SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended SEPTEMBER 30, 1999
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: (281) 423-3300
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) had been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding on November 11, 1999: 51,660,539
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1998
and September 30, 1999 3-4
Consolidated Statements of Income - Three months
and nine months ended September 30, 1998 and 1999 5-6
Consolidated Statements of Comprehensive Income
- Three months and nine months ended September 30,
1998 and 1999 7
Consolidated Statement of Shareholders' Equity
- Nine months ended September 30, 1999 8
Consolidated Statements of Cash Flows - Nine
months ended September 30, 1998 and 1999 9-10
Notes to Consolidated Financial Statements 11-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27-28
Item 6. Exhibits and Reports on Form 8-K 28-29
- 2 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 154,953 $ 156,700
Restricted cash equivalents .................... 8,164 24,787
Accounts and notes receivable .................. 133,769 164,882
Receivable from affiliates ..................... 692 1,685
Refundable income taxes ........................ 15,919 1,832
Inventories .................................... 228,611 175,617
Prepaid expenses ............................... 2,724 6,769
Deferred income taxes .......................... 1,955 10,588
---------- ----------
Total current assets ....................... 546,787 542,860
---------- ----------
Other assets:
Marketable securities .......................... 17,580 15,310
Investment in TiO2 manufacturing joint
venture ....................................... 171,202 159,152
Prepaid pension cost ........................... 23,990 24,461
Other .......................................... 13,927 5,574
---------- ----------
Total other assets ......................... 226,699 204,497
---------- ----------
Property and equipment:
Land ........................................... 19,626 18,277
Buildings ...................................... 144,228 135,467
Machinery and equipment ........................ 586,400 551,447
Mining properties .............................. 84,015 77,976
Construction in progress ....................... 4,385 18,395
---------- ----------
838,654 801,562
Less accumulated depreciation and depletion .... 456,495 444,539
---------- ----------
Net property and equipment ................. 382,159 357,023
---------- ----------
$1,155,645 $1,104,380
========== ==========
</TABLE>
- 3 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1999
------------ -------------
<S> <C> <C>
Current liabilities:
Notes payable .............................. $ 36,391 $ 32,428
Current maturities of long-term debt ....... 64,826 64,576
Accounts payable and accrued liabilities ... 187,661 194,160
Payable to affiliates ...................... 11,317 10,102
Income taxes ............................... 9,224 9,924
Deferred income taxes ...................... 1,236 1,734
----------- -----------
Total current liabilities .............. 310,655 312,924
----------- -----------
Noncurrent liabilities:
Long-term debt ............................. 292,803 244,335
Deferred income taxes ...................... 196,180 105,565
Accrued pension cost ....................... 44,649 39,107
Accrued postretirement benefits cost ....... 41,659 37,588
Other ...................................... 116,732 91,661
----------- -----------
Total noncurrent liabilities ........... 692,023 518,256
----------- -----------
Minority interest ............................ 633 2,853
----------- -----------
Shareholders' equity:
Common stock ............................... 8,355 8,355
Additional paid-in capital ................. 774,288 774,288
Retained earnings (deficit) ................ (133,379) 4,088
Accumulated other comprehensive loss ....... (132,129) (151,788)
Treasury stock ............................. (364,801) (364,596)
----------- -----------
Total shareholders' equity ............. 152,334 270,347
----------- -----------
$ 1,155,645 $ 1,104,380
=========== ===========
</TABLE>
Commitments and contingencies (Note 13)
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales ................. $ 221,520 $ 242,621 $ 685,794 $ 676,758
Other, net ................ 7,500 3,967 20,769 20,040
--------- --------- --------- ---------
229,020 246,588 706,563 696,798
--------- --------- --------- ---------
Costs and expenses:
Cost of sales ............. 151,782 181,745 476,026 496,564
Selling, general and
administrative ........... 32,069 32,119 98,337 97,761
Interest .................. 15,066 9,060 46,917 28,136
--------- --------- --------- ---------
198,917 222,924 621,280 622,461
--------- --------- --------- ---------
Income from continuing
operations before
income taxes and
minority interest ..... 30,103 23,664 85,283 74,337
Income tax benefit (expense) 1,273 (6,507) (14,174) 70,833
--------- --------- --------- ---------
Income from continuing
operations before
minority interest ..... 31,376 17,157 71,109 145,170
Minority interest ........... 17 11 36 2,261
--------- --------- --------- ---------
Income from continuing
operations ............ 31,359 17,146 71,073 142,909
Discontinued operations ..... -- -- 287,396 --
Extraordinary item - early
extinguishment of debt, net
of tax benefit of $1,293 and
$2,568, respectively ....... (2,400) -- (4,766) --
--------- --------- --------- ---------
Net income ............ $ 28,959 $ 17,146 $ 353,703 $ 142,909
========= ========= ========= =========
</TABLE>
- 5 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Continuing operations .......... $ .61 $ .33 $ 1.38 $ 2.76
Discontinued operations ........ -- -- 5.60 --
Extraordinary item ............. (.05) -- (.09) --
------ ------ ------ ------
Net income ................... $ .56 $ .33 $ 6.89 $ 2.76
====== ====== ====== ======
Diluted earnings per share:
Continuing operations .......... $ .60 $ .33 $ 1.37 $ 2.75
Discontinued operations ........ -- -- 5.52 --
Extraordinary item ............. (.05) -- (.09) --
------ ------ ------ ------
Net income ................... $ .55 $ .33 $ 6.80 $ 2.75
====== ====== ====== ======
Shares used in the calculation of
earnings per share:
Basic .......................... 51,444 51,835 51,356 51,828
Dilutive impact of stock options 750 108 668 68
------ ------ ------ ------
Diluted ........................ 52,194 51,943 52,024 51,896
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income $28,959 $17,146 $353,703 $142,909
------- ------- -------- --------
Other comprehensive income
(loss), net of tax:
Marketable securities
adjustment 913 (670) 1,812 (1,475)
Currency translation
adjustment 4,603 2,198 1,531 (18,184)
------- ------- -------- --------
Total other comprehensive
income (loss) 5,516 1,528 3,343 (19,659)
------- ------- -------- --------
Comprehensive income $34,475 $18,674 $357,046 $123,250
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 7 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Accumulated other
comprehensive income (loss)
Additional Retained ------------------------------------
Common paid-in earnings Currency Pension Marketable Treasury
stock capital (deficit) translation liabilities securities stock Total
--------- ---------- ---------- ----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 8,355 $ 774,288 $(133,379) $(133,440) $ (3,187) $ 4,498 $(364,801) $ 152,334
Net income .................. -- -- 142,909 -- -- -- -- 142,909
Other comprehensive loss, net -- -- -- (18,184) -- (1,475) -- (19,659)
Dividends ................... -- -- (5,442) -- -- -- -- (5,442)
Treasury stock reissued ..... -- -- -- -- -- -- 205 205
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1999 $ 8,355 $ 774,288 $ 4,088 $(151,624) $ (3,187) $ 3,023 $(364,596) $ 270,347
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 8 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 353,703 $ 142,909
Depreciation, depletion and amortization ......... 25,531 25,343
Noncash interest expense ......................... 17,291 1,262
Deferred income taxes ............................ 1,958 (88,574)
Distribution from TiO2 manufacturing joint
venture ......................................... -- 12,050
Discontinued operations:
Net gain from sale of Rheox .................... (286,071) --
Income from operations of Rheox ................ (1,325) --
Other, net ....................................... (9,453) (5,160)
--------- ---------
101,634 87,830
Change in assets and liabilities:
Accounts and notes receivable .................. (26,697) (39,832)
Inventories .................................... (13,670) 40,027
Prepaid expenses ............................... (3,501) (4,646)
Accounts payable and accrued liabilities ....... 12,994 1,996
Income taxes ................................... (14,572) 13,722
Other, net ..................................... 11,808 (17,022)
Rheox, net ....................................... (25,864) --
--------- ---------
Net cash provided by operating activities .... 42,132 82,075
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................. (12,731) (25,818)
Change in restricted cash equivalents, net ....... (2,909) (12,398)
Proceeds from disposition of property and
equipment ....................................... 486 2,160
Collection of note receivable .................... 6,875 --
Investment in joint venture ...................... (371) --
Proceeds from sale of Rheox ...................... 435,080 --
Rheox, net ....................................... (26) --
--------- ---------
Net cash provided (used) by investing
activities .................................. 426,404 (36,056)
--------- ---------
</TABLE>
- 9 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months ended September 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Indebtedness:
Borrowings ....................................... $ 30,491 $ 56,271
Principal payments ............................... (170,853) (93,278)
Dividends paid ..................................... (3,082) (5,442)
Settlement of shareholder derivative lawsuit, net .. 11,211 --
Other, net ......................................... 90 199
Rheox, net ......................................... (117,500) --
--------- ---------
Net cash used by financing activities .......... (249,643) (42,250)
--------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .... 218,893 3,769
Currency translation ............................. 506 (2,022)
Sale of Rheox .................................... (7,630) --
Balance at beginning of period ..................... 96,394 154,953
--------- ---------
Balance at end of period ........................... $ 308,163 $ 156,700
========= =========
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized ............... $ 21,972 $ 19,700
Income taxes, net .................................. 47,839 3,638
</TABLE>
See accompanying notes to consolidated financial statements.
- 10 -
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
NL Industries, Inc. conducts its titanium dioxide pigments ("TiO2")
operations through its wholly owned subsidiary, Kronos, Inc. At September 30,
1999, Valhi, Inc. and Tremont Corporation, each affiliates of Contran
Corporation, held approximately 58% and 20%, respectively, of NL's outstanding
common stock. At September 30, 1999, Contran and its subsidiaries held
approximately 92% of Valhi's outstanding common stock, and Valhi and other
entities related to Harold C. Simmons held approximately 55% of Tremont's
outstanding common stock.
The consolidated balance sheet of NL Industries, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 1998 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1999 and the consolidated statements
of income, comprehensive income, shareholders' equity and cash flows for the
interim periods ended September 30, 1998 and 1999 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 current year 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, 1998 (the "1998 Annual Report").
The Company will adopt Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, no later than the first quarter of 2001. SFAS No. 133 establishes
accounting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Under SFAS
No. 133, all derivatives will be recognized as either assets or liabilities and
measured at fair value. The accounting for changes in fair value of derivatives
will depend upon the intended use of the derivative. The impact of adopting SFAS
No. 133, if any, has not been determined but will be dependent upon the extent
to which the Company is then a party to derivative contracts or engaged in
hedging activities.
- 11 -
<PAGE>
Note 2 - Earnings per share:
Basic earnings per share is based on the weighted average number of common
shares outstanding during each period. Diluted earnings per share is based on
the weighted average common shares outstanding and the dilutive impact of
outstanding stock options.
Note 3 - Business segment information:
The Company's operations are conducted by Kronos in one operating business
segment - TiO2.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Net sales .................. $ 221,520 $ 242,621 $ 685,794 $ 676,758
Other income, excluding
corporate ................. 2,036 1,146 4,719 11,748
--------- --------- --------- ---------
223,556 243,767 690,513 688,506
Cost of sales .............. 151,782 181,745 476,026 496,564
Selling, general and
administrative, excluding
corporate ................. 26,750 27,263 83,339 82,086
--------- --------- --------- ---------
Operating income ........... 45,024 34,759 131,148 109,856
General corporate income
(expense):
Securities earnings, net . 4,345 1,696 12,747 4,841
Expenses, net ............ (4,200) (3,731) (11,695) (12,223)
Interest expense ......... (15,066) (9,060) (46,917) (28,137)
--------- --------- --------- ---------
$ 30,103 $ 23,664 $ 85,283 $ 74,337
========= ========= ========= =========
</TABLE>
Note 4 - Inventories:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Raw materials ............................ $ 46,114 $ 40,191
Work in process .......................... 11,530 8,073
Finished products ........................ 136,225 99,341
Supplies ................................. 34,742 28,012
-------- --------
$228,611 $175,617
======== ========
</TABLE>
- 12 -
<PAGE>
Note 5 - Marketable securities:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Available-for-sale marketable equity securities:
Unrealized gains ............................. $ 8,512 $ 7,526
Unrealized losses ............................ (1,591) (2,875)
Cost ......................................... 10,659 10,659
-------- --------
Aggregate market ......................... $ 17,580 $ 15,310
======== ========
</TABLE>
Note 6 - Other noncurrent assets:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Deferred financing costs, net ............ $ 4,124 $ 2,705
Restricted cash equivalents .............. 4,225 --
Intangible assets, net ................... 1,985 442
Other .................................... 3,593 2,427
------- -------
$13,927 $ 5,574
======= =======
</TABLE>
Note 7 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Accounts payable ................... $ 55,270 $ 44,765
-------- --------
Accrued liabilities:
Environmental costs .............. 44,122 56,290
Employee benefits ................ 37,399 32,659
Interest ......................... 7,346 14,495
Other ............................ 43,524 45,951
-------- --------
132,391 149,395
-------- --------
$187,661 $194,160
======== ========
</TABLE>
- 13 -
<PAGE>
Note 8 - Other noncurrent liabilities:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Environmental costs .................... $ 81,454 $ 60,316
Insurance claims and expenses .......... 10,872 11,574
Deferred income ........................ 12,333 9,333
Employee benefits ...................... 9,778 8,376
Other .................................. 2,295 2,062
-------- --------
$116,732 $ 91,661
======== ========
</TABLE>
Note 9 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Notes payable - Kronos (DM 60,500) ............. $ 36,391 $ 32,428
======== ========
Long-term debt:
Kronos:
DM bank credit facility (DM 187,322 and
DM 120,072, respectively) ................. $112,674 $ 64,359
Other ...................................... 955 552
-------- --------
113,629 64,911
NL Industries - 11.75% Senior Secured Notes .. 244,000 244,000
-------- --------
357,629 308,911
Less current maturities ........................ 64,826 64,576
-------- --------
$292,803 $244,335
======== ========
</TABLE>
- 14 -
<PAGE>
Note 10 - Income taxes:
The difference between the income tax benefit (expense) attributable to
income from continuing operations before income taxes and minority interest and
the amount that would be expected using the U.S. federal statutory income tax
rate of 35% is presented below.
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Expected tax expense ................................... $(29,849) $(26,018)
Non-U.S. tax rates ..................................... (281) 482
German solidarity and trade income taxes ............... (1,628) (6,156)
Resolution of German income tax audits ................. -- 36,490
Change in valuation allowance:
Corporate restructuring in Germany and other ......... -- 77,580
Change in German income tax law ...................... -- (24,070)
Recognition of certain deductible tax
attributes which previously did not meet the
"more-likely-than-not" recognition criteria ......... 11,426 12,335
Incremental tax on income of companies not included
in NL's consolidated U.S. federal income tax return ... (2,142) (2,049)
Refund of prior-year dividend withholding tax .......... 8,219 --
U.S. state income taxes ................................ (200) 759
Other, net ............................................. 281 1,480
-------- --------
Income tax benefit (expense) ..................... $(14,174) $ 70,833
======== ========
</TABLE>
The Company recognized a $90 million noncash income tax benefit in the
second quarter of 1999 related to (i) a favorable resolution of the Company's
previously reported tax contingency in Germany ($36 million) and (ii) a net
reduction in the Company's deferred income tax valuation allowance due to a
change in estimate of the Company's ability to utilize certain income tax
attributes under the "more-likely-than-not" recognition criteria ($54 million).
With respect to the German tax contingency, the German government has
conceded substantially all of its income tax claims against the Company and has
released a DM 94 million ($50 million) lien on the Company's Nordenham, Germany
TiO2 plant that secured the government's claim.
The $54 million net decrease in the Company's deferred income tax
valuation allowance is comprised of (i) a $78 million decrease in the valuation
allowance to recognize the benefit of certain deductible income tax attributes
which the Company now believes meets the recognition criteria as a result of,
among other things, a corporate restructuring of the Company's German
subsidiaries offset by (ii) a $24 million increase in the valuation allowance to
reduce the previously recognized benefit of certain other deductible income tax
attributes which the Company now believes do not meet the recognition criteria
due to a change in German tax law. The German tax law change, enacted on April
1, 1999, was effective retroactive to January 1, 1999 and resulted in an
additional $6 million of current tax expense during the first nine months of
1999.
- 15 -
<PAGE>
During the first nine months of 1999, the Company also reduced its
deferred income tax valuation allowance by $12 million primarily as a result of
utilization of certain tax attributes for which the benefit had not been
previously recognized under the "more-likely-than-not" recognition criteria.
Note 11 - Other income, net:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1999 1998 1999
------ ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Corporate interest and dividend
income $4,345 $1,696 $12,747 $ 4,841
Currency transaction gains, net 986 894 2,703 8,735
Noncompete agreement income 1,000 1,000 2,667 3,000
Trade interest income 525 360 1,562 1,665
Gain (loss) from disposition of
property and equipment 172 (242) (130) 705
Other, net 472 259 1,220 1,094
------ ------ ------- -------
$7,500 $3,967 $20,769 $20,040
====== ====== ======= =======
</TABLE>
Note 12 - Discontinued operations:
The Company sold the net assets of its Rheox specialty chemicals business
for $465 million cash (before fees and expenses) in January 1998, including $20
million attributable to a five-year agreement by the Company not to compete in
the rheological products business. The Company recognized an after-tax gain of
approximately $286 million on the sale of this business segment.
Condensed income statement and cash flow data for Rheox (excluding
dividends paid to, contributions received from and intercompany loans with NL)
is presented below. Interest expense has been allocated to discontinued
operations based on the amount of debt specifically attributed to Rheox's
operations.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
------------------
(In thousands)
<S> <C>
Operations:
Net sales .................................................... $ 12,630
=========
Operating income ............................................. $ 2,900
Interest and other expenses .................................. 797
---------
Income before income taxes ............................... 2,103
Income tax expense ........................................... 778
---------
1,325
Gain from sale of Rheox, net of tax expense of $86,222 ......... 286,071
---------
$ 287,396
=========
Cash flows from:
Operating activities ......................................... $ (25,864)
Investing activities - capital expenditures .................. (26)
Financing activities - indebtedness, net ..................... (117,500)
---------
$(143,390)
=========
</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)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (ii) Part II, Item 1 -"Legal Proceedings", (iii) the Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 1999 and June 30,
1999, and (iv) the 1998 Annual Report.
- 17 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales and operating income
<TABLE>
<CAPTION>
Three months ended % Nine months ended %
September 30, Change September 30, Change
------------------ ------ ------------------ ------
1998 1999 1998 1999
-------- -------- -------- --------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales ................ $ 221.5 $ 242.6 +10% $ 685.8 $ 676.8 -1%
Operating income ......... $ 45.0 $ 34.8 -23% $ 131.1 $ 109.9 -16%
Percent changes in TiO2:
Sales volume ........... +18% N/C
Average selling prices
(in billing currencies) -4% N/C
</TABLE>
Kronos' operating income in the third quarter of 1999 decreased from the
comparable period in 1998 primarily due to lower average selling prices and
lower production volume, partially offset by higher sales volume. Kronos'
operating income in the first nine months of 1999 decreased from the comparable
period in 1998 primarily due to lower production volume, partially offset by a
second-quarter 1999 $5.3 million currency exchange transaction gain related to
certain of the Company's short-term intercompany cross-border financings. These
intercompany financings were settled in July 1999.
Worldwide demand for TiO2 was strong in the second and third quarters of
1999 and Kronos expects the strong demand will continue in the fourth quarter of
1999. Kronos believes the increased demand is primarily a result of strong
worldwide economic conditions, although Kronos believes a portion of this
increased demand is related to customers building their inventory levels.
Customers' decisions to increase inventory levels may be influenced by (i)
announced price increases, as discussed in more detail below, and (ii) general
concerns regarding the year 2000. Kronos believes that demand in the first half
of 2000 could be lower than the last half of 1999 should customers build
significant inventories prior to year-end 1999.
Average TiO2 selling prices for the third quarter of 1999 were 4% lower
than the third quarter of 1998 and were 2% lower than the second quarter of
1999. Selling prices at the end of the third quarter approximated the average
for the quarter. Kronos and certain of its competitors have announced worldwide
price increases, and Kronos expects that its average selling prices should
increase beginning in late 1999 or early 2000. Average selling prices in the
first nine months of 1999 were comparable to the 1998 period, with slightly
higher North American prices offset by lower prices in export markets and
slightly lower prices in Europe.
Kronos' production volume in the third quarter of 1999 decreased 10% from
the comparable 1998 period and decreased 8% from the second quarter of 1999
primarily as a result of scheduled downtime in the third quarter of 1999 for
maintenance at the Company's chloride facilities. Production volume in the first
- 18 -
<PAGE>
nine months of 1999 decreased 8% from the comparable 1998 period primarily due
to this maintenance downtime and the Company's decision to manage inventory
levels by curtailing production volume in the first quarter of 1999. Kronos'
average production capacity utilization rate was 90% in the third quarter of
1999 and 91% for the first nine months of 1999. Kronos produced at full capacity
in 1998. Due to strong worldwide demand and Kronos' inventory levels, Kronos
intends to increase production volume in the fourth quarter, but production
volume will be below sales volume for the full year.
Kronos' record sales volume in the third quarter of 1999 increased 18%
over the third quarter of 1998 and increased 6% over the second quarter of 1999
with strong demand in all major regions. Sales volume in the first nine months
of 1999 approximated the first nine months of 1998.
Kronos expects its full-year 1999 operating income will be below that of
1998 primarily because of lower production volume and slightly lower average
selling prices, partially offset by higher sales volume.
Kronos' cost of sales as a percentage of net sales in the third quarter
and first nine months of 1999 increased from the comparable periods in 1998
primarily due to lower production volume. Kronos' selling, general and
administrative expenses increased $.5 million in the third quarter of 1999
compared to the third quarter of 1998 due to higher distribution expenses
associated with higher third-quarter 1999 sales volume, partially offset by the
favorable effects of foreign currency translation. Kronos' selling, general and
administrative expenses decreased $1.3 million in the first nine months of 1999
due to lower employee benefit expenses and a second-quarter 1999 German
non-income tax refund.
A significant amount of sales are denominated in currencies other than the
U.S. dollar. Fluctuations in the value of the U.S. dollar relative to other
currencies decreased the dollar value of sales for the third quarter and first
nine months of 1999 by $5 million and $4 million, respectively, when compared to
the year-earlier periods. Fluctuations in the value of the U.S. dollar relative
to other currencies similarly impacted the Company's operating expenses. The net
impact of currency exchange rate fluctuations on the operating income
comparisons to 1998, excluding the $5.3 million gain described above, were not
significant in the third quarter and first nine months of 1999.
- 19 -
<PAGE>
General corporate
The following table sets forth certain information regarding general
corporate income (expense).
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, Difference September 30, Difference
------------------ ---------- ----------------- ----------
1998 1999 1998 1999
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Securities earnings ... $ 4.3 $ 1.7 $ (2.6) $ 12.7 $ 4.8 $ (7.9)
Corporate expenses, net (4.1) (3.7) .4 (11.6) (12.3) (.7)
Interest expense ...... (15.1) (9.1) 6.0 (46.9) (28.1) 18.8
------- ------- ------- ------- ------- -------
$ (14.9) $ (11.1) $ 3.8 $ (45.8) $ (35.6) $ 10.2
======= ======= ======= ======= ======= =======
</TABLE>
Securities earnings decreased due to lower average cash and cash
equivalent balances available for investment. Interest expense in the third
quarter and first nine months of 1999 each decreased 40% from the comparable
periods in 1998 primarily due to lower levels of outstanding debt. The Company
expects its full-year 1999 securities earnings and interest expense will both be
lower than 1998, primarily due to lower average cash and cash equivalent
balances available for investment and lower levels of outstanding debt,
respectively.
Provision for income taxes
Although the Company's overall current (cash) income tax rate is expected
to continue to be lower than statutory rates, beginning in 2000 the Company
expects its overall income tax rate (current and deferred income tax expense) to
approximate statutory tax rates. See Note 10 to the Consolidated Financial
Statements for a description of the Company's $90 million noncash income tax
benefit recognized in the second quarter of 1999.
Other
Minority interest primarily relates to the Company's majority-owned
environmental management subsidiary, NL Environmental Management Services, Inc.
("EMS"). Discontinued operations in 1998 represent the Company's former
specialty chemicals operations which were sold in January 1998. The
extraordinary item in 1998 resulted from early extinguishment of debt.
- 20 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the nine months ended September 30, 1998 and 1999 are
summarized below.
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1999
------ ------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities ............ $101.6 $ 87.8
Changes in assets and liabilities ................... (59.5) (5.7)
------ ------
42.1 82.1
Investing activities .................................. 426.4 (36.1)
Financing activities .................................. (249.6) (42.2)
------ ------
Net cash provided by operating, investing,
and financing activities ......................... $218.9 $ 3.8
====== ======
</TABLE>
Operating cash flows
The TiO2 industry is cyclical and changes in economic conditions
significantly impact the earnings and operating cash flows of the Company. Cash
flow from operations, before changes in assets and liabilities, in the 1999
period decreased from the comparable period in 1998 primarily due to lower
operating income, partially offset by $12.1 million of cash distributions from
the Company's TiO2 manufacturing joint venture.
The net change in the Company's inventories, receivables and payables
(excluding the effect of currency translation) provided cash in the first nine
months of 1999 and used cash in the first nine months of 1998. Increases in
accounts receivable balances used cash in both 1998 and 1999 due to high
accounts receivable levels at the end of both September 30, 1998 and 1999
compared to each respective beginning of year amounts as a result of seasonally
low sales volumes in December 1997 and 1998. Changes in inventory levels
provided cash in the 1999 period and used cash in the 1998 period primarily due
to lower production volume in the first nine months of 1999. Cash provided by
operations in 1998 also includes $20 million related to an agreement not to
compete in the rheological products business offset by $25 million of income tax
payments related to the gain on sale of Rheox.
Financing cash flows
The Company prepaid its DM 107 million ($60 million when paid) term loan
in full in the first quarter of 1999, principally by drawing DM 100 million ($56
million when drawn) on its DM revolving credit facility. In the second and third
quarters of 1999, the Company repaid DM 20 million ($11 million when paid) and
DM 40 million ($22 million when paid), respectively, of the DM revolving credit
facility with cash provided from operations. The revolver's outstanding balance
- 21 -
<PAGE>
of DM 120 million ($64 million at September 30, 1999) was further reduced in
October 1999 by DM 20 million ($11 million when paid). The remaining balance of
DM 100 million will be repaid or refinanced on or before its scheduled maturity
date in September 2000.
In the third quarter of 1999, the Company paid a regular quarterly
dividend of $.035 per share to shareholders aggregating $1.8 million. Dividends
paid during the first nine months of 1999 totaled $5.4 million. In October 1999
the Company's Board of Directors declared a regular quarterly dividend of $.035
per share to shareholders of record as of December 16, 1999 to be paid on
December 30, 1999. In October and through November 11, 1999, the Company
purchased approximately 174,600 shares of its common stock for $1.9 million.
Cash, cash equivalents and borrowing availability
At September 30, 1999, the Company had cash and cash equivalents
aggregating $157 million ($42 million held by non-U.S. subsidiaries) and an
additional $25 million of restricted cash equivalents held by U.S. subsidiaries.
The Company's subsidiaries had $78 million available for borrowing at September
30, 1999 under existing non-U.S. credit facilities, of which $59 million relates
to the Company's DM revolving credit facility.
Income tax contingencies
Certain of the Company's tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies, including non-income tax related items and interest.
In the second quarter of 1999, certain significant German tax contingencies
aggregating an estimated DM 188 million ($100 million when resolved) through
1998 were resolved in the Company's favor. See Note 10 to the Consolidated
Financial Statements.
On April 1, 1999, the German government enacted certain income tax law
changes that were retroactively effective as of January 1, 1999. Based on these
changes, the Company's ongoing current (cash) income tax rate in Germany
increased beginning in the second quarter of 1999.
During 1997 the Company received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($7 million at
September 30, 1999) relating to 1994. The Company has appealed this assessment
and the Fredrikstad City Court is scheduled to hear the case in January 2000.
During 1998 the Company was informed by the Norwegian tax authorities that
additional tax deficiencies of NOK 39 million ($5 million at September 30, 1999)
will likely be proposed for the year 1996. The Company intends to vigorously
contest this issue and litigate, if necessary. Although the Company believes
that it will ultimately prevail, the Company has granted a lien for the 1994 tax
assessment on its Fredrikstad, Norway TiO2 plant in favor of the Norwegian tax
authorities and will be required to grant security on the 1996 assessment when
received.
- 22 -
<PAGE>
No assurance can be given that these tax matters will be resolved in the
Company's favor in view of the inherent uncertainties involved in court
proceedings. The Company believes that it has provided adequate accruals for
additional taxes and related interest expense which may ultimately result from
all such examinations and believes that the ultimate disposition of such
examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Environmental matters and litigation
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, mining locations and facilities
currently or previously owned, operated or used by the Company, certain of which
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, including sites for which EMS has
contractually assumed the Company's obligation. The Company believes it has
adequate accruals ($117 million at September 30, 1999) 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
allocations of such costs among PRPs. It is not possible to estimate the range
of costs for certain sites. The upper end of the range of reasonably possible
costs to the Company for sites for which it is possible to estimate costs is
approximately $160 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.
Lead pigment litigation
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. There is no assurance that the Company will not
incur future liability in respect of this pending litigation in view of the
inherent uncertainties involved in court and jury rulings in pending and
possible future cases. However, based on, among other things, the results of
such litigation to date, 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 have,
from time to time, been enacted or proposed that seek to impose various
obligations on present and former manufacturers of lead pigment and lead-based
paint with respect to asserted health concerns associated with the use of such
products and to effectively overturn court decisions in which the Company and
other pigment manufacturers have been successful. Examples of such proposed
- 23 -
<PAGE>
legislation include bills which would permit civil liability for damages on the
basis of market share, rather than requiring plaintiffs to prove that the
defendant's product caused the alleged damage. 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.
Year 2000 readiness
Computer programs which were written using two digits (rather than four)
to define the applicable year may recognize a date using "00" as the year 1900
rather than the year 2000. This is generally referred to as the "year 2000
issue," which may affect the performance of computer programs, hardware,
software and other products with embedded computer technology that is date
sensitive. Unless corrective action is taken to ensure that such items are "year
2000 compliant," which means that they will be able to process dates and times
in such a manner that their technical and functional requirements will continue
to be met without interruption for the year 2000, they may generate erroneous
data or cause systems, equipment or other products to fail.
The Company has evaluated and substantially upgraded its computer systems
(both information technology ("IT") systems and non-IT systems involving
embedded chip technology) and software applications (collectively referred to as
"systems") to ensure that the systems function properly beginning January 1,
2000. To achieve its year 2000 compliance plan, the Company is utilizing
internal and external resources to identify, correct or reprogram, and test its
systems.
The Company has conducted an inventory of its IT systems worldwide and is
currently testing, where practical, the systems and applications that have been
corrected or reprogrammed for year 2000 compliance. The Company has completed an
inventory of its non-IT systems and is in the process of correcting or replacing
date-deficient systems. The remediation effort is complete on all critical IT
and non-IT systems. Once systems undergo remediation, they are tested for year
2000 compliance. For critical systems, the testing process usually involves
subjecting the remediated system to a simulated change of date from the year
1999 to the year 2000 using, in many cases, computer resources. The Company uses
a number of packaged software products that have been upgraded to a year 2000
compliant version in the normal course of business. Excluding the cost of these
software upgrades, the Company's cost of becoming year 2000 compliant is
expected to be approximately $2 million, substantially all of which has been
spent through September 30, 1999.
The Company has approximately 30 major computer systems which have been
assessed for year 2000 compliance. At September 30, 1999, the Company believes
all of such systems are year 2000 compliant. Each operating unit has
responsibility for its own conversion of other nonmajor systems, in line with
overall guidance and oversight provided by a corporate-level coordinator, and
the status of each of the remaining nonmajor systems will be specifically
tracked and monitored.
- 24 -
<PAGE>
As part of its year 2000 compliance plan, the Company has requested
confirmations from its major domestic and foreign software vendors, hardware
vendors, primary suppliers and major customers, that they are developing and
implementing plans to become, or are, year 2000 compliant. Confirmations
received to date from the Company's software vendors, hardware vendors, primary
suppliers and major customers, indicate that generally they are in the process
of implementing remediation plans to ensure that their systems are compliant by
December 31, 1999. The major software vendors used by the Company have already
delivered year 2000 compliant software. Notwithstanding these efforts, the
ability of the Company to affect the year 2000 preparedness of such vendors,
suppliers and customers is limited.
The Company is in the process of developing a contingency plan to address
potential year 2000 related business interruptions that may occur on January 1,
2000, or thereafter. The contingency plan is expected to be completed in the
fourth quarter of 1999. As part of the contingency plan, the Company presently
intends to idle its manufacturing facilities shortly before the turn of the
millennium as an additional safeguard against the unexpected loss of utility
services and resume production shortly after midnight year-end 1999.
Although the Company expects its systems to be year 2000 compliant before
December 31, 1999, it cannot predict the outcome or success of the year 2000
compliance programs of its vendors, suppliers, and customers. The Company also
cannot predict whether its major software vendors, who continue to test for year
2000 compliance, will find additional problems that would result in unplanned
upgrades of their applications after December 31, 1999. As a result of these
uncertainties, the Company cannot predict the impact on its financial condition
or results of operations from noncompliant year 2000 systems that the Company
directly or indirectly relies upon. Should the Company's year 2000 compliance
plan not be successful or be delayed beyond January 2000, or should one or more
vendors, suppliers or customers fail to adequately address their year 2000
issues, the consequences to the Company could be far-reaching and material,
including an inability to produce TiO2 at its manufacturing facilities, which
could lead to an indeterminate amount of lost revenue. Other potential negative
consequences could include plant malfunction, impeded communications or power
supplies, or slower transaction processing and financial reporting. Although not
anticipated, the most reasonably likely worst-case scenario of failure by the
Company or its key suppliers or customers to become year 2000 compliant would be
a short-term slowdown or cessation of manufacturing operations at one or more of
the Company's facilities and a short-term inability on the part of the Company
to process orders and billings in a timely manner, and to deliver products to
customers.
Euro currency
Beginning January 1, 1999, eleven of the fifteen members of the European
Union ("EU"), including Germany, Belgium, the Netherlands and France, adopted a
new European currency unit (the "euro") as their common legal currency.
Following the introduction of the euro, the participating countries' national
currencies remain legal tender as denominations of the euro from January 1, 1999
- 25 -
<PAGE>
through January 1, 2002, and the exchange rates between the euro and such
national currency units are fixed.
The Company conducts substantial operations in Europe, and has a
significant amount of outstanding DM-denominated indebtedness. The functional
currency of the Company's German, Belgian, Dutch and French operations will
convert to the euro from their respective national currencies over a two-year
period beginning in 1999. The Company has assessed and evaluated the impact of
the euro conversion on its business and made the necessary system conversions.
The euro conversion may impact the Company's operations including, among other
things, changes in product pricing decisions necessitated by cross-border price
transparencies. Such changes in product pricing decisions could impact both
selling prices and purchasing costs and, consequently, favorably or unfavorably
impact results of operations, financial condition or liquidity.
Other
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
in the past has sought, and in the future may seek, to reduce, refinance,
repurchase or restructure indebtedness; raise additional capital; issue
additional securities; repurchase shares of its common stock; modify its
dividend policy; restructure ownership interests; sell interests in subsidiaries
or other assets; or take a combination of such steps or other steps to manage
its liquidity and capital resources. In the normal course of its business, the
Company may review opportunities for the acquisition, divestiture, joint venture
or other business combinations in the chemicals or other industries. In the
event of any acquisition or joint venture 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.
Special note regarding forward-looking statements
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 represent management's beliefs and
assumptions based on currently available information. Forward-looking statements
can be identified by the use of words such as "believes," "intends," "may,"
"will," "should," "anticipates," "expects," or comparable terminology or by
discussions of strategy. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it cannot give any
assurances that these expectations will prove to be correct. Such statements
involve risks and uncertainties, including, but not limited to, the cyclicality
of the titanium dioxide industry, global economic conditions, global productive
capacity, changes in product pricing, year 2000 issues, and other risks and
uncertainties included in this Quarterly Report and in the 1998 Annual Report,
and the uncertainties set forth from time to time in the Company's other public
reports and filings. Should one or more of these risks materialize (or the
- 26 -
<PAGE>
consequences of such a development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those forecasted or
expected. The Company assumes no duty to update any forward-looking statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1998 Annual Report and the Company's Quarterly
Report on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999 for
descriptions of certain previously-reported legal proceedings.
In October 1999 the Company was served with a complaint in State of
Rhode Island v. Lead Industries Association, et al. (Superior Court of Rhode
Island, No. 99-5226). Rhode Island, by and through its Attorney General, seeks
compensatory and punitive damages for medical, school, and public and private
building abatement expenses that the State alleges were caused by lead paint,
and for funding of a public education campaign and screening programs. Plaintiff
seeks judgments of joint and several liability against the Company, seven other
companies alleged to have manufactured lead products in paint, and the Lead
Industries Association. Plaintiffs allege public nuisance, violation of the
Rhode Island Unfair Trade Practices and Consumer Protection Act, strict
liability, negligence, negligent misrepresentation and omissions, fraudulent
misrepresentation and omissions, civil conspiracy, unjust enrichment, indemnity,
and equitable relief to protect children. The Company intends to deny all
allegations of wrongdoing or liability and to defend the case vigorously.
In October 1999 the Company was served with a complaint in Cofield, et
al. v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004491). Plaintiffs, six homeowners, seek to
represent a class of all owners of nonrental residential properties in Maryland.
Plaintiffs seek compensatory and punitive damages for the existence of
lead-based paint in their homes, including funds for monitoring, detecting and
abating lead-based paint in those residences. Plaintiffs allege that the
Company; fourteen other companies alleged to have manufactured lead pigment,
paint and/or gasoline additives; the Lead Industries Association; and the
National Paint and Coatings Association are jointly and severally liable for
alleged negligent product design, negligent failure to warn, supplier
negligence, strict liability/defective design, strict liability/failure to warn,
nuisance, indemnification, fraud and deceit, conspiracy, concert of action,
aiding and abetting, and enterprise liability. Plaintiffs seek damages in excess
of $20,000 per household. In October 1999 defendants removed the case to
Maryland federal court. The Company intends to deny all allegations of
wrongdoing or liability and to defend the case vigorously.
In October 1999 the Company was served with a complaint in Smith, et
al. v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004490). Plaintiffs, six minors, each seek
- 27 -
<PAGE>
compensatory damages of $5 million and punitive damages of $10 million.
Plaintiffs allege that the Company; fourteen other companies alleged to have
manufactured lead pigment, paint and/or gasoline additives; the Lead Industries
Association; and the National Paint and Coatings Association are jointly and
severally liable for alleged negligent product design, negligent failure to
warn, supplier negligence, fraud and deceit, conspiracy, concert of action,
aiding and abetting, strict liability/ failure to warn, and strict
liability/defective design. In October 1999 defendants removed the case to
Maryland federal court and in November 1999 the case was remanded to state
court. The Company intends to deny all allegations of wrongdoing or liability
and to defend the case vigorously.
In September 1999 an amended complaint was filed in Thomas v. Lead
Industries Association, et al. (Circuit Court, Milwaukee, Wisconsin, Case No.
99-CV-6411) adding as defendants the Company and seven other companies alleged
to have manufactured lead products in paint to a suit originally filed against
plaintiff's landlords. Plaintiff, a minor, alleges injuries purportedly caused
by lead on the surfaces of premises in homes in which he resided. Plaintiff
seeks compensatory and punitive damages. Plaintiff alleges strict liability,
negligence, negligent misrepresentation and omissions, fraudulent
misrepresentations and omissions, concert of action, civil conspiracy, and
enterprise liability causes of action against the Company, six other former
manufacturers of lead products contained in paint, and the Lead Industries
Association. The Company intends to deny all allegations of wrongdoing or
liability and to defend the case vigorously.
City of New York, et al. v. Lead Industries Association, et al (No. 89-
4617). In September 1999 the trial court denied the previously reported
plaintiffs' motions for summary judgment on market share and conspiracy issues
and denied defendants' April 1999 motion for summary judgment on statute of
limitations grounds. Plaintiffs have appealed the denial of their motions.
Parker v. NL Industries, et al. (No. 97085060 CC 915). In September
1999 the Special Court of Appeals reversed the previously reported grant of
summary judgment to defendants. Defendants have requested review from the Court
of Appeals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule for the nine-month period ended
September 30, 1999.
- 28 -
<PAGE>
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended September 30, 1999 and
through the date of this report:
July 20, 1999 - reported Items 5 and 7.
July 26, 1999 - reported Items 5 and 7.
October 20, 1999 - reported Items 5 and 7.
October 28, 1999 - reported Items 5 and 7.
- 29 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
----------------------------------
(Registrant)
DATE: November 11, 1999 By /s/ Susan E. Alderton
- ------------------------ ------------------------------
Susan E. Alderton
Vice President and
Chief Financial Officer
DATE: November 11, 1999 By /s/ Robert D. Hardy
- ------------------------ ------------------------------
Robert D. Hardy
Vice President and Controller
(Principal Accounting Officer)
- 30 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 156,700
<SECURITIES> 0
<RECEIVABLES> 154,694
<ALLOWANCES> 2,298
<INVENTORY> 175,617
<CURRENT-ASSETS> 542,860
<PP&E> 801,562
<DEPRECIATION> 444,539
<TOTAL-ASSETS> 1,104,380
<CURRENT-LIABILITIES> 312,924
<BONDS> 244,335
0
0
<COMMON> 8,355
<OTHER-SE> 261,992
<TOTAL-LIABILITY-AND-EQUITY> 1,104,380
<SALES> 676,758
<TOTAL-REVENUES> 696,798
<CGS> 496,564
<TOTAL-COSTS> 496,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 28,136
<INCOME-PRETAX> 74,337
<INCOME-TAX> (70,833)
<INCOME-CONTINUING> 142,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,909
<EPS-BASIC> 2.76
<EPS-DILUTED> 2.75
</TABLE>
