SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended June 30, 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 July 31, 1998: 6,374,858
<PAGE>
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 that could significantly impact expected results. 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 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
conflicts of interest, potential difficulties in integrating acquisitions,
uncertainties with new product development, the supply of raw materials and
<PAGE>
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
June 30, 1998 2-3
Consolidated Statements of Income - Three months and
six months ended June 30, 1997 and 1998 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1998 5
Consolidated Statements of Comprehensive Income - Three
months and six months ended June 30, 1997 and 1998 6
Consolidated Statement of Stockholders' Equity - Six
months ended June 30, 1998 7
Notes to Consolidated Financial Statements 8-10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11-23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 24
Item 4. Submission of Matters to a Vote of Security Holders. 24
Item 6. Exhibits and Reports on Form 8-K. 24-25
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
December 31, JUNE 30,
ASSETS 1997 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,959 $ 26,808
Accounts and notes receivable 5,544 5,266
Receivable from related parties 2,277 2,003
Prepaid expenses 1,206 540
Total current assets 46,986 34,617
Other assets:
Investment in TIMET 123,521 132,825
Investment in NL Industries 15,737 66,581
Investment in joint ventures 10,509 12,500
Receivable from related parties 4,019 2,589
Other 13,550 20,874
Total other assets 167,336 235,369
Net property and equipment 674 646
<PAGE>
$ 214,996 $ 270,632
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December 31, JUNE 30,
STOCKHOLDERS' EQUITY 1997 1998
<S> <C> <C>
Current liabilities:
Accrued liabilities $ 5,714 $ 4,356
Payable to related parties 62 306
Income taxes 212 69
Total current liabilities 5,988 4,731
Noncurrent liabilities:
Insurance claims and claim 17,000 15,732
expenses
Accrued OPEB cost 21,730 21,658
Deferred income taxes 25,766 29,261
Other 4,978 5,084
Total noncurrent liabilities 69,474 71,735
Minority interest 3,206 3,718
Stockholders' equity:
Common stock 7,690 7,767
Additional paid-in capital 274,736 296,893
Accumulated deficit (103,277) (47,138)
Accumulated other comprehensive
<PAGE>
income:
Currency translation (7,831) (8,601)
Marketable securities 732 885
172,050 249,806
Less treasury stock, at cost 35,722 59,358
Total stockholders' equity 136,328 190,448
$ 214,996 $ 270,632
</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 Six Months
ended ended
June 30, JUNE 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Equity in earnings (loss) of:
TIMET $ 6,151 $ 4,195 $10,928 $ 9,742
NL Industries (390) 3,443 (7,609) 50,260
Other joint ventures 353 158 4,304 1,991
6,114 7,796 7,623 61,993
Corporate income (expense):
Interest income 882 639 1,732 1,248
Other, net 197 (902) (639) (1,593)
Income before income 7,193 7,533 8,716 61,648
taxes
Income tax expense 2,658 1,564 5,606 4,108
Minority interest 94 49 1,083 512
Income before 4,441 5,920 2,027 57,028
extraordinary item
<PAGE>
Equity in extraordinary loss
of NL-
early extinguishment of debt - - - (415)
Net income $ 4,441 $ 5,920 $ 2,027 $56,613
Earnings per share:
Before extraordinary item:
Basic $ .62 $ .88 $ .28 $ 8.47
Diluted $ .58 $ .86 $ .24 $ 8.15
Net income:
Basic $ .62 $ .88 $ .28 $ 8.41
Diluted $ .58 $ .86 $ .24 $ 8.09
Weighted average shares
outstanding:
Common shares 7,125 6,711 7,290 6,730
Diluted shares 7,306 6,855 7,381 6,889
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $2,027 $ 56,613
Earnings of affiliates:
Before extraordinary item (6,602) (61,993)
Distributions - 1,272
Extraordinary item - 415
Deferred income taxes 4,824 3,827
Minority interest 1,083 512
Other, net (1,597) 488
Change in assets and liabilities:
Accounts with related parties 855 547
Other, net (43) (224)
Net cash provided by operating 547 1,457
activities
Cash flows from investing activities:
Disposition of oil and gas production 1,206 -
well interest
Other 26 (6)
Net cash provided (used) by investing 1,232 (6)
activities
<PAGE>
Cash flows from financing activities:
Repurchases of common stock (20,601) (23,636)
Litigation settlement, net - 18,976
Letters of credit cash collateralized - (8,487)
Dividends paid - (474)
Other 771 1,019
Net cash used by financing activities (19,830) (12,602)
Net increase (decrease) in cash and cash (18,051) (11,151)
equivalents
Balance at beginning of period 68,035 37,959
Balance at end of period $ 49,984 $ 26,808
Supplemental disclosures - cash paid for $ 184 $ 424
income taxes
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, JUNE 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net income $ 4,441 $ 5,920 $ 2,027 $56,613
Other comprehensive income
(loss):
Foreign currency (2,217) (815) (5,169) (1,184)
translation adjustments
Unrealized gains (losses)
on marketable
securities 380 87 347 235
Allocable income tax 796 255 1,840 332
benefit, net
Other comprehensive (1,041) (473) (2,982) (617)
income (loss)
<PAGE>
Comprehensive income (loss) $ 3,400 $ 5,447 $ (955) $55,996
</TABLE>
<PAGE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 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 77 - 77 942
issued
Other - - - 2,239
Balance at June 7,767 1,392 $7,767 $296,893
30, 1998
<PAGE>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated other
comprehensive income
Total
Accumulated Currency Marketable Treasury Stockholders'
Deficit translation Securities Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at
December
31, 1997 $(103,277) $(7,831) $732 $(35,722) $136,328
Comprehensive 56,613 (770) 153 - 55,996
income
Litigation - - - - 18,976
settlement, net
Dividends (474) - - - (474)
Repurchases of - - - (23,636) (23,636)
common stock
Common stock - - - - 1,019
issued
Other - - - - 2,239
Balance at June
30, 1998 $ (47,138) $(8,601) $885 $(59,358) $190,448
</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 30%-owned Titanium Metals Corporation ("TIMET"), 18%-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 76% of NL's
outstanding common stock (including 18% 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 June 30, 1998 and the consolidated statements of
income, cash flows, comprehensive income and stockholders' equity for the
interim periods ended June 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) 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.
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 9.5 million shares, or 30%, of TIMET's outstanding
common stock. At June 30, 1998, the net carrying amount of the Company's
investment in TIMET was approximately $13.97 per share, while the market price
of TIMET common stock at that date was $22.06 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 June 30, 1998, the net carrying amount of the
Company's investment in NL was approximately $7.35 per share while the market
price of NL common stock at that date was $20.00 per share.
~Joint~Ventures.~~~Investment in joint ventures represents holdings of 75%-
owned TRECO, which is principally comprised of (i) a 12% direct interest in
<PAGE>
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 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 six months of
1998 for $23.6 million ($54.64 per share).
The Company initiated a regular quarterly dividend of seven cents per share
of common stock in June 1998, and in July declared the next regular dividend of
seven cents per common share payable on September 30, 1998 to stockholders of
record as of the close of business on September 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:
<PAGE>
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
provision or benefit is currently required on its equity in NL's earnings or
losses.
Note 5 - Accrued liabilities:
<PAGE>
<TABLE>
<CAPTION>
December JUNE
31, 30,
1997 1998
(In thousands)
<S> <C> <C>
Postretirement benefit cost $1,887 $1,887
Other employee benefits 242 40
Environmental cost 299 310
Legal costs 1,482 1,061
Miscellaneous taxes 134 149
Other 1,670 909
$5,714 $4,356
</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, 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 Six months ended
June 30, June 30,
1997 1998 1997 1998
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
Net income $ 4,441 $ 5,920 $ 2,027 $56,613
Effect of dilutive
securities
of equity investees (210) (49) (278) (906)
Diluted net income $ 4,231 $ 5,871 $ 1,749 $55,707
Denominator:
Average common shares 7,125 6,711 7,290 6,730
outstanding
Average dilutive stock 181 144 91 159
options
Diluted shares 7,306 6,855 7,381 6,889
</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 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
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 second quarter net income of $5.9 million, or $.86 per
diluted share, compared to $4.4 million, or $.58 per diluted share, for the same
quarter in 1997.
The Company's equity in earnings of 30%-owned TIMET was $4.2 million in the
second quarter of 1998 compared to $6.1 million in 1997. TIMET reported second
quarter net income of $13.8 million in 1998 on sales of $191 million, down from
net income of $20.3 million on sales of $181 million for the second quarter of
1997. TIMET's results for the second quarter of 1998 include a restructuring
charge (principally noncash) of $6 million related to the previously reported
closing of its Pomona, CA castings and melting facility. Excluding the
restructuring charge, TIMET's second quarter results approximated those of the
first quarter of 1998.
The Company's equity in earnings of 18%-owned NL Industries, Inc. was $3.4
million in the second quarter of 1998 compared to a loss of $.4 million for the
<PAGE>
same quarter of 1997. NL reported income from continuing operations of $23.4
million in the second quarter of 1998 on sales of $242 million compared to a
loss from continuing operations of $3.4 million on sales of $214 million in the
second quarter of 1997. NL reported second quarter titanium dioxide pigments
("TiO2") sales volumes in 1998 that approximated record second quarter sales
volumes in 1997. NL's second quarter average selling prices for TiO2 were 18%
higher than the second quarter of 1997 and 3% higher than the first quarter of
1998.
The Company's equity in earnings of other joint ventures principally
represents earnings 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 related to the previously
reported settlement of a stockholder derivative lawsuit are reported as a direct
increase in equity and consequently are not a component of net income. See Note
3 to the Consolidated Financial Statements.
~TIMET
~
~
<PAGE>
<TABLE>
~<CAPTION>
Three months Six months
ended ended
June 30, June 30,
1997 1998 Change 1997 1998 Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $181.4 $ 190.8 +5% $348.4 $ 377.9 +8%
Operating income
before
restructuring $ 32.8 $ 29.9 -9% $ 59.4 $ 61.5 +4%
charge
Restructuring - (6.0) - (6.0)
charge
Operating income 32.8 23.9 -27% 59.4 55.5 -7%
Corporate income, 1.4 1.8 2.4 2.9
net
Interest expense .4 .6 1.1 .9
33.8 25.1 -26% 60.7 57.5 -5%
Income tax expense 10.6 8.6 19.0 19.6
Minority interest 2.9 2.7 5.6 5.8
<PAGE>
Net income $ 20.3 $ 13.8 -32% $ 36.1 $ 32.1 -11%
Tremont's equity
in
TIMET's earnings $ 6.2 $ 4.2 -32% $ 10.9 $ 9.7 -11%
</TABLE>
<PAGE>
TIMET's results for the second quarter of 1998 (excluding the $6 million
restructuring charge related to the closing of the Pomona, CA castings and
melting facility) approximated those of the first quarter of 1998, as mill
products shipment volume of 3,900 metric tons and average prices of
approximately $34.50 per kilogram were virtually the same in both periods.
Gross margins were hampered slightly in the second quarter by a less favorable
product mix due to previously-reported order push outs and cancellations by jet
engine market customers and certain production difficulties in the U.S. and U.K.
The lower than expected production rates were the result of problems that began
in the first quarter and continued into part of the second quarter related to
the Swansea, Wales plant, lower sheet production from equipment recently
transferred from Morristown, TN to Toronto, OH, and a temporary press outage in
Witton, England. The issues at Witton and Swansea have been resolved and TIMET
expects sheet production to recover by the fourth quarter.
Second quarter 1998 results fell short of the same quarter in 1997
primarily because of higher expenses related to TIMET's implementation of its
enterprise-wide SAP integrated information and business system and expanded new
product/market development activities. In addition, higher sales volume in the
second quarter of 1998 was offset by a less favorable product mix than in the
comparable 1997 period.
TIMET remains optimistic about the remainder of 1998 and 1999. TIMET's
capital expenditures program for new equipment to meet expected demand should be
substantially complete in early 1999. SAP and "Year 2000" expenditures should
begin to decline in the second half of 1999 as the benefits of SAP should begin
to be realized. While some titanium orders have been delayed or cancelled, as
TIMET's customers are believed to be matching inventory levels with revised
forecasted aircraft production rates, TIMET still expects a record year in terms
<PAGE>
of mill product shipment levels. Firm order backlog at June 30, 1998 was $420
million, approximately 80% of which is for 1998 deliveries.
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 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 in local currencies. Certain
transactions currently denominated in various European currencies are expected
to be denominated in the Euro currency beginning in 1999.
In April 1998, TIMET completed the acquisition of Loterios S.p.A., a
leading Italy-based producer and distributor of titanium pipe and fittings to
the offshore oil and gas drilling and production markets. The cost of the
Loterios acquisition, accounted for by the purchase method, was approximately
$19 million in cash. Additional consideration of up to approximately $7 million
is contingent upon Loterios achieving certain operating targets. The results of
Loterios' operations have been reflected in TIMET's consolidated financial
statements from the date of acquisition; net sales in the second quarter of 1998
approximated $9 million.
In August 1998, TIMET experienced a fire in its Henderson, NV plant's
titanium sponge vacuum distillation process area. No one was injured and
operations are being restored to normal levels. The impact on TIMET's results
is not expected to be material.
Interest expense in the 1998 periods is comparable to the 1997 periods as
substantially all of the additional interest related to higher borrowing levels
<PAGE>
in 1998 was capitalized as part of major capital projects. Dividends on the
Convertible Preferred Securities are reported by TIMET 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.
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, has also (i) 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, and (ii)
is in process of determining and implementing remedial actions. Excluding costs
related to SAP, TIMET expended approximately $1 million on Year 2000 issues
during the first half of 1998 and currently expects to incur an additional $5
million to $6 million during the last half of 1998 and first half of 1999,
principally related to embedded system technology. TIMET has also begun an
evaluation of potential Year 2000 exposures relating to key suppliers and
customers.
~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 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
<PAGE>
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 Six months
ended ended
June 30, June 30,
1997 1998 Change 1997 1998 Change
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $214.4 $241.6 + 13% $418.8 $464.3 + 11%
Operating income $ 16.8 $ 46.7 +$29.9 $ 25.5 $ 86.1 +$60.6
General corporate
items:
Securities .5 4.6 1.2 8.4
earnings, net
Expenses, net (4.9) (3.3) (38.7) (7.5)
Interest (16.5) (15.5) (32.7) (31.9)
expense
(4.1) 32.5 +$36.6 (44.7) 55.1 +$99.8
Income tax expense (.7) 9.1 (1.1) 15.4
(benefit)
Income (loss)
from
continuing (3.4) 23.4 +$26.8 (43.6) 39.7 +$83.3
operations
<PAGE>
Discontinued 5.7 .3 10.1 287.4
operations
Extraordinary item
- - early
extinguishment of - - - (2.4)
debt
Net income (loss) $ 2.3 $ 23.7 +$21.4 $(33.5) $324.7 +$358.2
Tremont's equity in
NL's
net earnings,
including
amortization of
basis
differences $ (.4) $ 3.4 +$ 3.8 $ (7.6) $ 50.2 +$57.8
</TABLE>
<PAGE>
NL's TiO2 operations are conducted by its wholly-owned Kronos, Inc.
subsidiary. Operating income in the second quarter and first half of 1998
increased from the comparable periods in 1997 due to higher average selling
prices and improved production volume. NL expects its second-half 1998
operating income will continue to outpace 1997 operating income, primarily
because of higher average TiO2 selling prices for 1998 compared to 1997.
Average TiO2 selling prices for the second quarter of 1998 were 18% higher
than the second quarter of 1997 and 3% higher than the first quarter of 1998.
Selling prices at the end of the second quarter were 1% higher than the average
for the quarter.
Second quarter sales volume approximated the record second quarter of 1997
with higher sales volume in Europe offsetting lower sales volume in Asia. Sales
volume in the first six months of 1998 was 1% higher than the year-earlier
period. NL anticipates its TiO2 sales volume for full-year 1998 will
approximate volumes for calendar year 1997.
Cost of sales as a percentage of net sales decreased in the second quarter
and first half of 1998 primarily due to higher average selling prices. NL's
selling, general and administrative expenses decreased in the second quarter and
first half of 1998 due to favorable effects of foreign currency translation.
A significant amount of sales are denominated in currencies other than the
U.S. dollar, and fluctuations in the value of the U.S. dollar relative to other
currencies decreased the dollar value of sales for the second quarter and first
half of 1998 by $7 million and $22 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 half of 1998 were lower than
<PAGE>
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."
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 non-North American TiO2 business (the "DuPont Purchase"), and other
conditions customary to transactions of this type.
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.
NL expects the Tioxide Purchase to close by the end of 1998. Upon
completion of the Tioxide Purchase, NL expects to charge to corporate expenses a
$30 million fee for the cancellation of certain chloride-process technology
rights licensed to Tioxide by NL in 1993.
<PAGE>
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 after-tax
proceeds of about $380 million have been used to reduce outstanding indebtedness
by approximately $177 million. Rheox's results are reported as discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
~Tremont~
The Company had cash and cash equivalents of $26.8 million at June 30,
1998. 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 $210 million and $181 million,
respectively, at June 30, 1998. Tremont also has the right to acquire 1.5
million shares of TIMET's common stock from IMI with a June 30, 1998 market
value of $33 million for an aggregate purchase price of $12 million.
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, the
aggregate TIMET and NL dividends received are $.6 million per quarter. Relative
changes in assets and liabilities did not materially impact the Company's cash
flow from operating activities.
<PAGE>
Repurchases of common stock, dividends declared and the settlement of the
previously reported stockholder derivative litigation are described in the Notes
to the Consolidated Financial Statements. During the six-months ended June 30,
1998, the Company cash collateralized certain letters of credit of its wholly-
owned captive insurance company for approximately $8 million. The Company
expects to obtain a bank credit facility to reduce or eliminate the need to cash
collateralize letters of credit.
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 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
<PAGE>
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.
~
TIMET~
Summarized balance sheet and cash flow information reported by TIMET is
presented below.
<PAGE>
<TABLE>
<CAPTION>
December JUNE
31, 30,
1997 1998
(In millions)
<S> <C> <C>
Cash and equivalents $ 69.0 $ 80.3
Other current assets 344.8 373.2
Goodwill and other intangible assets 77.7 84.0
Other noncurrent assets 39.2 43.9
Property and equipment, net 262.4 297.8
$ 793.1 $ 879.2
Current liabilities $ 123.8 $ 148.9
Noncurrent liabilities 52.5 81.6
Minority interest - TIMET-obligated
Convertible Preferred Securities 201.2 201.2
Other minority interest 6.7 8.0
Stockholders' equity 408.9 439.5
$ 793.1 $ 879.2
<PAGE>
Six months ended
June 30,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 53.0 $ 55.3
liabilities
Changes in assets and liabilities (17.7) (4.7)
35.3 50.6
Investing and financing activities:
Capital expenditures (29.7) (47.3)
Business acquisitions (.5) (19.3)
Net borrowings (repayments) (3.7) 27.5
Other, net (4.1) (1.2)
$ (2.7) $ 10.3
Cash paid for:
Interest expense, net of amounts $ .9 $ .9
capitalized
Convertible Preferred Securities 6.7 6.7
dividends
Income taxes 3.6 3.6
</TABLE>
<PAGE>
At June 30, 1998, TIMET had net cash of $45 million ($80 million of cash
and equivalents and $35 million of notes payable and long-term debt). TIMET
also had $202 million of borrowing availability under its U.S. and European
credit lines.
~Operating~activities~. Cash provided by operating activities (before
changes in assets and liabilities) of $55 million for the six months ended June
30, 1998 was comparable to the $53 million provided during the same period in
1997, reflecting the comparable operating results. Changes in assets and
liabilities reflect the timing of purchases, production and sales. Increases in
inventories used $27 million of cash in 1998, principally in the second quarter,
reflecting lower than expected sales levels and the beginning of the build for
the expected higher demand levels in 1999 resulting from long-term customer
agreements. Changes in receivables generated $20 million of cash in 1998,
principally due to net collections in the first quarter resulting from lower
sales compared with the record levels of the fourth quarter of 1997.
~Investing~activities~. Cash used for business acquisitions in 1998
relates to Loterios. TIMET estimates capital expenditures for all of 1998 to be
between $110 million and $120 million, up from $66 million in calendar 1997.
About 55% of capital expenditures during the 1997-1998 period relate to capacity
expansion projects to meet expected volume demands in 1999 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 during
the second half of 1998. Approximately 20% 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 through early 1999, with the first roll-outs accomplished in May 1998
(U.S. Service Centers and Corporate Headquarters) and July 1998 (Henderson, NV
<PAGE>
plant). Certain costs associated with the SAP business process and information
systems project, including training and reengineering, are expensed as incurred.
In July 1998, TIMET completed a series of previously-reported strategic
transactions with Wyman-Gordon Company. The principal components are: (i) TIMET
exchanged certain of its titanium castings assets and $5 million in cash for
Wyman-Gordon's Millbury, MA vacuum arc remelting facility, which produces
titanium ingot; (ii) Wyman-Gordon and TIMET combined their respective titanium
castings businesses into a new joint venture 80% owned by Wyman-Gordon and 20%
by TIMET; and (iii) TIMET and Wyman-Gordon entered into a contract pursuant to
which TIMET will become the principal supplier of titanium material to Wyman-
Gordon until 2008, supplying a substantial portion of Wyman-Gordon's total
titanium requirements. TIMET will account for its interest in the castings
joint venture by the equity method and does not expect to report gain or loss on
the castings business/melting facility exchange. Net sales of TIMET's casting
business approximated $19 million in the first half of 1998.
TIMET has agreed with Special Metals Corporation ("SMC") to purchase up to
$125 million of SMC 6.625% convertible preferred stock (the "SMC Preferred
Stock") in connection with SMC's announced acquisition of the Inco Alloys
International high performance nickel alloys business unit of Inco Limited. The
transactions are expected to close in the third quarter of 1998. 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 would be convertible into SMC common
stock and would be subject to mandatory redemption in 2006. TIMET plans to fund
the SMC investment using the available current liquidity, principally cash and
equivalents and European borrowings to be repatriated to the U.S.
~Financing~activities~. Net borrowings in 1998 included $25 million on
TIMET's principal U.S. bank credit facility, primarily to fund capital
expenditures and the Loterios acquisition.
<PAGE>
The 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 paid its first regular quarterly dividend of four cents per share of
common stock in June 1998, and in July declared the next regular dividend of
four cents payable in September 1998.
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, 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 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, JUNE 30,
1997 1998
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 106.1 $ 355.3
Other current assets 348.4 347.9
Noncurrent securities 17.3 18.7
Investments in joint ventures 172.7 171.2
Other noncurrent assets 42.5 37.0
Property and equipment 411.2 368.8
$ 1,098.2 $ 1,298.9
Current liabilities $ 276.4 $ 429.8
Long-term debt 666.8 338.9
Deferred income taxes 132.8 184.3
Accrued OPEB cost 51.0 44.8
Environmental liabilities 125.5 110.4
Other noncurrent liabilities 67.7 79.3
Minority interest .3 .6
Stockholders' equity (deficit):
Capital and retained earnings (92.8) 242.5
Accumulated other comprehensive loss (129.5) (131.7)
$ 1,098.2 $ 1,298.9
<PAGE>
Six months ended
June 30,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 7.0 $ 61.8
liabilities
Changes in assets and liabilities 7.3 (44.4)
14.3 17.4
Investing and financing activities,
net:
Capital expenditures (15.6) (8.2)
Proceeds from sale of Rheox - 435.1
Other investing activities, net 5.7 6.6
Net borrowings (repayments) (163.6) (86.2)
Other financing activities, net 121.6 (107.0)
$ (37.6) $ 257.7
Cash paid (received) for:
Interest, net of amounts capitalized $ 27.0 $ 20.9
Income taxes, net (2.7) 39.0
</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, improved in the
1998 period 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 both the first half of 1997 and 1998;
however, the cash used in the first half of 1997 was significantly less than the
first half of 1998 due to cash provided from reductions in inventory levels in
the 1997 period.
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. NL used a portion of the net proceeds to repay certain indebtedness,
as described below, and plans to use a portion of the net proceeds to redeem the
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 Discount Notes
indenture.
With a portion of the net proceeds, NL (i) prepaid $118 million of the
Rheox credit facility, (ii) prepaid $42 million of Kronos' share of the LPC
joint venture term loan, (iii) made $15 million of open-market purchases of NL's
13% Senior Secured Discount Notes at prices ranging from $101.25 to $104.56 per
$100 of their principal amounts, including $4 million purchased in July 1998,
and (iv) purchased $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 pro rata tender offer to
Note holders in June 1998.
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
term loan was provided by a first-quarter DM 35 million ($19 million when
<PAGE>
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 arrange
approximately $250 million in bank financing.
At June 30, 1998 NL had cash and cash equivalents aggregating $355 million
(10% held by non-U.S. subsidiaries), including restricted cash equivalents of $6
million. NL's subsidiaries had $75 million available for borrowing at June 30,
1998 under existing non-U.S. credit facilities.
In the second quarter of 1998 NL paid a regular quarterly dividend of $.03
per share to shareholders aggregating $1.5 million. In July 1998 NL's Board of
Directors declared a regular quarterly dividend of $.03 per share to
shareholders of record as of September 16, 1998 to be paid on September 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.
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. 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. During 1997 NL reached a tentative
agreement with the German tax authorities regarding the years 1991 through 1994,
and expects to pay DM 9 million ($5 million at June 30, 1998) during the second
half of 1998 in settlement of certain tax issues. Certain other significant
German tax contingencies remain outstanding for the years 1990 through 1996 and
will continue to be litigated. With respect to these contingencies, NL has
received certain revised tax assessments aggregating DM 119 million ($66 million
<PAGE>
at June 30, 1998), including non-income tax related items and interest, for
years through 1996. NL expects to receive tax assessments for an additional DM
20 million ($11 million at June 30, 1998), including non-income tax related
items and interest, for the years 1991 through 1994. 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 that involved in NL's primary remaining tax
contingency was decided in favor of the taxpayer. The German tax authorities
have appealed that decision to the German Supreme Court; NL believes that the
decision by the German Supreme Court will be rendered within two years and will
become a legal precedent which will likely determine the outcome of NL's primary
dispute with the German tax authorities, which assessments, including non-income
tax related items and interest, aggregate DM 121 million. Although NL believes
that it will ultimately prevail, NL has granted a DM 94 million ($52 million at
June 30, 1998) lien on its Nordenham, Germany TiO2 plant in favor of the City of
Leverkusen, and a DM 5 million ($3 million at June 30, 1998) lien in favor of
the German federal tax authorities.
During 1997 NL received a tax assessment from the Norwegian tax authorities
proposing tax deficiencies of NOK 51 million ($7 million at June 30, 1998)
relating to 1994. NL has appealed this assessment and expects to litigate this
issue. 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 adequately provided 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
<PAGE>
a material adverse effect on NL's consolidated financial position, results of
operations or liquidity.
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 ($133 million at June 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 $165 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
<PAGE>
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. 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 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 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
<PAGE>
Item 1. LEGAL PROCEEDINGS.
Reference is made to the 1997 Annual Report for descriptions of certain
legal proceedings.
In May 1998, the previously-reported settlement in the stockholder
derivative case ~Kahn~v.~Tremont~Corp.,~et~al.,~~No. 12339 was approved by the
Court. Pursuant to the settlement, in June 1998, Valhi transferred $24.3
million to the Company and the Company reimbursed plaintiffs' attorneys $5.3
million for fees and related costs.
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 June 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 June 30, 1998,
attached hereto as Exhibit 99.2
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Tremont held its Annual Meeting of Stockholders on May 5, 1998. The
results of the matter voted upon at that meeting are incorporated by reference
to Item 4 of Tremont's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<PAGE>
10.1* 1996 Amended and Restated Non-Employee Director
Compensation Plan of Titanium Metals Corporation
incorporated by reference to Exhibit 10.1* of a
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 filed by Titanium Metals Corporation
(File No. 0-28538).
10.2 First Amendment to Credit Agreement and Waiver among
Titanium Metals Corporation and various lending
institutions dated as of May 15, 1998 incorporated
by reference to Exhibit 10.2 of a Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998
filed by Titanium Metals Corporation (File No. 0-
28538).
10.3 Investment Agreement, dated July 9, 1998, between
Titanium Metals Corporation, TIMET Finance
Management Company and Special Metals Corporation,
incorporated by reference to Exhibit 10.1 of a
Current Report on Form 8-K dated July 9, 1998 filed
by Titanium Metals Corporation (File No. 0-28538).
27.1 Financial Data Schedule for the quarter ended June
30, 1998.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 filed by NL
Industries, Inc. (File No. 1-640).
<PAGE>
99.2 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended June 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 June
30, 1998 and through July 31, 1998:
April 23, 1998 - Reported Items 5 and 7.
May 5, 1998 - Reported Items 5 and 7.
June 10, 1998 - Reported Items 5 and 7.
July 23, 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.
TREMONT CORPORATION
(Registrant)
Date: August 12, By /s/ J. Thomas Montgomery, Jr.
1998 J. Thomas Montgomery, Jr.
Vice President - Controller and Treasurer
<PAGE> (Principal Finance and Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREMONT
CORPORATION'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 26,808
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 34,617
<PP&E> 1,400
<DEPRECIATION> 754
<TOTAL-ASSETS> 270,632
<CURRENT-LIABILITIES> 4,731
<BONDS> 0
0
0
<COMMON> 7,767
<OTHER-SE> 182,681
<TOTAL-LIABILITY-AND-EQUITY> 270,632
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 61,648
<INCOME-TAX> 4,108
<INCOME-CONTINUING> 57,028
<DISCONTINUED> 0
<EXTRAORDINARY> (415)
<CHANGES> 0
<NET-INCOME> 56,613
<EPS-PRIMARY> 8.41
<EPS-DILUTED> 8.09
</TABLE>
Exhibit 99.1
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 filed by NL Industries, Inc. (File No. 1-640)
Reference is made to NL's 1997 Annual Report and NL's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 for descriptions of certain
previously-reported legal proceedings.
~Brenner,~et~al.~v.~American~Cyanamid,~et~al.~(No.~12596-93).~In June
1998 defendants moved for partial summary judgment dismissing plaintiffs' market
share and alternative liability claims.
~Parker~v.~NL~Industries,~et~al.~(No.~97085060~CC915).~In July 1998 the
Court granted NL's motion for summary judgment on all remaining claims.
Plaintiffs have appealed.
~Granite~City~Site.~NL has been informed that the U.S. EPA has reached
an agreement in principle with the other PRPs settling their liabilities with
respect to the site for approximately 50% of the site costs. NL is negotiating
with the U.S. EPA to settle its liability.
~Pedricktown~Site.~~In June 1998 NL entered into a consent decree with
the U.S. EPA and other PRPs to perform the remedial action phase at operable
unit one. In addition, NL reached an agreement in principle with certain PRPs
with respect to NL's liability at the site to settle this matter within
previously-accrued amounts.
~State~of~Illinois~v.~NL~Industries,~et~al.~(No.~88-CH-11618).~In June
1998 the Illinois appellate court affirmed the ruling of the trial court
dismissing the case. The State has petitioned the Supreme Court of Illinois to
review the case.
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~United~States~v.~Peter~Gull~and~NL~Industries,~Inc.~(No.~91-4098).~In
June 1998 NL concluded the previously-reported agreement settling this matter
within previously-accrued amounts.
~Seinfeld~v.~Simmons,~et~al.~(No.~C-336-96).~In May 1998 the previously-
reported settlement was approved by the Court. In June 1998, pursuant to the
settlement, Valhi transferred $14.4 million to NL and NL has agreed to reimburse
plaintiffs' attorneys $3.2 million for fees and expenses.
~DeLeon~v.~Exide~Corp.~and~NL~Industries,~Inc.~(No.~DV98-02669-B).~In
May 1998 NL answered the complaint, denying liability.
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Exhibit 99.2
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended June 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.
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