SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required) - For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 13-5267260
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16825 Northchase Drive, Suite 1200, Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 423-3300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock ($.125 par value) New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of February 29, 1996, 51,093,118 shares of common stock were outstanding.
The aggregate market value of the 14,571,028 shares of voting stock held by
nonaffiliates as of such date approximated $202 million.
Documents incorporated by reference:
The information required by Part III is incorporated by reference from the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
year ended December 31, 1995 as set forth below and in the pages attached
hereto:
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedules listed by the
Registrant on the accompanying Index of Financial Statements and
Schedules (see page F-1).
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
The consolidated financial statements and schedules listed by the
Registrant on the accompanying Index of Financial Statements and
Schedules (see page F-1).
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
Dated: March 5, 1996 By: /s/ Dennis G. Newkirk
Dennis G. Newkirk
Vice President
and Controller
NL INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
Financial Statements Pages
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1994 and 1995 F-3 / F-4
Consolidated Statements of Operations - Years ended
December 31, 1993, 1994 and 1995 F-5 / F-6
Consolidated Statements of Shareholders' Deficit - Years
ended December 31, 1993, 1994 and 1995 F-7
Consolidated Statements of Cash Flows - Years ended
December 31, 1993, 1994 and 1995 F-8 / F-10
Notes to Consolidated Financial Statements F-11 / F-36
Financial Statement Schedules
Report of Independent Accountants S-1
Schedule I - Condensed financial information of Registrant S-2 / S-7
Schedule II - Valuation and qualifying accounts S-8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of NL Industries, Inc.:
We have audited the accompanying consolidated balance sheets of NL
Industries, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NL Industries,
Inc. as of December 31, 1994 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 19 to the consolidated financial statements, in
1993 the Company changed its method of accounting for certain investments in
debt and equity securities in accordance with Statement of Financial Accounting
Standards No. 115.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 8, 1996
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995
(In thousands, except per share data)
ASSETS
1994 1995
Current assets:
Cash and cash equivalents $ 131,124 $ 141,333
Marketable securities 25,165 -
Accounts and notes receivable, less allowance
of $3,749 and $4,039 137,753 147,428
Refundable income taxes 1,162 4,941
Inventories 185,173 251,630
Prepaid expenses 3,878 3,217
Deferred income taxes 2,177 2,522
Total current assets 486,432 551,071
Other assets:
Marketable securities 21,329 20,944
Investment in joint ventures 187,480 185,893
Prepaid pension cost 19,329 22,576
Deferred income taxes 2,746 788
Other 37,267 31,165
Total other assets 268,151 261,366
Property and equipment:
Land 20,665 22,902
Buildings 147,370 166,349
Machinery and equipment 582,138 648,458
Mining properties 87,035 97,190
Construction in progress 9,579 11,187
846,787 946,086
Less accumulated depreciation and depletion 438,960 486,870
Net property and equipment 407,827 459,216
$1,162,410 $1,271,653
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1994 and 1995
(In thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' DEFICIT
1994 1995
Current liabilities:
Notes payable $ - $ 39,247
Current maturities of long-term debt 42,887 43,369
Accounts payable and accrued liabilities 168,327 165,985
Payable to affiliates 11,348 10,181
Income taxes 20,762 40,088
Deferred income taxes 1,590 3,555
Total current liabilities 244,914 302,425
Noncurrent liabilities:
Long-term debt 746,762 740,334
Deferred income taxes 178,332 157,192
Accrued pension cost 76,242 69,311
Accrued postretirement benefits cost 65,299 60,235
Other 141,518 148,511
Total noncurrent liabilities 1,208,153 1,175,583
Minority interest 2,425 3,066
Shareholders' deficit:
Preferred stock - 5,000 shares authorized,
no shares issued or outstanding - -
Common stock - $.125 par value; 150,000 shares
authorized; 66,839 shares issued 8,355 8,355
Additional paid-in capital 759,281 759,281
Adjustments:
Currency translation (125,494) (126,934)
Pension liabilities (1,635) (1,908)
Marketable securities (12) (525)
Accumulated deficit (567,041) (481,432)
Treasury stock, at cost (15,787 and 15,748
shares) (366,536) (366,258)
Total shareholders' deficit (293,082) (209,421)
$1,162,410 $1,271,653
Commitments and contingencies (Notes 13 and 18)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1993, 1994 and 1995
(In thousands, except per share data)
1993 1994 1995
Revenues and other income:
Net sales $ 805,323 $887,954 $1,023,939
Other, net 22,084 44,828 22,241
827,407 932,782 1,046,180
Costs and expenses:
Cost of sales 612,367 649,745 676,184
Selling, general and administrative 185,689 212,516 189,477
Interest 99,119 83,926 81,617
897,175 946,187 947,278
Income (loss) before income taxes,
minority interest, extraordinary
item and cumulative effect of
change in accounting principle (69,768) (13,405) 98,902
Income tax expense 12,713 9,734 12,671
Income (loss) before minority
interest, extraordinary item and
cumulative effect of change in
accounting principle (82,481) (23,139) 86,231
Minority interest 730 843 622
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (83,211) (23,982) 85,609
Extraordinary item (27,815) - -
Cumulative effect of change in
accounting principle 1,217 - -
Net income (loss) $(109,809) $(23,982) $ 85,609
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended December 31, 1993, 1994 and 1995
(In thousands, except per share data)
1993 1994 1995
Income (loss) per share of common stock:
Before extraordinary item and cumulative
effect of change in accounting principle $(1.63) $ (.47) $ 1.66
Extraordinary item (.55) - -
Cumulative effect of change in accounting
principle .02 - -
Net income (loss) $(2.16) $ (.47) $ 1.66
Weighted average common shares outstanding 50,890 51,022 51,512
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1993, 1994 and 1995
(In thousands)
Additional Adjustments
Common paid-in Currency Pension Marketable
stock capital translation liabilities securities
Balance at December 31, 1992 $8,355 $759,281 $(111,820) $ - $ (896)
Net loss - - - - -
Adjustments - - (3,983) (3,442) (51)
Cumulative effect of change in
accounting principle - - - - (1,217)
Balance at December 31, 1993 8,355 759,281 (115,803) (3,442) (2,164)
Net loss - - - - -
Treasury stock reissued - - - - -
Adjustments - - (9,691) 1,807 2,152
Balance at December 31, 1994 8,355 759,281 (125,494) (1,635) (12)
Net income - - - - -
Treasury stock reissued - - - - -
Adjustments - - (1,440) (273) (513)
Balance at December 31, 1995 $8,355 $759,281 $(126,934) $(1,908) $ (525)
Accumulated Treasury
deficit stock Total
Balance at December 31, 1992 $(433,250) $(367,963) $(146,293)
Net loss (109,809) - (109,809)
Adjustments - - (7,476)
Cumulative effect of change in
accounting principle - - (1,217)
Balance at December 31, 1993 (543,059) (367,963) (264,795)
Net loss (23,982) - (23,982)
Treasury stock reissued - 1,427 1,427
Adjustments - - (5,732)
Balance at December 31, 1994 (567,041) (366,536) (293,082)
Net income 85,609 - 85,609
Treasury stock reissued - 278 278
Adjustments - - (2,226)
Balance at December 31, 1995 $(481,432) $(366,258) $(209,421)
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Cash flows from operating activities:
Net income (loss) $(109,809) $(23,982) $ 85,609
Depreciation, depletion and
amortization 46,340 34,592 38,989
Noncash interest expense 8,309 18,071 19,396
Deferred income taxes (670) 11,907 (29,248)
Cumulative effect of change in
accounting principle (1,217) - -
Minority interest 730 843 622
Net (gains) losses from:
Securities transactions (4,363) 1,220 (1,175)
Disposition of property and
equipment 199 1,981 2,713
Pension cost, net (2,134) (2,753) (7,248)
Other postretirement benefits, net (2,422) (3,437) (4,169)
Other, net (1,349) 68 (477)
(66,386) 38,510 105,012
Change in assets and liabilities:
Accounts and notes receivable (1,291) (13,152) (1,483)
Inventories 12,166 17,778 (57,378)
Prepaid expenses (472) 3,221 1,148
Accounts payable and accrued
liabilities (4,132) (17,343) (17,700)
Income taxes 1,507 109,243 14,861
Accounts with affiliates 5,426 (2,024) (4,059)
Other noncurrent assets 8,844 2,219 1,587
Other noncurrent liabilities 37,069 28,706 3,233
Marketable trading securities:
Purchases - (870) (762)
Dispositions - 15,530 27,102
Net cash provided (used) by
operating activities (7,269) 181,818 71,561
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Cash flows from investing activities:
Capital expenditures $ (47,986) $ (36,931) $(64,196)
Marketable securities:
Purchases (11,053) - -
Dispositions 79,398 - -
Proceeds from disposition of
property and equipment 175,537 598 182
Investment in joint ventures, net (14,405) 3,133 1,793
Loans to affiliates (210) - -
Other, net 670 362 -
Net cash provided (used) by
investing activities 181,951 (32,838) (62,221)
Cash flows from financing activities:
Indebtedness:
Borrowings 452,694 44,490 57,556
Principal payments (607,417) (175,886) (61,128)
Other, net (613) (742) 264
Net cash used by financing
activities (155,336) (132,138) (3,308)
Net change during the year from
operating, investing and
financing activities $ 19,346 $ 16,842 $ 6,032
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities $ 19,346 $ 16,842 $ 6,032
Currency translation (86) 7,689 4,177
19,260 24,531 10,209
Balance at beginning of year 87,333 106,593 131,124
Balance at end of year $106,593 $ 131,124 $141,333
Supplemental disclosures - cash paid
(received) for:
Interest, net of amounts capitalized $ 91,576 $ 66,801 $ 62,078
Income taxes, net 11,897 (111,418) 27,965
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
NL Industries, Inc. conducts its operations primarily through its wholly-
owned subsidiaries, Kronos, Inc. (titanium dioxide pigments or "TiO2") and
Rheox, Inc. (specialty chemicals).
Valhi, Inc. and Tremont Corporation, each affiliates of Contran
Corporation, hold 54% and 18%, respectively, of NL's outstanding common stock.
Contran holds, directly or through subsidiaries, approximately 91% of Valhi's
and 44% of Tremont's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons, of which Mr. Simmons is the
sole trustee. Mr. Simmons, the Chairman of the Board of NL and the Chairman of
the Board, President, and Chief Executive Officer of Contran and Valhi and a
director of Tremont, may be deemed to control each of such companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation and management's estimates
The accompanying consolidated financial statements include the accounts of
NL and its majority-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain prior
year amounts have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenues and expenses during the reporting period.
Ultimate actual results may in some instances differ from previously estimated
amounts.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is deemed
to be other than the U.S. dollar are translated at year-end rates of exchange
and revenues and expenses are translated at weighted average exchange rates
prevailing during the year. Resulting translation adjustments and the related
income tax effects are accumulated in the currency translation adjustment
component of shareholders' deficit. Currency transaction gains and losses are
recognized in income currently.
Cash and cash equivalents
Cash equivalents include U.S. Treasury securities purchased under short-
term agreements to resell, bank deposits, and government and commercial notes
and bills with original maturities of three months or less. Cash and cash
equivalents includes $16 million and $10 million at December 31, 1994 and 1995,
respectively, which are restricted for letters of credit and certain
indebtedness agreements.
Marketable securities and securities transactions
Marketable securities are classified as either "available-for-sale" or
"trading" and are carried at market based on quoted market prices. Unrealized
gains and losses on trading securities are recognized in income currently.
Unrealized gains and losses on available-for-sale securities, and the related
deferred income tax effects, are accumulated in the marketable securities
adjustment component of shareholders' deficit. See Note 4. Realized gains or
losses are computed based on specific identification of the securities sold.
Prior to the adoption of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" as of December 31, 1993, marketable securities were generally
carried at the lower of aggregate market or amortized cost and unrealized net
gains were not recognized.
Inventories
Inventories are stated at the lower of cost (principally average cost) or
market. Amounts are removed from inventories at average cost.
Investment in joint ventures
Investments in 20% to 50%-owned entities are accounted for by the equity
method.
Intangible assets
Intangible assets, included in other noncurrent assets, are amortized by
the straight-line method over the periods expected to be benefitted, not
exceeding ten years.
Property, equipment, depreciation and depletion
Property and equipment are stated at cost. Interest costs related to
major, long-term capital projects are capitalized as a component of construction
costs. Maintenance, repairs and minor renewals are expensed; major improvements
are capitalized.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of ten to forty years for buildings and three to twenty
years for machinery and equipment. Depletion of mining properties is computed
by the unit-of-production and straight-line methods.
Long-term debt
Long-term debt is stated net of unamortized original issue discount
("OID"). OID is amortized over the period during which interest is not paid and
deferred financing costs are amortized over the life of the applicable issue,
both by the interest method.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Net sales
Sales are recognized as products are shipped.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in subsidiaries and unconsolidated affiliates not included in the
Company's U.S. tax group (the "NL Tax Group").
Income (loss) per share of common stock
Income (loss) per share of common stock is based on the weighted average
number of common shares and equivalents outstanding. Common stock equivalents,
consisting of nonqualified stock options, are excluded from the computation when
their effect is antidilutive.
NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox. Titanium
dioxide pigments are used to impart whiteness, brightness and opacity to a wide
variety of products, including paints, plastics, paper, fibers and ceramics.
Specialty chemicals include rheological additives which control the flow and
leveling characteristics of a variety of products, including paints, inks,
lubricants, sealants, adhesives and cosmetics. General corporate assets consist
principally of cash, cash equivalents and marketable securities. At December
31, 1994 and 1995, the net assets of non-U.S. subsidiaries included in
consolidated net assets approximated $72 million and $121 million, respectively.
Years ended December 31,
1993 1994 1995
(In thousands)
Business segments
Net sales:
Kronos $ 697,048 $ 770,077 $ 894,149
Rheox 108,275 117,877 129,790
$ 805,323 $ 887,954 $1,023,939
Operating income:
Kronos $ 36,146 $ 80,515 $ 161,175
Rheox 26,254 30,837 38,544
62,400 111,352 199,719
General corporate income (expense):
Securities earnings 8,467 3,855 7,419
Expenses, net (41,516) (44,686) (26,619)
Interest expense (99,119) (83,926) (81,617)
$ (69,768) $ (13,405) $ 98,902
Capital expenditures:
Kronos $ 46,913 $ 34,522 $ 60,699
Rheox 1,069 2,283 3,464
General corporate 4 126 33
$ 47,986 $ 36,931 $ 64,196
Depreciation, depletion and
amortization:
Kronos $ 42,877 $ 31,156 $ 35,706
Rheox 3,176 3,153 3,089
General corporate 287 283 194
$ 46,340 $ 34,592 $ 38,989
Geographic areas
Net sales - point of origin:
United States $ 270,288 $ 303,475 $ 339,568
Europe 519,064 587,291 703,206
Canada 132,930 122,957 139,341
Eliminations (116,959) (125,769) (158,176)
$ 805,323 $ 887,954 $1,023,939
Net sales - point of destination:
United States $ 217,892 $ 238,568 $ 258,850
Europe 418,072 468,915 580,794
Canada 76,078 64,374 60,472
Other 93,281 116,097 123,823
$ 805,323 $ 887,954 $1,023,939
Operating income:
United States $ 20,981 $ 49,358 $ 75,650
Europe 19,658 50,273 103,096
Canada 21,761 11,721 20,973
$ 62,400 $ 111,352 $ 199,719
December 31,
1993 1994 1995
(In thousands)
Identifiable assets
Business segments:
Kronos $1,008,453 $ 950,200 $1,063,369
Rheox 75,362 83,176 83,620
General corporate 122,734 129,034 124,664
$1,206,549 $1,162,410 $1,271,653
Geographic segments:
United States $ 326,831 $ 308,017 $ 311,374
Europe 622,826 594,921 690,353
Canada 134,158 130,438 145,262
General corporate 122,734 129,034 124,664
$1,206,549 $1,162,410 $1,271,653
NOTE 4 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:
December 31,
1994 1995
(In thousands)
Trading securities - current U.S. Treasury
securities:
Unrealized losses $(1,124) $ -
Cost 26,289 -
Aggregate market $25,165 $ -
Available-for-sale securities - noncurrent
marketable equity securities:
Unrealized gains $ 3,357 $ 1,962
Unrealized losses (3,374) (2,770)
Cost 21,346 21,752
Aggregate market $21,329 $20,944
Net gains and losses from trading securities are composed of:
Years ended December 31,
1993 1994 1995
(In thousands)
Unrealized gains (losses) $3,520 $(1,177) $1,125
Realized gains (losses) 843 (43) 50
$4,363 $(1,220) $1,175
NOTE 5 - INVENTORIES:
December 31,
1994 1995
(In thousands)
Raw materials $ 30,118 $ 35,075
Work in process 7,655 9,132
Finished products 112,410 172,330
Supplies 34,990 35,093
$185,173 $251,630
NOTE 6 - INVESTMENT IN JOINT VENTURES:
December 31,
1994 1995
(In thousands)
TiO2 manufacturing joint venture $185,122 $183,129
Other 2,358 2,764
$187,480 $185,893
In October 1993, Kronos Louisiana, Inc. ("KLA"), a wholly-owned subsidiary
of Kronos, formed a manufacturing joint venture, Louisiana Pigment Company, L.P.
("LPC"), with Tioxide Group, Ltd., a wholly-owned subsidiary of Imperial
Chemicals Industries PLC ("Tioxide"). LPC, which is equally owned by KLA and a
subsidiary of Tioxide, owns and operates the Louisiana chloride process TiO2
plant formerly owned by KLA. LPC has long-term debt that is collateralized by
the partnership interests of the partners and substantially all of the assets of
LPC. The long-term debt consists of two tranches, one attributable to each
partner, and each tranche is serviced through (i) the purchase of the plant's
TiO2 output in equal quantities by the partners and (ii) cash capital
contributions. KLA is required to purchase one-half of the TiO2 produced by
LPC. KLA's tranche of LPC's debt is reflected as outstanding indebtedness of
the Company because Kronos has guaranteed the purchase obligation relative to
the debt service of its tranche. See Note 10.
LPC is intended to be operated on a break-even basis and, accordingly,
Kronos' transfer price for its share of the TiO2 produced is equal to its share
of LPC's production costs and interest expense. Kronos' share of the production
costs are reported as cost of sales as the related TiO2 acquired from LPC is
sold, and its share of the interest expense is reported as a component of
interest expense.
Summary balance sheets of LPC are shown below.
December 31,
1994 1995
ASSETS (In thousands)
Current assets $ 38,027 $ 49,398
Other assets 1,969 1,553
Property and equipment, net 344,806 335,254
$384,802 $386,205
LIABILITIES AND PARTNERS' EQUITY
Long-term debt, including current portion:
Kronos tranche $ 88,715 $ 73,286
Tioxide tranche 81,000 59,400
Other liabilities, primarily current 12,330 17,719
182,045 150,405
Partners' equity 202,757 235,800
$384,802 $386,205
Summary income statements of LPC are shown below.
Period from
October 18, 1993
to December 31, Years ended December 31,
1993 1994 1995
(In thousands)
Revenues and other income:
Kronos $12,713 $ 70,492 $ 76,365
Tioxide 12,617 67,218 75,241
Interest income 72 462 653
25,402 138,172 152,259
Cost and expenses:
Cost of sales 22,803 126,972 140,103
General and administrative 443 572 385
Interest 2,156 10,628 11,771
25,402 138,172 152,259
Net income $ - $ - $ -
NOTE 7 - OTHER NONCURRENT ASSETS:
December 31,
1994 1995
(In thousands)
Intangible assets, net of accumulated
amortization of $16,149 and $20,562 $13,957 $11,803
Deferred financing costs, net 16,079 13,199
Other 7,231 6,163
$37,267 $31,165
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
December 31,
1994 1995
(In thousands)
Accounts payable $ 74,903 $ 68,734
Accrued liabilities:
Employee benefits 34,209 49,884
Environmental costs 10,433 6,000
Interest 6,485 6,633
Miscellaneous taxes 7,336 2,557
Other 34,961 32,177
93,424 97,521
$168,327 $165,985
NOTE 9 - OTHER NONCURRENT LIABILITIES:
December 31,
1994 1995
(In thousands)
Environmental costs $ 93,655 $112,827
Insurance claims expenses 14,716 12,088
Deferred technology fee income 18,305 8,456
Employee benefits 12,322 13,148
Other 2,520 1,992
$141,518 $148,511
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:
December 31,
1994 1995
(In thousands)
Notes payable (DM 56,000) $ - $ 39,247
NL Industries:
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 116,409 132,034
366,409 382,034
Kronos:
DM bank credit facility (DM 397,610) 255,703 276,895
LPC term loan 88,715 73,286
Other 10,507 13,672
354,925 363,853
Rheox:
Bank term loan 67,500 37,263
Other 815 553
68,315 37,816
789,649 783,703
Less current maturities 42,887 43,369
$746,762 $740,334
The Company's $250 million principal amount of 11.75% Senior Secured Notes
due 2003 and $188 million principal amount at maturity ($100 million proceeds at
issuance) of 13% Senior Secured Discount Notes due 2005 (collectively, the
"Notes") are collateralized by a series of intercompany notes from Kronos
International, Inc. ("KII"), a wholly-owned subsidiary of Kronos, to NL, the
terms of which mirror those of the respective Notes (the "Mirror Notes"). The
Senior Secured Notes are also collateralized by a first priority lien on the
stock of Kronos and a second priority lien on the stock of Rheox. The Senior
Secured Notes and the Senior Secured Discount Notes are redeemable, at the
Company's option, after October 2000 and October 1998, respectively, except that
up to one-third of the aggregate principal amount of the Senior Secured Discount
Notes are redeemable (at 113% of the accreted value) upon any Common Stock
Offering, as defined, prior to October 1996. For redemptions, other than
redemptions pursuant to any Common Stock Offering, the redemption prices range
from 101.5% (starting October 2000) declining to 100% (after October 2001) of
the principal amount for the Senior Secured Notes and range from 106% (starting
October 1998) declining to 100% (after October 2001) of the accreted value of
the Senior Secured Discount Notes. In the event of a Change of Control, as
defined, the Company would be required to make an offer to purchase the Notes at
101% of the principal amount of the Senior Secured Notes and 101% of the
accreted value of the Senior Secured Discount Notes. The Notes are issued
pursuant to indentures which contain a number of covenants and restrictions
which, among other things, restrict the ability of the Company and its
subsidiaries to incur debt, incur liens, pay dividends or merge or consolidate
with, or sell or transfer all or substantially all of its assets to, another
entity. At December 31, 1995, there was $6 million available for payment for
dividends pursuant to the terms of the indentures. The Senior Secured Discount
Notes do not require cash interest payments for the first five years. The net
carrying value of the Senior Secured Discount Notes per $100 principal amount at
maturity was $62.08 and $70.42 at December 31, 1994 and 1995, respectively. At
December 31, 1995, the quoted market price of the Senior Secured Notes was
$107.06 per $100 principal amount and the quoted market price of the Senior
Secured Discount Notes was $80.95 per $100 principal amount (1994 - $98.80 and
$61.30, respectively).
The DM credit facility, as amended, consists of a DM 398 million term loan
due from March 1997 to September 1999 and a DM 250 million revolving credit
facility due no later than September 2000. At December 31, 1995, all of the
revolving credit facility was available for future borrowings by KII; however,
DM 125 million is available only for (i) permanently reducing the DM term loan
or (ii) paying future German tax assessments. In January 1996, the Company
borrowed DM 30 million under the revolving credit facility. Borrowings bear
interest at DM LIBOR plus 1.625% (6.938% and 5.5% at December 31, 1994 and 1995,
respectively). NL and Kronos have agreed, under certain circumstances, to
provide KII with up to DM 125 million through January 1, 2001. The DM credit
facility is collateralized by pledges of the stock of certain KII subsidiaries.
The credit agreement restricts KII's ability to incur additional indebtedness,
restricts its dividends and other payments to affiliates, requires it to
maintain specified debt service coverage and other ratios, and contains other
provisions and restrictive covenants customary in lending transactions of this
type.
Borrowings under KLA's tranche of LPC's term loan bear interest at U.S.
LIBOR plus 1.625% (8.125% and 7.315% at December 31, 1994 and 1995,
respectively) and are repayable in quarterly installments through September
2000. See Note 6.
Rheox has a credit agreement providing for a seven-year term loan due in
quarterly installments through December 1997 and a $5 million revolving credit
facility due September 1996. Borrowings bear interest, at Rheox's option, at
the prime rate plus 1.5% or U.S. LIBOR plus 2.5% (9.01% and 8.32% at
December 31, 1994 and 1995, respectively), and are collateralized by the stock
of Rheox and its domestic subsidiary and by Rheox's U.S. assets. The credit
agreement restricts Rheox's ability to incur additional indebtedness, restricts
its dividend payments and contains other provisions and restrictive covenants
customary in lending transactions of this type.
Notes payable at December 31, 1995 consists of DM 56 million of short-term
borrowings due in 1996 from non-U.S. banks with interest rates ranging from
4.25% to 4.856%.
Unused lines of credit available for borrowings under the Rheox U.S.
facility and non-U.S. credit facilities totalled $5 million and $191 million,
respectively, at December 31, 1995. Of the non-U.S. credit facilities
available, $87 million is available only for (i) permanently reducing the DM
term loan or (ii) paying future German tax assessments.
The aggregate maturities of long-term debt at December 31, 1995 are shown
in the table below.
Years ending December 31, Amount
(In thousands)
1996 $ 43,369
1997 97,585
1998 110,602
1999 138,031
2000 11,845
2001 and thereafter 437,737
839,169
Less unamortized original issue discount on the
Senior Secured Discount Notes 55,466
$783,703
NOTE 11 - EMPLOYEE BENEFIT PLANS:
Company-sponsored pension plans
The Company maintains various defined benefit and defined contribution
pension plans covering substantially all employees. Personnel employed by
non-U.S. subsidiaries are covered by separate plans in their respective
countries and U.S. employees are covered by various plans including the
Retirement Programs of NL Industries, Inc. (the "NL Pension Plan").
A majority of U.S. employees are eligible to participate in a contributory
savings plan with partial matching contributions by the Company. The Company's
expense related to matching contributions was nil in 1993, $.7 million in 1994
and $.8 million in 1995.
Defined pension benefits are generally based upon years of service and
compensation under fixed-dollar, final pay or career average formulas, and the
related expenses are based upon independent actuarial valuations. The funding
policy for U.S. defined benefit plans is to contribute amounts which satisfy
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended, and the Retirement Protection Act of 1994. Non-U.S. defined benefit
pension plans are funded in accordance with applicable statutory requirements.
The funded status of the Company's defined benefit pension plans is set
forth below. The rates used in determining the actuarial present value of
benefit obligations were (i) discount rates - 7% and 8.5% (1994 - 8.5%) and (ii)
rates of increase in future compensation levels - 3.5% to 6% (1994 - 5% to 6%).
The expected long-term rates of return on assets used ranged from 8% to 9%
(1994 - 8.5% to 9%). Plan assets are comprised primarily of investments in U.S.
and non-U.S. corporate equity and debt securities, short-term investments,
mutual funds and group annuity contracts.
SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit obligation exceeds the unfunded accrued pension liability. Variances
from actuarially-assumed rates, including the rate of return on pension plan
assets, will result in additional increases or decreases in accrued pension
liabilities, pension expense and funding requirements in future periods. A one
percentage point decrease in the discount rate would increase the projected
benefit obligations at December 31, 1995 by $31 million. At December 31, 1995,
67% of the projected benefit obligations in excess of plan assets relate to non-
U.S. plans.
Assets exceed Accumulated benefits
accumulated benefits exceed assets
December 31, December 31,
1994 1995 1994 1995
(In thousands)
Actuarial present value of benefit
obligations:
Vested benefits $43,248 $47,181 $132,317 $156,275
Nonvested benefits 3,390 3,744 2,155 2,562
Accumulated benefit obligations 46,638 50,925 134,472 158,837
Effect of projected salary
increases 5,938 7,885 19,620 22,373
Projected benefit obligations
("PBO") 52,576 58,810 154,092 181,210
Plan assets at fair value 66,293 71,345 108,377 124,632
Plan assets over (under) PBO 13,717 12,535 (45,715) (56,578)
Unrecognized net loss (gain) from
experience different from
actuarial assumptions 2,876 7,155 (32,808) (20,643)
Unrecognized prior service cost
(credit) 3,195 3,147 (3,255) (2,711)
Unrecognized transition obligations (assets)
being amortized over 15
to 18 years (459) (261) 2,606 2,517
Adjustment required to recognize
minimum liability - - (1,635) (1,908)
Total prepaid (accrued)
pension cost 19,329 22,576 (80,807) (79,323)
Less current portion - - (4,565) (10,012)
Noncurrent prepaid (accrued)
pension cost $19,329 $22,576 $(76,242) $(69,311)
The components of the net periodic defined benefit pension cost are set
forth below.
Years ended December 31,
1993 1994 1995
(In thousands)
Service cost benefits $ 4,082 $ 4,905 $ 4,325
Interest cost on PBO 14,430 15,371 17,853
Return on plan assets (15,647) (8,039) (16,574)
Net amortization and deferrals 2,413 (5,940) (2,399)
$ 5,278 $ 6,297 $ 3,205
Incentive bonus programs
The Company has incentive bonus programs for certain employees providing
for annual payments, which may be in the form of NL common stock, based on
formulas involving the profitability of Kronos and Rheox in relation to the
annual operating plan of the employee's business unit and individual
performance.
Postretirement benefits other than pensions
In addition to providing pension benefits, the Company currently provides
certain health care and life insurance benefits for eligible retired employees.
Certain of the Company's U.S. and Canadian employees may become eligible for
such postretirement health care and life insurance benefits if they reach
retirement age while working for the Company. In 1989, the Company began
phasing out such benefits for currently active U.S. employees over a ten-year
period. The majority of all retirees are required to contribute a portion of
the cost of their benefits and certain current and future retirees are eligible
for reduced health care benefits at age 65. The Company's policy is to fund
medical claims as they are incurred, net of any contributions by the retirees.
The rates used in determining the actuarial present value of the
accumulated benefit obligations were (i) discount rate - 7.5% (1994 - 8.5%),
(ii) rate of increase in future compensation levels - 4.5% (1994 - 6%), (iii)
rate of increase in future health care costs - 9% in 1996, gradually declining
to 5% in 2000 and thereafter and (iv) expected return on plan assets - 9%.
Variances from actuarially-assumed rates will result in additional increases or
decreases in accrued OPEB cost, net periodic OPEB cost and funding requirements
in future periods. If the health care cost trend rate was increased by one
percentage point for each year, postretirement benefit expense would have
increased approximately $.3 million in 1995, and the actuarial present value of
accumulated benefit obligations at December 31, 1995 would have increased by
approximately $2.9 million. A one percentage point decrease in the discount
rate would increase the actuarial present value of accumulated benefit
obligations at December 31, 1995 by approximately $4 million.
December 31,
1994 1995
(In thousands)
Actuarial present value of accumulated benefit
obligations:
Retiree benefits $51,895 $53,211
Other fully eligible active plan participants 1,229 1,228
Other active plan participants 1,797 2,322
54,921 56,761
Plan assets at fair value 7,217 7,103
Accumulated postretirement benefit obligations
in excess of plan assets 47,704 49,658
Unrecognized net gain from experience different
from actuarial assumptions 9,251 4,676
Unrecognized prior service credit 13,672 12,199
Total accrued postretirement benefits cost 70,627 66,533
Less current portion 5,328 6,298
Noncurrent accrued postretirement benefits
cost $65,299 $60,235
The components of the Company's net periodic postretirement benefit cost
are set forth below:
Years ended December 31,
1993 1994 1995
(In thousands)
Interest cost on accumulated benefit
obligations $ 4,911 $ 4,338 $ 4,415
Service cost benefits earned during the year 127 99 101
Return on plan assets (647) (688) (637)
Net amortization and deferrals (1,473) (1,495) (1,870)
$ 2,918 $ 2,254 $ 2,009
NOTE 12 - SHAREHOLDERS' DEFICIT:
Common stock
Shares of common stock
Treasury
Issued stock Outstanding
(In thousands)
Balance at December 31, 1992 and 1993 66,839 15,949 50,890
Treasury shares reissued - (162) 162
Balance at December 31, 1994 66,839 15,787 51,052
Treasury shares reissued - (39) 39
Balance at December 31, 1995 66,839 15,748 51,091
Common stock options
The 1989 Long Term Performance Incentive Plan of NL Industries, Inc. (the
"NL Option Plan") provides for the discretionary grant of restricted common
stock, stock options, stock appreciation rights ("SARs") and other incentive
compensation to officers and other key employees of the Company. Although
certain stock options granted pursuant to a similar plan which preceded the NL
Option Plan ("the Predecessor Option Plan") remain outstanding at December 31,
1995, no additional options may be granted under the Predecessor Option Plan.
Up to five million shares of NL common stock may be issued pursuant to the
NL Option Plan. The NL Option Plan provides for the grant of options that
qualify as incentive options and for options which are not so qualified.
Generally, stock options and SARs (collectively, "options") are granted at a
price equal to or greater than 100% of the market price at the date of grant,
vest over a five year period and expire ten years from the date of grant.
Restricted stock, forfeitable unless certain periods of employment are
completed, is held in escrow in the name of the grantee until the restriction
period expires. No SARs have been granted under the NL Option Plan. At
December 31, 1995, 50,000 shares of common stock, restricted until February
1996, are included in common shares outstanding.
In addition to the NL Option Plan, the Company maintains a stock option
plan for its non-employee directors. At December 31, 1995, there were options
to acquire 8,000 shares of common stock outstanding of which 6,000 were fully
vested.
Changes in outstanding options granted pursuant to the NL Option Plan, the
Predecessor Option Plan and the non-employee director plan are summarized in the
table below. At December 31, 1995, options to purchase 1,189,907 shares were
exercisable and options to purchase 548,798 shares become exercisable in 1996.
Of the exercisable options at December 31, 1995, options to purchase 693,237
shares had exercise prices less than the Company's December 31, 1995 quoted
market price of $12.125 per share. At December 31, 1995, an aggregate of 2.7
million shares were available for future grants under the NL Option Plan.
Amount
Exercise payable
price per upon
Shares share exercise
(In thousands, except per share amounts)
Outstanding at December 31, 1992 1,272 $ 8.13 - 24.19 $18,013
Granted 453 4.81 - 7.00 2,655
Canceled (7) 5.00 - 9.31 (44)
Outstanding at December 31, 1993 1,718 4.81 - 24.19 20,624
Granted 675 8.69 - 10.69 6,315
Exercised (13) 9.31 - 10.50 (120)
Canceled (6) 5.00 - 9.31 (46)
Outstanding at December 31, 1994 2,374 4.81 - 24.19 26,773
Granted 94 11.81 - 14.81 1,150
Exercised (39) 5.00 - 10.78 (282)
Canceled (36) 5.00 - 11.81 (320)
Outstanding at December 31, 1995 2,393 $ 4.81 - 24.19 $27,321
The Company expects to elect the disclosure alternative prescribed by SFAS
No. 123 "Accounting for Stock-Based Compensation" and to continue to account for
stock-based employee compensation in accordance with Accounting Principles Board
Opinion No. 25 ("APBO"), "Accounting for Stock Issued to Employees" and its
various interpretations. Under APBO No. 25, no compensation cost is generally
recognized for fixed stock options in which the exercise price is not less than
the market price on the grant date. Under the disclosure alternative of SFAS
No. 123, the Company will disclose, starting with the year ended December 31,
1996, its pro forma net income and earnings per share as if the fair value based
accounting method of SFAS No. 123 had been used to account for stock-based
compensation cost for all awards granted after January 1, 1995.
Preferred stock
The Company is authorized to issue a total of five million shares of
preferred stock. The rights of preferred stock as to dividends, redemption,
liquidation and conversion are determined upon issuance.
NOTE 13 - INCOME TAXES:
The components of (i) income (loss) before income taxes, minority interest,
extraordinary item and cumulative effect of change in accounting principle
("pretax income (loss)"), (ii) the difference between the provision for income
taxes attributable to pretax income (loss) and the amounts that would be
expected using the U.S. federal statutory income tax rate of 35%, (iii) the
provision for income taxes and (iv) the comprehensive tax provision (benefit)
are presented below.
Years ended December 31,
1993 1994 1995
(In thousands)
Pretax income (loss):
U.S. $(41,579) $ (6,241) $ 43,125
Non-U.S. (28,189) (7,164) 55,777
$(69,768) $(13,405) $ 98,902
Expected tax expense (benefit) $(24,419) $ (4,692) $ 34,616
Non-U.S. tax rates (15,620) (7,108) (7,016)
Rate change adjustment of deferred taxes 6,823 - (6,593)
Valuation allowance 40,827 24,309 (9,588)
Settlement of U.S. tax audits - (5,437) -
Incremental tax on income of companies not
included in the NL Tax Group 2,553 790 499
U.S. state income taxes 486 534 721
Other, net 2,063 1,338 32
$ 12,713 $ 9,734 $ 12,671
Provision for income taxes:
Current income tax expense (benefit):
U.S. federal $ (915) $ (5,222) $ 249
U.S. state 870 475 2,135
Non-U.S. 14,083 2,574 39,535
14,038 (2,173) 41,919
Deferred income tax expense (benefit):
U.S. federal 244 4,058 (9,005)
U.S. state (384) 347 (1,026)
Non-U.S. (1,185) 7,502 (19,217)
(1,325) 11,907 (29,248)
$ 12,713 $ 9,734 $ 12,671
Comprehensive tax provision (benefit)
allocable to:
Pretax income (loss) $12,713 $9,734 $12,671
Shareholders' deficit, principally
deferred income taxes allocable to
currency translation and marketable
securities adjustments (1,243) 7 10
$11,470 $9,741 $12,681
The Company's valuation allowance increased in the aggregate by $47 million
in 1993 and $31 million in each of 1994 and 1995. During 1995, both the
Company's gross deferred tax assets and the offsetting valuation allowance were
increased by $34 million as a result of recharacterizations of certain tax
attributes primarily due to changes in certain tax return elections. In
addition, the valuation allowance was reduced by approximately $10 million due
to recognition of the future tax benefit of certain tax credits which the
Company believes satisfies the "more-likely-than-not" recognition criteria as a
result of the Company's return to profitability. The components of the net
deferred tax liability are summarized below:
December 31,
1994 1995
Deferred tax Deferred tax
Assets Liabilities Assets Liabilities
(In thousands)
Tax effect of temporary
differences relating to:
Inventories $ 4,275 $ (2,885) $ 5,277 $ (5,644)
Property and equipment 423 (97,421) 574 (109,418)
Accrued postretirement
benefits cost 24,691 - 23,200 -
Accrued pension cost 9,363 (11,529) 8,978 (14,942)
Accrued environmental costs 34,108 - 38,214 -
Other accrued liabilities
and deductible differences 32,308 - 26,496 -
Other taxable differences - (144,774) - (101,621)
Tax on unremitted earnings of
non-U.S. subsidiaries 452 (22,416) 281 (22,526)
Tax loss and tax credit
carryforwards 162,906 - 189,263 -
Valuation allowance (164,500) - (195,569) -
Gross deferred tax assets
(liabilities) 104,026 (279,025) 96,714 (254,151)
Reclassification, principally
netting by tax jurisdiction (99,103) 99,103 (93,404) 93,404
Net total deferred tax
assets (liabilities) 4,923 (179,922) 3,310 (160,747)
Net current deferred tax
assets (liabilities) 2,177 (1,590) 2,522 (3,555)
Net noncurrent deferred tax
assets (liabilities) $ 2,746 $(178,332) $ 788 $(157,192)
Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany, are being examined and tax authorities have
proposed or may propose tax deficiencies. During 1994, the German tax
authorities withdrew certain proposed tax deficiencies of DM 100 million and
remitted tax refunds aggregating DM 225 million ($136 million), including
interest, on a tentative basis while examination of the Company's German income
tax returns continued. The Company recently reached agreement in principle with
the German tax authorities which will resolve certain significant tax
contingencies for years through 1990. The Company expects to finalize
assessments and pay tax deficiencies of approximately DM 50 million ($35 million
at December 31, 1995), including interest, in settlement of these issues during
the first half of 1996. The Company considers the agreement in principle to be
a favorable resolution of the contingencies and the anticipated payment is
within previously-accrued amounts for such matters.
Certain other German tax contingencies remain outstanding and will continue
to be litigated. No assurances can be given that this litigation will be
resolved in the Company's favor in view of the inherent uncertainties involved
in court rulings. Although the Company believes that it will ultimately prevail
in the litigation, the Company has granted a DM 100 million ($70 million at
December 31, 1995) lien on its Nordenham, Germany TiO2 plant in favor of the
German tax authorities until the litigation is resolved. The Company believes
that it has adequately provided accruals for additional income 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 the Company's consolidated financial position,
results of operations or liquidity.
During the fourth quarter of 1995, the Company recorded tax benefits of
$6.6 million due to the reduction in dividend withholding tax rates pursuant to
ratification of the new U.S./Canada income tax treaty.
During 1995, the Company utilized $14 million of foreign tax credit
carryforwards and U.S. net operating loss carryforwards from prior years to
reduce its 1995 U.S. federal income tax expense. At December 31, 1995, for U.S.
federal income tax purposes, the Company had approximately $27 million of
foreign tax credit carryforwards expiring during 1997 through 1999 and
approximately $9 million of alternative minimum tax credit carryforwards with no
expiration date. The Company also had approximately $350 million of income tax
loss carryforwards in Germany with no expiration date.
NOTE 14 - OTHER INCOME, NET:
Years ended December 31,
1993 1994 1995
(In thousands)
Securities earnings:
Interest and dividends $ 4,104 $ 5,075 $ 6,244
Securities transactions 4,363 (1,220) 1,175
8,467 3,855 7,419
Litigation settlement gains - 22,978 -
Technology fee income 2,048 10,344 10,660
Currency transaction gains, net 3,299 1,735 561
Royalty income 2,016 1,508 -
Disposition of property and equipment (199) (1,981) (2,713)
Other, net 6,453 6,389 6,314
$22,084 $44,828 $22,241
Litigation settlement gains includes $20 million related to the Company's
1994 settlement of its lawsuit against Lockheed Corporation. Technology fee
income is being amortized by the straight-line method over a three-year period
beginning October 1993.
NOTE 15 - OTHER ITEMS:
Advertising costs, expensed as incurred, were $2.1 million in 1993, $1.9
million in 1994 and $2.1 million in 1995.
Research, development and sales technical support costs, expensed as
incurred, approximated $10 million in each of 1993 and 1994, and $11 million in
1995.
Interest capitalized in connection with long-term capital projects was $1
million in each of 1993, 1994 and 1995.
NOTE 16 - EXTRAORDINARY ITEM:
The extraordinary loss in 1993 relates to the settlement of certain
interest rate swap agreements for $20 million in cash in conjunction with
prepaying the Louisiana plant indebtedness and from the write-off of deferred
financing costs related to such prepayment and the paydown of a portion of the
DM bank credit facility. The Louisiana plant indebtedness loan agreement
required the Company to enter into the interest rate swap agreements and both
the debt and related swaps were collateralized by the Louisiana plant. The
Company was required to prepay the Louisiana plant indebtedness and settle the
swaps prior to the formation of LPC.
NOTE 17 - RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. While no
transactions of the type described above are planned or proposed with respect to
the Company other than as set forth in this Annual Report on Form 10-K, the
Company from time to time considers, reviews and evaluates and understands that
Contran, Valhi and related entities consider, review and evaluate, such
transactions. Depending upon the business, tax and other objectives then
relevant, and restrictions under the indentures and other agreements, it is
possible that the Company might be a party to one or more such transactions in
the future.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
The Company is a party to an intercorporate services agreements with Valhi
and Contran (the "Valhi and Contran ISAs") whereby Valhi and Contran provide
certain management, financial and administrative services to the Company on a
fee basis. Management services fee expense related to the Valhi and Contran
ISAs was $.7 million in 1993, $.6 million in 1994 and $.5 million in 1995.
Baroid Corporation, a former wholly-owned subsidiary of the Company and a
subsidiary of Dresser Industries, Inc., and the Company were parties to an
intercorporate services agreement (the "Baroid ISA") pursuant to which, as
amended, Baroid agreed to make certain services available to the Company on a
fee basis. The agreement was terminated in 1994. Management services fee
expense pursuant to the Baroid ISA approximated $.3 million in 1993, $.2 million
in 1994.
The Company is party to an intercorporate services agreement with Tremont
(the "Tremont ISA"). Under the terms of the contract, the Company provides
certain management and financial services to Tremont on a fee basis. Management
services fee income related to the Tremont ISA was $.1 million in 1993, nil in
1994 and $.1 million in 1995.
Purchases from Tremont in the ordinary course of business pursuant to a
long-term supply contract were $.4 million in 1993 and nil in each of 1994 and
1995.
Sales to Baroid in the ordinary course of business were $1.8 million in
1993 and 1994, and $1.6 million in 1995.
Purchases in the ordinary course of business from unconsolidated joint
ventures, including LPC, were approximately $22 million in 1993, $74 million in
1994 and $79 million in 1995.
Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
and Valhi have agreed that the Company will pay Valhi the aggregate difference
between the option price and the market value of Valhi's common stock on the
exercise date of such options. For financial reporting purposes, the Company
accounts for the related expense (income) (nil in 1993, $64,000 in 1994 and
$(25,000) in 1995) in a manner similar to accounting for SARs. At December 31,
1995, employees of the Company held options to purchase 365,000 shares (362,000
shares vested) of Valhi common stock at exercise prices ranging from $4.76 to
$14.66 per share. At December 31, 1995, 27,000 of the vested options were
exercisable at prices less than Valhi's quoted market price per share of $6.375.
The Company and TRE Insurance, a wholly-owned subsidiary of Tremont, are
parties to an Insurance Sharing Agreement with respect to certain loss payments
and reserves established by TRE Insurance that (i) arise out of claims against
other entities for which the Company is responsible and (ii) are subject to
payment by TRE Insurance under certain reinsurance contracts. Also, TRE
Insurance will credit the Company with respect to certain underwriting profits
or credit recoveries that TRE Insurance receives from independent reinsurers
that relate to retained liabilities.
Net amounts payable to affiliates are summarized in the following table.
December 31,
1994 1995
(In thousands)
Tremont Corporation $ 4,780 $ 3,525
LPC 6,565 6,677
Other 3 (21)
$11,348 $10,181
Amounts payable to LPC are generally for the purchase of TiO2 (see Note 6),
and amounts payable to Tremont relate to the Company's Insurance Sharing
Agreement described above.
NOTE 18 - COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases, pursuant to operating leases, various manufacturing and
office space and transportation equipment. Most of the leases contain purchase
and/or various term renewal options at fair market and fair rental values,
respectively. In most cases management expects that, in the normal course of
business, leases will be renewed or replaced by other leases.
Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050. The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated. Under a separate
supplies and services agreement expiring in 2011, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the Leverkusen facility. Both the lease and the supplies and services
agreements restrict the Company's ability to transfer ownership or use of the
Leverkusen facility.
Net rent expense aggregated $8 million in 1993 and 1994, and $9 million in
1995. At December 31, 1995, minimum rental commitments under the terms of
noncancellable operating leases were as follows:
Years ending December 31, Real Estate Equipment
(In thousands)
1996 $ 2,097 $1,869
1997 1,722 1,250
1998 1,721 649
1999 1,544 203
2000 934 17
2001 and thereafter 13,818 -
$21,836 $3,988
Capital expenditures
At December 31, 1995, the estimated cost to complete capital projects in
process approximated $49 million, including $41 million related to environmental
protection and compliance programs and a debottlenecking expansion project at
the Company's Leverkusen, Germany chloride process TiO2 facility.
Purchase commitments
The Company has long-term supply contracts that provide for the Company's
chloride feedstock requirements through 2000. The agreements require the
Company to purchase certain minimum quantities of feedstock with average minimum
annual purchase commitments aggregating approximately $115 million.
Legal proceedings
Lead pigment litigation. Since 1987, the Company, other past manufacturers
of lead pigments for use in paint and lead-based paint and the Lead Industries
Association have been named as defendants in various legal proceedings seeking
damages for personal injury and property damage allegedly caused by the use of
lead-based paints. Certain of these actions have been filed by or on behalf of
large United States cities or their public housing authorities and certain
others have been asserted as class actions. These legal proceedings seek
recovery under a variety of theories, including negligent product design,
failure to warn, breach of warranty, conspiracy/concert of action, enterprise
liability, market share liability, intentional tort, and fraud and
misrepresentation.
The plaintiffs in these actions generally seek to impose on the defendants
responsibility for lead paint abatement and asserted health concerns associated
with the use of lead-based paints, which was permitted for interior residential
use in the United States until 1973, including damages for personal injury,
contribution and/or indemnification for medical expenses, medical monitoring
expenses and costs for educational programs. Most of these legal proceedings
are in various pre-trial stages; several are on appeal.
The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending
lead pigment litigation. Considering the Company's previous involvement in the
lead and lead pigment businesses, there can be no assurance that additional
litigation similar to that currently pending will not be filed.
Environmental matters and litigation. Some of the Company's current and
former facilities, including several divested secondary lead smelters and former
mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws. Additionally, in connection with past disposal practices, the Company has
been named a potential responsible party ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act ("CERCLA") in approximately 80
governmental enforcement and private actions associated with hazardous waste
sites and former mining locations, some of which are on the U.S. Environmental
Protection Agency's Superfund National Priorities List. These actions seek
cleanup costs and/or damages for personal injury or property damage. While the
Company may be jointly and severally liable for such costs, in most cases it is
only one of a number of PRPs who are also jointly and severally liable. In
addition, the Company is a party to a number of lawsuits filed in various
jurisdictions alleging CERCLA or other environmental claims. At December 31,
1995, the Company had accrued $100 million in respect of those environmental
matters which are reasonably estimable. It is not possible to estimate the
range of costs for certain sites. The upper end of the range of reasonably
possible costs to the Company for sites which it is possible to estimate costs
is approximately $169 million. The Company's estimates of such liabilities have
not been discounted to present value, and the Company has not recognized any
potential insurance recoveries. The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs, or
a determination that the Company is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated by the Company to be required for such matters. No
assurance can be given that actual costs will not exceed accrued amounts or the
upper end of the range for sites for which estimates have been made and no
assurance can be given that costs will not be incurred with respect to sites as
to which no estimate presently can be made. Further, there can be no assurance
that additional environmental matters will not arise in the future.
Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws. As with
other companies engaged in similar businesses, certain operations and products
of the Company have the potential to cause environmental or other damage. The
Company continues to implement various policies and programs in an effort to
minimize these risks. The Company's policy is to comply with environmental laws
and regulations at all of its facilities and to continually strive to improve
environmental performance in association with applicable industry initiatives.
It is possible that future developments, such as stricter requirements of
environmental laws and enforcement policies thereunder, could affect the
Company's production, handling, use, storage, transportation, sale or disposal
of such substances.
Other litigation. The Company is also involved in various other
environmental, contractual, product liability and other claims and disputes
incidental to its present and former businesses.
The Company currently believes the disposition of all claims and disputes
individually or in the aggregate, should not have a material adverse effect on
the Company's consolidated financial condition, results of operations or
liquidity.
Concentrations of credit risk
Sales of TiO2 accounted for almost 90% of net sales during the past three
years. TiO2 is sold to the paint, plastics and paper industries. Such markets
are generally considered "quality-of-life" markets whose demand for TiO2 is
influenced by the relative economic well-being of the various geographic
regions. TiO2 is sold to over 5,000 customers, none of which represents a
significant portion of net sales. In each of the past three years,
approximately one-half of the Company's TiO2 sales by volume were to Europe and
approximately 38% in 1993 and 36% in both 1994 and 1995 of sales were
attributable to North America.
Consolidated cash and cash equivalents includes $80 million and $103
million invested in U.S. Treasury securities purchased under short-term
agreements to resell at December 31, 1994 and 1995, respectively, of which $73
million and $88 million, respectively, of such securities are held in trust for
the Company by a single U.S. bank.
NOTE 19 - CHANGE IN ACCOUNTING PRINCIPLE:
In 1993, the Company adopted SFAS No. 115 (marketable securities) as of
December 31, 1993. The cumulative effect of change in accounting principle
adjustments are shown below.
Amount reflected in
Equity
Earnings component
(In thousands)
Increase (decrease) in net assets at
December 31, 1993 - SFAS No. 115:
Marketable securities $1,872 $(1,872)
Deferred income taxes (655) 655
$1,217 $(1,217)
NOTE 20 - FINANCIAL INSTRUMENTS:
Summarized below is the estimated fair value and related net carrying value
of the Company's financial instruments.
December 31, December 31,
1994 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(In millions)
Cash and cash equivalents $ 131.1 $131.1 $ 141.3 $141.3
Marketable securities - classified as:
Trading securities 25.2 25.2 - -
Available-for-sale 21.3 21.3 20.9 20.9
Notes payable and long-term debt:
Fixed rate with market quotes:
Senior Secured Notes $ 250.0 $247.1 $ 250.0 $267.7
Senior Secured Discount Notes 116.4 114.8 132.0 151.8
Variable rate debt 423.2 423.2 440.9 440.9
Common shareholders' equity (deficit) $(293.1) $644.5 $(209.4) $619.5
Fair value of the Company's marketable securities and Notes are
based upon quoted market prices and the fair value of the Company's
common shareholder's equity (deficit) is based upon quoted market prices
for NL's common stock. The Company held no derivative financial instruments
at December 31, 1994 and 1995.
NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarter ended
March 31 June 30 Sept. 30 Dec. 31
(In thousands, except per share amounts)
Year ended December 31, 1994:
Net sales $201,849 $237,113 $225,200 $223,792
Cost of sales 146,956 178,925 168,033 155,831
Operating income 22,313 26,242 27,093 35,704
Net income (loss) $ (6,367) $(15,534) $ (4,578) $ 2,497
Net income (loss) per
share of common stock $ (.12) $ (.30) $ (.09) $ .05
Weighted average shares
outstanding 50,965 51,040 51,040 51,045
Year ended December 31, 1995:
Net sales $250,875 $283,474 $255,339 $234,251
Cost of sales 169,768 187,896 169,058 149,462
Operating income 41,968 57,549 50,590 49,612
Net income $ 13,062 $ 21,002 $ 17,426 $ 34,119(a)
Net income per share of
common stock $ .26 $ .41 $ .34 $ .66(a)
Weighted average shares
outstanding 51,176 51,552 51,628 51,486
(a) Income tax benefits in the fourth quarter of 1995 include the recognition
of $10 million of deferred tax assets related to the expected realization
of the tax benefit of certain tax credits resulting from the Company's
return to profitability and $6.6 million related to the reduction in
U.S./Canada dividend withholding tax rates. See Note 13.
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of NL Industries, Inc.
is included on page F-2 of this Annual Report on Form 10-K. As discussed in
Notes 2 and 19 to the consolidated financial statements, the Company changed its
method of accounting for marketable securities in 1993. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index on page F-1.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 8, 1996
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 1994 and 1995
(In thousands)
1994 1995
Current assets:
Cash and cash equivalents $ 18,371 $ 40,080
Marketable securities 25,165 -
Accounts and notes receivable 1,274 203
Receivable from subsidiaries 2,854 4,273
Refundable income taxes - 1,662
Prepaid expenses 747 729
Total current assets 48,411 46,947
Other assets:
Marketable securities 21,329 20,944
Notes receivable from subsidiary 366,409 382,034
Investment in subsidiaries (181,751) (89,395)
Other 9,214 7,582
Total other assets 215,201 321,165
Property and equipment, net 3,732 3,562
$ 267,344 $ 371,674
Current liabilities:
Accounts payable and accrued liabilities $ 33,248 $ 28,116
Payable to affiliates 4,783 3,498
Income taxes 186 -
Deferred income taxes 1,436 1,905
Total current liabilities 39,653 33,519
Noncurrent liabilities:
Long-term debt 366,409 382,034
Deferred income taxes 9,546 10,211
Accrued pension cost 14,021 10,835
Accrued postretirement benefits cost 40,711 37,430
Other 90,086 107,066
Total noncurrent liabilities 520,773 547,576
Shareholders' deficit (293,082) (209,421)
$ 267,344 $ 371,674
Contingencies (Note 4)
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Operations
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Revenues and other income:
Equity in income (loss) of
subsidiaries $ (49,766) $ 7,925 $ 99,734
Interest and dividends 3,622 2,538 2,739
Interest income from subsidiary 8,358 43,157 45,551
Securities transactions 3,637 (1,220) 1,175
Other income, net 2,597 3,135 460
(31,552) 55,535 149,659
Costs and expenses:
General and administrative 44,113 69,875 27,079
Interest 13,771 44,003 45,842
57,884 113,878 72,921
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change in
accounting principle (89,436) (58,343) 76,738
Income tax benefit 6,225 34,361 8,871
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle (83,211) (23,982) 85,609
Extraordinary item - equity in income
of subsidiaries (27,815) - -
Cumulative effect of change in
accounting principle - NL 1,217 - -
Net income (loss) $(109,809) $(23,982) $ 85,609
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Cash flows from operating activities:
Net income (loss) $(109,809) $(23,982) $ 85,609
Undistributed earnings of subsidiaries:
Equity in (income) loss before
extraordinary item and cumulative
effect of change in accounting
principle 49,766 (7,925) (99,734)
Extraordinary item 27,815 - -
Distributions from subsidiaries - 30,000 15,000
Noncash interest expense 165 845 842
Deferred income taxes 1,510 (20,577) 1,411
Securities transactions (3,637) 1,220 (1,175)
Cumulative effect of change in
accounting principle (1,217) - -
Other, net (1,268) (3,836) (5,819)
(36,675) (24,255) (3,866)
Change in assets and liabilities, net 14,428 23,263 8,042
Marketable trading securities:
Purchases - (870) (762)
Dispositions - 15,530 27,102
Net cash provided (used) by
operating activities (22,247) 13,668 30,516
Cash flows from investing activities:
Investment in subsidiary (6,478) (6,630) (9,062)
Capital expenditures (4) (126) (33)
Loans to subsidiaries (341,500) - -
Purchases of marketable securities (10,899) - -
Proceeds from disposition of marketable
securities 69,232 - -
Other, net 667 402 10
Net cash used by investing activities (288,982) (6,354) (9,085)
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Condensed Statements of Cash Flows (Continued)
Years ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
Cash flows from financing activities:
Borrowings of (principal payments on):
Long-term debt $ 327,340 $ (170) $ -
Loans from affiliates (16,047) - -
Other, net - 120 278
Net cash provided (used) by
financing activities 311,293 (50) 278
Cash and cash equivalents:
Increase (decrease) from:
Operating activities (22,247) 13,668 30,516
Investing activities (288,982) (6,354) (9,085)
Financing activities 311,293 (50) 278
Net change from operating, investing
and financing activities 64 7,264 21,709
Balance at beginning of year 11,043 11,107 18,371
Balance at end of year $ 11,107 $18,371 $40,080
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Notes to Condensed Financial Information
NOTE 1 - BASIS OF PRESENTATION:
The Consolidated Financial Statements of NL Industries, Inc. (the
"Company") and the related Notes to Consolidated Financial Statements are
incorporated herein by reference.
NOTE 2 - NET RECEIVABLE FROM (PAYABLE TO) subsidiaries and affiliates:
December 31,
1994
1995
(In thousands)
Current:
Tremont Corporation $ (4,780) $ (3,525)
Other (3) 27
Kronos and Rheox:
Income taxes (1,043) 567
Other, net 3,897 3,706
$ (1,929) $ 775
Noncurrent:
Note receivable - Kronos $366,409 $382,034
NOTE 3 - LONG-TERM DEBT:
December 31,
1994
1995
(In thousands)
11.75% Senior Secured Notes $250,000 $250,000
13% Senior Secured Discount Notes 116,409 132,034
$366,409 $382,034
See Note 10 of the Consolidated Financial Statements for a description of
the Notes.
The aggregate maturities of the Company's long-term debt at December 31,
1995 are shown in the table below.
Amount
(In thousands)
Senior Secured Notes due 2003 $250,000
Senior Secured Discount Notes due 2005 187,500
437,500
Less unamortized original issue discount on the
Senior Secured Discount Notes 55,466
$382,034
The Company and Kronos have agreed, under certain circumstances, to provide
Kronos' principal international subsidiary with up to DM 125 million through
January 1, 2001.
NOTE 4 - CONTINGENCIES:
See Legal proceedings in Note 18 to the Consolidated Financial Statements.
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged to
beginning costs and
Description of year expenses Deductions
Year ended December 31, 1995:
Allowance for doubtful accounts
and notes receivable $ 3,749 $ 289 $ (166)(a)
Amortization of intangibles $ 16,149 $3,241 $ -
Valuation allowance for deferred
income taxes $164,500 $(9,588) $ -
Year ended December 31, 1994:
Allowance for doubtful accounts
and notes receivable $ 3,008 $ 1,141 $ (616)(a)
Amortization of intangibles $ 11,941 $ 2,901 $ -
Valuation allowance for deferred
income taxes $133,377 $24,309 $ -
Year ended December 31, 1993:
Allowance for doubtful accounts
and notes receivable $ 2,385 $ 1,216 $ (476)(a)
Amortization of intangibles $ 9,792 $ 2,863 $ -
Valuation allowance for deferred
income taxes $ 86,031 $50,562(b) $ -
Currency
translation Balance at
Description adjustments Other end of year
Year ended December 31, 1995:
Allowance for doubtful accounts
and notes receivable $ 167 $ - $ 4,039
Amortization of intangibles $ 1,172 $ - $ 20,562
Valuation allowance for deferred
income taxes $ 6,451 $34,206(c) $195,569
Year ended December 31, 1994:
Allowance for doubtful accounts
and notes receivable $ 216 $ - $ 3,749
Amortization of intangibles $ 1,307 $ - $ 16,149
Valuation allowance for deferred
income taxes $ 6,814 $ - $164,500
Year ended December 31, 1993:
Allowance for doubtful accounts
and notes receivable $ (117) $ - $ 3,008
Amortization of intangibles $ (714) $ - $ 11,941
Valuation allowance for deferred
income taxes $(3,216) $ - $133,377
(a) Amounts written off, less recoveries.
(b) Includes amounts recorded as part of extraordinary item.
(c) Direct offset to the increase in gross deferred income tax assets
resulting from recharacterization ofcertain tax attributes due
primarily to changes in certain income tax return elections.
