SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended March 31, 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 April 30, 1998: 6,744,158
<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 in
the portions referenced above and those described from time to time in the
Company's other filings with the Securities and Exchange Commission, such as the
cyclicality of 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 and the supply of raw materials and
services.
<PAGE>
TREMONT CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1997 and
March 31, 1998 2-3
Consolidated Statements of Operations - Three months
ended March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 1997 and 1998 5
Consolidated Statements of Comprehensive Income - Three
months ended March 31, 1997 and 1998 6
Consolidated Statement of Stockholders' Equity - Three
months ended March 31, 1998 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11-22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K. 23
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
December MARCH 31,
ASSETS 31, 1998
1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,959 $ 37,996
Accounts and notes receivable 5,544 5,691
Receivable from related parties 2,277 1,615
Prepaid expenses 1,206 1,281
Total current assets 46,986 46,583
Other assets:
Investment in TIMET 123,521 129,137
Investment in NL Industries 15,737 61,838
Investment in joint ventures 10,509 12,343
Receivable from related parties 4,019 3,845
Other 13,550 12,688
Total other assets 167,336 219,851
Net property and equipment 674 653
<PAGE>
$214,996 $267,087
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December MARCH 31,
STOCKHOLDERS' EQUITY 31, 1998
1997
<S> <C> <C>
Current liabilities:
Accrued liabilities $ 5,714 $ 5,515
Payable to related parties 62 187
Income taxes 212 262
Total current liabilities 5,988 5,964
Noncurrent liabilities:
Insurance claims and claim
expenses 17,000 16,809
Accrued OPEB cost 21,730 21,954
Deferred income taxes 25,766 28,057
Other 4,978 5,032
Total noncurrent liabilities 69,474 71,852
Minority interest 3,206 3,669
Stockholders' equity:
Common stock 7,690 7,735
Additional paid-in capital 274,736 275,250
Accumulated deficit (103,277) (52,584)
<PAGE>
Accumulated other comprehensive
income:
Currency translation (7,831) (8,071)
Marketable securities 732 828
172,050 223,158
Less treasury stock, at cost 35,722 37,556
Total stockholders' equity 136,328 185,602
$214,996 $267,087
</TABLE>
<PAGE>
[FN] Commitments and contingencies (Notes 1 and 2).
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 1997 and 1998
(In thousands, except per share data)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ 4,777 $ 5,547
NL Industries (7,219) 46,817
Other joint ventures 3,951 1,833
1,509 54,197
Corporate income (expense):
Interest income 753 512
Other, net (739) (594)
Income before income taxes 1,523 54,115
Income tax expense 2,948 2,544
Minority interest 989 463
Income (loss) before extraordinary item (2,414) 51,108
Equity in extraordinary loss of NL-
early extinguishment of debt - (415)
Net income (loss) $ (2,414) $50,693
Earnings (loss) per share:
<PAGE>
Before extraordinary item:
Basic $ (.32) $7.57
Diluted $ (.33) $7.28
Net income (loss):
Basic $ (.32) $7.51
Diluted $ (.33) $7.22
Weighted average shares outstanding:
Common shares 7,455 6,748
Diluted shares 7,455 6,922
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $(2,414) $ 50,693
Earnings of affiliates:
Before extraordinary item (1,520) (54,197)
Distributions 1,041 619
Extraordinary item - 415
Deferred income taxes 2,543 2,370
Minority interest 989 463
Other, net 101 243
Change in assets and liabilities:
Accounts with related parties 1,060 305
Other, net (983) (251)
Net cash provided by operating
activities 817 660
Cash flows from investing activities,
principally long-term deposits
securing letters of credit 71 702
Cash flows from financing activities:
Repurchases of common stock (8,410) (1,834)
Other 526 509
<PAGE>
Net cash used by financing activities (7,884) (1,325)
Net increase (decrease) in cash and cash
equivalents (6,996) 37
Balance at beginning of period 68,035 37,959
Balance at end of period $61,039 $37,996
Supplemental disclosures - cash paid for:
Interest $ - $ -
Income taxes 174 127
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net income (loss) $ (2,414) $ 50,693
Other comprehensive income (loss):
Foreign currency translation
adjustments (2,952) (369)
Unrealized gains (losses) on
marketable securities arising
during the period (33) 148
(2,985) (221)
Allocable income tax benefit, net 1,044 77
Other comprehensive income (loss) (1,941) (144)
Comprehensive income (loss) $ (4,355) $ 50,549
</TABLE>
<PAGE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Shares Treasury Common Additional
Issued Shares stock paid-in
capital
<S> <C> <C> <C> <C>
Balance at 7,690 960 $7,690 $274,736
December 31, 1997
Comprehensive - - - -
income
Repurchases of - 32 - -
common stock
Common stock 45 - 45 464
issued
Other - - - 50
Balance at March 7,735 992 $7,735 $275,250
31, 1998
<PAGE>
</TABLE>
<PAGE>
<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
December 31, 1997 $(103,277) $(7,831) $732 $(35,722) $136,328
Comprehensive 50,693 (240) 96 - 50,549
income
Repurchases of - - - (1,834) (1,834)
common stock
Common stock - - - - 509
issued
Other - - - - 50
Balance at March
31, 1998 $(52,584) $(8,071) $828 $(37,556) $185,602
<PAGE>
</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. Contran
Corporation and other entities related to Harold C. Simmons hold (i)
approximately 50% 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 Contran, 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 March 31, 1998 and the consolidated statements of
operations, cash flows, comprehensive income and stockholders' equity for the
interim periods ended March 31, 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 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 March 31, 1998, the net carrying amount of the Company's
investment in TIMET was approximately $13.58 per share, while the market price
of TIMET common stock was $27.13 per share. Tremont also holds an option,
acquired from IMI plc in 1996 and expiring in February 1999, to acquire 1.5
million shares of TIMET common stock from IMI for an aggregate purchase price of
$12 million ($7.95 per TIMET share).
~ NL~Industries.~~~Tremont holds 9.1 million shares, or 18%, of NL's
outstanding common stock. At March 31, 1998, the net carrying amount of the
Company's investment in NL was approximately $6.82 per share while the market
price of NL common stock was $17.44 per share.
In May 1998, the court in the previously reported shareholder derivative
suit, ~Kahn~v.~Tremont~Corp.,~et.~al.~, approved a settlement entered into
<PAGE>
between Tremont and Valhi Inc. (a majority-owned Contran subsidiary). The
settlement will become final if no appeals are filed. Under the approved
settlement, Valhi agreed to transfer to Tremont 1.2 million shares of NL common
stock, subject to adjustment depending upon the average sales price of the
shares during a fifteen trading day period ending five trading days prior to the
transfer, up to a maximum of 1.4 million shares and down to a minimum of 1
million shares. Valhi has the option, in lieu of transferring the shares, of
transferring cash or cash equivalents equal to the product of the number of
shares that would otherwise have been transferred to Tremont and the average
price. The transfer of shares or cash is expected to occur in the second
quarter of 1998. Pursuant to the approved settlement, Tremont would reimburse
plaintiffs for attorneys' fees of up to $5 million and related costs. Fair
value of the consideration received in the settlement, net of plaintiffs
attorneys' fees and related costs, will be accounted for as an equity
contribution from an affiliated company.~
~
~ 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
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 818,700 shares for $33.9 million (average price $41.43) pursuant to this
<PAGE>
program, including 31,600 shares repurchased during the first quarter of 1998
for $1.8 million ($58.00 per share).
In May 1998, the Company resumed a regular quarterly dividend by declaring
a dividend of seven cents ($.07) per share of common stock, payable on June 30,
1998 to stockholders of record as of the close of business on June 15, 1998.
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
provision or benefit is currently required on its equity in NL's earnings or
losses.
Note 5 - Accrued liabilities:
<PAGE>
<TABLE>
<CAPTION>
December
31, MARCH 31,
1997 1998
(In thousands)
<S> <C> <C>
Postretirement benefit cost $1,887 $1,887
Other employee benefits 242 29
Environmental cost 299 304
Legal costs 1,482 1,406
Miscellaneous taxes 134 141
Other 1,670 1,748
$5,714 $5,515
</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 approximated
178,000 shares in the 1997 period and were nil in the 1998 period.
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1998
(in thousands)
<S> <C> <C>
Numerator:
Net income (loss) $ (2,414) $ 50,693
Effect of dilutive securities of equity
investees (68) (736)
Diluted net income (loss) $ (2,482) $ 49,957
Denominator:
Average common shares outstanding 7,455 6,748
Average dilutive stock options - 174
Diluted shares 7,455 6,922
</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
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 first quarter net income of $50.7 million, or $7.22
per diluted share, compared to a loss of $2.4 million, or $.33 per diluted
share, for the same quarter in 1997.
The Company's equity in earnings of 30%-owned TIMET was $5.5 million in the
first quarter of 1998 compared to $4.8 million in 1997. TIMET reported first
quarter net income of $18.3 million in 1998 on sales of $187 million, up from
net income of $15.8 million on sales of $167 million for the first quarter of
1997. The improvement in TIMET's earnings compared to the first quarter of 1997
was primarily due to higher titanium mill product volume.
The Company's equity in earnings (before extraordinary item) of 18%-owned
NL Industries, Inc. was $46.8 million in the first quarter of 1998,
approximately 95% of which related to the Company's equity in NL's $285 million
after-tax gain on the sale of its Rheox specialty chemicals operations. In the
first quarter of 1997, the Company's equity in NL was a loss of $7.2 million,
<PAGE>
including it's equity in NL's $30 million non-cash charge related to
environmental liabilities.
NL reported income from continuing operations of $16.3 million in the first
quarter of 1998 on sales of $223 million compared to a loss from continuing
operations of $40.2 million (including the $30 million environmental charge) on
sales of $204 million in the first quarter of 1997. NL reported record first
quarter titanium dioxide pigments ("TiO2") sales volumes in 1998. NL's first
quarter average selling prices for TiO2 were 5% higher than the fourth quarter
of 1997 and 17% higher than the first quarter of 1997.
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 or benefit is currently required on its equity in NL's earnings or
losses.
~TIMET
~
~
<PAGE>
<TABLE>
~<CAPTION>
Three months ended
March 31,
1997 1998 Change
<S> <C> <C> <C>
Net sales $ 167.0 $ 187.1 +12%
Operating income $ 26.5 $ 31.6 +19%
Corporate income, net 1.0 1.2
Interest expense .6 .4
26.9 32.4 +20%
Income tax expense 8.3 11.0
Minority interest 2.8 3.1
Net income $ 15.8 $ 18.3 +16%
Tremont's equity in Timet's $ 4.8 $ 5.5 +16%
earnings
</TABLE>
<PAGE>
TIMET's improvement in earnings for the first quarter of 1998 over the same
period in 1997 was primarily due to volume increases. Titanium mill product
shipments in the 1998 period were 3,900 metric tons compared to 3,400 metric
tons in the 1997 period.
Mill product shipments in the first quarter of 1998 declined 13% from the
record fourth quarter 1997 level of 4,500 metric tons. About half of this
decline in shipments was expected by TIMET due to the high level of sales from
inventory in the fourth quarter. The balance of the decline was due to
shortfalls in shipments, primarily from operations in the United Kingdom. TIMET
is implementing two substantial capital projects in the U.K. and production
could not keep up with demand amidst this capital construction. These projects
should be completed during the second and third quarters of 1998. The average
price of titanium mill product shipments in the first quarter of 1998 was
approximately $34.50 per kilogram as prices were comparable to fourth quarter
1997 levels. Mill product pricing is generally flattening, as expected, in part
due to the stabilizing influence of TIMET's long-term agreement with The Boeing
Company.
Demand for titanium remains strong as airline profitability continues at
record levels and the order backlog for new aircraft as well as new orders are
strong. Airline production rates are increasing, although at somewhat lower
rates than earlier industry forecasts indicated. This has resulted in some
titanium orders being delayed or cancelled as customers are believed to be
matching inventory levels with the revised forecasted aircraft production rates.
While these delays and cancellations will have some negative impact on shipments
for the balance of the year, TIMET still expects a record year in terms of mill
product shipment levels and profitability. Firm order backlog at the end of
March 1998 approximated $500 million.
<PAGE>
Selling, administrative and development expenses are higher than in the
same period in 1997, and are comparable to fourth quarter 1997 levels, as TIMET
continues to invest in both the development of new markets and new enterprise-
wide information systems/information technology.
In April 1998, TIMET completed its acquisition of Loterios S.p.A., one of
Italy's largest producers and distributors of titanium products. With 1997
sales of approximately $22 million, Loterios is one of the premier producers and
suppliers of titanium pipe and fittings to the offshore oil and gas drilling and
production markets and is the leading supplier of these products in the North
Sea market.
TIMET has substantial operations and assets located in Europe, principally
the U.K. The U.S. dollar value of foreign sales and operating costs are subject
to currency exchange rate fluctuations which can impact reported earnings and
may affect the comparability of period-to-period operating results.
Approximately one-half of TIMET's European sales are denominated in currencies
other than the U.S. dollar, principally major European currencies. Certain
purchases of raw materials 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.
Interest expense in the 1998 period is net of capitalized interest of $.6
million. 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 varying
income tax rates. As a result, the geographical mix of pretax income can impact
its effective income tax rate. For financial reporting purposes, TIMET has
previously recognized substantially all of its carryforwards, and, accordingly,
its effective income tax rate in 1998 is higher than in 1997.
<PAGE>
~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
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
ended
March 31,
1997 1998 Change
<S> <C> <C> <C>
Net sales $204.4 $222.6 +9%
Operating income $ 8.7 $ 39.4 +$30.7
General corporate items:
Securities earnings, net .6 3.8
Expenses, net (33.7) (4.2)
Interest expense (16.2) (16.4)
(40.6) 22.6 +$63.2
Income tax expense (benefit) (.4) 6.3
Income (loss) from continuing (40.2) 16.3 +$56.5
operations
Discontinued operations 4.5 287.0
Extraordinary item - early
extinguishment of debt - (2.3)
Net income (loss) $(35.7) $301.0 +$336.7
<PAGE>
Tremont's equity in NL's net earnings,
including $ (7.2) $ 46.4 +$53.6
amortization of basis differences
</TABLE>
<PAGE>
NL's TiO2 operations are conducted by its wholly-owned Kronos, Inc.
subsidiary. Operating income in the first quarter of 1998 increased from the
first quarter of 1997 on higher average selling prices and improved production
and sales volumes. NL expects its full-year 1998 operating income will exceed
that of 1997, primarily because of higher average TiO2 prices for 1998 compared
to 1997.
Average TiO2 selling prices for the first quarter of 1998 were 17% higher
than the first quarter of 1997 and 5% higher than the fourth quarter of 1997.
NL expects TiO2 prices will increase during the remainder of 1998.
First quarter sales volume was 2% higher than the first quarter of 1997 as
increased sales volume in Europe more than offset lower sales volume in other
regions. 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 first quarter
of 1998 primarily due to higher average selling prices while selling, general
and administrative expenses decreased in the first quarter of 1998 due to
favorable effects of foreign currency translation, partially offset by higher
distribution expenses associated with higher first-quarter 1998 sales volume.
A significant amount of sales are denominated in currencies other than the
U.S. dollar, and fluctuations in the value of the U.S. dollar relative to other
currencies decreased the dollar value of sales for the first quarter of 1998 by
$15 million compared to the first quarter of 1997.
Securities earnings increased due to higher average balances available for
investment. Corporate expenses, net in the first quarter of 1998 was lower than
the comparable period in 1997 due to the $30 million noncash charge taken in the
<PAGE>
first quarter of 1997 related to NL's adoption of SOP No. 96-1, "Environmental
Remediation Liabilities."
NL sold the net assets of its Rheox specialty chemicals business in the
first quarter of 1998 to Elementis plc for $465 million cash (before fees and
expenses), 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 on disposal, included in discontinued operations, of $285 million on the
sale, and will recognize the income associated with the $20 million noncompete
agreement proceeds as a component of general corporate income ratably over the
five-year term of the agreement. In addition to the gain, discontinued
operations include the after-tax income of the operations of Rheox's specialty
chemical business through the date of the sale. The effective income tax rate
related to the gain on disposal is lower than the U.S. federal statutory income
tax rate of 35% principally due to the utilization of certain tax attributes for
which the benefit had not been previously recognized.
NL prepaid certain of its indebtedness with a portion of the proceeds of
the Rheox sale. NL recognized a $2.3 million after-tax extraordinary loss
associated with the prepayment of such indebtedness, due to the write-off of
deferred financing costs of $1.6 million (net of tax benefit of $.9 million)
related to the prepaid indebtedness and the payment of market premiums on $11
million accreted value of NL's 13% Senior Secured Discount Notes purchased in
open market transactions.
LIQUIDITY AND CAPITAL RESOURCES
~Tremont~
The Company had cash and cash equivalents of $38 million at March 31, 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 $258 million and $158 million,
<PAGE>
respectively, at March 31, 1998. Tremont also has the right to acquire 1.5
million shares of TIMET's common stock from IMI with a March 31, 1998 market
value of $41 million for an aggregate purchase price of $12 million. See also
Note 2 to the Consolidated Financial Statements and Part II, Item 1 - "Legal
Proceedings" regarding additional NL shares to be acquired pursuant to
settlement of certain litigation.
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. In May 1998, NL announced the
resumption of a regular quarterly dividend by declaring a dividend of $.03 per
share of its common stock, payable in June 1998. Relative changes in assets and
liabilities did not materially impact the Company's cash flow from operating
activities.
During the three months ended March 31, 1998, the Company repurchased
31,600 shares of its common stock for approximately $1.8 million and in May
declared a cash dividend of $.07 per share payable in June 1998. See Note 3 to
the Consolidated Financial Statements.
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
<PAGE>
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
the IMI titanium business, 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 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.
~
TIMET~
Summarized balance sheet and cash flow information reported by TIMET is
presented below.
<PAGE>
<TABLE>
<CAPTION>
December
31, MARCH 31,
1997 1998
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 69.0 $ 117.4
Other current assets 344.8 338.7
Goodwill and other intangible assets 77.7 75.8
Other noncurrent assets 39.2 41.6
Property and equipment, net 262.4 278.7
$ 793.1 $ 852.2
Current liabilities $ 123.8 $ 121.1
Noncurrent liabilities 52.5 94.3
Minority interest - TIMET-obligated
Convertible Preferred Securities 201.2 201.2
Other minority interest 6.7 7.6
Stockholders' equity 408.9 428.0
$ 793.1 $ 852.2
<PAGE>
Three months ended
March 31,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 22.9 $ 27.4
liabilities
Changes in assets and liabilities (18.1) 7.4
4.8 34.8
Investing and financing activities:
Capital expenditures (10.1) (25.2)
Net borrowings (repayments) (2.4) 38.2
Other, net (.5) .8
$ (8.2) $ 48.6
Cash paid for:
Interest expense, net of amounts $ .4 $ .4
capitalized
Convertible Preferred Securities
dividends 3.3 3.3
Income taxes .3 1.7
</TABLE>
<PAGE>
At March 31, 1998, TIMET had net cash of $74 million ($117 million of cash
and equivalents and $43 million of notes payable and long-term debt). TIMET also
had $190 million of borrowing availability under its U.S. and European bank
credit lines.
~Operating~activities~. Cash provided by operating activities (before
changes in assets and liabilities) was approximately $27 million for the first
quarter of 1998 compared to $23 million for the same period in 1997 reflecting
TIMET's improved operating results. Changes in assets and liabilities, which
are impacted by relative changes in levels of purchases, production and sales,
generated $7 million of cash in the first quarter of 1998 compared to using $18
million of cash in the 1997 period. A principal reason for the relative change
in working capital was due to net collections of accounts receivable in the
first quarter of 1998 resulting from lower sales compared to the record levels
of the fourth quarter of 1997.
~Investing~activities~. TIMET estimates capital expeditures 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 two-year period
relate to capacity expansion projects to meet expected volume demands in 1999
that are also expected to improve cycle times and yields, and increase
efficiency. The majority of these significant projects in both the U.S. and
Europe will begin to come on line during the last half of 1998. Approximately
20% of the two-year capital spending total relates to the major information
systems/information technology (SAP) project being implemented throughout TIMET.
The SAP system will be implemented in stages from May 1998 through early 1999.
Certain costs associated with the SAP business process/information systems
project, including training and reengineering, are expensed as incurred.
<PAGE>
~Financing~activities~. Near the end of the first quarter of 1998, TIMET
drew $40 million on its principal credit facility to fund the April 1998
Loterios acquisition, to replenish cash reserves expended on capital projects
and for other general corporate purposes. In April 1998, TIMET obtained a new
three-year, lower cost Pounds15.5 million U.K. credit facility to replace a
similar one-year agreement.
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 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 cash, 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, MARCH 31,
1997 1998
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 106.1 $ 356.8
Other current assets 348.4 345.4
Noncurrent securities 17.3 18.0
Investments in joint ventures 172.7 171.2
Other noncurrent assets 42.5 38.7
Property and equipment 411.2 371.0
$ 1,098.2 $ 1,301.1
Current liabilities $ 276.4 $ 306.5
Long-term debt 666.8 519.1
Deferred income taxes 132.8 141.1
Accrued OPEB cost 51.0 46.3
Environmental liabilities 125.5 124.8
Other noncurrent liabilities 67.7 83.1
Minority interest .3 .3
Stockholders' equity (deficit):
Capital and retained earnings (92.8) 208.5
Accumulated other comprehensive loss (129.5) (128.6)
$ 1,098.2 $ 1,301.1
<PAGE>
Three months ended
March 31,
1997 1998
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 2.0 $ 23.0
liabilities
Changes in assets and liabilities 5.3 (11.1)
7.3 11.9
Investing and financing activities,
net:
Capital expenditures (8.6) (2.4)
Proceeds from sale of Rheox - 435.1
Other investing activities, net 2.2 (.4)
Net borrowings (repayments) (160.2) (68.0)
Other financing activities, net 124.4 (117.3)
$ (34.9) $ 258.9
Cash paid for:
Interest, net of amounts capitalized $ 7.2 $ 4.3
Income taxes, net (4.4) 8.8
</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 change in assets and liabilities, in the 1998
period improved from the comparable period in 1997 due to higher operating
income. Changes in inventories, receivables and payables (excluding the effect
of currency translation) used cash in both the first quarter of 1997 and 1998;
however, the cash used in the first quarter of 1997 was significantly less than
the first quarter of 1998 due to cash provided from reductions in inventory
levels in the 1997 period.
A portion of the $465 million proceeds from the sale of Rheox (net proceeds
of $380 million after current income taxes and other expenses) was used to
prepay $171 million of outstanding indebtedness, as described below. NL plans
to use the balance of the net proceeds to invest in additional TiO2 capacity or
further reduce outstanding indebtedness. NL currently expects to pay income
taxes related to the gain from the sale of Rheox during the remainder of 1998.
With a portion of the net proceeds, NL prepaid the remaining $118 million
of the Rheox credit facility and the remaining $42 million of Kronos' share of
the LPC joint venture term loan in the first quarter of 1998. In addition, NL
made $11 million of open-market purchases of it's 13% Senior Secured Discount
Notes at prices ranging from $101.25 to $102.27 of their principal amounts in
the first quarter of 1998.
In accordance with the provisions of the DM-denominated credit agreement
and as a result of higher than expected operating income in 1997 for Kronos
International, Inc., NL prepaid DM 81 million ($44 million when paid) of the
term loan in March 1998, of which DM 49 million ($27 million when paid) fully
satisfied the September 1998 scheduled term loan payment and the remaining DM 32
million ($17 million when paid) reduced the March 1999 scheduled term loan
<PAGE>
payment. A portion of the funds for such prepayment of the DM term loan was
provided by a DM 35 million ($19 million when borrowed) increase in outstanding
borrowings under NL's short-term non-U.S. credit facilities.
At March 31, 1998 NL had cash and cash equivalents aggregating $357 million
(10% held by non-U.S. subsidiaries), including restricted cash and cash
equivalents of $6 million. NL's subsidiaries had $74 million available for
borrowing at March 31, 1998 under existing non-U.S. credit facilities. On May
6, 1998 NL announced the resumption of a regular quarterly dividend by declaring
a $.03 per share cash dividend to be paid to shareholders of record on June 1,
1998.
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 March 31, 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 ($65 million
at March 31, 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 March 31, 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.
<PAGE>
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
March 31, 1998) lien on its Nordenham, Germany TiO2 plant in favor of the City
of Leverkusen, and a DM 5 million ($3 million at March 31, 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 March 31, 1998)
relating to 1994. NL has appealed this assessment and expects to litigate this
issue.
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
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
<PAGE>
range of its liability at sites where it has been named as a PRP or defendant.
NL believes it has adequate accruals ($134 million at March 31, 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 $175 million. NL's estimates of such liabilities have
not been discounted to present value, and NL has not recognized any potential
insurance recoveries. No assurance can be given that actual costs will not
exceed accrued amounts or the upper end of the range for sites for which
estimates have been made, and no assurance can be given that costs will not be
incurred with respect to sites as to which no estimate presently can be made.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
NL is also a defendant in a number of legal proceedings seeking damages for
personal injury and property damage arising from the sale of lead pigments and
lead-based paints. There is no assurance that NL will not incur future
liability in respect of this pending litigation in view of the inherent
uncertainties involved in court and jury rulings in pending and possible future
cases. However, based on, among other things, the results of such litigation to
date, NL believes that the pending lead pigment and paint litigation is without
merit. NL has not accrued any amounts for such pending litigation. Liability
that may result, if any, cannot be reasonably estimated. In addition, various
legislation and administrative regulations have, from time to time, been enacted
or proposed that seek to impose various obligations on present and former
manufacturers of lead pigment and lead-based paint with respect to asserted
health concerns associated with the use of such products and to effectively
overturn court decisions in which NL and other pigment manufacturers have been
successful. Examples of such proposed legislation include bills which would
permit civil liability for damages on the basis of market share, rather than
<PAGE>
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
Item 1. LEGAL PROCEEDINGS.
Reference is made to the 1997 Annual Report for descriptions of certain
legal proceedings.
In May 1998, the Delaware Court of Chancery approved the previously-
reported settlement in the case of ~Kahn~v.~Tremont~Corp.,~et~al.,~~No. 12339.
The settlement will become final if no appeals are filed.
<PAGE>
Information called for by this item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 - "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended March 31, 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 March 31, 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 only
matter voted upon was the election of directors, all nominees for director were
elected (and there were no directors whose term of office continued after the
Annual Meeting who were not elected at the Annual Meeting). The vote with
respect to each of the Company's directors was as follows:
Director Votes For Votes Withheld
Susan E. Alderton 5,676,143 57,074
Richard J. Boushka 5,680,607 52,610
J. Landis Martin 5,680,878 52,339
Glenn R. Simmons 5,680,665 52,552
Harold C. Simmons 5,680,178 53,039
Gen. Thomas P. 5,681,150 52,067
Stafford
Avy H. Stein 5,676,394 56,823
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<PAGE>
27.1 Financial Data Schedule for the quarter ended March
31, 1998.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended March 31, 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 March 31, 1998 filed by
Titanium Metals Corporation (File No. 0-28538).
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
March 31, 1998 and through May 5, 1998:
January 26, 1998 - Reported Items 5 and 7.
February 6, 1998 - Reported Items 5 and 7.
February 17, 1998 - Reported Items 5 and 7.
March 5, 1998 - Reported Items 5 and 7.
April 23, 1998 - Reported Items 5 and 7.
May 5, 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)
<PAGE>
Date: May 13, 1998 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President - Controller and
Treasurer
(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 three months ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 37,996
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 46,583
<PP&E> 1,395
<DEPRECIATION> 742
<TOTAL-ASSETS> 267,087
<CURRENT-LIABILITIES> 5,964
<BONDS> 0
0
0
<COMMON> 7,735
<OTHER-SE> 177,867
<TOTAL-LIABILITY-AND-EQUITY> 267,087
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,115
<INCOME-TAX> 2,544
<INCOME-CONTINUING> 51,108
<DISCONTINUED> 0
<EXTRAORDINARY> (415)
<CHANGES> 0
<NET-INCOME> 50,693
<EPS-PRIMARY> 7.51
<EPS-DILUTED> 7.22
</TABLE>
Exhibit 99.1
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 filed by NL Industries, Inc. (File No. 1-640)
Reference is made to NL's 1997 Annual Report for descriptions of certain
previously reported legal proceedings.
~Adams~v.~NL~Industries,~Inc.,~et~al.~(No.~A9701785)~. In March 1998 the
plaintiffs dismissed this case without prejudice.
~Batavia,~New~York~Superfund~Site~. In April 1998 the U.S. EPA
indicated that its claim for past costs from the PRPs was approximately $2.4
million.
~ De~Leon~vs.~Exide~Corp.~and~NL~Industries,~Inc.~(No.~DV98-02669-B)~. In
April 1998 NL was served with a complaint on behalf of 47 homeowners and their
spouses seeking damages for alleged loss of property value, repair costs, mental
anguish, environmental monitoring, punitive damages and injunctive relief in
connection with property allegedly contaminated by a secondary lead smelter
formerly owned by NL. The time for defendants to file their answer or other
response to the complaint has not yet expired. NL intends to defend the action
vigorously.
<PAGE>
Exhibit 99.2
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 filed by Titanium Metals Corporation (File No. 0-
28538)
Reference is made to TIMET's 1997 Annual Report for descriptions of
certain previously reported legal proceedings.
In April 1998, the U. S. Environmental Protection Agency filed a civil
action against TIMET (~United~States~of~America~v.~Titanium~Metals~Corporation~;
Civil Action No. CV-S-98-682-HDM (RLH), U. S. District Court, District of
Nevada) alleging that TIMET violated several provisions of the Clean Air Act in
connection with the start-up and operation of certain environmental equipment at
TIMET's Henderson, Nevada facility during the early to mid-1990s. The action
seeks civil penalties in an unspecified total amount at the statutory rate of up
to $25,000 per day of violation ($27,500 per day for violations after January
30, 1997). TIMET believes that it substantially complied with applicable
statutory and regulatory provisions and that the allegations are without merit.
TIMET intends to defend the action vigorously.
<PAGE>
