SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended June 30, 2001
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 77060-2544
- -------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 423-3300
--------------------
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) had been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Number of shares of common stock outstanding on August 7, 2001: 49,678,384
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 2001
and December 31, 2000 3-4
Consolidated Statements of Income - Three months
and six months ended June 30, 2001 and 2000 5
Consolidated Statements of Comprehensive Income
- Three months and six months ended June 30, 2001 and 2000 6
Consolidated Statement of Shareholders' Equity
- Six months ended June 30, 2001 7
Consolidated Statements of Cash Flows - Six
months ended June 30, 2001 and 2000 8-9
Notes to Consolidated Financial Statements 10-26
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27-33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 6. Exhibits and Reports on Form 8-K 34
- 2 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS June 30, December 31,
2001 2000
---------- ------------
Current assets:
Cash and cash equivalents ...................... $ 89,068 $ 120,378
Restricted cash equivalents .................... 78,187 69,242
Accounts and notes receivable .................. 154,966 131,540
Receivable from affiliates ..................... 21,867 214
Refundable income taxes ........................ 9,291 12,302
Inventories .................................... 175,718 205,973
Prepaid expenses ............................... 4,798 2,458
Deferred income taxes .......................... 12,059 11,673
---------- ----------
Total current assets ....................... 545,954 553,780
---------- ----------
Other assets:
Marketable securities .......................... 52,703 47,186
Receivable from affiliate ...................... 12,150 --
Investment in TiO2 manufacturing joint venture . 144,791 150,002
Prepaid pension cost ........................... 22,446 22,789
Restricted cash equivalents .................... 16,964 17,942
Other .......................................... 4,296 4,707
---------- ----------
Total other assets ......................... 253,350 242,626
---------- ----------
Property and equipment:
Land ........................................... 23,371 24,978
Buildings ...................................... 121,261 129,019
Machinery and equipment ........................ 499,858 530,920
Mining properties .............................. 65,523 67,134
Construction in progress ....................... 13,930 4,586
---------- ----------
723,943 756,637
Less accumulated depreciation and depletion .... 418,590 432,255
---------- ----------
Net property and equipment ................. 305,353 324,382
---------- ----------
$1,104,657 $1,120,788
========== ==========
- 3 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
2001 2000
----------- ------------
Current liabilities:
Notes payable .............................. $ 58,999 $ 69,970
Current maturities of long-term debt ....... 930 730
Accounts payable and accrued liabilities ... 126,543 147,877
Payable to affiliates ...................... 9,900 10,634
Accrued environmental costs ................ 62,034 53,307
Income taxes ............................... 15,199 13,616
Deferred income taxes ...................... 1,249 1,822
----------- -----------
Total current liabilities .............. 274,854 297,956
----------- -----------
Noncurrent liabilities:
Long-term debt ............................. 196,078 195,363
Deferred income taxes ...................... 149,398 145,673
Accrued environmental costs ................ 46,904 57,133
Accrued pension cost ....................... 18,043 21,220
Accrued postretirement benefits cost ....... 29,744 29,404
Other ...................................... 16,038 23,272
----------- -----------
Total noncurrent liabilities ........... 456,205 472,065
----------- -----------
Minority interest .............................. 7,203 6,279
----------- -----------
Shareholders' equity:
Common stock ............................... 8,355 8,355
Additional paid-in capital ................. 777,597 777,528
Retained earnings .......................... 181,063 141,073
Accumulated other comprehensive loss ....... (197,912) (181,872)
Treasury stock ............................. (402,708) (400,596)
----------- -----------
Total shareholders' equity ............. 366,395 344,488
----------- -----------
$ 1,104,657 $ 1,120,788
=========== ===========
Commitments and contingencies (Note 14)
See accompanying notes to consolidated financial statements.
- 4 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues and other income:
Net sales ......................... $220,105 $251,126 $446,165 $482,135
Litigation settlement gains, net .. -- 43,000 10,582 43,000
Insurance recoveries, net ......... 1,929 -- 1,929 --
Other, net ........................ 3,369 10,946 8,218 15,446
-------- -------- -------- --------
225,403 305,072 466,894 540,581
-------- -------- -------- --------
Costs and expenses:
Cost of sales ..................... 151,320 164,033 301,222 323,298
Selling, general and administrative 29,336 36,832 61,658 70,222
Interest .......................... 6,887 7,897 13,863 15,753
-------- -------- -------- --------
187,543 208,762 376,743 409,273
-------- -------- -------- --------
Income before income taxes and
minority interest ........... 37,860 96,310 90,151 131,308
Income tax expense .................... 12,069 32,762 29,215 43,961
-------- -------- -------- --------
Income before minority interest 25,791 63,548 60,936 87,347
Minority interest ..................... 367 110 953 201
-------- -------- -------- --------
Net income .................... $ 25,424 $ 63,438 $ 59,983 $ 87,146
======== ======== ======== ========
Earnings per share:
Basic ............................. $ .51 $ 1.26 $ 1.20 $ 1.72
======== ======== ======== ========
Diluted ........................... $ .51 $ 1.25 $ 1.20 $ 1.71
======== ======== ======== ========
Weighted average shares used in the
calculation of earnings per share:
Basic ........................... 49,932 50,499 50,005 50,710
Dilutive impact of stock options 95 351 183 290
-------- -------- -------- --------
Diluted ......................... 50,027 50,850 50,188 51,000
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
- 5 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income ....................................... $ 25,424 $ 63,438 $ 59,983 $ 87,146
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Marketable securities adjustment:
Unrealized holding gains arising during
the period ............................. 7,391 650 3,589 708
Add: reclassification adjustment for loss
included in net income ................. 736 -- 736 --
-------- -------- -------- --------
8,127 650 4,325 708
Currency translation adjustment .............. (4,467) (7,287) (20,365) (22,596)
-------- -------- -------- --------
Total other comprehensive income (loss) .. 3,660 (6,637) (16,040) (21,888)
-------- -------- -------- --------
Comprehensive income ................. $ 29,084 $ 56,801 $ 43,943 $ 65,258
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
- 6 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six months ended June 30, 2001
(In thousands)
Accumulated other
comprehensive
income (loss)
Additional ------------------------
Common paid-in Retained Currency Marketable Treasury
stock capital earnings translation securities stock Total
------ ---------- -------- ----------- ---------- -------- ---------
Balance at December 31, 2000 ......... $8,355 $777,528 $ 141,073 $(190,757) $ 8,885 $(400,596) $ 344,488
Net income ........................... -- -- 59,983 -- -- -- 59,983
Other comprehensive income (loss), net -- -- -- (20,365) 4,325 -- (16,040)
Dividends ............................ -- -- (19,993) -- -- -- (19,993)
Tax benefit of stock options exercised -- 69 -- -- -- -- 69
Treasury stock:
Acquired (212 shares) ............ -- -- -- -- -- (2,718) (2,718)
Reissued (36 shares) ............ -- -- -- -- -- 606 606
------ -------- --------- --------- ------- --------- ---------
Balance at June 30, 2001 ............. $8,355 $777,597 $ 181,063 $(211,122) $13,210 $(402,708) $ 366,395
====== ======== ========= ========= ======= ========= =========
See accompanying notes to consolidated financial statements.
- 7 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2001 and 2000
(In thousands)
2001 2000
-------- --------
Cash flows from operating activities:
Net income ................................................ $ 59,983 $ 87,146
Depreciation, depletion and amortization .................. 14,930 15,361
Deferred income taxes ..................................... 5,140 25,023
Distributions from TiO2 manufacturing joint venture ....... 4,950 5,250
Litigation settlement gain, net included in restricted cash (10,307) (43,000)
Net (gains) losses from securities transactions ........... 1,133 (5,553)
Insurance recoveries, net ................................. (1,929) --
Other, net ................................................ (2,065) (4,166)
-------- --------
71,835 80,061
Change in assets and liabilities:
Accounts and notes receivable ......................... (31,127) (34,054)
Inventories ........................................... 21,463 29,340
Prepaid expenses ...................................... (2,520) (1,417)
Accounts payable and accrued liabilities .............. (16,310) (9,802)
Income taxes .......................................... 4,928 8,086
Other, net ............................................ (3,008) (696)
-------- --------
Net cash provided by operating activities ......... 45,261 71,518
-------- --------
Cash flows from investing activities:
Capital expenditures ...................................... (17,705) (12,598)
Property damaged by fire:
Insurance proceeds .................................... 5,500 --
Other, net ............................................ (1,000) --
Loans to affiliates:
Loans ................................................. (33,400) --
Collections ........................................... 250 --
Purchase of Tremont Corporation common stock .............. -- (9,520)
Change in restricted cash equivalents, net ................ 682 459
Other, net ................................................ 41 108
-------- --------
Net cash used by investing activities ................. (45,632) (21,551)
-------- --------
- 8 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended June 30, 2001 and 2000
(In thousands)
2001 2000
--------- ---------
Cash flows from financing activities:
Dividends paid ................................... $ (19,993) $ (15,161)
Treasury stock:
Purchased .................................... (2,718) (13,959)
Reissued ..................................... 606 470
Indebtedness:
Borrowings ................................... 1,437 --
Principal payments ........................... (6,990) (16,830)
Other, net ....................................... (5) (7)
--------- ---------
Net cash used by financing activities ........ (27,663) (45,487)
--------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities (28,034) 4,480
Currency translation ......................... (3,276) (1,075)
Balance at beginning of period ................... 120,378 134,224
--------- ---------
Balance at end of period ......................... $ 89,068 $ 137,629
========= =========
Supplemental disclosures - cash paid for:
Interest ......................................... $ 13,709 $ 15,686
Income taxes, net ................................ 19,147 10,797
See accompanying notes to consolidated financial statements.
- 9 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
NL Industries, Inc. conducts its titanium dioxide pigments ("TiO2")
operations through its wholly owned subsidiary, Kronos, Inc. At June 30, 2001,
Valhi, Inc. and Tremont Corporation, each affiliates of Contran Corporation,
held approximately 60% and 20%, respectively, of NL's outstanding common stock.
At June 30, 2001, Contran and its subsidiaries held approximately 93% of Valhi's
outstanding common stock, and a company 80% owned by Valhi and 20% owned by NL
held approximately 80% of Tremont's outstanding common stock. Substantially all
of Contran's outstanding voting stock is held by trusts established for the
benefit of certain children and grandchildren of Harold C. Simmons, of which Mr.
Simmons is sole trustee. Mr. Simmons, the Chairman of the Board of NL and the
Chairman of the Board and Chief Executive Officer of Contran and Valhi and a
director of Tremont, may be deemed to control each of such companies. See Note
6.
The consolidated balance sheet of NL Industries, Inc. and Subsidiaries
(collectively, the "Company") at December 31, 2000 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at June 30, 2001 and the consolidated statements of
income, comprehensive income, shareholders' equity and cash flows for the
interim periods ended June 30, 2001 and 2000 have been prepared by the Company
without audit. In the opinion of management all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the consolidated
financial position, results of operations and cash flows have been made. The
results of operations for the interim periods are not necessarily indicative of
the operating results for a full year or of future operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Certain prior- year amounts have been
reclassified to conform to the current year presentation. The accompanying
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 (the "2000 Annual Report").
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, effective January 1, 2001. SFAS No. 133 establishes accounting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives are recognized as either assets or liabilities and measured at fair
value. The accounting for changes in fair value of derivatives is dependent upon
the intended use of the derivative. As permitted by the transition requirements
of SFAS No. 133, as amended, the Company exempted from the scope of SFAS No. 133
all host contracts containing embedded derivatives which were issued or acquired
prior to January 1, 1999. The Company is not a party to any significant
derivative or hedging instrument covered by SFAS No. 133 at June 30, 2001, and
there was no impact on the Company's financial statements from adopting SFAS No.
133.
- 10 -
Note 2 - Earnings per share:
Basic earnings per share is based on the weighted average number of
common shares outstanding during each period. Diluted earnings per share is
based on the weighted average number of common shares outstanding and the
dilutive impact of outstanding stock options.
Note 3 - Business segment information:
The Company's operations are conducted by Kronos in one operating
business segment - the production and sale of TiO2.
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(In thousands)
Net sales .................................... $ 220,105 $ 251,126 $ 446,165 $ 482,135
Other income, excluding corporate ............ 768 2,444 2,010 4,114
--------- --------- --------- ---------
220,873 253,570 448,175 486,249
Cost of sales ................................ 151,320 164,033 301,222 323,298
Selling, general and administrative, excluding
corporate .................................. 24,383 26,794 49,867 53,973
--------- --------- --------- ---------
Operating income ..................... 45,170 62,743 97,086 108,978
Insurance recoveries, net .................... 1,929 -- 1,929 --
--------- --------- --------- ---------
Income before corporate items, income
taxes and minority interest ........ 47,099 62,743 99,015 108,978
General corporate income (expense):
Securities earnings, net ................. 1,186 7,390 3,792 9,108
Litigation settlement gains, net and other
income ................................. 1,415 44,112 12,998 45,224
Corporate expenses ....................... (4,953) (10,038) (11,791) (16,249)
Interest expense ......................... (6,887) (7,897) (13,863) (15,753)
--------- --------- --------- ---------
Income before income taxes and
minority interest .................. $ 37,860 $ 96,310 $ 90,151 $ 131,308
========= ========= ========= =========
Note 4 - Inventories:
June 30, December 31,
2001 2000
--------- ------------
(In thousands)
Raw materials ................................ $ 39,827 $ 66,061
Work in process .............................. 6,652 7,117
Finished products ............................ 104,406 107,120
Supplies ..................................... 24,833 25,675
-------- --------
$175,718 $205,973
======== ========
- 11 -
Note 5 - Marketable securities:
June 30, December 31,
2001 2000
-------- ------------
(In thousands)
Available-for-sale marketable equity securities:
Unrealized gains ................................ $ 20,323 $ 14,912
Unrealized losses ............................... -- (1,244)
Cost ............................................ 32,380 33,518
-------- --------
Aggregate fair value ........................ $ 52,703 $ 47,186
======== ========
In June 2001, the Company recognized a $1.1 million noncash securities
loss related to an other-than-temporary decline in value of certain
available-for-sale securities held by the Company. See Note 11.
Note 6 - Receivable from affiliates:
A majority-owned subsidiary of the Company, NL Environmental Management
Services, Inc. ("EMS"), loaned $13.4 million to Tremont under a reducing
revolving loan agreement in the first quarter of 2001. See Note 1. The loan was
approved by special committees of the Company's and EMS's Boards of Directors.
The loan bears interest at prime plus 2% (10% at June 30, 2001), is due March
31, 2003 and is collateralized by 10.2 million shares of NL common stock owned
by Tremont. The maximum amount available for borrowing by Tremont reduces by
$250,000 per quarter. The first reduction occurred on June 30, 2001, at which
time Tremont repaid $250,000 of the loan.
In May 2001, a wholly owned subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"), one of the trusts described in
Note 1, under a $25 million revolving credit agreement. The loan was approved by
special committees of the Company's and EMS's Boards of Directors. The loan
bears interest at prime (7.5% at June 30, 2001), is due on demand with 60 days
notice and is collateralized by 15,768 shares, or approximately 40%, of
Contran's outstanding Class A voting common stock which is owned by the Trust.
Note 7 - Accounts payable and accrued liabilities:
June 30, December 31,
2001 2000
-------- ------------
(In thousands)
Accounts payable ......................... $ 51,268 $ 64,553
-------- --------
Accrued liabilities:
Employee benefits .................... 25,365 34,160
Interest ............................. 4,934 5,019
Deferred income ...................... 4,000 4,000
Other ................................ 40,976 40,145
-------- --------
75,275 83,324
-------- --------
$126,543 $147,877
======== ========
- 12 -
Note 8 - Other noncurrent liabilities:
June 30, December 31,
2001 2000
-------- ------------
(In thousands)
Insurance claims and expenses .................. $ 9,370 $10,314
Employee benefits .............................. 3,496 7,721
Deferred income ................................ 2,333 4,333
Other .......................................... 839 904
------- -------
$16,038 $23,272
======= =======
Note 9 - Notes payable and long-term debt:
June 30, December 31,
2001 2000
-------- ------------
(In thousands)
Notes payable - Kronos ............................................ $ 58,999 $ 69,970
======== ========
Long-term debt:
NL Industries, Inc. - 11.75% Senior Secured Notes (See Note 13) $194,000 $194,000
Kronos ........................................................ 3,008 2,093
-------- --------
197,008 196,093
Less current maturities ........................................... 930 730
-------- --------
$196,078 $195,363
======== ========
Notes payable consists of euro 43.5 million and NOK 200 million at June
30, 2001 and euro 51 million and NOK 200 million at December 31, 2000.
Note 10 - Income taxes:
The difference between the provision for income tax expense
attributable to income before income taxes and minority interest and the amount
that would be expected using the U.S. federal statutory income tax rate of 35%
is presented below.
Six months ended
June 30,
--------------------
2001 2000
-------- --------
(In thousands)
Expected tax expense ...................................... $ 31,553 $ 45,958
Non-U.S. tax rates ........................................ (2,722) (2,900)
Incremental tax on income of companies not included in NL's
consolidated U.S. federal income tax return ............. 300 634
Valuation allowance ....................................... (1,113) (1,325)
U.S. state income taxes ................................... 234 614
Other, net ................................................ 963 980
-------- --------
Income tax expense ................................ $ 29,215 $ 43,961
======== ========
- 13 -
Note 11 - Litigation settlement gains, net and other income, net:
Litigation settlement gains, net
In the first quarter of 2001 and the second quarter of 2000, the
Company recognized litigation settlement gains with former insurance carrier
groups of $10.6 million and $43 million, respectively, to settle certain
insurance coverage claims related to environmental remediation. A majority of
the proceeds from these settlements were transferred to special-purpose trusts
established by the insurance carrier groups to pay future remediation and other
environmental expenditures of the Company. No further material settlements
relating to litigation concerning environmental remediation coverage are
expected.
Other income, net
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands)
Securities earnings:
Interest and dividends .......... $ 2,319 $ 1,837 $ 4,925 $ 3,555
Securities transactions ......... (1,133) 5,553 (1,133) 5,553
-------- -------- -------- --------
1,186 7,390 3,792 9,108
Currency transaction gains, net ..... 214 2,413 1,281 3,654
Noncompete agreement income ......... 1,000 1,000 2,000 2,000
Disposition of property and equipment (58) (546) (419) (948)
Trade interest income ............... 476 470 1,069 827
Other, net .......................... 551 219 495 805
-------- -------- -------- --------
$ 3,369 $ 10,946 $ 8,218 $ 15,446
======== ======== ======== ========
In the second quarter of 2000, the Company recognized a $5.6 million
securities gain related to common stock received from the demutualization of an
insurance company from which the Company had purchased certain insurance
policies.
Note 12 - Leverkusen fire and insurance claim:
A fire on March 20, 2001 damaged a section of the Company's Leverkusen,
Germany 35,000 metric ton sulfate-process TiO2 plant ("Sulfate Plant") and, as a
result, production of TiO2 at the Leverkusen facility was halted. The fire did
not enter the Company's adjacent 125,000 metric ton chloride-process TiO2 plant
("Chloride Plant"), but did damage certain support equipment necessary to
operate that plant. The damage to the support equipment resulted in a temporary
shutdown of the Chloride Plant.
On April 8, 2001, repairs to the damaged support equipment were
substantially completed and full production resumed at the Chloride Plant. In
April, the undamaged section of the Sulfate Plant resumed limited production (5%
to 20% of capacity) of an intermediate form of TiO2 ("Hydrated TiO2"). The
Hydrated TiO2 is being transported to the Company's Nordenham, Germany
sulfate-process TiO2 plant to be further processed and finished into certain
grades of TiO2. The Company's ability to produce the Hydrated TiO2 at the
Sulfate Plant is limited by the available excess capacity at its Nordenham
plant. The Company expects the Sulfate Plant to be over 50% operational in
August 2001 and fully operational in October 2001.
- 14 -
The Company believes that the damage to property and the business
interruption losses caused by the fire are covered by insurance, but the effect
on the financial results of the Company on a quarter-to-quarter basis or a
year-to-year basis will depend on the timing and amount of insurance recoveries.
During the second quarter of 2001, the Company's insurance carriers approved a
partial payment of $10.5 million ($9 million received as of June 30, 2001) for
property damage costs and business interruption losses caused by the Leverkusen
fire. Five million dollars of this payment represented partial compensation for
business interruption losses which was recorded as a reduction of cost of sales
to offset unallocated period costs that resulted from lost production. The
remaining $5.5 million represented property damage recoveries against which the
Company recorded $3.6 million of expenses related to destroyed asset write-offs
and related clean-up costs, resulting in a net gain of $1.9 million.
Negotiations with the insurance carrier group continue, and the Company expects
to receive additional insurance recoveries for property damage and business
interruption losses. The Company did not recognize additional insurance proceeds
in the second quarter of 2001 because the amounts are not presently
determinable.
Note 13 - Condensed consolidating financial information:
The Company's 11.75% Senior Secured Notes (the "Notes") are
collateralized by a series of intercompany notes to NL (the "Parent Issuer").
The Notes are also collateralized by a first priority lien on the stock of
Kronos. A second priority lien on the stock of NL Capital Corporation ("NLCC")
collateralized the notes until February 2000, at which time it was merged into
KII and became included in the first priority lien on the stock of Kronos.
In the event of foreclosure, the holders of the Notes would have access
to the consolidated assets, earnings and equity of the Company. The Company
believes the collateralization of the Notes, as described above, is the
functional economic equivalent of a joint and several, full and unconditional
guarantee of the Notes by Kronos and, prior to its merger into KII, NLCC.
Management believes that separate financial statements would not
provide additional material information that would be useful in assessing the
financial position of Kronos and NLCC (the "Guarantor Subsidiaries"). In lieu of
providing separate financial statements of the Guarantor Subsidiaries, the
Company has included condensed consolidating financial information of the Parent
Issuer, Guarantor Subsidiaries and non-guarantor subsidiaries in accordance with
Rule 3-10(e) of the SEC's Regulation S-X. The Guarantor Subsidiaries and the
non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries
of the Parent Issuer.
Investments in subsidiaries are accounted for by NL under the equity
method, wherein the parent company's share of earnings is included in net
income. Elimination entries eliminate (i) the parent's investments in
subsidiaries and the equity in earnings of subsidiaries, (ii) intercompany
payables and receivables and (iii) other transactions between subsidiaries.
- 15 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
June 30, 2001
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 518 $ 58,873 $ 29,677 $ -- $ 89,068
Restricted cash equivalents .................. 78,187 -- -- -- 78,187
Accounts and notes receivable ................ 316 154,578 72 -- 154,966
Receivable from affiliates ................... 6,153 1,558 21,664 (7,508) 21,867
Refundable income taxes ...................... 6,222 3,061 8 -- 9,291
Inventories .................................. -- 175,718 -- -- 175,718
Prepaid expenses ............................. 270 4,528 -- -- 4,798
Deferred income taxes ........................ 7,206 4,853 -- -- 12,059
---------- ---------- ----------- ----------- ----------
Total current assets ..................... 98,872 403,169 51,421 (7,508) 545,954
---------- ---------- ----------- ----------- ----------
Other assets:
Investment in subsidiaries ................... 1,002,596 -- 294 (1,002,890) --
Marketable securities ........................ 558 -- 52,145 -- 52,703
Notes receivable from affiliates ............. 194,000 593,459 35,150 (810,459) 12,150
Investment in TiO2 manufacturing joint venture -- 144,791 -- -- 144,791
Prepaid pension cost ......................... 2,007 20,439 -- -- 22,446
Restricted cash equivalents .................. 16,964 -- -- -- 16,964
Other ........................................ 1,492 2,804 -- -- 4,296
---------- ---------- ----------- ----------- ----------
Total other assets ....................... 1,217,617 761,493 87,589 (1,813,349) 253,350
---------- ---------- ----------- ----------- ----------
Property and equipment, net ...................... 4,073 301,280 -- -- 305,353
---------- ---------- ----------- ----------- ----------
$1,320,562 $1,465,942 $ 139,010 $(1,820,857) $1,104,657
========== ========== =========== =========== ==========
-16-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet, (Continued)
June 30, 2001
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable .......................... $ -- $ 58,999 $ -- $ -- $ 58,999
Current maturities of long-term debt ... -- 930 -- -- 930
Accounts payable and accrued liabilities 21,776 104,631 136 -- 126,543
Payable to affiliates .................. 5,323 11,474 611 (7,508) 9,900
Accrued environmental costs ............ 8,061 -- 53,973 -- 62,034
Income taxes ........................... -- 15,199 -- -- 15,199
Deferred income taxes .................. -- 1,249 -- -- 1,249
----------- ----------- ----------- ----------- -----------
Total current liabilities .......... 35,160 192,482 54,720 (7,508) 274,854
----------- ----------- ----------- ----------- -----------
Noncurrent liabilities:
Long-term debt ......................... 194,000 2,078 -- -- 196,078
Notes payable to affiliate ............. 616,459 194,000 -- (810,459) --
Deferred income taxes .................. 73,406 73,109 2,883 -- 149,398
Accrued environmental costs ............ 6,925 8,221 31,758 -- 46,904
Accrued pension cost ................... 1,461 16,582 -- -- 18,043
Accrued postretirement benefits cost ... 16,083 13,661 -- -- 29,744
Other .................................. 10,673 5,365 -- -- 16,038
----------- ----------- ----------- ----------- -----------
Total noncurrent liabilities ....... 919,007 313,016 34,641 (810,459) 456,205
----------- ----------- ----------- ----------- -----------
Minority interest .......................... -- 279 6,924 -- 7,203
----------- ----------- ----------- ----------- -----------
Shareholders' equity ....................... 366,395 960,165 42,725 (1,002,890) 366,395
----------- ----------- ----------- ----------- -----------
$ 1,320,562 $ 1,465,942 $ 139,010 $(1,820,857) $ 1,104,657
=========== =========== =========== =========== ===========
-17-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 2000
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 3,632 $ 52,979 $ 63,767 $ -- $ 120,378
Restricted cash equivalents .................. 69,242 -- -- -- 69,242
Accounts and notes receivable ................ 172 131,295 73 -- 131,540
Receivable from affiliates ................... 6,189 -- 216 (6,191) 214
Refundable income taxes ...................... 10,512 1,790 -- -- 12,302
Inventories .................................. -- 205,973 -- -- 205,973
Prepaid expenses ............................. 347 2,111 -- -- 2,458
Deferred income taxes ........................ 6,394 5,279 -- -- 11,673
---------- ---------- ----------- ----------- ----------
Total current assets ..................... 96,488 399,427 64,056 (6,191) 553,780
---------- ---------- ----------- ----------- ----------
Other assets:
Investment in subsidiaries ................... 687,300 -- 285 (687,585) --
Marketable securities ........................ 452 -- 46,734 -- 47,186
Notes receivable from affiliates ............. 194,000 301,695 23,000 (518,695) --
Investment in TiO2 manufacturing joint venture -- 150,002 -- -- 150,002
Prepaid pension cost ......................... 1,772 21,017 -- -- 22,789
Restricted cash equivalents .................. 17,942 -- -- -- 17,942
Other ........................................ 1,739 2,968 -- -- 4,707
---------- ---------- ----------- ----------- ----------
Total other assets ....................... 903,205 475,682 70,019 (1,206,280) 242,626
---------- ---------- ----------- ----------- ----------
Property and equipment, net ...................... 4,425 319,957 -- -- 324,382
---------- ---------- ----------- ----------- ----------
$1,004,118 $1,195,066 $ 134,075 $(1,212,471) $1,120,788
========== ========== =========== =========== ==========
-18-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet, (Continued)
December 31, 2000
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable .......................... $ -- $ 69,970 $ -- $ -- $ 69,970
Current maturities of long-term debt ... -- 730 -- -- 730
Accounts payable and accrued liabilities 24,098 123,555 224 -- 147,877
Payable to affiliates .................. 2,140 14,073 612 (6,191) 10,634
Accrued environmental costs ............ 5,046 -- 48,261 -- 53,307
Income taxes ........................... -- 13,604 12 -- 13,616
Deferred income taxes .................. -- 1,822 -- -- 1,822
----------- ----------- ----------- ----------- -----------
Total current liabilities .......... 31,284 223,754 49,109 (6,191) 297,956
----------- ----------- ----------- ----------- -----------
Noncurrent liabilities:
Long-term debt ......................... 194,000 1,363 -- -- 195,363
Notes payable to affiliate ............. 324,695 194,000 -- (518,695) --
Deferred income taxes .................. 70,985 73,699 989 -- 145,673
Accrued environmental costs ............ 6,729 8,699 41,705 -- 57,133
Accrued pension cost ................... 1,438 19,782 -- -- 21,220
Accrued postretirement benefits cost ... 15,039 14,365 -- -- 29,404
Other .................................. 15,460 7,812 -- -- 23,272
----------- ----------- ----------- ----------- -----------
Total noncurrent liabilities ....... 628,346 319,720 42,694 (518,695) 472,065
----------- ----------- ----------- ----------- -----------
Minority interest .......................... -- 299 5,980 -- 6,279
----------- ----------- ----------- ----------- -----------
Shareholders' equity ....................... 344,488 651,293 36,292 (687,585) 344,488
----------- ----------- ----------- ----------- -----------
$ 1,004,118 $ 1,195,066 $ 134,075 $(1,212,471) $ 1,120,788
=========== =========== =========== =========== ===========
-19-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Three months ended June 30, 2001
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
Revenues and other income:
Net sales .......................................... $ -- $ 220,105 $ -- $ -- $ 220,105
Interest and dividends ............................. 6,857 8,864 1,562 (14,488) 2,795
Equity in income of subsidiaries ................... 37,044 -- -- (37,044) --
Insurance recoveries, net .......................... -- 1,929 -- -- 1,929
Other income, net .................................. 282 292 -- -- 574
--------- --------- --------- --------- ---------
44,183 231,190 1,562 (51,532) 225,403
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ...................................... -- 151,320 -- -- 151,320
Selling, general and administrative ................ 4,416 25,124 (204) -- 29,336
Interest ........................................... 14,564 6,811 -- (14,488) 6,887
--------- --------- --------- --------- ---------
18,980 183,255 (204) (14,488) 187,543
--------- --------- --------- --------- ---------
Income before income taxes and minority interest 25,203 47,935 1,766 (37,044) 37,860
Income tax expense (benefit) ........................... (221) 12,290 -- -- 12,069
--------- --------- --------- --------- ---------
Income before minority interest ................ 25,424 35,645 1,766 (37,044) 25,791
Minority interest ...................................... -- 4 363 -- 367
--------- --------- --------- --------- ---------
Net income ..................................... $ 25,424 $ 35,641 $ 1,403 $ (37,044) $ 25,424
========= ========= ========= ========= =========
-20-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Three months ended June 30, 2000
(In thousands)
NL Combined Combined
Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
Revenues and other income:
Net sales .......................................... $ -- $ 251,126 $ -- $ -- $ 251,126
Interest and dividends ............................. 7,540 5,779 1,402 (12,414) 2,307
Equity in income of subsidiaries ................... 41,305 -- -- (41,305) --
Litigation settlement gains, net ................... 43,000 -- -- -- 43,000
Other income, net .................................. 6,665 1,974 -- -- 8,639
--------- --------- --------- --------- ---------
98,510 258,879 1,402 (53,719) 305,072
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ...................................... -- 164,033 -- -- 164,033
Selling, general and administrative ................ 9,174 27,540 118 -- 36,832
Interest ........................................... 12,563 7,748 -- (12,414) 7,897
--------- --------- --------- --------- ---------
21,737 199,321 118 (12,414) 208,762
--------- --------- --------- --------- ---------
Income before income taxes and minority interest 76,773 59,558 1,284 (41,305) 96,310
Income tax expense ..................................... 13,335 19,427 -- -- 32,762
--------- --------- --------- --------- ---------
Income before minority interest ................ 63,438 40,131 1,284 (41,305) 63,548
Minority interest ...................................... -- 4 106 -- 110
--------- --------- --------- --------- ---------
Net income ..................................... $ 63,438 $ 40,127 $ 1,178 $ (41,305) $ 63,438
========= ========= ========= ========= =========
-21-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Six months ended June 30, 2001
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
Revenues and other income:
Net sales .......................................... $ -- $ 446,165 $ -- $ -- $ 446,165
Interest and dividends ............................. 13,997 15,459 3,121 (26,583) 5,994
Equity in income of subsidiaries ................... 74,521 -- -- (74,521) --
Litigation settlement gains, net ................... 10,582 -- -- -- 10,582
Insurance recoveries, net .......................... -- 1,929 -- -- 1,929
Other income, net .................................. 1,283 941 -- -- 2,224
--------- --------- --------- --------- ---------
100,383 464,494 3,121 (101,104) 466,894
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ...................................... -- 301,222 -- -- 301,222
Selling, general and administrative ................ 11,057 51,339 (738) -- 61,658
Interest ........................................... 26,726 13,720 -- (26,583) 13,863
--------- --------- --------- --------- ---------
37,783 366,281 (738) (26,583) 376,743
--------- --------- --------- --------- ---------
Income before income taxes and minority interest 62,600 98,213 3,859 (74,521) 90,151
Income tax expense ..................................... 2,617 26,598 -- -- 29,215
--------- --------- --------- --------- ---------
Income before minority interest ................ 59,983 71,615 3,859 (74,521) 60,936
Minority interest ...................................... -- 9 944 -- 953
--------- --------- --------- --------- ---------
Net income ..................................... $ 59,983 $ 71,606 $ 2,915 $ (74,521) $ 59,983
========= ========= ========= ========= =========
-22-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
Six months ended June 30, 2000
(In thousands)
NL Combined Combined
Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
Revenues and other income:
Net sales .......................................... $ -- $ 482,135 $ -- $ -- $ 482,135
Interest and dividends ............................. 15,174 11,579 2,802 (25,173) 4,382
Equity in income of subsidiaries ................... 114,458 -- -- (114,458) --
Litigation settlement gains, net ................... 43,000 -- -- -- 43,000
Other income, net .................................. 7,777 3,287 -- -- 11,064
--------- --------- --------- --------- ---------
180,409 497,001 2,802 (139,631) 540,581
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ...................................... -- 323,298 -- -- 323,298
Selling, general and administrative ................ 14,205 55,482 535 -- 70,222
Interest ........................................... 25,130 15,796 -- (25,173) 15,753
--------- --------- --------- --------- ---------
39,335 394,576 535 (25,173) 409,273
--------- --------- --------- --------- ---------
Income before income taxes and minority interest 141,074 102,425 2,267 (114,458) 131,308
Income tax expense (benefit) ........................... 53,928 (9,967) -- -- 43,961
--------- --------- --------- --------- ---------
Income before minority interest ................ 87,146 112,392 2,267 (114,458) 87,347
Minority interest ...................................... -- 25 176 -- 201
--------- --------- --------- --------- ---------
Net income ..................................... $ 87,146 $ 112,367 $ 2,091 $(114,458) $ 87,146
========= ========= ========= ========= =========
-23-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Six months ended June 30, 2001
(In thousands)
NL Combined
Industries, Non-guarantor
Inc. Kronos, Inc. Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
Net cash provided (used) by operating activities ....... $ 14,106 $ 47,889 $ (929) $(15,805) $ 45,261
-------- -------- -------- -------- ---------
Cash flows from investing activities:
Capital expenditures ............................... -- (17,705) -- -- (17,705)
Loans to affiliates ................................ -- -- (33,150) -- (33,150)
Change in restricted cash .......................... 4,877 -- -- (4,195) 682
Other, net ......................................... 7 4,534 (8) 8 4,541
-------- -------- -------- -------- ---------
Net cash provided (used) by investing activities 4,884 (13,171) (33,158) (4,187) (45,632)
-------- -------- -------- -------- ---------
Cash flows from financing activities:
Dividends, net ..................................... (19,993) (20,000) -- 20,000 (19,993)
Treasury stock:
Purchased ...................................... (2,718) -- -- -- (2,718)
Reissued ....................................... 606 -- -- -- 606
Indebtedness:
Borrowings ..................................... -- 1,437 -- -- 1,437
Principal payments ............................. -- (6,990) -- -- (6,990)
Other, net ......................................... -- 3 -- (8) (5)
-------- -------- -------- -------- ---------
Net cash provided (used) by financing activities (22,105) (25,550) -- 19,992 (27,663)
-------- -------- -------- -------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .. (3,115) 9,168 (34,087) -- (28,034)
Currency translation ........................... 1 (3,274) (3) -- (3,276)
-------- -------- -------- -------- ---------
(3,114) 5,894 (34,090) -- (31,310)
Balance at beginning of year ....................... 3,632 52,979 63,767 -- 120,378
-------- -------- -------- -------- ---------
Balance at end of year ............................. $ 518 $ 58,873 $ 29,677 $ -- $ 89,068
======== ======== ======== ======== =========
-24-
NL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Six months ended June 30, 2000
(In thousands)
NL Combined Combined
Industries, Guarantor Non-guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
Net cash provided (used) by operating activities ....... $ 19,927 $ 89,698 $ (107) $(38,000) $ 71,518
-------- --------- -------- -------- ---------
Cash flows from investing activities:
Capital expenditures ............................... -- (12,598) -- -- (12,598)
Purchase of Tremont Corporation common stock ....... (9,520) -- -- -- (9,520)
Change in restricted cash .......................... 459 -- -- -- 459
Loans to affiliates ................................ -- (73,872) 68,000 5,872 --
Other, net ......................................... 22 86 -- -- 108
-------- --------- -------- -------- ---------
Net cash provided (used) by investing activities (9,039) (86,384) 68,000 5,872 (21,551)
-------- --------- -------- -------- ---------
Cash flows from financing activities:
Treasury stock:
Purchased ...................................... (13,959) -- -- -- (13,959)
Reissued ....................................... 470 -- -- -- 470
Dividends, net ..................................... (15,161) (38,000) -- 38,000 (15,161)
Principal payments on debt ......................... -- (16,830) -- -- (16,830)
Loans from affiliates .............................. 5,872 -- -- (5,872) --
Other, net ......................................... -- (7) -- -- (7)
-------- --------- -------- -------- ---------
Net cash provided (used) by financing activities (22,778) (54,837) -- 32,128 (45,487)
-------- --------- -------- -------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .. (11,890) (51,523) 67,893 -- 4,480
Currency translation ........................... -- (1,072) (3) -- (1,075)
-------- --------- -------- -------- ---------
(11,890) (52,595) 67,890 -- 3,405
Balance at beginning of year ....................... 13,415 113,062 7,747 -- 134,224
-------- --------- -------- -------- ---------
Balance at end of year ............................. $ 1,525 $ 60,467 $ 75,637 $ -- $ 137,629
======== ========= ======== ======== =========
-25-
Note 14 - Commitments and contingencies:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (ii) Part II, Item 1 - "Legal Proceedings," (iii) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and (iv) the
2000 Annual Report.
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three months ended % Six months ended %
June 30, Change June 30, Change
---------------------- ------ -------------------- ------
2001 2000 2001 2000
---- ---- ---- ----
(In millions, except percentages and metric tons)
Net sales and operating income
Net sales ....................... $220.1 $251.1 -12% $446.2 $482.1 -7%
Operating income ................ $ 45.2 $ 62.7 -28% $ 97.1 $109.0 -11%
Operating income margin
percentage .................... 21% 25% 22% 23%
TiO2 operating statistics
Percent change in average selling
price (in billing currencies) . +1% +3%
Sales volume (metric tons in
thousands) .................... 105 120 -13% 208 231 -10%
Production volume (metric tons
in thousands) ................. 99 110 -10% 207 215 -4%
Kronos' operating income in the second quarter of 2001 decreased $17.5
million or 28% from the second quarter of 2000 due to lower sales and production
volumes, partially offset by slightly higher average selling prices in billing
currencies. Kronos' operating income in the first half of 2001 decreased $11.9
million or 11% from the first half of 2000 due to lower sales and production
volumes, partially offset by higher average selling prices in billing
currencies.
Kronos' average selling price in billing currencies (which excludes the
effects of foreign currency translation) during the second quarter of 2001 was
slightly higher than the second quarter of 2000 and 2% lower than the first
quarter of 2001. Compared to the first quarter of 2001, prices in billing
currencies were lower in all major markets. The average selling price in billing
currencies in June was 1% lower than the average selling price during the second
quarter as prices continued to trend downward. Kronos' average selling price in
billing currencies for the first half of 2001 was 3% higher than the first half
of 2000 due to higher European prices, partially offset by lower North American
and export prices. Based on the global economic slowdown, the Company expects
its average selling price in billing currencies will continue to trend downward
into the fourth quarter, resulting in a lower average selling price for
full-year 2001 compared to the full-year average selling price in 2000.
Kronos' second-quarter 2001 sales volume decreased 13% from the record
second quarter of 2000 and increased 1% from the first quarter of 2001. Sales
volume in the second quarter of 2001 was lower in all major markets compared to
the second quarter of 2000. Compared to the first quarter of 2001, sales volume
increased by 13% in North America while the European and export markets
decreased 4% and 10%, respectively. Sales volume in the first half of 2001 was
10% lower than the record first half of 2000. Kronos anticipates its sales
volume for full-year 2001 will be lower than that of 2000. Finished goods
inventory levels at the end of June decreased 7% from March 2001 levels and
represent about two months of sales.
-27-
Second-quarter 2001 production volume was 10% lower than the comparable
2000 period with operating rates at 87% in the second quarter of 2001 compared
to near full capacity in the second quarter of 2000. Kronos' production volume
in the first half of 2001 was 4% lower than the first half of 2000 with
operating rates at 93% in the first half of 2001 compared to near full capacity
in the first half of 2000. The lower production volume was primarily related to
lost sulfate-process production at the Company's Leverkusen facility. Production
at the Company's Leverkusen facility was adversely affected late in the first
quarter by a fire on March 20, 2001. See Note 12 to the Consolidated Financial
Statements. Production rates at the Company's Leverkusen chloride-process plant
returned to full capacity in April, and the Company's Leverkusen sulfate-process
plant is expected to be over 50% operational in August 2001 and fully
operational in October 2001. Kronos anticipates its production volume for
full-year 2001 will be lower than that of 2000.
The Company believes that the damage to property and the business
interruption losses caused by the fire are covered by insurance, but the effect
on the financial results of the Company on a quarter-to-quarter basis or a
year-to-year basis will depend on the timing and amount of insurance recoveries.
During the second quarter of 2001, the Company's insurance carriers approved a
partial payment of $10.5 million ($9 million received as of June 30, 2001) for
property damage costs and business interruption losses caused by the Leverkusen
fire. Five million dollars of this payment represented partial compensation for
business interruption losses which was recorded as a reduction of cost of sales
to offset unallocated period costs that resulted from lost production. The
remaining $5.5 million represented property damage recoveries against which the
Company recorded $3.6 million of expenses related to destroyed asset write-offs
and related clean-up costs, resulting in a net gain of $1.9 million.
Negotiations with the insurance carrier group continue, and the Company expects
to receive additional insurance recoveries for property damage and business
interruption losses. The Company did not recognize additional insurance proceeds
in the second quarter of 2001 because the amounts are not presently
determinable.
Kronos expects its full-year 2001 operating income, excluding
fire-related insurance recoveries for property damage, will be significantly
lower than 2000 primarily because of lower average selling prices in billing
currencies, lower sales and production volumes and higher energy costs.
Compared to the year-earlier periods, cost of sales as a percentage of
net sales increased in both the second quarter and first half of 2001 primarily
due to lower production volume. Excluding the effects of foreign currency
translation, which decreased the Company's expenses in the second quarter and
first half of 2001 compared to year-earlier periods, the Company's selling,
general and administrative expenses, excluding corporate expenses, in the second
quarter and first half of 2001 were slightly lower compared to the year-earlier
periods.
A significant amount of Kronos' sales and operating costs are
denominated in currencies other than the U.S. dollar. Fluctuations in the value
of the U.S. dollar relative to other currencies, primarily a stronger U.S.
dollar compared to the euro in the second quarter and first half of 2001 versus
the year-earlier periods, decreased the dollar value of sales in the second
quarter and first half of 2001 by a net $7 million and $18 million,
respectively, when compared to the year-earlier periods. When translated from
billing currencies to U.S. dollars using currency exchange rates prevailing
during the respective periods, Kronos' second- quarter 2001 average selling
price in U.S. dollars was 2% lower than in the second quarter of 2000 and 4%
lower than the first quarter of 2001. Kronos' average selling price in U.S.
dollars for the first half of 2001 decreased 1% from the first half of 2000. The
effect of the stronger U.S. dollar on Kronos' operating costs that are not
denominated in U.S. dollars reduced operating costs in the second quarter and
first half of 2001 compared to the year-earlier periods. In addition, sales to
export markets are typically denominated in U.S.
-28-
dollars and a stronger U.S. dollar improves margins on these sales at the
Company's non-U.S. subsidiaries. The favorable margin on export sales tends to
offset the unfavorable effect of translating local currency profits to U.S.
dollars when the dollar is stronger. As a result, the net impact of currency
exchange rate fluctuations on operating income in the second quarter and first
half of 2001 was not significant when compared to the year-earlier periods.
General corporate
The following table sets forth certain information regarding general
corporate income (expense).
Three months ended Six months ended
June 30, Difference June 30, Difference
---------------------- ---------- ----------------------- ----------
2001 2000 2001 2000
---- ---- ---- ----
(In millions)
Securities earnings. $ 1.2 $ 7.4 $ (6.2) $ 3.8 $ 9.2 $ (5.4)
Corporate income ... 1.4 44.1 (42.7) 13.0 45.2 (32.2)
Corporate expense .. (4.9) (10.0) 5.1 (11.7) (16.3) 4.6
Interest expense ... (6.9) (7.9) 1.0 (13.9) (15.8) 1.9
------- ------- ------- ------- ------- -------
$ (9.2) $ 33.6 $ (42.8) $ (8.8) $ 22.3 $ (31.1)
======= ======= ======= ======= ======= =======
Securities earnings in the second quarter and first half of 2001
declined from the comparable periods in 2000 primarily due to a $5.6 million
second-quarter 2000 securities gain related to common stock received from the
demutualization of an insurance company from which the Company had purchased
certain insurance policies.
Corporate income in the first quarter of 2001 and the second quarter of
2000 includes litigation settlement gains with former insurance carrier groups
of $10.6 million and $43 million, respectively. See Note 11 to the Consolidated
Financial Statements. No further material settlements relating to litigation
concerning environmental remediation coverage are expected.
Corporate expense in the second quarter and first half of 2001 was
lower than the year-earlier periods, primarily due to lower environmental
remediation accruals and lower legal fees.
Interest expense in the second quarter and first half of 2001 decreased
13% and 12%, respectively, from the comparable periods in 2000 primarily due to
lower average interest rates as a result of the December 2000 refinancing of $50
million of the Company's high fixed-rate public debt with lower variable- rate
bank debt and lower levels of outstanding debt. At the end of the second quarter
of 2001, the Company repaid $6.5 million of its euro-denominated short-term debt
with excess cash flow from operations. The Company expects its full-year 2001
interest expense will be lower than full-year 2000.
Provision for income taxes
The Company reduced its deferred income tax valuation allowance by $1.1
million in the first half of 2001 and $1.3 million in the first half of 2000
primarily as a result of utilization of certain tax attributes for which the
benefit had not been previously recognized under the "more-likely-than-not"
recognition criteria.
-29-
Other
Minority interest primarily relates to the Company's majority-owned
environmental management subsidiary, NL Environmental Management Services, Inc.
("EMS").
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the six months ended June 30, 2001 and 2000 are
presented below.
Six months ended
June 30,
-----------------
2001 2000
------- -------
(In millions)
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities ................................ $ 71.8 $ 80.1
Changes in assets and liabilities ....................................... (26.5) (8.6)
------- -------
45.3 71.5
Investing activities .......................................................... (45.6) (21.6)
Financing activities .......................................................... (27.7) (45.4)
------- -------
Net cash provided (used) by operating, investing, and financing activities $ (28.0) $ 4.5
======= =======
Operating activities
The TiO2 industry is cyclical and changes in economic conditions within
the industry significantly affect the earnings and operating cash flows of the
Company. Cash flow from operations, before changes in assets and liabilities, in
the first half of 2001 decreased from the comparable period in 2000 primarily
due to lower operating income. The net cash used to fund changes in the
Company's inventories, receivables and payables (excluding the effect of
currency translation) in the first half of 2001 was significantly higher than in
the first half of 2000 due to higher inventory balances and decreases in
accounts payable and accrued liabilities in the first half of 2001.
Investing activities
In February 2001, EMS loaned $13.4 million to Tremont under a reducing
revolving loan agreement. See Note 1 to the Consolidated Financial Statements.
The loan was approved by special committees of the Company's and EMS's Boards of
Directors. The loan bears interest at prime plus 2% (10% at June 30, 2001), is
due March 31, 2003 and is collateralized by 10.2 million shares of NL common
stock owned by Tremont. The maximum amount available for borrowing by Tremont
reduces by $250,000 per quarter. The first reduction occurred on June 30, 2001,
at which time Tremont repaid $250,000 of the loan.
In May 2001, a wholly owned subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"), one of the trusts described in
Note 1 to the Consolidated Financial Statements, under a new $25 million
revolving credit agreement. The loan was approved by special committees of the
Company's and EMS's Boards of Directors. The loan bears interest at prime (7.5%
at June 30, 2001), is due
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on demand with 60 days notice and is collateralized by 15,768 shares, or
approximately 40%, of Contran's outstanding Class A voting common stock which is
owned by the Trust.
The Company received $5.5 million of insurance proceeds for property
damage resulting from the Leverkusen fire and paid $1 million of expenses
related to repairs and clean-up costs.
Financing activities
At the end of the second quarter of 2001, the Company repaid euro 7.6
million ($6.5 million when paid) of its euro-denominated short-term debt with
excess cash flow from operations.
In the second quarter of 2001, the Company paid a regular quarterly
dividend to shareholders of $.20 per share, aggregating $10 million. Dividends
paid during the first half of 2001 totaled $.40 per share or $20 million. On
July 24, 2001, the Company's Board of Directors declared a regular quarterly
dividend of $.20 per share to shareholders of record as of September 14, 2001 to
be paid on September 28, 2001.
Pursuant to its share repurchase program, the Company purchased 212,000
shares of its common stock at an aggregate cost of $2.7 million in the second
quarter of 2001. An additional 192,000 shares at an aggregate cost of $2.8
million were purchased in July 2001, with 362,000 shares remaining for purchase
under the repurchase program.
Cash, cash equivalents, restricted cash equivalents and borrowing availability
At June 30, 2001, the Company had cash and cash equivalents aggregating
$89 million ($47 million held by non-U.S. subsidiaries) and an additional $95
million of restricted cash equivalents held by U.S. subsidiaries, of which $17
million was classified as a noncurrent asset. The Company's subsidiaries had $12
million available for borrowing at June 30, 2001 under existing non-U.S. credit
facilities.
Income tax contingencies
Certain of the Company's tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies, including interest.
The Company received tax assessments from the Norwegian tax authorities
proposing tax deficiencies, including related interest, of NOK 39.3 million
pertaining to 1994 and 1996. The Company was unsuccessful in appealing the tax
assessments and in June 2001 paid NOK 39.3 million ($4.3 million when paid) to
the Norwegian tax authorities. The Company was adequately reserved for this
contingency. The Company has requested the release of the lien on its
Fredrikstad, Norway TiO2 plant in favor of the Norwegian tax authorities.
The Company has received preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities proposing tax deficiencies, including
related interest, of approximately euro 12.9 million ($11.1 million at June 30,
2001). The Company has filed protests to the assessments for the years 1991 to
1996 and expects to file a protest for 1997. The Company is in discussions with
the Belgian tax authorities and believes that a significant portion of the
assessments is without merit.
-31-
No assurance can be given that the Company's tax matters will be
favorably resolved due to the inherent uncertainties involved in court and tax
proceedings. The Company believes that it has provided adequate accruals for
additional taxes and related interest expense which may ultimately result from
all such examinations and believes that the ultimate disposition of such
examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Environmental matters and litigation
The Company has been named as a defendant, potentially responsible
party ("PRP"), or both, in a number of legal proceedings associated with
environmental matters, including waste disposal sites, mining locations and
facilities currently or previously owned, operated or used by the Company,
certain of which are on the U.S. Environmental Protection Agency's (the "U.S.
EPA") Superfund National Priorities List or similar state lists. On a quarterly
basis, the Company evaluates the potential range of its liability at sites where
it has been named as a PRP or defendant, including sites for which EMS has
contractually assumed the Company's obligation. The Company believes it has
adequate accruals ($109 million at June 30, 2001) for reasonably estimable costs
of such matters, but the Company's ultimate liability may be affected by a
number of factors, including changes in remedial alternatives and costs and the
allocations of such costs among PRPs. It is not possible to estimate the range
of costs for certain sites. The upper end of the range of reasonably possible
costs to the Company for sites for which it is possible to estimate costs is
approximately $170 million. The Company's estimates of such liabilities have not
been discounted to present value. No assurance can be given that actual costs
will not exceed either accrued amounts or the upper end of the range for sites
for which estimates have been made, and no assurance can be given that costs
will not be incurred with respect to sites as to which no estimate presently can
be made. The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes with respect to
site cleanup costs or allocation of such costs among PRPs, or a determination
that 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. Furthermore,
there can be no assurance that additional environmental matters will not arise
in the future.
Lead pigment litigation
The Company is also a defendant in a number of legal proceedings
seeking damages for personal injury and property damage arising out of the sale
of lead pigments and lead-based paints. There is no assurance that the Company
will not incur future liability in respect of this pending litigation in view of
the inherent uncertainties involved in court and jury rulings in pending and
possible future cases. However, based on, among other things, the results of
such litigation to date, the Company believes that the pending lead pigment and
paint litigation is without merit. The Company has not accrued any amounts for
such pending litigation. Liability that may result, if any, cannot reasonably be
estimated. In addition, various legislation and administrative regulations have,
from time to time, been enacted or proposed that seek to (a) impose various
obligations on present and former manufacturers of lead pigment and lead-based
paint with respect to asserted health concerns associated with the use of such
products and (b) effectively overturn court decisions in which the Company and
other pigment manufacturers have been successful. Examples of such proposed
legislation include bills which would permit civil liability for damages on the
basis of market share, rather than requiring plaintiffs to prove that the
defendant's product caused the alleged damage, and bills which would revive
actions barred by the statute of limitations. The Company currently believes the
disposition of all claims and disputes, individually and in the aggregate,
should not have a material adverse
-32-
effect on the Company's consolidated financial position, results of operations
or liquidity. There can be no assurance that additional matters of these types
will not arise in the future. See Item 1 - "Legal Proceedings."
Other
The Company periodically evaluates its liquidity requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things, its debt service and capital expenditure requirements
and estimated future operating cash flows. As a result of this process, the
Company in the past has sought, and in the future may seek, to reduce,
refinance, repurchase or restructure indebtedness; raise additional capital;
issue additional securities; repurchase shares of its common stock; modify its
dividend policy; restructure ownership interests; sell interests in subsidiaries
or other assets; or take a combination of such steps or other steps to manage
its liquidity and capital resources. In the normal course of its business, the
Company may review opportunities for the acquisition, divestiture, joint venture
or other business combinations in the chemicals or other industries, as well as
the acquisition of interests in, and loans to, related companies. In the event
of any acquisition or joint venture transaction, the Company may consider using
available cash, issuing equity securities or increasing its indebtedness to the
extent permitted by the agreements governing the Company's existing debt.
Special note regarding forward-looking statements
The statements contained in this Report on Form 10-Q ("Quarterly
Report") which are not historical facts, including, but not limited to,
statements found under the captions "Results of Operations" and "Liquidity and
Capital Resources" above, are forward-looking statements that represent
management's beliefs and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words such as
"believes," "intends," "may," "will," "should," "anticipates," "expects," or
comparable terminology or by discussions of strategy or trends. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it cannot give any assurances that these expectations
will prove to be correct. Such statements by their nature involve risks and
uncertainties, including, but not limited to, the cyclicality of the titanium
dioxide industry, global economic and political conditions, global productive
capacity, customer inventory levels, changes in product pricing, changes in
product costing, changes in foreign currency exchange rates, competitive
technology positions, operating interruptions (including, but not limited to,
labor disputes, leaks, fires, explosions, unscheduled downtime and
transportation interruptions), recoveries from insurance claims and the timing
thereof, the ultimate resolution of pending or possible future lead pigment
litigation and legislative developments related to the lead paint litigation,
the outcome of other litigation, and other risks and uncertainties included in
this Quarterly Report and in the 2000 Annual Report, and the uncertainties set
forth from time to time in the Company's other public reports and filings.
Should one or more of these risks materialize (or the consequences of such a
development worsen), or should the underlying assumptions prove incorrect,
actual results could differ materially from those forecasted or expected. The
Company disclaims any intention or obligation to update publicly or revise such
statements whether as a result of new information, future events or otherwise.
-33-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 2000 Annual Report and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 for
descriptions of certain previously reported legal proceedings.
City of St. Louis v. Lead Industries Association, et al. (No.
002-245). In June 2001 defendants moved to dismiss all claims. The court has not
ruled.
County of Santa Clara v. Atlantic Richfield Company, et al. (No.
CV788657). In June 2001 the court granted the previously described motions with
respect to privately owned buildings and with respect to the nuisance claim,
with leave to replead, and otherwise denied the motions.
City of Milwaukee v. N. L. Industries, Inc. and Mautz Paint (No.
01CV003088). The Company was served in May 2001 and answered the complaint in
August 2001 denying all wrongdoing.
Harris County, Texas v. Lead Industries Association, et al. (No.
2001-21413). The Company was served in May 2001 and answered the complaint in
June 2001 denying all wrongdoing.
In June 2001 a complaint was filed in Jefferson County School
District v. Lead Industries Association, et al. (Circuit Court of Jefferson
County, Mississippi, Case No. 2001-69). The complaint seeks joint and several
liability for compensatory and punitive damages for the abatement of lead paint
in Jefferson County Schools from the Company, former manufacturers of lead
pigment and paint and local retailers. The complaint asserts strict liability
design defect and marketing defect, negligent product design and failure to
warn, fraudulent misrepresentation, negligent misrepresentation, concert of
action, public nuisance, restitution, and conspiracy. The Company answered in
July 2001 denying all allegations of wrongdoing and has removed the case to
Federal Court.
It is possible that other governmental entities or other plaintiffs
may file claims related to lead pigment and paint similar to those described
above and in the 2000 Annual Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Intercorporate Services Agreement by and between
Titanium Metals Corporation and the Registrant effective as
of January 1, 2001.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter
ended June 30, 2001 and through the date of this report.
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NL INDUSTRIES, INC.
-------------------------------
(Registrant)
Date: August 7, 2001 By /s/ Susan E. Alderton
- --------------------- -------------------------------
Susan E. Alderton
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 7, 2001 By /s/ Robert D. Hardy
- --------------------- -------------------------------
Robert D. Hardy
Vice President and Controller
(Principal Accounting Officer)
-35-
Exhibit 10.1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement") is made
effective as of January 1, 2001, by and between Titanium Metals Corporation
("TIMET"), a Delaware corporation, and NL Industries, Inc. ("NL"), a New Jersey
corporation.
WHEREAS, TIMET desires that NL provide certain tax services and use of
NL's corporate aircraft to TIMET, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and promises set forth
herein and for other good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties to this Agreement agree as follows:
1. Services Provided. NL will make available to TIMET and its
subsidiaries the following services (the "Services"):
(a) consultation and assistance in tax management and
administration, including, without limitation, preparation and
filing of tax returns, tax reporting, examinations by
government authorities and tax planning;
(b) use of corporate aircraft.
2. Fees for Services and Reimbursement of Expenses. During the Term (as
defined below) of the Agreement, TIMET shall pay to NL an annual fee of $244,875
for the Services described in paragraph 1(a) above payable in quarterly
installments of $61,219 plus all out-of-pocket expenses incurred in connection
with the performance of such Services. Regarding Services described in Paragraph
1(b), TIMET will pay to NL within thirty (30) days after receipt of an invoice
an amount equal to TIMET's share of NL's corporate aircraft expenses which
includes TIMET's share of the monthly management fee (computed on a per hour
basis) and actual flight hour costs at a rate of $1,875 per hour (subject to
annual escalation) plus fuel variable charges, segment fees and excise taxes.
Notwithstanding the foregoing, in the event that TIMET determines, in its sole
discretion, that it no longer desires certain of the Services or NL determines,
in its sole discretion, that it no longer desires to provide certain of the
Services, then TIMET or NL, as appropriate, shall provide the other party with a
thirty (30) day prior written notice of cancellation describing the Services to
be terminated or discontinued and TIMET and NL during such ninety-day period
shall agree to a pro-rata reduction of the fees due hereunder for such
terminated or discontinued Services.
3. Limitation of Liability. In providing Services hereunder, NL shall
have a duty to act, and to cause its agents to act, in a reasonably prudent
manner, but neither NL nor any officer, director, employee or agent of NL shall
1
be liable to TIMET or its subsidiaries for any error of judgment or mistake of
law or for any loss incurred by TIMET or its subsidiaries in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of NL or from NL's
reckless disregard of obligations and duties under this Agreement.
4. Indemnification of NL by TIMET. TIMET shall indemnify and hold
harmless NL, its subsidiaries and their respective officers, directors and
employees from and against any and all losses, liabilities, claims, damages,
costs and expenses (including reasonable attorneys' fees and other expenses of
litigation) to which such party may become subject arising out of the provision
by NL to TIMET and its subsidiaries of any of the Services, provided that such
indemnity shall not protect any such party against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations and duties hereunder.
5. Further Assurance. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as the other party may reasonably request and as may reasonably
by required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
6. Notices. All communications hereunder shall be in writing and shall
be addressed to:
If to NL: NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
Attention: General Counsel
If to TIMET: Titanium Metals Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202
Attention: General Counsel
or such other address as the parties shall have specified in
writing.
7. Amendment and Modification. Neither this Agreement nor any item
hereof may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
8. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other party.
9. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
2
and oral, between the parties with respect to the subject matter hereof. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. This Agreement shall be governed in all respects, including
validity, interpretation and affect, by the laws of the State of Texas.
10. Term of Agreement. This Agreement shall be effective as of January
1, 2001, and shall remain in effect for a term of one year until December 31,
2001 (the "Term"); provided, however, the Agreement shall be extended on a
quarter-to-quarter basis after the expiration of the Term unless written
notification is given by either party thirty (30) days in advance of the first
day of each successive quarter or unless it is terminated or superseded by a
subsequent written agreement of the parties hereto. Upon such termination or
upon the expiration of this Agreement, the parties' rights and obligations
hereunder shall cease and terminate except with respect to rights and
obligations arising on or prior to the date of expiration or termination and the
rights and obligations arising under paragraph 4 above.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the 10th day of May, 2001, which Agreement will be deemed to be
effective as of January 1, 2001.
NL INDUSTRIES, INC.
By: /s/Robert D. Hardy
-----------------------------------
Robert D. Hardy
Vice President
TITANIUM METALS CORPORATION
By: /s/Mark A. Wallace
-----------------------------------
Mark A. Wallace
Executive Vice President
