<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 March 31, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10126
--------
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 April 30, 1997: 7,184,097
------------
<PAGE> 2
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
or discussions of trends which by their nature involve substantial risks and
uncertainties. Actual results could differ materially from those described in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are the risks and uncertainties discussed in this
Quarterly Report, including in the portions referenced above and those
described from time to time in the Company's other filings with the Securities
and Exchange Commission, such as the cyclicality of the commercial aerospace
industry, future global economic conditions, global productive capacity and
pricing outlook of titanium metals and TiO(2).
<PAGE> 3
TREMONT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1996 and
March 31, 1997 2-3
Consolidated Statements of Operations - Three months
ended March 31, 1996 and 1997 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 1996 and 1997 5
Consolidated Statement of Stockholders' Equity - Three
months ended March 31, 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 10-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 22
Item 6. Exhibits and Reports on Form 8-K. 23
</TABLE>
1
<PAGE> 4
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, MARCH 31,
ASSETS 1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 68,035 $ 61,039
Accounts and notes receivable 6,445 6,936
Receivable from related parties 1,026 418
Prepaid expenses 1,785 1,074
---------- ----------
Total current assets 77,291 69,467
---------- ----------
Other assets:
Investment in TIMET 98,479 102,303
Investment in NL Industries 26,724 17,760
Investment in joint ventures 6,937 9,848
Receivable from related parties 4,722 4,521
Other 8,656 9,271
---------- ----------
Total other assets 145,518 143,703
---------- ----------
Net property and equipment 714 716
---------- ----------
$ 223,523 $ 213,886
========== ==========
</TABLE>
2
<PAGE> 5
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Accrued liabilities $ 7,336 $ 5,805
Payable to related parties 225 454
Income taxes 112 342
---------- ----------
Total current liabilities 7,673 6,601
---------- ----------
Noncurrent liabilities:
Insurance claims and claim expenses 12,867 13,760
Accrued postretirement benefit cost 22,072 22,159
Deferred income taxes 16,319 17,817
Other 4,677 4,822
---------- ----------
Total noncurrent liabilities 55,935 58,558
---------- ----------
Minority interest 1,886 2,875
---------- ----------
Stockholders' equity:
Common stock 7,640 7,668
Additional paid-in capital 273,780 274,340
Accumulated deficit (116,834) (119,248)
Adjustments:
Currency translation (2,764) (4,684)
Marketable securities 702 681
Pension liabilities (899) (899)
---------- ----------
161,625 157,858
Less treasury stock, at cost 3,596 12,006
---------- ----------
Total stockholders' equity 158,029 145,852
---------- ----------
$ 223,523 $ 213,886
========== ==========
</TABLE>
Commitments and contingencies (Note 1).
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ 1,324 $ 4,777
NL Industries 1,450 (7,219)
Other joint ventures -- 3,951
---------- ----------
2,774 1,509
Corporate expenses, net 366 (14)
Interest expense 130 --
---------- ----------
Income before income taxes 2,278 1,523
Income tax expense -- 2,948
Minority interest 57 989
---------- ----------
Net income (loss) $ 2,221 $ (2,414)
========== ==========
Net income (loss) per share $ .29 $ (.32)
========== ==========
Weighted average shares outstanding 7,666 7,455
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months
ended
March 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,221 $ (2,414)
Earnings of affiliates, net of distributions (1,858) (479)
Deferred income taxes -- 2,543
Minority interest 57 989
Other, net (234) 101
Change in assets and liabilities:
Accounts and notes receivable 27 (491)
Accounts with related parties (569) 1,060
Accounts payable and accrued liabilities (589) (1,530)
Income taxes -- 230
Other, net (90) 808
-------- --------
Net cash provided from (used by) operating activities (1,035) 817
-------- --------
Cash flows from investing activities:
Proceeds from disposition of property held for sale 3,000 --
Other, net 63 71
-------- --------
Net cash provided from investing activities 3,063 71
-------- --------
Cash flows from financing activities:
Purchase of treasury stock -- (8,410)
Borrowings from related parties 50 --
Reductions of indebtedness (2,500) --
Other -- 526
-------- --------
Net cash used by financing activities (2,450) (7,884)
-------- --------
Net decrease in cash and cash equivalents (422) (6,996)
Balance at beginning of period 2,650 68,035
-------- --------
Balance at end of period $ 2,228 $ 61,039
======== ========
Supplemental disclosures - cash paid for:
Interest $ 61 $ --
Income taxes -- 174
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Adjustments
Additional -----------------------------------------
Common paid-in Accumulated Currency Marketable Pension
stock capital deficit translation securities liabilities
------------ ------------- ----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 7,640 $273,780 $ (116,834) $ (2,764) $ 702 $ (899)
Net loss - - (2,414) - - -
Repurchases of common stock - - - - - -
Common stock issued 28 498 - - - -
Adjustments, net - - - (1,920) (21) -
Other - 62 - - - -
-------- -------- ------------- --------- --------- ---------
Balance at March 31, 1997 $ 7,668 $274,340 $ (119,248) $ (4,684) $ 681 $ (899)
======== ======== ============= ========= ========= =========
<CAPTION>
Total
Treasury Stockholders'
stock equity
------------ ---------------
<S> <C> <C>
Balance at December 31, 1996 $ (3,596) $ 158,029
Net loss - (2,414)
Repurchases of common stock (8,410) (8,410)
Common stock issued - 526
Adjustments, net - (1,941)
Other - 62
--------- -----------
Balance at March 31, 1997 $ (12,006) $ 145,852
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
TREMONT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Tremont Corporation is principally a holding company with operations
conducted through 30%-owned Titanium Metals Corporation ("TIMET"), 18%-owned NL
Industries, Inc. and other joint ventures of 75%-owned TRECO L.L.C. Contran
Corporation and other entities related to Harold C. Simmons hold (i)
approximately 45% of Tremont's outstanding common stock and (ii) approximately
74% of NL's outstanding common stock (including 18% of NL held by Tremont).
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, Tremont, NL and TIMET.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1996 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1997 and the consolidated statements of
operations and cash flows for the interim periods ended March 31, 1996 and 1997
and the consolidated statement of stockholders' equity for the interim period
ended March 31, 1997 have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for interim periods are not necessarily indicative of the operating results of
a full year or of future operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (the "1996 Annual Report").
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," and (iii) the 1996
Annual Report, including certain information concerning TIMET's and NL's legal
proceedings incorporated therein by reference.
Note 2 - Earnings per share:
Income (loss) per share is based upon the weighted average number of
common shares and dilutive common stock options outstanding. Antidilutive
securities are excluded from the calculation. The Company will retroactively
adopt Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", effective December 31, 1997. Basic earnings per share and diluted
earnings per share pursuant to SFAS No. 128 would not have been materially
different from earnings per share presented herein.
7
<PAGE> 10
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 March 31, 1997, the net carrying amount of the Company's
investment in TIMET was about $10.74 per share, while the market price of TIMET
common stock was $25.375 per share. Tremont also holds an option, acquired from
IMI plc in 1996 and expiring in February 1999, to acquire 1.5 million shares of
TIMET common stock from IMI for an aggregate purchase price of $12 million
($7.95 per TIMET share).
NL Industries
Tremont holds 9.1 million shares, or 18%, of NL's outstanding common
stock. At March 31, 1997, the net carrying amount of the Company's investment
in NL was about $1.96 per share while the market price of NL common stock was
$10.00 per share.
Joint Ventures
Investment in joint ventures represents holdings of 75%-owned TRECO,
which is principally comprised of (i) a 12% interest in Victory Valley Land
Company, L.P. ("VVLC"), which is actively engaged in efforts to develop certain
real estate, and (ii) a 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. BII, through a wholly-owned subsidiary,
owns an additional 50% interest in VVLC.
Note 4 - Stockholders' equity:
In February 1997, Tremont's Board of Directors authorized the
repurchase of up to 2 million shares of Tremont common stock in open market or
privately negotiated transactions. Such shares represented 27% of the Company's
7.5 million shares then outstanding. During March 1997, the Company repurchased
244,900 shares of its common stock for approximately $8.4 million. During April
1997 and through May 2, 1997, the Company repurchased an additional 89,400
shares of its common stock for approximately $3.1 million.
8
<PAGE> 11
Note 5 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, MARCH 31,
------------ -----------
1996 1997
------------ -----------
(In thousands)
<S> <C> <C>
Postretirement benefit cost $ 1,924 $ 1,924
Other employee benefits 1,107 228
Environmental cost 300 330
Legal costs 546 614
Miscellaneous taxes 256 235
Other 3,203 2,474
--------- ---------
$ 7,336 $ 5,805
========= =========
</TABLE>
Note 6 - Income taxes:
The difference between the Company's income tax expense in the 1997
period and the amount that would be expected using the U.S. federal statutory
income tax rate of 35% is primarily due to no tax benefit being recognized on
equity in NL's losses. In the 1996 period, the variance was due principally to
a reduction in the deferred tax valuation allowance to reflect current
utilization of U.S. net operating loss carryforwards ("NOL's").
Note 7 - Related party transactions:
Receivables from related parties principally represent amounts due
from NL and Baroid Corporation under insurance loss sharing arrangements and
amounts due from TIMET pursuant to compensation arrangements. Current payables
to related parties principally include amounts due to NL and TIMET under
intercorporate services arrangements.
9
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Tremont Corporation is principally a holding company with operations
conducted through TIMET, NL and other joint ventures. The results of TIMET, NL,
other joint ventures and general corporate and other items are discussed below.
The information included below relating to the financial position, results of
operations and liquidity and capital resources of TIMET and NL has been
summarized from reports filed with the Commission by TIMET (File No. 0-28538)
and NL (File No. 1-640), which reports contain more detailed information
concerning TIMET and NL, respectively, including complete financial statements.
The Company reported a first quarter net loss of $2.4 million, or $.32
per share, compared to net income of $2.2 million, or $.29 per share, for the
same quarter in 1996. The Company's loss for the first quarter included its 18%
equity in NL, whose results included a $30 million charge related to the
adoption of a new accounting standard for environmental remediation
liabilities. The Company's equity in this charge represented a loss to Tremont
of $.70 per share. Based on continuing strength in the titanium metals
business, especially in aerospace, and the strong demand NL is experiencing for
TiO2, the Company believes it will be profitable for the full year.
TIMET
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1996 1997 Change
------- ------- -------
(In millions)
<S> <C> <C> <C>
Net sales $ 107.6 $ 167.0 $ 59.4
======= ======= =======
Operating income $ 6.8 $ 26.5 $ 19.7
General corporate items, net (.1) 1.0 1.1
Interest expense 3.5 4.0 (.5)
------- ------- -------
3.2 23.5 20.3
Income tax expense .7 7.1 (6.4)
Minority interest .4 .6 (.2)
------- ------- -------
Net income $ 2.1 $ 15.8 $ 13.7
======= ======= =======
Tremont's equity in TIMET's income $ 1.3 $ 4.8 $ 3.5
======= ======= =======
</TABLE>
10
<PAGE> 13
The Company's equity in TIMET's first quarter 1996 earnings differs
from the amount that would be expected by applying Tremont's current
30%-ownership percentage to TIMET's separately-reported earnings because of
changes in Tremont's level of ownership in TIMET during the first quarter of
1996.
As previously reported, TIMET completed certain acquisitions during
1996 and early 1997, principally IMI's titanium metals business in February
1996 and the assets of Axel Johnson Metals ("AJM") in October 1996. On a pro
forma basis assuming the IMI and AJM acquisitions had occurred at the beginning
of 1996, TIMET's net sales for the first quarter of 1996 were $123.9 million,
operating income was $4.3 million and net loss was $1.3 million. The pro forma
effect of the previously-reported TISTO (July 1996), TIMET Savoie (August
1996), and LASAB (January 1997) transactions is not material. The above pro
forma financial information is not necessarily indicative of the operating
results that might have occurred if the IMI and AJM acquisitions had actually
been completed at the beginning of 1996.
The significant improvement in TIMET's earnings for the 1997 quarter
was driven by price increases and a 17% increase in mill products volume
compared to the first quarter of 1996. Titanium mill products shipments in the
first quarter were 7.4 million pounds. Selling prices have continued to
increase, and the average price of mill products shipped in 1997 was $16.00 per
pound compared to $13.49 in the first quarter of 1996 and $14.80 in the fourth
quarter of 1996. TIMET's operating income margin increased to 15.9% in the
first quarter of 1997, significantly above year-ago levels, and up from 13.6%
in the fourth quarter of 1996.
The selling price increases reflect both the pass-through of cost
increases, particularly raw material costs, and real price increases 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 have more than offset those cost increases.
Firm order backlog at March 31, 1997 was approximately $460 million, up from
$440 million at year-end 1996. Average prices on recent orders for titanium
products have continued to increase relative to 1996 levels.
Operating levels at TIMET's plants in 1997 were generally higher than
in the comparable 1996 period and contributed to the better operating results.
However, operating levels at one of TIMET's two casting facilities, which plant
primarily produced for the golf market, were well below levels of late 1996 and
negatively impacted earnings. Due to excess capacity currently existing in the
golf club head castings market, TIMET has determined not to pursue growth in
this market at this time. TIMET plans to continue its strategy of supplying
other golf club casters with input stock. Total TIMET worldwide employment at
March 31, 1997 approximated 3,000 compared to 2,950 at year-end 1996 and 2,550
one year ago (proforma for the AJM acquisition).
Operating income in the first quarter of 1996 included special
charges of $4.2 million related to the IMI titanium acquisition.
In March 1997, TIMET announced that it had executed definitive
agreements to combine its welded tubing operations with those of Valinox
Welded, a French manufacturer of welded tubing, principally stainless steel and
titanium, with operations in France and China. The joint venture, "ValTimet",
would be 46% owned by TIMET and 54% owned by Valinox Welded. TIMET will supply
titanium strip product to ValTimet under a long-term contract as the
11
<PAGE> 14
preferred supplier. The transaction is expected to close during the second
quarter of 1997. The effect of the transaction on TIMET's 1997 financial
results is not expected to be material.
Interest expense in the first quarter of 1997 includes $3.4 million
related to the TIMET-obligated mandatorily redeemable preferred securities (the
"Convertible Preferred Securities") issued in November 1996. Interest in the
1996 period relates primarily to indebtedness subsequently repaid with the
proceeds of TIMET's June 1996 initial public stock offering.
TIMET has substantial operations and assets located in Europe,
principally the United Kingdom. The U.S. dollar value of TIMET's foreign sales
and operating costs are subject to currency exchange rate fluctuations which
may slightly impact reported earnings and may affect the comparability of
period-to-period operating results. Approximately one-half of TIMET's European
sales are denominated in currencies other than the U.S. dollar, principally
major European currencies. Certain purchases of raw materials, principally
titanium sponge, for TIMET's European operations are denominated in U.S.
dollars while labor and other production costs are primarily denominated in
local currencies.
TIMET operates in several tax jurisdictions and is subject to varying
income tax rates. For financial reporting purposes, TIMET has previously
recognized substantially all of its net operating loss and other carryforwards,
and, accordingly, its effective income tax rate in 1997 was higher than in
1996. Such effective rate for the full year 1997 may vary slightly from that in
the first quarter due to the combined effects of state income taxes and varying
non-U.S. rates.
NL Industries
The Company's 18% interest in NL is reported 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. 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.
12
<PAGE> 15
NL's chemical operations are conducted in two business segments -
titanium dioxide pigments ("TiO2 ") conducted by Kronos and specialty chemicals
conducted by Rheox.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1997 Change
-------- -------- --------
(In millions, except percentages)
<S> <C> <C> <C>
Net sales:
Kronos $ 206.3 $ 204.4 -1%
Rheox 34.1 35.1 +3%
-------- --------
$ 240.4 $ 239.5 -0%
======== ======== ========
Operating income:
Kronos $ 29.5 $ 8.7 -70%
Rheox 12.4 10.1 -19%
-------- -------- --------
41.9 18.8 -55%
General corporate items:
Securities earnings, net 1.3 .7
Expenses, net (5.0) (34.0)
Interest expense (19.1) (18.9)
-------- --------
19.1 (33.4) $ (52.5)
Income tax expense (5.7) (2.3)
-------- --------
Net income (loss) $ 13.4 $ (35.7) $ (49.1)
======== ======== ========
Tremont's equity in NL's income (loss),
including amortization of basis differences $ 1.4 $ (7.2) $ (8.6)
======== ======== ========
</TABLE>
Kronos' TiO2 operating income in the first quarter of 1997 decreased
from the first quarter of 1996 as lower average selling prices were only
slightly offset by higher production and sales volumes. Kronos' record first
quarter sales volumes improved 22% from the first quarter of 1996, reflecting
improved demand for TiO2 in each of Kronos' major markets. Average TiO2 selling
prices for the first quarter of 1997 were 16% lower than the first quarter of
1996, and average prices for the quarter were 2% lower than the fourth quarter
of 1996. NL expects TiO2 prices will begin to increase during the second
quarter of 1997 as the impact of previously-announced price increases begin to
take effect. Kronos anticipates its TiO2 sales volume will exceed year-earlier
levels through the second quarter of 1997 and Kronos expects sales volumes for
full-year 1997 to be slightly higher than full-year 1996.
13
<PAGE> 16
Kronos expects its full-year 1997 operating income will be below that
of 1996, primarily because of lower anticipated average TiO2 prices for 1997
compared to 1996. Kronos' selling, general and administrative expenses
decreased in the first quarter of 1997 due to favorable effects of foreign
currency translation, partially offset by higher distribution expenses
associated with higher first-quarter 1997 sales volume. Kronos' cost of sales
as a percentage of net sales increased in the first quarter of 1997 due to
lower average prices in the first quarter of 1997.
Rheox's operating results for the first quarter of 1997 improved
slightly compared to the first quarter of 1996 on slightly higher sales
volumes, excluding a first-quarter 1996 $2.7 million gain related to the
curtailment of certain U.S. employee pension benefits. Rheox's cost of sales
increased in the first quarter of 1997 over the prior-year period primarily due
to slightly higher sales volume, and cost of sales as a percentage of net sales
was comparable to the 1996 period. Selling, general and administrative expenses
increased in the first quarter of 1997 compared to the first quarter of 1996
primarily due to higher variable compensation expense.
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 first quarter of
1997 by $8 million compared to the first quarter of 1996.
Securities earnings declined due to lower average balances available
for investment. Corporate expenses, net in the first quarter of 1997 was higher
than the comparable period in 1996 due to the $30 million noncash charge
related to NL's adoption of SOP No. 96-1, "Environmental Remediation
Liabilities." This charge is included in selling, general and administrative
expense in NL's consolidated statements of operations.
Other Joint Ventures
Earnings of other joint ventures principally represents earnings from
land sales made by the VVLC real estate development partnership. Land sales can
vary significantly from period to period.
Tremont - Corporate
Corporate expenses, net in the first quarter of 1997 included $.8
million of interest income from invested cash.
The Company's income tax rate in the first quarter of 1997
approximated the statutory federal tax rate except that no tax benefit was
recognized on Tremont's equity in losses from its investment in NL. This
relationship is expected to continue for the remainder of 1997.
The Company's income tax rate in the 1996 period varied from the
statutory rate principally due to a reduction in the deferred tax valuation
allowance to reflect the current utilization of NOL's.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Tremont
The Company had cash and cash equivalents of $61 million at March 31,
1997. Tremont's 9.5 million shares of TIMET common stock and 9.1 million shares
of NL common stock had a market value of about $242 million and $91 million,
respectively, at March 31, 1997. Tremont also has the right to acquire 1.5
million shares of TIMET's common stock from IMI with a March 31, 1997 quoted
market value of $38 million for an aggregate purchase price of $12 million. At
March 31, 1997, Tremont also had approximately $15 million of letters of credit
outstanding under a third party credit agreement.
The Company's equity in earnings of affiliates are primarily noncash.
The Company received a $1 million cash dividend from VVLC in 1997 primarily to
cover taxes associated with VVLC's income from land sales. In the 1996 period,
NL paid a cash dividend of $.10 per NL share aggregating $.9 million. NL
suspended dividends in October 1996 and is currently unable to pay dividends
due to restrictions under certain of its debt agreements. TIMET did not pay any
cash dividends during 1996 or 1997 and TIMET's credit agreements presently
limit dividend payments to 20% of TIMET's net income in any one year. Relative
changes in assets and liabilities did not materially impact the Company's cash
flow from operating activities.
During the first quarter of 1996, the Company received $3 million from
the sale of surplus property and repaid a $2.5 million margin loan from an
investment bank.
In February 1997, Tremont's Board of Directors authorized the
repurchase of up to 2 million shares of Tremont common stock in open market or
privately negotiated transactions. Such shares represented approximately 27% of
the Company's 7.5 million shares then outstanding. During March 1997, the
Company repurchased 244,900 shares of its common stock for approximately $8.4
million. During April 1997 and through May 2, 1997, the Company repurchased an
additional 89,400 shares of its common stock for approximately $3.1 million.
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, the cost of debt
and equity capital, 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, modify its dividend policy, restructure ownership interests
of subsidiaries and affiliates, incur indebtedness, repurchase shares of
capital stock, 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, discuss and
engage in 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
1996 of the IMI titanium businesses, Tremont might arguably be deemed to have
become an "investment company" under the 1940 Act, despite the fact that
Tremont does not now engage, nor has it engaged or
15
<PAGE> 18
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 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 any
argument concerning Tremont's possible status as an investment company under
the 1940 Act. Based upon current trends, the Company believes another exemption
may be available to it under the 1940 Act should the Commission deny Tremont's
application for an exemptive order.
TIMET
Summarized balance sheet and cash flow information reported by TIMET
is presented below.
<TABLE>
<CAPTION>
December 31, MARCH 31,
1996 1997
--------- ---------
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 86.5 $ 78.5
Other current assets 284.5 309.1
Goodwill and other intangible assets 86.7 81.2
Other noncurrent assets 25.7 24.4
Property and equipment, net 219.6 227.6
--------- ---------
$ 703.0 $ 720.8
========= =========
Current liabilities $ 112.8 $ 120.6
Noncurrent liabilities 58.5 55.5
Minority interest - TIMET-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely
subordinated debt securities 201.3 201.3
Other minority interest 4.2 4.6
Stockholders' equity 326.2 338.8
--------- ---------
$ 703.0 $ 720.8
========= =========
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1997
-------- --------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ (11.0) $ 4.8
Investing and financing activities:
Capital expenditures (2.4) (10.1)
Business acquisitions (2.3) (.5)
Other investing, net .2 --
Net borrowings (repayments) 14.0 (2.4)
Cash acquired 1.9 --
Currency translation -- .2
-------- --------
$ .4 $ (8.0)
======== ========
Cash paid for:
Interest $ 2.3 $ 3.8
Income taxes -- .3
</TABLE>
TIMET's financial position has significantly improved since the
beginning of 1996 through the combined effects of (i) improved industry
conditions, (ii) acquisitions made during 1996, (iii) TIMET's June 1996 initial
public stock offering and (iv) the November 1996 issuance of the Convertible
Preferred Securities.
At March 31, 1997, TIMET had $78 million of cash and equivalents and
$132 million of borrowing availability under its existing U.S. and European
bank credit lines. Indebtedness consisted primarily of capital lease
obligations related to certain of its European manufacturing facilities and a
relatively nominal amount of European working capital borrowings. The
Convertible Preferred Securities do not require principal amortization and
TIMET has the right to defer interest payments for one or more periods of up to
20 consecutive quarters each.
Operating activities. Reflecting improved operating results, cash
provided by operating activities (before changes in assets and liabilities) was
$23 million in the 1997 period compared to $9 million in the 1996 period.
Changes in assets and liabilities used approximately $18 million of cash in
1997, about $2 million less than in the first quarter of 1996 despite the
higher levels of working capital necessary to support the higher production and
sales levels. TIMET's goal is to better manage working capital such that both
"days sales outstanding" in receivables and "days sales in inventory" improve
in 1997 over year-end 1996.
Investing activities. TIMET estimates capital expeditures for all of
1997 to be about $60 million, including capacity expansion and a major project
to redesign business processes and implement integrated information systems
throughout TIMET. About one-third of planned capital expenditures in 1997
relate to capacity expansion projects, the largest of which is a 20 million
pound electron beam furnace to be completed in the second half of 1998. Capital
spending related to the business process/information systems project is
currently estimated at over $30 million during the next few years, about
one-half of which is expected to be incurred in 1997.
17
<PAGE> 20
TIMET's strategy for developing new markets and uses for titanium
includes providing funds to third parties to prove out a new use or uses of
titanium. In this regard, during March 1997 TIMET agreed to invest up to
approximately $5 million in Titanium Memory Systems, Inc. ("TMS") for an
approximate 20% equity interest in TMS and funded approximately $3 million of
this amount in April 1997. The funds will be used by TMS to continue its
development and initial production of a titanium substrate for use in computer
hard disk drives.
Financing activities. Debt repayments in 1997 related primarily to
reductions in European working capital borrowings, including amounts due to
CEZUS, the 30% minority owner in TIMET Savoie. Borrowings in the first quarter
of 1996 were primarily to fund working capital needs and capital expenditures.
TIMET is negotiating to increase its borrowing availability, and expects, among
other things, to be able to reduce current restrictions on use of borrowed
proceeds in order to further enhance its financial flexibility and to lower the
cost of borrowings.
TIMET 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, the cost of debt
and equity capital, and estimated future operating cash flows. As a result of
this process, TIMET has in the past and may in the future seek to raise
additional capital, modify its dividend policy, restructure ownership
interests, refinance or restructure indebtedness, repurchase shares of capital
stock, sell 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, TIMET may investigate, evaluate and discuss acquisition, joint
venture and other business combination opportunities in the titanium, specialty
metal and related industries, and in this regard TIMET has been exploring a
potential strategic relationship with a large titanium producer in Russia. In
the event of any future acquisition or joint venture opportunities, TIMET may
consider using available cash, issuing equity securities or incurring
indebtedness.
18
<PAGE> 21
NL Industries
Summarized balance sheet and cash flow information reported by NL is
presented below.
<TABLE>
<CAPTION>
December 31, MARCH 31,
1996 1997
-------- --------
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 114.1 $ 77.7
Other current assets 386.1 367.0
Noncurrent securities 23.7 25.3
Investment in joint ventures 181.5 179.3
Other noncurrent assets 49.9 50.9
Property and equipment 466.0 441.2
-------- --------
$1,221.3 $1,141.4
======== ========
Current liabilities $ 290.4 $ 224.5
Long-term debt 737.1 746.6
Deferred income taxes 151.2 143.2
Accrued OPEB cost 55.9 54.8
Environmental liabilities 106.8 130.9
Other noncurrent liabilities 83.2 78.4
Minority interest .2 .2
Stockholders' deficit:
Capital and retained earnings (84.3) (119.8)
Adjustments, principally foreign
currency translation (119.2) (117.4)
-------- --------
(203.5) (237.2)
-------- --------
$1,221.3 $1,141.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1996 1997
------- -------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ (31.3) $ 7.3
Investing and financing activities:
Capital expenditures (12.3) (8.9)
Other investing activities, net (3.7) 2.5
Net borrowings (repayments) 25.1 (36.0)
Other financing activities, net (5.5) .2
------- -------
$ (27.7) $ (34.9)
======= =======
Cash paid for:
Interest, net of amounts capitalized $ 6.6 $ 7.2
Income taxes 6.6 (4.4)
</TABLE>
19
<PAGE> 22
The TiO(2) industry is cyclical and changes in economic conditions
within the industry significantly impact the earnings and operating cash flows
of NL. Cash flows from operations before change in assets and liabilities in
the 1997 period declined from the comparable period in 1996 due to lower
operating income. Changes in NL's inventories, receivables and payables
(excluding the effect of currency translation) used cash in both the first
quarter of 1996 and 1997; however, the cash used in the first quarter of 1997
was significantly less than the first quarter of 1996 due to cash provided from
reductions in inventory levels in the 1997 period.
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 previously reached an agreement with the
German tax authorities, and paid certain tax deficiencies of approximately DM
44 million ($28 million when paid), including interest, which resolved
significant tax contingencies for years through 1990. Certain other significant
German tax contingencies remain outstanding and will continue to be litigated.
NL has received certain tax assessments aggregating DM 130 million ($77
million), including interest, for years through 1996 and expects to receive tax
assessments for an additional DM 20 million ($12 million) related to these
remaining tax contingencies. No payments of tax or interest deficiencies
related to these assessments will be required until the litigation is resolved,
which NL anticipates may take approximately two to five years. Although NL
believes that it will ultimately prevail, NL has granted a DM 100 million ($59
million at March 31, 1997) lien on its Nordenham, Germany TiO2 plant in favor
of the German tax authorities until the litigation is resolved. No assurance
can be given that this litigation will be resolved in NL's favor in view of the
inherent uncertainties involved in court proceedings. 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.
In order to improve its near-term liquidity, NL refinanced its Rheox
subsidiary during January 1997, obtaining a net $125 million of new long-term
financing. The net proceeds, along with other available funds, were used to
prepay DM 207 million ($127 million when paid) of NL's DM term loan and to
repay DM 43 million ($26 million when paid) of NL's DM revolving credit
facility. As a result of the refinancing and prepayment, NL's aggregate
scheduled debt payments for 1997 and 1998 decreased by $103 million ($64
million in 1997 and $39 million in 1998). In connection with the prepayment, NL
and its lenders modified certain financial covenants of the DM credit agreement
and NL Industries guaranteed the facility. At March 31, 1997, NL was in
compliance with all financial covenants governing its debt agreements.
In addition to the above refinancing and prepayment, NL repaid $3.9
million of the joint venture term loan in the first quarter of 1997.
At March 31, 1997, NL had cash and cash equivalents aggregating $78
million (51% held by non-U.S. subsidiaries), including restricted cash and cash
equivalents of $9 million. NL's subsidiaries had $9 million and $94 million
available for borrowing at March 31, 1997 under existing U.S. and non-U.S.
credit facilities, respectively.
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, mining locations and
facilities currently or previously owned, operated or used by NL,
20
<PAGE> 23
certain of which are on the U.S. Environmental Protection Agency's (the "U.S.
EPA") Superfund National Priorities List or similar state lists. On a quarterly
basis, 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 ($140
million at March 31, 1997) for reasonably estimable costs of such matters, but
NL's ultimate liability may be affected by a number of factors, including
changes in remedial alternatives and costs and the allocations of such costs
among PRPs. It is not possible to estimate the range of costs for certain
sites. The upper end of the range of reasonably possible costs to NL for sites
for which it is possible to estimate costs is approximately $185 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. There is no assurance that NL will not incur
future liability in respect of this pending litigation in view of the inherent
uncertainties involved in court and jury rulings in pending and possible future
cases. However, based on, among other things, the results of such litigation to
date, 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 have, from time to time, been
enacted or proposed that seek to impose various obligations on present and
former manufacturers of lead pigment and lead-based paint with respect to
asserted health concerns associated with the use of such products and to
effectively overturn court decisions in which 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.
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 in the past has
sought, and in the future may seek, to reduce, refinance, repurchase or
restructure indebtedness, raise additional capital, issue additional
securities, 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 review opportunities for the acquisition,
divestiture, joint venture or other business combinations in the chemicals
industry. In the event of any such transactions, 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.
21
<PAGE> 24
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the 1996 Annual Report for descriptions of
certain legal proceedings.
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 March 31, 1997,
attached hereto as Exhibit 99.1.
22
<PAGE> 25
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Intercorporate Services Agreement by and between
Contran Corporation and NL effective as of January 1,
1997, incorporated by reference to Exhibit 10.2 of
NL's Quarterly Report on Form 10-Q (File No. 1-640)
for the quarter ended March 31, 1997.
10.2 Intercorporate Services Agreement by and between
Valhi, Inc. and NL effective as of January 1, 1997,
incorporated by reference to Exhibit 10.3 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for the
quarter ended March 31, 1997.
10.3 Intercorporate Services Agreement by and between
Tremont and NL effective as of January 1, 1997,
incorporated by reference to Exhibit 10.4 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for the
quarter ended March 31, 1997.
10.4 Intercorporate Services Agreement by and between TIMET
and NL effective as of January 1, 1997, incorporated
by reference to Exhibit 10.5 of NL's Quarterly Report
on Form 10-Q (File No. 1-640) for the quarter ended
March 31, 1997.
10.5 Intercorporate Services Agreement by and between TIMET
and Tremont effective as of January 1, 1997,
incorporated by reference to Exhibit 10.2 of TIMET's
Quarterly Report on Form 10-Q (File No. 0-28538) for
the quarter ended March 31, 1997.
10.6 Intercorporate Services Agreement by and between
Contran Corporation and Tremont effective as of
January 1, 1997.
27.1 Financial Data Schedule for the three-month period
ended March 31, 1997.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 filed by NL
Industries, Inc. (File No. 1-640).
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
March 31, 1997 and for the month of April 1997:
February 6, 1997 - Reported Items 5 and 7
February 14, 1997 - Reported Items 5 and 7
April 25, 1997 - Reported Items 5 and 7
23
<PAGE> 26
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: May 14, 1997 By /s/ Joseph S. Compofelice
- ---------------------- -----------------------------------------
Joseph S. Compofelice
Vice President and
Chief Financial Officer
By /s/ J. Thomas Montgomery, Jr.
-----------------------------------------
J. Thomas Montgomery, Jr.
Vice President - Controller and Treasurer
(Chief Accounting Officer)
24
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Intercorporate Services Agreement by and between
Contran Corporation and NL effective as of January 1,
1997, incorporated by reference to Exhibit 10.2 of
NL's Quarterly Report on Form 10-Q (File No. 1-640)
for the quarter ended March 31, 1997.
10.2 Intercorporate Services Agreement by and between
Valhi, Inc. and NL effective as of January 1, 1997,
incorporated by reference to Exhibit 10.3 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for the
quarter ended March 31, 1997.
10.3 Intercorporate Services Agreement by and between
Tremont and NL effective as of January 1, 1997,
incorporated by reference to Exhibit 10.4 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for the
quarter ended March 31, 1997.
10.4 Intercorporate Services Agreement by and between TIMET
and NL effective as of January 1, 1997, incorporated
by reference to Exhibit 10.5 of NL's Quarterly Report
on Form 10-Q (File No. 1-640) for the quarter ended
March 31, 1997.
10.5 Intercorporate Services Agreement by and between TIMET
and Tremont effective as of January 1, 1997,
incorporated by reference to Exhibit 10.2 of TIMET's
Quarterly Report on Form 10-Q (File No. 0-28538) for
the quarter ended March 31, 1997.
10.6 Intercorporate Services Agreement by and between
Contran Corporation and Tremont effective as of
January 1, 1997.
27.1 Financial Data Schedule for the three-month period
ended March 31, 1997.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 filed by NL
Industries, Inc. (File No. 1-640).
</TABLE>
<PAGE> 1
EXHIBIT 10.6
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as
of January 1, 1997, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1996 between CONTRAN CORPORATION, a
Delaware corporation ("Contran"), and TREMONT CORPORATION, a Delaware
corporation. ("Recipient").
Recitals
A. Employees and agents of Contran and affiliates of Contran,
including Harold C. Simmons, perform management, financial and administrative
functions for Recipient without direct compensation from Recipient.
B. Recipient does not separately maintain the full internal
capability to perform all necessary management, financial and administrative
functions that Recipient requires.
C. The cost of maintaining the additional personnel by Recipient
necessary to perform the functions provided for by this Agreement would exceed
the fee set forth in Section 3 of this Agreement and that the terms of this
Agreement are no less favorable to Recipient than could otherwise be obtained
from a third party for comparable services.
D. Recipient desires to continue receiving the management,
financial and administrative services presently provided by Contran and
affiliates of Contran and Contran is willing to continue to provide such
services under the terms of this Agreement.
Agreement
For and in consideration of the mutual premises, representations and
covenants herein contained, the parties hereto mutually agree as follows:
SECTION 1. SERVICES TO BE PROVIDED. Contran agrees to make available
to Recipient, upon request, the following services (the "Services") to be
rendered by the internal staff of Contran and affiliates of Contran:
(a) Consultation and assistance in the development and
implementation of Recipient's corporate business strategies, plans and
objectives;
(b) Consultation and assistance in management and conduct
of corporate affairs and corporate governance consistent with the
charter and bylaws of Recipient;
(c) Consultation and assistance in maintenance of
financial records and controls, including preparation and review of
periodic financial statements and reports to be filed with public and
regulatory entities and those required
<PAGE> 2
to be prepared for financial institutions or pursuant to indentures
and credit agreements;
(d) Consultation and assistance in cash management and in
arranging financing necessary to implement the business plans of
Recipient;
(e) Consultation and assistance in tax management and
administration, including, without limitation, preparation and filing
of tax returns, tax reporting, examinations by government authorities
and tax planning; and
(f) Such other services as may be requested by Recipient
from time to time.
SECTION 2. MISCELLANEOUS SERVICES. It is the intent of the parties
hereto that Contran provide only the Services requested by Recipient in
connection with routine management, financial and administrative functions
related to the ongoing operations of Recipient and not with respect to special
projects, including corporate investments, acquisitions and divestitures. The
parties hereto contemplate that the Services rendered in connection with the
conduct of Recipient's business will be on a scale compared to that existing on
the effective date of this Agreement, adjusted for internal corporate growth or
contraction, but not for major corporate acquisitions or divestitures, and that
adjustments may be required to the terms of this Agreement in the event of such
major corporate acquisitions, divestitures or special projects. Recipient will
continue to bear all other costs required for outside services including, but
not limited to, the outside services of attorneys, auditors, trustees,
consultants, transfer agents and registrars, and it is expressly understood
that Contran assumes no liability for any expenses or services other than those
stated in Section 1. In addition to the fee paid to Contran by Recipient for
the Services provided pursuant to this Agreement, Recipient will pay to Contran
the amount of out-of-pocket costs incurred by Contran in rendering such
Services.
SECTION 3. FEE FOR SERVICES. Recipient agrees to pay to Contran
$135,000.00 quarterly, commencing as of January 1, 1997, pursuant to this
Agreement.
SECTION 4. ORIGINAL TERM. Subject to the provisions of Section 5
hereof, the original term of this Agreement shall be from January 1, 1997 to
December 31, 1997.
SECTION 5. EXTENSIONS. This Agreement shall be extended on a
quarter-to-quarter basis after the expiration of its original term unless
written notification is given by Contran or Recipient thirty (30) days in
advance of the first day of each successive quarter or unless it is superseded
by a subsequent written agreement of the parties hereto.
SECTION 6. LIMITATION OF LIABILITY. In providing its
-2-
<PAGE> 3
Services hereunder, Contran shall have a duty to act, and to cause its agents
to act, in a reasonably prudent manner, but neither Contran nor any officer,
director, employee or agent of Contran or its affiliates shall be liable to
Recipient for any error of judgment or mistake of law or for any loss incurred
by Recipient in connection with the matter to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Contran.
SECTION 7. INDEMNIFICATION OF CONTRAN BY RECIPIENT. Recipient shall
indemnify and hold harmless Contran, its affiliates and their respective
officers, directors and employees from and against any and all losses,
liabilities, claims, damages, costs and expenses (including attorneys' fees and
other expenses of litigation) to which Contran may become subject arising out
of the Services provided by Contran to the Recipient hereunder, provided that
such indemnity shall not protect any person against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on the part of such person.
SECTION 8. FURTHER ASSURANCES. Each of the parties will make,
execute, acknowledge and deliver such other instruments and documents, and take
all such other actions, as the other party may reasonably request and as may
reasonably be required in order to effectuate the purposes of this Agreement
and to carry out the terms hereof.
SECTION 9. NOTICES. All communications hereunder shall be in writing
and shall be addressed, if intended for Contran, to Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such
other address as it shall have furnished to Recipient in writing, and if
intended for Recipient, to 1999 Broadway, Suite 4300, Denver, Colorado 80202,
Attention: President, or such other address as it shall have furnished to
Contran in writing.
SECTION 10. AMENDMENT AND MODIFICATION. Neither this Agreement nor
any term hereof may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
SECTION 11. SUCCESSOR AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of Contran and Recipient and their respective
successors and assigns, except that neither party may assign its rights under
this Agreement without the prior written consent of the other party.
SECTION 12. GOVERNING LAW. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first
-3-
<PAGE> 4
above written.
CONTRAN CORPORATION
By: /s/ Steven L. Watson
----------------------------------
Steven L. Watson, Vice President
TREMONT CORPORATION
By: /s/ J. Landis Martin
----------------------------------
J. Landis Martin, Chairman of
the Board, President and
Chief Executive Officer
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREMONT
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 61,039
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 69,467
<PP&E> 1,394
<DEPRECIATION> 678
<TOTAL-ASSETS> 213,886
<CURRENT-LIABILITIES> 6,601
<BONDS> 0
0
0
<COMMON> 7,668
<OTHER-SE> 138,184
<TOTAL-LIABILITY-AND-EQUITY> 213,886
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,523
<INCOME-TAX> 2,948
<INCOME-CONTINUING> (2,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,414)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1996 Annual Report for descriptions of certain
previously-reported legal proceedings.
In April 1997 the Quebec Court of Appeals dismissed the Canadian
Fisheries Act case (previously reported at page 9 of the 1996 Annual Report)
against one of the individual defendants. In May 1997 the Crown's counsel
filed an order of nolle prosequi effectively terminating the matter as against
Kronos Canada, Inc. and the remaining individual defendant. In May 1998 the
matter will be expunged from the records as if it had never been brought.
Kronos Canada and the individual defendant have agreed not to seek damages for
malicious or improper prosecution.
Ritchie v. NL Industries, et al. (No. 5:96-CV-166). The case was
remanded to state court in April 1997.
In April 1997 the Company was served with a compliant in Parker v. NL
Industries, et al. (Circuit Court, Baltimore City, Maryland, No. 97085060
CC915). Plaintiff, now an adult, and his wife, seek compensatory and punitive
damages from the Company, another former manufacturer of lead paint and a local
paint retailer, based on claims of negligence, strict liability and fraud, for
plaintiff's alleged ingestion of lead paint as a child. In May 1997 the
Company removed the case to federal court.
In March 1997 the Company was served with a complaint filed in the
Fifth Judicial District Court of Cass County, Texas, on behalf of approximately
4,000 plaintiffs and their spouses alleging injury due to exposure to asbestos
and seeking compensatory and punitive damages. The Company has filed an answer
denying the material allegations. (Ernest Hughes, et al. v. Owens-Corning
Fiberglass, Corporation, et al., No. 97-C-051).
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