houston, Texas
February 9, 1994 except for
Note 21, as to which the
date is February 24, 1994
S-1
<PAGE> 76
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES (a)
December 31, 1993
(In thousands)
<TABLE>
<CAPTION>
Number of Amount
Name of issuer and shares/principal carriedin
title of each issue amount Cost Market value balancsheet
------------------- ---------------- ---- ------------ -----------
<S> <C> <C> <C> <C>
Current assets:
Trading securities - U.S. Treasury Securities 40,406 $40,993 $41,045 $41,045
======= ======= =======
Noncurrent assets:
Available-for-sale - common stock:
Lockheed Corporation 2 $ 83 $ 116 $ 116
Maxxam, Inc. 250 11,092 9,188 9,188
Keystone Consolidated Industries, Inc. (b) 326 4,240 3,342 3,342
Valhi, Inc. 1,186 5,931 5,782 5,782
------- ------- -------
$21,346 $18,428 $18,428
======= ======= =======
</TABLE>
(a) The Company adopted SFAS No. 115 effective December 31, 1993.
(b) A majority-owned subsidiary of Contran Corporation.
S-2
<PAGE> 77
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,043 $ 11,107
Marketable securities 90,639 41,045
Accounts and notes receivable 2,319 2,088
Refundable income taxes 2,012 -
Receivable from subsidiaries and affiliates - 980
Prepaid expenses 198 248
--------- ---------
Total current assets 106,211 55,468
--------- ---------
Other assets:
Marketable securities 23,581 18,428
Notes receivable from subsidiary - 352,627
Investment in subsidiaries (8,388) (156,615)
Other 2,412 10,713
--------- ---------
Total other assets 17,605 225,153
--------- ---------
Property and equipment, net 4,241 3,925
--------- ---------
$ 128,057 $ 284,546
========= =========
Current liabilities:
Current maturities of long-term debt $ 4,374 $ -
Accounts payable and accrued liabilities 29,828 38,176
Payable to subsidiaries and affiliates 23,642 4,777
Income taxes - 93
Deferred income taxes 2,506 3,627
--------- ---------
Total current liabilities 60,350 46,673
--------- ---------
Noncurrent liabilities:
Long-term debt 10,000 352,627
Note payable to subsidiary 65,000 -
Deferred income taxes 28,091 27,182
Accrued pension cost 12,765 16,164
Accrued postretirement benefits cost 45,072 42,216
Other 53,072 64,479
--------- ---------
Total noncurrent liabilities 214,000 502,668
--------- ---------
Shareholders' deficit (146,293) (264,795)
--------- ---------
$ 128,057 $ 284,546
========= =========
</TABLE>
S-3
<PAGE> 78
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Operations
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Revenues and other income:
Equity in income (loss) of subsidiaries $ 7,515 $(10,703) $ (49,766)
Interest and dividends 4,714 2,829 3,622
Interest income from subsidiary - - 8,358
Securities transactions (10,586) 2,691 3,637
Other income (expense), net 3,121 1,791 2,597
-------- -------- ---------
4,764 (3,392) (31,552)
-------- -------- ---------
Costs and expenses:
General and administrative 48,042 45,243 44,113
Interest, net (4,540) 1,598 13,771
-------- -------- ---------
43,502 46,841 57,884
-------- -------- ---------
Loss before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles (38,738) (50,233) (89,436)
Income tax benefit 14,753 5,637 6,225
-------- -------- ---------
Loss before extraordinary items
and cumulative effect of changes
in accounting principles (23,985) (44,596) (83,211)
-------- -------- ---------
Extraordinary items:
Equity in income of subsidiaries 16,263 - (27,815)
Income tax benefit of utilization of
tax loss and tax credit carryforwards (9,016) - -
Early extinguishment of indebtedness 276 - -
-------- -------- ---------
7,523 - (27,815)
-------- -------- ---------
Cumulative effect of changes in
accounting principles:
NL - (30,546) 1,217
Equity in income of subsidiaries - (1,258) -
-------- -------- ---------
- (31,804) 1,217
-------- -------- ---------
Net loss $(16,462) $(76,400) $(109,809)
======== ======== =========
</TABLE>
S-4
<PAGE> 79
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (16,462) $(76,400) $(109,809)
--------- -------- ---------
Adjustments:
Undistributed earnings of subsidiaries:
Equity in (income) loss before
extraordinary items and cumulative
effect of changes in accounting
principles (7,515) 10,703 49,766
Extraordinary items (16,263) - 27,815
Cumulative effect of changes in
accounting principles - 1,258 -
Distributions 317,000 54,000 -
Securities transactions 10,586 (2,691) (3,637)
Cumulative effect of changes in
accounting principles - 30,546 (1,217)
Change in assets and liabilities, net 22,383 6,340 14,593
Other, net (9,408) 1,243 242
--------- -------- ---------
Total adjustments 316,783 101,399 87,562
--------- -------- ---------
Net cash provided (used) by
operating activities 300,321 24,999 (22,247)
--------- -------- ---------
Cash flows from investing activities:
Purchases of marketable securities (46,654) (1,238) (10,899)
Proceeds from disposition of marketable
securities 93,646 6,735 69,232
Capital expenditures (260) (214) (4)
Investment in subsidiary (3,248) (3,896) (6,478)
Loans to affiliates and subsidiaries:
Loans (150,000) - (341,500)
Collections 150,000 - -
Other, net (126) (768) 667
--------- -------- ---------
Net cash provided (used) by
investing activities 43,358 619 (288,982)
--------- -------- ---------
</TABLE>
S-5
<PAGE> 80
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows (Continued)
Years ended December 31, 1991, 1992 and 1993
(In thousands)
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Additions to (principal payments on):
Long-term debt $ (9,025) $(14,873) $ 335,688
Loans from affiliates (100,526) 12,298 (16,047)
Deferred financing fees - - (8,348)
Dividends paid (34,724) (17,807) -
Purchases of treasury stock and other (202,492) (3,660) -
--------- -------- ---------
Net cash provided (used) by financing (346,767) (24,042) 311,293
---------- -------- ---------
activities
Cash and cash equivalents:
Increase (decrease) from:
Operating activities 300,321 24,999 (22,247)
Investing activities 43,358 619 (288,982)
Financing activities (346,767) (24,042) 311,293
--------- -------- ---------
Net change from operating, investing
and financing activities (3,088) 1,576 64
Balance at beginning of year 12,555 9,467 11,043
--------- -------- ---------
Balance at end of year $ 9,467 $ 11,043 $ 11,107
========= ======== =========
</TABLE>
S-6
<PAGE> 81
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Notes to Condensed Financial Information
NOTE 1 - BASIS OF PRESENTATION:
The Consolidated Financial Statements of NL Industries, Inc. (the
"Company") and the related Notes to Consolidated Financial Statements are
incorporated herein by reference.
NOTE 2 - NET PAYABLE TO (RECEIVABLE FROM) SUBSIDIARIES AND AFFILIATES:
<TABLE>
<CAPTION>
December 31,
------------------------
1992 1993
------- -------
(In thousands)
<S> <C> <C>
Current:
Tremont Corporation $ 4,056 $ 4,777
Valhi, Inc. 30 -
Kronos and Rheox:
Income taxes 2,680 3,123
Other, net 16,876 (4,103)
------- ---------
$23,642 $ 3,797
======= =========
Noncurrent:
Note payable (receivable) - Kronos $65,000 $(352,627)
======= =========
</TABLE>
NOTE 3 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
------------------------
1992 1993
------- -------
(In thousands)
<S> <C> <C>
11.75% Senior Secured Notes $ - $250,000
13% Senior Secured Discount Notes - 102,627
7.5% sinking fund debentures 14,374 -
------- --------
14,374 352,627
Less current maturities 4,374 -
------- --------
$10,000 $352,627
======= ========
</TABLE>
See Note 10 of the Consolidated Financial Statements for a description
of the Notes.
S-7
<PAGE> 82
The aggregate maturities of the Company's long-term debt at December 31,
1993 are shown in the table below.
<TABLE>
<CAPTION>
Amount
--------------
(In thousands)
<S> <C>
Years ending December 31, 1999 and thereafter $437,500
Less unamortized original issue discount on the
Senior Secured Discount Notes 84,873
--------
$352,627
========
</TABLE>
The Company and Kronos have agreed, under certain circumstances, to
provide Kronos' principal international subsidiary with up to DM 125 million
through January 1, 2001.
S-8
<PAGE> 83
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V-PROPERTY AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Balance at Currency
beginning Additions translation Balance at
Classification of year at cost Retirements adjustments end of year
-------------- ---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land $ 29,863 $ 7,221 $ (17,685) $ (1,162) $ 18,237
Buildings 208,056 2,592 (72,723) (8,343) 129,582
Machinery and equipment 811,531 24,032 (287,419) (33,054) 515,090
Mining properties 75,731 630 (27) (3,623) 72,711
Construction in progress 21,042 13,511 (a) (2,578) (1,925) 30,050
---------- --------- --------- -------- ----------
$1,146,223 $ 47,986 $(380,432)(c) $(48,107) $ 765,670
========== ========= ========= ========
Year ended December 31, 1992:
Land $ 19,645 $ 11,493 $ (146) $ (1,129) $ 29,863
Buildings 150,235 74,924 (6,480) (10,623) 208,056
Machinery and equipment 566,803 311,240 (28,403) (38,109) 811,531
Mining properties 81,959 2,346 (491) (8,083) 75,731
Construction in progress 338,685 (314,853)(a) (407) (2,383) 21,042
---------- --------- --------- -------- ----------
$1,157,327 $ 85,150 (b) $ (35,927) $(60,327) $1,146,223
========== ========= ========= ======== ==========
Year ended December 31, 1991:
Land $ 19,096 $ 788 $ (103) $ (136) $ 19,645
Buildings 151,079 379 (258) (965) 150,235
Machinery and equipment 547,077 31,368 (8,165) (3,477) 566,803
Mining properties 81,363 1,718 (244) (878) 81,959
Construction in progress 177,778 160,893 (a) (426) 440 338,685
---------- --------- --------- -------- ----------
$ 976,393 $ 195,146 (b) $ (9,196) $ (5,016) $1,157,327
========== ========= ========= ======== ==========
</TABLE>
(a) Net of amounts transferred to applicable property and equipment
accounts.
(b) Includes costs for chloride process TiO2 plant in Lake Charles,
Louisiana.
(c) Includes contribution of a chloride process TiO2 plant in Lake Charles,
Louisiana to the new manufacturing joint venture.
S-9
<PAGE> 84
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI-ACCUMULATED DEPRECIATION AND DEPLETION
OF PROPERTY AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Currency
beginning costs and translation Balance at
Classification of year expenses Retirements adjustments end of year
-------------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land $ 6,375 $ 917 $ (785) $ (448) $ 6,059
Buildings 67,896 4,443 (3,096) (4,302) 64,941
Machinery and equipment 263,771 35,549 (28,578) (16,535) 254,207
Mining properties 62,204 2,568 (27) (2,885) 61,860
-------- ------- -------- -------- --------
$400,246 $43,477 $(32,486)(a) $(24,170) $387,067
======== ======= ======== ======== ========
Year ended December 31, 1992:
Land $ 5,948 $ 841 $ - $ (414) $ 6,375
Buildings 75,038 4,531 (6,339) (5,334) 67,896
Machinery and equipment 272,467 35,933 (25,124) (19,505) 263,771
Mining properties 65,290 3,535 (478) (6,143) 62,204
-------- ------- -------- -------- --------
$418,743 $44,840 $(31,941) $(31,396) $400,246
======== ======= ======== ======== ========
Year ended December 31, 1991:
Land $ 5,536 $ 473 $ (33) $ (28) $ 5,948
Buildings 72,666 3,125 (234) (519) 75,038
Machinery and equipment 258,865 22,371 (6,643) (2,126) 272,467
Mining properties 62,212 3,762 (244) (440) 65,290
-------- ------- -------- -------- --------
$399,279 $29,731 $ (7,154) $ (3,113) $418,743
======== ======= ======== ======== ========
</TABLE>
(a) Includes contribution of a chloride process TiO2 plant in Lake Charles,
Louisiana to the new manufacturing joint venture.
S-10
<PAGE> 85
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Currency
beginning costs and translation Balance at
Description of year expenses Deductions adjustments end of year
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts
and notes receivable $ 2,385 $ 1,216 $ (476)(a) $ (117) $ 3,008
======= ======= ======= ======= ========
Amortization of intangibles $ 9,792 $ 2,863 $ - $ (714) $ 11,941
======= ======= ======= ======= ========
Valuation allowance for deferred
income taxes $86,031 $50,562 $ - $(3,216) $133,377
======= ======= ======= ======= ========
Year ended December 31, 1992:
Allowance for doubtful accounts
and notes receivable $ 1,749 $ 945 $ (190)(a) $ (119) $ 2,385
======= ======= ======= ======= ========
Amortization of intangibles $ 7,270 $ 2,989 $ - $ (467) $ 9,792
======= ======= ======= ======= ========
Valuation allowance for deferred
income taxes $ - $86,031 $ - $ - $ 86,031
======= ======= ======= ======= ========
Year ended December 31, 1991:
Allowance for doubtful accounts
and notes receivable $ 2,107 $ 478 $ (846)(a) $ 10 $ 1,749
======= ======= ======= ======= ========
Amortization of intangibles $ 4,211 $ 2,850 $ - $ 209 $ 7,270
======= ======= ======= ======= ========
</TABLE>
______________
(a) Amounts written off, less recoveries.
S-11
<PAGE> 86
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(In thousands, except percentages)
<TABLE>
<CAPTION>
Maximum Weighted
Weighted amount Average amount average
Balance average outstanding outstanding interest rate
Category of aggregate at end interest during the during the during the
short-term borrowings of year rate year year (a) year (b)
--------------------- ------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Bank credit agreements and other:
Year ended December 31, 1992 $ 315 7.3% $ 1,100 $ 239 8.4%
Year ended December 31, 1991 $ 429 9.8% $ 40,746 $ 5,484 11.1%
</TABLE>
(a) The average amount outstanding during the year is calculated
based on the average of the month-end balances of short-term borrowings
during the year.
(b) The weighted average interest rate during the year is calculated
based on total interest expense on short-term borrowings divided by the
average amount outstanding during the year.
S-12
<PAGE> 87
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs $81,201 $93,036 $80,580
======= ======= =======
Depreciation, depletion and amortization:
Property and equipment $29,731 $44,840 $43,477
Intangible assets 2,850 2,989 2,863
------- ------- -------
$32,581 $47,829 $46,340
======= ======= =======
Taxes, other than payroll and income taxes $12,748 $15,319 $ 6,811
======= ======= =======
</TABLE>
S-13
<PAGE> 1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 1994, amends and supersedes that certain Intercorporate Services
Agreement dated as of January 1, 1993 by and between VALHI, INC. ("Valhi"), a
Delaware corporation, and NL INDUSTRIES, INC. ("Recipient"), a New Jersey
corporation.
W I T N E S S E T H:
WHEREAS, employees and agents of Valhi and affiliates of Valhi perform
management, financial and administrative functions for Recipient without direct
compensation from Recipient; and
WHEREAS, Recipient does not separately maintain the full internal
capability to perform all necessary management, financial and administrative
functions which Recipient requires; and
WHEREAS, the cost of maintaining the additional personnel by Recipient
necessary to perform the functions provided for by this Agreement would exceed
the fee set forth in Section 3 of this Agreement and the terms of this
Agreement are no less favorable to Recipient then could otherwise be obtained
from a third party for comparable services; and
WHEREAS, Recipient desires to continue receiving the management, financial
and administrative services presently provided by Valhi and affiliates of Valhi
and Valhi is willing to continue to provide such services under the terms of
this Agreement.
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. Services to be Provided: Valhi agrees to make available to Recipient, upon
request, the following services (the "Services") to be rendered by the
internal staff of Valhi and affiliates of Valhi:
(a) Consultation and assistance in the development and implementation of
Recipient's corporate business strategies, plans and objectives.
(b) Consultation and assistance in management and conduct of corporate
affairs and corporate governance consistent with the Articles of
Incorporation and By-Laws of Recipient.
<PAGE> 2
(c) Consultation and assistance in maintenance of financial records and
controls, including preparation and review of periodic financial
statements and reports to be filed with public and regulatory entities
and those required to be prepared for financial institutions or
pursuant to indentures and credit agreements.
(d) Consultation and assistance in cash management and in arranging
financing necessary to implement the business plans of Recipient.
(e) Consultation and assistance in tax management and administration
including; preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning.
(f) Consultation and assistance in performing internal audit and control
functions.
(g) Such other services as may be requested by Recipient or deemed
necessary and proper from time to time.
2. Miscellaneous Services: It is the intent of the parties hereto that Valhi
provide only the Services requested by Recipient in connection with routine
management, financial and administrative functions related to the ongoing
operations of Recipient and not with respect to special projects, including
corporate investments, acquisitions and divestitures. The parties hereto
contemplate that the Services rendered in connection with the conduct of
Recipient's business will be on a scale compared to that existing on the
date of this Agreement, adjusted for internal corporate growth or
contraction, but not for major corporate acquisitions or divestitures, and
that adjustments may be required to the terms of this Agreement in the
event of such major corporate acquisitions, divestitures or special
projects. Recipient will continue to bear all other costs required for
outside services including, but not limited to, the outside services of
attorneys, auditors, trustees, transfer agents and registrars, and it is
expressly understood that Valhi assumes no liability for any expenses or
services other than those stated in Section 1. In addition to the fee
paid to Valhi by Recipient for the Services provided pursuant to this
Agreement, Recipient will pay to Valhi the amount of out-of-pocket costs
incurred by Valhi in rendering such Services.
3. Fee for Services: Recipient agrees to pay to Valhi $50,000.00 quarterly,
commencing as of January 1, 1994, pursuant to this Agreement.
4. Original Term: Subject to the provisions of Section 5 hereof, the original
term of this Agreement shall be from January 1, 1994 to December 31, 1994.
5. Extensions. This Agreement shall be extended on a quarter-to-quarter
basis after the expiration of its original term unless written
notification is given by Valhi or Recipient thirty (30) days in advance of
the first day of each successive quarter or unless it is
-2-
<PAGE> 3
superseded by a subsequent written agreement of the parties hereto.
6. Limitation of Liability. In providing its Services hereunder, Valhi shall
have a duty to act, and to cause its agents to act, in a reasonably
prudent manner, but neither Valhi nor any officer, director, employee or
agent of Valhi or its affiliates shall be liable to Recipient for any
error of judgment or mistake of law or for any loss incurred by Recipient
in connection with the matter to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on
the part of Valhi.
7. Indemnification of Valhi by Recipient. Recipient shall indemnify and hold
harmless Valhi, its affiliates and their respective officers, directors
and employees from and against any and all losses, liabilities, claims,
damages, costs and expenses (including attorneys' fees and other expenses
of litigation) to which such party may become subject to arising out of
the Services provided by Valhi to Recipient hereunder, provided that such
indemnity shall not protect any such party against any liability to which
such person would otherwise be subject to by reason of willful
misfeasance, bad faith or gross negligence.
8. Further Assurances. Each of the parties will make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as the other party may reasonably request and as may reasonably
be required in order to effectuate the purposes of this Agreement and to
carry out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall be
addressed, if intended for Valhi, to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such
other address as it shall have furnished to Recipient in writing, and if
intended for Recipient, to 3000 North Sam Houston Parkway East, Houston,
Texas 77032, Attention: President, or such other address as it shall
have furnished to Valhi in writing.
10. Amendment and Modification. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
11. Successor and Assigns: This Agreement shall be binding upon and inure to
the benefit of Valhi and Recipient and their respective successors and
assigns, except that neither party may assign its rights under this
Agreement without the prior written consent of the other party.
12. Governing Law: This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Texas.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
VALHI, INC.
By: /s/ Michael A. Snetzer
___________________________
Michael A. Snetzer
President
NL INDUSTRIES, INC.
By: /s/ J. Landis Martin
___________________________
J. Landis Martin
President and Chief
Executive Officer
- 4 -
<PAGE> 1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective
as of January 1, 1994, is entered into by and between CONTRAN CORPORATION
("Contran"), a Delaware corporation, and NL INDUSTRIES, INC. ("Recipient"), a
New Jersey corporation.
W I T N E S S E T H:
WHEREAS, Harold C. Simmons, an employee of Contran and a director
and the Chairman of the Board of Recipient, performs certain advisory functions
for Recipient, which functions are unrelated to his function as a director and
the Chairman of the Board of Recipient, without direct compensation from
Recipient; and
WHEREAS, Recipient does not separately maintain the full internal
capability to perform all necessary advisory functions which Recipient
requires; and
WHEREAS, the cost of engaging the advisory services of someone
possessing Mr. Simmons' expertise and the cost of maintaining the personnel
necessary to perform the functions provided for by this Agreement would exceed
the fee set forth in Section 3 of this Agreement and the terms of this
Agreement are no less favorable to Recipient than could otherwise be obtained
from a third party for comparable services; and
WHEREAS, Recipient desires to continue receiving the advisory
services of Harold C. Simmons which in the past have been provided by Contran
indirectly, pursuant to certain intercorporate services agreements between the
Recipient and Valhi, Inc., an affiliate of Contran, and Contran is willing to
continue to provide such services directly under the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. Services to be Provided: Contran agrees to make available to
Recipient, upon request, the following services (the "Services") to
be rendered by Harold C. Simmons:
(a) Consultation and assistance in the development and
implementation of Recipient's corporate business
strategies, plans and objectives.
(b) Such other services as may be requested by Recipient or
deemed necessary and proper from time to time.
<PAGE> 2
(c) This Agreement does not apply to and the Services provided
for herein do not include any services which Harold C.
Simmons may provide to Recipient in his role as a director
on Recipient's Board of Directors, as Chairman of such
Board of Directors or any other activity related to such
Board of Directors.
2. Miscellaneous Services: It is the intent of the parties hereto that
Contran provide only the Services requested by Recipient in
connection with routine functions related to the ongoing operations
of Recipient and not with respect to special projects, including
corporate investments, acquisitions and divestitures. The parties
hereto contemplate that the Services rendered in connection with the
conduct of Recipient's business will be on a scale compared to that
existing on the date of this Agreement, adjusted for internal
corporate growth or contraction, but not for major corporate
acquisitions or divestitures, and that adjustments may be required to
the terms of this Agreement in the event of such major corporate
acquisitions, divestitures or special projects. Recipient will
continue to bear all other costs required for outside services
including, but not limited to, the outside services of attorneys,
auditors, trustees, consultants, transfer agents and registrars, and
it is expressly understood that Contran assumes no liability for any
expenses or services other than those stated in Section 1. In
addition to the fee paid to Contran by Recipient for the Services
provided pursuant to this Agreement, Recipient will pay to Contran
the amount of out-of-pocket costs incurred by Contran in rendering
such Services.
3. Fee for Services: Recipient agrees to pay to Contran $95,000.00
quarterly, commencing as of January 1, 1994, pursuant to this
Agreement.
4. Original Term: Subject to the provisions of Section 5 hereof, the
original term of this Agreement shall be from January 1, 1994 to
December 31, 1994.
5. Extensions. This Agreement shall be extended on a quarter-
to-quarter basis after the expiration of its original term unless
written notification is given by Contran or Recipient thirty (30)
days in advance of the first day of each successive quarter or unless
it is superseded by a subsequent written agreement of the parties
hereto.
6. Limitation of Liability. In providing its Services hereunder,
Contran shall have a duty to act, and to cause its agents to act, in
a reasonably prudent manner, but neither Contran nor any officer,
director, employee or agent of Contran or its affiliates shall be
liable to Recipient for any error of judgment or mistake of law or
for any loss incurred by Recipient in connection with the matter to
which
-2-
<PAGE> 3
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Contran.
7. Indemnification of Contran by Recipient. Recipient shall indemnify
and hold harmless Contran, its affiliates and their respective
officers, directors and employees from and against any and all
losses, liabilities, claims, damages, costs and expenses (including
attorneys' fees and other expenses of litigation) to which such party
may become subject to arising out of the Services provided by Contran
to Recipient hereunder, provided that such indemnity shall not
protect any such party against any liability to which such person
would otherwise be subject to by reason of willful misfeasance, bad
faith or gross negligence.
8. Further Assurances. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and
take all such other actions, as the other party may reasonably
request and as may reasonably be required in order to effectuate the
purposes of this Agreement and to carry out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall
be addressed, if intended for Contran, to Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240, Attention: President,
or such other address as it shall have furnished to Recipient in
writing, and if intended for Recipient, to 3000 North Sam Houston
Parkway East, Houston, TX 77032, Attention: President or such other
address as it shall have furnished to Contran in writing.
10. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
11. Successor and Assigns: This Agreement shall be binding upon and
inure to the benefit of Contran and Recipient and their respective
successors and assigns, except that neither party may assign its
rights under this Agreement without the prior written consent of the
other party.
12. Governing Law: This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the State of Texas.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
CONTRAN CORPORATION
By: /s/ Michael A. Snetzer
_______________________
Michael A. Snetzer
President
NL INDUSTRIES, INC.
By: /s/ J. Landis Martin
_______________________
J. Landis Martin
President and
Chief Executive Officer
- 4 -
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
incorporation % of Voting
NAME OF CORPORATION or organization Securities Held
- ----------------------------------------------- --------------- ---------------
<S> <C> <C>
Kronos, Inc. Delaware 100
Kronos (US) Inc. Delaware 100
Kronos International, Inc. Delaware 100
NL Industries (Deutschland) GmbH Germany 100
Kronos Titan-GmbH Germany 100
Unterstutzungskasse Titan GmbH Germany 100
Kronos Chemie-GmbH Germany 100
Kronos Europe S.A./N.V. Belgium 100
Kronos World Services S.A./N.V. Belgium 100
Kronos B.V. Holland 100
Kronos Canada, Inc. Canada 100
2927527 Canada Inc. Canada 100
2969157 Canada Inc. Canada 100
Societe Industrielle Du Titane, S.A. France 93
Kronos Norge A/S Norway 100
Kronos Titan A/S Norway 100
Titania A/S Norway 100
The Jossingfjord Manufacturing
Company A/S Norway 100
Kronos Limited United Kingdom 100
Kronos Titanium Pigments, Ltd.
(in liquidation) United Kingdom 100
NL Worldwide Services, Ltd.
(in liquidation) United Kingdom 100
Kronos Louisiana, Inc. Delaware 100
Louisiana Pigment Company, L.P. Delaware 50*
Rheox, Inc. Delaware 100
Rheox International, Inc. Delaware 100
Bentone Sud, S.A. France 86
Rheox GmbH Germany 100
Bentone-Chemie GmbH Germany 70
Rheox Limited United Kingdom 100
NL Specialty Chemicals Limited
(in liquidation) United Kingdom 100
Abbey Chemicals Limited United Kingdom 70
Rheox Europe S.A./N.V. Belgium 100
Enenco, Inc. New York 50*
</TABLE>
* Unconsolidated joint venture accounted for by the equity method.
<PAGE> 2
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT (Continued)
<TABLE>
<CAPTION>
Jurisdiction of
incorporation % of Voting
NAME OF CORPORATION or organization Securities Held
- ----------------------------------------------- --------------- ---------------
<S> <C> <C>
Other:
National Lead Company New Jersey 100
NL Industries (USA), Inc. Texas 100
NLO, Inc. Ohio 100
Salem Lead Company Massachusetts 100
Sayre & Fisher Land Company New Jersey 100
153506 Canada Inc. Canada 100
The 1230 Corporation California 100
Titanium Pigment Corporation New Jersey 100
United Lead Company New Jersey 100
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the:
(i) Registration Statement No. 2-78456 on Form S-8 and related
Prospectus with respect to the 1982 Long Term Performance
Incentive Plan of NL Industries, Inc.; and
(ii) Registration Statement No. 2-98713 on Form S-8 and related
Prospectus with respect to the 1985 Long Term Performance
Incentive Plan of NL Industries, Inc.; and
(iii) Registration Statement No. 33-25913 on Form S-8 and related
prospectus with respect to the Savings Plan for Employees of
NL Industries, Inc.; and
(iv) Registration Statement No. 33-29287 on Form S-8 and related
Prospectus with respect to the 1989 Long Term Performance
Incentive Plan of NL Industries, Inc.
of our report dated February 9, 1994 except for Note 21, as to which the date
is February 24, 1994 on our audits of the consolidated financial statements and
financial statement schedules of NL Industries, Inc. as of December 31, 1993
and 1992, and for the years ended December 31, 1993, 1992 and 1991 which report
is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Houston, Texas
March 1, 1994
