UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: August 5, 2004
NL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-640 13-5267260
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, TX 75240-2697
(Address of principal executive offices) (Zip Code)
(972) 233-1700
(Registrant's telephone number, including area code)
Item 9: Regulation FD Disclosure
Item 12: Results of Operations and Financial Condition
Pursuant to Items 9 and 12 of this current report, the registrant hereby
furnishes the information set forth in the press release issued on August 5,
2004, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein
by reference.
The information, including the exhibit, the registrant furnishes in this
report is not deemed "filed" for purposes of section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liabilities of
that section. Registration statements or other documents filed with the
Securities and Exchange Commission shall not incorporate this information by
reference, except as otherwise expressly stated in such filing.
SIGNATURE
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 hereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
By: /s/ Gregory M. Swalwell
----------------------------
Gregory M. Swalwell
Vice President, Finance and
Chief Financial Officer
Date: August 5, 2004
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- --------------------------------------------------
99.1 Press release dated August 5, 2004 issued by NL Industries, Inc.
NL Industries, Inc. Contact: Gregory M. Swalwell
Three Lincoln Centre Vice President, Finance
5430 LBJ Freeway, Suite 1700 and Chief Financial Officer
Dallas, TX 75240-2697 (972) 233-1700
- -------------------------------------------------------------------------------
News Release
- -------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
NL REPORTS SECOND QUARTER RESULTS
DALLAS, TEXAS...August 5, 2004...NL Industries, Inc. (NYSE:NL) today reported
net income for the second quarter of 2004 of $179.0 million, or $3.70 per
diluted share, compared with net income of $28.8 million, or $.60 per diluted
share, in the second quarter of 2003. For the first six months of 2004, the
Company reported net income of $183.1 million, or $3.79 per diluted share,
compared with net income of $38.3 million, or $.80 per diluted share, in the
first six months of 2003. The primary reason for the increase in net income in
the 2004 periods is due to certain income tax benefits, as described herein.
The Company conducts its titanium dioxide pigments ("TiO2") business through
Kronos Worldwide, Inc. Kronos' sales of $295.8 million in the second quarter of
2004 were $29.2 million, or 11%, higher than the second quarter of 2003, and
sales increased $39.5 million, or 8%, to $559.1 million for the first six months
of 2004 as compared to the first six months of 2003, as the favorable effect of
fluctuations in foreign currency exchange rates, which increased sales by
approximately $13 million and $35 million, respectively, and higher TiO2 sales
volumes more than offset the impact of lower average TiO2 selling prices.
The Company's operating results in the second quarter of 2004 include income of
$6.3 million ($.04 per diluted share, net of income taxes and minority interest)
related to Kronos' settlement of a contract dispute with a customer. Kronos'
TiO2 segment profit (see description of non-GAAP information below) for the
second quarter of 2004 was $40.1 million compared with $35.5 million in the
second quarter of 2003, and was $66.4 million for the first six months of 2004
compared with $69.7 million for the first six months of 2003. In addition to the
favorable effect of the contract dispute settlement, segment profit
comparability was principally impacted by fluctuations in foreign currency
exchange rates, which favorably impacted segment profit comparability by
approximately $6 million and $8 million for the quarter and year-to-date
periods, respectively, the higher sales volumes and the lower average TiO2
selling prices.
Kronos' average selling prices in billing currencies (which excludes the effects
of fluctuations in the value of the U.S. dollar relative to other currencies)
during both the second quarter and first six months of 2004 were 5% lower than
the respective periods of 2003. Expressed in U.S. dollars computed using actual
foreign currency exchange rates prevailing during the respective periods,
Kronos' average selling prices in the second quarter of 2004 were comparable to
the second quarter of 2003 and were 2% higher for the first six months of 2004
compared with 2003. Reflecting the partial implementation of prior price
increase announcements, Kronos' average selling prices in the second quarter of
2004 were generally flat compared to the first quarter of 2004, reversing the
downward trend in selling prices that has existed since the third quarter of
2003.
Kronos' second quarter 2004 TiO2 sales volumes increased 13% from the second
quarter of 2003, as higher sales volumes in European and export markets more
than offset the effect of lower volumes in Canada. TiO2 sales volumes for the
first six months of 2004 increased 6% from the first six months of 2003. Kronos'
second quarter 2004 TiO2 production volumes were 3% higher than the second
quarter of 2003, and were 1% higher for the first six months of 2004 compared to
2003, with operating rates at near full capacity in all periods presented.
Finished goods inventories at June 30, 2004, which represented 1.8 months of
average sales, were lower as compared to December 31, 2003. Kronos' sales and
production volumes in the first six months of 2004 were both new records for
Kronos.
Corporate expense for 2004 decreased compared to 2003 primarily due to lower
environmental remediation and legal expenses.
Securities transactions, net for 2003 included the previously-reported first
quarter $2.3 million noncash securities transaction gain ($1.5 million, or $.03
per diluted share, net of income taxes) related to the exchange of the Company's
holdings of Tremont Corporation common stock for shares of Valhi, Inc. common
stock as a result of a series of merger transactions completed in February 2003.
Interest expense increased due to relative changes in foreign currency exchange
rates, which increased the U.S. dollar equivalent of interest expense on Kronos
International's euro-denominated Senior Secured Notes by approximately $600,000
and $1.7 million in the second quarter and first six months of 2004,
respectively, as compared to the year-ago periods.
The Company's income tax benefit in the 2004 periods includes a second quarter
$245.6 million tax benefit ($2.57 per diluted share, net of minority interest)
related to the reversal of a deferred income tax asset valuation allowance
attributable to Kronos' income tax attributes in Germany (principally net
operating loss carryforwards). The reversal of the German valuation allowance
reflects Kronos' revised estimate of its ability to utilize its German net
operating loss carryforwards in the future under the "more-likely-than-not"
recognition criteria. Also in the 2004 periods, the Company recognized a $43.1
million income tax benefit ($.89 per diluted share) related to income tax
attributes of a certain subsidiary. This income tax benefit resulted from a
settlement agreement recently reached with the U.S. IRS concerning the IRS'
previously reported examination of a certain restructuring transaction involving
this subsidiary and includes (i) a $12.6 million tax benefit related to a
reduction in the amount of additional income taxes and interest which the
Company estimates it will be required to pay related to this matter as a result
of the settlement agreement and (ii) a $30.5 million tax benefit related to the
reversal of a deferred income tax asset valuation allowance related to certain
tax attributes of this subsidiary (including a U.S. net operating loss
carryforward) which the Company now believes meets the "more-likely-than-not"
recognition criteria. In the second quarter of 2003, the Company recognized a
$24.6 million income tax benefit ($.52 per diluted share) related to Kronos'
previously-reported favorable German court ruling concerning its claim for
refund suit.
The statements in this release relating to matters that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. 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, and actual
future results could differ materially from those described in such
forward-looking statements. While it is not possible to identify all factors,
the Company continues to face many risks and uncertainties. Among the factors
that could cause actual future results to differ materially include, but are not
limited to:
o Future supply and demand for the Company's products,
o The cyclicality of certain of the Company's businesses,
o Customer inventory levels,
o Changes in raw material and other operating costs,
o The possibility of labor disruptions,
o General global economic and political conditions,
o Competitive products and substitute products,
o Customer and competitor strategies,
o The impact of pricing and production decisions,
o Competitive technology positions,
o Fluctuations in currency exchange rates,
o Operating interruptions,
o The ability of the Company to renew or refinance credit facilities,
o The ultimate outcome of income tax audits, tax settlement initiatives or
other tax controversies,
o The ultimate ability to utilize income tax attributes, the benefit of which
has been recognized under the "more-likely-than-not" recognition criteria,
o Environmental matters,
o Government laws and regulations and possible changes therein,
o The ultimate resolution of pending litigation, and
o Possible future litigation.
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 forecast or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of new information, future events
or otherwise.
In an effort to provide investors with additional information regarding the
Company's results as determined by accounting principles generally accepted in
the United States of America ("GAAP"), the Company has disclosed certain
non-GAAP information which the Company believes provides useful information to
investors:
o The Company discloses percentage changes in Kronos' average TiO2 selling
prices in billing currencies, which excludes the effects of foreign
currency translation. The Company believes disclosure of such percentage
changes allows investors to analyze such changes without the impact of
changes in foreign currency exchange rates, thereby facilitating
period-to-period comparisons of relative changes in average selling prices
in the actual various billing currencies. Generally, when the U.S. dollar
either strengthens or weakens against other currencies, the percentage
change in average selling prices in billing currencies will be higher or
lower, respectively, than such percentage changes would be using actual
exchange rates prevailing during the respective periods.
o The Company discloses segment profit (formerly referred to as "operating
income"). Segment profit is used by the Company's management to assess the
performance of the TiO2 operations of Kronos. The Company believes
disclosure of segment profit provides useful information to investors
because it allows investors to analyze the performance of the TiO2
operations in the same way that the Company's management assesses
performance. The Company defines segment profit as income before income
taxes, minority interest, interest expense and certain general corporate
items. Corporate items excluded from the determination of segment profit
include corporate expense, interest income not attributable to TiO2
operations, securities gains (losses) and noncompete agreement income.
NL Industries, Inc., through its majority-owned subsidiary Kronos Worldwide
Inc., is a major international producer of titanium dioxide pigments.
NL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share and metric ton data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2003 2004 2003 2004
-----------------------------------------------------
Net sales $ 266.6 $ 295.8 $ 519.6 $ 559.1
Cost of sales 197.6 227.5 386.1 429.8
----------- ---------- ----------- ----------
Gross margin 69.0 68.3 133.5 129.3
Selling, general and administrative expense 31.0 35.0 60.4 70.2
Other operating income (expense):
Currency transaction gains (losses), net (2.7) .3 (3.8) .6
Contract dispute settlement - 6.3 - 6.3
Litigation settlement gains, net .7 .5 .7 .5
Noncompete agreement income - - .3 -
Other income 1.1 - 1.3 -
Corporate expense (23.2) (4.6) (38.5) (11.3)
----------- ---------- ----------- ----------
Income from operations 13.9 35.8 33.1 55.2
Other income (expense):
Trade interest income .2 .2 .4 .4
Other interest income .8 .8 1.8 1.6
Securities transactions, net .2 - 2.4 -
Interest expense (8.3) (8.6) (16.4) (17.8)
----------- ----------- ------------ ----------
Income before income taxes and minority interest 6.8 28.2 21.3 39.4
Income tax benefit (22.1) (283.8) (17.2) (281.6)
Minority interest in after-tax earnings .1 133.0 .2 137.9
----------- ---------- ----------- ----------
Net income $ 28.8 $ 179.0 $ 38.3 $ 183.1
=========== ========== =========== =========
Basic and diluted net income per share $ .60 $ 3.70 $ .80 $ 3.79
=========== ========== =========== ==========
Weighted-average shares used in the
calculation of earnings per share:
Basic shares 47.7 48.4 47.7 48.3
Dilutive impact of stock options .1 - - .1
----------- ---------- ----------- ----------
Diluted shares 47.8 48.4 47.7 48.4
=========== ========== ============ ==========
TiO2 data - metric tons in thousands:
Sales volumes 121.1 136.5 239.5 254.6
Production volumes 119.5 122.8 236.7 239.7
NL INDUSTRIES, INC.
RECONCILIATION OF SEGMENT PROFIT TO
INCOME FROM OPERATIONS
(In millions)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2003 2004 2003 2004
-----------------------------------------------------
Segment profit $ 35.5 $ 40.1 $ 69.7 $ 66.4
Adjustments:
Trade interest income (.2) (.2) (.4) (.4)
Litigation settlement gains, net .7 .5 .7 .5
Noncompete agreement income - - .3 -
Other income 1.1 - 1.3 -
Corporate expense (23.2) (4.6) (38.5) (11.3)
----------- ---------- ----------- ----------
Income from operations $ 13.9 $ 35.8 $ 33.1 $ 55.2
========== ========= ========== ==========
RECONCILIATION OF PERCENTAGE CHANGE IN
AVERAGE SELLING PRICES
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2003 vs. 2004 2003 vs. 2004
------------------ ----------------
Percentage change in average selling prices:
Using actual foreign currency exchange rates - % +2%
Impact of changes in foreign currency exchange rates -5% -7%
-------- --------
In billing currencies -5% -5%
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