SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended September 30, 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 jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5652
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-------- ---------
Number of shares of common stock outstanding on October 31, 1999: 6,387,358
---------
<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, 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 the business of Titanium Metals
Corporation ("TIMET") (39% of the equity securities of which are owned by the
Company) and NL Industries, Inc. ("NL") (20% of the equity securities of which
are owned by the Company), 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 volume and ability to raise prices, the
impact of TIMET's 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.
<PAGE>
TREMONT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheets - December 31, 1998 and
September 30, 1999 2-3
Consolidated Statements of Income (Loss) - Three months and
nine months ended September 30, 1998 and 1999 4
Consolidated Statements of Comprehensive Income (Loss) - Three
months and nine months ended September 30, 1998 and 1999 5
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1998 and 1999 6
Consolidated Statement of Stockholders' Equity - Nine months
ended September 30, 1999 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11-30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 31
Item 6. Exhibits and Reports on Form 8-K. 31
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
-------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,132 $ 3,046
Accounts and notes receivable 3,255 3,456
Refundable income taxes 1,087 1,166
Receivable from related parties 2,157 1,873
Prepaid expenses 1,203 2,635
-------------------- ---------------------
Total current assets 10,834 12,176
-------------------- ---------------------
Other assets:
Investment in TIMET 145,180 154,230
Investment in NL Industries 94,980 113,548
Investment in joint ventures 13,063 13,728
Receivable from related parties 2,212 2,144
Other 21,688 12,883
-------------------- ---------------------
Total other assets 277,123 296,533
-------------------- ---------------------
Net property and equipment 633 602
-------------------- ---------------------
$ 288,590 $ 309,311
==================== =====================
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December 31, September 30,
STOCKHOLDERS' EQUITY 1998 1999
--------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Loan payable to related party $ 5,875 $ 12,981
Accrued liabilities 3,821 5,297
Other payables to related parties 167 284
--------------------- ----------------------
Total current liabilities 9,863 18,562
--------------------- ----------------------
Noncurrent liabilities:
Insurance claims and claim expenses 15,812 16,450
Accrued OPEB cost 21,888 21,587
Deferred income taxes 30,995 35,847
Other 5,910 6,015
--------------------- ----------------------
Total noncurrent liabilities 74,605 79,899
--------------------- ----------------------
Minority interest 3,968 4,165
--------------------- ----------------------
Stockholders' equity:
Common stock 7,769 7,780
Additional paid-in capital 290,118 290,202
Accumulated deficit (30,906) (19,950)
Accumulated other comprehensive income (7,469) (11,989)
--------------------- ----------------------
259,512 266,043
Less treasury stock, at cost 59,358 59,358
--------------------- ----------------------
Total stockholders' equity 200,154 206,685
--------------------- ----------------------
$ 288,590 $ 309,311
===================== ======================
<FN>
Commitments and contingencies (Note 1).
</FN>
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
1998 1999 1998 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Equity in earnings (loss) of:
NL Industries $4,794 $2,476 $55,054 $25,658
TIMET 5,044 (2,659) 14,786 (4,591)
Other joint ventures 197 20 2,188 665
------------- ------------- ------------ -------------
10,035 (163) 72,028 21,732
Corporate income (expense):
Interest income 540 44 1,788 335
Other, net (822) (1,010) (2,415) (3,010)
------------- ------------- ------------ -------------
Income (loss) before income taxes 9,753 (1,129) 71,401 19,057
Income tax expense (benefit) 1,811 (664) 5,919 6,563
Minority interest 60 15 572 197
------------- ------------- ------------ -------------
Income (loss) before extraordinary item 7,882 (480) 64,910 12,297
Equity in extraordinary loss of NL-
early extinguishment of debt (422) - (837) -
------------- ------------- ------------ -------------
Net income (loss) $7,460 $(480) $ 64,073 $ 12,297
============= ============= ============ =============
Earnings (loss) per share:
Before extraordinary item:
Basic $1.23 $(.08) $ 9.82 $ 1.92
Diluted $1.19 $(.08) $ 9.47 $ 1.90
Net income:
Basic $1.17 $(.08) $ 9.69 $ 1.92
Diluted $1.12 $(.08) $ 9.35 $ 1.90
Weighted average shares outstanding:
Common shares 6,375 6,387 6,611 6,385
Diluted shares 6,498 6,459 6,758 6,459
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
1998 1999 1998 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 7,460 $(480) $64,073 $12,297
Other comprehensive income (loss), net of taxes:
Currency translation adjustments 2,315 1,691 1,545 (4,282)
Unrealized gains (losses) on marketable
Securities 35 (176) 188 (238)
------------ ------------ ------------ -------------
Comprehensive income $ 9,810 $1,035 $65,806 $ 7,777
============ ============ ============ =============
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
-------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 64,073 $ 12,297
Earnings of affiliates:
Before extraordinary item (72,028) (21,732)
Extraordinary item 837 -
Distributions 1,544 2,903
Deferred income taxes 6,991 7,285
Minority interest 572 197
Other, net 667 (189)
Change in assets and liabilities:
Accounts with related parties 462 925
Other, net (1,514) (660)
-------------- --------------
Net cash provided by operating activities 1,604 1,026
-------------- --------------
Cash flows from investing activities:
Purchase of TIMET common stock (23,557) (15,988)
Other, net (20) (9)
-------------- --------------
Net cash used by investing activities (23,577) (15,997)
-------------- --------------
Cash flows from financing activities:
Borrowings from related parties - 6,275
Letters of credit cash collateral (7,176) 9,872
Litigation settlement, net 18,976 -
Repurchases of common stock (23,636) -
Dividends paid (922) (1,341)
Other, net 1,032 79
-------------- --------------
Net cash provided (used) by financing activities (11,726) 14,885
-------------- --------------
Net decrease in cash and cash equivalents (33,699) (86)
Balance at beginning of period 37,959 3,132
-------------- --------------
Balance at end of period $ 4,260 $ 3,046
============== ==============
Supplemental disclosures - cash paid for:
Income taxes (refund), net $ 427 $ (640)
Interest - 401
</TABLE>
<PAGE>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Accumulated Other
Common Stock Comprehensive Income
---------------- ----------------------------------
Additional Total
Shares Treasury Common Paid-in Accumulated Currency Marketable Pension Treasury Stockholders'
Issued Shares Stock Capital Deficit Translation Securities Liabilities Stock Equity
------ ------- -------- --------- --------- ----------- ---------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 7,769 1,392 $ 7,769 $ 290,118 $(30,906) $(6,742) $ 590 $(1,317) $(59,358) $200,154
Comprehensive income - - - - 12,297 (4,282) (238) - - 7,777
Dividends paid ($.21 per share) - - - - (1,341) - - - - (1,341)
Common stock issued 11 - 11 75 - - - - - 86
Other - - - 9 - - - - - 9
----- ------- -------- -------- -------- ---------- -------- -------- --------- ---------
Balance at September 30, 1999 7,780 1,392 $ 7,780 $ 290,202 $(19,950) $(11,024) $ 352 $(1,317) $(59,358) $ 206,685
===== ======= ======== ======== ========= ========== ======== ======== ========= =========
</TABLE>
<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 through joint ventures of 75%-owned TRECO L.L.C. Valhi,
Inc. and Tremont, each affiliates of Contran Corporation, hold approximately 58%
and 20%, respectively, of NL's outstanding common stock. At September 30, 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 55% 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 September 30, 1999 and the consolidated statements
of income, cash flows, comprehensive income and stockholders' equity for the
interim periods ended September 30, 1998 and 1999 have been prepared by the
Company without audit. In the opinion of management, all adjustments necessary
to present fairly the consolidated financial position, results of operations and
cash flows have been made. The results of operations for interim periods are not
necessarily indicative of the operating results of a full year or of future
operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (the "1998 Annual Report").
The Company, NL and TIMET will adopt Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, no later than the first quarter of 2001. SFAS No. 133
establishes accounting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Under SFAS No. 133, all derivatives will be recognized as either assets or
liabilities and measured at fair value. The accounting for changes in fair value
of derivatives will depend upon the intended use of the derivative. The impact
of adopting SFAS No. 133, if any, has not been determined but will be dependent
upon the extent to which the Company, NL and TIMET are then parties to
derivative contracts or engaged in hedging activities.
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 1997, Tremont's Board of Directors authorized the repurchase of up
to 2 million shares of Tremont common stock in the 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.
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
million shares of TIMET common stock from IMI plc for approximately $16 million
($7.95 per TIMET share). At September 30, 1999, Tremont held approximately 12.3
million shares, or 39%, of TIMET's outstanding common stock. At September 30,
1999, the net carrying amount of the Company's interest in TIMET was
approximately $12.58 per share, while the market price of TIMET common stock at
that date was $8.94 per share ($5.63 per share at November 11, 1999).
NL Industries. At September 30, 1999, Tremont held approximately 10.2
million shares of NL's outstanding common stock. At September 30, 1999, the net
carrying amount of the Company's interest in NL was approximately $11.12 per
share while the market price of NL common stock at that date was $12.63 per
share ($11.94 per share at November 11, 1999).
Joint Ventures. Investment in joint ventures represents holdings of
75%-owned TRECO, which is principally comprised of (i) a 12% direct interest in
The Landwell Company ("Landwell", formerly Victory Valley Land Company, L.P.),
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 Landwell.
Note 4 - Income taxes:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax expense, at 35% $ 3,414 $ (395) $24,991 $6,670
Adjustment of deferred tax valuation allowance (1,019) - (18,471) -
Rate differences on equity in earnings of affiliates (40) (251) (65) (127)
State income taxes and other, net (544) (18) (536) 20
----------- ---------- ----------- ----------
Provision for income taxes (benefit) $ 1,811 $(664) $ 5,919 $ 6,563
=========== ========== =========== ==========
</TABLE>
The deferred tax valuation allowance adjustment in 1998 relates
primarily to the Company's equity in NL.
<PAGE>
Note 5 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------------- ---------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
OPEB cost $ 1,503 $ 1,503
Other employee benefits 324 345
Environmental cost 307 155
Miscellaneous taxes 135 157
Unearned insurance premiums 1,075 2,588
Other 477 549
------------------- ---------------------
$ 3,821 $ 5,297
=================== =====================
</TABLE>
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 each party may advance funds to the other, at the prime rate less
0.5%. At September 30, 1999, the interest rate applicable to funds advanced
under this agreement was 7.75%. Obligations under this agreement are payable
upon demand. At September 30, 1999, Tremont owed Contran $13.0 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 periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- -----------------------------
1998 1999 1998 1999
------------ ----------- ------------ ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net income $ 7,460 $ (480) $ 64,073 $ 12,297
Effect of dilutive securities of equity investees (165) (11) (913) (56)
------------ ----------- ------------ ------------
Diluted net income $ 7,295 $ (491) $ 63,160 $ 12,241
============ =========== ============ ============
Denominator:
Average common shares outstanding 6,375 6,387 6,611 6,385
Average dilutive stock options 123 72 147 74
------------ ----------- ------------ ------------
Diluted shares 6,498 6,459 6,758 6,459
============ =========== ============ ============
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Tremont's operations are conducted through TIMET, NL and TRECO. The
results of TIMET, NL, TRECO, and general corporate and other items are discussed
below. The information included below relating to the financial position,
results of operations and liquidity and capital resources of TIMET and NL has
been summarized from reports filed with the Securities and Exchange Commission
by TIMET (File No. 0-28538) and NL (File No. 1-640), which reports contain more
detailed information concerning TIMET and NL, respectively, including financial
statements.
The Company reported a third quarter net loss of $0.5 million, or $.08 per
diluted share, compared to net income of $7.5 million, or $1.19 per diluted
share, for the same quarter in 1998.
The Company's equity in earnings of 39%-owned TIMET was a loss of $2.7
million in the third quarter of 1999 compared to income of $5.0 million in 1998.
TIMET reported a third quarter net loss of $7.5 million on sales of $113 million
compared to net income of $16.1 million on sales of $174 million for the
comparable 1998 period. TIMET's results were below those of the same periods in
1998 principally due to a 25% decline in year-to-date mill products volume
caused by lower demand in both aerospace and industrial markets, as reported in
earlier periods.
The Company's equity in earnings of 20%-owned NL Industries, Inc. was
$2.5 million in the third quarter of 1999 compared to $4.8 million for the same
quarter of 1998. NL reported income from continuing operations for the third
quarter of 1999 of $17.1 million on sales of $242.6 million compared to $29.0
million on sales of $221.5 million in the comparable 1998 period. NL reported
1999 third quarter titanium dioxide pigments ("TiO2") sales volumes that were 1%
lower than the record sales volumes in the same quarter in 1998 and 24% higher
than the second quarter of 1999. NL's third quarter 1999 average selling prices
for TiO2 were 4% lower than the second quarter of 1998 and 2% lower than the
second quarter of 1999.
The Company's equity in earnings of other joint ventures principally
represents earnings from its real estate development partnerships, which can
vary from period to period depending upon timing of sales.
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 that would be accounted for
as a realized loss.
The Company's per share net carrying amount of its interest in NL at
September 30, 1999 was $11.12 per share, compared to a per share market price of
$12.63 at that date ($11.94 per share at November 11, 1999). 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, recent ranges of market prices and NL's operating results,
financial position and prospects, the Company concluded that there has been no
other than temporary decline in the value of the Company's interest in NL below
its net carrying values at September 30, 1999. It is possible, should the TiO2
industry in general, or NL specifically, encounter a prolonged downturn, or
suffer other unforeseen adverse events, that the value of the Company's interest
in NL could decline to a level that could warrant a writedown.
The Company's per share net carrying value of its interest in TIMET at
September 30, 1999 was $12.58 per share, compared to a per share market price of
$8.94 at that date ($5.63 per share at November 11, 1999). TIMET's high for 1999
was $13.25 per share on July 28 and the low was $4.50 per share on November 2.
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. TIMET has recently reported, among other things, that the commercial
aerospace market is expected to remain depressed in 2000, that its results for
next year will be heavily dependant upon volumes actually ordered under its
long-term agreements, particularly its contract with Boeing, that it is seeking
to amend or replace its U.S. credit agreement and that it will likely incur a
further restructuring charge in the fourth quarter of 1999. In addition, on
November 2, 1999, TIMET announced the suspension of regular quarterly common
stock dividends. TIMET and the Company believe that TIMET's financial position
and prospects for next year will be more fully clarified during the fourth
quarter of 1999. The resolution of this uncertainty may either positively or
negatively impact the Company's ongoing evaluation of TIMET's prospects. The
Company believes that no writedown of its investment in TIMET is required as of
September 30, 1999. However, as the Company's ongoing evaluation of TIMET's
near-term prospects are largely dependent upon the resolution of the current
uncertainty relating to TIMET's volumes for next year, the Company can give no
assurance that it will not conclude at the end of 1999 that there has been an
other than temporary decline in value of the Company's interest in TIMET that
would, at that time, require a writedown that would be accounted for as a
realized loss.
<PAGE>
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 current ownership percentage to TIMET's
separately reported earnings due to increases in ownership and 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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -------------------------
1998 1999 Change 1998 1999 Change
-------- ----------- ----------- ---------- ----------- ----------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $173.5 $112.7 -35.0% $551.4 $374.5 -32.1%
======== =========== =========== ========== =========== ==========
Operating income (loss) $ 27.3 $ (7.9) -$ 35.2 $ 82.9 $ -$ 91.1
(8.2)
Corporate income, net 2.1 1.9 5.0 3.5
Interest expense 1.3 2.0 2.3 5.0
-------- ----------- ---------- -----------
28.1 (8.0) 85.6 (9.7)
Income tax expense (benefit) 9.6 (2.8) 29.1 (3.4)
Minority interest 2.4 2.3 8.3 7.6
======== =========== ========== ===========
Net income (loss) $ 16.1 $ (7.5) -$ 23.6 $ 48.2 $ (13.9) -$ 62.1
======== =========== =========== ========== =========== ==========
Tremont's equity in TIMET's
earnings (losses), including
amortization of basis
differences $ 5.0 $ (2.7) -$ 7.7 $ 14.8 $ (4.6) -$ 19.4
======== =========== =========== ========== =========== ==========
Mill product shipments:
Volume (metric tons) 3,500 2,800 -20% 11,400 8,600 -25%
Average price ($ per kilogram)
$35.50 $31.75 -11% $34.75 $33.75 -3%
</TABLE>
Sales and Operating Income. TIMET's results for the periods in 1999
were below those of the same periods in 1998 principally due to a 25% decline in
year-to-date mill products volume caused by lower demand in both aerospace and
industrial markets, as TIMET reported in earlier periods.
Sales of $113 million in the third quarter of 1999 were 12% lower than
the second quarter of this year principally due to both lower sales volume and
to product mix changes, as lower priced industrial products represented a higher
percentage of mill product volume during the most recent quarter. The average
third quarter mill product selling price decreased from the second quarter
largely due to this mix change. Third quarter ingot sales volume was also down
from the second quarter.
<PAGE>
Total cost of sales was 96% of sales in the third quarter of 1999
compared to 89% in the second quarter of this year. As TIMET previously
reported, third quarter volumes were impacted by declines in demand, including
cancellations and push-outs by major aerospace customers, and by production
difficulties and inefficiencies primarily in TIMET's North American Operations.
Yield, rework and deviated material costs were higher, plant operating rates
were lower and resumption of production following certain maintenance shutdowns
took longer than expected. TIMET is focusing additional attention and resources
on immediately improving certain aspects of its operating performance.
Selling, general and administrative and development expenses in the
1999 periods were lower than in the corresponding 1998 periods, but higher as a
percentage of sales, as not all such costs are variable, particularly in the
short term. Operating income in the 1998 year-to-date period includes a second
quarter $6 million restructuring charge.
TIMET currently believes its fourth quarter results, excluding
restructuring charges, will improve from third quarter 1999 levels, although it
expects to report an operating loss for the quarter. The failure of a 2,500 ton
press in TIMET's Toronto, Ohio mill products plant in mid-October may result in
lower sales volume. TIMET is currently evaluating alternatives for production
originally scheduled on this press. As previously reported, TIMET is considering
further personnel reductions and rationalization of plant capacity in light of
its revised market outlook and, as a result, will likely incur a restructuring
charge in the fourth quarter of 1999.
The commercial aerospace market is expected to remain depressed next
year. TIMET's results for next year will be heavily dependent upon volumes
actually ordered under its long-term agreements, particularly its contract with
Boeing. TIMET is continuing to work with Boeing to both determine volume for
next year and to improve the way the contract is administered by Boeing within
its supplier base in order to achieve the intended benefits to both parties.
TIMET is continuing its efforts to return to profitability by focusing on its
manufacturing processes and reducing overall costs, in addition to its efforts
to work closely with other major customers to solidify its volume position for
2000.
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 the respective 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 local 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.
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 $1 million during the nine months
ended September 30, 1999. Foreign currency gains were $.4 million during the
1998 nine-month period. At September 30, 1999, consolidated assets and
liabilities denominated in currencies other than functional currencies were
approximately $27 million and $14 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. General corporate income, net includes
earnings on corporate cash equivalents, which vary with cash levels and interest
rates, and accrued dividends on preferred securities.
Interest Expense. Interest expense in the 1999 periods is higher than
in the comparable 1998 periods, reflecting higher average borrowing levels,
higher interest rates and lower levels of interest capitalization on capital
projects in process.
Minority Interest. Dividend expense related to TIMET's 6.625%
Convertible Preferred Securities approximated $3.3 million per quarter in both
1999 and 1998 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.
Year 2000. Y2K 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. TIMET has been actively
involved in addressing Y2K issues because of the need to ensure, to the greatest
extent possible, that its business operations continue without significant
disruption after the millennium. Most of TIMET's information systems have been
replaced in connection with the implementation of TIMET's business-enterprise
system, the initial implementation of which was substantially completed with the
roll-out of the system to TIMET's U.K. subsidiary in February 1999. The cost of
the new system, including related equipment and networks, aggregated
approximately $50 million ($41 million capital and $9 million expense).
<PAGE>
TIMET, with the help of outside specialists and consultants (i) has
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,
and (ii) has completed its system remediation and testing. Beginning in the
third quarter of 1999, TIMET's Y2K efforts shifted from remediation and testing
to contingency planning. Nonetheless, Y2K testing and monitoring will continue
through the end of the year and into 2000 to help ensure that TIMET's systems
continue to operate without Y2K problems. TIMET has developed contingency plans
to be implemented in the event that mission critical systems and/or associated
processes experience a Y2K failure. The contingency plans will be tested and
rehearsed through the remainder of 1999. In this regard, TIMET is considering
the temporary shutdown of certain sensitive production operations for a few days
around the turn of the millennium as an additional safeguard against the
unexpected loss of utilities service. TIMET expects to schedule production to
provide for such temporary shutdowns. TIMET has expended approximately $4
million through September 1999 ($2 million of which was in 1999) on
non-information system issues, principally embedded system technology, and
expects to additionally incur less than $1 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.
Although TIMET believes its key information and non-information systems
are Y2K ready, it cannot predict whether it will find additional problems that
would result in unplanned upgrades of applications during the rest of the year
or even after 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 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 its key
suppliers or customers to become Y2K ready would be a short-term slowdown or
cessation of manufacturing operations at one or more of TIMET's facilities and a
short-term inability on the part of TIMET to process orders and billings in a
timely manner, and to deliver products to customers.
<PAGE>
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 current ownership percentage to NL's
separately-reported earnings due to increases in ownership and 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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- -----------------------
1998 1999 Change 1998 1999 Change
--------- --------- ---------- ---------- ---------- ----------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $221.5 $242.6 +9.5% $685.8 $676.8 +1.3%
========= ========= ========== ========== ========== ==========
Operating income $ 45.0 $ 34.8 -22.7% $ 131.1 $ 109.8 -16.2%
General corporate items:
Securities earnings, net 4.3 1.7 12.7 4.8
Expenses, net (4.1) (3.7) (11.6) (12.2)
Interest expense (15.1) (9.1) (46.9) (28.1)
--------- --------- ---------- ----------
30.1 23.7 -$6.4 85.3 74.3 -$11.0
Income tax expense (benefit) (1.3) 6.5 14.2 (70.9)
--------- --------- ---------- ----------
Income from continuing operations 31.4 17.2 -$14.2 71.1 145.2 +$74.1
Minority interest - - - 2.3
Discontinued operations - - 287.4 -
Extraordinary item - early
extinguishment of debt (2.4) - (4.8) -
--------- --------- ---------- ----------
Net income $ 29.0 $17.2 -$11.8 $353.7 $142.9 -$210.8
========= ========= ========== ========== ========== ==========
Tremont's equity in NL's net
earnings, including amortization of
basis differences $ 4.8 $ 2.5 -$2.3 $ 55.0 $ 25.7 -$ 29.3
========= ========= ========== ========== ========== ==========
</TABLE>
Kronos' operating income in the third quarter of 1999 decreased from
the comparable period in 1998 primarily due to lower average selling prices and
lower production volume, partially offset by higher sales volume. Kronos'
operating income in the first nine months of 1999 decreased from the comparable
period in 1998 primarily due to lower production volume, partially offset by a
second-quarter 1999 $5.3 million currency exchange transaction gain related to
certain of NL's short-term intercompany cross-border financings. These
intercompany financings were settled in July 1999.
Worldwide demand for TiO2 was strong in the second and third quarters
of 1999 and Kronos expects the strong demand will continue in the fourth quarter
of 1999. Kronos believes the increased demand is primarily a result of strong
worldwide economic conditions, although Kronos believes a portion of this
increased demand is related to customers building their inventory levels.
Customers' decisions to increase inventory levels may be influenced by (i)
announced price increases, as discussed in more detail below, and (ii) general
concerns regarding the year 2000. Kronos believes that demand in the first half
of 2000 could be lower than the last half of 1999 should customers build
significant inventories prior to year-end 1999.
<PAGE>
Average TiO2 selling prices for the third quarter of 1999 were 4% lower
than the third quarter of 1998 and were 2% lower than the second quarter of
1999. Selling prices at the end of the third quarter approximated the average
for the quarter. Kronos and certain of its competitors have announced worldwide
price increases, and Kronos expects that its average selling prices should
increase beginning in late 1999 or early 2000. Average selling prices in the
first nine months of 1999 were comparable to the 1998 period, with slightly
higher North American prices offset by lower prices in export markets and
slightly lower prices in Europe.
Kronos' production volume in the third quarter of 1999 decreased 10%
from the comparable 1998 period and decreased 8% from the second quarter of 1999
primarily as a result of scheduled downtime in the third quarter of 1999 for
maintenance at NL's chloride facilities. Production volume in the first nine
months of 1999 decreased 8% from the comparable 1998 period primarily due to
this maintenance downtime and NL's decision to manage inventory levels by
curtailing production volume in the first quarter of 1999. Kronos' average
production capacity utilization rate was 90% in the third quarter of 1999 and
91% for the first nine months of 1999. Kronos produced at full capacity in 1998.
Due to strong worldwide demand and Kronos' inventory levels, Kronos intends to
increase production volume in the fourth quarter, but production volume will be
below sales volume for the full year.
Kronos' record sales volume in the third quarter of 1999 increased 18%
over the third quarter of 1998 and increased 6% over the second quarter of 1999
with strong demand in all major regions. Sales volume in the first nine months
of 1999 approximated the first nine months of 1998.
Kronos expects its full-year 1999 operating income will be below that
of 1998 primarily because of lower production volume and slightly lower average
selling prices, partially offset by higher sales volume.
Kronos' cost of sales as a percentage of net sales in the third quarter
and first nine months of 1999 increased from the comparable periods in 1998
primarily due to lower production volume. Kronos' selling, general and
administrative expenses increased $.5 million in the third quarter of 1999
compared to the third quarter of 1998 due to higher distribution expenses
associated with higher third-quarter 1999 sales volume, partially offset by the
favorable effects of foreign currency translation. Kronos' selling, general and
administrative expenses decreased $1.3 million in the first nine months of 1999
due to lower employee benefit expenses and a second-quarter 1999 German
non-income tax refund.
A significant amount of sales are denominated in currencies other than
the U.S. dollar. Fluctuations in the value of the U.S. dollar relative to other
currencies decreased the dollar value of sales for the third quarter and first
nine months of 1999 by $5 million and $4 million, respectively, when compared to
the year-earlier periods. Fluctuations in the value of the U.S. dollar relative
to other currencies similarly impacted NL's operating expenses. The net impact
of currency exchange rate fluctuations on the operating income comparisons to
1998, excluding the $5.3 million gain described above, were not significant in
the third quarter and first nine months of 1999.
<PAGE>
Securities earnings decreased due to lower average cash and cash
equivalent balances available for investment. Interest expense in the third
quarter and first nine months of 1999 each decreased 40% from the comparable
periods in 1998 primarily due to lower levels of outstanding debt. NL expects
its full-year 1999 securities earnings and interest expense will both be lower
than 1998, primarily due to lower average cash and cash equivalent balances
available for investment and lower levels of outstanding debt, respectively.
Although NL's overall current (cash) income tax rate is expected to
continue to be lower than statutory rates, beginning in 2000 NL expects its
overall income tax rate (current and deferred income tax expense) to approximate
statutory tax rates. The difference between the income tax benefit (expense)
attributable to income from continuing operations before income taxes and
minority interest and the amount that would be expected using the U.S. federal
statutory income tax rate of 35% is discussed below.
NL recognized a $90 million non-cash income tax benefit in the second
quarter of 1999 related to (i) a favorable resolution of NL's previously
reported tax contingency in Germany ($36 million) and (ii) a net reduction in
NL's deferred income tax valuation allowance due to a change in estimate of NL's
ability to utilize certain income tax attributes under the
"more-likely-than-not" recognition criteria ($54 million).
With respect to the German tax contingency, the German government has
conceded substantially all of its income tax claims against NL and has released
a DM 94 million ($50 million) lien on NL's Nordenham, Germany TiO2 plant that
secured the government's claim.
The $54 million net decrease in NL's deferred income tax valuation
allowance is comprised of (i) a $78 million decrease in the valuation allowance
to recognize the benefit of certain deductible income tax attributes which NL
now believes meets the recognition criteria as a result of, among other things,
a legal restructuring of NL's German subsidiaries offset by (ii) a $24 million
increase in the valuation allowance to reduce the previously recognized benefit
of certain other deductible income tax attributes which NL now believes do not
meet the recognition criteria due to a change in German tax law. The German tax
law change, enacted on April 1, 1999, was effective retroactive to January 1,
1999 and resulted in an additional $3.8 million of current tax expense during
the first six months of 1999.
During the first six months of 1999, NL also reduced its deferred
income tax valuation allowance by $7 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.
Minority interest primarily relates to NL's majority-owned
environmental management subsidiary, NL Environmental Management Services, Inc.
("EMS"). Discontinued operations in 1998 represent NL's former specialty
chemicals operations which were sold in January 1998. The extraordinary item in
1998 resulted from early extinguishment of debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Tremont
The Company had cash and cash equivalents of $3.0 million at September
30, 1999. Tremont's approximately 12.3 million shares of TIMET common stock and
approximately 10.2 million shares of NL common stock had a quoted market value
of approximately $110 million and $129 million, respectively, at September 30,
1999.
The Company's equity in earnings of affiliates are primarily non-cash.
The Company received cash distributions from The Landwell Company of $.6 million
in the 1998 period and $.4 million in the 1999 period primarily to cover taxes
associated with Landwell's income from land sales. TIMET instituted a regular
quarterly dividend of $.04 per share of common stock in the second quarter of
1998, and suspended such regular dividend payments in the fourth quarter of
1999. 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
dividend rate, NL dividends received are $.4 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 generally do not materially impact the Company's cash flow from
operating activities.
During 1998, the Company entered into an advance agreement with
Contran. At September 30, 1999, the Company owed Contran $13.0 million pursuant
to this agreement, which amount was borrowed primarily to purchase shares of NL
and TIMET common stock. The Contran advance agreement is currently a significant
source of Tremont's liquidity and is expected to be a significant source in the
future absent an increase in dividends on the Company's NL shares or the receipt
of cash from other sources.
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.
Repurchases of common stock and purchases of additional TIMET shares
are described in Notes 2 and 3, respectively, to the Consolidated Financial
Statements. Cash provided by litigation settlement is related to the 1998
settlement of the previously reported Kahn litigation. Tremont's current
quarterly dividend rate is $.07 per share.
Year 2000. Tremont, as a holding company, does not itself have numerous
applications or systems where potential Y2K issues are a significant factor. The
Company (i) has completed the assessment of potential Y2K issues in its
information systems, and (ii) has implemented remedial actions, including
testing. The cost for Tremont Y2K readiness is not 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.
<PAGE>
Other. 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.
As previously reported, based upon the technical provisions of the
Investment Company Act of 1940 (the "1940 Act") and Tremont's ceasing to own a
majority of TIMET's common stock following the acquisition of IMI Titanium 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.
<PAGE>
TIMET - Summarized balance sheet and cash flow information.
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------------- ---------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents $ 15.5 $ 6.8
Other current assets 380.3 327.5
Goodwill and other intangible assets 79.4 73.3
Preferred securities 80.0 85.1
Other noncurrent assets 46.8 49.2
Property and equipment, net 351.2 339.7
------------------- ---------------------
$ 953.2 $ 881.6
=================== =====================
Current liabilities $ 136.9 $ 104.1
Long-term debt and capital lease obligations 110.0 94.3
Accrued OPEB cost 24.1 22.6
Other noncurrent liabilities 24.4 23.6
Minority interest - Convertible Preferred Securities 201.2 201.2
Other minority interest 8.2 7.5
Stockholders' equity 448.4 428.3
------------------- ---------------------
$ 953.2 $ 881.6
=================== =====================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------------------
1998 1999
------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 86.2 $ 19.4
Changes in assets and liabilities (11.5) 1.6
------------------- ---------------------
74.7 21.0
Investing and financing activities:
Capital expenditures (79.2) (18.7)
Business acquisitions (27.0) -
Net borrowings (repayments) 104.3 (9.2)
Dividends (2.5) (3.8)
Other, net (1.3) 3.0
------------------- ---------------------
$ 69.0 $ (7.7)
=================== =====================
Cash paid for:
Interest, net of capitalized interest $ 2.0 $ 4.7
Convertible Preferred Securities dividends 10.0 10.0
Income taxes (refunds), net 11.2 (5.2)
</TABLE>
<PAGE>
At September 30, 1999, TIMET had net debt of approximately $88 million
($95 million of notes payable and long-term debt and $7 million of cash and
equivalents). As limited by provisions of its U.S. credit agreement, TIMET had
an aggregate of $32 million of unused borrowing availability under its U.S. and
European credit lines at September 30, 1999. TIMET currently believes it will
not meet all of the financial covenants in its U.S. bank credit agreement at the
end of 1999, and intends to seek to amend or replace its credit agreement.
Operating Activities. Cash provided by operating activities was
approximately $21 million for the nine-month period ended September 30, 1999,
down from $75 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
of $32 million in the 1999 year-to-date period is $9 million higher than in the
comparable 1998 period resulting from TIMET's major 1997-1998 capital program,
including its business-enterprise system. Results of operations in 1998 included
a second quarter restructuring charge which was principally noncash.
Changes in assets and liabilities reflect primarily the timing of
purchases, production and sales. TIMET's plan of action to address current
market conditions includes reductions in working capital, particularly
inventories and receivables, both of which have been reduced in 1999. Changes in
accounts payable and accrued liabilities in 1999 include 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 September for 1999 purchases,
as well as the effect of lower purchase and headcount levels on accounts payable
and accrued liabilities.
Dividends on the $80 million of Special Metals Corporation 6.675%
convertible preferred stock held by TIMET have been deferred by SMC for 1999 due
to limitations imposed by SMC's bank credit agreement. Management of SMC has
advised TIMET they currently are seeking to amend SMC's credit agreement and do
not expect SMC to be permitted to pay dividends or dividends in arrears during
2000. As a result, at September 30, 1999 TIMET has classified its accrued
dividends on the SMC preferred securities as a non-current asset. TIMET
currently believes that the realization of its investment in SMC by the maturity
date of the securities in 2005 is not impaired.
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 all of 1999 will approximate $25
million. Business acquisitions in 1998 consist of the previously-reported
purchase of Loterios S.p.A. and Wyman-Gordon transaction. Net borrowings in the
1998 period included amounts used to fund TIMET's acquisitions and its capital
expenditure program. Net repayments in 1999 reflect reductions of outstanding
borrowings in both the U.S. and U.K. Other, net in 1999 includes assets sold as
part of TIMET's restructuring activities.
In November 1999, TIMET's board of directors voted to suspend the
regular quarterly dividend on its common stock in view of, among other things,
the continuing weakness in overall market demand for titanium metal products.
<PAGE>
TIMET's Convertible Preferred Securities do not require principal
amortization, and TIMET has the right to defer dividend payments for one or more
periods of up to 20 consecutive quarters each. The board of directors decided to
continue distributions on TIMET's Convertible Preferred Securities for the
fourth quarter of 1999. The board will re-evaluate the continuation of such
payments on a quarter-by-quarter basis.
Other. 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 common and preferred
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 metal 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.
<PAGE>
NL Industries - Summarized balance sheet and cash flow information.
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
--------------------- ----------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 163.1 $ 156.7
Other current assets 383.6 386.2
Noncurrent securities 17.6 15.3
Investments in joint ventures 171.2 159.2
Other noncurrent assets 37.9 30.0
Property and equipment 382.2 357.0
--------------------- ----------------------
$ 1,155.6 $ 1,104.4
===================== ======================
Current liabilities $ 310.6 $ 312.9
Long-term debt 292.8 244.3
Deferred income taxes 196.2 105.6
Accrued OPEB cost 41.7 37.6
Environmental liabilities 81.5 60.3
Other noncurrent liabilities 79.9 70.5
Minority interest .6 2.9
Stockholders' equity:
Capital and retained earnings 284.4 422.1
Accumulated other comprehensive loss (132.1) (151.8)
--------------------- ----------------------
$ 1,155.6 $ 1,104.4
===================== ======================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------------------------
1998 1999
--------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 101.6 $ 87.8
Changes in assets and liabilities (59.5) (5.7)
--------------------- ----------------------
42.1 82.1
Investing and financing activities, net:
Capital expenditures (12.7) (25.8)
Proceeds from sale of Rheox 435.1 -
Other investing activities, net 4.1 (10.2)
Net borrowings (repayments) (140.4) (37.0)
Other financing activities, net (109.3) (5.3)
--------------------- ----------------------
$ 218.9 $ 3.8
===================== ======================
Cash paid for:
Interest, net of amounts capitalized $ 22.0 $ 19.7
Income taxes, net 47.8 3.6
</TABLE>
<PAGE>
The TiO2 industry is cyclical and changes in economic conditions
significantly impact the earnings and operating cash flows of NL. Cash flow from
operations, before changes in assets and liabilities, in the 1999 period
decreased from the comparable period in 1998 primarily due to lower operating
income, partially offset by $12.1 million of cash distributions from NL's TiO2
manufacturing joint venture.
The net change in NL's inventories, receivables and payables (excluding
the effect of currency translation) provided cash in the first nine months of
1999 and used cash in the first nine months of 1998. Increases in accounts
receivable balances used cash in both 1998 and 1999 due to high accounts
receivable levels at the end of both September 30, 1998 and 1999 compared to
each respective beginning of year amounts as a result of seasonally low sales
volumes in December 1997 and 1998. Changes in inventory levels provided cash in
the 1999 period and used cash in the 1998 period primarily due to lower
production volume in the first nine months of 1999. Cash provided by operations
in 1998 also includes $20 million related to an agreement not to compete in the
rheological products business offset by $25 million of income tax payments
related to the gain on sale of Rheox.
NL prepaid its DM 107 million ($60 million when paid) term loan in full
in the first quarter of 1999, principally by drawing DM 100 million ($56 million
when drawn) on its DM revolving credit facility. In the second and third
quarters of 1999, NL repaid DM 20 million ($11 million when paid) and DM 40
million ($22 million when paid), respectively, of the DM revolving credit
facility with cash provided from operations. The revolver's outstanding balance
of DM 120 million ($64 million at September 30, 1999) was further reduced in
October 1999 by DM 20 million ($11 million when paid). The remaining balance of
DM 100 million will be repaid or refinanced on or before its scheduled maturity
date in September 2000.
In the third quarter of 1999, NL paid a regular quarterly dividend of
$.035 per share to shareholders aggregating $1.8 million. Dividends paid during
the first nine months of 1999 totaled $5.4 million. In October 1999 NL's Board
of Directors declared a regular quarterly dividend of $.035 per share to
shareholders of record as of December 16, 1999 to be paid on December 30, 1999.
In October and through November 11, 1999, NL purchased approximately
171,800 shares of its common stock for $1.9 million.
Cash, cash equivalents and borrowing availability. At September 30,
1999, NL had cash and cash equivalents aggregating $157 million ($42 million
held by non-U.S. subsidiaries) and an additional $25 million of restricted cash
equivalents held by U.S. subsidiaries. NL's subsidiaries had $78 million
available for borrowing at September 30, 1999 under existing non-U.S. credit
facilities, of which $59 million relates to NL's DM revolving credit facility.
Income tax contingencies. 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 second quarter of 1999, certain significant German tax
contingencies aggregating an estimated DM 188 million ($100 million when
resolved) through 1998 were resolved in NL's favor, as discussed above.
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's ongoing current (cash) income tax rate in Germany increased
beginning in the second quarter of 1999.
<PAGE>
During 1997 NL received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($7 million at
September 30, 1999) relating to 1994. NL has appealed this assessment and the
Fredrikstad City Court is scheduled to hear the case in January 2000. During
1998 NL was informed by the Norwegian tax authorities that additional tax
deficiencies of NOK 39 million ($5 million at September 30, 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.
Environmental matters and litigation. NL has been named as a defendant,
potentially responsible party ("PRP"), or both, in a number of legal proceedings
associated with environmental matters, including waste disposal sites, mining
locations and facilities currently or previously owned, operated or used by NL,
certain of which are on the U.S. Environmental Protection Agency's (the "U.S.
EPA") Superfund National Priorities List or similar state lists. On a quarterly
basis, NL evaluates the potential range of its liability at sites where it has
been named as a PRP or defendant, including sites for which EMS has
contractually assumed NL's obligation. NL believes it has adequate accruals
($117 million at September 30, 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.
<PAGE>
Lead pigment litigation. 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 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.
Year 2000 readiness. Computer programs which were written using two
digits (rather than four) to define the applicable year may recognize a date
using "00" as the year 1900 rather than the year 2000. This is generally
referred to as the "year 2000 issue," which may affect the performance of
computer programs, hardware, software and other products with embedded computer
technology that is date sensitive. Unless corrective action is taken to ensure
that such items are "year 2000 compliant," which means that they will be able to
process dates and times in such a manner that their technical and functional
requirements will continue to be met without interruption for the year 2000,
they may generate erroneous data or cause systems, equipment or other products
to fail.
NL is in the process of evaluating and upgrading its computer systems
(both information technology ("IT") systems and non-IT systems involving
embedded chip technology) and software applications (collectively referred to as
"systems") to ensure that the systems function properly beginning January 1,
2000. To achieve its year 2000 compliance plan, NL is utilizing internal and
external resources to identify, correct or reprogram, and test its systems.
NL has conducted an inventory of its IT systems worldwide and is
currently testing, where practical, the systems and applications that have been
corrected or reprogrammed for year 2000 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 complete on all critical IT
and non-IT systems. Once systems undergo remediation, they are tested for year
2000 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 year 2000 compliant
version in the normal course of business. Excluding the cost of these software
upgrades, NL's cost of becoming year 2000 compliant is expected to be
approximately $2 million, substantially all of which has been spent through
September 30, 1999.
<PAGE>
NL has approximately 30 major computer systems which have been assessed
for year 2000 compliance. At September 30, 1999, NL believes all of such systems
are year 2000 compliant. Each operating unit has responsibility for its own
conversion of other nonmajor systems, in line with overall guidance and
oversight provided by a corporate-level coordinator, and the status of each of
the remaining nonmajor systems will be specifically tracked and monitored.
As part of its year 2000 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, year 2000 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
year 2000 compliant software. Notwithstanding these efforts, the ability of NL
to affect the year 2000 preparedness of such vendors, suppliers and customers is
limited.
NL is in the process of developing a contingency plan to address
potential year 2000 related business interruptions that may occur on January 1,
2000, or thereafter. The contingency plan is expected to be completed in the
fourth quarter of 1999. As part of the contingency plan, NL presently intends to
idle its manufacturing facilities shortly before the turn of the millennium as
an additional safeguard against the unexpected loss of utility services and
resume production shortly after midnight year-end 1999.
Although NL expects its systems to be year 2000 compliant before
December 31, 1999, it cannot predict the outcome or success of the year 2000
compliance programs of its vendors, suppliers, and customers. NL also cannot
predict whether its major software vendors, who continue to test for year 2000
compliance, will find additional problems that would result in unplanned
upgrades of their applications after December 31, 1999. As a result of these
uncertainties, NL cannot predict the impact on its financial condition or
results of operations from noncompliant year 2000 systems that NL directly or
indirectly relies upon. Should NL's year 2000 compliance plan not be successful
or be delayed beyond January 2000, or should one or more vendors, suppliers or
customers fail to adequately address their year 2000 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 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 year 2000 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.
Euro currency. Beginning January 1, 1999, eleven of the fifteen members
of the European Union ("EU"), including Germany, Belgium, the Netherlands and
France, adopted a new European currency unit (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.
<PAGE>
NL conducts substantial operations in Europe, and has 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.
Other. NL periodically evaluates its liquidity requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things, its debt service and capital expenditure requirements
and estimated future operating cash flows. As a result of this process, NL in
the past has sought, and in the future may seek, to reduce, refinance,
repurchase or restructure indebtedness; raise additional capital; issue
additional securities; repurchase shares of its common stock; 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.
<PAGE>
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 September 30, 1999,
attached hereto as Exhibit 99.1.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule for the quarter ended
September 30, 1999.
99.1 Part II, Item 1 of a Quarterly Report on Form
10-Q for the quarter ended September 30, 1999
filed by NL Industries, Inc. (File No. 1-640).
(b) Reports on Form 8-K filed by the Registrant for the quarter ended
September 30, 1999 and through November 8, 1999:
Filing Date Items Reported
---------------------- --------------------------
July 28, 1999 5 and 7
July 28, 1999 5 and 7
October 28, 1999 5 and 7
November 3, 1999 5 and 7
<PAGE>
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: November 11, 1999 By /s/ J. Thomas Montgomery, Jr.
- ------------------------------------- -----------------------------------------
J. Thomas Montgomery, Jr.
Vice President, Controller and Treasurer
(Principal Finance and Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tremont
Corporation's financial statements for the nine months ended September 30,1999
and is qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<CIK> 0000842718
<NAME> Tremont Corporation
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,046
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,176
<PP&E> 1,423
<DEPRECIATION> 821
<TOTAL-ASSETS> 309,311
<CURRENT-LIABILITIES> 18,562
<BONDS> 0
0
0
<COMMON> 7,780
<OTHER-SE> 198,905
<TOTAL-LIABILITY-AND-EQUITY> 309,539
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> 19,057
<INCOME-TAX> 6,563
<INCOME-CONTINUING> 12,297
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<CHANGES> 0
<NET-INCOME> 12,297
<EPS-BASIC> 1.92
<EPS-DILUTED> 1.90
</TABLE>
Exhibit 99.1
PART II, Item 1 - "Legal Proceedings" of a Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 filed by NL Industries, Inc. (File No. 1-640).
Reference is made to the 1998 Annual Report and the Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 1999 and June 30,
1999 for descriptions of certain previously-reported legal proceedings.
In October 1999 the Company was served with a complaint in State of
Rhode Island v. Lead Industries Association, et al. (Superior Court of Rhode
Island, No. 99-5226). Rhode Island, by and through its Attorney General, seeks
compensatory and punitive damages for medical, school, and public and private
building abatement expenses that the State alleges were caused by lead paint,
and for funding of a public education campaign and screening programs. Plaintiff
seeks judgments of joint and several liability against the Company, seven other
companies alleged to have manufactured lead products in paint, and the Lead
Industries Association. Plaintiffs allege public nuisance, violation of the
Rhode Island Unfair Trade Practices and Consumer Protection Act, strict
liability, negligence, negligent misrepresentation and omissions, fraudulent
misrepresentation and omissions, civil conspiracy, unjust enrichment, indemnity,
and equitable relief to protect children. The Company intends to deny all
allegations of wrongdoing or liability and to defend the case vigorously.
In October 1999 the Company was served with a complaint in Cofield,
et al. v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004491). Plaintiffs, six homeowners, seek to
represent a class of all owners of nonrental residential properties in Maryland.
Plaintiffs seek compensatory and punitive damages for the existence of
lead-based paint in their homes, including funds for monitoring, detecting and
abating lead-based paint in those residences. Plaintiffs allege that the
Company; fourteen other companies alleged to have manufactured lead pigment,
paint and/or gasoline additives; the Lead Industries Association; and the
National Paint and Coatings Association are jointly and severally liable for
alleged negligent product design, negligent failure to warn, supplier
negligence, strict liability/defective design, strict liability/failure to warn,
nuisance, indemnification, fraud and deceit, conspiracy, concert of action,
aiding and abetting, and enterprise liability. Plaintiffs seek damages in excess
of $20,000 per household. In October 1999 defendants removed the case to
Maryland federal court. The Company intends to deny all allegations of
wrongdoing or liability and to defend the case vigorously.
In October 1999 the Company was served with a complaint in Smith,
et al. v. Lead Industries Association, et al. (Circuit Court for Baltimore City,
Maryland, Case No. 24-C-99-004490). Plaintiffs, six minors, each seek
compensatory damages of $5 million and punitive damages of $10 million.
Plaintiffs allege that the Company; fourteen other companies alleged to have
manufactured lead pigment, paint and/or gasoline additives; the Lead Industries
Association; and the National Paint and Coatings Association are jointly and
severally liable for alleged negligent product design, negligent failure to
warn, supplier negligence, fraud and deceit, conspiracy, concert of action,
aiding and abetting, strict liability/ failure to warn, and strict
liability/defective design. In October 1999 defendants removed the case to
Maryland federal court and in November 1999 the case was remanded to state
court. The Company intends to deny all allegations of wrongdoing or liability
and to defend the case vigorously.
In September 1999 an amended complaint was filed in Thomas v. Lead
Industries Association, et al. (Circuit Court, Milwaukee, Wisconsin, Case No.
99-CV-6411) adding as defendants the Company and seven other companies alleged
to have manufactured lead products in paint to a suit originally filed against
plaintiff's landlords. Plaintiff, a minor, alleges injuries purportedly caused
by lead on the surfaces of premises in homes in which he resided. Plaintiff
seeks compensatory and punitive damages. Plaintiff alleges strict liability,
negligence, negligent misrepresentation and omissions, fraudulent
misrepresentations and omissions, concert of action, civil conspiracy, and
enterprise liability causes of action against the Company, six other former
manufacturers of lead products contained in paint, and the Lead Industries
Association. The Company intends to deny all allegations of wrongdoing or
liability and to defend the case vigorously.
City of New York, et al. v. Lead Industries Association, et al (No.
89-4617). In September 1999 the trial court denied the previously reported
plaintiffs' motions for summary judgment on market share and conspiracy issues
and denied defendants' April 1999 motion for summary judgment on statute of
limitations grounds. Plaintiffs have appealed the denial of their motions.
Parker v. NL Industries, et al. (No. 97085060 CC 915). In September 1999
the Special Court of Appeals reversed the previously reported grant of summary
judgment to defendants. Defendants have requested review from the Court of
Appeals.
