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, 1999
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, 1999: 6,387,158
<PAGE>
FORWARD-LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
that are not historical facts, including, but not limited to, statements found
in the Notes to Consolidated Financial Statements and under the captions
"Results of Operations" and "Liquidity and Capital Resources" (both contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations), are forward-looking statements that represent management's beliefs
and assumptions based on currently available information. Forward-looking
statements can be identified by the use of words such as "believes," "intends,"
"may," "should," "anticipates," "expected" or comparable terminology or by
discussions of strategies or trends. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
cannot give any assurances that these expectations will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could significantly impact expected results. Actual future results could differ
materially from those described in such forward-looking statements, and the
Company disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in this Quarterly Report,
<PAGE>
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 and changes in product pricing,
the impact of TIMET's long term contracts with customers on its ability to raise
prices and of its long term contracts with vendors on its ability to reduce or
increase supply or achieve lower costs, the possibility of labor disruptions,
control by certain stockholders and possible conflicts of interest, potential
difficulties in integrating acquisitions, uncertainties associated with new
product development and the supply of raw materials and services and the
possibility of disruptions of normal business activities from "Year 2000"
("Y2K") issues. Should one or more of these risks materialize (or the
consequences of such a development worsen), or should one or more of the
underlying assumptions prove incorrect, actual results could differ materially
from those forecasted or expected.
TREMONT CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1998 and
March 31, 1999 2-3
<PAGE>
Consolidated Statements of Income - Three months ended
March 31, 1998 and 1999 4
Consolidated Statements of Comprehensive Income (Loss) - Three
months ended March 31, 1998 and 1999 5
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1999 6
Consolidated Statement of Stockholders' Equity - Three months
ended March 31, 1999 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11-25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K. 26-27
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1998 1999
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,132 $ 3,096
Accounts and notes receivable 3,255 3,340
Refundable income taxes 1,087 1,037
Receivable from related parties 2,157 1,851
Prepaid expenses 1,203 944
Total current assets 10,834 10,268
Other assets:
Investment in TIMET 145,180 157,405
Investment in NL Industries 94,980 92,155
Investment in joint ventures 13,063 13,742
Receivable from related parties 2,212 2,169
Other 21,688 11,821
Total other assets 277,123 277,292
Net property and equipment 633 621
<PAGE>
$ 288,590 $ 288,181
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December 31, March 31,
STOCKHOLDERS' EQUITY 1998 1999
<S> <C> <C>
Current liabilities:
Loan payable to related party $ 5,875 $ 12,150
Accrued liabilities 3,821 3,684
Other payables to related parties 167 553
Total current liabilities 9,863 16,387
Noncurrent liabilities:
Insurance claims and claim expenses 15,812 15,348
Accrued OPEB cost 21,888 21,810
Deferred income taxes 30,995 28,618
Other 5,910 5,953
Total noncurrent liabilities 74,605 71,729
Minority interest 3,968 4,149
Stockholders' equity:
Common stock 7,769 7,779
Additional paid-in capital 290,118 290,190
Accumulated deficit (30,906) (31,031)
Accumulated other comprehensive (7,469) (11,664)
<PAGE>
income
259,512 255,274
Less treasury stock, at cost 59,358 59,358
Total stockholders' equity 200,154 195,916
$ 288,590 $ 288,181
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
[FN] Commitments and contingencies (Note 1).
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998 and 1999
(In thousands, except per share data)
<PAGE>
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ 5,547 $(1,194)
NL Industries 46,817 1,804
Other joint ventures 1,833 679
54,197 1,289
Corporate income (expense):
Interest income 609 150
Other, net (691) (1,004)
Income before income taxes 54,115 435
Income tax expense (benefit) 2,544 (68)
Minority interest 463 181
Income before extraordinary item 51,108 322
Equity in extraordinary loss of NL-
early extinguishment of debt (415) -
Net income $50,693 $322
Earnings per share:
<PAGE>
Before extraordinary item:
Basic $ 7.57 $ .05
Diluted $ 7.28 $ .05
Net income:
Basic $ 7.51 $ .05
Diluted $ 7.22 $ .05
Weighted average shares outstanding:
Common shares 6,748 6,381
Diluted shares 6,922 6,471
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, 1998 and 1999
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Net income $50,693 $322
Other comprehensive income (loss), net of taxes:
Currency translation adjustments (240) (3,995)
Unrealized gains (losses) on marketable
securities 96 (200)
Comprehensive income (loss) $50,549 $(3,873)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1999
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $50,693 $ 322
Earnings of affiliates:
Before extraordinary item (54,197) (1,289)
Extraordinary item 415 -
Distributions 619 1,175
Deferred income taxes 2,370 (118)
Minority interest 463 181
Other, net 243 (66)
Change in assets and liabilities:
Accounts with related parties 305 436
Other, net (251) (467)
Net cash provided by operating activities 660 174
Cash flows from investing activities:
Purchase of TIMET common stock - (15,988)
Other, net 702 -
Net cash provided (used) by investing 702 (15,988)
activities
Cash flows from financing activities:
<PAGE>
Borrowings from related parties - 6,275
Repurchases of common stock (1,834) -
Refund of letters of credit cash collateral - 9,872
Dividends paid - (447)
Other, net 509 78
Net cash provided (used) by financing (1,325) 15,778
activities
Net increase (decrease) in cash and cash 37 (36)
equivalents
Balance at beginning of period 37,959 3,132
Balance at end of period $37,996 $3,096
Supplemental disclosures - cash paid for $ 127 -
income taxes
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1999
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Additional
Shares Treasury Common paid-in Accumulated
Issued Shares stock capital Deficit
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 7,769 1,392 $7,769 $290,118 $ (30,906)
Comprehensive income (loss) - - - - 322
Dividends - - - - (447)
Common stock 10 - 10 68 -
Other - - - 4 -
Balance at March 31, 1999 7,779 1,392 $7,779 $290,190 $(31,031)
</TABLE>
<PAGE>
Accumulated other
comprehensive income
Total
Currency Marketable Pension Treasury Stockholders'
translation Securities liabilities Stock Equity
[S] [C] [C] [C] [C] [C]
Balance at
December 31, 1999 $(6,742) $ 590 $ (1,317) $(59,358) $200,154
Comprehensive income (3,995) (200) - - (3,873)
(loss)
Dividends - - - - (447)
Common stock issued - - - - 78
Other - - - - 4
Balance at
March 31, 1999 $(10,737) $ 390 $ (1,317) $(59,358) $195,916
<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 39%-owned Titanium Metals Corporation ("TIMET"), 20%-owned NL
Industries, Inc. and other joint ventures of 75%-owned TRECO L.L.C. At March
31, 1999, Valhi, Inc. and Tremont, each affiliates of Contran Corporation, held
approximately 58% and 20%, respectively, of NL's outstanding common stock, and
together they may be deemed to control NL. At March 31, 1999, Contran and its
subsidiaries held approximately 92% of Valhi's outstanding common stock, and
Valhi and other entities related to Harold C. Simmons held approximately 53% of
Tremont's outstanding common stock. Mr. Simmons may be deemed to control each
of Contran, Valhi, Tremont, NL and TIMET.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1998 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1999 and the consolidated statements of
income, cash flows, comprehensive income and stockholders' equity for the
interim periods ended March 31, 1998 and 1999 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
<PAGE>
have been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 Annual Report").
For information concerning certain legal proceedings, income tax and other
contingencies related to the Company, TIMET and NL, see (i) Part I, Item 2 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A"), (ii) Part II, Item 1 -- "Legal Proceedings," and (iii) the
1998 Annual Report, including certain information concerning TIMET's and NL's
legal proceedings incorporated therein by reference.
Note 2 - 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. The most recent purchase was made in June 1998.
<PAGE>
Note 3 - Unconsolidated affiliates and joint ventures:
Summarized information relating to the results of operations, financial
position and cash flows of TIMET and NL is included in MD&A, which information
is incorporated herein by reference.
~ TIMET.~~~In February 1999, Tremont exercised an option to acquire 2.0
million shares of TIMET common stock from IMI plc for approximately $16 million
($7.95 per TIMET share). At March 31, 1999, Tremont held 12.3 million shares,
or 39%, of TIMET's outstanding common stock. At March 31, 1999, the net
carrying amount of the Company's interest in TIMET was approximately $12.82 per
share, while the market price of TIMET common stock at that date was $5.75 per
share ($8.44 per share at May 10, 1999).
~ NL~Industries.~~~At March 31, 1999, Tremont held 10.2 million shares of
NL's outstanding common stock. At March 31, 1999, the net carrying amount of
the Company's interest in NL was approximately $9.02 per share while the market
price of NL common stock at that date was $9.00 per share ($12.44 per share at
May 10, 1999).
~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
Management, Inc. ("BMI"), which, among other things, provides utility services
in the industrial park where one of TIMET's plants is located. BMI, through a
wholly-owned subsidiary, owns an additional 50% interest in VVLC.
Note 4 - Income taxes:
Three months ended
<PAGE>
March 31,
1998 1999
(in thousands)
[S] [C] [C]
Expected income tax expense, at 35% $ 18,941 $ 153
Adjustment of deferred tax valuation (16,464) -
allowance
Rate differences on equity in earnings 38 (278)
of affiliates
State income taxes and other, net 29 57
Provision for income taxes (benefit) $ 2,544 $ (68)
The deferred tax valuation allowance adjustment in 1998 relates primarily
to equity in earnings of NL.
Note 5 - Accrued liabilities:
December 31, March 31,
1998 1999
(In thousands)
[S] [C] [C]
OPEB cost $ 1,503 $ 1,503
Other employee benefits 324 341
Environmental cost 307 310
Miscellaneous taxes 135 142
<PAGE>
Other 1,552 1,388
$ 3,821 $ 3,684
Note 6 - Related party transactions:
Receivables from related parties principally include amounts due from NL
and a former affiliate under insurance loss sharing arrangements and amounts due
from TIMET for exercises of Tremont stock options. Current payables to related
parties include amounts due to Contran, NL and TIMET under intercorporate
services arrangements.
During 1998, the Company entered into an advance agreement with Contran
under which both parties may advance funds to each other, at the prime rate less
0.5%. At March 31, 1999, the interest rate was 7.25%. Obligations under this
agreement are payable upon demand. At March 31, 1999, Tremont owed Contran
$12.2 million pursuant to this agreement, which amount was borrowed primarily to
purchase shares of NL and TIMET common stock.
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 antidilutive in the 1999 period. Tremont stock
options omitted from the denominator because they were antidilutive were nil in
the 1998 and 1999 periods.
<PAGE>
Three months ended
March 31,
1998 1999
(in thousands)
[S] [C] [C]
Numerator:
Net income $ 50,693 $ 322
Effect of dilutive securities of equity (736) -
investees
Diluted net income $ 49,957 $ 322
Denominator:
Average common shares outstanding 6,748 6,381
Average dilutive stock options 174 90
Diluted shares 6,922 6,471
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
~RESULTS~OF~OPERATIONS
~
Tremont's operations are conducted through TIMET, NL and TRECO. The
results of TIMET, NL, TRECO, and general corporate and other items are discussed
<PAGE>
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 first quarter net income of $.3 million, or $.05 per
diluted share, compared to $50.7 million, or $7.22 per diluted share, for the
same quarter in 1998. The first quarter 1998 results included the Company's
equity in NL's gain on sale of its specialty chemical business, as discussed
below.
The Company's equity in earnings of 39%-owned TIMET was a loss of $1.2
million in the first quarter of 1999 compared to income of $5.5 million in 1998.
TIMET reported a first quarter net loss of $3.9 million on sales of $134 million
compared to net income of $18.3 million on sales of $187 million for the
comparable 1998 period. TIMET's sales were 28% lower than the first quarter of
last year due principally to a 23% decline in mill products volume due to
reduced demand for both aerospace and industrial products. Average selling
prices in most product lines were lower than in the 1998 period, with changes in
mix resulting in a comparable overall average selling price. The lower volumes
and selling prices contributed significantly to TIMET's lower results. TIMET
reported that it currently expects to report a net loss for the second quarter,
and possibly third quarter, and to return to profitability no later than the
fourth quarter of 1999.
The Company's equity in earnings of 20%-owned NL Industries was $1.8
million in the first quarter of 1999 compared to $46.8 million in 1998.
Approximately $44.6 million, or 95%, of the Company's equity in earnings of NL
for the first quarter of 1998 was related to NL's gain on the sale of its
specialty chemicals operations. NL reported income from continuing operations
<PAGE>
of $13.9 million in the first quarter of 1999 on sales of $202 million compared
to $16.3 million on sales of $223 million in the first quarter of 1998. NL's
first quarter titanium dioxide pigments ("TiO2") sales volume decreased 16% from
the year-earlier period as worldwide demand weakened, particularly in Europe.
In response to this lower demand, NL reduced its production rates to more
closely match its sales volume. NL's first quarter average selling prices for
TiO2 were 5% higher than the first quarter of 1998 and were even with the third
and fourth quarters of 1998.
The Company's equity in earnings of other joint ventures principally
represents earnings from its real estate development partnership.
As discussed above, the Company's major assets are its interests in NL
(TiO2) and TIMET (titanium metals). Tremont periodically evaluates the net
carrying value of its long-term assets, principally its interests in TIMET and
NL, to determine if there has been any decline in value that is other than
temporary and would, therefore, require a writedown which would be accounted for
as a realized loss. The Company's per share net carrying value of its interest
in TIMET at March 31, 1999 was $12.82 per share, compared to a per share market
price of $5.75 at that date. The Company's per share net carrying amount of its
interest in NL at March 31, 1999 was $9.02 per share, compared to a per share
market price of $9.00 at that date. As of May 10, 1999, the market price for
TIMET common stock was $8.44 per share and for NL common stock was $12.44 per
share. The Company believes stock market prices are not necessarily indicative
of a company's enterprise value or the value that could be realized if the
company were sold. After considering what it believes to be all relevant
factors including, among other things, the relatively short period of time that
the market prices have been less than the Company's per share interests, recent
trends in market prices and TIMET's and NL's operating results, financial
position and prospects, the Company concluded that there has been no other than
temporary decline in value of the Company's interests in TIMET and NL below
their net carrying values at March 31, 1999. It is possible, should the TiO2 or
<PAGE>
titanium metals industries in general, or NL or TIMET specifically, encounter a
prolonged downturn, or suffer other unforeseen adverse events, that the value of
the Company's interest in NL, TIMET or both could decline to a level that could
warrant a writedown. The Company will continue to monitor and evaluate its
interests in NL and TIMET based upon, among other things, their respective
results of operations, financial condition, liquidity and business outlook. In
the event Tremont determines that any decline in value of its interests below
their net carrying value has occurred which is other than temporary, it would
report an appropriate writedown at that time.
~TIMET
~
The Company's 39% interest in TIMET is reported by the equity method.
Tremont's equity in earnings of TIMET differs from the amount that would be
expected by applying Tremont's ownership percentage to TIMET'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 TIMET. Amortization of such basis differences generally increases earnings,
and reduces losses, attributable to TIMET as reported by Tremont.
~
<PAGE>
<TABLE>
~<CAPTION>
Three months
ended
March 31,
1998 1999 Change
(In millions)
<S> <C> <C> <C>
Net sales $187.1 $ 134.1 -28.3%
Operating income 31.6 (1.4) -$33.0
Corporate income, net 1.2 .9
Interest expense .4 1.3
32.4 (1.8) -$34.2
Income tax expense (benefit) 11.0 (.6)
Minority interest 3.1 2.7
Net income (loss) $ 18.3 $(3.9) -$22.2
Tremont's equity in TIMET's earnings,
including amortization of basis
differences $ 5.5 $(1.2) -$6.7
<PAGE>
</TABLE>
<PAGE>
~Sales~and~Operating~Income.~TIMET's sales of $134 million in the first
quarter of 1999 were 28% lower than the first quarter of last year due
principally to a 23% decline in mill products volume caused by reduced demand
for both aerospace and industrial products. Average selling prices in most
product lines were lower than in the 1998 period, with changes in mix resulting
in a comparable overall average selling price. Total cost of sales was 91% of
sales in the first quarter 1999 compared to 75% in the same period last year.
The lower volumes and selling prices contributed significantly to the lower
gross profit margin.
Selling, general, and administrative and development expenses declined 1.4
million in 1999 but were higher as a percentage of sales (9.5% vs. 7.6%) as not
all such costs are variable, particularly in the short term. Expenses related
to maintenance of TIMET's business-enterprise system and to addressing Y2K
issues are expected to remain high for the remainder of 1999.
TIMET's firm order backlog at the end of March 1999 was approximately
$325 million. Comparable backlogs at the end of March 1998 and December 1998
were approximately $475 million and $350 million, respectively.
The titanium industry has experienced reduced demand for aerospace and
industrial products due to high levels of inventories reported to be held by
customers, actual and anticipated declines in number of aircraft forecast to be
produced, especially wide-bodied aircraft, and continuing weakness of Asian and
other economies. Assuming demand remains at currently expected levels and does
not decrease or increase significantly during the remainder of 1999, TIMET
currently expects to report a net loss for the second quarter, and possibly the
third quarter, with a return to profitability by the fourth quarter. TIMET's
previously-reported plan of action designed to address current market conditions
is on schedule. The facilities closures and most of the workforce reductions
have been implemented. In addition, TIMET's major capital expenditure program
<PAGE>
has been completed, with all major equipment now in production. The business-
enterprise system is installed, and TIMET is now focusing on using it to help
improve its business processes, although benefits of the new system will likely
be modest in 1999.
~ European~Operations.~~~TIMET has substantial operations and assets located
in Europe, principally the United Kingdom, with smaller operations in France,
Italy and Germany. Titanium is a worldwide market and the factors influencing
TIMET's U.S. and European operations are substantially the same.
Approximately one-half of TIMET's European sales are denominated in
currencies other than the U.S. dollar, principally major European currencies.
Certain purchases of raw materials, principally titanium sponge and alloys, for
TIMET's European operations are denominated in U.S. dollars, while labor and
other production costs are primarily denominated in local currencies. The
functional currencies of TIMET's European subsidiaries are those of their
respective countries; thus, the U.S. dollar value of these subsidiaries' sales
and costs denominated in currencies other than their functional currency,
including sales and costs denominated in U.S. dollars, are subject to exchange
rate fluctuations which may impact reported earnings and may affect the
comparability of period-to-period operating results. Borrowings of TIMET's
European operations may be in U.S. dollars or in functional currencies. TIMET's
export sales from the United States are denominated in U.S. dollars and, as
such, are not subject to currency exchange rate fluctuations.
<PAGE>
The U.S. dollar sales and purchases of TIMET's European operations
described above provide some natural hedge of non-functional currencies, and
TIMET does not use currency contracts to hedge its currency exposures. Net
currency transaction/translation losses were $.8 million during the first
quarter of 1999 and were $.3 million during the first quarter of 1998. At March
31, 1999, consolidated assets and liabilities denominated in currencies other
than functional currencies were approximately $30 million and $27 million,
respectively, consisting primarily of U.S. dollar cash, accounts receivable,
accounts payable and borrowings. Exchange rates among 11 European currencies
(including the French franc, Italian lira and German mark, but excluding the UK
pound sterling) became fixed relative to each other as a result of the new
European currency unit ("euro") effective in 1999. Costs associated with
modifications of systems to handle euro-denominated transactions have not been
significant.
~General~Corporate~Income.~TIMET's general corporate income includes
earnings on corporate cash equivalents and varies with cash levels and interest
rates.
~Interest~Expense.~~~Interest expense in the first quarter of 1999 was
higher than in the comparable 1998 period, primarily reflecting higher borrowing
levels.
~Minority~Interest.~Dividend expense related to TIMET's 6.625% Convertible
Preferred Securities approximated $3.3 million in both the 1999 and 1998 periods
and is reported as minority interest, net of allocable income taxes.
~Income~Taxes.~~~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.
<PAGE>
~Year~2000.~~~Year 2000 issues exist because many computer systems and
applications currently use two-digit fields to designate a year. Date-sensitive
systems may recognize the year 2000 as 1900, or not at all. This inability to
treat the year 2000 properly could cause systems to process critical financial,
manufacturing and operational information incorrectly. Most of TIMET's
information systems have been or are being replaced in connection with the
implementation of its business-enterprise system, the initial implementation of
which has been completed. The cost of the new system, including related
equipment and networks, aggregated approximately $50 million ($41 million
capital and $9 million expense).
TIMET, with the help of outside specialists and consultants, (i) has
substantially completed its assessment of potential Y2K issues in its non-
information systems (e.g., its manufacturing and communications systems), as
well as in those information systems that were not replaced by the new
enterprise-wide system, (ii) is in process of determining, prioritizing and
implementing remedial actions, including testing, and (iii) will develop
contingency plans for any critical items whose Y2K remediation extends beyond
TIMET's June 30, 1999 target date for completion. TIMET's Y2K readiness varies
by location. Some locations have completed their internal Y2K readiness plans,
while others are in the midst of remediation and testing. At this time, most
sites anticipate completing their respective Y2K readiness plans by the June
1999 target date due in part to vendor release schedules. However, remediation
of some items at the Henderson, NV site, and possibly others, could be delayed
beyond the June 1999 target date due in part to vendor release schedules. TIMET
has expended an aggregate of approximately $3 million through March 1999 on
these specific non-information system issues, principally embedded system
technology, and expects to incur approximately an additional $3 million to $4
million on such issues in the remainder of 1999. TIMET's evaluation of
potential Y2K exposure related to key suppliers and customers is also in process
and will continue throughout 1999.
<PAGE>
TIMET believes its key information systems are or will be Y2K ready before
the end of 1999. With respect to the Y2K readiness programs related to certain
of its embedded manufacturing systems or those comparable systems of its
suppliers or customers, TIMET cannot predict whether it will find additional
problems that would result in unplanned upgrades of applications after June 1999
or even December 1999. As a result of these uncertainties, TIMET cannot predict
the impact on its financial condition, results of operations or cash flows
resulting from Y2K failures in information or other systems that TIMET directly
or indirectly relies upon. Should TIMET's Y2K readiness plans not be successful
or be delayed beyond December 1999, the consequences to TIMET could be far-
reaching and material, including an inability to produce titanium metal products
at its manufacturing facilities, which could lead to an indeterminate amount of
lost revenue. Other potential negative consequences could include impeded
communications or power supplies, slower transaction processing and financial
reporting, and potential liability to third parties. Although not anticipated,
the most reasonably likely worst-case scenario of failure by TIMET or any of its
key suppliers or customers to become Y2K ready would result in a short-term
slowdown or cessation of manufacturing operations at one or more of TIMET's
facilities, a short-term inability on the part of TIMET to process orders and
billings in a timely manner and to deliver products to customers.
~NL~Industries~
The Company's 20% interest in NL is reported by the equity method.
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,
1998 1999 Change
(In millions)
<S> <C> <C> <C>
Net sales $222.6 $201.6 - 9.4%
Operating income $ 39.4 $ 31.0 -21.3%
General corporate items:
Securities earnings, net 3.8 1.6
Expenses, net (4.2) (4.2)
Interest expense (16.4) (9.8)
22.6 18.6 -$4.0
Income tax expense 6.3 4.7
Income from continuing operations 16.3 13.9 -$2.4
Discontinued operations 287.0 -
Extraordinary item - early (2.3) -
extinguishment of debt
Net income $301.0 $ 13.9 - $287.1
<PAGE>
Tremont's equity in NL's net earnings,
including amortization of basis $ 46.4 $ 1.8 -$44.6
differences
</TABLE>
<PAGE>
NL's TiO2 operations are conducted by its wholly-owned Kronos, Inc.
subsidiary. Operating income in the first quarter of 1999 decreased from the
first quarter of 1998 due to lower production and sales volumes, partially
offset by higher average selling prices. First quarter sales volume was 16%
lower than the record sales volume in the first quarter of 1998 as worldwide
demand weakened, particularly in Europe. In response to this lower demand, NL
reduced its production rates to more closely match its sales volumes. Average
TiO2 selling prices for the first quarter of 1999 were 5% higher than the first
quarter of 1998 and were even with the third and fourth quarters of 1998. NL
expects its full-year 1999 operating income will be below that of 1998 primarily
because of lower production volumes. NL anticipates its TiO2 sales volume
for full-year 1999 will approximate that of 1998. NL's outlook for TiO2
prices during the remainder of 1999 is uncertain.
Cost of sales as a percentage of net sales increased in the first quarter
of 1999 (72.9% vs. 70.5%) primarily due to lower production volume, partially
offset by higher average selling prices. Selling, general and administrative
expenses decreased in the first quarter of 1999 due to lower distribution
expenses associated with lower first-quarter 1999 sales volume, partially offset
by unfavorable effects of foreign currency translation.
A significant amount of NL's 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 increased the dollar value of sales for the first quarter of
1999 by $4 million compared to the first quarter of 1998. Fluctuations in the
value of the U.S. dollar relative to other currencies similarly impacted NL's
operating expenses and the net impact of currency exchange rate fluctuations on
the operating income comparison was not significant in the first quarter of
1999.
<PAGE>
Securities earnings decreased due to lower average balances available for
investment. Interest expense decreased $6.6 million due to lower levels of
outstanding debt. NL expects its full-year 1999 securities earnings and
interest expense will be lower than 1998, primarily due to lower average
balances available for investment and lower levels of outstanding debt,
respectively.
In the first quarter of 1999, NL reduced its deferred income tax valuation
allowance by $1.9 million primarily as a result of utilization of certain tax
attributes for which the benefit had not been previously recognized under the
"more-likely-than-not" recognition criteria.
NL sold the net assets of its Rheox specialty chemicals business for $465
million cash (before fees and expenses) in January 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.
LIQUIDITY AND CAPITAL RESOURCES
~Tremont~
The Company had cash and cash equivalents of $3.1 million at March 31,
1999. Tremont's 12.3 million shares of TIMET common stock and 10.2 million
shares of NL common stock had a quoted market value of approximately $71 million
and $92 million, respectively, at March 31, 1999 ($104 million and $127 million,
respectively, at May 10, 1999).
The Company's equity in earnings of affiliates are primarily noncash. The
Company received cash distributions from VVLC of $.6 million in the 1998 period
and $.4 million in the 1999 period primarily to cover taxes associated with
<PAGE>
VVLC's income from land sales. TIMET and NL did not pay any cash dividends
during the first quarter of 1998. TIMET instituted a regular quarterly dividend
of $.04 per share of common stock in the second quarter of 1998. NL instituted
a regular quarterly dividend of $.03 per share in the second quarter of 1998,
which was increased to $.035 per common share in the first quarter of 1999.
Based upon the Company's current holdings and the current NL and TIMET dividend
rates, the aggregate TIMET / NL dividends received are $.8 million per quarter.
Payment and amount of dividends in the future are at the discretion of the Board
of Directors of NL and TIMET, respectively. Relative changes in assets and
liabilities did not materially impact the Company's cash flow from operating
activities.
During 1998, the Company entered into an advance agreement with Contran.
At March 31, 1999, the Company owed Contran $12.2 million pursuant to this
agreement, which amount was borrowed primarily to purchase shares of NL and
TIMET common stock. Absent additional purchases of NL and TIMET common stock,
the Company does not currently believe it will need to borrow significant
additional amounts from Contran.
Repurchases of common stock and purchases of additional TIMET shares are
described in Notes 2 and 3, respectively, to the Consolidated Financial
Statements. Tremont's current quarterly dividend rate is $.07 per share.
During 1998, the Company collateralized with cash certain letters of credit
backing insurance policies at its captive insurance subsidiary. In February
1999, NL collateralized a portion of the letters of credit as they related to
its business with the captive, and the Company received $9.7 million in cash
previously pledged to collateralize the letters of credit, which funds were
primarily used in the purchase of TIMET common stock from IMI.
Year 2000. Tremont, as a holding company, does not itself have numerous
applications or systems. The Company (i) has completed an initial assessment of
<PAGE>
potential Y2K issues in its information systems, (ii) is in the process of
determining, prioritizing and implementing remedial actions, including testing,
and (iii) will develop contingency plans for any critical items whose Y2K
remediation extends beyond the Company's July 1999 target date for completion.
The cost for Tremont Y2K readiness is not expected to be material to the
Company. Although not anticipated, the most reasonably likely worst-case
scenario of failure by Tremont or its key service providers to become Y2K ready
would be a short-term inability on the part of Tremont to process banking
transactions. Y2K issues related to NL and TIMET are discussed elsewhere in
MD&A.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt and
equity capital, and estimated future operating cash flows. As a result of this
process, the Company has in the past and may in the future seek to obtain
financing from related entities or third parties, raise additional capital,
modify its dividend policy, restructure ownership interests of subsidiaries and
affiliates, incur, refinance or restructure 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 then-available liquidity, issuing
equity securities or incurring additional indebtedness.
<PAGE>
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 IMI Titanium Acquisition by TIMET
in February 1996, 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 taken the
steps necessary to give itself the benefits of a temporary exemption under the
1940 Act and has sought an order from the Commission that Tremont is primarily
engaged, through TIMET and NL, in a non-investment company business. The
Company believes another exemption may be available to it under the 1940 Act
should the Commission deny Tremont's application for an exemptive order.
~TIMET~-~~Summarized balance sheet and cash flow information.
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(In millions)
<S> <C> <C>
Cash and equivalents $ 15.5 $ 11.5
Other current assets 380.3 353.6
Goodwill and other intangible assets 79.4 76.3
Other noncurrent assets 126.8 125.3
Property and equipment, net 351.2 346.7
$ 953.2 $ 913.4
Current liabilities $ 136.9 $ 108.9
Long-term debt and capital lease 110.0 105.5
obligations
Accrued OPEB cost 24.1 23.9
Other noncurrent liabilities 24.4 27.7
Minority interest - Convertible 201.2 201.2
Preferred Securities
Other minority interest 8.2 8.5
Stockholders' equity 448.4 437.7
$ 953.2 $ 913.4
<PAGE>
Three months ended
March 31,
1998 1999
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 27.4 $ 7.6
liabilities
Changes in assets and liabilities 7.4 1.6
34.8 9.2
Investing and financing activities:
Capital expenditures (25.2) (10.0)
Net borrowings (repayments) 38.2 (4.6)
Dividends - (1.3)
Other, net .8 3.3
$ 48.6 $ (3.4)
Cash paid for:
Interest, net of capitalized $ .4 $ 1.1
interest
Convertible Preferred Securities 3.3 3.3
dividends
Income taxes (refund), net 1.7 (3.1)
</TABLE>
<PAGE>
At March 31, 1999, TIMET had net debt of approximately $90 million
($101 million of notes payable and long-term debt and $11 million of cash and
equivalents). TIMET also had $135 million of borrowing availability under its
U.S. and European credit lines. Available borrowings in the future could
potentially be reduced due to the leverage and interest coverage ratios
contained in TIMET's U.S. credit agreement.
~Operating~Activities~. Cash provided by operating activities was
approximately $9 million for the first quarter of 1999, down from $35 million
for the same period in 1998. Cash provided by operating activities, excluding
changes in assets and liabilities generally followed the decline in operating
results. Depreciation and amortization of $10.6 million in 1999 was $3.1
million higher than in 1998 as a result of TIMET's major 1997-1998 capital
program, including the business-enterprise system.
Changes in assets and liabilities reflect primarily the timing of
purchases, production and sales. TIMET's previously-reported plan of action to
address current market conditions includes reductions in working capital,
particularly inventories and receivables, both of which were reduced during the
first quarter of 1999. Changes in accounts payable and accrued liabilities in
the first quarter of 1999 reflect the effect of payments to suppliers of
titanium sponge and other raw materials for purchases made in late 1998 being
higher than payables at the end of March 1999 for first quarter purchases.
Cash payment of dividends on the $80 million of Special Metals Corporation
6.625% convertible preferred stock held by TIMET has been deferred by SMC for
1999 due to limitations imposed by SMC's bank credit agreement. TIMET currently
expects that SMC will be able to pay the 1999 dividends in arrears by the end of
the first quarter of 2000.
<PAGE>
~Investing~and~Financing~Activities.~TIMET's major capital expenditure
program, which aggregated $180 million in 1997 and 1998, is completed and TIMET
estimates that capital expenditures for calendar 1999 will be less than
$40 million. Net borrowings in the 1998 period included amounts used to fund
the acquisition of Loterios S.p.A. in April 1998. Net repayments in 1999
reflect reductions of outstanding borrowings in both the U.S. and U.K. Other,
net in 1999 consists of proceeds from the sale of an interest in a corporate
aircraft and assets sold as part of TIMET's restructuring activities.
TIMET's Convertible Preferred Securities do not require principal
amortization. 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, in the light of its current outlook, may in the future seek
to raise additional capital, modify its dividend policy, restructure ownership
interests, incur, refinance or restructure indebtedness, repurchase shares of
capital stock, sell assets, or take a combination of such steps or other steps
to increase or manage its liquidity and capital resources. In the normal course
of business, TIMET investigates, evaluates, discusses and engages in
acquisition, joint venture, strategic relationship and other business
combination opportunities in the titanium, specialty metals and related
industries. In the event of any future acquisition or joint venture
opportunities, TIMET may consider using then-available liquidity, issuing equity
securities or incurring additional indebtedness.
~NL~Industries~-~~Summarized balance sheet and cash flow information.
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 163.1 $ 152.5
Other current assets 383.0 377.6
Noncurrent securities 17.6 16.1
Investments in joint ventures 171.2 164.7
Other noncurrent assets 37.9 36.2
Property and equipment 382.2 359.8
$ 1,155.0 $ 1,106.9
Current liabilities $ 310.0 $ 277.2
Long-term debt 292.8 302.2
Deferred income taxes 196.2 189.2
Accrued OPEB cost 41.7 40.7
Environmental liabilities 81.5 69.5
Other noncurrent liabilities 79.9 76.1
Minority interest .6 .6
Stockholders' equity (deficit):
Capital and retained earnings 284.4 296.7
Accumulated other comprehensive loss (132.1) (145.3)
$ 1,155.0 $ 1,106.9
<PAGE>
Three months ended
March 31,
1998 1999
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and $ 23.0 $ 28.2
liabilities
Changes in assets and liabilities (11.1) (25.4)
11.9 2.8
Investing and financing activities,
net:
Capital expenditures (2.4) (7.8)
Proceeds from sale of Rheox 435.1 -
Other investing activities, net 3.6 (7.0)
Net borrowings (repayments) (68.0) (4.3)
Other financing activities, net (117.3) (1.7)
$ 262.9 $ (18.0)
Cash paid for:
Interest, net of amounts capitalized $ 4.3 $ 2.0
Income taxes, net 8.8 5.1
</TABLE>
<PAGE>
The TiO2 industry is cyclical and changes in economic conditions within the
industry significantly impact the earnings and operating cash flows of NL. Cash
flow from operations, before changes in assets and liabilities, in the 1999
period increased from the comparable period in 1998 primarily due to a $6.5
million cash distribution from NL's TiO2 manufacturing joint venture, partially
offset by lower operating income. Changes in NL's inventories, receivables and
payables (excluding the effect of currency translation) used cash in both the
first quarter of 1998 and 1999 primarily due to increases in receivables in each
respective period. Cash provided by operations in 1998 also includes $20
million related to an agreement not to compete in the rheological products
business.
In accordance with the provisions of the DM credit agreement and as a
result of the level of operating income in 1998 for Kronos International, Inc.,
NL prepaid its DM 107 million ($60 million when paid) term loan in full in March
1999, principally by drawing DM 100 million ($56 million when drawn) on its DM
revolving credit facility. The revolver's balance of DM 180 million ($99
million at March 31, 1999) is scheduled to be reduced to DM 105 million in March
2000, with the remaining balance to be repaid in September 2000.
At March 31, 1999, NL had cash and cash equivalents aggregating $135
million ($33 million held by non-U.S. subsidiaries) and an additional $21
million of restricted cash equivalents. NL's subsidiaries had $41 million
available for borrowing at March 31, 1999 under existing non-U.S. credit
facilities.
In the first quarter of 1999, NL paid a regular quarterly dividend of $.035
per share to shareholders aggregating $1.8 million. In May 1999 NL's Board of
Directors declared a regular quarterly dividend of $.035 per share to
shareholders of record as of June 1, 1999 to be paid on June 16, 1999.
<PAGE>
Certain of NL's tax returns in various U.S. and non-U.S. jurisdictions are
being examined and tax authorities have proposed or may propose tax
deficiencies, including non-income tax related items and interest. In the third
quarter of 1998, NL received a DM 14 million ($8.2 million when received) refund
of 1990 German dividend withholding taxes. The German tax authorities were
required to refund such amounts based on a 1998 German Supreme Court decision in
favor of another taxpayer. No further withholding tax refunds are expected.
Certain other significant German tax contingencies aggregating an estimated
DM 188 million ($103 million at March 31, 1999) through 1998 remain outstanding
and are in litigation. One primary issue relates to disputed amounts
aggregating DM 181 million ($100 million at March 31, 1999) for years through
1998. NL has received tax assessments for a substantial portion of these
amounts. No payments of tax or interest deficiencies related to these
assessments are expected until the litigation is resolved. During 1997 a German
tax court proceeding involving a tax issue substantially the same as NL's
primary dispute was decided in favor of the taxpayer. The German tax
authorities appealed that decision to the German Supreme Court, which in
February 1999 rendered its judgment in favor of the taxpayer. NL believes that
the German Supreme Court's judgment should determine the outcome of NL's primary
dispute with the German tax authorities. Based on this recent favorable
judgment, NL has requested that the tax assessments related to this issue be
withdrawn and expects a decision from the German authorities regarding this
request during 1999. NL has granted a DM 94 million ($52 million at March 31,
1999) lien on its Nordenham, Germany TiO2 plant in favor of the City of
Leverkusen related to this tax contingency, and a DM 5 million ($3 million at
March 31, 1999) lien in favor of the German federal tax authorities for other
tax contingencies. If the German tax authorities withdraw their assessments
based on the German Supreme Court's decision, NL expects to request the release
of the DM 94 million lien in favor of the City of Leverkusen.
<PAGE>
On April 1, 1999, the German government enacted certain income tax law
changes that were retroactively effective as of January 1, 1999. Based on these
changes, NL expects its effective cash income tax rate in Germany will increase
beginning in the second quarter of 1999. Through the use of ongoing tax
planning strategies, NL does not expect the income tax law changes to materially
affect its deferred tax liabilities.
During 1997 NL received a tax assessment from the Norwegian tax authorities
proposing tax deficiencies of NOK 51 million ($7 million at March 31, 1999)
relating to 1994. NL has appealed this assessment and has begun litigation
proceedings. During 1998 NL was informed by the Norwegian tax authorities that
additional tax deficiencies of NOK 39 million ($5 million at March 31, 1999)
will likely be proposed for the year 1996. NL intends to vigorously contest
this issue and litigate, if necessary. Although NL believes that it will
ultimately prevail, NL has granted a lien for the 1994 tax assessment on its
Fredrikstad, Norway TiO2 plant in favor of the Norwegian tax authorities and
will be required to grant security on the 1996 assessment when received.
No assurance can be given that these tax matters will be resolved in NL's
favor in view of the inherent uncertainties involved in court proceedings. NL
believes that it has provided adequate accruals for additional taxes and related
interest expense which may ultimately result from all such examinations and
believes that the ultimate disposition of such examinations should not have a
material adverse effect on NL's consolidated financial position, results of
operations or liquidity.
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 ($123 million at March 31, 1999) for
reasonably estimable costs of such matters, but NL's ultimate liability may be
affected by a number of factors, including changes in remedial alternatives and
costs and the allocations of such costs among PRPs. It is not possible to
estimate the range of costs for certain sites. The upper end of the range of
reasonably possible costs to NL for sites for which it is possible to estimate
costs is approximately $160 million. NL's estimates of such liabilities have
not been discounted to present value, and NL has not recognized any potential
insurance recoveries. No assurance can be given that actual costs will not
exceed accrued amounts or the upper end of the range for sites for which
estimates have been made, and no assurance can be given that costs will not be
incurred with respect to sites as to which no estimate presently can be made.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
NL is also a defendant in a number of legal proceedings seeking damages for
personal injury and property damage arising from the sale of lead pigments and
lead-based paints. There is no assurance that NL will not incur future
liability in respect of this pending litigation in view of the inherent
uncertainties involved in court and jury rulings in pending and possible future
cases. However, based on, among other things, the results of such litigation to
date, NL believes that the pending lead pigment and paint litigation is without
merit. NL has not accrued any amounts for such pending litigation. Liability
that may result, if any, cannot be reasonably estimated. In addition, various
legislation and administrative regulations have, from time to time, been enacted
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 is in the process of evaluating and upgrading its computer systems (both
information technology ("IT") systems and non-IT systems involving embedded chip
technology) and software applications (collectively referred to as "systems") to
ensure that the systems function properly beginning January 1, 2000. To achieve
its Y2K compliance plan, NL is utilizing internal and external resources to
identify, correct or reprogram, and test its systems.
NL has conducted an inventory of its IT systems worldwide and is currently
testing the systems and applications that have been corrected or reprogrammed
for Y2K compliance. NL has completed an inventory of its non-IT systems and is
in the process of correcting or replacing date-deficient systems. The
remediation effort is well under way on all critical IT and non-IT systems, and
NL anticipates that remediation of such critical systems will be substantially
complete by June 1999, and that remediation and testing of all remaining systems
will be complete by September 1999. Once systems undergo remediation, they are
tested for Y2K compliance. For critical systems, the testing process usually
involves subjecting the remediated system to a simulated change of date from the
year 1999 to the year 2000 using, in many cases, computer resources. NL uses a
number of packaged software products that have been upgraded to a Y2K compliant
version in the normal course of business. Excluding the cost of these software
upgrades, NL's cost of becoming Y2K compliant is expected to be approximately $2
million, of which about one-half has been spent through March 31, 1999.
NL has identified approximately 30 major computer systems and assessed them
for Y2K compliance. At March 31, 1999, NL believes approximately 80% of such
<PAGE>
systems are Y2K compliant. Each operating unit has responsibility for its own
conversion, in line with overall guidance and oversight provided by a corporate-
level coordinator, and the status of each of the remaining systems will be
specifically tracked and monitored.
As part of its Y2K compliance plan, NL has requested confirmations from its
major domestic and foreign software vendors, hardware vendors, primary suppliers
and major customers, that they are developing and implementing plans to become,
or are, Y2K compliant. Confirmations received to date from NL's software
vendors, hardware vendors, primary suppliers and major customers, indicate that
generally they are in the process of implementing remediation plans to ensure
that their systems are compliant by December 31, 1999. The major software
vendors used by NL have already delivered Y2K compliant software.
Notwithstanding these efforts, the ability of NL to affect the Y2K preparedness
of such vendors, suppliers and customers is limited.
NL is developing a contingency plan to address potential Y2K related
business interruptions that may occur on January 1, 2000, or thereafter. This
plan is expected to be completed in the second quarter of 1999.
Although NL expects its systems to be Y2K compliant before December 31,
1999, it cannot predict the outcome or success of the Y2K compliance programs of
its vendors, suppliers, and customers. NL also cannot predict whether its major
software vendors, who continue to test for Y2K compliance, will find additional
problems that would result in unplanned upgrades of their applications after
December 31, 1999. As a result of these uncertainties, NL cannot predict the
impact on its financial condition or results of operations from noncompliant Y2K
systems that NL directly or indirectly relies upon. Should NL's Y2K compliance
plan not be successful or be delayed beyond January 2000, or should one or more
vendors, suppliers or customers fail to adequately address their Y2K issues, the
consequences to NL could be far-reaching and material, including an inability to
produce TiO2 at its manufacturing facilities, which could lead to an
<PAGE>
indeterminate amount of lost revenue. Other potential negative consequences
could include plant malfunction, impeded communications or power supplies, or
slower transaction processing and financial reporting. Although not
anticipated, the most reasonably likely worst-case scenario of failure by NL or
its key suppliers or customers to become Y2K compliant would be a short-term
slowdown or cessation of manufacturing operations at one or more of NL's
facilities and a short-term inability on the part of NL to process orders and
billings in a timely manner, and to deliver products to customers.
Beginning January 1, 1999, eleven of the fifteen members of the European
Union, including Germany, Belgium, the Netherlands and France, adopted the euro
as their common legal currency. Following the introduction of the euro, the
participating countries' national currencies remain legal tender as
denominations of the euro from January 1, 1999 through January 1, 2002, and the
exchange rates between the euro and such national currency units are fixed.
NL conducts substantial operations in Europe, including a significant
amount of outstanding DM - denominated indebtedness. The functional currency of
NL's German, Belgian, Dutch and French operations will convert to the euro from
their respective national currencies over a two-year period beginning in 1999.
NL has assessed and evaluated the impact of the euro conversion on its business
and made the necessary system conversions. The euro conversion may impact NL's
operations including, among other things, changes in product pricing decisions
necessitated by cross-border price transparencies. Such changes in product
pricing decisions could impact both selling prices and purchasing costs and,
consequently, favorably or unfavorably impact results of operations, financial
condition or liquidity.
NL periodically evaluates its liquidity requirements, alternative uses of
capital, capital needs and availability of resources in view of, among other
things, its debt service and capital expenditure requirements and estimated
future operating cash flows. As a result of this process, NL in the past has
<PAGE>
sought, and in the future may seek, to reduce, refinance, repurchase or
restructure indebtedness, raise additional capital, issue additional securities,
modify its dividend policy, restructure ownership interests, sell interests in
subsidiaries or other assets, or take a combination of such steps or other steps
to manage its liquidity and capital resources. In the normal course of its
business, NL may review opportunities for the acquisition, divestiture, joint
venture or other business combinations in the chemicals or other industries. 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 1998 Annual Report for descriptions of certain
legal proceedings.
Information called for by this item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 - "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
attached hereto as Exhibit 99.1.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Tremont held its Annual Meeting of Stockholders on May 4, 1999. 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:
<PAGE>
Director Vote For Votes
Withheld
Susan E. Alderton 5,372,153 20,172
Richard J. Boushka 5,372,353 19,972
J. Landis Martin 5,370,385 21,940
Glenn R. Simmons 5,369,866 22,459
Harold C. Simmons 5,369,692 22,633
Thomas P. Stafford 5,372,211 20,114
Avy H. Stein 5,371,954 20,371
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Advance Agreement, dated October 5, 1998, by and
between Contran Corporation and the Registrant.
10.2 Intercorporate Services agreement by and between
Contran Corporation and NL, effective as of January
1, 1999, incorporated by reference to Exhibit 10.2
of NL's Quarterly Report on Form 10-Q (File No. 1-
640) for the quarter ended March 31, 1999.
10.3 Intercorporate Services Agreement by and between NL
and the Registrant, effective as of January 1, 1999,
incorporated by reference to Exhibit 10.4 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for
the quarter ended March 31, 1999.
10.4 Intercorporate Services Agreement by and between
<PAGE>
Valhi, Inc. and NL, effective as of January 1, 1999,
incorporated by reference to Exhibit 10.1 of NL's
Quarterly Report on Form 10-Q (File No. 1-640) for
the quarter ended March 31, 1999.
10.5 Intercorporate Services Agreement by and between
Titanium Metals Corporation and NL Industries, Inc.,
effective as of January 1, 1999, incorporated by
reference to exhibit 10.3 of NL's Quarterly Report
on form 10-Q (File No. 1-640) for the quarter ended
March 31, 1999.
10.6 Intercorporate Services Agreement by and between
Titanium Metals Corporation and the Registrant,
effective as of January 1, 1999.
10.7 Intercorporate Services Agreement by and between
Contran Corporation and the Registrant, effective as
of January 1, 1999.
10.8 Intercorporate Services Agreement by and between
Valhi, Inc. and the Registrant, effective as of
January 1, 1999.
27.1 Financial Data Schedule for the quarter ended March
31, 1999.
99.1 Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 filed by NL
Industries, Inc. (File No. 1-640).
<PAGE>
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
March 31, 1999 and through May 10, 1999:
Filing Date Items Reported
January 28, 1999 - 5 and 7
February 10, 1999 - 5 and 7
February 16, 1999 - 5 and 7
April 27, 1999 - 5 and 7
May 4, 1999 - 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: May 12, 1999 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President, Controller and
<PAGE>
Treasurer
(Principal Finance and
Accounting Officer)
<PAGE>
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 1999, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1998, by and between Titanium Metals
Corporation ("TIMET"), a Delaware corporation, and Tremont Corporation
("Tremont"), a Delaware corporation.
W I T N E S S E T H :
WHEREAS, employees and agents of TIMET and affiliates of TIMET, perform
certain management, financial, legal and administrative functions for Tremont;
and
WHEREAS, Tremont does not separately maintain the full internal capability
to perform all necessary management, financial, legal and administrative
functions which Tremont requires; and
WHEREAS, the cost of maintaining the additional personnel and associated
costs necessary to perform the functions provided for by this Agreement would
exceed the fee set forth in Section 3 of this Agreement; and
WHEREAS, the terms of this Agreement are no less favorable to Tremont than
could otherwise be obtained from a third party for comparable services; and
WHEREAS, Tremont desires to continue receiving the management, financial,
legal and administrative services presently provided by TIMET and affiliates of
<PAGE>
TIMET, and TIMET is willing to continue to provide such services under the terms
of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. TIMET Services to be Provided. TIMET agrees to make available to Tremont,
upon request, the following services (the "TIMET Services") to be rendered
by the internal staff of TIMET and affiliates of TIMET:
(a) Consultation and assistance in the development and implementation of
Tremont's corporate business strategies, plans and objectives.
(b) Consultation and assistance in management and conduct of corporate
affairs and corporate governance consistent with the Certificate of
Incorporation and By-Laws of Tremont.
(c) Consultation and assistance in maintenance of financial records and
controls, including preparation and review of periodic financial
statements and reports to be filed with public and regulatory entities
and those required to be prepared for financial institutions or
pursuant to indentures and credit agreements.
(d) Consultation and assistance in cash management and in arranging
financing necessary to implement the business plans of Tremont.
(e) Consultation and assistance in tax management and administration
including; preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning.
(f) Consultation and assistance in legal matters.
<PAGE>
(g) Administration of retiree benefit plans.
(h) Consultation and assistance in environmental regulation and
remediation.
(i) Such other services as reasonably may be requested by Tremont and for
which TIMET has the necessary staffing and resources.
2. Scope of TIMET Services. The parties hereto contemplate that the TIMET
Services rendered in connection with the conduct of Tremont's business will
be on a scale compared to that existing on the date of this Agreement,
adjusted for internal corporate growth or contraction, but not for major
corporate acquisitions or divestitures, and that adjustments may be
required to the terms of this Agreement in the event of such major
corporate acquisitions, divestitures or special projects. Tremont will
continue to bear all other costs required for outside services including,
but not limited to, the outside services of attorneys, auditors, trustees,
consultants, transfer agents and registrars, and it is expressly understood
that TIMET assumes no liability for any expenses or services other than
those stated in Section 1. In addition to the fee paid to TIMET by Tremont
for the TIMET Services provided pursuant to this Agreement, Tremont will
pay to TIMET the amount of out-of-pocket costs incurred by TIMET in
rendering such TIMET Services.
3. Fee for Services. Tremont agrees to pay to TIMET a fee of $52,379
quarterly, commencing as of January 1, 1999, pursuant to this Agreement.
Tremont will reimburse TIMET for the actual amount of Services provided
through an adjustment payment made within three months of the close of each
fiscal year in accordance with Exhibit A attached hereto.
<PAGE>
4. Term. The term of this Agreement shall be from January 1, 1999 to December
31, 1999.
5. Extensions. This Agreement shall be extended on a quarter-to-quarter basis
after the expiration of its original term unless written notification is
given by TIMET or Tremont thirty (30) days in advance of the first day of
each successive quarter or unless it is superseded by a subsequent written
agreement of the parties hereto.
6. Limitation of Liability. In providing TIMET Services hereunder, TIMET
shall each have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither TIMET nor any officer, director,
employee or agent of TIMET or its respective affiliates shall be liable to
the other party hereunder for any error of judgment or mistake of law or
for any loss incurred by such party in connection with the matter to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of TIMET.
7. Indemnification. Tremont shall indemnify and hold harmless TIMET, its
affiliates and its respective officers, directors and employees from and
against any and all losses, liabilities, claims, damages, costs and
expenses (including reasonable attorneys' fees and other expenses of
litigation) to which TIMET may become subject out of the TIMET Services
provided by TIMET hereunder, provided that such indemnity shall not protect
TIMET against any liability to which TIMET would otherwise be subject to by
reason of willful misfeasance, bad faith or gross negligence on the part of
TIMET.
8. Further Assurances. Each of the parties will make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as the other party may reasonably request and as may reasonably be
<PAGE>
required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall be
addressed, if intended for TIMET, to 1999 Broadway, Suite 4300, Denver,
Colorado 80202, Attention: General Counsel, or such other address as it
shall have furnished to Tremont in writing, and if intended for Tremont, to
1999 Broadway, Suite 4300, Denver, Colorado 80202, Attention: General
Counsel, or such other address as it shall have furnished to TIMET in
writing.
10. Amendment and Modification. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated other than by agreement in
writing signed by the parties hereto.
11. Successor and Assigns. This Agreement shall be binding upon and inure to
the benefit of TIMET and Tremont and their respective successors and
assigns, except that neither party may assign its rights under this
Agreement without the prior written consent of the other party.
12. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
TITANIUM METALS CORPORATION
<PAGE>
By: /s/ Robert E. Musgraves
Robert E. Musgraves
Vice President, General Counsel and
Secretary
TREMONT CORPORATION
By: /s/ J. Landis Martin
J. Landis Martin
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "~Agreement~"), effective as of
January 1, 1999, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1998 between CONTRAN CORPORATION, a
Delaware corporation ("~Contran~"), and TREMONT CORPORATION, a Delaware
corporation. ("~Recipient~").
RECITALS
A. Harold C. Simmons, an employee of Contran and a director and the
Chairman of the Board of Recipient, performs certain advisory functions for
Recipient, which functions are unrelated to his function as a director of
Recipient, without direct compensation from Recipient.
B. Recipient does not separately maintain the full internal capability to
perform all necessary advisory functions that Recipient requires.
C. The cost of engaging the advisory services of someone possessing Mr.
Simmons' expertise and the cost of maintaining the personnel necessary to
perform the functions provided for by this Agreement would exceed the fee set
forth in SECTION 3 of this Agreement, and the terms of this Agreement are no
less favorable to Recipient than could otherwise be obtained from a third party
for comparable services.
D. Recipient desires to continue receiving the advisory services of
Harold C. Simmons and Contran is willing to continue to provide such services
under the terms of this Agreement.
AGREEMENT
<PAGE>
For and in consideration of the mutual premises, representations and
covenants herein contained, the parties hereto mutually agree as follows:
SECTION 1. ~SERVICES~TO~BE~PROVIDED~. Contran agrees to make available to
Recipient, upon request, the following services (the "~Services~") to be
rendered by Harold C. Simmons:
(a) Consultation and assistance in the development and implementation
of Recipient's corporate business strategies, plans and objectives; and
(b) Such other services as may be requested by Recipient from time to
time.
This Agreement does not apply to and the Services provided for herein do not
include any services that Harold C. Simmons may provide to Recipient in his role
as a director on Recipient's board of directors or any other activity related to
such board of directors.
SECTION 2. ~MISCELLANEOUS~SERVICES~. It is the intent of the parties
hereto that Contran provide only the Services requested by Recipient in
connection with routine functions related to the ongoing operations of Recipient
and not with respect to special projects, including corporate investments,
acquisitions and divestitures. The parties hereto contemplate that the Services
rendered in connection with the conduct of Recipient's business will be on a
scale compared to that existing on the effective date of this Agreement,
adjusted for internal corporate growth or contraction, but not for major
corporate acquisitions or divestitures, and that adjustments may be required to
the terms of this Agreement in the event of such major corporate acquisitions,
divestitures or special projects. Recipient will continue to bear all other
costs required for outside services including, but not limited to, the outside
services of attorneys, auditors, trustees, consultants, transfer agents and
registrars, and it is expressly understood that Contran assumes no liability for
<PAGE>
any expenses or services other than those stated in SECTION 1. In addition to
the fee paid to Contran by Recipient for the Services provided pursuant to this
Agreement, Recipient will pay to Contran the amount of out-of-pocket costs
incurred by Contran in rendering such Services.
SECTION 3. ~FEE~FOR~SERVICES~. Recipient agrees to pay to Contran
$245,000 quarterly, commencing as of January 1, 1999, pursuant to this
Agreement.
SECTION 4. ~ORIGINAL~TERM.~ Subject to the provisions of SECTION 5
hereof, the original term of this Agreement shall be from January 1, 1999 to
December 31, 1999.
SECTION 5. ~EXTENSIONS.~ This Agreement shall be extended on a quarter-
to-quarter basis after the expiration of its original term unless written
notification is given by Contran or Recipient thirty (30) days in advance of the
first day of each successive quarter or unless it is superseded by a subsequent
written agreement of the parties hereto.
SECTION 6. ~LIMITATION~OF~LIABILITY~. In providing its Services
hereunder, Contran shall have a duty to act, and to cause its agents to act, in
a reasonably prudent manner, but neither Contran nor any officer, director,
employee or agent of Contran or its affiliates shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection with the matter to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Contran.
SECTION 7. ~INDEMNIFICATION~OF~CONTRAN~BY~RECIPIENT~. Recipient shall
indemnify and hold harmless Contran, its affiliates and their respective
officers, directors and employees from and against any and all losses,
liabilities, claims, damages, costs and expenses (including attorneys' fees and
<PAGE>
other expenses of litigation) to which Contran or any such person may become
subject arising out of the Services provided by Contran to the Recipient
hereunder, ~provided~that such indemnity shall not protect any person against
any liability to which such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on the part of such person.
SECTION 8. ~FURTHER~ASSURANCES~. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as the other party may reasonably request and as may reasonably
be required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
SECTION 9. ~NOTICES~. All communications hereunder shall be in writing
and shall be addressed, if intended for Contran, to Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such
other address as it shall have furnished to Recipient in writing, and if
intended for Recipient, to 1999 Broadway, Suite 4300, Denver, Colorado 80202,
Attention: President, or such other address as it shall have furnished to
Contran in writing.
SECTION 10. ~AMENDMENT~AND~MODIFICATION~. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
SECTION 11. ~SUCCESSOR~AND~ASSIGNS~. This Agreement shall be binding upon
and inure to the benefit of Contran and Recipient and their respective
successors and assigns, except that neither party may assign its rights under
this Agreement without the prior written consent of the other party.
SECTION 12. ~GOVERNING~LAW~. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the state of Texas.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CONTRAN CORPORATION
By:/s/Steven L. Watson
~Steven~L.~Watson,~President~
TREMONT CORPORATION
By:/s/ J. Landis Martin
~J.~Landis~Martin,~Chairman~of~the~Board,~P
resident~and~Chief~Executive~Officer~
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "~Agreement~"), effective as of
January 1, 1999, is between VALHI, INC., a Delaware corporation ("~Valhi~"), and
TREMONT CORPORATION, a Delaware corporation. ("~Recipient~").
RECITALS
A. Employees and agents of Valhi and affiliates of Valhi perform
management, financial and administrative functions for Recipient without direct
compensation from Recipient.
B. Recipient does not separately maintain the full internal capability to
perform all necessary management, financial and administrative functions that
Recipient requires.
C. The cost of maintaining the additional personnel by Recipient
necessary to perform the functions provided for by this Agreement would exceed
the fee set forth in SECTION 3 of this Agreement, and the terms of this
Agreement are no less favorable to Recipient than could otherwise be obtained
from a third party for comparable services.
D. Recipient desires to continue receiving the management, financial and
administrative services presently provided by Valhi and affiliates of Valhi and
Valhi is willing to continue to provide such services under the terms of this
Agreement.
AGREEMENT
For and in consideration of the mutual premises, representations and
covenants herein contained, the parties hereto mutually agree as follows:
<PAGE>
SECTION 1. ~SERVICES~TO~BE~PROVIDED~. Valhi agrees to make available to
Recipient, upon request, the following services (the "~Services~") to be
rendered by the internal staff of Valhi and affiliates of Valhi:
(a) Consultation and assistance in the development and implementation
of Recipient's corporate business strategies, plans and objectives;
(b) Consultation and assistance in management and conduct of
corporate affairs and corporate governance consistent with the charter and
bylaws of Recipient;
(c) Consultation and assistance in maintenance of financial records
and controls, including preparation and review of periodic financial
statements and reports to be filed with public and regulatory entities and
those required to be prepared for financial institutions or pursuant to
indentures and credit agreements;
(d) Consultation and assistance in cash management and in arranging
financing necessary to implement the business plans of Recipient;
(e) Consultation and assistance in tax management and administration,
including, without limitation, preparation and filing of tax returns, tax
reporting, examinations by government authorities and tax planning; and
(f) Such other services as may be requested by Recipient from time to
time.
SECTION 2. ~MISCELLANEOUS~SERVICES~. It is the intent of the parties
hereto that Valhi provide only the Services requested by Recipient in connection
with routine management, financial and administrative functions related to the
ongoing operations of Recipient and not with respect to special projects,
<PAGE>
including corporate investments, acquisitions and divestitures. The parties
hereto contemplate that the Services rendered in connection with the conduct of
Recipient's business will be on a scale compared to that existing on the
effective date of this Agreement, adjusted for internal corporate growth or
contraction, but not for major corporate acquisitions or divestitures, and that
adjustments may be required to the terms of this Agreement in the event of such
major corporate acquisitions, divestitures or special projects. Recipient will
continue to bear all other costs required for outside services including, but
not limited to, the outside services of attorneys, auditors, trustees,
consultants, transfer agents and registrars, and it is expressly understood that
Valhi assumes no liability for any expenses or services other than those stated
in SECTION 1. In addition to the fee paid to Valhi by Recipient for the
Services provided pursuant to this Agreement, Recipient will pay to Valhi the
amount of out-of-pocket costs incurred by Valhi in rendering such Services.
SECTION 3. ~FEE~FOR~SERVICES~. Recipient agrees to pay to Valhi $26,000
quarterly, commencing as of January 1, 1999, pursuant to this Agreement.
SECTION 4. ~ORIGINAL~TERM.~ Subject to the provisions of SECTION 5
hereof, the original term of this Agreement shall be from January 1, 1999 to
December 31, 1999.
SECTION 5. ~EXTENSIONS.~ This Agreement shall be extended on a quarter-
to-quarter basis after the expiration of its original term unless written
notification is given by Valhi or Recipient thirty (30) days in advance of the
first day of each successive quarter or unless it is superseded by a subsequent
written agreement of the parties hereto.
SECTION 6. ~LIMITATION~OF~LIABILITY~. In providing its Services
hereunder, Valhi shall have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither Valhi nor any officer, director, employee
or agent of Valhi or its affiliates shall be liable to Recipient for any error
<PAGE>
of judgment or mistake of law or for any loss incurred by Recipient in
connection with the matter to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Valhi.
SECTION 7. ~INDEMNIFICATION~OF~VALHI~BY~RECIPIENT~. Recipient shall
indemnify and hold harmless Valhi, its affiliates and their respective officers,
directors and employees from and against any and all losses, liabilities,
claims, damages, costs and expenses (including attorneys' fees and other
expenses of litigation) to which Valhi or any such person may become subject
arising out of the Services provided by Valhi to the Recipient hereunder,
~provided~that such indemnity shall not protect any person against any liability
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on the part of such person.
SECTION 8. ~FURTHER~ASSURANCES~. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as the other party may reasonably request and as may reasonably
be required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
SECTION 9. ~NOTICES~. All communications hereunder shall be in writing
and shall be addressed, if intended for Valhi, to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such other
address as it shall have furnished to Recipient in writing, and if intended for
Recipient, to 1999 Broadway, Suite 4300, Denver, Colorado 80202, Attention:
President, or such other address as it shall have furnished to Valhi in writing.
SECTION 10. ~AMENDMENT~AND~MODIFICATION~. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
<PAGE>
SECTION 11. ~SUCCESSOR~AND~ASSIGNS~. This Agreement shall be binding upon
and inure to the benefit of Valhi and Recipient and their respective successors
and assigns, except that neither party may assign its rights under this
Agreement without the prior written consent of the other party.
SECTION 12. ~GOVERNING~LAW~. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the state of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
VALHI, INC.
By:/s/ Steven L. Watson
~Steven~L.~Watson,~President~
TREMONT CORPORATION
By:/s/ J. Landis Martin
~J.~Landis~Martin,~Chairman~of~the~Board,~P
resident~and~Chief~Executive~Officer~
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from TREMONT
Corporation's financial statements for the three months ended March 31, 1999 and
is qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,096
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 10,268
<PP&E> 1,415
<DEPRECIATION> 794
<TOTAL-ASSETS> 288,181
<CURRENT-LIABILITIES> 16,387
<BONDS> 0
0
0
<COMMON> 7,779
<OTHER-SE> 188,137
<TOTAL-LIABILITY-AND-EQUITY> 288,181
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 435
<INCOME-TAX> (68)
<INCOME-CONTINUING> 322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
Exhibit 99.1
PART II, Item I - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 filed by NL Industries, Inc. (File No. 1-640)
Reference is made to NL's 1998 Annual Report for descriptions of certain
previously-reported legal proceedings.
~Pedricktown~Site~. In March 1999 NL executed the previously reported
agreement in principle with certain PRPs with respect to NL's liability at the
site, settling the matter within previously accrued amounts.
~Batavia,~New~York~Site~. In April 1999 NL received a revised estimate by
the U.S. EPA estimating the cost to remediate operable unit one at $15.1
million and received a revised claim by the U.S. EPA seeking past costs of $4.6
million, including interest.
~Brenner,~et~al.~v.~American~Cyanamid,~et~al.,~(No.~12596-93)~. In May
1999 defendants appealed the previously reported denial of their motion to
dismiss the market share liability claim.
In April 1999 NL was served with an amended complaint in
~Sweet,~et~al.~v.~Sheahan,~et~al.,~(U.S.~District~Court,~Northern~District~of~Ne
w~York,~Civil~Action~No.~97-CV-1666/LEK-DNH),~adding NL and other defendants to
a suit originally filed against plaintiffs' landlord. Plaintiffs, a parent and
new child, allege injuries purportedly caused by lead pigment, and seek recovery
of actual and punitive damages from their landlord, alleged former manufacturers
of lead pigment, and the Lead Industries Association, and purport to allege
causes of action against the former pigment manufacturers based on negligence,
strict products liability, fraud and misrepresentation, concert of action, civil
conspiracy, and market share liability. The time for NL to answer or otherwise
<PAGE>
plead with respect to the complaint has not yet occurred. NL intends to deny
all allegations of wrongdoing and liability and to defend the case vigorously.
<PAGE>
