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, 1998
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 (IRS Employer
jurisdiction of Identification
incorporation or No.)
organization)
<PAGE>
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, 1998: 6,376,558
<PAGE>
FORWARD-LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
that are not historical facts, including, but not limited to, statements found
in the Notes to Consolidated Financial Statements and 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 that could
significantly impact expected results. Actual results could differ materially
from those described in such forward-looking statements, and the Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Among the factors that could cause actual results to differ materially are the
risks and uncertainties discussed in this Quarterly Report, including those
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 NL's and TIMET's businesses, TIMET's dependence on the aerospace
industry, the sensitivity of NL's and TIMET's businesses to global industry
capacity, global economic conditions, changes in product pricing, the
possibility of labor disruptions, control by certain stockholders and possible
<PAGE>
conflicts of interest, potential difficulties in integrating acquisitions,
uncertainties with new product development, the supply of raw materials and
services and the possibility of disruptions of normal business activities from
Year 2000 issues.
TREMONT CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1997 and
September 30, 1998 2-3
Consolidated Statements of Income - Three months and
Nine months ended September 30, 1997 and 1998 4
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1997 and 1998 5
Consolidated Statements of Comprehensive Income - Three
months and nine months ended September 30, 1997 and 1998 6
Consolidated Statement of Stockholders' Equity - Nine
months ended September 30, 1998 7
<PAGE>
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 12-28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 29
Item 6. Exhibits and Reports on Form 8-K. 29-31
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
December SEPTEMBER
ASSETS 31, 30,
1997 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,959 $ 4,260
Accounts and notes receivable 5,544 3,349
Refundable income taxes - 1,394
Receivable from related parties 2,277 2,067
Prepaid expenses 1,206 1,922
Total current assets 46,986 12,992
Other assets:
Investment in TIMET 123,521 148,381
Investment in NL Industries 15,737 88,893
Investment in joint ventures 10,509 12,697
Receivable from related parties 4,019 2,560
Other 13,550 18,577
Total other assets 167,336 271,108
Net property and equipment 674 647
<PAGE>
$ 214,996 $ 284,747
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December 31, SEPTEMBER 30
STOCKHOLDERS' EQUITY 1997 1998
<S> <C> <C>
Current liabilities:
Accrued liabilities $ 5,714 $ 7,781
Payable to related parties 62 38
Income taxes 212 108
Total current liabilities 5,988 7,927
Noncurrent liabilities:
Insurance claims and claim 17,000 13,047
expenses
Accrued OPEB cost 21,730 21,571
Deferred income taxes 25,766 33,691
Other 4,978 5,122
Total noncurrent liabilities 69,474 73,431
Minority interest 3,206 3,778
Stockholders' equity:
Common stock 7,690 7,768
Additional paid-in capital 274,736 296,693
Accumulated deficit (103,277) (40,126)
<PAGE>
Accumulated other comprehensive
income:
Currency translation (7,831) (6,286)
Marketable securities 732 920
172,050 258,969
Less treasury stock, at cost 35,722 59,358
Total stockholders' equity 136,328 199,611
$ 214,996 $ 284,747
</TABLE>
<PAGE>
[FN] Commitments and contingencies (Note 1).
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<PAGE>
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Equity in earnings (loss) of:
TIMET $ 6,461 $ 5,044 $17,389 $14,786
NL Industries 882 4,794 (6,727) 55,054
Other joint ventures 436 197 4,740 2,188
7,779 10,035 15,402 72,028
Corporate income (expense):
Interest income 741 540 2,473 1,788
Other, net (779) (822) (1,418) (2,415)
Income before income 7,741 9,753 16,457 71,401
taxes
Income tax expense 2,576 1,811 8,182 5,919
Minority interest 109 60 1,192 572
Income before 5,056 7,882 7,083 64,910
extraordinary item
<PAGE>
Equity in extraordinary loss
of NL-
early extinguishment of debt - (422) - (837)
Net income $ 5,056 $ 7,460 $ 7,083 $64,073
Earnings per share:
Before extraordinary item:
Basic $ .74 $ 1.23 $ .99 $ 9.82
Diluted $ .68 $ 1.19 $ .90 $ 9.47
Net income:
Basic $ .74 $ 1.17 $ .99 $ 9.69
Diluted $ .68 $ 1.12 $ .90 $ 9.35
Weighted average shares
outstanding:
Common shares 6,876 6,375 7,152 6,611
Diluted shares 7,065 6,498 7,275 6,758
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $7,083 $ 64,073
Earnings of affiliates:
Before extraordinary item (15,402) (72,028)
Extraordinary item - 837
Distributions 1,041 1,544
Deferred income taxes 7,913 6,991
Minority interest 1,192 572
Other, net (1,915) 667
Change in assets and liabilities:
Accounts with related parties 835 462
Other, net (11) (1,514)
Net cash provided by operating 736 1,604
activities
Cash flows from investing activities:
Purchases of NL and TIMET common stock - (23,557)
Disposition of oil and gas production 1,206 -
well interest
Other (21) (20)
Net cash provided (used) by investing 1,185 (23,577)
activities
<PAGE>
Cash flows from financing activities:
Repurchases of common stock (25,341) (23,636)
Litigation settlement, net - 18,976
Letters of credit cash collateralized - (7,176)
Dividends paid - (922)
Other 840 1,032
Net cash used by financing activities (24,501) (11,726)
Net decrease in cash and cash equivalents (22,580) (33,699)
Balance at beginning of period 68,035 37,959
Balance at end of period $ 45,455 $4,260
Supplemental disclosures - cash paid for $ 185 $ 427
income taxes
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net income $ 5,056 $ 7,460 $ 7,083 $64,073
Other comprehensive income
(loss):
Foreign currency translation (786) 3,562 (5,955) 2,378
adjustments
Unrealized gains (losses) on
marketable
securities 440 54 787 289
Allocable income tax benefit 121 (1,266) 1,961 (934)
(expense), net
Other comprehensive (225) 2,350 (3,207) 1,733
income (loss)
<PAGE>
Comprehensive income $ 4,831 $ 9,810 $ 3,876 $65,806
</TABLE>
<PAGE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Common Stock Additional
Shares Treasury Common paid-in
Issued Shares stock capital
<S> <C> <C> <C> <C>
Balance at 7,690 960 $7,690 $274,736
December 31, 1997
Comprehensive - - - -
income
Litigation - - - 18,976
settlement, net
Dividends - - - -
Repurchases of - 432 - -
common stock
Common stock 78 - 78 954
issued
Other - - - 2,027
Balance at 7,768 1,392 $7,768 $296,693
September 30, 1998
<PAGE>
</TABLE>
<PAGE>
[FN] See accompanying notes to consolidated financial statements.
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
income
Accumulated Currency Marketable Treasury Stockholders'
Deficit translation Securities Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at $(103,277) (7,831) $ 732 $(35,722) $136,328
December 31, 1997
Comprehensive 64,073 1,545 188 - 65,806
income
Litigation - - - - 18,976
settlement, net
Dividends (922) - - - (922)
Repurchases of - - - (23,636) (23,636)
common stock
Common stock - - - - 1,032
issued
Other - - - - 2,027
Balance at
<PAGE>
September 30, $(40,126) $(6,286) $ 920 $(59,358) $199,611
1998
</TABLE>
<PAGE>
[FN] See accompanying notes to consolidated financial statements.
<PAGE>
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 33%-owned Titanium Metals Corporation ("TIMET"), 20%-owned NL
Industries, Inc. and other joint ventures of 75%-owned TRECO L.L.C. Valhi, Inc.
and other entities related to Harold C. Simmons hold (i) approximately 53% of
Tremont's outstanding common stock and (ii) approximately 78% of NL's
outstanding common stock (including 20% of NL held by Tremont). Mr. Simmons may
be deemed to control each of Valhi, Tremont, NL and TIMET.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1997 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1998 and the consolidated statements
of income, cash flows, comprehensive income and stockholders' equity for the
interim periods ended September 30, 1997 and 1998 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
<PAGE>
statements included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1997 (the "1997 Annual Report").
For information concerning certain legal proceedings, income tax and other
contingencies related to the Company, TIMET and NL, see (i) Part 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 1997
Annual Report, including certain information concerning TIMET's and NL's legal
proceedings incorporated therein by reference.
<PAGE>
Note 2 - 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 10.3 million shares, or 33%, of TIMET's outstanding
common stock and may be deemed to control TIMET. At September 30, 1998, the net
carrying amount of the Company's investment in TIMET was approximately $14.47
per share, while the market price of TIMET common stock at that date was $14.13
per share ($10.88 per share at November 12, 1998). 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). During the three months ended
September 30, 1998, Tremont purchased 743,700 shares of TIMET common stock for
$9.6 million in open-market transactions.
~ NL~Industries.~~~At September 30, 1998, Tremont held 9.9 million shares of
NL's outstanding common stock (10.2 million shares or 20%, at October 31, 1998)
and, together with Valhi, may be deemed to control NL. At September 30, 1998,
the net carrying amount of the Company's investment in NL was approximately
$9.01 per share while the market price of NL common stock at that date was
$19.38 per share ($14.88 per share at November 12, 1998). During the three
months ended September 30, 1998, Tremont purchased, in open-market transactions,
799,361 shares of NL common stock for $16 million and in October 1998 purchased
an additional 351,400 shares for $5.8 million.
~Joint~Ventures.~~~Investment in joint ventures represents holdings of 75%-
owned TRECO, which is principally comprised of (i) a 12% direct 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
<PAGE>
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 3 - 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 approximately 27% of the
Company's 7.5 million shares then outstanding. The Company has repurchased to
date 1,219,300 shares for $55.7 million (average price $45.68) pursuant to this
program, including 432,200 shares repurchased during the first nine months of
1998 for $23.6 million ($54.64 per share).
The Company continued its regular quarterly dividend of seven cents per
share of common stock in September 1998, and in October declared the next
regular dividend of seven cents per common share payable on December 30, 1998 to
stockholders of record as of the close of business on December 15, 1998.
In June 1998, Tremont and Valhi completed the settlement of the previously
reported shareholder derivative suit, ~Kahn~v.~Tremont~Corp.,~et.~al.~Under the
final, court approved settlement, Valhi transferred to Tremont $24.3 million
cash. Tremont reimbursed plaintiffs for attorneys' fees and related costs
totaling $5.3 million. The net proceeds of approximately $19 million are
reported as a direct increase in equity and consequently are not a component of
net income.
Note 4 - Income taxes:
The Company's income tax rate in the 1997 and 1998 periods varies from the
U.S. federal statutory income tax rate of 35% primarily because no income tax
<PAGE>
provision or benefit is currently required on its equity in NL's earnings or
losses.
Note 5 - Accrued liabilities:
<PAGE>
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1997 1998
(In thousands)
<S> <C> <C>
Accrued stock purchase $ - $2,036
Postretirement benefit cost 1,887 1,887
Other employee benefits 242 46
Environmental cost 299 319
Legal costs 1,482 982
Miscellaneous taxes 134 156
Other 1,670 2,355
$5,714 $7,781
</TABLE>
<PAGE>
Note 6 - Related party transactions:
Receivables from related parties principally represent amounts due from NL
and a former affiliate under insurance loss sharing arrangements and amounts due
from TIMET for exercises of Tremont stock options and for other post-employment
benefit payments. Current payables to related parties include amounts due to
Contran Corporation (the parent company of Valhi), NL and TIMET under
intercorporate services arrangements.
Note 7 - Earnings per share:
Net income per share is based upon the weighted average number of common
shares and dilutive common stock options outstanding. A reconciliation of the
numerator and denominator used in the calculation of basic and diluted earnings
per share is presented below. The effect of conversion of TIMET's Convertible
Preferred Securities would be a net reduction of the Company's equity in
earnings of TIMET. The reduction results from dilution of the Company's
ownership percentage offset in part by increased TIMET net income resulting from
elimination of dividends on the Convertible Preferred Securities. Tremont stock
options omitted from the denominator because they were antidilutive were nil in
the 1997 and 1998 periods.
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1998 1997 1998
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
Net income $ 5,056 $ 7,460 $ 7,083 $64,073
Effect of dilutive
securities
of equity investees (225) (165) (562) (913)
Diluted net income $ 4,831 $ 7,295 $ 6,521 $63,160
Denominator:
Average common shares 6,876 6,375 7,152 6,611
outstanding
Average dilutive stock 189 123 123 147
options
Diluted shares 7,065 6,498 7,275 6,758
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
~RESULTS~OF~OPERATIONS
~
Tremont's operations are conducted through TIMET, NL and TRECO. The
results of TIMET, NL, TRECO 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 Securities and Exchange 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 financial
statements.
The Company reported third quarter net income of $7.5 million, or $1.12 per
diluted share, compared to $5.1 million, or $.68 per diluted share, for the same
quarter in 1997.
The Company's equity in earnings of 33%-owned TIMET was $5.0 million in the
third quarter of 1998 compared to $6.5 million in 1997. TIMET reported third
quarter net income of $16.1 million in 1998 on sales of $174 million, down from
net income of $21.4 million on sales of $177 million for the third quarter of
1997. The decline in TIMET's third quarter results compared to last year is
primarily attributable to a decline in titanium mill products sales volume,
higher general and administrative expenses and a higher effective income tax
rate.
The Company's equity in earnings of 20%-owned NL Industries, Inc. was $4.8
million in the third quarter of 1998 compared to $.9 million for the same
quarter of 1997. NL reported income from continuing operations of $31.4 million
<PAGE>
in the third quarter of 1998 on sales of $222 million compared to $3.9 million
on sales of $210 million in the third quarter of 1997. NL's third quarter
titanium dioxide pigments ("TiO2") sales volume decreased 9% from the record
sales volume in the third quarter of 1997 as demand moderated. NL's third
quarter average selling prices for TiO2 were 17% higher than the third quarter
of 1997 and 2% higher than the second quarter of 1998.
The Company's equity in earnings of other joint ventures principally
represents earnings of TRECO from its real estate development partnership. The
Company's income tax rate varies from the statutory rate primarily because no
income tax provision is currently required on its equity in NL's earnings or
losses. The Company's net proceeds of approximately $19 million in the second
quarter of 1998 related to the previously reported settlement of a stockholder
derivative lawsuit were reported as a direct increase in equity and consequently
were not a component of net income. See Note 3 to the Consolidated Financial
Statements.
~TIMET
~
~
<PAGE>
<TABLE>
~<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 Change 1997 1998 Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $177.2 $ 173.5 -2.1% $525.6 $ 551.4 +4.9%
Operating income 33.3 27.3 -18.0% 92.7 82.9 -10.6%
Corporate income, 1.5 2.1 3.9 5.0
net
Interest expense .9 1.3 2.0 2.3
33.9 28.1 -17.1% 94.6 85.6 -9.5%
Income tax expense 9.8 9.6 28.8 29.1
Minority interest 2.7 2.4 8.3 8.3
Net income $ 21.4 $ 16.1 -24.8% $ 57.5 $ 48.2 -16.2%
Tremont's equity
in
<PAGE>
TIMET's earnings $ 6.5 $ 5.0 -23.1% $ 17.4 $ 14.8 -14.9%
</TABLE>
<PAGE>
Due to reduced demand for TIMET's aerospace and industrial products,
earnings for the quarter ended September 30, 1998 were below expectations.
TIMET believes that the reduction in demand for aerospace products is
attributable in large part to inventory reductions by its major customers and a
decline in the number of aircraft forecast to be produced. The major reason for
the falloff in demand for industrial products is the deterioration in Asian
economies, including the strength of the U.S. dollar versus the Japanese yen.
Mill product shipments in the third quarter were approximately 3,500 metric
tons, below both second quarter 1998 (3,900 tons) and third quarter 1997 (3,700
tons) levels. Ingot and sponge shipments were also lower than expected.
Selling prices were relatively flat compared to second quarter levels. TIMET's
overall average mill product selling price in the third quarter of 1998 improved
over second quarter levels due to mix changes, as aerospace products accounted
for a higher percentage of mill product shipments. As previously reported,
TIMET anticipates that fourth quarter 1998 shipments and earnings will be lower
than third quarter levels.
General and administrative expenses in 1998 continue to be higher than in
1997 in large part due to information technology costs, including implementation
of TIMET's enterprise-wide SAP system and addressing "Year 2000" issues.
Expenses related to implementing and maintaining TIMET's SAP system and to
addressing "Year 2000" issues are expected to remain high in 1999.
<PAGE>
TIMET's firm order backlog at the end of September was approximately $350
million. Comparable backlog at the end of September 1997 was approximately $500
million. The titanium industry is experiencing reduced demand for aerospace and
industrial products due to high levels of inventories reported to be held by
customers, actual and anticipated declines in number of aircraft forecast to be
produced, especially wide-bodies aircraft, and continuing weakness of Asian and
other economies. As a result, TIMET's 1999 shipments are anticipated to be
below 1998 levels, particularly in the first half of the year, and 1999 results
are expected to be below current expectations. As previously reported, average
selling prices for 1999 are expected to be lower than 1998 prices by 5% to 10%.
In order to minimize the impact of the factors described above on its
results of operations and cash flows, TIMET may implement additional temporary
or permanent facility closures, layoffs and other measures. TIMET currently
expects a special charge in the fourth quarter of approximately $10 million
related to the announced closing of TIMET's leased melting facility in Verdi, NV
and to other actions of the type described above.
~ ~Operating income in the 1998 year-to-date period includes a previously
reported restructuring charge of $6 million in the second quarter of 1998,
related to the closure of TIMET's Pomona, CA castings and vacuum arc remelting
facility.
TIMET has substantial operations and assets located in Europe, principally
in the United Kingdom. Approximately one-half of TIMET's European sales are
denominated in currencies other than the U.S. dollar, principally the U.K. pound
sterling along with other major European currencies. The U.S. dollar value of
TIMET's foreign sales and operating costs are subject to currency exchange rate
fluctuations that can impact reported earnings and may affect the comparability
of period-to-period operating results. Certain purchases of raw materials for
TIMET's European operations, principally titanium sponge, are denominated in
U.S. dollars, while labor and other production costs are primarily denominated
<PAGE>
in local currencies. The U.K. is not adopting the new European currency unit
("Euro") although certain transactions currently denominated in various other
European currencies are expected to be denominated in the Euro beginning in
1999. Modifications of certain systems to handle Euro-denominated transactions
will be required, although such modifications are not expected to be extensive,
and TIMET does not expect that the impact of conversion to the Euro will be
material.
Interest expense in the 1998 periods is only slightly higher than in the
comparable 1997 periods. Substantially all of the additional interest related
to higher borrowing levels in 1998 was capitalized as part of major capital
projects. Dividends on the Convertible Preferred Securities are reported, net
of tax benefit, as minority interest.
TIMET operates in several tax jurisdictions and is subject to various
income tax rates. As a result, the geographical mix of pretax income can impact
TIMET's effective tax rate. For financial reporting purposes, TIMET has
previously recognized substantially all of its net operating loss carryforwards,
resulting in a higher effective tax rate in 1998 than in 1997.
<PAGE>
Year 2000 issues exist because many computer systems and applications
curently use two-digit fields to designate a year. Date-sensitive systems may
recognize the Year 2000 as 1900, or not at all. This inability to treat the
Year 2000 properly could cause systems to process critical financial,
manufacturing and operational information incorrectly. Many of TIMET's
information systems have been or are being replaced in connection with the
implementation of SAP. TIMET, with the help of outside specialists and
consultants, (i) has substantially completed an initial assessment of potential
Year 2000 issues in its manufacturing and communications systems, as well as in
those information systems that will not be replaced by SAP, (ii) is in process
of determining and implementing remedial actions and (iii) will develop a
contingency plan in the event internal or external Year 2000 issues are not
resolved. Excluding costs related to SAP, TIMET expended approximately $1
million on Year 2000 issues through September 1998, and currently expects to
incur an additional $5 million to $6 million through 1999, principally related
to embedded system technology. TIMET has also begun an evaluation of potential
Year 2000 exposures relating to key suppliers and customers.
Although TIMET believes its key information systems will be Year 2000
compliant before the end of 1999, it cannot yet predict the outcome or success
of the Year 2000 compliance programs related to its embedded manufacturing
systems or those systems of its suppliers and customers. TIMET also cannot
predict whether it will find additional problems that would result in unplanned
upgrades of applications after December 31, 1999. As a result of these
uncertainties, TIMET cannot predict the impact on its financial condition,
results of operations or cash flows, of noncompliant Year 2000 systems that
TIMET directly or indirectly relies upon. Should TIMET's Year 2000 compliance
plan not be successful or be delayed beyond January 2000, the consequences to
TIMET could be far-reaching and material, including an inability to produce
titanium metal products at its manufacturing facilities, which could lead to an
indeterminate amount of lost revenue. Other potential negative consequences
<PAGE>
could include impeded communications or power supplies, or slower transaction
processing and financial reporting.
~NL~Industries~
The Company's 20% interest in NL is reported by the equity method. Tremont
and NL may be deemed to be under common control by reason of stock ownership and
common directors and executive officers. Valhi 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.
<PAGE>
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 Change 1997 1998 Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $210.3 $221.5 + 5% $629.1 $685.8 + 9%
Operating income $ 24.9 $ 45.0 + 81% $ 50.4 $131.1 +160%
General corporate
items:
Securities .6 4.3 1.8 12.7
earnings, net
Expenses, net (5.7) (4.1) (44.3) (11.6)
Interest (16.4) (15.1) (49.2) (46.9)
expense
3.4 30.1 +$26.7 (41.3) 85.3 +$126.6
Income tax expense (.5) (1.3) (1.6) 14.2
(benefit)
Income (loss)
from
Continuing 3.9 31.4 +$27.5 (39.7) 71.1 +$110.8
operations
<PAGE>
Discontinued 5.9 - 16.0 287.4
operations
Extraordinary item
- - early
Extinguishment of - (2.4) - (4.8)
debt
Net income (loss) $ 9.8 $ 29.0 +$19.2 $(23.7) $353.7 +$377.4
Tremont's equity in
NL's
net earnings,
including
amortization of
basis
Differences $ .9 $ 4.8 +$ 3.9 $ (6.7) $ 55.0 +$61.7
</TABLE>
<PAGE>
NL's TiO2 operations are conducted by its wholly-owned Kronos, Inc.
subsidiary. Operating income in the third quarter and first nine months of 1998
increased from the comparable periods in 1997 due to higher average selling
prices, partially offset by lower sales volume and the absence of $9.7 million
of income from refunds of German franchise taxes received in the third quarter
of 1997. NL expects its fourth-quarter 1998 operating income will exceed its
fourth-quarter 1997 operating income primarily because of higher average fourth-
quarter 1998 TiO2 selling prices, partially offset by moderately lower fourth-
quarter 1998 sales volume.
Average TiO2 selling prices for the third quarter of 1998 were 17% higher
than the third quarter of 1997 and 2% higher than the second quarter of 1998.
Third-quarter sales volume decreased 9% from the record sales volume in the
year-earlier period as demand moderated. Sales volume in the first nine months
of 1998 was 2% lower than the year-earlier period primarily reflecting lower
sales volume in Asia, partially offset by higher sales volume in Europe. As a
result of lower second-half 1998 demand for TiO2, NL anticipates its TiO2 sales
volume for full-year 1998 will be slightly below that of calendar year 1997.
Cost of sales as a percentage of net sales decreased in the third quarter
and first nine months of 1998 primarily due to higher average selling prices.
Selling, general and administrative expenses decreased in the third quarter and
first nine months of 1998 due to lower distribution costs associated with lower
sales volume and favorable effects of foreign currency translation, partially
offset by the impact of the German franchise tax refunds received in the third
quarter of 1997.
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
<PAGE>
nine months of 1998 by $3 million and $26 million, respectively, compared to the
comparable 1997 periods.
Securities earnings increased due to higher average balances available for
investment. Corporate expenses, net in the first nine months of 1998 was lower
than the comparable period in 1997 due to the $30 million noncash charge taken
in the first quarter of 1997 related to NL's adoption of SOP No. 96-1,
"Environmental Remediation Liabilities."
NL redeemed its 13% Senior Secured Discount Notes on October 15, 1998 at
the redemption price of 106% of the principal amount, in accordance with the
terms of the Senior Secured Discount Notes indenture. NL expects general
corporate interest income and interest expense to be lower in the fourth quarter
of 1998 compared to the third quarter of 1998 due to the redemption of the 13%
Senior Secured Discount Notes.
Income taxes in the third quarter of 1998 include a tax benefit of $8.2
million resulting from a refund of prior-year German dividend withholding taxes.
In July 1998 NL reached an agreement (the "Tioxide Purchase") to (i)
acquire the North American TiO2 operations of Imperial Chemical Industries plc's
("ICI") subsidiary, Tioxide Group Limited, and a Tioxide TiO2 plant in England,
and (ii) cancel certain rights to chloride-process technology licensed to
Tioxide by NL in connection with the formation of Louisiana Pigment Company
("LPC") in 1993. The aggregate amount to be paid to ICI is approximately $365
million, including a $30 million fee for the cancellation of technology rights
and approximately $50 million in working capital. The purchase is subject to
regulatory clearances, completion of the purchase by E.I. du Pont de Nemours &
Co. of ICI's remaining non-North American TiO2 business (the "DuPont Purchase"),
and other conditions customary to transactions of this type.
<PAGE>
The operations to be acquired include Tioxide's 50%-interest in LPC, a
manufacturing joint venture of NL and Tioxide that operates a chloride-process
TiO2 plant in Louisiana with capacity of approximately 120,000 metric tons per
annum ("mtpa"); Tioxide's 75,000 mtpa sulfate-process TiO2 plant in Grimsby,
England; Tioxide's 52,000 mtpa finishing plant in Tracy, Quebec; and Tioxide's
North American marketing and distribution business.
Upon completion of the DuPont Purchase and the Tioxide Purchase, NL expects
to become the world's third largest manufacturer of TiO2, increasing its
productive capacity by approximately 135,000 mtpa.
Assuming regulatory clearances are received in 1998, NL expects the Tioxide
Purchase to close in the first quarter of 1999.
NL sold the net assets of its Rheox specialty chemicals business for $465
million cash (before fees and expenses) in the first quarter of 1998, including
$20 million attributable to a five-year agreement by NL not to compete in the
rheological products business. NL recognized an after-tax gain of approximately
$286 million on the sale of this business segment. A portion of the $380
million after-tax proceeds was used to reduce outstanding indebtedness by
approximately $231 million. Rheox's results are reported as discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
~Tremont~
The Company had cash and cash equivalents of $4.3 million at September 30,
1998. Tremont's 10.3 million shares of TIMET common stock and 9.9 million
shares of NL common stock had a market value of about $145 million and $191
million, respectively, at September 30, 1998. Tremont also has the right to
<PAGE>
acquire 1.5 million shares of TIMET's common stock from IMI with a September 30,
1998 market value of $21 million for an aggregate purchase price of $12 million.
During October 1998, the Company entered into an advance agreement with
Contran. In October 1998, the Company borrowed $5.9 million from Contran
pursuant to this agreement, primarily to fund purchases of NL common stock made
during October. Absent additional purchases of NL or TIMET common stock, the
Company does not currently believe it will need to borrow significant additional
amounts from Contran and is exploring possible financing alternatives to replace
the agreement with Contran.
The Company's equity in earnings of affiliates are primarily noncash. The
Company received cash distributions from VVLC of $1 million in the 1997 period
and $.6 million in the 1998 period primarily to cover taxes associated with
VVLC's income from land sales. TIMET and NL did not pay any cash dividends
during 1997 or the first quarter of 1998. NL and TIMET instituted regular
quarterly dividends of $.03 and $.04 per share of common stock, respectively, in
the second quarter of 1998. Based upon the Company's current holdings and the
current NL and TIMET dividend rates, the aggregate TIMET / NL dividends received
are $.7 million per quarter. Payment and amount of dividends in the future are
at the discretion of the Board of Directors of NL and TIMET, respectively.
Relative changes in assets and liabilities did not materially impact the
Company's cash flow from operating activities.
Repurchases of common stock, purchases of additional shares of NL and
TIMET, dividends declared and the settlement of the previously reported
stockholder derivative litigation are described in the Notes to the Consolidated
Financial Statements. During the nine-months ended September 30, 1998, the
Company cash collateralized certain letters of credit of its wholly-owned
captive insurance company for approximately $8 million. The Company is
exploring alternatives to reduce or eliminate the need to cash collateralize
letters of credit.
<PAGE>
"Year 2000" issues are not believed to be significant at the Tremont parent
company level.
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 obtain
financing from related entities or third parties, 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 1996 of
IMI's titanium business for TIMET stock, 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 intended to engage, in the
business of investing, reinvesting, owning, holding or trading of securities.
Tremont has sought an order from the Securities and Exchange Commission that
Tremont is primarily engaged, through TIMET and NL, in a non-investment company
business and, in the interim, has taken the steps necessary to give itself the
benefits of a temporary exemption under the 1940 Act.
<PAGE>
~
TIMET~
Summarized balance sheet and cash flow information reported by TIMET is
presented below.
<PAGE>
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1997 1998
(In millions)
<S> <C> <C>
Cash and equivalents $ 69.0 $ 142.6
Other current assets 344.8 385.6
Goodwill and other intangible assets 77.7 80.7
Other noncurrent assets 39.2 48.7
Property and equipment, net 262.4 329.2
$ 793.1 $ 986.8
Current liabilities $ 123.8 $ 157.6
Noncurrent liabilities 52.5 161.7
Minority interest - TIMET-obligated
Convertible Preferred Securities 201.2 201.2
Other minority interest 6.7 7.9
Stockholders' equity 408.9 458.4
$ 793.1 $ 986.8
<PAGE>
Nine months ended
September 30,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 83.9 $ 88.1
liabilities
Changes in assets and liabilities (38.8) (13.4)
45.1 74.7
Investing and financing activities:
Capital expenditures (40.9) (79.2)
Business acquisitions (12.1) (27.0)
Net borrowings (repayments) (2.7) 104.3
Other, net (7.5) (3.8)
$ (18.1) $ 69.0
Cash paid for:
Interest, net of capitalized $ 1.6 $ 2.0
interest
Convertible Preferred Securities 10.0 10.0
dividends
Income taxes 12.0 11.2
</TABLE>
<PAGE>
At September 30, 1998, TIMET had net cash of approximately $30 million
($143 million of cash and equivalents and $113 million of notes payable and
long-term debt). TIMET also had $125 million of borrowing availability under
its U.S. and European credit lines. Available borrowings in the future could
potentially be reduced due to the leverage and interest coverage ratios
contained in TIMET's U.S. credit agreement.
~Operating~activities~. Cash provided by operating activities (before
changes in assets and liabilities) of $88 million for the nine months ended
September 30, 1998 was higher than the $84 million provided during the same
period in 1997 as higher deferred income taxes and a principally noncash
restructuring charge offset the effect of lower operating results. Changes in
assets and liabilities reflect the timing of purchases, production and sales.
Increases in inventories used cash in 1998, reflecting material purchases and
build rates that were based on expected sales levels higher than actual sales
levels. Changes in receivables, including those from related parties, generated
cash in 1998, principally due to net collections resulting from lower sales
levels compared with the record levels of late 1997.
TIMET estimates capital expenditures for all of 1998 to approximate $120
million, up from $66 million in calendar 1997. About one-half of capital
expenditures during the two-year 1997-1998 period related to capacity expansion
projects associated with long-term customer agreements, which projects are also
expected to improve cycle times and yields and to increase efficiency. The
majority of these significant projects in both the U.S. and Europe have or will
begin to come on line by the end of 1998.
Approximately one-fourth of the two-year capital spending total relates to
the major SAP information systems and information technology project being
implemented throughout TIMET. The SAP system is being implemented in stages,
<PAGE>
with the roll-outs accomplished in May 1998 (U.S. Service Centers and Corporate
Headquarters), July 1998 (Henderson, NV plant) and October 1998 (Toronto, OH
plant). Roll out of SAP in the U.K. is currently scheduled for the first
quarter of 1999. Certain costs associated with the SAP business process and
information systems project, including training and reengineering, are expensed
as incurred.
TIMET's capital spending for 1999 is currently expected to approximate $40
million.
~Investing~activities~. Cash used for business acquisitions and joint
ventures in the first nine months of 1998 relates primarily to the previously-
reported Loterios and Wyman-Gordon transactions. In October 1998, TIMET
purchased $80 million of Special Metals Corporation ("SMC") 6.625% convertible
preferred stock (the "SMC Preferred Stock") in connection with SMC's acquisition
of the Inco Alloys International high performance nickel alloys business unit of
Inco Limited. TIMET will account for its investment in the SMC Preferred stock
by the cost method. TIMET also has entered into an agreement in principle with
SMC to form a strategic alliance to pursue certain manufacturing and joint
product development and marketing arrangements. The SMC Preferred Stock is
convertible into SMC common stock at $16.50 per share and is subject to
mandatory redemption in 2006. TIMET funded the SMC investment in October 1998
using cash and equivalents on hand.
~Financing~activities~. TIMET's net borrowings in 1998 included $104
million on its principal U.S. and U.K. bank credit facilities, primarily to fund
capital expenditures and the Loterios acquisition.
TIMET's Convertible Preferred Securities do not require principal
amortization, and TIMET has the right to defer dividend payments for one or more
periods of up to 20 consecutive quarters each. TIMET's current regular
quarterly dividend on its common stock is four cents per share.
<PAGE>
In September 1998, TIMET's Board of Directors authorized the repurchase of
up to four million shares of TIMET common stock in open market or privately-
negotiated transactions. During September 1998, TIMET repurchased 90,000 shares
for approximately $1.2 million.
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, in light of its current outlook, may in the future, seek
to raise additional capital, modify its dividend policy, restructure ownership
interests, incur, refinance or restructure indebtedness, repurchase shares of
capital stock, sell 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 investigates, evaluates and
discusses acquisition, joint venture, strategic relationship and other business
combination opportunities in the titanium, specialty metal and related
industries. In the event of any future acquisition or joint venture
opportunities, TIMET may consider using then available liquidity, issuing
additional equity securities or incurring additional indebtedness.
~NL~Industries~
Summarized balance sheet and cash flow information reported by NL is
presented below.
<PAGE>
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1997 1998
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 106.1 $ 320.8
Other current assets 348.4 368.4
Noncurrent securities 17.3 20.1
Investments in joint ventures 172.7 171.2
Other noncurrent assets 42.5 36.8
Property and equipment 411.2 380.0
$ 1,098.2 $ 1,297.3
Current liabilities $ 276.4 $ 452.4
Long-term debt 666.8 304.1
Deferred income taxes 132.8 190.3
Accrued OPEB cost 51.0 43.5
Environmental liabilities 125.5 79.4
Other noncurrent liabilities 67.7 80.7
Minority interest .3 .6
Stockholders' equity (deficit):
Capital and retained earnings (92.8) 272.5
Accumulated other comprehensive loss (129.5) (126.2)
<PAGE>
$ 1,098.2 $ 1,297.3
Nine months ended
September 30,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 21.3 $ 101.6
liabilities
Changes in assets and liabilities 49.5 (59.5)
70.8 42.1
Investing and financing activities,
net:
Capital expenditures (22.2) (12.7)
Proceeds from sale of Rheox - 435.1
Other investing activities, net 7.6 7.0
Net borrowings (repayments) (173.7) (140.4)
Other financing activities, net 106.7 (109.3)
$ (10.8) $ 221.8
Cash paid for:
Interest, net of amounts capitalized $ 35.3 $ 22.0
Income taxes, net 1.3 47.8
</TABLE>
<PAGE>
The TiO2 industry is cyclical and changes in economic conditions within the
industry significantly impact the earnings and operating cash flows of NL. Cash
flow from operations, before changes in assets and liabilities, in the 1998
period improved significantly from the comparable period in 1997 due to higher
operating income. Changes in NL's inventories, receivables and payables
(excluding the effect of currency translation) used cash in the first nine
months of 1998 but provided cash in the first nine months of 1997 primarily due
to reductions in inventory levels in the 1997 period and higher payments of
income taxes in the 1998 period as a result of the gain on sale of Rheox.
The sale of NL's specialty chemicals business in the first quarter of 1998
resulted in net proceeds of $380 million after current income taxes and other
expenses. In the first nine months of 1998, NL used a portion of the net
proceeds to repay certain indebtedness, as described below, and on October 15,
1998, used a portion of the net proceeds to redeem the remaining $119 million of
13% Senior Secured Discount Notes at the redemption price of 106% of the
principal amount, in accordance with the terms of the Discount Notes indenture.
During the first nine months of 1998, NL used a portion of the net proceeds
to (i) prepay $118 million of the Rheox credit facility, (ii) prepay $42 million
of Kronos' share of the LPC joint venture term loan, (iii) make $65 million of
open-market purchases of NL's 13% Senior Secured Discount Notes at prices
ranging from $101.25 to $105.19 per $100 of their principal amounts, and (iv)
purchase $6 million of the Senior Secured Notes and $61 thousand of the Senior
Secured Discount Notes at a price of $100 and $96.03 per $100 of their principal
amounts, respectively, pursuant to a June 1998 pro rata tender offer to Note
holders as required under the terms of the indenture.
NL prepaid DM 81 million ($44 million when paid) of its DM term loan in the
first quarter of 1998. A portion of the funds for such prepayment of the DM
<PAGE>
term loan was provided by a first-quarter DM 35 million ($19 million when
borrowed) increase in outstanding borrowings under NL's short-term non-U.S.
credit facilities. In the second quarter of 1998, NL repaid DM 20 million ($11
million when paid) of the DM revolving credit facility.
In order to complete the Tioxide Purchase, NL expects to borrow
approximately $250 million in bank financing.
At September 30, 1998 NL had cash and cash equivalents aggregating $321
million (14% held by non-U.S. subsidiaries), including restricted cash
equivalents of $13 million. NL's subsidiaries had $91 million available for
borrowing at September 30, 1998 under existing non-U.S. credit facilities.
In the third quarter of 1998, NL paid a regular quarterly dividend of $.03
per share to shareholders aggregating $1.5 million. Dividends paid during the
first nine months of 1998 totaled $3.1 million. In October 1998 NL's Board of
Directors declared a regular quarterly dividend of $.03 per share to
shareholders of record as of December 16, 1998 to be paid on December 30, 1998.
In June 1998, as a result of the settlement of a shareholder derivative
lawsuit on behalf of NL, Valhi transferred $14.4 million in cash to NL, and NL
agreed to pay plaintiffs' attorneys' fees and expenses of $3.2 million.
<PAGE>
Certain of NL's tax returns in various U.S. and non-U.S. jurisdictions are
being examined and tax authorities have proposed or may propose tax
deficiencies, including non-income tax related items and interest. NL
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. In the third quarter of 1998, NL received a DM 14 million ($8.2
million when received) refund of 1990 German dividend withholding taxes. The
German tax authorities were required to refund such amounts based on a recent
German Supreme Court decision in favor of another taxpayer. The refund resulted
in a reduction of the settlement amount from DM 44 million referred to above to
DM 30 million for years through 1990. No further withholding tax refunds are
expected.
Certain other significant German tax contingencies aggregating an estimated
DM 172 million ($102 million at September 30, 1998) through 1997 remain
outstanding and are in litigation. Of these, one primary issue represents
disputed amounts aggregating DM 160 million ($95 million at September 30, 1998)
for years through 1997. NL has received tax assessments for a substantial
portion of these amounts. No payments of tax or interest deficiencies related
to these assessments are expected until the litigation is resolved. During 1997
a German tax court proceeding involving a tax issue substantially the same as
this issue was decided in favor of the taxpayer. The German tax authorities
have appealed that decision to the German Supreme Court. NL believes that a
decision by the German Supreme Court will be rendered within a year and will
likely determine the outcome of NL's primary dispute with the German tax
authorities. Although NL believes that it will ultimately prevail in this
matter, NL has granted a DM 94 million ($56 million at September 30, 1998) lien
on its Nordenham, Germany TiO2 plant in favor of the City of Leverkusen, and a
DM 5 million ($3 million at September 30, 1998) lien in favor of the German
federal tax authorities. If NL does not prevail, these contingencies will
<PAGE>
increase NL's tax liability for 1990 and each year thereafter, and NL would seek
to negotiate payment over a period of time.
In addition, during 1997 NL reached an agreement with the German tax
authorities regarding certain other issues not in litigation for the years 1991
through 1994, and agreed to pay additional tax deficiencies of DM 9 million ($5
million at September 30, 1998), most of which was paid in the third quarter of
1998.
During 1997 NL received a tax assessment from the Norwegian tax authorities
proposing tax deficiencies of NOK 51 million ($7 million at September 30, 1998)
relating to 1994. NL has appealed this assessment and has begun litigation
proceedings. Although NL believes that it will ultimately prevail, NL has
granted a lien for the full amount of the tax assessment on its Fredrikstad,
Norway TiO2 plant in favor of the Norwegian tax authorities.
No assurance can be given that these tax matters will be resolved in NL's
favor in view of the inherent uncertainties involved in court proceedings. NL
believes that it has provided adequate accruals for additional taxes and related
interest expense which may ultimately result from all such examinations and
believes that the ultimate disposition of such examinations should not have a
material adverse effect on NL's consolidated financial position, results of
operations or liquidity.
<PAGE>
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, 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 ($128 million at September 30, 1998) 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 $160 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
<PAGE>
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. Examples of such proposed legislation include bills which would
permit civil liability for damages on the basis of market share, rather than
requiring plaintiffs to prove that the defendant's product caused the alleged
damage. 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 is in the process of evaluating and upgrading its computer systems (both
information technology ("IT") systems and non-IT systems involving embedded chip
technology) and software applications (collectively referred to as "systems") to
ensure that the systems function properly beginning January 1, 2000. To achieve
its year 2000 compliance plan, NL is utilizing internal and external resources
to identify, correct or reprogram, and test its systems.
NL has conducted an inventory of its IT systems worldwide and is currently
testing the systems and applications that have been corrected or reprogrammed
for year 2000 compliance. NL has completed a preliminary inventory of its non-
IT systems and is in the process of validating the inventory and correcting or
replacing date-deficient systems. NL uses a number of packaged software
products that have been upgraded to a year 2000 compliant version in the normal
course of business. Excluding the cost of these software upgrades, NL's cost of
becoming year 2000 compliant is expected to be approximately $2 million, of
which about one-third has been spent through September 1998. NL expects its
major IT systems to be year 2000 compliant by March 1999, and expects its non-IT
systems to be year 2000 compliant by September 1999.
<PAGE>
As part of its year 2000 compliance plan, NL has requested confirmations
from its major domestic and foreign software vendors, hardware vendors and
primary suppliers, that they are developing and implementing plans to become, or
are, year 2000 compliant. Confirmations received to date from NL's software
vendors, hardware vendors and primary suppliers indicate that generally they are
in the process of implementing remediation plans to ensure that their systems
are compliant by December 31, 1999. The major software vendors used by NL have
already delivered year 2000 compliant software. NL plans to request
confirmations from its major customers that they are developing or implementing
plans to become year-2000 compliant.
NL is developing a contingency plan to address potential year 2000 related
business interruptions that may occur on January 1, 2000, or thereafter. This
plan is expected to be completed in the second quarter of 1999.
Although NL expects its systems to be year 2000 compliant before December
31, 1999, it cannot predict the outcome or success of the year 2000 compliance
programs of its vendors, suppliers, and customers. NL also cannot predict
whether its major software vendors, who continue to test for year 2000
compliance, will find additional problems that would result in unplanned
upgrades of their applications after December 31, 1999. As a result of these
uncertainties, NL cannot predict the impact on its financial condition or
results of noncompliant year 2000 systems that NL directly or indirectly relies
upon. Should NL's year 2000 compliance plan not be successful or be delayed
beyond January 2000, the consequences to NL could be far-reaching and material,
including an inability to produce TiO2 at its manufacturing facilities, which
could lead to an indeterminate amount of lost revenue. Other potential negative
consequences could include plant malfunction, impeded communications or power
supplies, or slower transaction processing and financial reporting.
Beginning January 1, 1999, eleven of the fifteen members of the European
Union ("EU"), including Germany, Belgium, the Netherlands and France, have
<PAGE>
agreed to adopt a new European currency unit (the "euro") as their common legal
currency. Following the introduction of the euro, the participating countries'
national currencies will remain legal tender as denominations of the euro from
January 1, 1999 through January 1, 2002, and the exchange rates between the euro
and such national currency units will be fixed.
NL conducts substantial operations in Europe. The functional currency of
NL's German, Belgian, Dutch and French operations will convert to the euro from
their respective national currencies over a two-year period beginning in 1999.
The euro conversion may impact NL's operations including, among other things,
changes in product pricing decisions necessitated by cross-border price
transparencies. Such changes in product pricing decisions could impact both
selling prices and purchasing costs and, consequently, favorably or unfavorably
impact results of operations.
NL has a significant amount of outstanding DM-denominated indebtedness and
such debt will become euro-denominated effective January 1, 1999. Modifications
of information systems to handle euro-denominated transactions will be required,
although the modifications are not expected to be extensive.
NL has begun to assess and evaluate the expected impact of the euro
conversion on its business. Such evaluations are still in process but are
expected to be concluded by the end of 1998. NL expects to spend and charge to
expense less than $1 million in evaluation and conversion costs. Because of the
inherent uncertainty of the ultimate affect of the euro conversion, NL cannot
accurately predict the impact on its results of operations, financial condition
or liquidity.
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
<PAGE>
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 acquisition or joint venture 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.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the 1997 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 September 30, 1998,
attached hereto as Exhibit 99.1.
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, 1998,
attached hereto as Exhibit 99.2
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<PAGE>
10.1 Intercorporate Services Agreement between Titanium
Metals Corporation and Tremont Corporation effective
as of January 1, 1998 incorporated by reference to
Exhibit 10.1 of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
10.2 Intercorporate Services Agreement between Titanium
Metals Corporation and NL Industries, Inc. effective
as of January 1, 1998 incorporated by reference to
Exhibit 10.2 of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
10.3* Form of Loan and Pledge Agreement by and between
Titanium Metals Corporation and individual TIMET
executives under the Corporation's Executive Stock
Ownership Loan Program incorporated by reference to
Exhibit 10.3* of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
10.4 Amendment to Investment Agreement, dated October 28,
1998, among Titanium Metals Corporation, TIMET
Finance Management Company and Special Metals
Corporation incorporated by reference to Exhibit 10.4
of a Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 filed by Titanium Metals
Corporation (File No. 0-28538).
10.5 Registration Rights Agreements, dated October 28,
1998, between TIMET Finance Management Company and
<PAGE>
Special Metals Corporation incorporated by reference
to Exhibit 10.5 of a Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
10.6 Intercorporate Services Agreement between Contran
Corporation and Tremont Corporation effective as of
January 1, 1998.
10.7 1998 Framework Agreement between ICI and NL
Industries, Inc. dated July 24, 1998 incorporated by
reference to Exhibit 10.1 of a Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998
filed by NL Industries, Inc. (File No. 1-640).
10.8 July 24, 1998 Agreement between ICI and NL
Industries, Inc. incorporated by reference to
Exhibit 10.2 of a Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 filed by NL
Industries, Inc. (File No. 1-640).
10.9 Form of Hivedown Agreement to be entered into
between Tioxide Europe Limited and Newco
incorporated by reference to Exhibit 10.3 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 filed by NL Industries, Inc.
(File No. 1-640).
10.10 Form of Share Sale and Purchase Agreement of Newco
to be entered into between Tioxide Europe Limited
and NL Industries, Inc. incorporated by reference to
Exhibit 10.4 of a Quarterly Report on Form 10-Q for
<PAGE>
the quarter ended September 30, 1998 filed by NL
Industries, Inc. (File No. 1-640).
10.11 Form of Product Exchange Agreement to be entered
into between Newco and Tioxide Europe Limited
incorporated by reference to Exhibit 10.5 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 filed by NL Industries, Inc.
(File No. 1-640).
10.12 Form of Share Sale and Purchase Agreement of Tioxide
Americas Inc. to be entered into between ICI
American Holdings Inc. and NL Industries, Inc.
incorporated by reference to Exhibit 10.6 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 filed by NL Industries, Inc.
(File No. 1-640).
10.13 Form of Share Sale and Purchase Agreement of Tioxide
Canada Inc. to be entered into between Tioxide Group
Limited and ICI Omicron B.V. and NL Industries, Inc.
incorporated by reference to Exhibit 10.7 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 filed by NL Industries, Inc.
(File No. 1-640).
10.14 Form of Americas Liability Agreement to be entered
into between ICI and NL Industries, Inc.
incorporated by reference to Exhibit 10.8 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 filed by NL Industries, Inc.
(File No. 1-640).
<PAGE>
10.15 Intercorporate Services Agreement by and between
Contran Corporation and NL Industries, Inc.
effective as of January 1, 1998 incorporated by
reference to Exhibit 10.9 of a Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998
filed by NL Industries, Inc. (File No. 1-640).
10.16 Intercorporate Services agreement by and between
Valhi, Inc. and NL Industries, Inc. effective as of
January 1, 1998 incorporated by reference to Exhibit
10.10 of a Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 filed by NL
Industries, Inc. (File No. 1-640).
10.17 Intercorporate Services Agreement by and between
Tremont Corporation and NL Industries, Inc.
effective as of January 1, 1998 incorporated by
reference to Exhibit 10.11 of a Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998
filed by NL Industries, Inc. (File No. 1-640).
10.18 Intercorporate Services Agreement by and between
CompX International Inc. and NL Industries, Inc.
effective as of January 1, 1998 incorporated by
reference to Exhibit 10.13 of a Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998
filed by NL Industries, Inc. (File No. 1-640).
10.19 Certificate of Designations for the Special Metals
Corporation Series A Preferred Stock, filed on
October 28, 1998, with the Secretary of State of
<PAGE>
Delaware incorporated by reference to Exhibit 4.5 of
a Current Report on Form 8-K dated October 28, 1998
filed by Special Metals Corporation (File No. 000-
22029).
27.1 Financial Data Schedule for the quarter ended
September 30, 1998.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 filed by NL
Industries, Inc. (File No. 1-640).
99.2 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
*Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
September 30, 1998 and the month of October 1998:
July 23, 1998 - Reported Items 5 and 7.
October 20, 1998 - Reported Items 5 and 7.
October 22, 1998 - Reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<PAGE>
TREMONT CORPORATION
(Registrant)
Date: November 12, 1998 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President - Controller and
Treasurer
(Principal Finance and
Accounting Officer)
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "~Agreement~"), effective as of
January 1, 1998, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1997 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 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
<PAGE>
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 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
<PAGE>
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
$266,750.00 quarterly, commencing as of January 1, 1998, 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, 1998 to
December 31, 1998.
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.
<PAGE>
SECTION 6. ~LIMITATION~OF~LIABILITY~. In providing its Services
hereunder, Contran shall have a duty to act, and to cause its agents to act, in
a reasonably prudent manner, but neither Contran nor any officer, director,
employee or agent of Contran or its affiliates shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection with the matter to which 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.
<PAGE>
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 above written.
CONTRAN CORPORATION
By:
~Steven~L.~Watson,~Vice~President~
TREMONT CORPORATION
By:
<PAGE>
~~J.~Landis~Martin,~Chairman~of~the~Board,~
President~and~Chief~Executive~Officer~
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tremont
Corporation's financial statements for the nine months ended September 30,
1998 and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<CIK> 0000842718
<NAME> TREMONT CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,260
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 12,992
<PP&E> 1,414
<DEPRECIATION> 767
<TOTAL-ASSETS> 284,747
<CURRENT-LIABILITIES> 7,927
<BONDS> 0
0
0
<COMMON> 7,768
<OTHER-SE> 191,843
<TOTAL-LIABILITY-AND-EQUITY> 284,747
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 71,401
<INCOME-TAX> 5,919
<INCOME-CONTINUING> 64,910
<DISCONTINUED> 0
<EXTRAORDINARY> (837)
<CHANGES> 0
<NET-INCOME> 64,073
<EPS-PRIMARY> 9.69
<EPS-DILUTED> 9.35
</TABLE>
Exhibit 99.1
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 filed by NL Industries, Inc. (File No. 1-640)
Reference is made to the 1997 Annual Report and NL's Quarterly Report on
Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 for
descriptions of certain previously-reported legal proceedings.
State of Illinois v. NL Industries, Inc., et al. (No. 88-CH-11618). In
October 1998 the Supreme Court of Illinois declined the State's petition to
review the previously reported decisions in favor of NL.
DeLeon v. Exide Corp. and NL Industries, Inc., (No. DV98-02669-B). In
August 1998 the plaintiffs dismissed this previously-reported case without
prejudice.
<PAGE>
Exhibit 99.2
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 filed by Titanium Metals Corporation (File No.
0-28538)
Reference is made to TIMET's 1997 Annual Report and subsequent Quarterly
Reports on Form 10-Q for descriptions of certain previously-reported legal
proceedings.
<PAGE>
