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
December 8, 2003
----------------------------------
(Date of Report, date of earliest event reported)
NL INDUSTRIES, INC.
---------------------
(Exact name of Registrant as specified in its charter)
New Jersey 1-640 13-5267260
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
5430 LBJ Freeway, Suite 1700, Dallas, TX 75240-2697
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(Address of principal executive offices) (Zip Code)
(972)233-1700
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(Registrant's telephone number, including area code)
Item 2: Acquisition or Disposition of Assets
On December 8, 2003, NL Industries, Inc. ("NL") completed the distribution
to its shareholders of one share of common stock of Kronos Worldwide, Inc.
("Kronos"), previously a wholly-owned subsidiary of NL, for every two shares of
NL common stock outstanding as of the close of business on November 17, 2003. NL
distributed approximately 23.9 million shares of Kronos' common stock,
representing approximately 48.8% of the outstanding stock of Kronos. Immediately
prior to the distribution of the shares of Kronos common stock, Kronos
distributed a $200 million promissory note payable by Kronos to NL.
Reference is made to the Information Statement filed by Kronos for a
discussion of the transactions described above, a copy of which is filed as
Exhibit 99.2 to this Form 8-K and is incorporated herein by reference.
At September 30, 2003, Valhi, Inc. ("Valhi") and Tremont LLC ("Tremont"), a
wholly-owned subsidiary of Valhi, own an aggregate of approximately 85% of the
outstanding shares of common stock of NL. Valhi, Tremont and NL are members of
the same consolidated tax group for U.S. federal income tax purposes. NL is a
party to a tax sharing agreement with Valhi pursuant to which NL generally
computes its provision for income taxes on a separate-company basis, and NL
makes payments to or receives payments from Valhi in amounts that it would have
paid to or received from the U.S. Internal Revenue Service had NL not been a
member of such consolidated tax group. Prior to completion of the distribution
by NL to its shareholders of 48.8% of the outstanding shares of common stock of
Kronos, Kronos and its qualifying subsidiaries were members of NL's tax group.
Following completion of the distribution, Kronos and its qualifying subsidiaries
are no longer be members of NL's tax group, but Kronos and its qualifying
subsidiaries will remain members of the same tax group of which Valhi and
Tremont are members. The distribution by NL to its shareholders of 48.8% of the
outstanding shares of common stock of Kronos is taxable to NL, and NL is
required to recognize a taxable gain equal to the difference between the fair
market value of the shares of Kronos common stock distributed ($17.25 per share,
equal to the closing market price of Kronos' common stock on December 8, 2003)
and NL's adjusted tax basis in such stock at the date of distribution. With
respect to the shares of Kronos distributed to Valhi and Tremont (20.2 million
shares in the aggregate), effective December 1, 2003, Valhi and NL amended the
terms of their tax sharing agreement to not require NL to pay up to Valhi the
tax liability generated from the distribution of such Kronos shares to Valhi and
Tremont, since the tax on that portion of the gain is deferred at the Valhi
level due to Valhi, Tremont and NL being members of the same tax group.
Reference is made to the Amended Tax Agreement between Valhi and NL dated as of
December 1, 2003, a copy of which is filed as Exhibit 10.1 to this Form 8-K and
is incorporated herein by reference.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro forma financial information
Pro forma condensed consolidated financial statements of the
Registrant, which present the pro forma effects of the
transactions described in Item 2 above, assuming such
transactions had occurred as of the dates set forth in the
accompanying notes, are included herein as Exhibit 99.1.
(c) Exhibit
Item No. Exhibit Index
10.1 Amended Tax Agreement between Valhi,
Inc. and NL Industries, Inc. dated as of
December 1, 2003.
99.1 Pro forma financial information of the
Registrant.
99.2 Information Statement dated November 10,
2003 - incorporated by reference to
Exhibit 99.1 to Amendment No. 4 to the
General Form for Registration of
Securities on Form 10 (File No. 1-31763)
filed by Kronos Worldwide, Inc. with the
Securities and Exchange Commission on
November 14, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NL INDUSTRIES, INC.
(Registrant)
By: /s/ Gregory M. Swalwell
Gregory M. Swalwell
Vice President, Finance
Date: December 23, 2003
AMENDED
TAX AGREEMENT
Between
VALHI, INC.
and
NL INDUSTRIES, INC.
AGREEMENT dated as of December 1, 2003 amends and supercedes the prior
agreement dated as of January 1, 2001 by and among Valhi, Inc. ("VHI"), a
Delaware corporation having its principal executive offices at Three Lincoln
Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240, Contran Corporation
("Contran"), a Delaware corporation having its principal executive offices at
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, TX 75240 and NL
Industries, Inc. ("NL"), a New Jersey corporation having its principal executive
offices at 16825 Northchase Drive, Suite 1200, Houston, Texas 77060.
WHEREAS, VHI and NL are eligible to file consolidated returns of
federal income taxes and, subject to certain jurisdictional limitations, have
been subject to combined state and local tax reporting effective January 1,
2001;
WHEREAS, VHI and NL wish to provide for the allocation of liabilities,
and procedures to be followed, with respect to federal income taxes of NL and
any subsidiaries of NL and with respect to certain combined state and local
taxes on the terms of this Agreement.
NOW, THEREFORE, in consideration of the promises and agreements herein
contained, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms have the meanings
set forth below:
(a) Code: The Internal Revenue Code of 1986, as amended, and with
respect to any section thereof any successor provisions under such Code or
any successor Code.
(b) Combined Foreign, State and Local Taxes: For a taxable period, the
amount of all foreign, state and local taxes, together with all interest
and penalties with respect thereto, for which liability is computed (1) on
the basis of a combined, unitary or consolidated return (whether at the
initiative of the tax authority or of the taxpayer) and (2) by reference to
one or more members of the NL Group and one or more members of the VHI
Group not included in the NL Group.
(c) Contran Corporation: A Delaware corporation that is the common
parent of a group of corporations electing to file a consolidated federal
income tax return.
(d) Federal Taxes: All federal income taxes, together with all
interest and penalties with respect thereto.
(e) VHI Group: VHI and those of its direct and indirect subsidiaries
which join in the filing of a consolidated federal income tax return with
its common parent, Contran (the "Contran Tax Group"), as such Group is
constituted from time to time. For purposes of this Agreement (to the
extent related to Combined Foreign, State and Local Taxes), the term "VHI
Group" shall include all direct and indirect subsidiaries of VHI with
reference to which Combined Foreign, State and Local Taxes are determined.
(f) NL Group: NL Industries, Inc. and each direct or indirect
subsidiary of NL which would be a member of an affiliated group, within the
meaning of section 1504(a) of the Code, of which NL was the common parent,
as such Group is constituted from time to time. For purposes of this
Agreement (to the extent related to Combined Foreign, State and Local
Taxes) , the term "NL Group" shall include all direct and indirect
subsidiaries of NL with reference to which Combined, Foreign, State and
Local taxes are determined.
(g) NL Group Tax Liability: Except as provided in subparagraph (h),
for a taxable period, the liability for Federal Taxes and Combined Foreign,
State and Local taxes, as applicable, that the NL Group would have had if
it were not a member of the VHI Group during such taxable period (or during
any taxable period prior thereto), and instead filed a separate
consolidated return for such taxable period (and during all prior taxable
periods beginning after December 31, 2000); provided, however, that for
purposes of determining such liability for a taxable period all tax
elections shall be consistent with the tax elections made by Contran for
such period. In making such tax elections it is understood the Contran
Corporation will make those tax elections which are beneficial to the
Contran Tax Group on a consolidated basis. Nevertheless, Contran will use
its best efforts in the case of those elections which affect the
computation of the NL Group Tax Liability, to make elections in a
reasonable manner so as to minimize the NL Group Tax Liability.
(h) NL Group Tax Liability Payment Deferral. For the taxable period
ending December 31, 2003, the NL Group shall not be required to make a tax
payment to Valhi pursuant to this agreement in regard to the Section 311
(b) Gain (the "Payment Deferral"), as defined in the Code, realized on the
December 8, 2003 distribution of shares of Kronos Worldwide Services, Inc.
(the "Distribution", as set forth in the NL's Information Statement dated
November 10, 2003), but only to the extent such gain is attributable to
shares distributed to members of the Contran Tax Group (the "Deferred
Intercompany Gain").
(i) Deferred Intercompany Gain Recognition. In the event, NL's
Deferred Intercompany Gain is recognized under the Code, the NL Group Tax
Liability shall include such gain in the taxable period in which the
recognition event occurs for purposes of determined the NL Group Tax
Liability.
2. Contran as Agent. Contran shall be the sole agent for the NL Group in
all matters relating to the NL Group Tax Liability. The NL Group shall not (a)
terminate such agency or (b) without the consent of Contran, participate, or
attempt to participate, in any matters related to the NL Group Tax Liability,
including, but not limited to, preparation or filing of, or resolution of
disputes, protests or audits with the Internal Revenue Service, state or local
taxing authorities concerning, the Contran Group's consolidated returns of
Federal Taxes, returns of Combined Foreign, State and Local Taxes or the NL
Group Tax Liability with respect thereto for any taxable period beginning after
December 31, 2000. The NL Group shall cooperate fully in providing Contran with
all information and documents necessary or desirable to enable Contran to
perform its obligations under this Section, including completion of Internal
Revenue Service and state or local tax audits in connection with such NL Group
Tax Liability and determination of the proper liability for such NL Group Tax
Liability.
3. Liability for Taxes; Refunds.
(a) VHI, as the common parent of the NL Group, shall be responsible
for, and shall pay to Contran or a taxing authority, as applicable, the
consolidated tax liability for the VHI Group and has the sole right to any
refunds received from Contran or a taxing authority, as applicable, subject
to the provisions of Sections 5 and 6 of this Agreement.
(b) Notwithstanding any other provision of this Agreement, NL and each
subsidiary of NL which is a member of the NL Group shall be severally
liable to VHI for the NL Group Tax Liability.
(c) NL shall indemnify VHI and hold it and the VHI Group other than
the NL Group, harmless from and against any deficiency in the NL Group Tax
Liability that may be due to VHI.
(d) VHI shall indemnify NL and hold it and the NL Group harmless from
and against any Federal Taxes and Combined Foreign, State and Local Taxes
attributable to the VHI Group or any other member of the Contran Tax Group,
other than the NL Group, as such taxes are determined under this and other
tax sharing agreements.
4. Tax Returns. VHI shall file on behalf of the NL Group any and all
federal, foreign, state and local tax returns that are required as they pertain
to the NL Group Tax Liability. The NL Group, at VHI's request, shall join in any
applicable consolidated returns of Federal Taxes and any returns of Combined
Foreign, State and Local Taxes (for which returns have not been theretofore
filed) and execute its consent to each such filing on any form as may be
prescribed for such consent if such consent is required. The decision of VHI's
Senior Vice President (or any other officer so designated by VHI) with
responsibility for tax matters shall, subject to the provisions of this
Agreement, be binding in any dispute between VHI and the NL Group as to what tax
position should be taken with respect to any item or transaction of the NL
Group. The preceding sentence is limited to the tax positions that affect the NL
Group Tax Liability and the combined VHI Group and Contran Tax Group. In
addition, VHI and members of the VHI Group, including NL and members of the NL
Group, shall provide each other with such cooperation, assistance and
information as each of them may request of the other with respect to the filing
of any tax return, amended return, claim for refund or other document with any
taxing authority. NL shall be solely responsible for all taxes due for the NL
Group with respect to tax returns filed by NL or a member of the NL Group that
are required to be filed on a separate company basis, independent of VHI.
5. Payment of NL Group Tax Liability for Federal Taxes. On or before each
date, as determined under section 6655 of the Code, for payment of an
installment of estimated Federal Taxes, NL shall pay to VHI an amount equal to
the installment which the NL Group would have been required to pay as an
estimated payment of Federal Taxes to the Internal Revenue Service if it were
filing a separate consolidated return in respect of the NL Group Tax Liability
(as determined under paragraphs 1(g), 1(h), or 1(i)). Any balance owed with
respect to the NL Group Tax Liability for such taxable period shall be paid to
VHI on or before the 15th day of the third month after the close of such taxable
period. If it is not possible to determine the amount of such balance on or
before such day, (a) a reasonable estimate thereof shall be paid on or before
such day, (b) the amount of such balance shall be finally determined on or
before the earlier of; (i) the 15th day of the ninth month after the close of
such taxable period and (ii) the date on which the consolidated tax return
containing the NL Group for such period is filed with the Internal Revenue
Service, and (c) any difference between the amount so determined and the
estimated amount paid shall; (i) in the case of an underpayment, be promptly
paid to VHI and (ii) in the case of an overpayment, be promptly refunded or
applied against the estimated NL Group Tax Liability for the immediately
following tax period, at the option of VHI. If the overpayment is not applied to
the immediately following tax period, such overpayment shall be promptly
refunded to the NL Group. As between the parties to this Agreement, the NL Group
shall be solely responsible for the NL Group Tax Liability and shall have no
responsibility for Federal Taxes of the VHI Group or the Contran Group other
than payment of the NL Group Tax Liability in accordance with the terms of this
Agreement.
6.Refunds for NL Group Losses and Credits for Federal Taxes
(a) General Provision. If the calculation with respect to the NL Group
Tax Liability for Federal Taxes results in a net operating loss ("NOL") for
the current tax period that, in the absence of a Code Section 172(b)(3)
election made by Contran, is carried back under Code Sections 172 and 1502
to a prior taxable period or periods of the NL Group with respect to which
the NL Group previously made payments to VHI, then, in that event, VHI
shall pay (or credit) NL an amount equal to the tax refund to which the NL
Group would have been entitled had the NL Group filed a separate
consolidated federal income tax return for such year (but not in excess of
the net aggregate amount of the NL Group Tax Liability paid to VHI with
respect to the preceding two taxable periods). If the calculation with
respect to the NL Group Tax Liability results in an NOL for the current tax
period, that subject to the Code Section 172(b)(3) election made by
Contran, is not carried back under Code Sections 172 and 1502 to a prior
taxable period or periods of the NL Group with respect to which NL made
payments to VHI or is not carried back because the Contran Tax Group does
not have a consolidated net operating loss for the current tax period,
then, in that event such NOL shall be an NOL carryover to be used in
computing the NL Group Tax Liability for future taxable periods, under the
law applicable to NOL carryovers in general, as such law applies to the
relevant taxable period. Furthermore, if the NL Group would have been
entitled to a refund of Federal Taxes for any year had the NL Group filed a
separate consolidated federal income tax return for the loss year and the
carryback year, VHI shall pay to NL the amount which NL would have received
as a refund from the Internal Revenue Service. Payments made pursuant to
this Section 6 shall be made on the date that Contran (or any successor
common parent of a tax group to which the VHI Group is a member) files its
consolidated federal income tax return for the taxable period involved.
Principles similar to those discussed in this Section 6 shall apply in the
case of the utilization of all NL Group loss and credit carrybacks and
carryovers.
(b) Limitation on NL Group Losses. Notwithstanding the provisions set
forth in paragraph 6(a) and in exchange for the Payment Deferral, NL Group
Losses generated in the taxable periods ending after December 31, 2003 may
not be carried back to the taxable period ending December 31, 2003. NL will
not be entitled to any refund for the taxable period ending December 31,
2003, if such refund is attributable to NL Group Losses generated in a
succeeding taxable period regardless of whether such losses are carried
back first to a taxable period ending before January 1, 2003.
7. Payment of NL Group Tax Liability for Foreign, State and Local Taxes.
The foregoing principles contained in Sections 5 and 6 shall apply in similar
fashion to any consolidated or combined foreign, state or other local income tax
returns, containing any member of the VHI Group and any member of the NL Group
that is not also a member of the VHI Group, which may be filed.
8. Subsequent Adjustments. If any settlement with the Internal Revenue
Service, foreign, state or local tax authority or court decision which has
become final results in any adjustment to any item of income, deduction, loss or
credit to the VHI Group in respect of any taxable period subject to this
Agreement, which, in any such case, affects or relates to any member of the NL
Group as constituted during such taxable period, the NL Tax Group Liability
shall be redetermined to give effect to such adjustment as if it had been made
as part of or reflected in the original computation of the NL Tax Group
Liability and proper adjustment of amounts paid or owing hereunder in respect of
such liability and allocation shall be promptly made in light thereof.
9. Amendments. This Agreement may be amended, modified, superseded or
cancelled, and any of the terms, covenants, or conditions hereof may be waived,
only by a written instrument specifically referring to this Agreement and
executed by both parties (or, in the case of a waiver, by or on behalf of the
party waiving compliance). The failure of either party at any time or times to
require performance of any provision of this Agreement shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of any
condition, or of any breach of any term or covenant, contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach, or a waiver of any
other condition or of any breach of any other term or covenant.
10. Retention of Records. VHI shall retain all tax returns, tax reports,
related workpapers and all schedules (along with all documents that pertain to
any such tax returns, reports or workpapers) that relate to a taxable period in
which the NL Group is included in a consolidated or combined tax return with
VHI. VHI shall make such documents available to NL at NL's request. VHI shall
not dispose of such documents without the permission of NL.
11. Headings. The headings of this Agreement are for convenience of
reference only, and shall not in any way affect the meaning or interpretation of
this Agreement.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware without regard to conflicts of
laws provisions.
13. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
14. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective subsidiaries, and their
respective successors and assigns.
15. Effective Date. This Agreement shall be effective as of December 1,
2003.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
VALHI, INC.
By: /s/ William J. Lindquist
-------------------------------
William J. Lindquist
Senior Vice President
CONTRAN CORPORATION
By: /s/ William J. Lindquist
-------------------------------
William J. Lindquist
Senior Vice President
NL INDUSTRIES, INC.
By: /s/ Kelly D. Luttmer
-------------------------------
Kelly D. Luttmer
Tax Director
NL INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of NL
Industries, Inc. ("NL") as of September 30, 2003 gives effect to (i) the
distribution of a $200 million promissory note payable by Kronos Worldwide, Inc.
("Kronos") to NL and (ii) the distribution by NL to its shareholders of 48.8% of
the outstanding shares of common stock of Kronos, as if they had occurred on
such date. The Unaudited Pro Forma Condensed Consolidated Statements of Income
for the year ended December 31, 2002 and the nine months ended September 30,
2003 give effect to such transactions as if they had occurred on January 1,
2002. You should read this information in conjunction with the following:
o the accompanying notes to the Unaudited Pro Forma Condensed
Consolidated Financial Statements;
o the audited consolidated financial statements of NL included in its
Annual Report on Form 10-K for the year ended December 31, 2002, as
amended, and the unaudited consolidated financial statements of NL
included in its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003; and
o the audited consolidated financial statements of Kronos included in
the Information Statement filed as Exhibit No. 99.1 to Kronos'
Registration Statement on Form 10, and the unaudited consolidated
financial statements of Kronos included in its Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003.
The unaudited pro forma condensed consolidated financial statements
presented below are for informational purposes only and to aid you in your
analysis of the financial aspects of the transactions described above. The pro
forma condensed consolidated financial statements are not necessarily indicative
of what NL's financial position or results of operations actually would have
been had the transactions described above been completed at the dates indicated.
In addition, the unaudited pro forma condensed consolidated financial statements
do not purport to project the future financial position or operating results of
NL following completion of the transactions described above.
NL INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2003
(In millions)
NL Pro forma NL
historical adjustments pro forma
---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 59.7 $ -- $ 59.7
Restricted cash equivalents .............. 22.1 -- 22.1
Restricted marketable debt securities .... 8.2 -- 8.2
Receivables .............................. 177.6 -- 177.6
Inventories .............................. 203.3 -- 203.3
Prepaid expense .......................... 7.9 -- 7.9
Deferred income taxes .................... 10.5 -- 10.5
---------- ------ ----------
Total current assets ................... 489.3 -- 489.3
---------- ------ ----------
Other assets:
Investment in joint venture .............. 127.8 -- 127.8
Marketable equity securities ............. 53.1 -- 53.1
Receivable from affiliate ................ 16.0 -- 16.0
Other assets ............................. 47.6 -- 47.6
---------- ------ ----------
Total other assets ..................... 244.5 -- 244.5
---------- ------ ----------
Property and equipment, net ................ 405.1 -- 405.1
---------- ------ ----------
$ 1,138.9 $ -- $ 1,138.9
========== ====== ==========
NL INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
September 30, 2003
(In millions)
NL Pro forma NL
historical adjustments pro forma
---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current long-term debt ................... $ .5 $ -- $ .5
Payable to affiliates .................... 8.6 24.3 32.9
Other payables and accruals .............. 170.4 -- 170.4
Income taxes ............................. 8.5 -- 8.5
Deferred income taxes .................... 1.7 -- 1.7
---------- ---------- ----------
Total current liabilities .............. 189.7 24.3 214.0
---------- ---------- ----------
Noncurrent liabilities:
Long-term debt ........................... 327.3 -- 327.3
Accrued environmental costs .............. 65.0 -- 65.0
Accrued pension costs .................... 43.2 -- 43.2
Accrued OPEB costs ....................... 23.9 -- 23.9
Deferred income taxes .................... 152.1 -- 152.1
Other .................................... 14.2 -- 14.2
---------- ---------- ----------
Total noncurrent liabilities ........... 625.7 -- 625.7
---------- ---------- ----------
Minority interest .......................... 8.7 83.4 92.1
---------- ---------- ----------
Stockholders' equity:
Common stock ............................. 8.4 -- 8.4
Additional paid-in capital ............... 777.8 -- 777.8
Retained earnings ........................ 127.8 (107.7) 20.1
Accumulated other comprehensive income ... (163.7) -- (163.7)
Treasury stock ........................... (435.5) -- (435.5)
---------- ---------- ----------
Total stockholders' equity ............. 314.8 (107.7) 207.1
---------- ---------- ----------
$ 1,138.9 $ -- $ 1,138.9
========== ========== ==========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NL INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 2002
(In millions, except per share data)
NL Pro forma NL
historical adjustments pro forma
---------- ----------- ---------
Net sales .................................. $ 875.2 $ -- $ 875.2
Cost of sales .............................. 671.8 -- 671.8
--------- --------- --------
Gross margin ............................. 203.4 203.4
Selling general and administrative
expenses .................................. 107.7 -- 107.7
Other operating expenses, net .............. 29.5 -- 29.5
--------- --------- --------
Income from operations ................... 66.2 -- 66.2
Other expenses, net ........................ 16.1 -- 16.1
--------- --------- --------
Income before income taxes ............... 50.1 -- 50.1
Provision for income taxes ................. 12.0 2.0 14.0
Minority interest .......................... 1.3 26.9 28.2
--------- --------- --------
Net income ............................... $ 36.8 $ (28.9) $ 7.9
========= ========= ========
Basic and diluted net income per share ..... $ .76 $ .16
========= ========
Shares used in the calculation of
per share amounts:
Basic earnings per share ................. 48.5 48.5
Dilutive impact of stock options ......... .1 .1
--------- --------
Diluted earnings per share ............... 48.6 48.6
========= ========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NL INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine months ended September 30, 2003
(In millions, except per share data)
NL Pro forma NL
historical adjustments pro forma
---------- ----------- ---------
Net sales .................................... $ 762.5 $ -- $ 762.5
Cost of sales ................................ 563.5 -- 563.5
--------- ------- --------
Gross margin ............................... 199.0 -- 199.0
Selling, general and administrative
expenses .................................... 90.1 -- 90.1
Other operating expenses, net ................ 42.9 -- 42.9
--------- ------- --------
Income from operations ..................... 66.0 -- 66.0
Other expenses, net .......................... 19.1 -- 19.1
--------- ------- --------
Income before income taxes ................. 46.9 -- 46.9
Provision for income taxes (benefit) ......... (8.2) 2.4 (5.8)
Minority interest ............................ .2 32.2 32.4
--------- ------- --------
Net income ................................... $ 54.9 $ (34.6) $ 20.3
========= ======== ========
Basic and diluted net income per share ....... $ 1.15 $ .42
========= ========
Shares used in the calculation of
per share amounts:
Basic earnings per share ................... 47.7 47.7
Dilutive impact of stock options ........... .1 .1
--------- --------
Diluted earnings per share ................. 47.8 47.8
========= ========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of presentation:
The unaudited pro forma condensed consolidated balance sheet reflects
adjustments necessary to reflect (i) the distribution of a $200 million 9%
promissory note payable by Kronos to NL and (ii) the distribution by NL to its
shareholders of 23.9 million shares (48.8%) of the outstanding shares of common
stock of Kronos, as if they had occurred on September 30, 2003. The unaudited
pro forma condensed consolidated statements of operations reflect adjustments
necessary to reflect such transactions as if they had occurred on January 1,
2002.
At September 30, 2003, Valhi, Inc. and Tremont LLC, a wholly-owned
subsidiary of Valhi, own an aggregate of approximately 85% of the outstanding
shares of common stock of NL. Valhi, Tremont and NL are members of the same
consolidated tax group for U.S. federal income tax purposes. NL is a party to a
tax sharing agreement with Valhi pursuant to which NL generally computes its
provision for income taxes on a separate-company basis, and NL makes payments to
or receives payments from Valhi in amounts that it would have paid to or
received from the U.S. Internal Revenue Service had NL not been a member of such
consolidated tax group.
Prior to completion of the distribution by NL to its shareholders of 48.8%
of the outstanding shares of common stock of Kronos, Kronos and its qualifying
subsidiaries were members of NL's tax group. Following completion of the
distribution, Kronos and its qualifying subsidiaries will no longer be members
of NL's tax group, but Kronos and its qualifying subsidiaries will remain
members of the same tax group of which Valhi and Tremont are members.
The distribution by NL to its shareholders of 48.8% of the outstanding
shares of common stock of Kronos will be accounted for as a spin-off recorded at
book value, net of tax. Such distribution is taxable to NL, and NL is required
to recognize a taxable gain equal to the difference between the fair market
value of the shares of Kronos common stock distributed ($17.25 per share, equal
to the closing market price of Kronos' common stock on December 8, 2003, the
date the distribution was actually completed) and NL's adjusted tax basis in
such stock at the date of distribution. With respect to the shares of Kronos
distributed to Valhi and Tremont (20.2 million shares in the aggregate),
effective December 1, 2003, Valhi and NL have amended the terms of their tax
sharing agreement to not require NL to pay up to Valhi the tax liability
generated from the distribution of such Kronos shares to Valhi and Tremont,
since the tax on that portion of the gain is deferred at the Valhi level due to
Valhi, Tremont and NL being members of the same tax group. Therefore, NL will be
required to recognize a tax on the distribution only with respect to the shares
of Kronos distributed to NL shareholders other than Valhi and Tremont (3.7
million shares in the aggregate).
Note 2 -- Unaudited pro forma condensed consolidated balance sheet - pro forma
adjustments:
The adjustment to minority interest as of September 30, 2003, represents
recognition of the 48.8% of Kronos' pro forma net assets at such date which are
attributable to Kronos shareholders other than NL. Such amount is calculated as
follows:
Amount
(In millions)
Kronos' historical net assets at September 30, 2003 $ 371.0
Less Kronos' promissory note payable to NL 200.0
-------
Kronos' pro forma net assets at September 30, 2003 $ 171.0
=======
48.8% of Kronos' pro forma net assets $ 83.4
=======
The adjustment to payable to affiliates as of September 30, 2003 represents
recognition of the income tax liability generated from the distribution of
shares of Kronos common stock, as discussed above, and is calculated in the
table below. Such tax liability has been calculated based on the actual closing
market price for Kronos' common stock on December 8, 2003 (since there was no
quoted market price for Kronos' common stock on September 30, 2003), and an
estimate of the tax basis of the shares of Kronos common stock distributed as of
September 30, 2003. NL's actual tax liability generated from the distribution
will be based upon the tax basis of the shares of Kronos common stock as of the
date of distribution (December 8, 2003).
Amount
(In millions, except
per share amounts)
Shares of Kronos common stock distributed to NL 3.7
shareholders other than Valhi and Tremont
Multiplied by fair market value of the shares
distributed at the time of the distribution $17.25
------
Aggregated market value 63.9
Less aggregate tax basis in the shares distributed to NL
shareholders other than Valhi and Tremont .4
-------
Taxable gain $ 63.5
=======
Tax on taxable gain at estimated combined U.S. federal and
state effective tax rate of 38.3% $ 24.3
=======
The adjustment to retained earnings represents the book value, net of tax,
of the shares of Kronos common stock distributed.
There is no recognition in NL's unaudited condensed consolidated balance
sheet of Kronos' $200 million promissory note payable to NL as such note payable
is eliminated in NL's consolidated financial statements.
Note 3 -- Unaudited pro forma condensed consolidated statements of income -
pro forma adjustments:
The adjustment to minority interest for the year ended December 31, 2002
and the nine months ended September 30, 2003 represents recognition of the 48.8%
of Kronos' pro forma net income for such periods which are attributable to
Kronos shareholders other than NL. Such amounts are calculated as follows:
Year ended Nine months ended
December 31, 2002 September 30, 2003
(In millions)
Kronos' historical net income $ 66.3 $ 74.4
---------- ---------
Less net-of-tax interest expense on Kronos'
$200 million 9% promissory note
payable to NL:
Interest expense at 9% 18.0 13.5
Tax benefit at estimated combined
U.S. federal and state
effective tax rate of 38.3% 6.9 5.2
---------- ---------
11.1 8.3
---------- ---------
Kronos' pro forma net income $ 55.2 $ 66.1
========== =========
48.8% of Kronos' pro forma net income $ 26.9 $ 32.2
========== =========
NL provides incremental income taxes on its equity in the net income of
domestic subsidiaries and affiliates that are not members of NL's tax group. The
adjustment to the provision for income taxes (benefit) for the year ended
December 31, 2002 and the nine months ended September 30, 2003 represents
recognition of such incremental income taxes on the 51.2% of Kronos' pro forma
net income which are attributable to NL, using the 7% dividends received
deduction effective income tax rate.
There is no recognition in NL's unaudited pro forma condensed consolidated
statements of income for interest expense associated with Kronos' $200 million
promissory note payable to NL as such interest expense is eliminated in NL's
consolidated financial statements.
Note 4 -- Pro forma per share amounts:
The pro forma basic and diluted earnings per share amounts are based upon
NL's historical basic and diluted weighted average shares outstanding for the
year ended December 31, 2002 and the nine months ended September 30, 2003.