SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 13-5267260
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16825 Northchase Drive, Suite 1200, Houston, Texas 77060-2544
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 423-3300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) had been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding on July 31, 1996: 51,118,014
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1995
and June 30, 1996 3-4
Consolidated Statements of Operations - Three months
and six months ended June 30, 1995 and 1996 5
Consolidated Statement of Shareholders' Deficit
- Six months ended June 30, 1996 6
Consolidated Statements of Cash Flows - Six
months ended June 30, 1995 and 1996 7-8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 141,333 $ 120,094
Accounts and notes receivable 147,428 179,690
Refundable income taxes 4,941 2,042
Inventories 251,630 232,241
Prepaid expenses 3,217 6,223
Deferred income taxes 2,522 2,126
Total current assets 551,071 542,416
Other assets:
Marketable securities 20,944 23,064
Investment in joint ventures 185,893 184,382
Prepaid pension cost 22,576 23,500
Deferred income taxes 788 910
Other 31,165 26,577
Total other assets 261,366 258,433
Property and equipment:
Land 22,902 21,930
Buildings 166,349 163,083
Machinery and equipment 648,458 640,792
Mining properties 97,190 95,630
Construction in progress 11,187 16,496
946,086 937,931
Less accumulated depreciation and depletion 486,870 482,115
Net property and equipment 459,216 455,816
$1,271,653 $1,256,665
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, June 30,
1995 1996
<S> <C> <C>
Current liabilities:
Notes payable $ 39,247 $ 26,268
Current maturities of long-term debt 43,369 73,489
Accounts payable and accrued liabilities 165,985 147,616
Payable to affiliates 10,181 9,831
Income taxes 40,088 39,384
Deferred income taxes 3,555 2,902
Total current liabilities 302,425 299,490
Noncurrent liabilities:
Long-term debt 740,334 742,919
Deferred income taxes 157,192 148,101
Accrued pension cost 69,311 60,623
Accrued postretirement benefits cost 60,235 58,816
Other 148,511 136,197
Total noncurrent liabilities 1,175,583 1,146,656
Minority interest 3,066 251
Shareholders' deficit:
Common stock 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (126,934) (124,027)
Pension liabilities (1,908) (1,908)
Marketable securities (525) 853
Accumulated deficit (481,432) (466,290)
Treasury stock (366,258) (365,996)
Total shareholders' deficit (209,421) (189,732)
$1,271,653 $1,256,665
</TABLE>
Commitments and contingencies (Note 13)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $283,474 $263,162 $534,349 $503,602
Other, net 6,121 10,329 9,015 20,877
289,595 273,491 543,364 524,479
Costs and expenses:
Cost of sales 187,896 194,794 357,664 364,610
Selling, general and
administrative 50,448 43,148 94,620 86,039
Interest 21,052 18,516 41,728 37,655
259,396 256,458 494,012 488,304
Income before income
taxes and minority
interest 30,199 17,033 49,352 36,175
Income tax expense 9,056 5,114 14,802 10,854
Income before minority
interest 21,143 11,919 34,550 25,321
Minority interest 141 - 486 (42)
Net income $ 21,002 $ 11,919 $ 34,064 $ 25,363
Net income per share of
common stock $ .41 $ .23 $ .66 $ .49
Weighted average common and
common equivalent shares
outstanding 51,552 51,493 51,469 51,499
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Six months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Additional Adjustments
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $8,355 $759,281 $(126,934) $(1,908) $ (525)
Net income - - - - -
Dividends - - - - -
Adjustments - - 2,907 - 1,378
Treasury stock reissued - - - - -
Balance at June 30, 1996 $8,355 $759,281 $(124,027) $(1,908) $ 853
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury
deficit stock Total
<S> <C> <C> <C>
Balance at December 31, 1995 $(481,432) $(366,258) $(209,421)
Net income 25,363 - 25,363
Dividends (10,221) - (10,221)
Adjustments - - 4,285
Treasury stock reissued - 262 262
Balance at June 30, 1996 $(466,290) $(365,996) $(189,732)
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 34,064 $ 25,363
Depreciation, depletion and amortization 19,291 20,076
Noncash interest expense 9,547 10,250
Deferred income taxes 16,259 (3,496)
Other, net (5,073) (8,746)
74,088 43,447
Change in assets and liabilities:
Accounts and notes receivable (37,759) (37,852)
Inventories 3,053 10,168
Prepaid expenses (5,151) (3,390)
Accounts payable and accrued liabilities (7,013) (13,554)
Income taxes (22,447) 3,620
Other, net (606) (8,033)
Marketable trading securities, net 23,943 -
Net cash provided (used) by operating
activities 28,108 (5,594)
Cash flows from investing activities:
Capital expenditures (26,200) (31,358)
Purchase of minority interest - (5,168)
Investment in joint ventures, net 1,486 1,632
Other, net 33 110
Net cash used by investing activities (24,681) (34,784)
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended June 30, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from financing activities:
Indebtedness:
Borrowings $ 25,839 $ 64,712
Principal payments (27,326) (33,112)
Dividends - (10,221)
Other, net 102 (202)
Net cash provided (used) by financing
activities (1,385) 21,177
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities 2,042 (19,201)
Currency translation 4,098 (2,038)
Balance at beginning of period 131,124 141,333
Balance at end of period $137,264 $120,094
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 28,273 $ 27,591
Income taxes 21,296 10,702
</TABLE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
NL Industries, Inc. conducts its operations primarily through its wholly-
owned subsidiaries, Kronos, Inc. (titanium dioxide pigments, or "TiO2") and
Rheox, Inc. (specialty chemicals). Valhi, Inc. and Tremont Corporation, each
affiliates of Contran Corporation, hold 55% and 18%, respectively, of NL's
outstanding common stock. Contran holds, directly or through subsidiaries,
approximately 91% of Valhi's and 44% of Tremont's outstanding common stock.
The consolidated balance sheet of NL Industries, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1995 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at June 30, 1996 and the consolidated statements of
operations, shareholders' deficit and cash flows for the interim periods ended
June 30, 1995 and 1996, have been prepared by the Company, without audit. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for the interim periods are not necessarily indicative of the operating results
for a full year or of future operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain prior-year amounts have been
reclassified to conform to the 1996 presentation. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Annual Report").
NOTE 2 - NET INCOME PER SHARE OF COMMON STOCK:
Net income per share of common stock is based on the weighted average
number of common shares and equivalents outstanding. Common stock equivalents,
consisting of nonqualified stock options, are excluded from the computation when
their effect is antidilutive.
NOTE 3 - BUSINESS SEGMENT INFORMATION:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1996 1995 1996
(In thousands)
<S> <C> <C> <C> <C>
Net sales:
Kronos $249,393 $228,229 $466,721 $434,597
Rheox 34,081 34,933 67,628 69,005
$283,474 $263,162 $534,349 $503,602
Operating income:
Kronos $ 47,100 $ 25,443 $ 79,553 $ 54,915
Rheox 10,449 10,655 19,964 23,121
57,549 36,098 99,517 78,036
General corporate income
(expense):
Securities earnings, net 1,926 1,134 4,395 2,441
Expenses, net (8,224) (1,683) (12,832) (6,647)
Interest expense (21,052) (18,516) (41,728) (37,655)
$ 30,199 $ 17,033 $ 49,352 $ 36,175
</TABLE>
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Raw materials $ 35,075 $ 34,680
Work in process 9,132 8,439
Finished products 172,330 153,779
Supplies 35,093 35,343
$251,630 $232,241
</TABLE>
NOTE 5 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Available-for-sale securities - noncurrent
marketable equity securities:
Unrealized gains $ 1,962 $ 3,573
Unrealized losses (2,770) (2,261)
Cost 21,752 21,752
Aggregate market $20,944 $23,064
</TABLE>
Net gains and losses from trading securities transactions are composed of:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1996 1995 1996
(In thousands)
<S> <C> <C> <C> <C>
Unrealized gains $422 $ - $1,115 $ -
Realized gains 154 - 50 -
$576 $ - $1,165 $ -
</TABLE>
NOTE 6 - INVESTMENT IN JOINT VENTURES:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
TiO2 manufacturing joint venture $183,129 $181,772
Other 2,764 2,610
$185,893 $184,382
</TABLE>
NOTE 7 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Intangible assets, net $11,803 $ 9,624
Deferred financing costs, net 13,199 11,410
Other 6,163 5,543
$31,165 $26,577
</TABLE>
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Accounts payable $ 68,734 $ 57,147
Accrued liabilities:
Employee benefits 49,884 33,926
Environmental costs 6,000 6,000
Interest 6,633 7,045
Miscellaneous taxes 2,557 2,257
Other 32,177 41,241
97,251 90,469
$165,985 $147,616
</TABLE>
NOTE 9 - OTHER NONCURRENT LIABILITIES:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Environmental costs $112,827 $107,684
Insurance claims and expenses 12,088 11,532
Employee benefits 13,148 12,163
Deferred technology fee income 8,456 3,041
Other 1,992 1,777
$148,511 $136,197
</TABLE>
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(In thousands)
<S> <C> <C>
Notes payable - Kronos (DM 56,000 and DM 40,000,
respectively) $ 39,247 $ 26,268
Long-term debt:
NL Industries:
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 132,034 140,616
382,034 390,616
Kronos:
DM bank credit facility (DM 397,609 and
DM 490,609, respectively) 276,895 322,134
Joint venture term loan 73,286 65,572
Other 13,672 11,699
363,853 399,405
Rheox:
Bank term loan 37,263 25,909
Other 553 478
37,816 26,387
783,703 816,408
Less current maturities 43,369 73,489
$740,334 $742,919
</TABLE>
NOTE 11 - INCOME TAXES:
The difference between the provision for income tax expense attributable to
income before income taxes and minority interest and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% is presented
below.
<TABLE>
<CAPTION>
Six months ended
June 30,
1995 1996
(In thousands)
<S> <C> <C>
Expected tax expense $17,273 $12,661
Non-U.S. tax rates (2,263) (1,954)
Incremental tax on income of companies not included
in NL's consolidated U.S. federal income tax return 1,124 789
Valuation allowance (2,479) (1,098)
U.S. state income taxes 538 1,138
Other, net 609 (682)
Income tax expense $14,802 $10,854
</TABLE>
NOTE 12 - OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1996 1995 1996
(In thousands)
<S> <C> <C> <C> <C>
Securities earnings:
Interest and dividends $1,350 $ 1,134 $ 3,230 $ 2,441
Securities transactions 576 - 1,165 -
1,926 1,134 4,395 2,441
Pension curtailment gain - - - 4,791
Technology fee income 2,719 2,593 5,305 5,674
Litigation settlement gain - 2,756 - 2,756
Currency transaction gains,
(losses), net 716 2,821 (1,917) 3,867
Other, net 760 1,025 1,232 1,348
$6,121 $10,329 $ 9,015 $20,877
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Part II, Item 1 -"Legal Proceedings," (ii) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, and (iii) the 1995 Annual
Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company's chemical operations are conducted in two business segments -
TiO2 conducted by Kronos and specialty chemicals conducted by Rheox.
<TABLE>
<CAPTION>
Three months ended % Six months ended %
June 30, Change June 30, Change
1995 1996 1995 1996
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Kronos $249.4 $228.3 -8% $466.7 $434.6 -7%
Rheox 34.1 34.9 +2% 67.6 69.0 +2%
$283.5 $263.2 -7% $534.3 $503.6 -6%
Operating income:
Kronos $ 47.1 $ 25.4 -46% $ 79.5 $ 54.9 -31%
Rheox 10.4 10.7 +2% 20.0 23.1 +16%
$ 57.5 $ 36.1 -37% $ 99.5 $ 78.0 -22%
Percent changes in TiO2:
Sales volume +4% -4%
Average selling prices (in billing
currencies) -7% -2%
</TABLE>
Kronos' TiO2 operating income in the second quarter and first half of 1996
decreased from the comparable periods in 1995 due to lower average TiO2 selling
prices and lower production volumes. Kronos' average TiO2 selling prices for
the second quarter of 1996 were 7% lower than the second quarter of 1995 and 6%
lower than the first quarter of 1996. Selling prices at the end of the second
quarter of 1996 were 2% lower than the average for the quarter. Kronos' second
quarter sales volumes increased 4% compared with the second quarter of 1995 due
to improved U.S. sales volumes. Sales volumes in the first half of 1996
decreased 4% compared to the year-earlier period.
Rheox's operating income for the second quarter of 1996 was slightly higher
than the year-earlier period primarily due to higher sales volumes. Rheox's
operating income in the first half of 1996 includes a first-quarter $2.7 million
gain related to the curtailment of certain U.S. employee pension benefits.
Based on the continuing decline in TiO2 selling prices during the second
quarter and the current TiO2 industry pricing outlook, the Company expects its
earnings for the third and fourth quarters of 1996 will be significantly lower
than the Company's earnings for the second quarter.
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 decreased the dollar value of sales for the second quarter and first
half of 1996 by $10 million and $4 million, respectively, compared to the
comparable 1995 periods.
The following table sets forth certain information regarding general
corporate income (expense).
<TABLE>
<CAPTION>
>
Three months ended Six months ended
June 30, Difference June 30, Difference
1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Securities earnings $ 2.0 $ 1.1 $(.9) $ 4.4 $ 2.4 $(2.0)
Corporate expenses, net (8.2) (1.7) 6.5 (12.8) (6.6) 6.2
Interest expense (21.1) (18.5) 2.6 (41.7) (37.7) 4.0
$(27.3) $(19.1) $8.2 $(50.1) $(41.9) $ 8.2
</TABLE>
Securities earnings were lower due to lower average balances available for
investment. Net corporate expenses were lower in the second quarter and first
half of 1996 compared to the same periods in 1995 due to lower environmental
remediation costs and to a $2.8 million gain recognized in the second quarter of
1996 related to the settlement of certain litigation in which the Company was a
plaintiff. Interest expense was lower primarily due to lower variable interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the six months ended June 30, 1995 and 1996 are
presented below.
<TABLE>
<CAPTION>
Six months ended
June 30,
1995 1996
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ 28.1 $ (5.6)
Investing activities (24.7) (34.8)
Financing activities (1.4) 21.2
Net cash provided (used) by operating, investing
and financing activities $ 2.0 $(19.2)
</TABLE>
The TiO2 industry is cyclical and changes in economic conditions within the
industry can significantly impact the earnings and operating cash flows of the
Company. Although selling prices are significantly above the trough that
occurred in the third quarter of 1993, prices began to decline during the last
half of 1995. The Company's cash flows from operations declined during the
first half of 1996 compared to the first half of 1995 primarily due to lower
earnings and relative changes in the Company's working capital, excluding the
effect of currency translation.
Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies. The Company has reached an agreement in principle
with the German tax authorities regarding examinations which will resolve
certain significant tax contingencies for years through 1990. The Company
expects to finalize assessments and pay tax deficiencies during 1996 of
approximately DM 50 million ($33 million at June 30, 1996), including interest,
in settlement of these issues. Certain other German tax contingencies remain
outstanding and will continue to be litigated. Although the Company believes
that it will ultimately prevail, the Company has granted a DM 100 million ($66
million at June 30, 1996) lien on its Nordenham, Germany TiO2 plant in favor of
the German tax authorities until the litigation is resolved. No assurance can
be given that this litigation will be resolved in the Company's favor in view of
the inherent uncertainties involved in court rulings. The Company believes that
it has adequately provided accruals for additional income taxes and related
interest expense which may ultimately result from all such examinations 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.
Rheox acquired the minority interests of its non-U.S. subsidiaries for $5.2
million in the first quarter of 1996.
The Company borrowed DM 95 million ($64 million when borrowed) under its DM
credit facility during the first half of 1996. Repayments of indebtedness in
the same period included payments of $11.4 million on the Rheox bank term loan,
DM 16 million ($10.4 million when repaid) on DM-denominated notes payables and
$7.7 million on the joint venture term loan.
In the second quarter of 1996, the Company paid a quarterly dividend of
$.10 per share to shareholders aggregating $5.1 million. Dividends paid during
the first half of 1996 totalled $10.2 million. In July 1996, the Company's
Board of Directors declared a quarterly dividend of $.10 per share to be paid in
September 1996. The indentures governing the Company's Senior Notes contain
minimum interest coverage requirements and other covenants that restrict the
Company's ability to pay dividends. The indentures also limit the cumulative
dividends paid since the issuance of the Senior Notes to no more than one-half
of the Company's aggregate consolidated net income, as defined, during the same
period. There can be no assurance that the Company will continue to meet these
requirements in the future.
At June 30, 1996, the Company had cash and cash equivalents aggregating
$120 million (32% held by non-U.S. subsidiaries) including restricted cash and
cash equivalents of $11 million. The Company's subsidiaries had $5 million and
$121 million available for borrowing at June 30, 1996 under existing U.S. and
non-U.S. credit facilities, respectively, of which $82 million of the non-U.S.
amount is available only for (i) permanently reducing the DM term loan or (ii)
paying future German income tax assessments, as described above.
The Company has been named as a defendant, potentially responsible party
("PRP"), or both, in a number of legal proceedings associated with environmental
matters, including waste disposal sites or facilities currently or formerly
owned, operated or used by the Company, many of which disposal sites or
facilities are on the U.S. Environmental Protection Agency's (the "U.S. EPA")
Superfund National Priorities List or similar state lists. On a quarterly
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 adequate
accruals ($114 million at June 30, 1996) for reasonably estimable costs of such
matters. It is not possible to estimate the range of costs for certain sites.
The Company has estimated that the upper end of the range of reasonably possible
costs to the Company for sites for which it is possible to estimate costs is
approximately $175 million. The Company's estimates of such liabilities have
not been discounted to present value, and the Company has not recognized any
potential insurance recoveries. No assurance can be given that actual costs
will not exceed accrued amounts or the upper end of the range for sites for
which estimates have been made, and no assurance can be given that costs will
not be incurred with respect to sites as to which no estimate presently can be
made. Further, there can be no assurance that additional environmental matters
will not arise in the future.
The Company is also a defendant in a number of legal proceedings seeking
damages for personal injury and property damage arising from the sale of lead
pigments and lead-based paints. 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 and paint litigation is without merit. The
Company has not accrued any amounts for such pending litigation. Liability that
may result, if any, cannot be reasonably estimated. In addition, various
legislation and administrative regulations are, from time to time, enacted or
proposed at the state, local and federal levels seeking to impose various
obligations on present and former manufacturers of lead pigment and lead-based
paint with respect to asserted health concerns associated with the use of such
products and to effectively overturn court decisions in which the Company and
other pigment manufacturers have been successful. The Company currently
believes the disposition of all claims and disputes, individually and in the
aggregate, should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity. There can
be no assurance that additional matters of these types will not arise in the
future.
The Company periodically evaluates its liquidity requirements, alternative
uses of capital, capital needs and availability of resources in view of, among
other things, its debt service and capital expenditure requirements and
estimated future operating cash flows. As a result of this process, the Company
has in the past and may in the future seek to reduce, refinance, repurchase or
restructure indebtedness, raise additional capital, modify its dividend policy,
restructure ownership interests, sell interests in subsidiaries or other assets,
or take a combination of such steps or other steps to manage its liquidity and
capital resources. In the normal course of its business, the Company may also
review opportunities for acquisitions or other business combinations in the
chemicals industry. In the event of any such transaction, the Company may
consider using available cash, issuing equity securities or increasing its
indebtedness to the extent permitted by the agreements governing the Company's
existing debt.
The statements contained in this Report on Form 10-Q ("Quarterly Report")
which are not historical facts, including, but not limited to, statements found
under the captions "Results of Operations" and "Liquidity and Capital Resources"
above, are forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this Quarterly Report could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are the risks and uncertainties
discussed in this Quarterly Report and in the 1995 Annual Report, including,
without limitation, the portions of such reports under the captions referenced
above, and the uncertainties set forth from time to time in the Company's
filings with the Securities and Exchange Commission, and other public
statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1995 Annual Report and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 for descriptions of
certain previously-reported legal proceedings.
The City of New York, et al. v. Lead Industries Association, Inc., et
al. (No. 89-4617). In June 1996, the appeals court reversed the trial court's
dismissal of plaintiffs' restitution and indemnification claims. The time in
which defendants may request permission to appeal has not yet expired.
Wright, et al. v. Lead Industries Association, Inc., et al. (Nos. 94-
363042 and 94-363043). In June 1996, the trial court granted defendants'
motions for summary judgment and dismissed the Company and certain other
defendants from the cases. The time in which plaintiffs may appeal has not yet
expired.
Jefferson v. Lead Industries Association, Inc., et al. (No. 95-2835).
In June 1996, the trial court granted defendants' motions to dismiss the
complaints and entered judgment in favor of all defendants. Plaintiffs have
filed a notice of appeal and the appeal is pending.
German, et al. v. Federal Home Loan Mortgage Corp., et al. (No 93 Civ.
6491). In May 1996, the Company and the other former manufacturers of lead
pigments filed motions to dismiss the intervenors' complaint. The motions are
pending.
Pedricktown, New Jersey smelter site. In May 1996, certain PRPs, but
not the Company, entered into an administrative consent order with the U.S. EPA
to perform the remedial design aspects of the selected remedy.
Granite City, Illinois smelter site. In June 1996, the City of Granite
City brought a motion for a preliminary injunction against the U.S. EPA seeking
to enjoin certain aspects of the cleanup after the U.S. EPA recommenced the
cleanup of residential yard soils. The Company and the other PRPs joined in the
City's motion. The court has not yet ruled on the motion.
Flacke v. NL Industries, Inc. et al. (Nos. 1842-80 and 3131-92). In
June 1996, the previously-reported appeals of the Company and the State of New
York were both denied.
In re: Monangalia Mass II (Nos. 93-C-362, et al.). The Company has been
served with asserted claims on behalf of approximately 2,800 plaintiffs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 8, 1996. All
the nominees for director were elected with the voting results for each as
follows:
<TABLE>
<CAPTION>
Director Shares For Shares Withheld
<S> <C> <C>
Joseph S. Compofelice 47,515,680 501,746
J. Landis Martin 47,513,235 504,191
Kenneth R. Peak 47,568,716 448,710
Glenn R. Simmons 47,509,644 507,782
Harold C. Simmons 47,508,973 508,453
Lawrence A. Wigdor 47,504,825 512,601
Admiral Elmo R. Zumwalt, Jr. 47,563,541 453,885
</TABLE>
The Company's shareholders also approved the following two proposals
with the voting results for each as follows:
<TABLE>
<CAPTION>
Shares Shares Shares
For Against Abstained
<S> <C> <C> <C>
(a) Approval of the Company's
proposed Variable
Compensation Plan 42,774,928 889,454 134,793
(b) Approval of proposed amendments
to the Company's 1989 Long Term
Performance Incentive Plan 45,937,514 1,896,135 183,777
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 - NL Industries, Inc. Variable Compensation Plan -
incorporated by reference to Exhibit A of the Registrant's Proxy
Statement on Schedule 14A for the annual shareholders meeting
held May 8, 1996.
10.2 - 1989 Long Term Performance Incentive Plan of NL
Industries, Inc. - incorporated by reference to Exhibit B of the
Registrant's Proxy Statement on Schedule 14A for the annual
shareholders meeting held May 8, 1996.
27.1 - Financial Data Schedule for the six-month period ended
June 30, 1996.
(b) REPORTS ON FORM 8-K
Reports on Form 8-K for the quarter ended June 30, 1996 and
through the date of this report:
April 19, 1996 - reported Items 5 and 7.
May 8, 1996 - reported Items 5 and 7.
July 25, 1996 - reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
Date: July 31, 1996 By /s/ Joseph S. Compofelice
Joseph S. Compofelice
Vice President and
Chief Financial Officer
Date: July 31, 1996 By /s/ Dennis G. Newkirk
Dennis G. Newkirk
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 120,094
<SECURITIES> 0
<RECEIVABLES> 168,489
<ALLOWANCES> 3,221
<INVENTORY> 232,241
<CURRENT-ASSETS> 542,416
<PP&E> 937,931
<DEPRECIATION> 482,115
<TOTAL-ASSETS> 1,256,665
<CURRENT-LIABILITIES> 299,490
<BONDS> 742,919
8,355
0
<COMMON> 0
<OTHER-SE> (198,087)
<TOTAL-LIABILITY-AND-EQUITY> 1,256,665
<SALES> 503,602
<TOTAL-REVENUES> 503,602
<CGS> 364,610
<TOTAL-COSTS> 364,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (636)
<INTEREST-EXPENSE> 37,655
<INCOME-PRETAX> 36,175
<INCOME-TAX> (10,854)
<INCOME-CONTINUING> 25,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,363
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
