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, 2000
--------------
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 (IRS Employer Identification No.)
incorporation or organization)
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, 2000: 6,418,020
<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," "will," "looks," "should," "anticipates," "expected" or comparable
terminology or by discussions of strategy 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 affect 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 in 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 TIMET's and NL's businesses, TIMET's
dependence on the aerospace industry, the sensitivity of TIMET's and NL's
businesses to global industry capacity, global economic conditions, changes in
product pricing, the performance of The Boeing Company and other aerospace
manufacturers under their long-term purchase agreements with TIMET, the impact
of long-term contracts with vendors on TIMET's ability to reduce or increase
supply or achieve lower costs, the possibility of labor disruptions, the outcome
of litigation, 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. Should one or more of these risks materialize (or the consequences of
such a development worsen), or should the underlying assumptions prove
incorrect, actual results could differ materially from those forecasted or
expected.
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - December 31, 1999 and
March 31, 2000 2-3
Consolidated Statements of Income - Three months ended
March 31, 1999 and 2000 4
Consolidated Statements of Comprehensive Income (Loss) - Three
months ended March 31, 1999 and 2000 5
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999 and 2000 6
Consolidated Statement of Stockholders' Equity - Three months
ended March 31, 2000 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 28
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
December 31, March 31,
1999 2000
-------------------- ---------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,002 $ 4,367
Accounts and notes receivable 2,614 2,626
Receivable from related parties 1,847 1,918
Prepaid expenses and other 1,788 927
-------------------- ---------------------
Total current assets 9,251 9,838
-------------------- ---------------------
Other assets:
Investment in timet 85,772 80,627
Investment in nl industries 113,574 110,052
Investment in joint ventures 13,658 13,853
Receivable from related parties 1,161 1,086
Other 8,570 9,033
-------------------- ---------------------
TOTAL OTHER ASSETS 222,735 214,651
-------------------- ---------------------
NET PROPERTY AND EQUIPMENT 588 576
-------------------- ---------------------
$ 232,574 $ 225,065
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
December 31, March 31,
1999 2000
---------------------- ----------------------
Current liabilities:
<S> <C> <C>
Loan payable to related party $ 13,743 $ 14,438
Accrued liabilities 4,623 3,546
Other payables to related parties 426 894
---------------------- ----------------------
Total current liabilities 18,792 18,878
---------------------- ----------------------
Noncurrent liabilities:
Insurance claims and claim expenses 10,292 10,829
Accrued postretirement benefit cost 21,329 21,232
Accrued environmental cost 5,736 5,767
Deferred income taxes 8,598 7,799
---------------------- ----------------------
Total noncurrent liabilities 45,955 45,627
---------------------- ----------------------
Minority interest 4,159 4,237
---------------------- ----------------------
Stockholders' equity:
Preferred stock - -
Common stock 7,781 7,783
Additional paid-in capital 290,218 290,240
Accumulated deficit (60,898) (63,232)
Accumulated other comprehensive loss (14,075) (17,105)
---------------------- ----------------------
223,026 217,686
Less treasury stock, at cost 59,358 61,363
---------------------- ----------------------
Total stockholders' equity 163,668 156,323
---------------------- ----------------------
$ 232,574 $ 225,065
====================== ======================
</TABLE>
Commitments and contingencies (Note 1).
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1999 and 2000
(In thousands, except per share data)
1999 2000
------------- -------------
Equity in earnings (loss) of:
<S> <C> <C>
TIMET $ (1,194) $ (3,992)
NL Industries 1,804 3,901
Other joint ventures 679 276
------------- -------------
1,289 185
Corporate expenses, net (689) (533)
Interest expense (165) (285)
------------- -------------
Income (loss) before income taxes and minority interest 435 (633)
Income tax expense (benefit) (68) 834
Minority interest 181 78
------------- -------------
Income (loss) before extraordinary item 322 (1,545)
Equity in extraordinary loss of TIMET-
early extinguishment of debt - (342)
------------- -------------
Net income (loss) $ 322 $ (1,887)
============= =============
Earnings (loss) per share:
Before extraordinary item:
Basic $ .05 $ (.24)
Diluted .05 *
Net income (loss):
Basic $ .05 $ (.30)
Diluted .05 *
Weighted average shares outstanding:
Common shares 6,381 6,371
Diluted shares 6,471 6,418
<FN>
* Antidilutive in 2000
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
------------ -------------
<S> <C> <C>
Net income (loss) $ 322 $ (1,887)
Other comprehensive income (loss), net of applicable taxes:
Currency translation adjustments (3,995) (3,162)
Unrealized gains (losses) on marketable
securities (200) 132
------------ -------------
Comprehensive loss $(3,873) $ (4,917)
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 322 $ (1,887)
(Earnings) loss of affiliates:
Before extraordinary item (1,289) (185)
Extraordinary item - 342
Distributions 1,175 1,613
Deferred income taxes (118) 921
Minority interest 181 78
Other, net (66) 13
Change in assets and liabilities:
Accounts with related parties 436 463
Other, net (467) (265)
-------------- --------------
Net cash provided by operating activities 174 1,093
-------------- --------------
Cash flows from investing activities:
Purchase of timet common stock (15,988) -
-------------- --------------
Net cash used by investing activities (15,988) -
-------------- --------------
Cash flows from financing activities:
Borrowings from related parties 6,275 695
Refund of letters of credit cash collateral 9,872 -
Dividends paid (447) (447)
Other, net 78 24
-------------- --------------
Net cash provided by financing activities 15,778 272
-------------- --------------
Net increase (decrease) in cash and cash equivalents (36) 1,365
Balance at beginning of period 3,132 3,002
-------------- --------------
Balance at end of period $ 3,096 $ 4,367
============== ==============
Supplemental disclosures - cash paid for income taxes $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
<TABLE>
<CAPTION>
TREMONT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2000
(In thousands)
Accumulated other
Common stock comprehensive income (loss)
-------------------- -----------------------------------
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> <C> <C> <C> <C>
Balance at December 31, 1999 7,781 1,392 $ 7,781 $290,218 $ (60,898) $ (13,352) $ 286 $ (1,009) $(59,358) $ 163,668
Net loss - - - - (1,887) - - - - (1,887)
Other comprehensive income (loss) - - - - - (3,162) 132 - - (3,030)
Dividends ($.07 per share) - - - - (447) - - - - (447)
Common stock issued 2 - 2 22 - - - - - 24
Treasury stock - 108 - - - - - - (2,005) (2,005)
------ -------- -------- -------- ---------- ---------- -------- ---------- ---------- -----------
Balance at March 31, 2000 7,783 1,500 $ 7,783 $290,240 $ (63,232) $ (16,514) $ 418 $ (1,009) $(61,363) $ 156,323
====== ======== ======== ======== ========== ========== ======== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 7 -
<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. ("NL") and other joint ventures of 75%-owned TRECO L.L.C. At
March 31, 2000, Valhi, Inc. and Tremont, each affiliates of Contran Corporation,
held approximately 60% and 20%, respectively, of NL's outstanding common stock,
and together they may be deemed to control NL. At March 31, 2000, Contran and
its subsidiaries held approximately 93% of Valhi's outstanding common stock, and
Valhi and other entities related to Harold C. Simmons held approximately 73% of
Tremont's outstanding common stock. At March 31, 2000, the Combined Master
Retirement Trust ("CMRT"), a trust formed by Valhi to permit the collective
investment by trusts that maintain assets of certain employee benefit plans
adopted by Valhi and related entities, owned an additional 8% of TIMET's
outstanding common stock. Substantially all of Contran's outstanding common
voting stock is held either by trusts established for the benefit of certain
children and grandchildren of Mr. Simmons, of which Mr. Simmons is the sole
trustee, or by Mr. Simmons directly. Mr. Simmons may be deemed to control each
of Contran, Valhi, Tremont, NL and TIMET. Mr. Simmons is sole trustee of the
CMRT and is a member of the trust investment committee of the CMRT.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1999 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 2000 and the consolidated statements of
income, cash flows, comprehensive income (loss) and stockholders' equity for the
interim periods ended March 31, 1999 and 2000 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 prior year
amounts have been reclassified to conform to the current year presentation.
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, 1999 (the "1999 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
1999 Annual Report, including certain information concerning TIMET's and NL's
legal proceedings incorporated therein by reference.
- 8 -
<PAGE>
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 Company,
NL and TIMET are currently studying this new accounting rule and the impact of
adopting SFAS No. 133, if any, will be dependent upon the extent to which the
companies are then parties to derivative contracts or engaged in hedging
activities. As permitted by the transition requirements of SFAS No. 133, as
amended, the companies will exempt all host contracts containing embedded
derivatives which were issued or acquired prior to January 1, 1999.
Note 2 - Stockholders' equity:
In March 2000, NL purchased an additional 500,000 shares of Tremont
common stock in market transactions for $9.5 million, and at March 31, 2000, NL
held approximately 9% of the Company's outstanding common stock. For financial
reporting purposes, the Company has classified its proportional interest of
Tremont common stock held by NL as treasury stock. Under Delaware corporate law,
the Tremont shares held by NL are not considered treasury stock for voting or
quorum purposes. Accordingly, shares outstanding for financial reporting
purposes differ from those outstanding for such other purposes.
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. At March 31, 2000, Tremont held 12.3 million shares, or 39%, of
TIMET's outstanding common stock. At March 31, 2000, the net carrying amount of
the Company's interest in TIMET was approximately $6.57 per share, while the
market price of TIMET common stock at that date was $4.38 per share.
NL INDUSTRIES. At March 31, 2000, Tremont held 10.2 million shares of
NL's outstanding common stock. At March 31, 2000, the net carrying amount of the
Company's interest in NL was approximately $10.77 per share while the market
price of NL common stock at that date was $13.00 per share.
JOINT VENTURES. Investment in joint ventures represents holdings of
75%-owned TRECO, which is principally comprised of (i) a 12% direct interest in
The Landwell Company ("Landwell"), 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.
- 9 -
<PAGE>
Note 4 - Income taxes:
The difference between the Company's income tax expense (benefit)
attributable to pretax income (loss) and the amounts that would be expected
using the U.S. federal statutory income tax rate of 35% is summarized below.
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------------------
1999 2000
------------------- --------------------
(In thousands)
<S> <C> <C>
Expected income tax expense (benefit), at 35% $ 153 $ (249)
Adjustment of deferred tax valuation allowance - 1,527
Incremental tax and rate differences on equity
in income of companies not included in
the consolidated tax group (278) (441)
State income taxes and other, net 57 (3)
------------------- --------------------
Provision for income taxes (benefit) $ (68) $ 834
=================== ====================
</TABLE>
The deferred tax valuation allowance adjustment in 2000 relates
primarily to the Company not recognizing a deferred income tax asset with
respect to its equity in losses of TIMET, which the Company believes such asset
would not meet the "more-likely-than-not" recognition criteria.
Note 5 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
-------------------- -------------------------
(In thousands)
<S> <C> <C>
Postretirement benefits $ 1,535 $ 1,535
Other employee benefits 250 250
Environmental cost 385 329
Miscellaneous taxes 136 141
Other 2,317 1,291
-------------------- -------------------------
$ 4,623 $ 3,546
==================== =========================
</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 Valhi, NL and TIMET under intercorporate
services arrangements and interest payable to Contran.
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, 2000, the interest rate was 8.5%. Obligations under this
agreement are payable upon demand. At March 31, 2000, Tremont owed Contran $14.4
million pursuant to this agreement, which amount was borrowed primarily to
purchase shares of NL and TIMET common stock during 1998 and 1999.
- 10 -
<PAGE>
Note 7 - Earnings per share:
Net income (loss) per share is based upon the weighted average number
of common shares and dilutive common stock options outstanding. A reconciliation
of the numerator and denominator used in the calculation of basic and diluted
earnings per share is presented below. The effect of conversion of TIMET's
Convertible Preferred Securities would be a net reduction of the Company's
equity in earnings of TIMET. The reduction results from dilution of the
Company's ownership percentage offset in part by increased TIMET net income
resulting from elimination of dividends on the Convertible Preferred Securities.
The effect of the assumed conversion of TIMET's Convertible Preferred Securities
would be antidilutive in the 1999 and 2000 periods and is omitted from the
numerator of the calculation. Tremont stock options, which were omitted from the
denominator because they were antidilutive, were not material.
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------
1999 2000
--------------- --------------
(In thousands)
Numerator:
<S> <C> <C>
Net income (loss) $ 322 $ (1,887)
Effect of dilutive securities of equity investees - -
--------------- --------------
Diluted net income (loss) $ 322 $ (1,887)
=============== ==============
Denominator:
Average common shares outstanding 6,381 6,371
Average dilutive stock options 90 47
--------------- --------------
Diluted shares 6,471 6,418
=============== ==============
</TABLE>
- 11 -
<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 first quarter net loss of $1.9 million, or $.30 per
share, compared to net income of $.3 million, or $.05 per share, for the same
quarter in 1999.
The Company's equity in earnings of 39%-owned TIMET was a loss of $4.0
million (before extraordinary item) in the first quarter of 2000 compared to a
loss of $1.2 million in 1999. TIMET reported a first quarter net loss of $15.1
million on sales of $104.7 million compared to a net loss of $3.9 million on
sales of $134.1 million for the comparable 1999 period. TIMET's sales were 22%
lower than the first quarter of last year due principally to an 11% decline in
mill product sales volume and a 6% decline in average selling prices. TIMET's
first quarter results include pretax special items of $9.2 million, consisting
of restructuring charges of $3.7 million, equipment-related impairment charges
of $3.4 million and environmental remediation charges of $3.3 million, offset by
a $1.2 million gain on the sale of its castings joint venture. Additionally,
TIMET recorded an extraordinary item of $.9 million after taxes related to the
write-off of deferred financing costs associated with its previous U.S. credit
facility.
The Company's equity in earnings of 20%-owned NL Industries was $3.9
million in the first quarter of 2000 COMPARED TO $1.8 MILLION IN 1999. OPERATING
INCOME OF NL'S TITANIUM DIOXIDE PIGMENTS ("TIO2") business in the first quarter
of 2000 increased 49% to $46.2 million compared to $31.0 million in the first
quarter of 1999. NL's first quarter sales volume increased 24% from the first
quarter 1999, reflecting sustained strong demand in all major regions. NL's
first quarter production volume was 16% higher than the comparable 1999 period
with operating rates near full capacity versus 86% capacity utilization in the
first quarter of 1999. NL's average selling prices during the first quarter of
2000 were even with the first quarter of 1999.
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, 2000 was $6.57 per share, compared to a per share market
price of $4.38 at that date. The Company's per share net carrying amount of its
interest in NL at March 31, 2000 was $10.77 per share, compared to a per share
market price of $13.00 at that date. 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. 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 further 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.
- 12 -
<PAGE>
The Company's income tax rate in the first quarter of 2000 varied from
the U.S. statutory rate principally because the Company did not recognize a
deferred tax asset with respect to its equity in losses of TIMET, which the
Company believes would not meet the "more-likely-than-not" recognition criteria.
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 basis differences
related to purchase accounting adjustments made by Tremont in conjunction with
the acquisitions of its interest in TIMET and amortization of the basis
difference related to the writedown of the Company's investment in TIMET
recorded in the fourth quarter of 1999 for an other than temporary decline in
the market value of its investment. Amortization of such basis differences
increases earnings, and reduces losses, attributable to TIMET as reported by
Tremont.
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1999 2000 Change
----------- ------------ -------------
(In millions)
<S> <C> <C> <C>
Net sales $ 134.1 $ 104.7 (22)%
=========== ============ =============
Operating loss $ (1.4) $ (18.4)
Dividends and interest income 1.5 1.7
Corporate income (expense), net (.6) .9
Interest expense 1.3 2.3
----------- ------------
(1.8) (18.1)
Income tax benefit (.6) (6.4)
Minority interest 2.7 2.5
----------- ------------
Loss before extraordinary item (3.9) (14.2)
Extraordinary item - early extinguishment of debt,
Net of tax - (.9)
----------- ------------
Net loss $ (3.9) $ (15.1) $(11.2)
=========== ============ =============
Tremont's equity in TIMET's earnings,
Including amortization of basis differences $ (1.2) $ (4.0) $ (2.8)
=========== ============ =============
</TABLE>
- 13 -
<PAGE>
SALES AND OPERATING INCOME. Sales of $104.7 million in the first
quarter of 2000 were 22% lower than the first quarter of last year due
principally to a 11% decline in mill products volume and a 6% decline in average
selling prices. Ingot and slab volume decreased 30% from year-ago levels, while
average prices declined 2%. Total cost of sales was 103% of sales in the first
quarter of 2000 compared to 91% in the same period last year. The higher cost of
sales in 2000 is principally due to $6.7 million of special charges, consisting
of a $3.4 million charge for the write-down associated with an impairment of
certain inoperative equipment and a $3.3 million charge for environmental
remediation liabilities. The lower selling prices in the 2000 period also
contributed to the lower gross margin.
During the first quarter of 2000, TIMET implemented a plan to address
current market and operating conditions, which resulted in the recognition of a
$3.7 million restructuring charge. Such charge is included in the operating loss
of the "Titanium melted and mill products" segment in 2000 and is principally
related to personnel severance and benefits for the approximately 250 employees
to be terminated. As of March 31, 2000, approximately two-thirds of the planned
250 personnel reductions had been accomplished, with substantially all of the
remainder expected to be accomplished by the end of the second quarter 2000
Selling, general, administrative and development expenses in 2000 were
lower than 1999 in dollar terms due in large part to the completion of the
implementation of the initial phase of TIMET's business-enterprise system during
the first half of 1999. These costs as a percentage of sales, however, increased
to approximately 11% as not all such costs are variable, particularly as the
benefits of the 2000 restructuring plan have not yet been fully realized.
Net sales of the "Other" segment consisted of TIMET's nonintegrated
joint ventures, which investments have been either sold or charged off due to an
asset impairment. Equity losses in the "Other" segment was lower in 2000
principally as a result of TIMET's no longer recognizing its share of losses
associated with nonintegrated joint ventures that were charged off in the fourth
quarter of 1999.
TIMET's firm order backlog at the end of March 2000 was approximately
$185 million. Comparable backlogs at the end of March 1999 and December 1999
were approximately $325 million and $195 million, respectively.
Customers and end users continue to indicate that a substantial
titanium inventory overhang exists throughout the aerospace industry supply
chain that, along with the competitive environment, continues to place downward
pressure on TIMET's sales volumes and prices in selected products. It is very
difficult to predict what will happen for the balance of 2000. Early indications
are that production volumes and operating margins, before special charges, will
be somewhat lower in the remaining three quarters of 2000 compared to the first
quarter. TIMET is seeking to stem this apparent deterioration through a stronger
sales effort, selective price reductions and additional cost reductions.
However, it is too early to determine how successful these efforts will be.
- 14 -
<PAGE>
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 60% of TIMET's European sales are denominated in
currencies other than the U.S. dollar, principally the British pound and
European currencies tied to the euro. 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 that 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 U.S. 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 losses were $.5 million during the three months ended March
31, 2000 and $.8 million during the same period in 1999. At March 31, 2000,
consolidated assets and liabilities denominated in currencies other than
functional currencies were approximately $17 million and $19 million,
respectively, consisting primarily of U.S. dollar cash, accounts receivable,
accounts payable and borrowings.
DIVIDENDS AND INTEREST INCOME. Dividends and interest income consists
principally of dividends on $80 million of non-voting preferred securities of
Special Metals Corporation which accrue at an annual rate of 6.625%.
CORPORATE INCOME (EXPENSE), NET. General corporate income, net includes
currency transaction losses described above. The increase in general corporate
income in the first quarter of 2000 is due to a $1.2 million gain on the sale of
TIMET's interest in its castings joint venture.
INTEREST EXPENSE. Interest expense in the first quarter of 2000 is
higher than in the comparable 1999 period, primarily due to a lower level of
interest being capitalized in 2000 compared to 1999 as additional capital
projects have been completed. The higher interest expense in 2000 also reflects
increased interest rates related to the new credit facilities and increased
market rates.
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 (loss) can impact TIMET's effective tax rate.
MINORITY INTEREST. Dividend expense related to TIMET's 6.625%
Convertible Preferred Securities approximated $3.3 million in both the 1999 and
2000 periods and is reported as minority interest, net of allocable income
taxes.
- 15 -
<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 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 and basis differences related to the writedown in the Company's investment
in NL recorded in 1993 for an other than temporary decline in the market value
of its investment. Amortization of such basis differences generally reduces
earnings, and increases losses, attributable to NL as reported by Tremont.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1999 2000 Change
----------- ----------- -----------
(In millions)
<S> <C> <C> <C>
Net sales $ 201.6 $ 231.0 +15%
=========== ===========
Operating income $ 31.0 $ 46.2 +49%
General corporate items:
Securities earnings 1.6 1.7
Expenses, net (4.2) (5.0)
Interest expense (9.8) (7.9)
----------- -----------
18.6 35.0 +88%
Income tax expense 4.7 11.2
----------- -----------
Income from continuing operations 13.9 23.8
Minority interest - .1
----------- -----------
NET INCOME $ 13.9 $ 23.7 +71%
=========== ===========
Tremont's equity in NL's net earnings,
Including amortization of basis differences $ 1.8 $ 3.9 +117%
=========== ===========
</TABLE>
NET SALES AND OPERATING INCOME. NL CONDUCTS ITS TITANIUM DIOXIDE
("TIO2") pigments operations through its wholly-owned subsidiary, Kronos, Inc.
Kronos' operating income in the first quarter of 2000 increased from the first
quarter of 1999 due to record first-quarter sales volume and strong production
volume. Kronos' first-quarter sales volume increased 24% from the first quarter
of 1999 and was even with the fourth quarter of 1999, reflecting sustained
strong demand in all major regions. Kronos' first-quarter 2000 production volume
was 16% higher than the comparable 1999 period with operating rates near full
capacity compared to 86% capacity utilization in the first quarter of 1999.
AVERAGE TIO2 selling prices in billing currencies (which excludes the
effects of foreign currency translation) for the first quarter of 2000 were even
with the first quarter of 1999 and were 3% higher than the fourth quarter of
1999. During the first quarter of 2000, NL announced additional price increases
in Europe, EFFECTIVE IN THE SECOND QUARTER OF 2000. NL BELIEVES DEMAND FOR TIO2
will remain strong in the near-term as a result of seasonally high sales to the
coatings industry, resulting in continued upward pressure on selling prices.
Should demand in the second half of 2000 remain robust, additional price
increases could be announced later in 2000. The successful implementation of any
such price increase will depend on market conditions.
- 16 -
<PAGE>
KRONOS ANTICIPATES ITS TIO2 sales volume for full-year 2000 will be
slightly higher than that of 1999. Kronos expects its full-year 2000 operating
income will be higher than 1999 primarily because of higher average selling
prices, higher production volume and its continued focus on controlling costs.
The extent of the improvement will be determined primarily by the magnitude of
realized price increases.
Kronos' cost of sales as a percentage of net sales decreased in the
first quarter of 2000 primarily due to higher production volume. Excluding the
effects of foreign currency translation, which decreased NL's expenses in the
first quarter of 2000 compared to the first quarter of 1999, Kronos' selling,
general and administrative expenses increased in the first quarter of 2000 due
to higher distribution expenses associated with higher first-quarter 2000 sales
volume.
A significant amount of Kronos' sales and operating costs are
denominated in currencies other than the U.S. dollar. Fluctuations in the value
of the U.S. dollar relative to other currencies, primarily a stronger U.S.
dollar compared to the euro, decreased the dollar value of sales in the first
quarter of 2000 by a net $14 million compared to the first quarter of 1999. When
translated from billing currencies to U.S. dollars using currency exchange rates
prevailing during the respective periods, Kronos' first-quarter 2000 average
selling price in U.S. dollars was approximately 6% lower than in the first
quarter of 1999. Kronos' operating costs that are not denominated in U.S.
dollars were also lower when translated to U.S. dollars in the first quarter of
2000 compared to the first quarter of 1999, and accordingly, Kronos' per unit
costs were lower in the first quarter of 2000 compared to the same period last
year. As a result, the net impact of currency exchange rate fluctuations on
operating income in the first quarter of 2000 was not significant when compared
to the first quarter of 1999.
GENERAL CORPORATE. Interest expense in the first quarter of 2000
decreased 20% from the comparable 1999 period primarily due to lower levels of
outstanding debt and lower European borrowing rates. NL expects its full-year
2000 interest expense will be lower than 1999, primarily due to lower levels of
outstanding debt and lower European borrowing rates.
PROVISION FOR INCOME TAXES. NL reduced its deferred income tax
valuation allowance by $1.9 million in the first quarter of 1999 and $1.3
million in the first quarter of 2000 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.
OTHER. Minority interest primarily relates to NL's majority-owned
environmental management subsidiary, NL Environmental Management Services, Inc.
("EMS").
- 17 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
TREMONT
The Company had cash and cash equivalents of $4.4 million at March 31,
2000. 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 $54 million
and $133 million, respectively, at March 31, 2000.
The Company's equity in earnings of affiliates are primarily noncash.
The Company received cash distributions from Landwell of $.4 million in the 1999
period and $.1 million in the 2000 period primarily to cover taxes associated
with Landwell's income from land sales. In the first quarter of 1999, TIMET and
NL paid cash dividends of $.04 and $.035 per share, respectively, aggregating
$.8 million. In the first quarter of 2000, TIMET did not pay a cash dividend and
NL paid a cash dividend of $.15 per NL share, aggregating $1.5 million. Payments
and amounts of dividends in the future are at the discretion of the Boards of
Directors of NL and TIMET.
At March 31, 2000, the Company owed Contran $14.7 million including
accrued interest pursuant to an advance agreement with Contran, which amount was
borrowed primarily to purchase shares of NL and TIMET common stock in 1998 and
1999. In April 2000, the Company repaid $.8 million of the advances from
Contran.
The Contran advance agreement and dividends from NL are currently
Tremont's primary sources of liquidity. Unless the Company decides to purchase
additional shares of NL, TIMET or Tremont securities, the Company does not
currently believe it will need to borrow additional amounts from Contran.
Tremont's current quarterly dividend rate is $.07 per share. On May 9,
2000, the Company's Board of Directors declared a regular quarterly dividend of
$.07 per common share, payable on June 30, 2000 to stockholders of record as of
the close of business on June 15, 2000.
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 insurance company, 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.
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.
- 18 -
<PAGE>
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.
- 19 -
<PAGE>
TIMET - Summarized balance sheet and cash flow information.
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------------- ---------------------
(In millions)
<S> <C> <C>
Cash and equivalents $ 20.7 $ 6.3
Other current assets 321.9 285.1
Goodwill and other intangible assets 71.1 69.1
Other noncurrent assets 136.0 135.2
Property and equipment, net 333.4 323.1
------------------- ---------------------
$ 883.1 $ 818.8
=================== =====================
Current liabilities $ 194.4 $ 143.1
Long-term debt and capital lease obligations 32.2 35.5
Accrued postretirement benefit cost 19.9 20.1
Other noncurrent liabilities 19.9 21.0
Minority interest - convertible preferred securities 201.3 201.3
Other minority interest 7.3 7.5
Stockholders' equity 408.1 390.3
------------------- ---------------------
$ 883.1 $ 818.8
=================== =====================
Three months ended
March 31,
-------------------------------------------
1999 2000
------------------- ---------------------
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 7.6 $ (1.3)
Changes in assets and liabilities 1.6 19.2
------------------- ---------------------
9.2 17.9
Investing activities (6.7) 4.9
Financing activities (5.8) (36.8)
------------------- ---------------------
$ (3.3) $ (14.0)
=================== =====================
Cash paid for:
Interest, net of amounts capitalized $ 1.1 $ 1.7
Convertible preferred securities dividends 3.3 3.3
Income taxes (refund), net (3.1) .5
</TABLE>
- 20 -
<PAGE>
At March 31, 2000, TIMET had net debt of $73 million ($79 million of
notes payable and long-term debt and $6 million of cash and equivalents). TIMET
also had $95 million of borrowing availability under its U.S. and European
credit lines. TIMET believes its U.S. and European credit lines will provide it
with the liquidity necessary for current market and operating conditions.
OPERATING ACTIVITIES. Cash provided by operating activities was $18
million for the three-month period ended March 31, 2000, up from $9 million for
the same period in 1999, as summarized below.
Cash provided by operating activities, excluding changes in assets and
liabilities, generally followed the trend in operating results.
Changes in assets and liabilities reflect primarily the timing of
purchases, production and sales and can vary significantly from period to
period. TIMET's plan to address current market conditions includes reductions in
working capital, particularly inventories and receivables, both of which were
reduced in the first quarter of 2000. The significant reduction in receivables
in the first quarter of 2000 was also attributable to $16 million of customer
payments related to a bill-and-hold shipment from 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 for
first quarter 1999 purchases.
Dividends on the $80 million of Special Metals Corporation 6.625%
convertible preferred securities held by TIMET had been deferred by SMC due to
limitations imposed by SMC's bank credit agreements. However, in April 2000,
TIMET received a quarterly dividend of $1.3 million. There can be no assurances
that TIMET will continue to receive additional dividends during the remainder of
2000.
INVESTING ACTIVITIES. TIMET's capital expenditures were $2 million for
the three months ended March 31, 2000 compared to $10 million for the same
period in 1999. Capital expenditures for 2000 are estimated to be less than $15
million and are planned to include those principally intended for capital
maintenance, environmental, health and safety purposes. Proceeds from the sale
of property and equipment in 1999 included the sale of an interest in a
corporate aircraft and assets sold as part of TIMET's restructuring activities.
In the first quarter of 2000, TIMET sold its interest in the castings
joint venture to Wyman-Gordon for $7 million and recorded a pretax gain of $1.2
million.
FINANCING ACTIVITIES. Net repayments in the 2000 period reflect reductions
of outstanding borrowings principally in the U.S. resulting from collection of
receivables and the sale of the castings joint venture. Net repayments in 1999
reflect reductions of outstanding borrowings in both the U.S. and U.K.
In November 1999, TIMET's Board of Directors voted to suspend the
regular quarterly dividend on TIMET's common stock in view of, among other
things, the continuing weakness in overall market demand for titanium metal
products. TIMET's new U.S. credit agreement entered into in February 2000
prohibits the payment of dividends on TIMET's common stock.
- 21 -
<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 for each period. Given uncertainty
concerning the results for the balance of 2000, TIMET has exercised its right to
defer future dividend payments on these securities for a period of 10 quarters,
although interest will continue to accrue at the coupon rate on the principal
and unpaid dividends. TIMET's goal is to resume dividends on the Convertible
Preferred Securities when the outlook for TIMET's results from operations
improves substantially.
ENVIRONMENTAL AND LEGAL MATTERS. A preliminary study of environmental
issues at TIMET's Henderson, Nevada operations and other TIMET sites within the
BMI Complex was completed during the first quarter of 2000. TIMET accrued $3.3
million based on the estimated cost of groundwater remediation activities
described in the study. The undiscounted environmental remediation charges are
substantially non-cash for 2000 and are expected to be paid over a period of up
to thirty years.
TIMET periodically evaluates its liquidity requirements, capital needs
and availability of resources in view of, among other things, its alternative
uses of capital, its debt service requirements, the cost of debt and equity
capital, and estimated future operating cash flows. As a result of this process,
TIMET has in the past and, in light of its current outlook, may in the future
seek to raise additional capital, modify its common and preferred dividend
policies, 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.
- 22 -
<PAGE>
NL INDUSTRIES - Summarized balance sheet and cash flow information.
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
--------------------- ----------------------
(In millions)
<S> <C> <C>
Cash and cash equivalents $ 151.8 $ 150.9
Other current assets 354.6 340.2
Noncurrent securities 15.1 24.7
Investments in joint ventures 157.6 154.1
Other noncurrent assets 28.7 27.2
Property and equipment 348.4 332.2
--------------------- ----------------------
$ 1,056.2 $ 1,029.3
===================== ======================
Current liabilities $ 264.8 $ 260.3
Long-term debt 244.3 244.2
Deferred income taxes 108.2 107.1
Accrued opeb cost 37.1 36.4
Environmental liabilities 64.5 57.4
Other noncurrent liabilities 62.3 58.0
Minority interest 3.9 4.0
Stockholders' equity 271.1 261.9
--------------------- ----------------------
$ 1,056.2 $ 1,029.3
===================== ======================
Three months ended
March 31,
-----------------------------------------------
1999 2000
--------------------- ----------------------
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 28.2 $ 37.0
Changes in assets and liabilities (25.4) (3.2)
--------------------- ----------------------
2.8 33.8
Investing activities (14.8) (15.3)
Financing activities (6.0) (17.7)
--------------------- ----------------------
$ (18.0) $ .8
===================== ======================
Cash paid for:
Interest, net of amounts capitalized $ 2.0 $ .1
Income taxes, net 5.1 3.5
</TABLE>
- 23 -
<PAGE>
OPERATING ACTIVITIES. 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 2000 period increased from the comparable period in 1999
primarily due TO HIGHER OPERATING INCOME, PARTIALLY OFFSET BY LOWER CASH
DISTRIBUTIONS FROM NL'S TIO2 manufacturing joint venture. Changes in NL's
inventories, receivables and payables (excluding the effect of currency
translation) used cash in both the first quarter of 1999 and 2000 primarily due
to increases in receivables in each period; however, the net cash used in the
first quarter of 2000 was significantly less than the first quarter of 1999 due
to a greater amount of cash being provided from reductions in inventory levels
and lower income tax payments in the first quarter of 2000.
INVESTING ACTIVITIES. In March 2000, NL purchased 500,000 shares of
Tremont's common stock in market transactions for $9.5 million. In the first
quarter of 1999, NL collateralized letters of credit issued and outstanding on
behalf of an affiliate pursuant to an Insurance Sharing Agreement with $9.7
million of NL's cash, and classified such amount as current restricted cash
equivalents.
FINANCING ACTIVITIES. In the first quarter of 2000, NL's Board of
Directors increased the regular quarterly dividend from $.035 per share to $.15
per share and paid dividends of $7.6 million to shareholders. In 1999, NL's
Board of Directors authorized a 1.5 million share repurchase program. Pursuant
to this program, NL purchased in the open market (i) 552,000 shares of its
common stock at an aggregate cost of $7.2 million in 1999, (ii) 713,000 shares
at an aggregate cost of $10.3 million in the first quarter of 2000 and (iii)
34,000 shares at an aggregate cost of $.5 million in April 2000.
CASH, CASH EQUIVALENTS AND BORROWING AVAILABILITY. At March 31, 2000,
NL had cash and cash equivalents aggregating $134 million ($37 million held by
non-U.S. subsidiaries) and an additional $17 million of restricted cash
equivalents. NL's subsidiaries had $11 million available for borrowing at March
31, 2000 under existing non-U.S. credit facilities.
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.
During 1997, NL received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($6 million at March
31, 2000) relating to 1994. NL appealed the 1994 assessment to the Fredrikstad
City Court, and in February 2000 the Court ruled in favor of the tax authorities
on the primary issue, but asserted that the tax authorities' assessment was
overstated by NOK 34 million ($4 million at March 31, 2000). In March 2000 the
tax authorities agreed with the Court and reduced the 1994 assessment to NOK 17
million ($2 million at March 31, 2000). The tax authorities recently issued a
NOK 13 million ($2 million at March 31, 2000) assessment for 1996 which has been
computed on a similar basis as the revised 1994 assessment. NL has appealed the
Court's decision on the primary issue related to the 1994 assessment to a higher
court, and the outcome of the 1996 case is dependent on the eventual outcome of
the 1994 case. NL has granted a lien for THE 1994 TAX ASSESSMENT ON ITS
FREDRIKSTAD, NORWAY TIO2 plant in favor of the Norwegian tax authorities and
expects to grant an additional lien on the plant related to the 1996 assessment.
- 24 -
<PAGE>
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
($110 million at March 31, 2000) 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 $150 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 either 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. The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes with respect to site cleanup costs or allocation of such costs among
PRPs, or a determination that NL is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by NL to be required for such matters. Furthermore,
there can be no assurance that additional environmental matters will not arise
in the future.
LEAD PIGMENT LITIGATION. NL is also a defendant in a number of legal
proceedings seeking damages for personal injury and property damage arising out
of 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 reasonably be estimated.
In addition, various legislation and administrative regulations have, from time
to time, been enacted or proposed that seek to (a) 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
(b) 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 and bills which would revive actions barred by
the statute of limitations. 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.
- 25 -
<PAGE>
OTHER. On May 3, 2000, a confederation of labor organizations in Norway
implemented a work stoppage DIRECTED AT VARIOUS NORWEGIAN EMPLOYERS, INCLUDING
NL'S 30,000 METRIC TON TIO2 facility and ilmenite mining operations. NL
currently does not expect the work stoppage to be lengthy or to have a material
adverse effect on NL's consolidated financial position, results of operations 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
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.
- 26 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1999 Annual Report on Form 10-K for
descriptions of certain legal proceedings.
TIMET
In March 2000, TIMET filed a lawsuit against The Boeing Company seeking
damages estimated in excess of $600 million in connection with TIMET's long-term
sales agreement with Boeing. Boeing has not yet filed a formal response to
TIMET's complaint. TIMET and Boeing have begun discussions to determine if a
settlement of this litigation can be reached, however, no assurance can be given
that a settlement will be reached.
NL Industries
BRENNER, ET AL. V. AMERICAN CYANAMID, ET AL. (NO. 12596-93). In March 2000
the Fourth Department intermediate appellate court denied plaintiffs' request to
seek review.
SWEET, ET AL. V. SHEAHAN, ET AL. (NO. 97-CV-1666/LEK-DNH). In March 2000
plaintiffs voluntarily dismissed all defendants other than the landlord without
prejudice.
COFIELD, ET AL. V. LEAD INDUSTRIES ASSOCIATION, ET AL. (NO.
24-C-099-004491). In March 2000 the Federal trial court (No. MJG-99-3277) denied
plaintiffs' motion to remand to State Court. In April 2000 defendants filed an
additional motion to dismiss all claims for lack of product identification.
CITY OF ST. LOUIS V. LEAD INDUSTRIES ASSOCIATION, ET AL (NO. 002-245,
DIVISION 1). In March 2000 defendants removed the case to Missouri federal
court. In April 2000 plaintiff filed a motion to remand to State Court and an
amended complaint seeking to add additional Missouri defendant residents.
IN APRIL 2000 THE COMPANY WAS SERVED WITH A COMPLAINT IN COUNTY OF
SANTA CLARA V. ATLANTIC RICHFIELD COMPANY, ET AL. (SUPERIOR COURT OF THE STATE
OF CALIFORNIA, COUNTY OF SANTA CLARA, CASE NO. CV788657). The County of Santa
Clara seeks to represent a class of all public entities in California. The
County seeks from defendants, eight present or former pigment or paint
manufacturing companies and the Lead Industries Association, compensatory
damages for funds the plaintiffs have expended for medical treatment,
educational expenses, abatement or other costs due to exposure to, or potential
exposure to, lead paint, disgorgement of profit, and punitive damages. Plaintiff
alleges causes of action for violations of the California Business and
Professions Code, strict product liability, negligence, fraud and concealment,
unjust enrichment, and indemnity, and includes market share liability
allegations. The Company intends to deny all allegations of wrongdoing and
liability and to defend the case vigorously.
- 27 -
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Tremont held its Annual Meeting of Stockholders on May 9, 2000. 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:
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
----------------------------------------- ---------------------- -----------------------
<S> <C> <C>
Susan E. Alderton 6,182,480 31,837
Richard J. Boushka 6,182,290 32,027
J. Landis Martin 6,181,579 32,738
Glenn R. Simmons 6,180,917 33,400
Harold C. Simmons 6,180,855 33,462
Thomas P. Stafford 6,181,772 32,545
Avy H. Stein 6,182,310 32,007
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
10.1 Intercorporate Services Agreement by and between Valhi, Inc. and the Registrant effective
January 1, 2000
10.2 Intercorporate Services Agreement by and between Contran Corporation and the Registrant
effective January 1, 2000
10.3 Intercorporate Services Agreement by and between NL Industries, Inc. and the Registrant
effective January 1, 2000
27.1 Financial Data Schedule for the quarter ended March 31, 2000.
<FN>
(b) Reports on Form 8-K filed by the Registrant for the quarter ended March 31, 2000 and for the month
of April 2000.
</FN>
</TABLE>
Filing Date Items Reported
------------------------ ----------------------
February 15, 2000 - 5 and 7
February 16, 2000 - 5 and 7
- 28 -
<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: May 12, 2000 By /s/ Mark A. Wallace
- ------------------ --------------------------------------------------
Mark A. Wallace
Vice President and Chief Financial OfficeR
(Principal Finance Officer)
Date: May 12, 2000 By /s/ David P. Burlage
- ------------------ --------------------------------------------------
David P. Burlage
(Principal Accounting Officer)
- 29-
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
THIS INTERCORPORATE SERVICES AGREEMENT (THE "AGREEMENT"), effective as
of January 1, 2000, 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:
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;
<PAGE>
(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,
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 $51,000
quarterly, commencing as of January 1, 2000, 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, 2000 to
December 31, 2000.
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
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.
<PAGE>
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.
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,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
INTERCORPORATE SERVICES AGREEMEN
THIS INTERCORPORATE SERVICES AGREEMENT (THE "AGREEMENT"), effective as
of January 1, 2000, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1999 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
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.
<PAGE>
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
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, 2000, 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, 2000 to
December 31, 2000.
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
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.
<PAGE>
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.
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,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
INTERCORPORATE SERVICES AGREEMENT effective as of January 1, 2000 by
and between Tremont Corporation ("Tremont"), a Delaware corporation, and NL
Industries, Inc. ("NL"), a New Jersey corporation.
WHEREAS, Tremont desires that NL provide certain services to Tremont,
and NL is willing to provide such services to Tremont pursuant to the terms of
this Agreement.
NOW, THEREFORE, in consideration of the premises and promises set forth
herein, the parties to this Agreement agree as follows:
1. SERVICES PROVIDED. NL will make available to Tremont the following
services (the "Services"):
(a) certain administration and management services with
respect to Tremont's insurance and risk management
needs, including:
(i) management of claims (including insured
and self-insured workers compensation and liability
claims);
(ii) budgeting and related activities;
(iii) administration of Tremont's captive insurance
company; (iv) coordination of property loss control
program; and (v) administration of Tremont's
insurance program, excluding all employee benefit and
welfare related programs.
(b) certain administration and management services
with respect to Tremont's real properties and
interests;
(c) consultation and assistance in performing internal
audit projects, as requested; and
<PAGE>
(d) 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.
2. FEES FOR SERVICES AND REIMBURSEMENT OF EXPENSES. During the Term (as
defined below) of this Agreement, Tremont shall pay to NL an annual fee of
$77,700 (the "Annual Fee") for the Services described in paragraphs 1(a), 1(b),
and 1(d) above payable in quarterly installments of $19,425, plus all
out-of-pocket expenses incurred in connection with the performance of such
Services. In addition, Tremont will, within thirty (30) days after receipt of an
invoice (such invoices to occur no more frequently than once per month) pay to
NL an amount equal to the product of $500 multiplied by the number of days
devoted by NL's internal auditors to providing Services described in paragraph
1(c) above times the number of internal auditors providing such Services plus
all out-of-pocket expenses incurred in the performance of such Services.
Notwithstanding the foregoing, in the event that Tremont determines, in its sole
discretion, that it no longer desires certain of the Services or NL determines,
in its sole discretion, that it no longer desires to provide certain of the
Services, then Tremont or NL, as appropriate, shall provide the other party with
a thirty (30) day prior written notice of cancellation describing the Services
to be terminated or discontinued and Tremont and NL during such ninety-day
period shall agree to a pro-rata reduction of the fees due hereunder for such
terminated or discontinued Services.
3. LIMITATION OF LIABILITY. In providing Services hereunder, NL shall
have a duty to act, and to cause its agents to act, in a reasonably prudent
manner, but neither NL nor any officer, director, employee or agent of NL shall
be liable to Tremont or its subsidiaries for any error of judgment or mistake of
law or for any loss incurred by Tremont or its subsidiaries in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of NL or from
NL's reckless disregard of obligations and duties under this Agreement.
4. INDEMNIFICATION OF NL BY TREMONT. Tremont shall indemnify and hold
harmless NL, its subsidiaries and their 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 such party may become subject arising out of the provision
by NL to Tremont and its SUBSIDIARIES OF ANY OF THE SERVICES, PROVIDED that such
indemnity shall not protect any such party against any liability to which such
person would otherwise by subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations and duties hereunder.
<PAGE>
5. FURTHER ASSURANCE. 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.
6. NOTICES. All communications hereunder shall be in writing and
shall be addressed to:
If to NL: NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
Attention: General Counsel
If to Tremont: Tremont Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202
Attention: General Counsel
or such other address as the parties shall have specified in writing.
7. AMENDMENT AND MODIFICATION. Neither this Agreement nor any item
hereof may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the RESPECTIVE SUCCESSORS AND ASSIGNS OF THE PARTIES HERETO,
PROVIDED that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other party.
9. MISCELLANEOUS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. This Agreement shall be governed in all respects, including
validity, interpretation and affect, by the laws of the State of Texas.
<PAGE>
10. TERM OF AGREEMENT. This Agreement shall be effective as of January
1, 2000, and shall remain IN EFFECT FOR A TERM OF ONE YEAR UNTIL DECEMBER 31,
2000 (THE "TERM"); PROVIDED, HOWEVER, the Agreement shall be extended on a
quarter-to-quarter basis after the expiration of the Term unless written
notification is given by either party thirty (30) days in advance of the first
day of each successive quarter or unless it is terminated or superseded by a
subsequent written agreement of the parties hereto. Upon such termination or
upon the expiration of this Agreement, the parties' rights and obligations
hereunder shall cease and terminate except with respect to rights and
obligations arising on or prior to the date of expiration or termination and the
rights and obligations arising under paragraph 4 above.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the ____ day of May, 2000, which Agreement will be deemed to be effective as of
January 1, 2000.
NL INDUSTRIES, INC.
BY: /S/ ROBERT D. HARDY
---------------------
Robert D. Hardy
Vice President
TREMONT CORPORATION
BY:/S/ MARK A. WALLACE
--------------------
Mark A. Wallace
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000842718
<NAME> Tremont Corporation
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,637
<SECURITIES> 0
<RECEIVABLES> 4,544
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 9,838
<PP&E> 1,423
<DEPRECIATION> 847
<TOTAL-ASSETS> 225,065
<CURRENT-LIABILITIES> 18,878
<BONDS> 0
0
0
<COMMON> 7,783
<OTHER-SE> 148,540
<TOTAL-LIABILITY-AND-EQUITY> 225,065
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> (711)
<INCOME-TAX> 834
<INCOME-CONTINUING> (1,545)
<DISCONTINUED> 0
<EXTRAORDINARY> (342)
<CHANGES> 0
<NET-INCOME> (1,887)
<EPS-BASIC> (.30)
<EPS-DILUTED> 0
</TABLE>
