<PAGE> 1
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, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10126
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Tremont Corporation
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0262791
--------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5652
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ---------
Number of shares of common stock outstanding on October 31, 1996: 7,414,672
--------------
<PAGE> 2
TREMONT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1995 and 3-4
September 30, 1996
Consolidated Statements of Operations - Three months and nine 5
months ended September 30, 1995 and 1996
Consolidated Statement of Stockholders' Equity - Nine months ended 6
September 30, 1996
Consolidated Statements of Cash Flows - Nine months ended 7-8
September 30, 1995 and 1996
Notes to Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis of Financial Condition 14-27
and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 28
Item 6. Exhibits and Reports on Form 8-K. 29
</TABLE>
2
<PAGE> 3
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
ASSETS 1995* 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,650 $ 68,132
Accounts and notes receivable 4,104 4,417
Refundable income taxes 225 --
Receivable from related parties 274 814
Prepaid expenses 257 114
------------ ------------
Total current assets 7,510 73,477
------------ ------------
Other assets:
Investment in NL 31,586 28,782
Investment in TIMET 49,474 89,303
Investment in joint ventures 4,795 5,913
Receivable from related parties 27,990 5,229
Deferred income taxes 248 --
Other 12,520 9,911
------------ ------------
Total other assets 126,613 139,138
------------ ------------
Net property and equipment 755 717
------------ ------------
$ 134,878 $ 213,332
============ ============
</TABLE>
- ---------------------------------------
* Reclassified
3
<PAGE> 4
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995* 1996
------------ -------------
<S> <C> <C>
Current liabilities:
Notes payable $ 2,500 $ --
Accounts payable and accrued liabilities 4,631 5,587
Income taxes -- 759
Payable to related parties 491 28
------------ ------------
Total current liabilities 7,622 6,374
------------ ------------
Noncurrent liabilities:
Payable to related parties 3,450 --
Insurance claims and claim expenses 12,778 12,616
Accrued postretirement benefit cost 22,123 22,216
Deferred income taxes -- 12,451
Other 4,000 4,242
------------ ------------
Total noncurrent liabilities 42,351 51,525
------------ ------------
Minority interest 1,246 1,628
------------ ------------
Stockholders' equity:
Common stock 7,550 7,586
Additional paid-in capital 231,815 272,705
Accumulated deficit (146,796) (118,322)
Adjustments:
Currency translation (3,145) (3,948)
Marketable securities (62) 589
Pension liabilities (2,107) (1,209)
------------ ------------
87,255 157,401
Less treasury stock, at cost 3,596 3,596
------------ ------------
Total stockholders' equity 83,659 153,805
------------ ------------
$ 134,878 $ 213,332
============ ============
Commitments and contingencies (Note 7)
</TABLE>
- ------------------------------------------------------
* Reclassified
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------- -----------------------
1995* 1996 1995* 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equity in earnings (loss) of:
TIMET $ (240) $ 4,035 $ (4,848) $ 8,676
NL Industries 2,131 (1,685) 6,298 966
Other joint ventures -- 779 -- 1,452
------- ------- -------- --------
1,891 3,129 1,450 11,094
Gain on sale of TIMET stock -- -- -- 27,599
Corporate expenses, net 349 236 822 2,953
Interest expense -- -- 69 274
------- ------- -------- --------
Income before income taxes and
minority interest 1,542 2,893 559 35,466
Income tax expense 4 558 4 6,611
Minority interest -- (199) -- (381)
------- ------- -------- --------
Net income $ 1,538 $ 2,136 $ 555 $ 28,474
======= ======= ======== ========
Net income per common share $ .21 $ .28 $ .08 $ 3.72
======= ======= ======== ========
Weighted average common and common
equivalent shares (Note 2) 7,353 7,680 7,353 7,657
======= ======= ======== ========
</TABLE>
- --------------------------------
*Reclassified
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Adjustments
Additional ----------------------------------- Total
Common paid-in Accumulated Currency Marketable Pension Treasury Stockholders'
stock capital deficit translation securities liabilities stock equity
------ -------- --------- ----------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $7,550 $231,815 $(146,796) $(3,145) $ (62) $(2,107) $(3,596) $83,659
Net income -- -- 28,474 -- -- -- -- 28,474
Reduction of interest
in TIMET, net (Note 1) -- 40,227 -- (179) -- 898 -- 40,946
Common stock issued 36 599 -- -- -- -- -- 635
Adjustments, net -- -- -- (624) 651 -- -- 27
Other -- 64 -- -- -- -- -- 64
------ -------- --------- ------- ----- ------- ------- --------
Balance at September 30, 1996 $7,586 $272,705 $(118,322) $(3,948) $ 589 $(1,209) $(3,596) $153,805
====== ======== ========= ======= ===== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1995* 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 555 $ 28,474
Postretirement benefits (568) 93
Earnings of affiliates in excess
of distributions (1,450) (8,040)
Gain on sale of TIMET stock -- (27,599)
Deferred income taxes -- 4,816
Other, net (15) 418
Change in assets and liabilities:
Accounts and notes receivable (345) (260)
Accounts with related parties (344) (703)
Accounts payable and accrued liabilities (177) 956
Income taxes (6) 984
Other, net (1,542) (18)
Dispositions of marketable trading securities 3,244 --
-------- --------
Net cash used by operating activities (648) (879)
-------- --------
Cash flows from investing activities:
Loans to related party:
Loans (2,500) --
Collections -- 22,460
Proceeds from disposition of:
TIMET common stock, net -- 46,898
Property held for sale -- 3,000
Purchases of securities (1,184) (1,078)
Disposition of securities 364 --
Other, net 294 396
-------- --------
Net cash provided from (used by)
investing activities (3,026) 71,676
-------- --------
- ------------------------------------------
</TABLE>
*Reclassified
7
<PAGE> 8
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1995* 1996
--------- --------
<S> <C> <C>
Cash flows from financing activities:
Loans from related party:
Loans $ -- $ 50
Repayments -- (3,500)
Notes payable and long-term debt:
Borrowings 2,500 --
Reduction -- (2,500)
Capital contribution to affiliate (1,148) --
Other 10 635
-------- --------
Net cash provided from (used by)
financing activities 1,362 (5,315)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,312) 65,482
Balance at beginning of period 3,809 2,650
-------- --------
Balance at end of period $ 1,497 $ 68,132
======== ========
Supplemental disclosures - cash paid (received) for:
Interest $ 63 $ (1,797)
Income taxes 10 811
</TABLE>
- ------------------------------
* Reclassified
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
TREMONT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Tremont Corporation is principally a holding company with operations
conducted through its 30%-owned subsidiary, Titanium Metals Corporation
("TIMET"), and 18%-owned affiliate, NL Industries, Inc. ("NL") Contran
Corporation holds, directly or through affiliates, approximately 44% of
Tremont's outstanding common stock and 55% of NL's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons may be deemed to
control each of Contran, NL and Tremont.
On February 15, 1996, TIMET acquired the titanium metals businesses (the
"IMI Titanium Acquisition") of IMI plc ("IMI") and, on June 4, 1996, completed
an initial public offering of 6.2 million shares of its common stock (the
"Stock Offering"). These transactions reduced Tremont's ownership in TIMET from
75% at December 31, 1995 to 30%. See Note 3. As a result of its reduced
ownership level, Tremont has ceased to consolidate TIMET and instead reports
its interest in TIMET by the equity method of accounting. Tremont accounted for
these transactions as a reduction of ownership interest in an affiliate and,
accordingly, recorded a $40.9 million net increase to stockholders' equity in
the nine months ended September 30, 1996. The change in stockholders' equity
resulted from the difference between the book values of Tremont's current 30%
interest in TIMET and its 75% interest in TIMET before the IMI Titanium
Acquisition and initial public offering.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1995 has been derived from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1996, the consolidated statements
of operations and cash flows for the interim periods ended September 30, 1995
and 1996 and the consolidated statement of stockholders' equity for the interim
period ended September 30, 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. Prior period
amounts have been reclassified to conform to the current year presentation. 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 normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Annual Report").
9
<PAGE> 10
Note 2 - Income (loss) per common share:
Income (loss) per common share is based upon 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 - Unconsolidated affiliates and joint ventures:
See Item 2 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for summarized information relating to the results
of operations, financial position and cash flows of TIMET and NL, which
information is incorporated herein by reference.
TIMET
Tremont holds 9.5 million shares or 30% of TIMET's outstanding common
stock. At September 30, 1996, the net carrying amount of the Company's
investment in TIMET was about $9.41 per share while the market price of TIMET
common stock on that date was $29.00 per share.
On February 15, 1996, TIMET acquired IMI's titanium metals businesses. IMI
previously conducted its titanium businesses principally through its
wholly-owned United Kingdom subsidiary, IMI Titanium Ltd. (now known as TIMET
UK), and its United States subsidiary, IMI Titanium, Inc. (now known as TIMET
Castings). TIMET UK is Western Europe's largest producer of titanium ingot and
mill products for aerospace and industrial applications. TIMET Castings
manufactures titanium castings principally for aerospace applications and golf
club heads. IMI conveyed all of its titanium related businesses to TIMET in
exchange for 9.5 million newly issued shares of TIMET's common stock valued at
$70 million, and TIMET issued $20 million of TIMET's subordinated debt to IMI
in exchange for a like amount of debt previously owed to IMI by its U.K.
subsidiary. In connection with the IMI Titanium Acquisition, Tremont was
granted an option expiring February 15, 1999 to purchase up to an additional 2
million shares of TIMET's common stock from IMI for $16 million. Tremont
assigned to UTSC the right to acquire from IMI for $4 million up to .5 million
shares of TIMET's common stock under the option. TIMET accounted for the IMI
Titanium Acquisition by the purchase method of accounting.
At September 30, 1996, Tremont had the right, under the aforementioned
option, to acquire 1.5 million shares of TIMET's common stock from IMI with a
quoted market value of $29.00 per share, or an aggregate $44 million, for an
aggregate purchase price of $12 million.
10
<PAGE> 11
The following Tremont pro forma financial information has been prepared
assuming the IMI Titanium Acquisition occurred at the beginning of fiscal 1995.
The pro forma financial information is not necessarily indicative of the
results which actually would have been obtained if the IMI Titanium Acquisition
had been effected at such earlier date or of the results which may be obtained
in the future.
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------
1995 1996
---- ----
(In millions, except per share data)
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ (10.2) $ 8.6
NL 6.3 1.0
Other joint ventures -- 1.4
-------- --------
$ (3.9) $ 11.0
======== ========
Net income (loss) $ (4.8) $ 28.4
======== ========
Net income (loss) per common share $ (.65) $ 3.71
======== ========
</TABLE>
On June 4, 1996, TIMET completed the sale of 6.2 million shares of its
common stock to the public pursuant to a registration statement filed with the
Securities and Exchange Commission. TIMET's net proceeds from the Stock
Offering approximated $131 million. TIMET used approximately $42.5 million of
the net proceeds to repay existing indebtedness to stockholders ($22.5 million
to Tremont and $20 million to IMI) and $82 million to repay indebtedness under
its U.S. credit facility.
During the third quarter of 1996, TIMET and Compagnie Europeenne du
Zirconium-CEZUS, S.A. ("CEZUS") completed an agreement to form TIMET Savoie to
manufacture and sell titanium products. TIMET Savoie is 70%-owned by TIMET and
30%-owned by CEZUS. TIMET's total contribution to TIMET Savoie was $8 million.
Also during the third quarter, TIMET acquired for approximately $2 million the
remaining 74% equity interest in TISTO, a German-based distributor of titanium
products. TIMET's net sales and operating income for the three months ended
September 29, 1996 included $10 million and nil, respectively, attributable to
TISTO and TIMET Savoie.
On October 1, 1996, TIMET acquired (the "AJM Acquisition") substantially
all of the assets and assumed substantially all of the liabilities of Axel
Johnson Metals, Inc. ("AJM") for approximately $96 million cash and the
assumption of approximately $6 million in debt. The AJM Acquisition was
completed through a newly formed subsidiary, Titanium Hearth Technologies, Inc.
("THT, Inc."), and included the acquisition of the 50% partnership interest in
Titanium Hearth Technologies ("THT"), a general partnership, that TIMET did not
previously own. The purchase price was funded through borrowings under TIMET's
U.S. credit facility. THT, Inc. and its subsidiaries operate titanium scrap
processing facilities and electron beam cold hearth melting furnaces. TIMET
will account for the AJM Acquisition by the purchase method and consolidate the
financial position and results of operations of THT, Inc. beginning in the
fourth quarter of 1996.
11
<PAGE> 12
NL Industries
Tremont holds 9.1 million shares or 18% of NL's outstanding common stock.
At September 30, 1996, the net carrying amount of the Company's investment in
NL was about $3.16 per share while the market price per share of NL common
stock on September 30, 1996 and October 31, 1996 was $10.50 and $8.50,
respectively.
Joint Ventures
Investment in joint ventures represents the Company's 75% interest in
TRECO L.L.C., which is principally comprised of a (i) 32% equity interest in
Basic Investments, Inc. ("BII"), which, among other things, provides utility
services in the industrial park where one of TIMET's plants is located, and a
(ii) 12% interest in Victory Valley Land Company, L.P. ("VVLC"), which is
actively engaged in efforts to develop certain real estate. BII, through a
wholly-owned subsidiary, owns an additional 50% interest in VVLC.
Note 4 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ------------
(In thousands)
<S> <C> <C>
Accounts payable $ 35 $ 10
Accrued liabilities:
Postretirement benefit cost 1,819 1,819
Employee benefits -- 1,084
Other 2,777 2,674
------------ ------------
$ 4,631 $ 5,587
============ ============
</TABLE>
12
<PAGE> 13
Note 5 - Income taxes:
The difference between the income tax expense attributable to the
Company's income (loss) before income taxes and minority interest and the
amounts 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,
---------------------
1995 1996
---- ----
(In thousands)
<S> <C> <C>
Expected income tax expense $ 195 $ 12,413
Incremental tax and rate differences on equity
in income of companies not included in the
consolidated tax group -- (248)
Adjustment of deferred tax valuation allowance (184) (5,562)
U.S. state income taxes, net 3 29
Other, net (10) (21)
-------- --------
Income tax expense $ 4 $ 6,611
======== ========
</TABLE>
During the first nine months of 1996, the Company utilized all of its U.S.
net operating loss carryforwards ("NOLs").
Note 6 - Related party transactions:
Current receivables from related parties at December 31, 1995 and
September 30, 1996 principally represent amounts due from NL and Baroid
Corporation under insurance loss sharing arrangements, which business is in
runoff. Noncurrent receivables from related parties at December 31, 1995
include $22.5 million of loans and interest due from TIMET with the balance
principally representing additional amounts due under loss sharing
arrangements. In connection with the completion of the Stock Offering, TIMET
repaid all $22.5 million of loans and interest owed to Tremont. Noncurrent
receivables from related parties at September 30, 1996 principally represent
amounts due under loss sharing arrangements. Current payables to related
parties principally include amounts due to NL and TIMET under intercorporate
services agreements and interest due to Contran at December 31, 1995.
Noncurrent payables to related parties at December 31, 1995 represent loans
from Contran, which loans were repaid in 1996.
Note 7 - Commitments and contingencies:
For information concerning certain legal proceedings, income tax and other
contingencies related to the Company, TIMET and NL, see (i) Item 2 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," (ii) Part II, Item 1 -- "Legal Proceedings," (iii) the 1995 Annual
Report, including certain information concerning TIMET's and NL's legal
proceedings incorporated therein by reference, and (iv) Tremont's quarterly
report on Form 10-Q for the period ended June 30, 1996.
13
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward - Looking Information
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", both contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", 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 the 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, TIMET's and NL's public reports and
statements.
RESULTS OF OPERATIONS:
Tremont Corporation is principally a holding company with operations
conducted through TIMET and NL. The Company currently holds 30% of the
outstanding common stock of TIMET and 18% of NL's outstanding common stock. The
results of Tremont, TIMET, NL and other items are discussed below.
Corporate expenses, net and other items
Tremont's corporate expenses, net for the nine month period ended
September 30, 1996 include a $2 million special compensation accrual to an
executive officer of the Company as approved by the Company's Board of
Directors. Certain amounts of the compensation award will be deferred under an
agreement between the Company and the executive officer.
In connection with the Stock Offering in June 1996, Tremont sold 2.2
million shares of TIMET common stock with net proceeds of approximately $47
million, resulting in a pre-tax gain of $27.6 million.
Income taxes
The Company's income tax rate in the first nine months of 1996 varied from
the U.S. statutory rate principally due to a reduction in the deferred income
tax valuation allowance to reflect the current utilization of its U.S. NOLs. At
September 30, 1996, the Company had no outstanding U.S. NOLs for federal income
tax purposes.
14
<PAGE> 15
TIMET
TIMET's results of operations for 1996 include the results of the IMI
titanium businesses acquired on February 15, 1996, TISTO acquired on July 9,
1996 and TIMET Savoie formed on August 1, 1996. All price and volume
comparisons are pro forma assuming the IMI Titanium Acquisition occurred at the
beginning of fiscal 1995. The pro forma effect of TISTO and TIMET Savoie on
price and volume information would not be material.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
1995 1996 Change 1995 1996 Change
---- ---- ------ ---- ---- ------
(In millions, except percentages and price data)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 47.9 $ 123.4 $ 75.5 $ 135.2 $ 349.8 $ 214.6
======== ======== ======== ======== ======== ========
Operating income $ 2.3 $ 17.8 $ 15.5 $ 1.8 $ 38.4 $ 36.6
General corporate
income (expense), net -- .2 .2 (.2) .6 .8
Interest expense 2.6 .4 2.2 7.9 7.3 .6
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
preacquisition earnings (.3) 17.6 17.9 (6.3) 31.7 38.0
Income tax expense (benefit) -- 4.3 (4.3) .2 7.8 (7.6)
Preacquisition earnings -- -- -- -- (.4) (.4)
-------- -------- -------- -------- -------- --------
Net income (loss) $ (.3) $ 13.3 $ 13.6 $ (6.5) $ 23.5 $ 30.0
======== ======== ======== ======== ======== ========
Tremont's equity in TIMET's
income (loss) $ (.2) $ 4.0 $ 4.2 $ (4.8) $ 8.7 $ 13.5
======== ======== ======== ======== ======== ========
Mill products:
Sales volume (in pounds) 5.2 7.1 1.9 15.5 19.6 4.1
Average price per pound $ 12.68 $ 14.09 $ 1.41 $ 12.14 $ 14.04 $ 1.90
Percent changes:
Mill product sales volume +36% +26%
Average selling prices +13% +16%
</TABLE>
TIMET's operating income in the third quarter and first nine months of
1996 improved significantly from the comparable periods in 1995. The
improvement was principally driven by price and volume increases for titanium
products in the commercial aerospace and golf club market. For the first nine
months of 1996, sales volume of titanium mill products increased to 19.6
million pounds compared to 15.5 million pounds in the year-ago period. Average
selling prices in the first nine months of 1996 were up approximately 16% over
the first nine months of 1995, and third quarter average selling prices were
approximately 13% higher than the third quarter of 1995.
15
<PAGE> 16
The selling price increases reflect both the pass-through of cost
increases, particularly raw material costs, and real price improvement
associated with increased market demand. Although TIMET and the titanium
industry are continuing to experience increases in the cost of certain raw
materials, TIMET's increased selling prices more than offset those cost
increases. Prices on recent orders for titanium products have continued to
increase relative to 1995 levels and TIMET expects this trend to continue.
TIMET's backlog of firm orders approximated $400 million at September 29, 1996.
Operating levels at TIMET's plants in the first nine months of 1996 were
higher than the same period in 1995 and contributed to the better operating
results. The VDP titanium sponge plant operated at about 85% of its practical
capacity of 20 million pounds annually in the first nine months of 1996
compared to about 75% of practical capacity in 1995. TIMET restarted production
of titanium sponge at its original Kroll-leach facility during the second
quarter in response to demand for certain grades of titanium sponge. TIMET
presently intends to increase Kroll-leach titanium sponge production to at
least 10 million pounds of annual production. Costs to restart the Kroll-leach
facility were $1.4 million in the first nine months of 1996 and are expected to
aggregate approximately $2 million for the full year. TIMET's overall mill
product capacity utilization for the first nine months of 1996 approximated
85%. Depreciation expense increased $3.8 million in the first nine months of
1996 over the year-ago period principally as a result of the IMI Titanium
Acquisition. TIMET recently entered into a new four-year agreement with the
union representing approximately 390 hourly workers at its Nevada facility that
expires in October 2000.
TIMET's consolidated net sales and operating income (prior to intercompany
eliminations) for the three months ended September 29, 1996 included $10
million and nil, respectively, attributable to TISTO and TIMET Savoie.
TIMET recorded special charges of $.4 million and $4.7 million in the
third quarter and first nine months of 1996, respectively, related to the IMI
Titanium Acquisition. Such charges included $3 million ($1.5 million TIMET
common stock and $1.5 million cash) related to compensation of certain of
TIMET's officers in consideration for their services in connection with the IMI
Titanium Acquisition, and $1.7 million related to integration and other costs.
TIMET expects to incur additional special charges related to integration costs
during the balance of 1996 of approximately $.5 million.
Interest expense in the third quarter of 1996 was below that of the same
period in 1995 principally due to the reduction of indebtedness associated with
the use of proceeds from the Stock Offering in the second quarter of 1996.
Interest expense in the fourth quarter of 1996 will be higher than the third
quarter of 1996 due to indebtedness incurred in connection with the AJM
Acquisition. See "Liquidity and Capital Resources".
See Note 3 to the Consolidated Financial Statements regarding the IMI
titanium, AJM and TISTO acquisitions, TIMET Savoie formation and the Stock
Offering.
16
<PAGE> 17
TIMET's income tax rate in the first nine months of 1995 varied from the
U.S. statutory rate due to losses which resulted in temporary differences
between book and taxable income for which recognition of a deferred tax asset
was not considered appropriate at the time. TIMET's income tax rate in the
first nine months of 1996 varied from the U.S. statutory rate principally due
to a reduction in the deferred tax valuation allowance to reflect the current
utilization of a portion of its U.S. NOLs in 1996.
TIMET may further release a portion of its deferred tax asset valuation
allowance later in 1996, resulting in a tax benefit, if it concludes that the
"more likely than not" realization criteria of SFAS No. 109 are met. In making
its assessment of realizability, TIMET will continue to consider a number of
factors, including the length of time it has remained profitable, its backlog
level, general improvement in overall industry operating conditions, the
cyclicality of the commercial aerospace market and business fundamentals in
TIMET's key market sectors. When preparing future financial statements, TIMET
will evaluate its strategic and business plans, in light of evolving business
conditions, and the valuation allowance will be adjusted for future
expectations resulting from that process, to the extent different from those
inherent in the valuation allowance as of September 29, 1996.
At September 29, 1996, TIMET had, for financial reporting purposes, U.S.
NOLs of approximately $30 million. The utilization of TIMET's NOLs is subject
to an annual limitation of approximately $15 million.
NL Industries
The Company's 18% interest in NL is reported by the equity method. Tremont
reports its 18% interest in NL by the equity method due to the fact that
Tremont and NL may be deemed to be under common control by reason of stock
ownership and common directors and executive officers. Valhi, Inc. and Tremont
together may be deemed to control NL. The information included below relating
to the financial position, results of operations and liquidity and capital
resources of NL has been summarized from reports filed with the Securities and
Exchange Commission by NL (File No. 1-640), which reports contain more detailed
information concerning NL, including complete financial statements on NL's
historical basis of accounting.
Tremont's equity in earnings of NL differs from the amount that would be
expected by applying Tremont's ownership percentage to NL's separately-reported
earnings because of the effect of amortization of purchase accounting
adjustments made by Tremont in conjunction with the acquisitions of its
interest in NL. Amortization of such basis differences generally reduces
earnings, and increases losses, attributable to NL as reported by Tremont.
17
<PAGE> 18
NL's chemical operations are conducted in two business segments --
titanium dioxide ("TiO2") and specialty chemicals conducted by NL's
wholly-owned subsidiaries, Kronos and Rhoex, respectively.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------
1995 1996 Change 1995 1996 Change
---- ---- ------ ---- ---- ------
(In millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Kronos $ 222.8 $ 215.1 -3% $689.5 $ 649.7 -6%
Rheox 32.5 33.4 +3% 100.2 102.4 +2%
---------- ---------- ------ ---------
$ 255.3 $ 248.5 -3% $789.7 $ 752.1 -5%
========== ========== ====== =========
Operating income:
Kronos $ 40.8 $ 9.7 -76% $120.4 $ 64.6 -46%
Rheox 9.8 9.8 N/C 29.7 32.9 +11%
---------- ---------- ------ ---------
50.6 19.5 -62% 150.1 97.5 -35%
General corporate items:
Securities earnings, net 1.5 1.2 5.9 3.6
Expenses, net (7.1) (5.7) (19.9) (12.4)
Interest expense (20.3) (18.5) (62.0) (56.1)
---------- ---------- ------ ----------
24.7 (3.5) $(28.2) 74.1 32.6 $(41.5)
Income tax expense (7.4) (0.7) (22.3) (11.5)
Minority interest (.1) -- .3 --
---------- ---------- ------- ----------
Net income (loss) $ 17.4 $ (4.2) $(21.6) $ 51.5 $ 21.1 $(30.4)
========== ========== ====== ======= ========== ======
Tremont's equity in NL's income (loss),
including amortization of
basis differences $ 2.1 $ (1.7) $ (3.8) $ 6.3 $ 1.0 $ (5.3)
========== ========== ====== ======= ========== ======
</TABLE>
Percent changes in TiO2:
Sales volume +17% +3%
Average selling prices (in billing currencies) -15% -6%
Krono's TiO2 operating income in the third quarter and first nine months
of 1996 decreased from the comparable periods in 1995 primarily due to the
decline in average TiO2 selling prices. Average TiO2 selling prices for the
third quarter of 1996 were 15% lower than the third quarter of 1995 and 6%
lower than the second quarter of 1996. Selling prices at the end of the third
quarter of 1996 were 15% lower than prices at the end of 1995. NL expects
average TiO2 prices in the fourth quarter to be below the third quarter
average. While prices have declined, demand for TiO2 has grown. Kronos' third
quarter sales volume increased 17% compared with the third quarter of 1995 with
improved sales volumes worldwide. Sales volumes for the first nine months in
1996 were 3% higher than the comparable period in 1995 primarily due to improved
sales volumes in the U.S.
18
<PAGE> 19
Rheox's operating income of $9.8 million for the third quarter of 1996 was
even with the year-earlier period. Rheox's operating income in the first nine
months 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 third
quarter and the current TiO2 industry pricing outlook, NL expects its
fourth-quarter net loss will exceed that of the third quarter of 1996 and NL's
Board of Directors has suspended NL's regular quarterly dividend.
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 third quarter and first
nine months of 1996 by $4 million and $7 million, respectively, compared to the
comparable 1995 periods.
Securities earnings were lower due to lower average balances available for
investment. Net corporate expenses were lower in the third quarter and first
nine months of 1996 compared to the same periods in 1995 due to lower
environmental remediation costs. Interest expense was lower primarily due to
lower variable interest rates.
LIQUIDITY AND CAPITAL RESOURCES:
Tremont
Tremont, with its 30% interest in TIMET and 18% interest in NL at
September 30, 1996, is principally a holding company operating through TIMET
and NL. At September 30, 1996, Tremont had parent level cash and cash
equivalents of approximately $67 million, and its 9.1 million shares of NL
common stock and 9.5 million shares of TIMET common stock had aggregate market
values of about $77 million and $276 million, respectively. NL paid a cash
dividend in each of the first three quarters of 1996 at the rate of $.10 per NL
share per quarter aggregating $2.7 million. In October 1996, NL's Board of
Directors suspended NL's regular quarterly dividend. At September 30, 1996,
Tremont had the right to acquire 1.5 million shares of TIMET's common stock
from IMI with a quoted market value of $29.00 per share, or an aggregate $44
million, for an aggregate purchase price of $12 million.
Tremont's intercompany loans plus accrued interest due from TIMET
aggregating $22.5 million were repaid with a portion of the net proceeds TIMET
received from the Stock Offering. Additionally, in connection with the Stock
Offering, Tremont sold 2.2 million shares of TIMET common stock for net
proceeds of approximately $47 million.
In June 1996, Tremont repaid the amount outstanding under the revolving
credit agreement with Contran Corporation and terminated the facility. In June
1995, Tremont borrowed $2.5 million under a margin loan with an investment bank
which was repaid on March 28, 1996. Tremont also had approximately $9 million
of letters of credit outstanding under a third party credit agreement at
September 30, 1996.
19
<PAGE> 20
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements 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 raise additional capital, restructure ownership
interests of subsidiaries and affiliates, incur indebtedness, consider the sale
of interests in subsidiaries, affiliates, marketable securities or other
assets, or take a combination of such steps or other steps to increase or
manage its liquidity and capital resources. In the normal course of business,
the Company may investigate, evaluate and discuss acquisition, joint venture
and other business combination opportunities. In the event of any future
acquisition or joint venture opportunities, the Company may consider using
available cash, issuing equity securities or incurring indebtedness.
As previously reported, based upon the technical provisions of the
Investment Company Act of 1940 (the "1940 Act") and Tremont's ceasing to own a
majority of TIMET's common stock following the acquisition by TIMET in February
of the IMI titanium businesses, Tremont might arguably be deemed to have become
an "investment company" under the 1940 Act, despite that Tremont does not now
engage, nor has it ever engaged or intended to engage in the business of
investing, reinvesting, owning, holding or trading of securities. Tremont has
taken the steps necessary to give itself the benefits of a temporary exemption
under the 1940 Act and has sought an order from the Securities and Exchange
Commission (the "Commission") that Tremont is primarily engaged, through TIMET
and NL, in a non-investment company business. Tremont intends to study the
future direction and opportunities available to Tremont with a view to
obviating, prior to February 13, 1997 (the expiration date of the time period
afforded by the temporary exemption), any argument concerning Tremont's
possible status as an investment company under the 1940 Act. Based upon current
trends, the Company believes other exemptions may be available in February 1997
should the Commission not act on, or deny, Tremont's application for an
exemptive order.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
20
<PAGE> 21
TIMET
Summarized historical balance sheet and cash flow information of TIMET is
presented below.
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1995 1996
------------ ------------
(In millions)
<S> <C> <C>
Cash and cash equivalents $ -- $ 2.2
Other current assets 103.6 250.2
Investment in joint ventures 13.9 19.9
Other noncurrent assets 6.4 22.6
Property and equipment, net 124.9 181.4
------------ ------------
$ 248.8 $ 476.3
============ ============
Current liabilities $ 97.1 $ 119.5
Long-term debt 21.5 1.5
Capital lease obligation to related parties -- 9.8
Payable to related parties 23.9 1.3
Accrued postretirement benefits cost 28.2 28.0
Deferred income taxes .8 8.7
Other noncurrent liabilities 9.2 8.3
Minority interest -- 3.3
Stockholders' equity:
Capital and retained earnings 70.2 296.9
Adjustments, principally minimum
pension liabilities (2.1) (1.0)
------------ ------------
68.1 295.9
------------ ------------
$ 248.8 $ 476.3
============ ============
<CAPTION>
Nine months ended
September 30,
----------------------------
1995 1996
------------ ------------
(In millions)
Net cash provided (used) by:
Operating activities $ (10.9) $ (9.5)
Investing activities:
Capital expenditures (2.3) (10.8)
Purchase of interest in subsidiaries -- (5.2)
Other, net .4 .2
Financing activities:
Net bank borrowings (repayments) 11.4 (65.1)
Proceeds from issuance of common stock, net -- 131.5
Capital contributions from related party 1.1 --
Related parties loans (repayments) 2.5 (42.5)
Foreign currency translation .1 .2
Cash acquired, net -- 3.4
------------ ------------
$ 2.3 $ 2.2
============ ============
Cash paid for:
Interest $ 7.9 $ 6.7
Income taxes 0.1 .9
Acquisitions:
Cash and cash equivalents $ -- $ 4.1
Noncash assets -- 168.5
Liabilities -- (97.4)
Common stock issued to IMI -- (70.0)
------------ ------------
Cash paid $ -- $ 5.2
============ ============
</TABLE>
21
<PAGE> 22
TIMET's 1996 earnings have improved significantly compared to the losses
it incurred in recent years. TIMET's results include significant noncash items.
Depreciation expense increased to $12.6 million in the first nine months of
1996 compared to $8.8 million for the year-ago period principally as a result
of the IMI Titanium Acquisition. TIMET recorded $4.7 million of special charges
in the first nine months of 1996 related to the IMI Titanium Acquisition,
approximately $1.5 million of which was noncash for common stock. TIMET's
equity in earnings of THT were $2.7 million and $5.8 million for the first nine
months of 1995 and 1996, respectively, while THT made no distributions in
either period. Cash flow from operations in the first nine months of both 1995
and 1996 was reduced by increases in accounts receivable and inventories, which
was partially offset by increases in accounts payable.
TIMET's capital expenditures in the first nine months of 1996 were $10.8
million compared to $2.3 million in the year-ago period. TIMET estimates
capital expenditures in 1996 will be less than $20 million.
TIMET completed the Stock Offering on June 4, 1996. TIMET's net proceeds
from the Stock Offering approximated $131 million. TIMET used approximately
$42.5 million of the net proceeds to repay existing indebtedness to
stockholders ($22.5 million to Tremont and $20 million to IMI) and $82 million
to repay indebtedness under its U.S. credit facility.
TIMET's U.S. credit facility provides for revolving loans/letters of
credit aggregating up to $105 million at September 29, 1996. Borrowings are
limited to a formula-determined amount of accounts receivable and inventories
(the "borrowing base"). Interest accrues at the prime rate plus .75% or, at
TIMET's option, LIBOR plus 2.25% (9% at September 29, 1996). Borrowings are
collateralized by substantially all of TIMET's assets. The credit agreement
prohibits dividends on TIMET's common stock in excess of 20% of TIMET's net
income in any fiscal year, limits TIMET's additional indebtedness and contains
other covenants customary in transactions of this type. TIMET had $102 million
of borrowings available under its U.S. credit agreement at September 29, 1996
and drew $90 million on October 1, 1996 in connection with the AJM Acquisition.
TIMET has requested an increase to $135 million in the borrowings available
under the U.S. credit facility.
During the third quarter of 1996, TIMET and CEZUS completed an agreement to
form TIMET Savoie to manufacture and sell titanium products. TIMET Savoie is
70%-owned by TIMET and 30%-owned by CEZUS. TIMET's total contribution to TIMET
Savoie was $8 million. Also during the third quarter, TIMET acquired for
approximately $2 million the remaining 74% equity interest in TISTO, a
German-based distributor of titanium products. TIMET's net sales and operating
income for the three months ended September 29, 1996 included $10 million and
nil, respectively, attributable to TISTO and TIMET Savoie.
On October 1, 1996, TIMET acquired substantially all of the assets and
assumed substantially all of the liabilities of AJM for approximately $96
million plus the assumption of approximately $6 million in debt. The AJM
Acquisition was completed through a newly formed subsidiary, THT, Inc., and
included the acquisition of the 50% general partnership interest in THT that
TIMET did not previously own. THT, Inc. and its subsidiaries operate titanium
scrap processing facilities and electron beam cold hearth melting furnaces. The
cash portion of the purchase price of $96 million was funded through borrowings
under TIMET's U.S. credit facility. TIMET has offered a third party in the
titanium industry an opportunity to acquire a minority interest in THT, Inc.
(or the THT partnership), to which the third party has not yet responded.
22
<PAGE> 23
In November 1996, TIMET announced plans to form the TIMET Capital Trust I,
a Delaware business trust, to offer tax-advantaged convertible preferred
securities in a private offering to qualified institutional buyers in the
United States in reliance on Rule 144A under the Securities Act of 1933, as
amended. TIMET will own all of the common securities of the Trust. TIMET plans
to use the proceeds of the offering to retire indebtedness to lenders
(excluding capital leases) and for general corporate purposes. It is
anticipated that the Trust will offer $150 million in convertible preferred
securities and will grant the initial purchasers an option to purchase an
additional $22.5 million in convertible preferred securities to cover
overallotments. The securities will represent undivided beneficial ownership
interests in the Trust and will be guaranteed by TIMET. The assets of the Trust
will consist solely of TIMET's convertible junior subordinated debentures due
2026. The convertible preferred securities of the Trust will be convertible at
the option of the holders thereof into common stock of TIMET. TIMET anticipates
that the offering will be completed in November 1996.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
23
<PAGE> 24
NL Industries
Summarized historical balance sheet and cash flow information of NL is
presented below.
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1995 1996
------------ ------------
(In millions)
<S> <C> <C>
Cash, cash equivalents and securities $ 141.3 $ 130.2
Other current assets 409.7 390.7
Noncurrent securities 20.9 22.3
Investment in joint ventures 185.9 181.4
Other noncurrent assets 54.6 48.7
Property and equipment 459.2 465.9
------------ ------------
$ 1,271.6 $ 1,239.2
============ ============
Current liabilities $ 302.4 $ 332.4
Long-term debt 740.3 711.8
Deferred income taxes 157.2 145.3
Accrued postretirement benefits cost 60.2 58.1
Other noncurrent liabilities 217.8 190.5
Minority interest 3.1 .3
Stockholders' deficit:
Capital and retained earnings (80.0) (74.0)
Adjustments, principally foreign
currency translation (129.4) (125.2)
------------ ------------
(209.4) (199.2)
------------ ------------
$ 1,271.6 $ 1,239.2
============ ============
<CAPTION>
Nine months ended
September 30,
----------------------------
1995 1996
------------ ------------
(In millions)
Net cash provided (used) by:
Operating activities $ 67.8 $ 38.3
Investing activities:
Capital expenditures (42.6) (52.3)
Other, net 1.8 (.6)
Financing activities:
Net borrowings (repayments) (8.6) 21.3
Dividends -- (15.3)
Other, net .2 (.2)
------------ ------------
$ 18.6 $ (8.8)
============ ============
Cash paid for:
Interest, net of amounts capitalized $ 37.1 $ 31.5
Income taxes 22.4 16.7
</TABLE>
24
<PAGE> 25
The TiO(2) industry is cyclical and changes in economic conditions within
the industry significantly impact the earnings and operating cash flows of NL.
During the first nine months of 1996, declining TiO(2) selling prices
unfavorably impacted Kronos' operating income and cash flows from operations
compared to the 1995 period. Average selling prices began a downward trend in
the last half of 1995 and NL expects the trend to continue at least for the
remainder of the year. NL expects prices will begin to increase during 1997;
however, no assurance can be given that price trends will conform to NL's
expectations and NL's future cash flows will be adversely affected should
price trends be lower than NL's expectations.
NL's cash flows from operations also declined in the first nine months of
1995 due to an increase in working capital of $43 million, while working
capital remained about the same in the first nine months of 1996, excluding the
effect of currency translation. Net changes in working capital used less cash
in the 1996 period primarily due to TiO(2) production curtailments and higher
sales volumes reducing inventory levels during 1996.
Certain of NL'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. NL has reached an agreement with the German tax
authorities regarding examinations which resolves certain significant tax
contingencies for years through 1990. NL has received certain final assessments
and expects to pay tax deficiencies of approximately DM 49 million ($32 million
at September 30, 1996), including interest, in the fourth quarter of 1996 in
final settlement of the agreed issues. Certain other German tax contingencies
remain outstanding and will continue to be litigated. Although NL believes that
it will ultimately prevail, NL has granted a DM 100 million ($66 million at
September 30, 1996) lien on its Nordenham, Germany TiO(2) 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 NL's favor in view of the
inherent uncertainties involved in court rulings. NL 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 NL'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.
NL borrowed DM 95 million ($64 million when borrowed) under its DM credit
facility during the first nine months of 1996 and used the proceeds primarily
to fund operations. During October 1996, NL borrowed DM 49 million ($32 million
when borrowed) under the DM credit facility to fund the German tax settlement
payments described above. Repayments of indebtedness in the first nine months
of 1996 included payments of $17.2 million on the Rheox bank term loan, $11.6
million on the joint venture term loan and DM 16 million ($10.4 million when
repaid) on DM-denominated notes payable.
In the third quarter of 1996, NL paid a quarterly dividend of $.10 per
share to shareholders aggregating $5.1 million. Dividends paid during the first
nine months of 1996 totaled $15.3 million. In October 1996, NL's Board of
Directors suspended NL's regular quarterly dividend.
25
<PAGE> 26
At September 30, 1996, NL had cash and cash equivalents aggregating $130
million (36% held by non-U.S. subsidiaries) including restricted cash and cash
equivalents of $11 million. NL's subsidiaries had $5 million and $119 million
available for borrowing at September 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. In October 1996, the
borrowing availability to pay German income tax assessments under the DM credit
facility was reduced by $32 million related to the October 1996 borrowings
described above. NL is engaged in discussions with its lenders to modify the
repayment terms and covenants of certain of its indebtedness and to refinance
certain other indebtedness.
NL 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 NL, many of which disposal sites or facilities are
on the U.S. Environmental Protection Agency's Superfund National Priorities
List or similar state lists. On a quarterly basis, NL evaluates the potential
range of its liability at sites where it has been named as a PRP or defendant.
NL believes it has adequate accruals ($114 million at September 30, 1996) for
reasonably estimable costs of such matters. It is not possible to estimate the
range of costs for certain sites. NL has estimated that the upper end of the
range of reasonably possible costs to NL for sites for which it is possible to
estimate costs is approximately $175 million. NL's estimates of such
liabilities have not been discounted to present value, and NL has not
recognized any potential insurance recoveries. No assurance can be given that
actual costs will not exceed accrued amounts or the upper end of the range for
sites for which estimates have been made, and no assurance can be given that
costs will not be incurred with respect to sites as to which no estimate
presently can be made. Further, there can be no assurance that additional
environmental matters will not arise in the future.
NL 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. No assurance can be given that NL will not
incur future liability in respect of this litigation. Based on, among other
things, the results of such litigation to date, NL believes that the pending
lead pigment and paint litigation is without merit. NL 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 NL and other pigment manufacturers have been
successful. NL currently believes the disposition of all claims and disputes,
individually and in the aggregate, should not have a material adverse effect on
NL'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.
26
<PAGE> 27
NL 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, NL 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, NL may also review
opportunities for acquisitions or other business combinations in the chemicals
industry. In the event of any such transaction, NL may consider using available
cash, issuing equity securities or increasing its indebtedness to the extent
permitted by the agreements governing NL's existing debt.
27
<PAGE> 28
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 periods ended March 31, 1996 and June 30, 1996 for
descriptions of certain legal proceedings.
Reference is made to the previously discussed case (Alan Russel Kahn vs.
Tremont Corporation, et al. (Delaware Court of Chancery, No. 12338)). Oral
arguments before the Delaware Supreme Court in plaintiff's appeal of a lower
court verdict in favor of the Company and other defendants, previously
scheduled for October 1996, have been re-scheduled for December 12, 1996.
Frank D. Seinfeld v. Harold C. Simmons, et al. (Superior Court of New
Jersey, Bergen County, Chancery Division, No. C-336-96). Plaintiff brought this
action in September 1996 on behalf of himself and derivatively, on behalf of NL
against NL, Valhi, Inc. ("Valhi") and certain current and former members of
NL's Board of Directors, including Harold C. Simmons and Glenn R. Simmons, both
directors of the Company, and J. Landis Martin, Chairman, President and Chief
Executive Officer of the Company. The Company is not a party to this action.
The complaint alleges, among other things, that NL's August 1991 "Dutch
auction" tender offer was an unfair and wasteful expenditure of NL's funds.
Plaintiff seeks, among other things, to rescind NL's purchase of approximately
10.9 million shares of its common stock from Valhi pursuant to the Dutch
auction. The Company understands that each of the defendants believes the
complaint is without merit. The Company understands that NL and each of the
other defendants intend to defend the action vigorously.
TIMET
Information called for by this item regarding TIMET's legal proceedings is
incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
TIMET's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
attached hereto as Exhibit 99.1.
NL Industries
Information called for by this item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
attached hereto as Exhibit 99.2.
28
<PAGE> 29
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Agreement to Defer Bonus Payment between the
Registrant and J. Landis Martin dated August 23,
1996 and the Trust Agreement dated August 23, 1996
related thereto.
27.1 Financial Data Schedule for the nine-month period
ended September 30, 1996.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 filed by
Titanium Metals Corporation (File No. 0-28538).
99.2 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 filed by
NL Industries, Inc. (File No. 1-640).
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
September 30, 1996 and for the month of October 1996:
July 29, 1996 - Reported Items 5 and 7
October 24, 1996 - Reported Items 5 and 7
<PAGE> 30
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.
TREMONT CORPORATION
---------------------------------
(Registrant)
Date: November 14, 1996 By /s/ Joseph S. Compofelice
- ----------------------- ------------------------------
Joseph S. Compofelice
Vice President and
Chief Financial Officer
By /s/ Mark A. Wallace
-------------------------------
Mark A. Wallace
Vice President and Controller
(Chief Accounting Officer)
30
<PAGE> 31
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
[S] [C]
10.1 Agreement to Defer Bonus Payment between the
Registrant and J. Landis Martin dated August 23,
1996 and the Trust Agreement dated August 23, 1996
related thereto.
27.1 Financial Data Schedule for the nine-month period ended
September 30, 1996.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 filed by Titanium
Metals Corporation (File No. 0-28538).
99.2 Part II, Item 1 of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 filed by
NL Industries, Inc. (File No. 1-640).
<PAGE> 1
AGREEMENT TO DEFER BONUS PAYMENT
This AGREEMENT TO DEFER BONUS PAYMENT (this "Agreement") is made effective
as of the 23rd day of August 1996 between Tremont Corporation, a Delaware
corporation (the "Corporation") and J. Landis Martin ("Executive").
WHEREAS, Executive was awarded a Special Bonus in recognition of his
performance which substantially contributed to the success of the Corporation;
WHEREAS, The Corporation and Executive desire to defer payment of
$1,045,000 (the "Deferred Special Bonus") which Executive, in the absence of
this Agreement, would be entitled to receive immediately with respect to
services performed by Executive for the Corporation during the first half of
1996 until the Executive ceases to be an Executive Officer of the Corporation
(or such earlier date as the Corporation, in its sole discretion, may
determine); and
WHEREAS, the Corporation and Robert E. Musgraves as trustee, will enter
into an agreement (the "Trust Agreement") which establishes an irrevocable
trust (the "Trust") which is intended to hold and invest an amount of funds
equal to the Deferred Special Bonus until such bonus is paid to Executive
pursuant to this Agreement;
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. The Deferred Special Bonus shall be paid to Executive, or his
designated beneficiaries, upon the earliest to occur of (a) the termination of
Executive's employment (including Executive's resignation) for any reason (b)
Executive's death, or (c) such date as shall be determined by the Management
Development and Compensation Committee of the Board of Directors (the
"Committee") in its sole discretion.
2. The Deferred Special Bonus shall accrue interest beginning on August
23, 1996 up to and including the date such amount is paid to Executive pursuant
to Paragraph 1 hereof (the "Deferred Payment Date") and the entire amount of
such accrued interest shall be paid to Executive, or his designated
beneficiaries, on the Deferred Payment Date. Such interest shall accrue at the
rate of eight and three quarters percent (8.75%) per annum. Interest accrued
pursuant to this Paragraph 2 shall compound on a semi-annual basis and shall be
computed for the actual number of days elapsed on the basis of a year
consisting of 365 or 366 days.
3. The Corporation shall immediately enter into the Trust Agreement and
thereby establish the Trust. The Corporation shall contribute an amount equal
to the Deferred Special Bonus to the Trust.
4. Subject to the terms of the Trust Agreement, the Corporation may
satisfy its payment obligations to Executive, or to his designated
beneficiaries, under this Agreement by (a) directing the Trustee to make such
payments from the principal and/or earnings of the Trust, (b)
<PAGE> 2
making such payments directly from the Corporation's internal funds, or (c) by
any combination of (a) and (b), provided that all payments to Executive, or to
his designated beneficiaries, pursuant to this Agreement shall be made in
immediately available funds.
5. The Corporation shall withhold, either from the Deferred Special Bonus
in the year such amount is paid to Executive pursuant to Paragraph 1 hereof, or
from any salary, bonus or other compensatory payment made to Executive as the
Corporation in its sole discretion may determine, such amounts as is required
by law to be withheld in 1996 or after, as the case may be, pursuant to Code
ss.ss. 3101 and 3121(v)(2) or successor provisions thereof.
6. Title to and beneficial ownership of any assets, whether cash or
investments and whether held by the Corporation or the Trust, which the
Corporation may earmark to meet its payment obligations to Executive under this
Agreement, shall at all times remain in the Corporation or the Trust, as
applicable, and Executive and his designated beneficiaries shall not have any
property interest whatsoever in any specific assets of the Corporation or the
Trust. Any right of the Executive or any of his designated beneficiaries to
receive payments from the Corporation under this Agreement shall be no greater
than the right of any unsecured general creditor of the Corporation.
7. The right of Executive or any other person to any payment under this
Agreement shall not be assigned, transferred, pledged or encumbered except by
will or by the laws of descent and distribution.
8. If the Committee shall find that any person to whom any payment is
payable under this Agreement is unable to care for his or her affairs because
of illness or accident, or is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed guardian or other legal
representative) may be paid to the spouse, a child, a parent, a brother or
sister, or the person or persons designated by the Executive in writing, or, in
the absence of any of the foregoing, to any one or more persons deemed by the
Committee to be appropriate. Any such payment shall be a complete discharge of
the liabilities of the Corporation under this Agreement.
9. Nothing contained herein shall be construed as conferring upon
Executive the right to continue in the employ of the Corporation as an
executive or in any other capacity.
10. This Agreement shall be binding upon and inure to the benefit of the
Corporation, it successors and assigns, and the Executive and his heirs,
executors, administrators and legal representatives.
11. This Agreement contains the entire agreement of and between the
parties with respect to the subject matter hereof, and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way. In the event of any conflict between the terms and provisions of this
Agreement and the terms and provisions of any employment or severance agreement
entered into by the parties hereto, the terms and provisions of this Agreement
shall govern.
2
<PAGE> 3
12. The Agreement shall be governed by the laws of the State of Colorado
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
TREMONT CORPORATION
By: /s/ Joseph S. Compofelice
------------------------------------------
Its: Vice President & Chief Financial Officer
-----------------------------------------
EXECUTIVE
/s/ J. Landis Martin
--------------------------------------------
J. Landis Martin
3
<PAGE> 4
TRUST AGREEMENT
This Agreement is made effective as of the 23rd day of August, 1996 by and
between Tremont Corporation (the "Corporation") and Robert E. Musgraves (the
"Trustee");
WHEREAS, the Corporation and J. Landis Martin (the "Executive") have
entered into the Agreement to Defer Bonus Payment (the "Deferral Agreement")
attached hereto as Exhibit A;
WHEREAS, the Corporation has incurred or expects to incur liability under
the terms of such Deferral Agreement with respect to the Executive;
WHEREAS, the Corporation wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Corporation's creditors in the event of the
Corporation's Insolvency, as herein defined, until paid to the Executive and
his beneficiaries in such manner and at such times as specified in the Deferral
Agreement;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Deferral Agreement as an unfunded plan maintained for the purpose of providing
deferred compensation for a member of the select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
WHEREAS, it is the intention of the Corporation to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its liabilities under the Deferral Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) The Corporation hereby deposits with the Trustee in trust $100 or such
other amount as determined by the Corporation, which shall become the principal
of the Trust to be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Corporation
is the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
<PAGE> 5
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Corporation and shall be used
exclusively for the uses and purposes of the Executive and general creditors as
herein set forth. The Executive and his beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Deferral Agreement and this Trust Agreement shall be
mere unsecured contractual rights of the Executive and his beneficiaries
against the Corporation. Any assets held by the Trust will be subject to the
claims of the Corporation's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3(a) herein.
(e) The Corporation shall make additional deposits of cash or other
property in trust with the Trustee in accordance with the terms of the Deferral
Agreement to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Neither the Trustee nor the
Executive or any of his beneficiaries shall have any right to compel additional
deposits, except as may be required by the terms of the Deferral Agreement.
SECTION 2. PAYMENTS TO EXECUTIVE AND HIS BENEFICIARIES.
(a) The Corporation shall deliver to the Trustee a written schedule (the
"Payment Schedule") that indicates the amounts payable in respect of the
Executive (and his beneficiaries), that provides the amounts so payable, the
form in which such amount is to be paid, and the dates for payment of such
amounts. Except as otherwise provided herein, the Trustee shall make payments
to the Executive and his beneficiaries in accordance with such Payment
Schedule. The Corporation may amend or modify such Payment Schedule from time
to time by providing the Trustee with written notice of such amendments. The
Trustee may conclusively rely on such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Deferral Agreement and shall pay amounts
withheld to the appropriate taxing authorities or determine that such amounts
have been reported, withheld and paid by the Corporation.
(b) The entitlement of the Executive or his beneficiaries to benefits
under the Deferral Agreement shall be determined by the Corporation in
accordance with the terms of the Deferral Agreement, and any claim for such
benefits shall be considered and reviewed under the terms of the Deferral
Agreement.
(c) The Corporation may make payment of benefits directly to the Executive
or his beneficiaries as they become due under the terms of the Deferral
Agreement. The Corporation shall notify the Trustee of its decision to make
payment of benefits directly prior to the time amounts are payable to the
Executive or his beneficiaries. Such payments by the Corporation shall not
amend the Payment Schedule unless the Corporation specifically amends said
Schedule in writing. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the Payment Schedule, the Corporation shall make the balance of each such
payment as it falls due. The Trustee shall notify the Corporation where
principal and earnings are not sufficient.
2
<PAGE> 6
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN THE CORPORATION IS INSOLVENT.
(a) The Trustee shall not make any payments to the Executive or his
beneficiaries if the Corporation is Insolvent. Notwithstanding any other
provision of this Trust Agreement, all determinations by the Trustee under this
Trust Agreement regarding whether the Corporation is solvent or Insolvent
should be based solely on the written representation to the Trustee from the
Corporation's Controller or Chief Financial Officer without independent
investigation by the Trustee. The Corporation shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Corporation is unable to pay
its debts as they become due, or (ii) the Corporation is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Corporation under federal and state law as
set forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Corporation shall have the duty to inform the Trustee in writing of the
Corporation's Insolvency. If a person claiming to be a creditor of the
Corporation alleges in writing to the Trustee that the Corporation has become
Insolvent, the Trustee shall determine whether the Corporation is Insolvent
and, pending such determination, the Trustee shall not make any payments to
Executive or his beneficiaries.
(2) Unless the Trustee has actual knowledge of the Corporation's
Insolvency, or has received notice from the Corporation or a person claiming to
be a creditor alleging that the Corporation is Insolvent, the Trustee shall
have no duty to inquire whether the Corporation is Insolvent. The Trustee may
in all events rely on such evidence concerning the Corporation's solvency as
may be furnished to the Trustee and that provides the Trustee with a reasonable
basis for making a determination concerning the Corporation's solvency.
(3) If at any time the Trustee has determined that the Corporation is
Insolvent, the Trustee shall not make any payments to the Executive or his
beneficiaries and shall hold the assets of the Trust for the benefit of the
Corporations's general creditors. Nothing in this Trust Agreement shall in any
way diminish or impair any rights of the Executive or his beneficiaries to
pursue their rights as general creditors of the Corporation with respect to
payments due under the Deferral Agreement or otherwise.
(4) The Trustee shall resume making payments to the Executive or his
beneficiaries in accordance with Section 2 of this Trust Agreement only after
the Trustee has determined that the Corporation is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
making payments from the Trust pursuant to Section 3(b) hereof and subsequently
resumes such payments,
3
<PAGE> 7
the first payment following such discontinuance shall include the aggregate
amount of all payments due to the Executive or his beneficiaries under the
terms of the Deferral Agreement for the period of such discontinuance, less the
aggregate amount of any payments made to the Executive or his beneficiaries by
the Corporation in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE CORPORATION.
Except as provided in Section 3 hereof, the Corporation shall have no right
or power to direct the Trustee to return to the Corporation or to divert to
others any of the Trust assets before all payments have been made to the
Executive or his beneficiaries pursuant to the terms of the Deferral Agreement.
SECTION 5. INVESTMENT AUTHORITY.
In no event may the Trustee invest in securities (including stock or rights
to acquire stock) or obligations issued by the Corporation, other than a de
minimis amount held in common investment vehicles in which the Trustee invests.
All rights associated with assets of the Trust shall be exercised, solely in
accordance with the directions of the Corporation, by the Trustee or the person
designated by the Trustee, and shall in no event be exercisable by or rest with
the Executive.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep records of such investments, receipts,
disbursements, and all other transactions required to be made, as shall be
agreed upon in writing between the Corporation and the Trustee. Within 60 days
following the close of each calendar year and within 60 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Corporation a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
In the event the Trustee delegates the obligations of this section to an
employee of the Corporation, such obligations shall be deemed to be fulfilled by
the Trustee.
4
<PAGE> 8
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Corporation in connection,
directly or indirectly, with, the terms of the Deferral Agreement or this
Trust. In the event of a dispute between the Corporation and a party, the
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) The Corporation agrees to indemnify and hold the Trustee harmless from
any and all costs, fees, expenses (including without limitation attorney's fees
and expenses), claims or lawsuits by any person or entity, liabilities or
obligations of any type or nature arising or related, directly or indirectly,
to the Deferral Agreement, this Trust or any action or failure to act by the
Trustee in connection in any way with any of the foregoing. Futhermore, if the
Trustee undertakes or defends any litigation arising in connection with this
Trust, the Corporation agrees to indemnify the Trustee against the Trustee's
costs, expenses and liabilities (including, without limitation, attorneys' fees
and expenses) relating thereto and to be solely liable for such payments. If
the Corporation does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Corporation generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire and the Corporation may make available to the
Trustee agents, accountants, actuaries, investment advisors, financial
consultants or other professionals to assist it in performing any of its duties
or obligations hereunder. In addition, the Trustee may delegate any of its
duties under this Trust to employees and management of the Corporation and the
Trustee may conclusively rely on the reports of such employees and management
without further investigation.
(e) The Trustee shall have, without exclusion, all powers conferred on the
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
5
<PAGE> 9
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Corporation shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Corporation, which shall be effective 15 days after receipt of such notice
unless the Corporation and the Trustee agree otherwise.
(b) The Trustee may be removed by the Corporation on 15 days notice to the
Trustee or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee may not be
removed by the Corporation for 18 months.
(d) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless the Corporation extends
the time limit.
(e) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Corporation may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the Corporation or
the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Corporation shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes
successor Trustee.
6
<PAGE> 10
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Corporation. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Deferral Agreement or shall make
the Trust revocable.
(b) The Trust shall not terminate until the date on which the Executive
and his beneficiaries are no longer entitled to any payments pursuant to the
terms of the Deferral Agreement. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Corporation.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) No amount payable to the Executive or any of his beneficiaries under
this Trust Agreement may be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Colorado.
(d) For purposes of this Trust, Change of Control shall mean the purchase
or other acquisition by any person, entity or group of persons, within the
meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or
more of either the outstanding shares of common stock or the combined voting
power of the Corporation's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of the Corporation of a
reorganization, merger, or consolidation, in each case, with respect to which
persons who were stockholders of the Corporation immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated
Corporation's then outstanding securities, or a liquidation or dissolution of
the Corporation or of the sale of all or substantially all of the Corporation's
assets.
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be August 23, 1996.
* * * * *
7
<PAGE> 11
EXECUTED on the dates of the respective acknowledgments
hereto, to be effective as of the 23rd day of August, 1996.
/s/ Joseph S. Compofelice
--------------------------------
Joseph S. Compofelice
---------------------------------
- TRUSTOR -
/s/ Robert E. Musgraves
--------------------------------
Robert E. Musgraves
---------------------------------
- TRUSTEE -
THE STATE OF COLORADO )
)
COUNTY OF DENVER )
This instrument was acknowledged before me on the 23rd day of August,
1996, by Joseph S. Compofelice and Robert E. Musgraves.
/s/ Cathrenine E. Potter
--------------------------------
Notary Public in and for
the State of COLORADO
My Commission Expires:
July 28, 1999
8
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 68,132
<SECURITIES> 0
<RECEIVABLES> 7,894
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 73,477
<PP&E> 1,369
<DEPRECIATION> 652
<TOTAL-ASSETS> 213,332
<CURRENT-LIABILITIES> 6,374
<BONDS> 0
0
0
<COMMON> 7,586
<OTHER-SE> 146,219
<TOTAL-LIABILITY-AND-EQUITY> 213,332
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 35,466
<INCOME-TAX> 6,611
<INCOME-CONTINUING> 28,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,474
<EPS-PRIMARY> 3.72
<EPS-DILUTED> 3.72
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's Registration Statement on Form S-1,
as amended (File No. 333-2940), and the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996 for descriptions of certain previously
reported legal proceedings.
Frank D. Seinfeld v. Harold C. Simmons, et al. (Superior Court of New
Jersey, Bergen County, Chancery Division, No. C-336- 96). Plaintiff brought
this action in September 1996 on behalf of himself and derivatively, on behalf
of NL Industries, Inc. ("NL"), an 18%-owned subsidiary of Tremont Corporation
which in turn holds approximately 44% of the outstanding common stock of the
Company, against NL, Valhi, Inc. and certain current and former members of NL's
Board of Directors including J. Landis Martin, the Company's Chairman and Chief
Executive Officer. The complaint alleges, among other things, that NL's August
1991 "Dutch Auction" tender offer was an unfair and wasteful expenditure of
NL's funds. Plaintiff seeks, among other things, to rescind NL's purchase of
approximately 10.9 million shares of its common stock from Valhi pursuant to
the Dutch Auction. The Company understands that each of the defendants
believes the complaint is without merit. The Company further understands that
each of the defendants intend to defend the action vigorously.
<PAGE> 1
EXHIBIT 99.2
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1995 Annual Report and the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996
for descriptions of certain previously-reported legal proceedings.
Frank D. Seinfeld v. Harold C. Simmons, et al. (Superior Court of New
York, Bergen County, Chancery Division, No. C-336-96). Plaintiff brought this
action in September 1996 on behalf of himself and derivatively, on behalf of
NL, against the Company, Valhi and certain current and former members of the
Company's Board of Directors. The complaint alleges, among other things, that
the Company's August 1991 "Dutch auction" tender offer was an unfair and
wasteful expenditure of the Company's funds. Plaintiff seeks, among other
things, to rescind the Company's purchase of approximately 10.9 million shares
of its common stock from Valhi pursuant to the Dutch auction. The Company
believes, and understands that each of the other defendants believes, the
complaint is without merit. The Company intends, and believes that each of the
other defendants intends, to defend the action vigorously.
Ritchie v. NL Industries, et al. (Circuit Court of Marshall County,
West Virginia, No. 96-C-179M). In September 1996, the Company was served with a
complaint filed in West Virginia state court that seeks compensatory and
punitive damages for alleged personal injury caused by lead paint and asserts
causes of action against the Company and five other former manufacturers of
lead pigment for negligence, strict liability, breach of warranty, fraud,
conspiracy, market share liability and alternative liability. In October 1996,
defendants removed the case to federal court and filed motions to dismiss.
The City of New York, et al. v. Lead Industries Association, Inc., et
al. (No. 89-4617). In September 1996, defendants' request for permission to
appeal was denied.
Skipworth v. Sherwin-Williams Co., et al. (No. 92-3069). Oral argument
was held in this matter in the Pennsylvania Supreme Court in October 1996.
Wright, et al. v. Lead Industries Association, Inc., et al. (Nos.
94-363042 and 94-363043). In September 1996, the remaining defendants' motion
for summary judgment was granted. Plaintiffs have appealed as to all defendants.
Gates v. American Cyanamid Co., et al. (I1996 - 2114). In July 1996,
the Company filed an answer denying plaintiff's allegations.
Hines v. Gates, et al. (96-616161). In July 1996, plaintiffs
voluntarily dismissed the complaint without prejudice.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al. The
Company is seeking interlocutory appellate review of the previously-reported
ruling regarding contribution.
<PAGE> 2
Granite City, Illinois smelter site. In August 1996, the district court
denied Granite City's and the PRP's motion for a temporary restraining order
and preliminary injunction seeking to enjoin the U.S. EPA from proceeding with
the residential component of the cleanup.
Wagner, et al. v. Anzon, Inc. and NL Industries, Inc. (No. 87-4420). In
September 1996, the Superior Court of Pennsylvania affirmed the judgment of the
jury verdict for the Company. Plaintiffs have filed an application for
reargument in the Superior Court, which the Company has opposed. The
application is pending before the Superior Court.
